Montrose Chemical Corp. v. Super. Ct. ( 2017 )

Filed 9/8/17 (unmodified opinion attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
MONTROSE CHEMICAL B272387
CORPORATION OF CALIFORNIA,
(Los Angeles County
Petitioner, Super. Ct. No. BC005158)
v. ORDER MODIFYING OPINION
[NO CHANGE IN JUDGMENT]
SUPERIOR COURT OF THE STATE
OF CALIFORNIA, COUNTY OF LOS
ANGELES,
Respondent;
CANADIAN UNIVERSAL
INSURANCE COMPANY, INC., ET
AL.,
Real Parties in Interest.
THE COURT:
It is ordered that the opinion filed herein on August 31,
2017, be modified as follows:
On page 3 of the opinion, insert the name Deborah Lynn
Stein in counsel listing for Real Parties in Interest Travelers
Casualty and Surety Company and The Travelers Indemnity
Company so that the opinion reads: Simpson Thacher & Bartlett,
Peter R. Jordon, Andrew T. Frankel, and Deborah Lynn Stein for
Real Parties in Interest Travelers Casualty and Surety Company
and The Travelers Indemnity Company.
_______________________________________________________
EDMON, P. J. ALDRICH, J.* LAVIN, J.
* Retired Associate Justice of the Court of Appeal, Second
Appellate District, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
2
Filed 8/31/17 (unmodified version)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
MONTROSE CHEMICAL B272387
CORPORATION OF CALIFORNIA,
(Los Angeles County
Petitioner, Super. Ct. No. BC005158)
v.
SUPERIOR COURT OF THE STATE
OF CALIFORNIA, COUNTY OF LOS
ANGELES,
Respondent;
CANADIAN UNIVERSAL
INSURANCE COMPANY, INC., ET
AL.,
Real Parties in Interest.
Petition for writ of mandate from an order of the Superior
Court of Los Angeles County, Elihu Berle, Judge. Granted in
part and denied in part with directions.
Latham & Watkins, Brook B. Roberts, John M. Wilson and
Drew T. Gardiner for Petitioner.
No appearance on behalf of Respondent.
Sinnott Puebla Campagne & Curet, Kenneth H. Sumner
and Lindsey A. Morgan for Real Party in Interest AIU Insurance
Company.
Sinnott, Puebla, Campagne & Curet and Randolph P.
Sinnott; Cozen O’Conner and John Daly for Real Party in
Interest Zurich International (Bermuda) Ltd.
Duane Morris, Max H. Stern and Jessica E. La Londe for
Real Party in Interest American Centennial Insurance Company.
Craig & Winkelman and Bruce H. Winkelman for Real
Parties in Interest American Re-Insurance Company.
Selman & Breitman, Ilya A. Kosten and Kelsey C. Start for
Real Parties in Interest Transport Insurance Company and
Lamorak Insurance Company.
Selman & Breitman and Elizabeth M. Brockman for Real
Party in Interest Federal Insurance Company.
Berkes, Crane, Robinson & Seal, Steven M. Crane and
Barbara S. Hodous for Real Party in Interest Continental
Casualty Company and Columbia Casualty Company.
Lewis Brisbois Bisgaard & Smith, Peter L. Garchie and
James P. McDonald for Real Party in Interest Employers Mutual
Casualty Company.
Barber Law Group and Bryan M. Barber for Real Party in
Interest Employers Insurance of Wausau.
McCurdy & Fuller, Kevin G. McCurdy and Vanci Y. Fuller
for Real Parties in Interest Everest Reinsurance Company, et al.
Chamberlin Keaster & Brockman, Kirk C. Chamberlin and
Kevin J. Schettig for Real Parties in Interest Providence
Washington Insurance Company, et al.
Tressler, Linda Bondi Morrison and Ryan B. Luther for
Real Parties in Interest Allstate Insurance Company.
2
Archer Norris, Charles R. Diaz and GailAnn Y. Stargardter
for Real Parties in Interest Fireman’s Fund Insurance Company,
et al.
Lewis, Brisbois, Bisgaard & Smith, Jordon E. Harriman
and Shannon L. Santos for Real Parties in Interest General
Reinsurance Corporation, et al.
Hinshaw & Culbertson, Thomas R. Beer and Peter J.
Felsenfeld for Real Party in Interest Gerling Konzern Allgemeine
Versicherungs-Aktiengesellschaft.
O’Melveny & Myers, Richard B. Goetz, Zoheb P. Noorani
and Michael Reynolds for Real Party in Interest TIG Insurance
Company.
McCloskey, Waring & Waisman and Andrew McCloskey for
Real Parties in Interest Westport Insurance Corporation, et al.
Simpson Thacher & Bartlett, Peter R. Jordon and Andrew
T. Frankel for Real Parties in Interest Travelers Casualty and
Surety Company and The Travelers Indemnity Company.
Morgan Lewis & Bockius, Michel Y. Horton, Jeffrey S.
Raskin and David S. Cox for ITT LLC and Santa Fe Braun, Inc.
as Amicus Curiae on behalf of Petitioner.
_________________________
3
Petitioner Montrose Chemical Corporation of California
(Montrose) for many years manufactured the pesticide dichloro-
diphenyl-trichlorethane (DDT). Real parties in interest are
insurers that issued excess comprehensive general liability (CGL)
policies to Montrose in relevant years. The present dispute
concerns the sequence in which Montrose may access its excess
CGL policies to cover its liability for environmental injuries
caused by DDT.
Through a motion for summary adjudication, Montrose
sought a declaratory judgment that it may “electively stack”
excess policies—i.e., that it may access any excess policy issued in
any policy year so long as the lower-lying policies for the same
policy year have been exhausted. All of the excess insurers
opposed Montrose’s motion for summary adjudication; many of
the excess insurers also sought through a cross-motion for
summary adjudication a ruling that no 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 rejected “elective stacking” in favor of
“horizontal exhaustion,” ordering that higher-level excess policies
could not be accessed until lower-level policies had been
exhausted for all policy years. It thus denied Montrose’s motion
for summary adjudication and granted the excess insurers’ cross-
motion for summary adjudication. Montrose then filed the
present petition for writ of mandate challenging the trial court’s
summary adjudication order.
We agree with the trial court that “elective stacking” is
inconsistent with the policy language of at least some of the more
than 115 excess policies at issue and is not compelled by
California Supreme Court authority. We therefore conclude that
4
the trial court properly denied Montrose’s motion for summary
adjudication. Our holding is not as expansive as the trial court’s,
however. Specifically, we do not hold that policies must be
horizontally exhausted at each coverage level and for each year
before higher-level policies may be accessed. Instead, we
conclude that the sequence in which policies may be accessed
must be decided on a policy-by-policy basis, taking into account
the relevant provisions of each policy. We therefore reverse in
part the trial court’s grant of the insurers’ motion for summary
adjudication.
FACTUAL AND PROCEDURAL HISTORY
I.
Background
From 1947 to 1982, Montrose manufactured DDT at a
facility in Torrance, California. During the 1960’s,
conservationists began to raise concerns about the effects of DDT
on the environment, and in 1972 the federal government
prohibited its use within the United States. Montrose continued
to manufacture DDT for export at its Torrance facility until 1982.
(Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287,
292–293 (Montrose I).)
In 1990, the United States and the State of California sued
Montrose in the United States District Court for the Central
District of California under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 (42 U.S.C.
§ 9607 et seq.) (CERCLA). (United States, et al. v. Montrose
Chemical Corporation of California, et al. (U.S. Dist. Ct.
C.D.Cal.), 1990, No. CV 90–3122–AAH (JRx) (CERCLA action).)
The CERCLA action alleged that Montrose’s operation of its
Torrance facility caused environmental contamination that
5
damaged land, water, and wildlife in the Los Angeles Harbor and
neighboring waters. (Montrose I, supra, 6 Cal.4th at pp. 292–
293.)
Montrose represents that it has entered into partial
consent decrees in the CERCLA action through which it has
incurred damages in excess of $100 million, and that additional
future damages could approach or exceed that amount.
II.
