California Court Addresses Horizontal Exhaustion Requirement

In the recent decision Kaiser Cement & Gypsum Corp. v. Insurance Company of the State of Pennsylvania 2013 Cal. App. LEXIS 269 (2^nd Dist. April 8, 2013), the California Court of Appeal considered whether horizontal or vertical exhaustion of insurance coverage was required in a continuing damage case.  The case was a follow up to the earlier decision by the court in London Market Insurers v. Superior Court (2007) 146 Cal.App.648, in which it held that “occurrence” in that case meant injurious exposure to asbestos, so there was not a single annual occurrence as was urged by the insurers.  In Kaiser Cement, the court considered how to allocate the coverage for the asbestos bodily injury claims.

In the period 1947 to 1987, four different primary insurers, including Truck Insurance Exchange, insured Kaiser.  Truck covered Kaiser from 1964 to 1983.  Kaiser selected the Truck policy for the year 1974 to be the primary policy which to provide Kaiser with a defense in connection with underlying asbestos bodily injury claims because that policy had no deductible or aggregate limit.  ICSOP was the first level excess insurer over the Truck policy's $500,000 per occurrence policy limit.  The appellate court addressed the issue of which insurer(s) should pay for claims over the $500,000 policy limit.

Significantly, Truck’s other primary policies had deductibles so, as the court noted, Kaiser’s share of any loss potentially increased if there was allocation to other primary policies rather than to the ICSOP excess insurance.  ICSOP nevertheless urged requirement of horizontal exhaustion of all primary policies before its own policy attached, both as a matter of California law and the specific language of the ICSOP policy , pursuant to which the policy limits of all primary policies triggered by an occurrence had to exhaust before coverage was triggered.

The Kaiser Cement court agreed that ICSOP’s policy was excess of all collectible primary insurance based on the policy’s definition of “retained limit” being both the scheduled primary policy and “the applicable limits of any other underlying insurance collectible by the Insured.”  The court nevertheless concluded that Truck's primary policies, other than the 1974 policy, were not collectible because the limits of liability clause in Truck's 1974 policy stated that $500,000 was the limit of the company’s liability for each occurrence and also that “the limit of the Company’s liability as respects any occurrence … shall not exceed the per occurrence limit” set forth in the policy declarations, i.e., $500,000.  The court read this language as an anti-stacking provision, meaning that Truck's 1974 policy was the sole policy that could be triggered by the underlying suits.

The appellate court stated that its holding was consistent with the California Supreme Court’s recent “all-sums-with-stacking” decision in  State of California v. Continental Ins. Co. (2012) 55 Cal.4^th 186, because that decision specified that insurers could avoid stacking of limits by including “’antistacking’” provisions in their policies.  The court held that Truck’s limit of liability language was just such an antistacking provision.  The court remanded the matter to the trial court to determine if there were remaining limits in the other primary carriers’ policies for the injury claims which exceeded Truck’s $500,000 policy limit.