By Bret A. Stone
On August 9, 2012, the California Supreme Court issued a decision that allows policyholders to recover under multiple liability insurance policies for the same occurrence. The long-awaited decision in State of California v. Continental Insurance Company, concluded that the “continuous injury trigger” and “all sums rule” for the duty to defend also apply to an insurer’s duty to indemnify. Comprehensive General Liability (“CGL”) policies require insurers to pay “all sums” which the insured shall become obligated to pay for damages caused by an “occurrence” (defined as an accident or a continuous or repeated exposure). While only some of the damage must occur during a policy period to trigger it, determining when the damage occurred in a “long-tail” liability claim – a series of indivisible injuries attributable to continuing events without a single unambiguous “cause” – is “virtually impossible.” The Supreme Court now makes clear that as long as some of the continuous property damage occurred while each policy was “on the loss,” coverage extends to the entirety of the ensuing damage or injury. Next, the High Court analyzed the issue of “stacking” – adding up the policy limits of multiple policies over multiple policy periods that were on a particular risk. Thus, each policy can be called upon to respond to the claim to the full limits of the policy. The Supreme Court adopted an “all-sums-with-stacking” rule, which effectively stacks the insurance coverage from different policy periods to form one giant “uber-policy” with a coverage limit equal to the sum of all purchased insurance policies. Instead of treating a long-tail injury as though it occurred in one policy period, this approach treats all the triggered insurance as though it were purchased in one policy period. The insured has access to far more insurance than it would ever be entitled to within any one period. The all-sums-with-stacking rule means that the insured has immediate access to the insurance it purchased. The rule does not put the insured in the position of receiving less coverage than it bought. It also acknowledges the uniquely progressive nature of the long-tail injuries that cause progressive damage throughout multiple policy periods. The Court explained the numerous advantages of the all-sums-with-stacking rule. It resolves the question of insurance coverage as equitably as possible, given the immeasurable aspects of a long-tail injury. It also comports with the parties’ reasonable expectations, in that the insurer reasonably expects to pay for property damage occurring during a long-tail loss it covered, but only up to its policy limits, while the insured reasonably expects indemnification for the time periods in which it purchased insurance coverage. All-sums-with-stacking coverage allocation ascertains each insurer’s liability with a comparatively uncomplicated calculation that looks at the long-tail injury as a whole rather than artificially breaking it into distinct periods of injury. If an occurrence is continuous across two or more policy periods, the insured has paid two or more premiums and can recover up to the combined total of the policy limits. There is nothing unfair or unexpected in allowing stacking in a continuous long-tail loss. State v. Continental is an important victory for policyholders responding to environmental claims as property damage from hazardous waste contamination presents a continuous exposure over multiple policy periods. In these environmental cases, insurers with multiple policies on the risk often claimed that only one policy limit applied. With this decision, more settlement funds from insurance carriers will become available to cleanup contaminated sites.