United States: Accessing Excess Policies In Continuous Trigger Cases

Like many companies who made products containing asbestos, Kaiser Cement and Gypsum Corporation has over the past several decades defended thousands of asbestos bodily injury claims brought by construction workers who allege they were exposed and suffered bodily injury resulting from exposure to Kaiser Cement's asbestos containing products.  And for years Kaiser Cement has been fighting its insurers to determine who pays for defense and indemnity in connection with that asbestos litigation.  On April 8, 2013, a California Court of Appeal answered one of the questions regarding which insurer pays for what, ruling that the occurrence limits contained in primary policies issued by one of Kaiser Cement's primary insurers could not be stacked.  (Kaiser Cement & Gypsum Corp. v. Ins. Co. of the State of Penn., ___ Cal. App. 4th ___, 2013 WL 1400920.)  Instead, that insurer is liable for only a single occurrence limit, despite the availability of numerous other occurrence limits contained in other unexhausted primary policies issued by that same insurer.

Because asbestos bodily injuries are continuous (i.e., after initial exposure, the injury "occurs" year-after-year as part of an ongoing injury process within the claimant's body), insurance policies spanning decades can be triggered by the alleged injuries.  Earlier in Kaiser Cement's coverage case, the Court of Appeal ruled that each asbestos bodily injury claim constitutes a separate "occurrence"—and thus each asbestos bodily injury claim is subject to a separate per occurrence limit.  (London Market Insurers v. Superior Court, 146 Cal. App. 4th 648.)  Had Kaiser Cement's policy limits been provided on an aggregate basis, such a ruling may not have much significance.  For instance, Kaiser Cement had three other primary insurers who have paid their aggregate policy limits and their coverage now is exhausted.  But the fourth, Truck Insurance Exchange, issued policies for a number of years that did not contain an aggregate limit and coverage under those policies for asbestos bodily injury claims are subject only to their per occurrence limits.

To minimize its exposure, Truck argued that the policy that Kaiser Cement selected to respond to asbestos bodily injury claims only required Truck to pay a single occurrence limit from any of its unexhausted primary policies.  In a clause entitled "Limits," the Truck policy selected by Kaiser Cement states as follows (emphasis added):

The limit of liability stated in this policy as applicable "per occurrence" is the limit of the Company's liability for each occurrence.

There is no limit to the number of occurrences for which claims may be made hereunder, however, the limit of the Company's liability as respects any occurrence . . . shall not exceed the per occurrence limit designated in the [policy].

According to Truck, even if other policy years were triggered, this policy language precluded the "stacking" of its multiple, non-aggregate per occurrence limits and Truck only had to pay a single per occurrence limit before Kaiser Cement had to look to its excess insurers to cover any additional liability.

In a June 2011 decision, the Court of Appeal agreed, holding that Truck's per occurrence limits contained in multiple policies triggered by a single claim could not be stacked.  (Kaiser Cement& Gypsum Corp. v. Ins. Co. of the State of Pennsylvania, 196 Cal. App. 4th 140.)  On review, the Supreme Court stayed the Kaiser Cement case pending its decision in State of California v. Continental Ins. Co., which involved the issue ofwhether there is a general rule in California barring the stacking of policy limits.  In October 2012, the Supreme Court decided Continental, ruling that there is no general rule in California prohibiting the stacking of insurance policy limits, but at the same time permitting policy language to accomplish the same result.  (State of Calif. v .Continental Ins. Co., 55 Cal. 4th 186.)  Thus, unless there is specific policy language that prohibits stacking, the Court found that stacking would be the norm under standard policy language.

On transfer from the Supreme Court, reconsidering its prior decision in light of Continental, and focusing on the policy language quoted above, the Court of Appeal reached the same conclusion it had before the Supreme Court weighed in and rejected a general "anti-stacking" rule.  The Court of Appeal distinguished Truck's policy language from that policy language before the Court in Continental, which provided that:  "The limit of the Company's liability under this policy shall not exceed the applicable amount [listed as the policy limit]."  In other words, the policies in Continental limited the Company's liability under a specific policy; in contrast, Truck's policy was read to limit all of Truck's liability. 

The Kaiser Cement case demonstrates the tension between a general horizontal exhaustion rule and how it may be affected by individual policy language.  Under the horizontal exhaustion rule, absent policy language to the contrary, all of Truck's primary policies (as well as those of all other primary insurers with triggered policies) would need to be exhausted before any excess layer policy became liable.  But because Truck's policy language was viewed as a limitation on stacking Truck's primary policy limits, Truck is required to pay only one per occurrence limit for each claim.  As a result, the remainder of Truck's primary policies become "unavailable" and not "collectible by the insured," and a substantial portion of Kaiser Cement's primary coverage no longer needs to be exhausted before its excess insurers become liable.  Thus, although California still purports to have a horizontal exhaustion rule, and generally permits the stacking of policy limits, specific policy provisions interpreted to be "anti-stacking" provisions can affect which policies need to be exhausted, and how many potentially multiple policy limits must be paid, before excess coverage comes into play.

At bottom, the Kaiser Cement ruling reminds us that insurance law is simply contract law.  And any coverage analysis begins and ends with the language of the policy.

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