Appellate Court Permits "Stacking" of Limits and Finds One "Occurrence" In Environmental Contamination Case

Appellate Court Permits "Stacking" of Limits and Finds One "Occurrence" In Environmental Contamination Case


In State of California v. Continental Insurance Company, 169 Cal.App.4th 1114 (2009), as modified after denial of rehearing, the appellate court held that: (1) a continuous loss spanning multiple policy periods made each insurer liable for the entire loss up to the limits of its policy; (2) the insured (the State) was entitled to stack (i.e., add) the policy limits of all applicable policies; and (3) the deposit of waste at the hazardous waste site in that case was one “occurrence” that could have caused any property damage.

The State had designed, overseen the construction of, and operated the former Stringfellow Hazardous Waste Disposal Facility in Riverside County, California. Groundwater contamination was discovered. The State sought coverage under excess liability policies issued by various insurers during the 1960’s and 1970’s for liability for environmental damage arising from the site.

The trial court concluded that “once coverage for . . . continuous . . . damage . . . is triggered under a liability clause, the insurer is required to pay for all sums (up to the policy limits) of the insured’s liability – not just liability specifically applicable to damage during the policy period.” The trial court also determined that under FMC Corp. v. Plaisted & Companies, 61 Cal.App.4th 1132 (1998), the limits of policies triggered by continuous damage could not be “stacked, but rather the insured [would] be entitled to select a single policy period triggered by the continuing damage and recover the full amounts of the limits of policies in that period.” The maximum the State could recover for one policy period was $48 million. As the State had settled with other insurers for more than that sum, the State was awarded zero against the insurers in the case.

The appellate court accepted the trial court’s “all sums” approach. The appellate court determined that if an insured suffers a continuous loss spanning multiple policy periods, any insurer providing coverage in any triggered policy period is liable for the insured’s entire loss—including loss occurring before, during and after the particular policy period—up to the policy’s limit. That insurer could then seek contribution from any other insurers also on the risk.

However, the court rejected FMC’s bar against stacking of limits, stating that under California law, the State was entitled to stack the limits of all applicable policies across all applicable policy periods.

As to the number of “occurrences,” the State focused on three conditions at the site responsible for leakage of hazardous materials - fractured bedrock, a defective barrier dam, and an underground streambed. The Court, however, noted “a fourth condition, without which none of these conditions, either alone or together, could have caused property damage: the deposit of waste at the site.” [Emphasis in original.] The Court reasoned that it was only at that point that the three other conditions, operating concurrently, caused the escape of contaminants.

The Court held that the trial court improperly admitted evidence of lost policies. Noting that Evidence Code §1331 permits admission of a statement in a writing more than 30 years old that has been acted upon as true by persons having an interest in the matter, the Court held that absent evidence that anyone actually relied on the statement as true, the “ancient document” rule did not apply.

Finally, in an unpublished part of the opinion, the Court ruled that the policy language in the multi-year policies did not permit the annualization of the policy limits, such that the limits applied “per occurrence,” not “per occurrence per year” as the State contended.