The case involved another chapter in the long-standing coverage litigation in which the insured, Kaiser Cement and Gypsum Corporation, sought to enforce indemnity obligations against its insurers for thousands of suits filed because of asbestos exposure. See Kaiser Cement and Gypsum Corp. v. Ins. Co. of the State of Pennsylvania, 2011 Cal. App. LEXIS 686 (Cal. Ct. App. June 3, 2011). A prior ruling determined that because "occurrence" meant injurious exposure to asbestos, the thousands of claims against Kaiser were not a single occurrence.
Between 1947 and 1987, Kaiser purchased primary policies from four different carriers, including Truck Insurance Exchange. Kaiser selected the Truck CGL policy in effect in 1974, with a $500,000 per occurrence limit, to respond initially to all claims that alleged asbestos exposure in that year. By October 2004, Truck had paid more that $50 million for asbestos bodily injury claims, and at least 39 claims resulted in payments in excess of $500,000. It filed suit for a declaration that its primary policies had been exhausted and it had no further obligation to defend or indemnify Kaiser. Truck also sued Kaiser's excess insurers and sought equitable subrogation and contribution from these defendants. Kaiser filed cross-claims against the excess insurers seeking excess coverage under these policies.
The issue in the present matter was determining who was responsible to indemnify Kaiser for asbestos claims that exceeded the 1974 primary policy's limit of $500,000 per occurrence? Kaiser and Truck contended that the excess insurer for 1974, The Insurance Company of the State of Pennsylvania ("ICSOP"), was responsible to pay claims over $500,000. ICSOP, however, contended that all of Kaiser's primary policy limits had to be "stacked." This meant that all Truck Policies issued to Kaiser between 1964 and 1983, as well as the other primary policies issued to Kaiser by the three other carriers between 1947 and 1987, had to be exhausted before any excess insurer had to indemnify Kaiser.
The trial court granted Kaiser's motion for summary judgment against ICSOP. The court ruled that the excess coverage dropped down once the $500,000 primary limit was exhausted for the primary policy.
The court of appeal reversed. First, under both ICSOP's 1974 excess policy and the principle of "horizontal exhaustion," ICSOP was not responsible to indemnify Kaiser for losses until all primary policies were exhausted. The ICSOP policy provided that excess coverage was not applicable until Kaiser had recovered the limits of liability indicated in the schedule of underlying policies, "plus the applicable limits of any other underlying insurance collectible by the Insured." "Any other underlying insurance" meant any primary insurance available to Kaiser.
Next the court considered what primary insurance was "collectible." ICSOP contended its excess obligations did not kick in until Kaiser collected policy limits for each year in which coverage existed. Truck and Kaiser argued that under the language of the 1974 primary policy, Truck was responsible to pay policy limits only once per occurrence, not once per occurrence per year or once per occurrence per policy. The Truck policy provided,
The limit of liabilitystated in this policy as applicable 'per occurrence' is the limit of the company's liability for each occurrence.
There is no limit to the number of occurrences for which claims may be made hereunder, however, the limit of the Company's liability as respects any occurrence involving one or any combination of the hazards or perils insured against shall not exceed the per occurrence limit designated in the Declarations.
The court agreed with Truck and Kaiser. The policy language meant Kaiser could not "stack" Truck's primary policy limits before the excess layer was activated. Instead, having chosen the 1974 primary policy to respond to any claims triggered by that policy, Kaiser could recover from ICSOP to the extent that a claim exceeded the $500,000 per occurrence limit specified in the 1974 primary policy.
Nevertheless, the judgment for Kaiser had to be reversed because the record did not indicate whether the other primary policies Kaiser held had been exhausted. Therefore, the court could not determine whether ICSOP's obligation to indemnify Kaiser had attached or whether ICSOP had breached its policy with Kaiser.