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All-Sums-With-Stacking Rule: Landmark Stringfellow Decision

Analyzing the Impact of the California Supreme Court’s Ruling on Trigger of Coverage, Stacking of Limits, and Allocation of Loss

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WEDNESDAY, SEPTEMBER 12, 2012

Presenting a live 90-minute webinar with interactive Q&A

Robert M. Horkovich, Shareholder, Anderson Kill & Olick, New York Laura A. Foggan, Partner, Wiley Rein, Washington, D.C. Roger W. Simpson, Principal, Law Offices of Roger W. Simpson, Fountain Valley, Calif.

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Robert M. Horkovich, Esq. ANDERSON KILL & OLICK PC rhorkovich@andersonkill.com (212) 278-1322

Strafford Litigation Teleconference

ALL SUMS WITH STACKING RULE: LANDMARK STRINGFELLOW DECISION

Analyzing the Impact of the California Supreme Court’s Ruling on Trigger of Coverage, Stacking of Limits, and Allocation of Loss

Wednesday, September 12, 2012 1:00 p.m. Eastern Time / 12:00 p.m. Central Time / 11:00 a.m. Mountain Time / 10:00 a.m. Pacific Time

Roger W. Simpson, Esq. LAW OFFICES OF ROGER W. SIMPSON rsimpson@rsimpsonlaw.com (714) 968-8521 Laura A. Foggan, Esq. WILEY REIN LLP lfoggan@wileyrein.com (202) 719-3382

Law Offices of Roger W. Simpson

6

ALLOCATION OF LIABILITY

(Robert Horkovich)

All sums rule

7

ALLOCATION OF LIABILITY

(Laura Foggan)

Pro rata/Time on the risk allocation

8

COURT TREATMENT

(Robert Horkovich)

State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186, 281 P.3d 1000, 145 Cal. Rptr.3d 1.

• All Sums (Horkovich).
• Stacking (Simpson).

9

ALL SUMS RULING

(Robert Horkovich)

“We therefore conclude 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.’” State of California v. Continental (2012) 55 Cal.4th 186; 145 Cal. Rptr. 3d 1, 10.

10

ALL SUMS RULING

(Robert Horkovich) “Aerojet reasoned that the insurers would be liable to indemnify the insured against all claims that resulted from some triggering harm during the respective policy periods, even if the claims arose after the policy period expired. **** Aerojet understood Montrose as extending insurers’ indemnity obligations beyond the expiration of the policy period where there has been a continuous loss. **** As the present Court of Appeal observed, Aerojet’s “all sums” approach to the duty to indemnify was essential to its holding regarding the duty to defend.” State of California v. Continental (2012) 55 Cal.4th 186; 145 Cal. Rptr. 3d 1, 8.

11

ALL SUMS RULING

(Robert Horkovich)

“Similar reasoning applies to the indemnity question presented

• here. Neither the State nor the insurers dispute that

progressive damage to property at the Stringfellow site ‘occurred’ during numerous policy periods. In addition, the insurers concede that in cases such as this it is impossible to prove precisely what property damage occurred during any specific policy period. The fact that all policies were covering the risk at some point during the property loss is enough to trigger the insurers’ indemnity obligation.” State of California v. Continental (2012) 55 Cal.4th 186; 145

• Cal. Rptr. 3d 1, 8.

12

ALL SUMS RULING

(Robert Horkovich)

“The insurers advocate that we adopt an alternative allocation scheme – a pro rata rule for indemnity allocation.” State of California v. Continental (2012) 55 Cal.4th 186; 145 Cal. Rptr. 3d 1, 9.

13

ALL SUMS RULING

(Robert Horkovich)

“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…which supports adoption of the all sums coverage principles….” State of California v. Continental (2012) 55 Cal.4th 186; 145 Cal. Rptr. 3d 1, 10.

