SUMMARY
In Montrose Chemical Corporation of California v. Superior Court , ___ Cal. App. 4th ___, No. B272387, 2017 WL 3772568 (Cal. Ct. App. Aug. 31, 2017), the California Court of Appeal issued a decision that has the potential to upend years of settled law and create confusion about when policyholders can tap into excess insurance for insurance claims that span multiple policy years.
FACTS
Montrose purchased several layers of excess insurance for each year between 1960 and 1986 that covered a pollution claim. Different layers of excess insurance had exhausted in different years, such that the insurance had not exhausted in a uniform manner. Montrose and the insurers filed cross-motions for summary judgment regarding the issue of which excess policies should pay first. Montrose argued that, under California’s “vertical exhaustion” rule, it was entitled to “electively stack” its excess insurance, such that Montrose could tap into excess insurance at any layer for any policy year if the insurance in that year below that layer was exhausted, regardless of whether the lower layers in other years had been exhausted. The insurers argued that California’s “horizontal exhaustion” rule applied, requiring exhaustion of all lower layers of insurance in all years.
COURT'S DECISION
The Court of Appeal rejected both arguments. The Court of Appeal held that exhaustion must be determined on a policy-by-policy basis using the specific language contained in each of excess policy.
In reaching this conclusion, the Court rejected Montrose’s argument that State v. Continental, 55 Cal. 4th 186 (2012) allows “elective stacking.” The Montrose court explained that while Continental permitted stacking of policy limits across multiple policy periods to effectively create “one giant uber policy,” Continental did not speak to the question of which policy should pay first, and Continental...