The Present Coverage Litigation
Montrose purchased “layers” of CGL policies from various
insurance carriers to cover its operations at the Torrance facility
from 1960 to 1986. In each of the relevant years, Montrose
purchased a layer of “primary” CGL insurance policies that
required the insurers to defend and indemnify Montrose for
covered losses up to the policy limits. (Montrose I, supra,
6 Cal.4th at pp. 292–293.) Above the “primary” insurance
policies were multiple layers of “excess” CGL coverage, which
provided additional coverage once underlying insurance was
exhausted. In the early years, Montrose purchased just a few
layers of excess coverage; in some later years, Montrose appears
to have purchased more than 40 layers of excess coverage, with
aggregate limits of liability in excess of $120 million. Montrose
asserts that because the policies provide for different amounts of
coverage in different years, the layers of excess coverage are not
uniform. To provide just a single example, in some policy years
the first layer excess policies provided coverage of up to
$1 million; in other years, the first layer excess policies provided
coverage of up to $2 million, $5 million, or $10 million.
In August 1990, Montrose filed the present action,
Montrose Chemical Corporation of California v. Canadian
6
Universal Insurance Co., Inc., et al., case No. BC005158, to
resolve various coverage disputes with its primary insurers.
Subsequently, Montrose amended its complaint to name its
excess insurers as additional defendants.
In 2006, the superior court stayed this action in response to
Montrose’s concern that discovery in this case could prejudice its
defense in the CERCLA action. The court lifted the stay in
June 2014.
In 2012, the California Supreme Court issued a decision in
State of California v. Continental Ins. Co. (2012) 55 Cal.4th
186 (Continental). As discussed more fully below, Continental
held that where an ongoing environmental injury triggers
multiple policies across many policy years, the insured may
“stack” the policies “ ‘to form one giant “uber-policy” with a
coverage limit equal to the sum of all purchased insurance
policies.’ ” (Id. at pp. 200–201.)
Following the Supreme Court’s decision in Continental,
Montrose filed a Fifth Amended Complaint (complaint) in this
action in September 2015. The complaint asserted a new 32nd
cause of action for declaratory relief, seeking a declaration that:
“a. In order to seek indemnification under the Defendant
Insurers’ excess policies, Montrose need only establish that its
liabilities are sufficient to exhaust the underlying policy(ies) in
the same policy period, and is not required to establish that all
policies insuring Montrose in every policy period (including
policies issued to cover different time periods both before and
after the policy period insured by the targeted policy) with limits
of liability less than the attachment point of the targeted policy,
have been exhausted; and
7
“b. Montrose may select the manner in which [to]
allocate its liabilities across the policy(ies) covering such losses.”
III.
Cross-Motions for Summary Adjudication
A. Montrose’s Motion for Summary Adjudication
Montrose moved for summary adjudication of the 32nd
cause of action. Montrose asserted that a controversy had arisen
between it and its excess insurers about the manner in which it
could obtain indemnification under the excess policies. According
to Montrose, the excess insurers had taken the position that
Montrose could not access coverage under any excess policy until
its liabilities exhausted all of the lower-lying excess coverage in
every policy period. Montrose depicted the insurers’ approach as
follows, assuming a hypothetical coverage portfolio and
$100 million of liability resulting from continuous property
damage over five years. In this example, Montrose must exhaust
its first and second layer excess policies (each layer representing
$10 million of coverage) in each policy year before accessing any
of its third layer excess policies:
Year 1 Year 2 Year 3 Year 4 Year 5
$50 mil
Layer 5
$40 mil
Layer 4
$30 mil
Layer 3
$20 mil
Layer 2
$10 mil
Layer 1
8
Montrose rejected the insurers’ horizontal exhaustion
approach, asserting that it instead 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. Montrose provided the following example of how
elective stacking might work, using the same hypothetical losses
and coverage portfolio depicted above. In this example, Montrose
accesses coverage from the first through third excess insurance
layers for policy years two and three, and the first through fourth
excess insurance layers for policy year four, without accessing
any excess coverage for policy years one and five:
Year 1 Year 2 Year 3 Year 4 Year 5
$50 mil
Layer 5
$40 mil
Layer 4
$30 mil
Layer 3
$20 mil
Layer 2
$10 mil
Layer 1
9
B. Insurers’ Oppositions and Cross-Motion for Summary
Adjudication
A group of excess insurers (hereinafter, the Continental
insurers)1 filed an opposition to Montrose’s motion for summary
1 Those insurers are: Continental Casualty Company
(Continental) and Columbia Casualty Company (Columbia),
joined by AIU Insurance Company; Allstate Insurance Company
(as successor-in-interest to Northbrook Excess and Surplus
Insurance Company; American Centennial Insurance Company
(American Centennial); American Home Insurance Company;
Federal Insurance Company; Employers Insurance Company of
Wausau; Everest Reinsurance Company (as successor-in-interest
to Prudential Reinsurance Company); Fireman’s Fund Insurance
Company; General Reinsurance Corporation; Granite State
Insurance Company; Lamorak Insurance Company (formerly
known as OneBeacon America Insurance Company), as
successor-in-interest to Employers Commercial Union Insurance
Company of America and The Employers Liability Assurance
Corporation, Ltd.; Landmark Insurance Company; Lexington
Insurance Company; Mt. McKinley Insurance Company (as
successor-in-interest to Gibraltar Casualty Company); Munich
Reinsurance America, Inc. (formerly known as American Re-
Insurance Company); National Surety Corporation; National
Union Fire Insurance Company of Pittsburgh, PA; New
Hampshire Insurance Company; North Star Reinsurance
Corporation; Providence Washington Insurance Company
(successor by way of merger to Seaton Insurance Company,
formerly known as Unigard Security Insurance Company,
formerly known as Unigard Mutual Insurance Company);
Transport Insurance Company (as successor-in-interest to
Transport Indemnity Company); Westport Insurance
Corporation, formerly known as Puritan Insurance Company,
formerly known as Manhattan Fire and Marine Insurance
Company); and Zurich International (Bermuda), Ltd.
10
adjudication, and separately filed their own cross-motion for
summary adjudication. That motion sought summary
adjudication on two grounds: (1) the 32nd cause of action (by
which the Continental insurers sought a determination that
Montrose was not entitled as a matter of law to electively stack
its excess policies), and (2) the following “issue of duty”: “All
underlying policy limits across the years of continuing property
damage must be exhausted by payment of covered claims before
any of the Insurers’ excess policies ha[s] a duty to pay covered
claims.” The Continental insurers contended that well-
established California law and the language of the relevant
policies required Montrose to “exhaust coverage from all
underlying insurers in each of the triggered policy periods, such
that higher-level excess insurers’ obligations are triggered only
when all primary and lower-level excess policies have been
exhausted.” (Italics added.)
Travelers Indemnity and Travelers Surety (formerly known
as Aetna) (the Travelers insurers) opposed Montrose’s motion for
summary adjudication, but did not separately move for summary
adjudication. The Travelers insurers urged that California law
did not apply to their policies, and that under the clear language
of the policies, Montrose had to demonstrate that the underlying
insurers “have paid or been held to pay the full amount of their
respective limits of liability”—not merely that Montrose’s
liabilities “are sufficient to exhaust the underlying policy(ies) in
the same policy period.”2 According to the Travelers insurers,
2 The Travelers insurers therefore urged that the declaration
sought by Montrose “appears to leave open the possibility that
Montrose can access Travelers’ higher-level excess policies
(i) based solely on estimated liabilities that Montrose has not
11
Montrose’s assertion that its primary policies should be “deemed”
exhausted was “misleading because the parties have not
stipulated—and the Court has not found or ordered—that
Montrose’s primary policies be ‘deem[ed]’ exhausted. Montrose,
of course, will have the burden of proving that, in fact, its
underlying insurance (including with respect to primary
coverage) has been exhausted before it can seek coverage under
its excess policies. That factual issue is not before the Court, and
may not be decided in the guise of Montrose’s Motion currently
before the Court.”
IV.
