In a long awaited decision regarding California's liability for damages caused by the Stringfellow Acid Pits case, the California Supreme Court adopted the "all sums" method of allocating coverage among multiple insurers for long-tail claims. Further, the court concluded that stacking of policy limits was consistent with the CGL policy language. See State v. Cont'l Ins. Co., 2012 Cal. LEXIS 7324 (Cal. Aug. 9, 2012).
We discussed in a prior post the decision by the Court of Appeal. By way of summary, in 1955 a state geologist determined that a Riverside County quarry was a suitable location for disposal of industrial waste. Based on this recommendation, the site was developed and went into operation in 1956. Problems with the site developed, leading to, among other things, contamination of groundwater and the release of contaminants from the site during heavy rains. The site was closed in 1972.
In 1998, a federal court found the State liable for harm caused by the site and delaying in its remediation. The State was held responsible for all past and future cleanup costs. When its insurers refused to provide coverage under liability policies, the State sued. The trial court held that each insurer was liable for damages, subject to its particular policy limits, for the total amount of the loss. It also held that the State could not recover the policy limits in effect for every policy period, and could not "stack" policy periods to recover more than one policy's limits for covered occurrences. "Stacking" referred to the stacking of policy limits across multiple policy periods that were on a particular risk. The State had to choose a single policy period for the entire loss coverage, and it could recover only up to the specific single policy limit in effect at the time the loss occurred.
The Court of Appeal, like the trial court, held that once coverage was triggered, all of the insurers had to indemnify the insured for the loss. However, the Court of Appeal reversed the trial court's ruling that prohibited the State from stacking the total policy limits in effect for any one policy period.
The Supreme Court affirmed the Court of Appeal.The court had previously held that as long as the property was insured at some point during the continuing damage period, the insurers' indemnity obligations persisted until the loss was complete or terminated. See Aerojet-General Corp. v. Transport Indem. Co., 17 Cal. 4th 38 (1997). The policies at issue here supported adoption of the all sums coverage principles. The policies compelled the insurers to pay "all sums which the insured shall become obligated to pay . . . for damages . . . because of injury or destruction of property . . . ." This grant of coverage did not limit the policies" promise to pay "all sums" of the policyholder's liability solely to sums or damage "during the policy period." Therefore, the policies obligated the insurers to pay all sums for property damage attributable to the Stringfellow site, up to their policy limits as long as some of the continuous property damage occurred while each policy was "on the loss."
Next, the court considered whether the consecutive policies could be stacked to allow recover up to the policy limits of multiple policies. In other words, stacking policy limits meant that when more than one policy was triggered by an occurrence, each policy could be called upon to respond to the claim up to the full limits of the policy.
Absent anti-stacking provisions in the policy, the standard policy language permitted stacking. The court disapproved FMC Corp. v. Plaisted & Companies, 61 Cal. App. 4th 1132 (1998), which prevented an insured from stacking multiple consecutive policies in a case in which the insured had caused toxic contamination over a period of many years.