Two important recent decisions by California appellate courts enhance policyholders’ insurance recovery rights in continuous loss cases. Although both cases arose in the context of environmental claims, the decisions have wider implications, including for construction defect claims.
In the first of these decisions, State of California v. Continental Insurance Co., 170 Cal.App.4th 160 (2009), the Fourth District Court of Appeal held that in the case of a continuous loss, the insured may “stack” the coverage available to it across different policy periods and benefit from the full policy limits of all triggered policies. In 1993, the State of California filed a declaratory judgment action against its insurers for environmental liabilities and clean-up costs associated with the Stringfellow Superfund site in Riverside County. The trial court held that each defendant insurer was potentially liable for the total amount of the State’s loss (estimated to be between $50 million and $700 million) subject to their individual policy limits, and not just for a proportionate share of the total loss. But following an earlier decision by the Sixth District Court of Appeal in FMC Corp. v. Plaisted & Companies, 61 Cal.App.4th 1132 (1998), the trial court then ruled that the State could not “stack” the insurance coverage available to it for every policy period and was limited in its recovery to the limits of just one policy period of its choice. The Fourth District Court of Appeal upheld that part of the Continental trial court’s decision which found that each insurer was potentially liable for the entire loss, up to its policy limit, but rejected the FMC decision and ruled that (in the absence of an express anti-stacking clause in the policy) the State could, in fact, “stack” its coverage, i.e., access all coverage under all policies in all years triggered.
This stacking decision will apply whenever the alleged bodily injury or property damage is of a continuous or progressive nature. Therefore, in addition to cases involving the gradual release of pollutants, it also will apply to coverage for construction defects where the property damage is deemed to have commenced at the time of construction and continued over time.
Insurance companies may try to use the decision to justify their “stacking” of deductibles or self-insured retentions. In other words, they would argue in a continuous loss situation that the insured must pay a deductible or SIR for each of the policies under which it seeks coverage. But the Court of Appeal in Continental expressly distinguished the stacking of deductibles from the stacking of policy limits. Therefore, it remains the rule in California that insurers may not stack or impose multiple deductibles or SIR’s under policies triggered by a continuous injury.
The California Supreme Court has now agreed to review the Court of Appeal’s decision in Continental, so the split between the Fourth District Court of Appeal in Continental and the Sixth District Court of Appeal in FMC over the stacking issue will be resolved. In the meantime, the Supreme Court has just issued another decision on the State of California’s claims against insurance carriers for environmental liabilities at the Stringfellow site in State of California v. Allstate Insurance Company and Lloyds, 45 Cal. 4th 1008 (2009). We will report separately on the Allstate decision.
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