Order Denying Montrose’s Motion and
Granting Continental Insurers’ Cross-
Motion for Summary Adjudication
The superior court denied Montrose’s motion and granted
the Continental insurers’ cross-motion. The court began by
describing the issues raised by the competing motions for
summary adjudication:
“[I]t’s the insurers’ contention that Montrose cannot access
coverage under any of the excess policies until Montrose exhausts
actually paid to date, (ii) based on liabilities allegedly incurred
even if those liabilities were not actually paid by the underlying
insurers (including settling insurers), or (iii) without showing
that Montrose’s liabilities are actually covered under the terms of
the underlying policies such that they might one day exhaust
those underlying policies.” Indeed, the Travelers insurers
asserted, “Montrose’s declaration would not even require
Montrose to prove that its liabilities would be covered by
underlying insurance, much less that they would ever actually
exhaust that underlying insurance.” (Fn. omitted.)
12
all the underlying excess coverage in each policy period. This
approach is generally referred to as a ‘horizontal exhaustion.’
“In contrast, Montrose argues that it should instead be
entitled to vertically stack all excess coverage triggered [in] each
individual policy period, in effect allowing Montrose to select any
available excess policy to indemnify its liabilities assuming that
the policies immediately underlying that policy are exhausted for
this specific policy in question. The approach is referred to as a
‘vertical exhaustion.’ ”
The court then discussed the law generally applicable to
primary and excess insurance:
“Before coverage can attach under an excess policy, the
policy limits of the underlying primary policy or policies must
typically be exhausted. [Citation.] [¶] Normally, primary
coverage is exhausted when a primary insurer pays its policy
limits to settle a claim or to satisfy a judgment against the
insurer. [Citation.]
“Under California law, vertical exhaustion applies where
an excess policy expressly provides coverage in excess of a specific
primary policy for that same policy period. In such a scenario,
excess coverage will attach after the specifically identified
primary insurance has been exhausted, notwithstanding the
existence of other underlying policies. [Citation.]
“On the other hand, horizontal exhaustion applies in those
situations where an excess policy provides coverage in excess to
all underlying insurance, whether specifically scheduled or not.
[Citation.] [¶] . . . [¶]
“In cases such as the one before the court today in which
the damages at issue occur continuously over a long period of
13
time, questions regarding policy exhaustion prove to be very
complex. [¶] . . . [¶]
“Consistent with the general rule[s] of insurance polic[y]
interpretation, the first inquiry in continuous loss scenarios
remains whether the excess policy imposes specific limits upon
the coverage provider.
“As the California Court of Appeal held in Community
Redevelopment [Agency v. Aetna Casualty & Surety Co. (1996)
50 Cal.App.4th 329 (Community Redevelopment)], where an
excess policy does not specifically describe . . . [¶] . . .and limit the
underlying insurance policies [that must be exhausted], the
horizontal exhaustion doctrine should apply.”
The court then turned to the facts of the case before it:
“In the present case, Montrose argues that pursuant to the
California Supreme Court holding in [Continental], Montrose
should be entitled to access its excess coverage under an elective
stacking approach whereby a policyholder may select any
triggered policy in its portfolio to indemnify its liabilities,
provided that the policies underlying that policy are exhausted in
accordance with their terms. [¶] . . . [¶]
“Ultimately, Montrose fails to cite any binding authority
which persuades this court that the court should not follow the
well-established rule that horizontal exhaustion should apply in
the absence of policy language specifically describing and limiting
the underlying insurance.
“Montrose additionally asserts that the language in [the]
excess policies at issue here is inconsistent with application of the
horizontal exhaustion doctrine. In so arguing, Montrose suggests
that each of the policies contained a provision or provisions which
14
specifies some identifiable amount of underlying limits that must
be exhausted before its obligation attaches.
“More specifically, Montrose argues that each excess
policy’s description of the underlying limit or coverage that must
be exhausted is described with respect to its same policy period.
While this may be true, this argument overlooks the fact that the
present case is a continuous loss scenario; thus, Montrose’s
contention that exhaustion should be applied vertically with
respect to each individual policy period is undermined by the very
authority supporting its own stacking arguments as noted by the
California Supreme Court decision in [Continental, supra,]
55 Cal.4th 186, which decision allows the insured to stack the
policy limits of those policies triggered in more than one policy
period.
“Therefore, the stacking approach endorsed by the Supreme
Court in Continental would direct . . . that the aggregate value of
all underlying policies throughout the duration of a continuous
loss must be exhausted before excess coverage is accessible to the
insured . . . .”
The court concluded: “The ‘other insurance’ provisions
contained in the present excess policies must be read to require
the exhaustion of all underlying insurance before [the excess
insurers’] obligations to indemnify Montrose attach. The
presence of ‘other insurance’ clauses would preclude the use of a
vertical exhaustion approach even for those excess policies
specifically identified in a particular underlying policy that must
first be exhausted. [¶] The [inclusion] of such broad ‘other
insurance’ language invokes the rules set forth in Community
Redevelopment that horizontal exhaustion must apply absent a
provision of the excess policy that both specifically describes and
15
limits the underlying insurance. [¶] Whereas here the excess
policy included language that invokes all underlying insurance,
no such limitation can be reasonably argued to exist. [¶] . . . [¶]
“So in conclusion, in light of the authorities cited, the court
concludes that the parties must employ a horizontal exhaustion
approach, whereby the aggregate limits of underlying policies for
the applicable policy periods must first be exhausted before any
excess policies incur a duty to indemnify Montrose for its
liabilities . . . .”
V.
Present Petition for Writ of Mandate
Montrose filed a petition for writ of mandate in this court,
seeking an order directing the trial court to grant Montrose’s
motion for summary adjudication and deny the insurers’ cross-
motion for summary adjudication. We summarily denied the
petition. Montrose filed a petition for review. The Supreme
Court granted review and transferred the matter to this court
with directions to issue an order to show cause why the relief
sought in the petition should not be granted.
We issued an order to show cause and received
supplemental briefing. The Continental insurers and the
Travelers insurers filed briefs in opposition to the petition, and
ITT LLC and Santa Fe Braun, Inc. filed an amicus curiae brief in
support of Montrose.
SUMMARY OF ISSUES
Montrose urges the court to adopt what it terms an
“elective stacking” approach. Under this approach, where a
policyholder is liable for a continuing injury that potentially is
covered by primary and excess policies in multiple policy years,
the policyholder “may elect to proceed ‘vertically’ to exhaust
16
policies for a single coverage year, once the underlying policy
exhaustion provisions are satisfied.” Montrose urges that
“elective stacking” is consistent with Supreme Court precedent
“recognizing that policyholders are entitled to look to any
independent contract to cover the full extent of their liability (up
to policy limits) in accordance with the terms of each individual
policy,” as well as with the language of the relevant excess
policies.
The Continental insurers urge a “horizontal exhaustion”
approach. They contend that the excess policies at issue contain
provisions “that make them excess to vertically underlying
policies in the same policy period plus ‘other valid and collectible’
insurance, that is, other insurance that is not vertically
underlying and also triggered by the same occurrence.” The
Travelers insurers separately urge declaratory relief is
premature because Montrose has not demonstrated that it has
exhausted its underlying primary policies, and there is no basis
for issuing a writ of mandate because Montrose has failed to
demonstrate that it lacks an adequate remedy at law or is at risk
of irreparable harm.
As we now discuss, we reject Montrose’s “elective stacking”
approach. Specifically, we conclude that Montrose is not entitled
to a declaration that it may access any of the more than
115 excess policies at issue so long as its liabilities are sufficient
to exhaust the underlying policies for the same policy year. We
therefore conclude that the trial court properly denied Montrose’s
motion for summary adjudication and granted the insurers’ cross-
motion for summary adjudication of the 32nd cause of action
because we conclude that Montrose is not entitled to the
declaration sought in that cause of action as a matter of law.
17
However, we do not adopt the trial court’s conclusion that
all excess policies must be horizontally exhausted. Instead,
because there is tremendous variation among the policies at
issue, we decline to adopt a single exhaustion scheme that
applies to Montrose’s entire coverage portfolio, and instead direct
that each policy be interpreted according to its terms. We
therefore conclude that the trial court erred in granting the
Continental insurers’ motion for summary adjudication insofar as
it sought to summarily adjudicate the issue of duty.
STANDARD OF REVIEW
“A motion for summary adjudication shall be granted only
if it completely disposes of a cause of action, an affirmative
defense, a claim for damages, or an issue of duty.” (Code Civ.
