February 11, 2013 | Author: David L. Blinn
(2012) 55 Cal.4th 186
Construction defect claims often involve continuous and progressive loss. Recently, in State of California v. Continental Insurance Co., the California Supreme Court weighed in on whether successive policy limits can be stacked in such losses, although the loss there was a pollution clean-up claim, rather than a continuous mold/water/deterioration claim.
The case itself involved pollution cleanup claims by the State of California. There were multiple carriers over multiple years whose policies were involved. The trial court ruled that every policy in effect for any policy period during which the loss was occurring covered the entire loss. However, it also ruled the State could not recover more than the total policy limits for any one policy period. The Court of Appeal reversed, and held that in a continuous loss case, every insurer that issued a liability policy for any period during which a continuous loss occurred was liable for the full extent of the loss up to its policy limits. The case was appealed to the Supreme Court early in 2009, and the Court rendered its decision in August of 2012.
The Supreme Court affirmed the Court of Appeal’s decision allowing stacking of limits. It agreed with the Court of Appeals’ criticism of FMC Corp. v. Plaisted & Companies (1998) 61 Cal.App.4th 1132. In both FMC and here, the policies did not have any provisions prohibiting stacking of limits. There, as here, the policies did not include anti-stacking provisions, but the FMC court resorted to “judicial intervention” in order to avoid stacking. The Supreme Court felt this was inappropriate, and held that when the policy is silent on stacking, and when there is no statute against it, standard CGL policies such as these permitted stacking. This was consistent with the parties reasonable expectations, in that the insurer reasonably expects to pay for damage during a long term continuous loss it covered, but only up to its policy limits, while the insured reasonably expects indemnification to the amounts he has purchased for the years he has coverage.
As a caveat, the CGL policies in issue were written prior to 1986, when the standard ISO policy forms were changed. The typical ISO policy now provides that the insurer will pay “those sums that the insured becomes legally obligated to pay as damages because of . . . ‘property damage’ to which this insurance applies.” Further, the insurance applies only to “property damage” that “occurs during the policy period.“ Thus, the current standard CGL policy language differs from the policy language on which the Court based its decision in this case.
Finally the Supreme Court also expressly noted that there was no public policy against enforcing an “anti-stacking” provision in a policy, as the parties were free to contract for limitations on indemnity if they so choose. Many policies now have anti-stacking language, and the Court’s ruling would seem to affirm that these will be upheld where they are sufficiently clear. An example of anti-stacking language would be something like:
“If this Coverage Form and any other Coverage Form or policy issued to you by us or any company affiliated with us apply to the same ‘occurrence,’ the maximum Limit of Insurance under all the Coverage Forms or policies shall not exceed the highest applicable Limit of Insurance under any one Coverage Form or policy.”