In Montrose Chemical Corp. v. Superior Court (No. B272387; filed 8/31/17) (Montrose III), a California appeals court found that excess insurance is not triggered for continuous and progressive losses until there has been horizontal exhaustion of underlying insurance, but there is no “universal horizontal exhaustion” because the order or sequence in which excess policies may be accessed depends on the specific policy wording at issue.
The coverage lawsuit was initiated by Montrose in 1990, when it was named in environmental actions for continuous and progressive property damage emanating from its Torrance chemical plant since the 1960s. Montrose had varying levels of insurance coverage throughout, but the total limits and attachment points of differing levels of excess coverage in any given year had changed from year-to-year. The coverage action was stayed in 2006 due to concern of prejudice to the underlying defense, but the stay was lifted in 2014 with Montrose entering a consent decree in the CERCLA action.
Based on the Supreme Court’s opinion in State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186, Montrose amended its complaint and sought summary judgment on a theory that it was entitled under the language of the excess policies and the Supreme Court’s holding in Continental, to “electively stack” its coverage—i.e., to “select any policy to indemnify its liabilities, provided the policies immediately underlying that policy are exhausted” in the same policy period. That is, Montrose contended that it could access any excess policy issued in any policy year so long as the lower-lying policies for the same policy year have been exhausted.
The excess insurers opposed Montrose’s motion for summary adjudication, and some of them brought a cross-motion for summary adjudication on a theory that no excess insurer had a duty to pay a covered claim until Montrose had “horizontally exhausted” its lower-lying excess policies in all triggered policy years. The trial court agreed, and granted the excess insurers’ horizontal exhaustion motion, while denying Montrose’s “elective stacking” motion.
The appeals court generally approved horizontal exhaustion, with limitations. Specifically, the court declined to hold that policies must necessarily be horizontally exhausted at each coverage level and for each year before higher-level policies may be accessed. Instead, the court ruled that the sequence in which policies may be accessed must be...