Proc., § 437c, subd. (f)(1).) The moving party “bears an initial
burden of production to make a prima facie showing of the
nonexistence of any triable issue of material fact; if [the moving
party] carries [its] burden of production, [it] causes a shift, and
the opposing party is then subjected to a burden of production of
[its] own to make a prima facie showing of the existence of a
triable issue of material fact. . . . A prima facie showing is one
that is sufficient to support the position of the party in question.”
(Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850–851,
fn. omitted.)
We review de novo an order granting or denying a motion
for summary adjudication. (Aguilar v. Atlantic Richfield Co.,
supra, 25 Cal.4th at p. 860.) The trial court’s stated reasons for
granting summary adjudication are not binding on the reviewing
court, which reviews the trial court’s ruling, not its rationale.
(Haering v. Topa Ins. Co. (2016) 244 Cal.App.4th 725, 732.)
18
DISCUSSION
I.
Primary and Excess Insurance
There are two levels of insurance coverage—primary and
excess. “Primary coverage is insurance coverage whereby, under
the terms of the policy, liability attaches immediately upon the
happening of the occurrence that gives rise to liability.
[Citation.] Primary insurers generally have the primary duty of
defense. [¶] ‘Excess’ or secondary coverage is coverage whereby,
under the terms of the policy, liability attaches only after a
predetermined amount of primary coverage has been exhausted.
[Fn. omitted.] It is not uncommon to have several layers of
secondary insurance.” (Olympic Ins. Co. v. Employers Surplus
Lines Ins. Co. (1981) 126 Cal.App.3d 593, 597–598, some italics
omitted; see also Community Redevelopment, supra,
50 Cal.App.4th at pp. 337–338 [discussing primary and excess
coverage].)
An excess insurance policy may be written as excess to
specifically identified coverage—i.e., to “a particular policy or
policies (e.g., ‘excess to liability coverage provided under Aetna
Policy No. 246789’) (see 20th Century Ins. Co. v. Liberty Mut. Ins.
Co. (9th Cir. 1992) 965 F.2d 747, 757 (applying Calif. law)); or [¶]
coverage provided by a particular insurer (e.g., ‘excess to the
primary insurer, Liberty Mutual’) (see 20th Century Ins. Co. v.
Liberty Mut. Ins. Co., supra, 965 F.2d at 757).” (Croskey et al.,
Cal. Practice Guide: Insurance Litigation (The Rutter Group
2017) ¶ 8:181 (Croskey).) Alternatively, an excess policy may be
written to provide coverage “ ‘in excess of (identified primary
policy) and the applicable limits of any other underlying
insurance providing coverage to the insured.’ [¶] Under such a
19
policy, the excess insurer has no duty to defend or indemnify
until all underlying policies available to the insured, whether or
not listed in the excess policy, are exhausted. [See [Community
Redevelopment, supra,] 50 Cal.App.4th [at pp.] 339–341;
Continental Ins. Co. v. Lexington Ins. Co. (1997) 55 Cal.App.4th
637, 645].” (Croskey, supra, ¶ 8:182.)
The relationship between primary and excess insurance (or
multiple layers of excess insurance) is particularly complex in
environmental injury cases where harm is alleged to have
occurred over many years and many policy periods. Injuries of
this kind, termed “ ‘long-tail’ ” injuries, are “a series of indivisible
injuries attributable to continuing events without a single
unambiguous ‘cause’ ” and produce progressive damage that
takes place slowly over years or even decades. (Continental,
supra, 55 Cal.4th at p. 196.) Because CGL policies typically are
silent as to coverage for long-tail injuries, they frequently give
rise to coverage disputes. (Ibid.)
II.
The Trial Court Correctly Rejected Montrose’s
“Elective Stacking” Approach; Therefore, It
Correctly Denied Montrose’s Motion for Summary
Adjudication and Granted the Continental
Insurer’s Cross-Motion for Summary
Adjudication of the 32nd Cause of Action
Montrose asserts that the trial court erred in
rejecting elective stacking in favor of mandatory horizontal
exhaustion. Specifically, Montrose contends: (1) elective
stacking is the only approach consistent with the Supreme
Court’s recent guidance in Continental; (2) each of the
relevant policies contains express language stating that
20
coverage attaches upon exhaustion of specified underlying
limits of lower-layer policies within the same policy period;
and (3) elective stacking is consistent with sound public
policy. We consider each of these issues below.
A. Continental Does Not Dictate “Elective
Stacking” in This Case
We begin by addressing Montrose’s contention that the
result in this case is dictated by the California Supreme Court’s
decision in Continental, supra, 55 Cal.4th 186. Montrose asserts:
“Over the last two decades, the California Supreme Court has
repeatedly declared the fundamental principle that a policyholder
has the contractual right, under any insurance policy (or policies)
triggered by a covered loss, to obtain immediate indemnification
of its liabilities. . . . [¶] . . . [In Continental], the high court held
that when a continuous injury triggers multiple policies, ‘each
policy can be called upon to respond to the claim up to the full
limits of the policy. (Id. at p. 200, emphasis added.)” Indeed,
Montrose urges, the court in Continental “rejected the very
scheme Defendant insurers argue[] for” and “confirm[ed] the
policyholder’s right to choose the policy(ies) and seek to allocate
the losses vertically or horizontally as the policyholder sees fit.”
As we now discuss, Continental does not dictate the result
in this case. Importantly, both the relevant policy language and
the issues confronting the Continental court were very different
from the language and issues before us; and nothing in
Continental suggests that, in the context of the present case, an
insured has an absolute right to “select which policy(ies) to access
for indemnification in the manner they deem most efficient and
advantageous.”
21
1. Continental: Insured Liable for Long-Tail
Claim May “Stack” Policies Issued in Different
Policy Periods
In Continental, supra, 55 Cal.4th 186, the Supreme Court
considered insurers’ indemnity and defense obligations in the
context of a long-tail environmental injury. Between 1956 and
1972, the State of California operated an industrial waste
disposal facility that was later discovered to have leaked
hazardous materials. Before 1963, the state was uninsured;
between 1964 and 1976, the state purchased ten excess CGL
policies from different insurers. The state had drafted a master
liability policy form that it required its insurers to use, and thus
the relevant language of each of the policies was essentially the
same. Specifically, each policy obligated the insurer “ ‘[t]o pay on
behalf of the Insured all sums which the Insured shall become
obligated to pay by reason of liability imposed by law . . . for
damages . . . because of injury to or destruction of property,
including loss of use thereof.’ ” (Continental, supra, at pp. 192–
193, italics added.)
After a federal court found the state liable for past and
future cleanup costs associated with the disposal facility, the
state sued several of its insurers, seeking indemnification for its
liability in the federal action. (Continental, supra, 55 Cal.4th at
pp. 192–193.) Following a bench trial, the superior court held
that the state could not “stack,” or combine, policy limits across
multiple policy periods. Instead, the state “had to choose a single
policy period for the entire liability coverage, and it could recover
only up to the total policy limits in effect during that policy
period.” (Id. at p. 193.)
22
The Supreme Court disagreed, concluding that the
language of the policies at issue permitted the stacking of policy
limits across multiple policy periods, so as to effectively create
“ ‘ “one giant uber policy” with a coverage limit equal to the sum
of all purchased insurance policies.’ ” (Id. at p. 200–201, italics
added.)
The Supreme Court began its analysis by reiterating basic
principles of insurance interpretation: “In general, interpretation
of an insurance policy is a question of law that is decided under
settled rules of contract interpretation. [Citations.] ‘ “While
insurance contracts have special features, they are still contracts
to which the ordinary rules of contractual interpretation apply.”
[Citations.] ‘The fundamental goal of contractual interpretation
is to give effect to the mutual intention of the parties.’ [Citation.]
‘Such intent is to be inferred, if possible, solely from the written
provisions of the contract.’ [Citation.] ‘If contractual language is
clear and explicit, it governs.’ [Citation.] ‘ “The ‘clear and
explicit’ meaning of these provisions, interpreted in their
‘ordinary and popular sense,’ unless ‘used by the parties in a
technical sense or a special meaning is given to them by usage’
([Civ. Code,] § 1644), controls judicial interpretation. [Citation.]”
[Citations.]’ [Citation.] ” (Continental, supra, 55 Cal.4th at
pp. 194–195.)