14

ALL SUMS RULING

(Robert Horkovich)

“Under the CGL policies here, the plain ‘all sums’ language of the agreement compels the insurers to pay ‘all sums which the insured shall become obligated to pay … for damages … because of injury to or destruction of property….’ (Ante, at p. 4, 281 P.3d at p. 1003.) As the State observes, ‘[t]his grant of coverage does not limit the policies’ promise to pay ‘all sums’

• f the policyholder’s liability solely to sums or damage ‘during

the policy period.’’” State of California v. Continental (2012) 55 Cal.4th 186; 145

• Cal. Rptr. 3d 1, 11.

15

ALL SUMS RULING

(Robert Horkovich)

“The insurers contend that it would be ‘objectively unreasonable’ to hold them liable for losses that occurred before or after their respective policy periods. But as the State correctly points out, the ‘during the policy period’ language that the insurers rely on to limit coverage, does not appear in the ‘Insuring Agreement’ section of the policy and therefore is neither ‘logically [n]or grammatically related to the ‘all sums’ language in the insuring agreement.’” State of California v. Continental (2012) 55 Cal.4th 186; 145

• Cal. Rptr. 3d 1, 11.

16

ALL SUMS RULING

(Robert Horkovich)

“The insurers’ claim that their indemnity responsibility is limited to damage occurring ‘during the policy period’ would unduly restrict their agreement to pay ‘all sums’ the insured is

• bligated to pay for damages due to ‘injury to or destruction of

property….’ The CGL policy language does not contemplate such a limited result once there is a property damage

• ccurrence that triggers the insurers’ indemnity

responsibilities for the entirety of the loss, and a growing number of states have similarly adopted this interpretation of the all sums language.” State of California v. Continental (2012) 55 Cal.4th 186; 145

• Cal. Rptr. 3d 1, 10.

17

STACKING

(Roger Simpson)

“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

• f the policy.”

State of California v. Continental (2012) 55 Cal.4th 186

Law Offices of Roger W. Simpson

18

STACKING

(Roger Simpson)

Standard policy language permits stacking:

• Each policy promised to pay “all sums” of the insured’s liability (up

to the policy limits) if damage occurs during its policy period

• No provision reduced or eliminated coverage if other insurance

exists “As the Court of Appeal recognized, absent antistacking provisions, statutes that forbid stacking, or judicial intervention, ‘standard policy language permits stacking.’ We agree with the Court of Appeal, and find that the policies at issue here, which do not contain anti- stacking language, allow for its application. In so holding, we disapprove FMC Corp. v. Plaisted & Companies.” State v. Continental, supra. Law Offices of Roger W. Simpson

19

STACKING

(Roger Simpson)

Rejecting Common Insurance Industry Arguments:

Windfall argument: Stacking gives the insured a windfall; it allows him to recover more coverage than he paid for. The insured paid a premium for one occurrence limit, not many. “[I]f an occurrence is continuous across two or more policy periods, the insured has paid two or more premiums and can recover up to the combined total of the policy limits.” State v. Continental, supra.

Law Offices of Roger W. Simpson

20

STACKING

(Roger Simpson)

Rejecting Common Insurance Industry Arguments:

Reasonable expectations argument: The insured could not reasonably expect to be allowed to stack the limits of consecutive policies for a single long-term occurrence. “[Stacking] also comports with the parties’ reasonable expectations, in that the insurer reasonably expects to pay for property damage occurring during a long-tail loss it covered, but only up to its policy limits, while the insured reasonably expects indemnification for the time periods in which it purchased insurance coverage. State v. Continental, supra.

Law Offices of Roger W. Simpson

21

STACKING

(Roger Simpson)

Rejecting Common Insurance Industry Arguments:

Instantaneous vs. long-term losses argument: Liability insurance should treat instantaneous and long-term losses the same. “[Stacking] acknowledges the uniquely progressive nature of long-tail injuries that cause progressive damage throughout multiple policy periods.” State v. Continental, supra.

