By Jennifer Black Strutt, Associate, McCarter & English, LLP
The California Supreme Court considered complex questions of insurance policy interpretation in connection with environmental contamination at the Stringfellow Acid Pits waste site. A federal court held the State liable for all past and future cleanup costs, which the State estimated would reach $700 million. The State sought coverage from several insurers that issued policies from 1964 to 1976, and brought this action for indemnification.
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Pursuant to the trial court's "one-occurrence, no-annualization and no-stacking" rulings, the State would have been able to recover only $48 million from its insurers. The Court of Appeal affirmed in part and reversed in part, holding that once coverage was triggered, all of the insurers had to indemnify the insured for the loss, and the stacking of policy periods was permitted by the language of the policies.
The California Supreme Court first addressed the "continuous injury" trigger of coverage, as explained in Montrose Chemical Corp. v. Admiral Insurance Co., and the "all sums" rule adopted in Aerojet-General Corp. v. Transport Indemnity Co., holding those rules of law were applicable to the insurers' indemnity obligations. The Court rejected the insurers' arguments in favor of a pro rata rule for indemnity allocation, finding that the "all sums" grant of coverage did not limit the policies' promise to pay all sums of the policyholder's liability solely to sums or damage during the policy period. The Court affirmed the Court of Appeal's application of the "all-sums-with-stacking" allocation rule, acknowledging the numerous advantages of such a rule.
Ms. Strutt is an Associate in the Stamford, Connecticut office of McCarter & English, LLP. She may be reached by e-mail at firstname.lastname@example.org. The opinions in this article are those of the author alone and do not represent the views of McCarter & English, LLP or any of its clients.
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