The court then addressed the “all sums” language of the
relevant policies, explaining that such language “obligate[s] the
insurers to pay all sums for property damage attributable to the
[contaminated] site, up to their policy limits, if applicable, as long
as some of the continuous property damage occurred while each
policy was ‘on the loss.’ ” (Continental, supra, 55 Cal.4th at
p. 200.) This coverage “extends to the entirety of the ensuing
23
damage or injury [citation], and best reflects the insurers’
indemnity obligations under the respective policies, the insured’s
expectations, and the true character of the damages that flow
from a long-tail injury.” (Ibid.)
Continental determined that the policies at issue enabled
the insured “to stack the consecutive policies and recover up to
the policy limits of the multiple plans. ‘Stacking’ generally refers
to the stacking of policy limits across multiple policy periods that
were on a particular risk. In other words, ‘Stacking policy limits
means that when more than one policy is triggered by an
occurrence, each policy can be called upon to respond to the claim
up to the full limits of the policy.’ [Citation.] ‘When the policy
limits of a given insurer are exhausted, [the insured] is entitled
to seek indemnification from any of the remaining insurers [that
were] on the risk . . . .’ [Citations.] The all-sums-with-stacking
indemnity principle . . . ‘effectively stacks the insurance coverage
from different policy periods to form one giant “uber-policy” with
a coverage limit equal to the sum of all purchased insurance
policies. Instead of treating a long-tail injury as though it
occurred in one policy period, this approach treats all the
triggered insurance as though it were purchased in one policy
period. The [insured] has access to far more insurance than it
would ever be entitled to within any one period.’ [Citation.] The
all-sums-with-stacking rule means that the insured has
immediate access to the insurance it purchased. It does not put
the insured in the position of receiving less coverage than it
bought. It also acknowledges the uniquely progressive nature of
long-tail injuries that cause progressive damage throughout
multiple policy periods. [Citation.]” (Continental, supra,
55 Cal.4th at pp. 200–201.)
24
Continental emphasized that “absent antistacking
provisions, statutes that forbid stacking, or judicial intervention,
‘standard policy language permits stacking.’ ” (Continental,
supra, 55 Cal.4th at p. 201.) The court therefore concluded that
“the policies at issue here, which do not contain antistacking
language, allow for its application. . . .” (Id. at p. 201, italics
added.) The court noted, however, that there exists a “significant
caveat” to all-sums-with-stacking indemnity allocation—i.e., that
an insurer “may avoid stacking by specifically including an
‘antistacking’ provision in its policy. Of course, in the future,
contracting parties can write into their policies whatever
language they agree upon, including limitations on indemnity,
equitable pro rata coverage allocation rules, and prohibitions on
stacking.” (Id. at p. 202.)
2. What Continental Did and Did Not Decide
As the foregoing discussion makes clear, the issue before
the court in Continental was very different from the issue
presented by the present petition. Before the court in
Continental was the question of whether the insured could access
policies in effect during multiple triggered policy periods, as the
insured contended, or whether it could access only those policies
that covered a single policy period, as urged by the insurers. The
issue before us, in contrast, is not whether an insured can access
policies written for different policy years (it can), but the order or
sequence in which it may or must do so.
Moreover, as we have said, the court’s analysis in
Continental was based on the language of the particular policies
before it in that case, and specifically the insurers’ promises “ ‘[t]o
pay on behalf of the Insured all sums which the Insured shall
become obligated to pay by reason of liability imposed by law . . .
25
for damages . . . because of injury to or destruction of property,’ ”
up to specified policy limits. (Continental, supra, 55 Cal.4th at
p. 193, italics added.) In contrast, many of the excess policies
relevant to our analysis do not include “all sums” language, and
thus the high court’s analysis of the “all sums” language has
limited application here.
Further, Continental did not, as Montrose asserts,
announce a general principle that insureds covered by multiple
policies are entitled to “select which policy(ies) to access for
indemnification in the manner they deem most efficient and
advantageous.” Indeed, Continental did not announce any
general principles applicable to all insureds and all policies.
Instead, it reaffirmed the principle that insurance policies must
be interpreted according to their terms, even if alternative
allocation schemes might be more desirable. (See Continental,
supra, 55 Cal.4th at p. 199 [“Although some states have
concluded, as the insurers urge in this case, that pro rata
coverage would be more fair and equitable when compared to all
sums allocation, we are constrained by the language of the
applicable policies here.”].)
Finally, while Continental held that each “triggered” policy
may be called upon to respond to a claim (Continental, supra,
55 Cal.4th at p. 200), it did not consider when a higher-layer
excess policy is “triggered” in the context of a long-tail
environmental injury. That is, Continental discussed the “trigger
of coverage” issue temporally, explaining that “ ‘[t]he issue is
largely one of timing—what must take place within the policy’s
effective dates for the potential of coverage to be “triggered”? ’ ”
(Id. at p. 196.) Because it was not called upon to do so, the court
in Continental did not consider the aspect of “trigger of coverage”
26
before us in this case—what lower-layer excess policies must be
exhausted before a higher-layer excess policy is triggered.
In short, while Continental provides a general framework
for our analysis, it provides limited guidance on the specific
question before us: Whether Montrose may access higher-level
excess insurance before exhausting lower-level excess insurance
written for different policy periods. As Continental directs, we
turn to the language of the relevant policies to decide that
question.
B. The Language of the Excess Insurance Policies Does
Not Mandate “Elective Stacking”
1. The Policies’ “Plain Language”
Montrose acknowledges that the starting point of policy
interpretation is “the ‘plain language’ of the written provisions of
the insurance contract,” and it asserts that each of the excess
policies at issue contains “express language” stating “that
coverage thereunder attaches upon the exhaustion of a specified
amount of underlying insurance issued in the same policy year.”
(Italics added.) The latter assertion is the linchpin of Montrose’s
plain language analysis: If Montrose is correct that the policies
provide for coverage as soon as lower-layer policies within the
same policy period are exhausted, then elective stacking
necessarily follows.
The problem with Montrose’s analysis is that it is largely
unsubstantiated by the policy language. That is, while Montrose
repeatedly asserts that the excess policies attach upon the
exhaustion of lower layer policies within the same policy period,
it does not identify the provisions that supposedly have that
effect.
27
Our analysis of the policies, moreover, leads us to conclude
that many of the policies attach not upon exhaustion of lower-
layer policies within the same policy period, but rather upon
exhaustion of all available insurance. A few examples will
illustrate the point:
(1) American Centennial Policies Nos. XC-00-03-64, XC-
00-06-75, and XC-00-12-16. The insuring agreements of these
policies state that the insurer “agrees to pay on behalf of the
insured the ultimate net loss in excess of the retained limit[3]
hereinafter stated.” The declarations then identify the
underlying policies to which the American Centennial policies are
specifically in excess (the “scheduled policies”); for example, for
policy year 1980 to 1981, the American Centennial policy
references a Canadian Universal CGL policy, written for policy
period March 1980 through March 1981, with a combined single
limit of $1,000,000.
Focusing on only the insuring agreements and declarations,
Montrose would have us conclude that the American Centennial
policies attach upon the exhaustion of the scheduled policies—in
the example provided above, when Montrose’s liabilities exceed
$1,000,000, thus exhausting the limits of the Canadian Universal
policy. But that interpretation ignores other relevant policy
provisions, including the following:
The “retained limit” clause: This clause provides: “ ‘[T]he
company’s liability shall be only for the ultimate net loss in
excess of the insured’s retained limit defined as the greater of:
3 “Retained limit” “refers to a specific sum or percentage of
loss that is the insured’s initial responsibility and must be
satisfied before there is any coverage under the policy.” (Croskey,
supra, ¶ 7:384.)
28
[¶] . . . the total of the applicable limits of the underlying policies
listed in [the declarations] hereof, and the applicable limits of any
other underlying insurance collectible by the insured.’ ” (Italics
added.) This clause thus expressly states that the excess
insurer’s liability is in excess of the identified underlying
insurance and the applicable limits of any other underlying
insurance collectible by the insured.
The “other insurance” clause: This clause states: “ ‘If other
collectible insurance . . . is available to the insured covering a loss
also covered hereunder (except insurance purchased to apply in
excess of the sum of the retained limit and the limit of liability
hereunder) the insurance hereunder shall be in excess of and not
contribute with, such other insurance.’ ” This clause thus
provides that the American Centennial policies are excess to both
scheduled and unscheduled policies.