Law Offices of Roger W. Simpson

22

STACKING

(Roger Simpson)

Rejecting Common Insurance Industry Arguments:

Stacking erroneously creates a “super policy” equal to the combined limits of all policies. “[Stacking] ‘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.’” State v. Continental, supra.

Law Offices of Roger W. Simpson

23

STACKING

(Roger Simpson)

Law Offices of Roger W. Simpson

Rejecting Common Insurance Industry Arguments:

Public Policy argument. An anti-stacking rule would advance public

• policy. It would encourage insureds to buy more insurance,

promote accurate underwriting and would give insureds an incentive to discover continuing damage at an earlier date. “An all-sums-with stacking rule has numerous advantages. It resolves the question of insurance coverage as equitably as possible, given the immeasurable aspects of a long-tail injury. . . [It] ascertains each insurer’s liability with a comparatively uncomplicated calculation that looks at the long-tail injury as a whole rather than artificially breaking it into distinct periods of injury.” State v. Continental, supra.

24

STACKING

(Roger Simpson)

Caveat: Anti-stacking clauses may preclude stacking.

“[A]n insurer may avoid stacking by specifically including an antistacking’ provision in its policy. . . including limitations on indemnity, equitable pro rata coverage allocation rules, and prohibitions on stacking.” State v. Continental, supra. However: “Provisions which purport to . . . substantially limit liability must be set forth in plain, clear and conspicuous language” and “if the insurer uses language which is uncertain any reasonable doubt will be resolved against it.” (Thompson v. Occidental Life Ins. Co. (1973) 9 Cal. 3d 904, 921; State Farm Mut. Auto. Ins. Co. v. Johnston (1973) 9 Cal.3d 270, 274.) Law Offices of Roger W. Simpson

25

STACKING

(Roger Simpson)

Law Offices of Roger W. Simpson

Related Issues Not Resolved by the Court:

• Stacking of deductibles and self-insured retentions
• Horizontal Exhaustion

26

ALL-SUMS RULE

(Laura Foggan)

Insurance Industry View: “All-sums” in the indemnity context is inconsistent with the policy language.

• Insuring Agreement: Insurers agreed “[t]o pay on behalf of the

Insured all sums which the Insured shall become obligated to pay . . .” as damages because of property damage to which this insurance applies caused by an occurrence.

• Occurrence Definition: “‘Occurrence’ means an accident or a

continuous or repeated exposure to conditions which result in injury to persons or damage to property during the policy period….”

• Policy Period Territory: “This policy applies only to occurrences

which take place during the policy period commencing _______ and ending ______.”

27

ALL-SUMS RULE

(Laura Foggan)

Insurance Industry View: The “all-sums” approach is contrary to the fundamental rules of contract interpretation.

• The “all sums” approach rewrites the insurance

contracts – replacing policy terms limiting coverage to property damage “during the policy period” with property damage “during and before and after the policy period.”

• The “all sums” approach deprives policy terms of

meaning, contrary to the rule that each term in a contrary to the rule that each term in a contract must be given independent meaning and effect.

28

ALL-SUMS RULE

(Laura Foggan)

Insurance Industry View: The “all-sums” approach is objectively unreasonable.

• “All sums” unreasonably requires an insurer to pay all

damage occurring over time, despite policy language limiting coverage to risk of harm during the policy period.

• “All sums” unreasonably requires insurers to pay for

damage that took place in periods in which the insured did not buy insurance or its policies exclude coverage.

29

ALL-SUMS IN CALIFORNIA: TIED TO 1966 LANGUAGE?

(Laura Foggan)

• State of California addressed allocation under an

Insuring Agreement that did not contain “during the policy period” language and then ignored that limitation in the definition of an “occurrence.”

• In 1973, “during the policy period” was moved in the

ISO Form to the definitions of “bodily injury” and “property damage.”

