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May 2013

Provision Capping Insurer's Liability at Per Occurrence Limit Precluded Stacking Primary Policies Issued By That Insurer

The California Court of Appeal, Second Appellate District, reversed a trial court judgment against an excess insurer but concluded anti-stacking wording in the relevant primary policy confined that insurer’s obligation to a single per occurrence limit. 

The court originally issued its opinion in Kaiser Cement and Gypsum Corp. v. Insurance Company of the State of Pennsylvania, et al. on June 3, 2011.  The California Supreme Court granted review and later returned the case to the Court of Appeal to consider the effect of State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186, which adopted an “all sums with stacking” rule in cases involving continuous damage or injury.

In its April 8 modified opinion, the Court of Appeal approved the principle of “horizontal exhaustion” and held all collectible primary policies must exhaust before an excess policy is triggered.  But the court also held that the primary policy at issue included enforceable anti-stacking wording, so only one of that insurer’s primary policies could apply.  Despite its conclusion regarding stacking, the court found that summary judgment against the excess insurer was improper because it was unclear from the record whether primary policies issued by other insurers had exhausted.

This dispute involves liability coverage for thousands of underlying asbestos bodily injury claims against Kaiser Cement and Gypsum.  Truck Insurance Exchange issued four comprehensive general liability policies to Kaiser in effect from 1964 to 1983.  Each included a $500,000 per “occurrence” liability limit.  The coverage issued by Truck was not subject to an annual aggregate limit until 1980.  Three other insurers issued primary policies to Kaiser between 1947 and 1987.  Insurance Company of the State of Pennsylvania (ICSOP) issued a first layer excess policy to Kaiser in effect in 1974, which is the policy year central to this dispute.

Truck sued Kaiser in 2001 seeking a determination that its primary policies were exhausted and it had no further defense or indemnity obligation. Truck and Kaiser later asserted claims against Kaiser’s excess insurers, including ICSOP.  By 2004, Kaiser had tendered more than 24,000 claims to Truck and Truck had paid more than $50 million in indemnity, with at least 39 individual claims resulting in payments of more than $500,000.

An earlier appeal in the coverage action addressed the number of “occurrences.”  The trial court agreed with Truck and Kaiser that all asbestos bodily injury claims constituted a single “occurrence” under the policies.  But the Court of Appeal reversed, concluding the relevant “occurrence” was injurious exposure to asbestos.  On remand, the trial court concluded there was no basis to aggregate claims by product line or manufacturing plant, so the court held each claim was a separate and distinct occurrence within the meaning of the Truck policies.

Following this ruling, Kaiser selected Truck’s 1974 policy to respond to all claims alleging injury during that year.  Kaiser sought an order that ICSOP, as an excess insurer, is liable for any claim involving the 1974 policy year after Truck has paid the applicable limit and Kaiser has paid the deductible.  Kaiser argued against stacking policies for a given claim, as this would require multiple deductibles, and Truck agreed.  ICSOP argued that requiring an excess insurer to indemnify the insured before the limits of all primary policies were exhausted would violate the principle of “horizontal exhaustion.”

The trial court granted Kaiser’s motion, holding that under the clear and unambiguous language of the 1974 policy, Truck was liable only for its per occurrence limit for any given claim.  Based on this ruling, Kaiser sought summary adjudication of its claims against ICSOP.  The court concluded no other issues remained and entered judgment for Kaiser.  ICSOP appealed.

The Court of Appeal reversed the trial court’s entry of judgment in a three-part opinion.  The court agreed with ICSOP that it has no indemnity obligation, as an excess insurer, until all triggered, collectible primary policies have exhausted.  ICSOP’s policy promises to pay ultimate net loss in excess of the “retained limit,” defined to mean scheduled underlying insurance and “any other underlying insurance collectible by the Insured.”  Thus, the phrase “underlying insurance” refers to all triggered primary policies and not only the one issued for the 1974 policy year.  The court stated its analysis is consistent with decisions requiring horizontal exhaustion.

Although ICSOP’s policy, by its terms, is excess over “valid and collectible” primary insurance, whether multiple policies are valid and collectible depends on the language of the primary policies.  Truck’s policy expressly limits “the Company’s” liability for any single occurrence to the policy’s per occurrence limit.  Thus, the court concluded that only Truck’s 1974 policy is “collectible” based on its wording. 

In Continental, the California Supreme Court held an insured can stack the limits of its policies in cases involving continuous damage or injury.  But an insurer can avoid stacking by including an anti-stacking provision.  In Kaiser, the Court of Appeal concluded that Truck’s policy contained such a provision.  Thus, Kaiser cannot stack the limits of Truck’s primary policies, and Truck’s obligation for any claim is satisfied upon its payment of the $500,000 per occurrence limit.

Finally, ICSOP’s obligations do not necessarily attach immediately after Truck’s payment of its policy limit.  Three other insurers issued policies to Kaiser in the relevant time frame and, based on the record, the court could not verify these policies were exhausted.  Therefore, the court reversed the entry of judgment against ICSOP and remanded the case for the trial court to determine whether any factual issues remain.

Please click here for the opinion.

The opinion in Kaiser Cement and Gypsum Corp. v. Insurance Company of the State of Pennsylvania, et al., (April 8, 2013) 215 Cal.App.4th 210, is not final. The Court of Appeal may modify it on rehearing or the California Supreme Court may order it depublished or grant review.  The latter two events would render the opinion unavailable as legal authority in California courts.

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Christopher R. Wagner