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SAN FRANCISCO—The California Supreme Court on Thursday ruled that policyholders involved in long-tail environmental claims can “stack” coverage limits over multiple policy years and can take an “all-sums” approach to indemnity allocation.
The unanimous ruling in the State of California vs. Continental Insurance Co. et al. affirms an appellate court's decision of the “all-sums-with-stacking” default allocation rule regarding commercial general liability policies purchased by the state of California from several insurers over several years.
The state's decision will affect how insurance is recovered in environmental and other long-tail claims, industry experts say.
At issue is California's Stringfellow hazardous waste site near Glen Avon, which over several years suffered numerous design defects, allowing contaminants to escape beneath the surface and through the barrier dam.
The state filed two actions, which later were consolidated into one, seeking coverage for the remediation of the site from various insurers.
While many other states have adopted a pro rata rule for allocation, where an equal share of the amount of damage is assigned to each year over which the long-tail injury occurred, the California court concluded that “the policies at issue obligate the insurers to pay all sums for property damage attributable to the Stringfellow 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,'” Justice Ming W. Chin wrote in the decision.
The California Supreme Court noted advantages to the “all-sums-with-stacking” rule, such as resolving the question of insurance coverage related to “immeasurable” aspects of long-tail damages.
“There is nothing unfair or unexpected in allowing stacking in a continuous long-tail loss,” Justice Chin wrote. “The most significant caveat to all-sums-with-stacking indemnity allocation is that it contemplates that an insurer may avoid stacking by specifically including an 'antistacking' provision in its policy.”
Health care facilities face unique pollution liability challenges because of their unique environmental exposures, including transportation issues, indoor air quality, waste management processes—and the fact that most of the people in those facilities have suppressed immune systems. Bill Nellen, executive vp of the environmental group at Alliant Insurance Services Inc., outlines the potential exposures and the due diligence required to help mitigate them.