• In 1986, the ISO Form eliminated “all sums” in favor of

“those sums” and moved the “during the policy period” language to the Insuring Agreement.

30

STACKING

(Laura Foggan)

Insurance Industry View:

• State of California adopted a “super-occurrence” result

by allowing the policyholder to stack the limits of each triggered policy.

• The FMC ruling disapproved by this approach held that,

if coverage for a single occurrence is triggered under more than one policy in an “all sums” approach, the insured may select the policy period it wants to respond. However, under FMC, the insured was not permitted to add together each triggered policy limit to make a “super-occurrence” policy.

31

STACKING

(Laura Foggan)

Insurance Industry View:

• Even Keene Corporation v. Insurance Company of

North America, 667 F.2d 1034, 1049 (D.C. Cir. 1981), did not permit stacking.

• Keene endorsed the idea that multiple years of

coverage responded to asbestos-related injuries, but held:

To the extent possible, we have tried to construe the policies in such a way that the insurers’ contractual obligations for asbestos-related diseases are the same as their obligation for

• ther injuries. Keene is entitled to nothing more. Therefore,

we hold that only one policy’s limit can apply to each injury. Keene, 667 F.2d at 1049.

32

STACKING

(Laura Foggan)

Insurance Industry View:

• State of California recognized that an anti-stacking

provision would require a different result.

• Anti-stacking or non-cumulation clauses are widely used

by insurers. See, e.g., Liberty Mutual Insurance Co. v. Treesdale Inc., 418 F.3d 330, 340 (3d Cir. 2005).

• Will California courts even-handedly apply such policy

terms?

33

FUTURE EFFECT OF STATE OF CALIFORNIA

(Laura Foggan)

Insurance Industry View:

• California-Specific?
• Over-ridden by Anti-Stacking Clauses?
• Tied to 1966 Policy Language and Thus Applicable Only

to “Run-Off” Portfolios and Claims?

34

COURT TREATMENT

Court treatment in other jurisdictions

Law Offices of Roger W. Simpson

35

ALL-SUMS RULE

(Robert Horkovich)

Other Jurisdictions That Have Adopted “All-Sums”:

• Oregon: Cascade Corp. v. American Home Assurance

Co., (Or. Ct. App. 2006) 135 P.3d 450, 455-56.

• Pennsylvania: J.H. France Refractories Co. v. Allstate
• Ins. Co., (Pa. 1993) 626 A.2d 502, 507-508.
• Washington: American Nat’l Fire Ins. Co. v. B & L

Trucking & Constr. Co., (Wn. 1998)951 P.2d 250, 256-

• 257. See also Gruol Constr. Co. v. Ins. Co. of North

America, 524 P.2d 427 (Wn. Ct. App. 1974).

36

ALL-SUMS RULE

(Robert Horkovich)

Other Jurisdictions That Have Adopted “All-Sums”:

• Delaware: Hercules, Inc. v. AIU Ins. Co., (Del. 2001)

784 A.D. 481, 494; Monsanto Co. v. C.E. Health Compensation & Liab. Ins. Co., (Del. 1994) 654 A.2d 30 (applying Missouri law).

• Indiana: Allstate v. Dana Corp., (Ind. 2001) 759 N.E.2d

1049, 1058.

• Ohio: Goodyear Tire & Rubber Co. v. Aetna Cas. &
• Sur. Co., (Ohio 2002) 769 N.E.2d 835, 841;

Pennsylvania General Ins. Co. v. Park-Ohio Indus., (Ohio 2010) 930 N.E.2d 800.

37

ALL-SUMS RULE

(Robert Horkovich)

Other Jurisdictions That Have Adopted “All-Sums”:

• Illinois: Zurich Ins. Co. v. Raymark Indus., Inc., (Ill.

1987) 514 N.E.2d 150, 165; Caterpillar, Inc. v. Century

• Indem. Co., No. 3-09-0456, 2011 WL 488935 (Ill. App.
• Ct. Feb. 1, 2011) (defense).
• Wisconsin: Plastics Engineering Co. v. Liberty Mut. Ins.