(2) Continental Policies Nos. RDX 030 807 62 18, RDX
8893542, RDX 8936616 and RDX 8936617, and Columbia
Policies Nos. RDX 1864012 and RDX 3652015. The
indemnification provisions of these policies require the insurers
“ ‘[t]o indemnify the insured for the amount of loss which is in
excess of the applicable limits of liability of the underlying
insurance [identified in the schedule of primary and umbrella[4]
4 “Umbrella policies are usually excess policies in the sense
that they afford coverage that is excess over underlying
insurance. [Citations.] [¶] However, an umbrella policy may
also provide coverage for losses not covered by any underlying
insurance; and as to those losses, the umbrella policy is primary
[citation]. Umbrella policies may thus fill gaps in coverage both
vertically (by providing excess coverage) and horizontally (by
providing primary coverage for losses covered by the excess
policy).” (Croskey, supra, ¶ 8:203.)
29
coverage].” The schedules of primary and umbrella coverage
identify the underlying policies to which the Continental and
Columbia policies are specifically in excess; for example, policy
no. RDX 030 807 62 18 references a primary policy written by
INA, as well as three umbrella policies written by Lloyds and
Home Insurance.
Montrose would have us conclude that Continental’s and
Columbia’s policies attach immediately upon the exhaustion of
the policies specifically identified in the schedule of primary and
umbrella coverage. But that analysis ignores the other relevant
policy provisions, including the following:
Definition of “loss”: Continental’s and Columbia’s policies
define “loss” (as used in the indemnification provisions) as “ ‘the
sums paid as damages in settlement of a claim or in satisfaction
of a judgment for which the insured is legally liable, after making
deductions for all recoveries, salvages and other insurances
(whether recoverable or not) other than the underlying insurance
and excess insurance purchased specifically to be in excess of this
policy.’ ” (Italics added.) These policies thus define loss in terms
of other insurance.
“Other insurance” clauses: The “other insurance” clauses
state: “ ‘If, with respect to a loss covered hereunder, the insured
has other insurance, whether on a primary, excess or contingent
basis, there shall be no insurance afforded hereunder as respects
such loss; provided, that if the applicable limit of liability of this
policy is greater than the applicable limit of liability provided by
the other insurance, this policy shall afford excess insurance over
and above such other insurance in an amount sufficient to give
the insured, as respects the layer of coverage afforded by this
policy, a total limit of liability equal to the applicable limit of
30
liability afforded by this policy.’ ” This provision “ ‘does not apply
with respect to the underlying insurance or excess insurance
purchased specifically to be in excess of this policy.’ ” It thus
expressly states that the Continental and Columbia policies shall
not cover losses for which the insured has other insurance.
We caution that the foregoing discussion addresses just a
few of the excess policies at issue, and thus nothing we have said
should be understood to apply to all of the excess policies before
us. To the contrary, there is tremendous variation among the
relevant policies, and each must be interpreted according to its
own language.5 There may well be some policies that, as
Montrose argues, are triggered by the exhaustion of only the
underlying scheduled insurance for the same policy year. To
demonstrate that it is entitled to elective stacking as to its entire
policy portfolio, however, Montrose must show that each policy is
susceptible of being read in this fashion. It plainly has not done
so.
5 We disagree with Montrose’s contention that “[w]hile there
are various nuances and variations in the insuring agreement for
each of the Policies, these differences do not change the basic
grant of coverage . . . or materially alter the determination of the
proper exhaustion methodology.” As we have said, there is
significant diversity among the various excess policies—the
relevant language of which fills approximately 90 pages of
Montrose’s appendix.
31
2. Case Law Establishes That “Other Insurance”
Provisions Must Be Given Effect According to Their
Terms
(a) Community Redevelopment
Our conclusion that (at least some of) the policies before us
are excess to lower-lying policies written in both the same and
other years is consistent with the conclusion of Community
Redevelopment, supra, 50 Cal.App.4th 329. There, the insured
was a developer who constructed housing complexes on
improperly filled land. (Id. at p. 333–334.) The insured had
purchased primary insurance policies from United Pacific
Insurance Company (United) for policy years 1982–1984, and
from State Farm Fire and Casualty Insurance Company (State
Farm) for policy year 1985–1986; for policy year 1985–1986, the
developer also purchased an excess policy from Scottsdale
Insurance Company (Scottsdale). (Id. at p. 334.) When the
insured was sued by homeowners for continuing property damage
that spanned these policy periods, it tendered claims to all three
insurers.
After State Farm’s primary policy limits were exhausted, a
dispute arose between United and Scottsdale as to which insurer
was responsible to the developer for the remaining defense costs.
United argued that Scottsdale’s policy was excess to State Farm’s
primary policy, and thus Scottsdale’s duty to defend arose as soon
as the State Farm policy was exhausted. (Community
Redevelopment, supra, 50 Cal.App.4th at p. 337.) Scottsdale
disagreed, urging that its insurance was excess to all other
primary insurance available to the developer.
To resolve the issue, the court reviewed the language of the
Scottsdale excess policy. The court noted that there was “no
32
dispute” that Scottsdale’s $5 million coverage was purchased as
excess to the $1 million primary policy issued by State Farm.
However, “the express provisions of the [excess] policy further
provide that Scottsdale’s liability was also excess to ‘the
applicable limits of any other underlying insurance collectible by
the [insured parties].’ (Italics added.) This express description
as to the scope of Scottsdale’s excess coverage is entirely
consistent with, and is reinforced by, other policy language
dealing with Scottsdale’s duty to defend and the impact of ‘other
insurance.’ Scottsdale agreed to defend its insured provided that
‘no other insurance affording a defense or indemnity against such
a suit is available.’ The policy also provided that the insurance
afforded by the policy ‘shall be excess insurance over any other
valid and collectible insurance available to the [insured parties]
whether or not described in the Schedule of Underlying
Insurance’ (which schedule listed State Farm’s $1 million
policy).” (Community Redevelopment, supra, 50 Cal.App.4th at
p. 338.) Thus, applying “settled rules of policy construction,” the
court concluded that Scottsdale’s exposure was excess to all other
primary insurance available to the developer. (Id. at pp. 338–
339; see also Padilla Construction Co. v. Transportation Ins. Co.
(2007) 150 Cal.App.4th 984 [under its plain language, excess
policy was not triggered until all primary insurance was
exhausted, including primary insurance written in different
policy years]; Olympic Ins. Co. v. Employers Surplus Lines Ins.
Co. (1981) 126 Cal.App.3d 593, 600 [“ ‘[When] a policy which
provides excess insurance above a stated amount of primary
insurance contains provisions which make it also excess
insurance above all other insurance which contributes to the
33
payment of the loss together with the specifically stated primary
insurance, such clause will be given effect as written.’ ”].)
Montrose urges that Community Redevelopment is not
relevant to our analysis because that case involved primary
coverage and “did [not] announce any rule about a policyholder’s
right to access higher-lying coverage before the exhaustion of
excess policies in different policy periods.”6 We do not agree.
While Montrose is correct that the underlying layer of insurance
in Community Redevelopment was a primary layer, rather than
a lower-lying excess layer, Montrose suggests no reason why we
should differently interpret first-layer excess policies (that is,
excess policies immediately above primary policies) and higher-
level excess policies (excess policies immediately above other
excess policies). Montrose also suggests that Community
Redevelopment is not relevant because it “had nothing to do with
a policyholder’s right to indemnity coverage,” but rather
addressed the duty to defend. In fact, although the specific
question before the court in Community Redevelopment was
whether the excess insurer had an obligation “to ‘drop down’ and
provide a defense,” the answer to that question depended on
6 Montrose also argues, citing Montgomery Ward & Co. v.
Imperial Casualty & Indemnity Co. (2000) 81 Cal.App.4th 356,
369 (Montgomery Ward), that “California courts that have been
asked by insurers to expand Community Redevelopment beyond
the contours of primary insurance have refused to do so.”
However, Montgomery Ward concerned the obligations of excess
insurers to an insured in the context of a self-insured retention,
which the court concluded was not “ ‘other collectible insurance
with any other insurer’ ” within the meaning of the policy
language before it (id. at pp. 366–367); it therefore is irrelevant to
our analysis.
