Often, the most important concern for a landowner facing a cost recovery action is not liability, but rather insurance coverage. And then, the question may not be “is it covered” but “how much am I covered for?” On August 9, 2012, the California Supreme Court issued its opinon in California v. Continental Insurance Co.. No. S170560 (Ca. Aug. 9, 2012), providing some comfort to parties locked in expensive clean-up battles.
From 1956 to 1971, the State of California owned and operated the Stringfellow Acid Pits waste site. In 1998, a federal court found that California was liable for all past and future clean-up costs at the site, somewhere between $50 and $700 million. California thus turned for indemnification to the insurance companies who had issued excess commercial liability policies from 1964 to 1976, a time period during which the parties stipulated that there was continuous property damage.
The trial court that heard the matter held that while each carrier could be liable for injuries occuring not only during, but also outside of its policy period(s), the policies themselves could not be “stacked” or combined. Rather, California was limited to pursuing one carrier and recovering only up to the limits of that one policy. The Court of Appeal affirmed in part and reversed in part, agreeing with the trial court that each insurer could be held liable for the continuing property damage that had occurred even outside of their policy periods, but also held that the policies in question could be stacked such that the sums available to California consisted of the combined policy limits of all of the policies.
California Supeme Court affirmed the Court of Appeal. With respect to the applicable time periods, the Court rejected the pro rata methodology used in several states, wherein each insurance company is liable for only its pro rata share (in its simplest form, based upon the length of time its insurance was in effect). Instead, the Court held that “all sums” language is not limited to the damages which may accrue only during the policy period, but rather all amounts the insured “shall become obligated to pay” as a result of a triggering event.
Turning to the stacking issue, the Court then went further, deciding that since all of the policies covered the property damage at issue, they were all available to California. Relying in part on the Pennsylvania case of J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502 (Pa. 1993), the Court opined that the stacking rule “means that the insured has immediate access to the insurance it purchased,” receiving exactly what it has paid for. Additionally, the Court noted that the all-sums-with-stacking rule “resolves the question of insurance coverage as equitably as possible, . . . comports with the parties’ reasonable expectations, [and] ascertains each insurer’s liability with comparatively uncomplicated calculation.” Which means that determining the amount of insurance coverage available to a PRP in California may be the only “uncomplicated calculation” in any environmental recovery case.