State of Cal. v. Continental Insurance
145 Cal. Rptr. 3d 1, 55 Cal. 4th 186, 281 P.3d 1000 (2012)
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Rule of Law:
In California, for continuous or progressively deteriorating property damage under comprehensive general liability (CGL) policies, the "continuous injury" trigger of coverage and the "all sums" rule apply to an insurer's indemnity obligations, meaning an insurer on the risk at any point during the loss is liable for the entire loss, and the insured may "stack" the policy limits of multiple triggered policies.
Facts:
- From 1956 to 1972, the State of California designed and operated the Stringfellow Acid Pits, an industrial waste disposal facility in Riverside County.
- In 1955, a state geologist incorrectly advised the State that the site was suitable for waste disposal and that a concrete barrier dam would prevent pollution, failing to identify an underground aquifer and fractured rock below the canyon floor.
- The facility eventually received over 30 million gallons of industrial waste, which leaked into the groundwater system due to the site's design flaws and an ineffective barrier dam.
- Contaminants escaped the facility during heavy rains in 1969 and again in 1978, leading to a "controlled discharge" that caused a plume of waste to extend for miles.
- The State closed the facility in 1972 after discovering the groundwater contamination.
- In 1998, a federal court found the State liable for negligence in investigating, choosing, designing, overseeing, failing to correct, and delaying remediation of the Stringfellow site, holding it responsible for all past and future cleanup costs.
- Various insurers, including Continental Insurance Company, issued excess commercial general liability (CGL) insurance policies to the State between 1964 and 1976.
- The property damage caused by the Stringfellow site's selection, design, and construction occurred continuously throughout the insurers' multiple consecutive policy periods from 1964 to 1976.
Procedural Posture:
- In September 1993, the State of California (plaintiff) filed an action against several of its insurers in state trial court, seeking indemnification for its liability in the federal action concerning the Stringfellow Acid Pits.
- In June 1999, following a bench trial, the trial court ruled that policy limits under policies with multiple-year periods applied "per occurrence" and not annually.
- In April 2002, the trial court held that the State's failure and delay in remediating the site did not breach any duty to mitigate the insurers' damages.
- In September 2002, the State brought a second suit, asserting related claims against additional insurers, including those which are parties to this appeal; this case was consolidated with the first action, and new defendant insurers agreed to be bound by all prior rulings.
- The trial court subsequently held each insurer liable for damages subject to its particular policy limits for the total amount of the loss but ruled that the State could not "stack" or combine policy periods, requiring it to choose a single policy period for the entire loss, based on FMC Corp. v. Plaisted & Companies.
- In May 2005, a jury in phase three of the trial rendered special verdicts finding the insurers had breached their policies, but due to prior settlement agreements and the trial court's no-stacking ruling, the court entered judgment nominally in the State's favor but in the amount of "$0."
- The State (appellant) filed an appeal, and, with the exception of Wausau, all of the insurers (cross-appellants) filed cross-appeals.
- The Court of Appeal affirmed in part and reversed in part, agreeing that once triggered, all insurers had to indemnify the insured for the loss, but reversing the trial court's ruling that prohibited the State from stacking policy limits and rejecting the holding of FMC Corp.
- The California Supreme Court granted review following the insurers' petitions.
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Issue:
Does the "continuous injury" trigger of coverage and the "all sums" rule, as applied to comprehensive general liability (CGL) insurance policies covering continuous or progressively deteriorating property damage, permit an insured to "stack" the policy limits of all triggered policies to recover the full extent of the loss, rather than being limited to a single policy's limits or a pro rata allocation?
Opinions:
Majority - Chin, J.
Yes, the "continuous injury" trigger and "all sums" rule allow an insured to stack the policy limits of multiple triggered CGL policies to recover the full extent of a continuous, progressively deteriorating property damage loss. The court affirmed the application of the "continuous injury" trigger of coverage established in Montrose Chemical Corp. v. Admiral Ins. Co. (1995), which holds that property damage continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods. It also reaffirmed the "all sums" rule adopted in Aerojet-General Corp. v. Transport Indemnity Co. (1997), extending insurers' indemnity obligations to the entirety of a continuous loss, even beyond their specific policy periods, so long as some damage occurred while the policy was "on the loss." The court rejected the insurers' argument for a pro rata allocation scheme, which would limit coverage to damage occurring "during the policy period" and assign liability to the insured for uninsured periods, finding it inconsistent with the plain "all sums" language in the policies' insuring agreements. The court held that the "during the policy period" language in the "occurrence" definition did not grammatically or logically limit the "all sums" promise. The court further adopted the "all-sums-with-stacking" allocation rule, which allows the insured to combine the limits of all triggered policies, thereby providing access to the full amount of insurance purchased for a continuous long-tail injury. This approach aligns with the insured's reasonable expectations and the progressive nature of such injuries. In doing so, the court expressly disapproved FMC Corp. v. Plaisted & Companies (1998), which had prohibited stacking, finding its reasoning flawed and contrary to policy language lacking antistacking provisions. The court noted that insurers can include antistacking provisions in future policies if they desire to limit coverage in this manner.
Analysis:
This case significantly clarifies the allocation of indemnity for long-tail, continuous property damage claims under California law. By explicitly endorsing the "all sums with stacking" rule, the Supreme Court ensures that insureds who purchased continuous CGL coverage for such risks can access the full extent of their aggregated policy limits, preventing situations where they might be left largely uninsured for progressive injuries. This ruling reinforces insureds' reasonable expectations of coverage and places the onus on insurers to explicitly include antistacking provisions if they wish to limit their exposure in future policies. It also provides a clear framework for resolving complex multi-insurer environmental liability cases, rejecting pro rata allocation as inconsistent with standard policy language.
