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INSURANCE NOTES

Court Applies “No Stacking” Of Primary Limits And “Horizontal Exhaustion” On Individual Insurer Basis

06.08.2011

Four years ago in London Market Insurers v. Superior Court, 146 Cal.App.4th 648 (2007), the Court of Appeal held that all the asbestos bodily injury claims did not result from a single “occurrence.” In the same case, on June 3, 2011, the Court in Kaiser Cement and Gypsum Corporation v. Insurance Company of the State of Pennsylvania, 2011 WL 2163737 (2011) determined that, under policy language limiting the “Company’s liability,” principles of “no stacking” of primary limits and “horizontal exhaustion” could be reconciled by barring the stacking of the limits of multiple policies of the individual primary insurer.

From 1947 to 1983, Kaiser had primary policies from four primary insurers and excess policies from numerous insurers for most of those years. For the subject litigation, Kaiser selected a 1974 primary policy issued by Truck Insurance Company, which had a $500,000 per occurrence limit and no annual aggregate limit, to respond initially to all claims alleging asbestos injury in that year. Truck had issued a total of 19 years of primary policies to Kaiser.
 
At issue was who was responsible to indemnify Kaiser for claims that exceeded Truck’s 1974 policy’s $500,000 per occurrence limit. Kaiser and Truck contended that Insurance Company of the State of Pennsylvania (“ICSOP”), which had issued a first-level excess policy over Truck’s 1974 policy, was responsible. ICSOP argued that the total limits of all available primary policies (i.e., Truck’s 19 years of policies as well as policies issued by three other insurers) must first be exhausted before any excess insurer need indemnify Kaiser.
 
Kaiser filed a motion for summary judgment against ICSOP on its cross-complaint. The trial court granted summary judgment against ICSOP. ICSOP appealed.
 
Although the Court of Appeal reversed, it held that Truck’s maximum exposure was $500,000 and that its other polices were not obligated to respond. Relying on FMC Corp. v. Plaisted & Companies, 61 Cal.App.4th 1132 (1998), among others, the Court held that the language of Truck’s 1974 policy not only limited liability for each occurrence under the policy, but more importantly, the language referred to “the limit of the Company’s liability.” This language, the Court reasoned, prohibited “stacking” of the limits of Truck’s policies. Thus, Truck’s obligation for all 19 years of policies was the limit of a single policy and no more, regardless of the number of policies that might apply.

Nevertheless, the Court reversed the summary judgment on the ground that ICSOP’s indemnity obligation was triggered only upon “horizontal exhaustion” of all underlying, primary limits (by “Company” insurer), relying on Community Redevelopment Agency v. Aetna Casualty & Surety Co., 50 Cal.App.4th 329 (1996) and other cases. Since the record was inadequate to ascertain the status of other insurers’ primary coverage, the Court remanded to the trial court for further proceedings.


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