Policyholders should continue to assert that limits can be stacked in situations where there is continuing damage, despite the California Court of Appeals’ latest decision in Kaiser Cement & Gypsum Corp. v. Insurance Company of the State of Pennsylvania, 2013 Cal. App. LEXIS 29 (2nd Dist. April 8, 2013). In its most recent encounter with asbestos bodily injury claims, and following its earlier decision in London Market Insurers v. Superior Court, 146 Cal. App. 648 (2007), the Court of Appeals in Kaiser Cement considered whether horizontal or vertical exhaustion of insurance coverage is required when determining how to allocate for continuing damage cases. Unfortunately, the opinion makes little practical sense, and is unlikely the last word on this subject.
From 1944 to the 1970s, Kaiser Cement (“Kaiser”) manufactured products containing asbestos. By 2004, more than 24,000 claimants had filed products liability suits against Kaiser alleging that they had suffered bodily injury, including asbestosis and various cancers, as a result of their exposure to Kaiser’s asbestos products. Four insurers, including Truck Insurance (“Truck”), provided primary insurance to Kaiser from 1947 to 1987.
For the purposes of this case, Kaiser had selected the Truck CGL policy in effect in 1974 to respond initially to all claims that allege asbestos exposure during that year. That policy contained a $500,000 “per occurrence” liability limit, with no annual limit and no limit to the number of occurrences. By October 2004, Truck’s indemnity payments for asbestos bodily injury claims exceeded $50 million and included at least 39 claims that resulted in payments in excess of $500,000.
At issue here was who was responsible to indemnify Kaiser for asbestos claims that exceeded the 1974 primary policy’s $500,000 per occurrence limit. Kaiser and Truck contended that appellant Insurance Company of the State of Pennsylvania (“ICSOP”), which issued a first-level excess policy to Kaiser for 1974, was responsible to pay claims over $500,000. ICSOP disagreed: It contended that primary insurance limits must be “stacked” such that all available primary insurance policies (i.e. all Truck policies issued to Kaiser between 1964 and 1983, as well as primary policies issued to Kaiser by the three other carriers between 1947 and 1987) are exhausted before any excess insurer need indemnify Kaiser for asbestos bodily injury claims.
In June of 2011, the Court of Appeals issued an opinion in which it concluded that under the language of the 1974 primary policy and principles of California law, Truck’s maximum exposure for asbestos bodily injury claims was $500,000 per occurrence – in effect agreeing with the trial court that, based on the policy language, once Truck contributed $500,000 per occurrence, its obligation to Kaiser ceased.
The California Supreme Court granted review, and, in October of 2012, transferred the matter to back to the Court of Appeals with directions to vacate its decision and to reconsider it in light of State of California v. Continental Ins. Co. 55 Cal.4th 186 (2012). That decision held that there is no general rule in California prohibiting the stacking of insurance policy limits, but at the same time permitting policy language to accomplish the same result.
Reviewing the matter again, the Court of Appeals concluded that the policies Truck issued to Kaiser cannot be stacked. Despite ruling that the primary policies must be exhausted before the ICSOP policy is triggered, the court ruled that for purposes of determining Truck’s obligation under nineteen years of primary coverage, only one occurrence limit applied under the language of the Truck policies. Specifically, the court reasoned that the following language in Truck’s primary policies constituted an anti-stacking provision: “the limit of the Company’s liability as respects any occurrence … shall not exceed the per occurrence limit designated in the Declarations.” The court stated that “[w]e do not know what more Truck could have said when the policy was drafted … to make clear that its policy’s limitation-of-liability term was an absolute cap on its per occurrence exposure—and, as such, it is fundamentally inconsistent with ‘stacking’ the liability limits of the several Truck policies.” Notably, the court held that the anti-stacking ruling applied only to Truck’s policies, and declined to consider whether, in light of applicable policy language, the limits of other carriers’ policies could be stacked.
The practicality of the Court’s decision is questionable. If over the course of nineteen years, Kaiser had had a different policy with a different carrier each year, it would have had nineteen different policy limits that it would need to exhaust before reaching the excess carrier’s policy coverage (similar to the situation in Continental). But, over the course of the nineteen years, Kaiser had nineteen policies with the same carrier, and, accordingly, it would only have one limit, according to Kaiser Cement. Such an anomalous result does not comport with an insured’s “reasonable expectations.” The Court, however, distinguished Continental on grounds that the policy language in Continental was slightly different in that it provided that “the limit of the Company’s liability under this policy shall not exceed the applicable amount [listed as the policy limit],” whereas the Truck policy provided that “the limit of the company’s liability as respects any occurrence … shall not exceed the per occurrence limit designated in the Declarations.”
The case will very likely head back up to the California Supreme Court, so we’ll have to wait and see whether it will view the Court of Appeals’ distinctions in the same regard.