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June 2011

Kaiser Cement And Gypsum Corporation v. Insurance Company of the State of Pennsylvania, et al. ? Court Rejects Generalized Anti-Stacking Rule

Court Concludes Excess Policy Requires Exhaustion of All Collectible Underlying Coverage, Rejects Generalized "Anti-Stacking" Rule, But Finds Language Of Applicable Primary Policies Precludes Stacking

(June 3, 2011) __Cal.App.4th__; 11 C.D.O.S. 6841

        Truck Insurance Exchange provided primary insurance to Kaiser Cement and Gypsum Corporation ("Kaiser") from 1964 to 1983. The policies in effect from January 1, 1974 through March 1, 1981 each contained a $500,000 per occurrence liability limit but, until April 1980, the policies contained no aggregate limit. Kaiser was also insured under primary policies issued by Fireman's Fund Insurance Company (1947-1964), Home Indemnity Company (1983-1985) and National Union Fire Insurance Company of Pittsburgh (1985-1987). In 1993, Kaiser, Truck, Fireman's Fund, Home, and National Union entered into agreements to share defense and indemnity costs until the aggregate limit of each primary policy was exhausted. By April 2004, Fireman's Fund, Home and National Union had given notice their aggregate limits were exhausted. By 2004, more than 24,000 claimants had filed product liability suits against Kaiser alleging bodily injury as a result of exposure to Kaiser's asbestos-containing products. 

         By October, 2004, Truck's indemnity payments on these claims exceeded $50 million, including at least 39 claims that resulted in payments in excess of $500,000.

         Truck filed an action against Kaiser seeking a declaration that its primary policies had exhausted and it had no further defense or indemnity obligations. Truck later filed an amended complaint adding causes of action for equitable subrogation and contribution against Kaiser's excess insurers, including the Insurance Company of the State of Pennsylvania ("ICSOP").

         Kaiser cross-complained against the same excess insurers seeking a declaration that these insurers were obligated to immediately defend and indemnify because Kaiser's primary coverage was exhausted.

         The ICSOP policy provided indemnity for Kaiser's "ultimate net loss" in excess of Kaiser's "retained limit," up to $5,000,000 as the result of any one occurrence. "Retained limit" is defined as the limit of liability for any scheduled underlying policy "plus the applicable limit(s) of any other underlying insurance collectible by the insured."

          Earlier in the case the trial court granted Truck summary adjudication, it held Truck's primary policies were exhausted because the asbestos-related claims in any given year arose out of a single "occurrence" since they all the same underlying cause – asbestos. The Court of Appeal reversed, holding Truck policies were not susceptible to the interpretation that all asbestos-related claims in a given year constituted a single "occurrence." (London Markets Insurers v. Superior Court (2007) 146 Cal.App.4th 648).

          Kaiser then selected the 1974 Truck policy to respond to each of the claims alleging injury during that year, and sought an order that if a claim triggered the 1974 Truck policy, ICSOP's duty to defend and indemnify Kaiser attached once Truck had paid its $500,000 occurrence limit for that year. Kaiser urged the court to adopt an "anti-stacking" rule. Alternatively, Kaiser argued ICSOP's policy should be interpreted as requiring exhaustion only of the single scheduled primary policy – the Truck policy. ICSOP opposed Kaiser's motion, arguing that under the principals of "horizontal exhaustion" it could not be required to indemnify Kaiser before the liability limits of all primary insurance policies were exhausted.

         The trial court granted Kaiser's motion. It held that under Truck's "clear and unambiguous" policy language, Truck was liable for only one per occurrence limit on each claim.

         Kaiser then moved for summary adjudication on its cross-claims for declaratory relief and breach of contract against ICSOP. The trial court granted this motion as well. It noted this led to an apparent conflict with the rule previously articulated in Community Redevelopment Agency v. Aetna Cas. & Sur. Co. (1996) 50 Cal.App.4th 329, requiring horizontal exhaustion before any excess insurance obligations arose. But, the trial court concluded this result was necessary because of Truck's specific language. ICSOP appealed.

          The Court of Appeal concluded initially that ICSOP had no indemnity obligation under its 1974 excess policy until all collectible primary policies had been exhausted. The Court based this conclusion on the plain meaning of ICSOP's policy and, in particular, the definition of "retained limit." The Court found this language made ICSOP's policy excess not only to the scheduled policy (i.e. Truck's 1974 primary policy), but to all collectible primary insurance, whether for 1974 or any other year.

          The Court of Appeal however also concluded that Truck's liability could not exceed $500,000 per occurrence (as opposed to $500,000 per occurrence per year or per policy). The Court rejected ICSOP's contention that the policy limits of each Truck policy should be "stacked" so the available primary insurance for each occurrence is equal to the sum of the occurrence limits for each triggered policy year. The Court found this was contrary to the language of Truck's policy, which provided:

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.

         Accordingly, Kaiser could not stack the liability limits of Truck's primary policies. The Court cautioned that its holding was based on the specific language of the Truck policies and therefore its ruling was consistent with previous appellate decisions, including Community Redevelopment, which required horizontal exhaustion. Other policy language could lead to a different result. For example, the Court cited to Wausau v. Granite States Ins. Corp., 330 F.3d 1214 (9th Cir. 2003), where stacking was allowed because the applicable policies contained per occurrence per year limits.

        Even though the Court of Appeal held the Truck policies could not be stacked, it reversed the order granting of summary adjudication. The Court could not determine whether ICSOP's coverage obligations had been triggered because Kaiser presented no evidence of whether other primary policies (i.e. Fireman's Fund's, Home's or National Union's) had been exhausted. These policies were not in evidence and there was an apparent factual dispute over whether they were exhausted. Because of these issues, and because the Court of Appeal refused to adopt a generalized "anti-stacking" rule, summary adjudication should not have been granted.

This opinion is not final. It may be modified on rehearing or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

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