California Appellate Court Provides Insurers with Road Map for How to Avoid California Supreme Court’s “Stacking” Ruling: Part II

April 22, 2013

Insurance LawLast week’s post discussed a recent California Court of Appeal opinion, Kaiser Cement and Gypsum Corporation v. Insurance Company of the State of Pennsylvania, which provided insurers with a road map for how to avoid the California’s Supreme Court’s decision in State of California v. Continental Insurance Co., allowing stacking of coverage under multiple policies. Today’s post will bring that roadmap into clearer focus by examining the policy language at issue in Kaiser.

Policy Language

In deciding the stacking question before it, the Kaiser court did what the Continental caveat requires; it turned to the language of the insured’s primary policy with Truck Insurance Company, which stated: “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 involving one or any combination of the hazards or perils insured against shall not exceed the per occurrence limit designated in the Declarations.” (Italics added.) In construing this language to preclude stacking, the court stressed that the language limited Truck’s total liability for any one occurrence, regardless of whether that occurrence spanned multiple policy periods. “[T]he policy does not say,” observed the court, “that the per occurrence limit is the limit of the company’s annual liability for any occurrence, or that the per occurrence limit is the limit of the company’s liability under the policy. Rather, it says that the per occurrence limit is the limit of the company’s liability. We presume, as we must, that the parties intended this language to mean what it plainly says—that for any single occurrence, Truck is liable up to the per occurrence limit, and no more.”

Continental Distinguished

The court pointed out that the Truck policy’s limitation of “the company’s liability” for an occurrence differed from the language at issue in Continental, which merely limited the company’s  liability “under this policy” for an occurrence. The court observed that while “Truck’s policy purported to limit Truck’s liability generally, . . . the Continental policies purported to limit the insurer’s liability only under the policy.” (Emphasis in original.)

Implications

The Kaiser decision underscores the importance of Justice Chin’s admonition in Continental that questions of allocation and stacking be resolved based on “[t]he language of the policies, not abstract concerns about fairness.” The rub will be in determining what type of language is sufficient to contract out of Continental’s pro-stacking rule. Policyholders will note that the Kaiser court did not shy away from pointing to the practical effect of stacking as a basis for distinguishing Continental: while stacking increased coverage in Continental, stacking would have decreased coverage in Kaiser. Policyholders will further point to the limited scope of Kaiser’s anti-stacking ruling—it applies only to situations in which a single insurer provides coverage under triggered primary policies containing anti-stacking language. Under the Kaiser court’s analysis, an insured that renews with the same insurer for 10 years would only have one year’s primary coverage for a continuing loss, while the insured that changed carriers every year would have ten years of primary coverage.

What remains to be seen is whether non-cumulation clauses insurers including in their policies prohibit stacking when the insured changes insurers from year to year. Under the language of non-cumulation provisions, if a loss covered under a policy is also covered under an earlier policy, the limit of liability in the later policy is reduced by the amount due to the insured for the loss under the prior insurance.