34
whether the excess insurer’s exposure for either defense or
indemnity was excess to all other lower-lying policies, or to only
the lower-lying policy to which the excess policy specifically
referred—the very issue before us in this case. (Community
Redevelopment, supra, 50 Cal.App.4th at pp. 332, 336–339.)
(b) Dart Industries, Inc. v. Commercial
Union Ins. Co. Does Not Compel Us to Ignore
the Policies’ “Other Insurance” Provisions
Montrose acknowledges that many of the policies purport to
be excess to “other insurance,” but citing Dart Industries, Inc. v.
Commercial Union Ins. Co. (2002) 28 Cal.4th 1059 (Dart),
Montrose urges that “other insurance” clauses are relevant only
to “the specific question of how to allocate (or ‘apportion’) liability
disputes ‘among multiple insurers’ after the policyholder is fully
indemnified”—not to “ ‘the insurers’ obligations to the
policyholder.’ ” In other words, Montrose contends, “ ‘[O]ther
insurance’ clauses govern the rights and obligations of insurers
covering the same risk vis-à-vis one another, but do not affect a
policyholder’s right to recovery under those policies.”
Montrose’s assertion about “other insurance” clauses finds
no support in Dart. Dart concerned claims made by women
injured as a result of prenatal exposure to diethylstilbestrol
(DES) manufactured by Dart from the 1940’s through the 1960’s.
During some of those years, Dart was covered by a CGL policy
issued by Commercial Union Insurance Company (Commercial
Union), but all copies of the policy had been lost. (Dart, supra,
28 Cal.4th at pp. 1064–1065.) Commercial Union urged, among
other issues, that an “other insurance” clause might reduce or
extinguish its liability, and thus that Dart had to establish the
terms of the lost policy’s “other insurance” clause in order to
35
trigger Commercial Union’s duties to defend and indemnify. One
of the issues on appeal, therefore, was whether Dart’s inability to
prove the precise terms of the “other insurance” clause was fatal
to its claim. (Id. at pp. 1078-1079.)
The court held that Dart’s ignorance of the language of the
policy’s “other insurance” clause did not relieve Commercial
Union of its policy obligations. The court noted that “the modern
trend is to require equitable contributions on a pro rata basis
from all primary insurers regardless of the type of ‘other
insurance’ clause in their policies.” (Dart, supra, 28 Cal.4th at
p. 1080, italics added.) It was undisputed that Commercial
Union was a primary insurer during the relevant time period.
Thus, an “other insurance” clause—whatever its terms—was
irrelevant to Commercial Union’s obligation to provide primary
coverage to its insured: “ ‘When multiple policies are triggered on
a single claim, the insurers’ liability is apportioned pursuant to
the “other insurance” clauses of the policies [citation] or under
the equitable doctrine of contribution [citations]. That
apportionment, however, has no bearing upon the insurers’
obligations to the policyholder. . . . The insurers’ contractual
obligation to the policyholder is to cover the full extent of the
policyholder’s liability (up to the policy limits).’ [Citations.] This
principle is consistent with ‘the settled rule that an insurer on
the risk when continuous or progressively deteriorating damage
or injury first manifests itself remains obligated to indemnify the
insured for the entirety of the ensuing damage or injury.’
[Citation.]” (Ibid, italics added.)
Montrose relies on the italicized language to suggest that
references to “other insurance” in its policies are relevant only to
the insurers’ obligations to one another, not to the insurers’
36
obligations to it. But in so urging, Montrose ignores a key
difference between Dart and the present case—namely, that the
insurer in Dart was a primary insurer, while the insurers in the
present case are excess insurers. The difference between primary
and excess insurance in this context is material. In Dart, the
“other insurance” clause was held not to extinguish the insurer’s
duty to the insured under the relevant primary policies because
such duty attached “ ‘when continuous or progressively
deteriorating damage or injury first manifests itself’ ” and
covered “ ‘the full extent of the policyholder’s liability (up to the
policy limits).’ ” (Dart, supra, 28 Cal.4th at p. 1080.) The excess
policies at issue in the present case, however, attach only after
other identified insurance is exhausted, not immediately upon
the occurrence giving rise to liability. (Croskey, supra, at
¶ 8:176–8:177.) Thus, because exhaustion of underlying
insurance is an explicit prerequisite for the attachment of excess
insurance—and because an “other insurance” clause may define
the insurance that must be exhausted before the excess insurance
attaches—Dart’s statement that apportionment among insurers
has no bearing on the insurers’ obligations to the policyholder
simply does not apply in the present context.
The distinction between primary and excess policies for
purposes of giving effect to “other insurance” clauses is aptly
illustrated by Carmel Development Co. v. RLI Ins. Co. (2005)
126 Cal.App.4th 502 (Carmel). That case involved excess CGL
policies issued by RLI Insurance Company (RLI) and Fireman’s
Fund Insurance Company (Fireman’s Fund). (Id. at p. 506.)
After the limits of the primary policies were exhausted, a dispute
arose between RLI and Fireman’s Fund as to whether RLI was
37
required to contribute on an equal basis with Fireman’s Fund to
a settlement entered into by the insured.
The trial court held that because the two excess policies
had competing “other insurance” clauses, the excess insurers had
to contribute to the settlement on a pro rata basis. (Carmel,
supra, 126 Cal.App.4th at p. 507.) The Court of Appeal reversed.
It agreed with the trial court that both policies contained similar
“other insurance” clauses, and it said it thus would uphold the
trial court’s decision if the “other insurance” clauses were
considered in isolation. The Carmel court declined to read the
clauses in isolation, however. It instead undertook “a broader
examination of each policy to ascertain the context in which the
‘other insurance’ provisions appeared.” (Id. at p. 509.)
The Carmel court noted that Fireman’s Fund’s insuring
agreement promised to pay the insured “ ‘those sums in excess of
Primary Insurance’ ” described in the “ ‘Limits of Insurance.’ ” In
contrast, RLI’s insuring agreement promised to pay the insured’s
“ultimate net loss in excess of . . . the applicable limits of
scheduled underlying insurance . . . plus the limits of any
unscheduled underlying insurance . . . .’ ” (Carmel, supra,
126 Cal.App.4th at p. 510, italics added.) Based on this language,
the Carmel court concluded that RLI and Fireman’s Fund did not
place themselves in identical positions with respect to other
insurance. It explained: “Fireman’s Fund undertook to provide
coverage immediately upon exhaustion of [the specifically
identified primary insurer’s] policy limits, whereas RLI obligated
itself to step in only when the limits of both the [specifically
identified primary] policy and all other available coverage—
primary and excess—were exceeded.” (Carmel, supra, at
pp. 510–511.) Thus, “the overall intent and purpose of the two
38
policies at issue here can be discerned from their respective
insuring terms read in context and in light of the entire policy in
which they appear. Fireman’s Fund provided coverage
specifically excess to the underlying primary policy, whereas RLI
was liable for claims in excess of any other insurance. Because
the two policies did not operate at the same level of coverage, it
was irrelevant that they both contained excess-only ‘other
insurance’ clauses. As the Fireman’s Fund policy limit was not
exceeded by the [underlying] settlement, RLI had no duty to
contribute to the indemnification of [the insured].” (Id. at
pp. 516–517.)
Carmel makes clear that references to “other insurance”
may play different roles in different policies. Where two (or
more) policies are at the same level for the same risk (e.g., both
primary or both excess) and contain conflicting “other insurance”
provisions purporting to be excess over all other available
insurance, courts may refuse to give effect to those provisions
and, instead, require each to contribute to the costs of defense or
indemnity on a pro rata basis. (Carmel, supra, 126 Cal.App.4th
at p. 508.) Under other circumstances, however, “other
insurance” clauses may be relevant to determining whether two
policies provide the same level of coverage—and, thus, the order
in which excess policies attach.7
7 Montrose also contends that giving effect to “other
insurance” provisions in the context of determining a
policyholder’s right to recovery “would lead to the absurd result
that Montrose could not obtain coverage under any Policy,
because each Policy purports to require Montrose to first exhaust
all ‘other valid and collectible insurance’ in other policy periods.”
