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Insurers Not Allowed To Avoid Covering The State For Environmental Liability

Six insurers issued insurance policies to the State of California during the sixties and seventies for a two- or three-year period.  Using an argument called "anti-stacking," the insurers sought to limit their coverage for pollution claims arising from the Stringfellow Acid Pits in Riverside to just one year.  The cost to clean up the Acid Pits is estimated to be as high as $700 million. 

It's important to date these policies, because prior to 1973, most insurance policies defined an "occurrence" as "an accident or a continuous or repeated exposure" and provided coverage for environmental pollution or contamination.  After 1976, the coverage switched to "sudden and accidental," which somewhat limited pollution coverage, but not completely.  Insurers were still required to defend their customers against claims for contamination. 

In this lawsuit, State of California v. Continental Insurance Company the six carriers tried to convince the court that the State should not be allowed to "stack" its policies - one on top of the other - in order to gain what they alleged amounted to more coverage than the State was entitled.  In other words, the insurers tried to limit the state to recovering only under one policy instead of two or three, limiting their coverage to $48 million.  As an added bonus to the insurers, since the State had already collected $120 million from other carriers, they claimed an offset, essentially reducing their liability to the State to zero.

That's zero, zip, nada, butkus, nothing, also commonly known as $0.00. 

The Court didn't see it that way, and allowed the State to stack its policies, clearing up what had previously been conflicting court of appeal rulings on the issue.  As a consequence of this conflict, however, we can expect that the insurers will appeal to the California Supreme Court, which may elect to take the case to eliminate the ambiguity.

The Court ultimately ruled, "If an occurrence happens entirely within one policy period, the insured has paid one premium and can recover up to one policy limit; however, if an occurrence is continuous across two policy periods, the insured has paid two premiums, and can recover up to the combined total of two policy limits.  We see nothing unfair or unexpected in this."  The court said that none of the policies had an "anti-stacking" provision in them, and the court wasn't going to rewrite the policies to add one. 

Therefore, the insurers are going to have to pay a lot more than the zero they got in the trial court, and a lot more than the $48 million they claimed as a maximum limit - more than likely over $80 million by MIPTC's estimate. 

That's zero to 80 in just one appeal.  Almost a speed record.

Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Monday, January 05, 2009 at 20:05 Comments Closed (0) |
 
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