State of California v. Continental Insurance

The California Supreme Court issued its decision in the State of California v. Continental Insurance case on August 9. In a unanimous opinion, written by Justice Ming Chin, the Court held that the policy language at issue provides for “all sums” allocation and permits stacking of policy limits.

The Court’s opinion reflects a focus on the particular insurance policy wording at issue. In its first holding, the opinion states: “Under the CGL policies here, the plain ‘all sums’ language of the agreement compels the insurers to pay ‘all sums which the insured shall become obligated to pay. . . for damages . . . because of injury to or destruction of property ….” The Court went on to hold that the policy language before it “does not limit the policies’ promise to pay ‘all sums’ of the policyholder’s liability solely to sums or damage ‘during the policy period.’”

Thus, the Court’s “all sums” ruling is limited to the particular language in the State of California policies. The Court concluded that the wording at issue contains no language limiting covered “property damage” to damage during the policy period. By contrast, where a policy does contain language limiting coverage to damage during the policy period, the State of California opinion may not apply.

In its second holding, the Court held that the policy wording permits stacking of limits. The Court held that, without wording precluding stacking, the policies allow the insured to recover multiple limits under the various triggered policies. In this holding, the Court adopted the appellate court’s ruling below, and disapproved the anti-stacking holding in FMC Corp. v. Plaisted & Companies, 61 Cal.App.4th 1132 (1998). The reference to horizontal exhaustion in the case is helpful for excess insurers. As noted, the Court disapproves of FMC and then cites to Stonewall in footnote 6. FMC held that where the loss was big enough to exceed the primary then the insured could “pick a year” and that year (which involves excess insurance) had to pay the claim subject to contribution. FMC is no longer good law on anti-stacking and limiting all triggered excess policies to only one year. The Court then refers to Stonewall in footnote 6 and characterizes it as holding that if there are adequate limits on the primary level (after stacking the primaries) then there is no “excess coverage expectation.”

By: Philip R. Matthews and William J. Baron

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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