Sep 15, 2017

California Court Decides Method of Stacking Excess Policies at Different Levels in Multi-Year Environmental Claim

By: Moris Davidovitz

The insurance coverage action filed by Montrose Chemical Corporation in 1990 has generated several reported case decisions on insurance coverage issues. The latest such decision, on August 31, 2017, rejects applying a one-size-fits-all method for stacking excess policies at different levels, particularly in the complex situation of environmental harm occurring over many policy periods.

The court rejected the insured seeking to “electively stack” the excess policies” to access any excess policy in any policy year so long as the lower-level policies for the same policy year have been exhausted. The court also rejected most of the excess insurers seeking to apply a method of requiring horizontal exhaustion of all lower-level excess policies in all triggered policy years before triggering upper-level excess policies. Instead, the court determined that the sequence in which the excess policies are accessed (whether vertical or horizontal exhaustion) is  decided on a policy-by-policy basis, essentially turning on whether or not the policy terms of upper-level excess policies require the exhaustion of all available insurance regardless of policy year. The court interpreted the issue in the California Supreme Court decision in State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186 as limited to whether the insured can access policies in different policy years [it can] for a continuing environmental harm, not the order in which the insured may or must do so.