The claim is without merit. It is true, as Montrose notes, that
where multiple policies contain “other insurance” clauses
39
C. Montrose’s Public Policy Claims Are Without
Merit
Notwithstanding the foregoing, Montrose contends that
there are multiple reasons why a rejection of elective stacking
would be “inconsistent with sound public policy.” However,
public policy is not an appropriate basis for re-writing the policy
language: As our Supreme Court has said, “[T]he pertinent
policies provide what they provide. [The insured] and the
insurers were generally free to contract as they pleased.
[Citation.] They evidently did so. They thereby established what
was ‘fair’ and ‘just’ inter se. We may not rewrite what they
themselves wrote.” (Aerojet-General Corp. v. Transport
Indemnity Co. (1997) 17 Cal.4th 38, 75.)
In any event, Montrose’s public policy claims are without
merit for the reasons that follow:
Montrose first urges that mandatory horizontal exhaustion
obligates the policyholder to obtain coverage from policies it may
not wish to access. We do not agree that our holding in this case
has the effect of “obligating” any policyholder to seek
indemnification under any particular policy. All we hold today is
that insureds must exhaust lower layers of coverage before
accessing higher layers of coverage if the language of the excess
purporting to be excess to one another such that honoring the
clauses would deprive the insured of coverage, “the conflicting
clauses will be ignored and the loss prorated among the
insurers.” (Fireman’s Fund Ins. Co. v. Maryland Casualty Co.
(1998) 65 Cal.App.4th 1279, 1304–1305.) However, Montrose has
not demonstrated either that each of the policies at issue has an
“other insurance” clause, or that giving effect to the “other
insurance” clauses will deprive it of coverage.
40
policies so requires—a result hardly inconsistent with sound
public policy.
Montrose next argues that mandatory horizontal
exhaustion penalizes policyholders for their “prudent decision” to
purchase additional coverage. Not so. Horizontal exhaustion
dictates only the sequence in which policies are accessed, not the
total coverage available to the insured.8 There is nothing unfair
about requiring an insured to access policies in the manner their
provisions dictate. (E.g., Continental, supra, 55 Cal.4th at p. 199
[in allocating losses across multiple policies, court is “constrained
by the language of the applicable policies,” even if another
allocation scheme “would be more fair and equitable”].)
Montrose argues finally that mandatory horizontal
exhaustion is “unworkable in practice” because of the complexity
of its coverage portfolio. We do not doubt that allocating more
than $200 million in liability across more than 100 policies
covering nearly 25 years is likely to be a complicated process.
That complexity, however, is not relevant to our analysis, as we
cannot, in the service of expediency, impose obligations that are
inconsistent with the terms of the contracts Montrose itself
negotiated.
D. Conclusion: The Trial Court Properly Denied
Montrose’s Motion for Summary Adjudication of the
32nd Cause of Action
Having concluded that the trial court properly rejected
Montrose’s “elective stacking” approach, we now consider the
8 Indeed, Montrose concedes that the hundreds of millions of
dollars of excess coverage the policies at issue collectively provide
“should be sufficient to fully indemnify Montrose’s liability
incurred in U.S. v. Montrose.”
41
effect of this conclusion on Montrose’s motion for summary
adjudication of the 32nd cause of action.
To reiterate, the 32nd cause of action sought a declaration
that “a. In order to seek indemnification under the Defendant
Insurers’ excess policies, Montrose need only establish that its
liabilities are sufficient to exhaust the underlying policy(ies) in
the same policy period, and is not required to establish that all
policies insuring Montrose in every policy period (including
policies issued to cover different time periods both before and
after the policy period insured by the targeted policy) with limits
of liability less than the attachment point of the targeted policy,
have been exhausted; and [¶] b. Montrose may select the manner
in which [to] allocate its liabilities across the policy(ies) covering
such losses.”
To be entitled to summary adjudication of the 32nd cause of
action, Montrose must demonstrate that the judicial declaration
it sought applies not just to some of the excess policies, but to all
of them. For the reasons discussed, while such a declaration may
be appropriate with respect to some of the policies—an issue we
do not reach—such broad relief manifestly could not apply to all
of them. Therefore, the trial court did not err in denying
Montrose’s motion for summary adjudication of the 32nd cause of
action.9
9 The Travelers insurers, joined by the Continental insurers,
urge that Montrose’s request for summary adjudication is
improper because it sought a ruling that “would excuse it from
making the required showing for exhaustion” under California
law: “Specifically, Montrose sought a declaration that, in order to
seek indemnification under the defendant insurers’ excess
policies, Montrose ‘need only establish that its liabilities are
sufficient to exhaust’ the insurance underlying the excess
42
Having concluded that the trial court properly denied
Montrose’s motion for summary adjudication of the 32nd cause of
action, we readily conclude that the court properly granted the
insurer’s cross-motion for summary adjudication of that cause of
action. Montrose’s and the Continental insurers’ competing
motions for summary adjudication of the 32nd cause of action
were mirror images of one another. Because Montrose was not
entitled to the declaratory relief it sought as a matter of law,
summary adjudication of the 32nd cause of action in favor of the
Continental insurers was warranted.
III.
The Present Record Does Not Support a
Universal “Horizontal Exhaustion” Approach;
Thus, the Trial Court Erred in Granting the
Insurers’ Motion on the Issue of Duty
We now reach the final issue raised in this writ proceeding:
whether the Continental insurers were entitled to summary
adjudication on the issue of duty. To repeat, the Continental
insurers sought a declaration that: “All underlying policy limits
across the years of continuing damage must be exhausted by
payment of covered claims before any of the Insurers’ excess
policies ha[s] a duty to pay covered claims.”
As we have said, California law requires that insurance
contracts be interpreted according to their terms, and there is
tremendous variation among the terms of the excess policies at
policy(ies) it is targeting, not that Montrose has actually
exhausted that underlying insurance or even that the terms of
the underlying insurance would cover Montrose’s liabilities.”
Because we have concluded for other reasons that Montrose is not
entitled to summary adjudication, we need not reach this issue.
43
issue in this matter. Further, although the parties have
stipulated as to some of the language of the relevant policies,
they did not provide the trial court, and have not provided this
court, with all of the policy language or with copies of the policies
themselves. The absence of these policies makes it impossible for
us to “ ‘interpret [policy] language in context, with regard to its
intended function in the policy.’ [Citation.]” (Hartford Casualty
Ins. Co. v. Swift Distribution, Inc. (2014) 59 Cal.4th 277, 288,
italics added.)
Additionally, some of the policies “ ‘follow form’ ”—i.e.,
incorporate the provisions of the immediately underlying policies
(Fuller-Austin Insulation Co. v. Highlands Ins. Co. (2006)
135 Cal.App.4th 958, 967)—but the insurers have not provided us
with all of the underlying policies or, indeed, made clear which
policies apply in each policy year. For example, American
Centennial policy no. CC-00-76-47 provides: “Except as may be
inconsistent with this Policy, the coverage provided by this Policy
shall follow the insuring agreements, conditions and exclusions of
the underlying insurance (whether primary or excess) immediately
preceding the layer of coverage provided by this Policy, including
any change by endorsements.” (Italics added.) We cannot
determine from the information provided, however, the
“underlying insurance” to which this policy refers.
For these reasons, we cannot conclude that each of the
more than 115 policies at issue requires “horizontal exhaustion”
of the underlying policy layers for each policy year. Accordingly,
the Continental insurers were not entitled to summary
adjudication on the issue of duty.
44
DISPOSITION
The petition for writ of mandate is granted in part and
denied in part. The respondent superior court is directed to
vacate the portion of its order granting the Continental insurers’
motion for summary adjudication on the issue of duty, and to
enter a new and different order denying their cross-motion for
summary adjudication on the issue of duty; in all other respects
(and specifically insofar as it challenges the court’s summary
adjudication of the 32nd cause of action), the writ petition is
denied. The cause is remanded to the respondent superior court
for further proceedings consistent with this opinion. The parties
shall bear their own costs in this proceeding. (Cal. Rules of
Court, rule 8.493.)
CERTIFIED FOR PUBLICATION
EDMON, P. J.
We concur:
ALDRICH, J. *
LAVIN, J.
* Retired Associate Justice of the Court of Appeal, Second
Appellate District, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
45