In Santa Fe Braun v. Ins. Co. of North America (No. A151428, filed 7/13/20), a California appeals court relied on Montrose Chemical Corp. of California v. Superior Court (2020) 9 Cal.5th 215 (Montrose III), to hold that absent express policy wording to the contrary, horizontal exhaustion of all primary insurance is not required in order to trigger first-layer excess coverage.
Beginning in 1992, Braun was sued for asbestos injuries from refineries it constructed and maintained. Braun had primary coverage and multiple layers of excess coverage for the relevant time period. After defending for years, the primary insurers reached a settlement under which they paid their limits into a trust which would fund the ongoing defense and settlements. Certain of the excess insurers settled and also contributed to the trust.
Braun initiated coverage litigation in 2004, which went to trial and was on appeal when the Supreme Court handed down its Montrose III decision. The Braun trial court had ruled that in order to trigger the first layer excess insurance, Braun had to establish horizontal exhaustion if a policy either “expressly so provides or . . . contains an ‘other insurance clause’ and does not provide for vertical exhaustion of specific policies.” The trial court then proceeded to find that the first level excess policies all required horizontal exhaustion of the underlying primary coverage, and that Braun failed to prove horizontal exhaustion because its evidence was inadmissible hearsay. In a final phase, the Braun trial court then ruled that the upper level excess policies also required horizontal exhaustion, and since Braun failed to even prove exhaustion of the primaries, it could never prove exhaustion of the first layer excess, thereby entering judgment on favor of the excess insurers.
Braun’s appeal had been fully briefed when Montrose III came down, and the appeals court requested supplemental briefing. Based on Montrose III, the Braun court held that horizontal exhaustion was not required for either primary or excess coverage. The Braun court quoted extensively from Montrose III for the proposition that the excess policies were at best ambiguous regarding horizontal exhaustion, and their terms otherwise “strongly suggest that only vertical exhaustion was required.” The Montrose III court had pointed out that if horizontal exhaustion were required, the express attachment point of the excess policy would be exponentially higher than stated. In Montrose III, the court supplied an example that one excess policy would require exhaustion of more than $750 million in underlying coverage, rather than the $30 million expressly specified in the excess policy itself.
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