Co., (Wis. 2009) 759 N.W. 2d 613.

38

ALL-SUMS RULE

(Robert Horkovich)

Other Jurisdictions That Have Adopted “All-Sums”:

• Arkansas: Murphy Oil USA, Inc. v. United States Fid. &
• Guar. Co. (Ark. Cir. Ct. Feb. 21, 1995) No. 91-439-2,

reprinted in 9 Mealey’s Litig. Rep. Ins. No. 19, Section I (Mar. 21, 1995).

• Texas: Union Pac. Res. Co. v. Continental Ins. Co.

(Tex. Dist. Ct. Dec. 17, 1998), No. 249-23-98, reprinted in 13 Mealey’s Litig. Rep. Ins. No. 11, Section A (Jan. 19, 1999).

39

ALL-SUMS RULE

(Robert Horkovich)

Memorandum of Meeting of Discussion Group Asbestosis – April 21, 1977 “The majority also contended that each carrier on risk during any part of that period could be fully responsible for the cost of defense and loss.”

40

Jurisdictions That Have Rejected “All Sums”:

• Colorado: Public Serv. Co. of Colorado v. Wallis

& Cos., 986 P.2d 924 (Colo. 1999).

• Connecticut: Security Ins. Co. of Hartford v.

Lumbermens Mut. Cas. Co., 826 A.2d 107 (Conn. 2003).

• Idaho: Empire Fire & Marine Ins. Co. v. North

Pacific Ins. Co., 905 P.2d 1025 (Idaho 1995).

ALLOCATION RULE

(Laura Foggan)

41

ALLOCATION RULE

(Laura Foggan)

Jurisdictions That Have Rejected “All Sums”:

• Louisiana: Southern Silica of Louisiana, Inc. v.

Louisiana Insurance Guar. Ass’n, 979 So. 2d 460 (La. 2008).

• Maryland: Pennsylvania National Mutual Casualty

Insurance Co. v. Roberts, 2012 WL 336150 (4th Cir.

• Feb. 3, 2012).
• Massachusetts: Boston Gas Co. v. Century

Indemnity Co., 454 Mass. 337, 910 N.E. 2d 290 (2009).

42

ALLOCATION RULE

(Laura Foggan)

Jurisdictions That Have Rejected “All Sums”:

• Minnesota: Domtar, Inc. v. Niagara Fire Ins. Co.,

563 N.W.2d 724 (Minn. 1997); Cargill, Inc. v. Ace American Ins. Co., 784 N.W.2d 341 (Minn. 2010) (defense).

• Nebraska: Dutton-Lainson Co. v. Continental Ins.

Co., 778 N.W.2d 433 (Neb. 2010).

• New Hampshire: Energy North Natural Gas, Inc. v.

Certain Underwriters at Lloyds, 934 A.2d 517 (N.H. 2007).

43

ALLOCATION RULE

(Laura Foggan)

Jurisdictions That Have Rejected “All Sums”:

• New Jersey: Carter-Wallace, Inc. v. Admiral Ins.

Co., 712 A.2d 1116 (N.J. 1998).

• New York: Consolidated Edison Co. of New York
• v. Allstate Ins. Co., 774 N.E.2d 687 (N.Y. 2002).
• South Carolina: Crossmann Communities of North

Carolina, Inc. v. Harleysville Mutual Insurance Co., 717 S.E.2d 589 (S.C. 2011).

44

ALLOCATION RULE

(Laura Foggan)

Jurisdictions That Have Rejected “All Sums”:

• Utah: Sharon Steel Corp. v. Aetna Cas. & Sur.

Co., 931 P.2d 127 (Utah 1997).

• Vermont: Bradford Oil Co. v. Stonington Insurance

Co., 2011 VT 108 (2011); Towns v. Northern Security Ins. Co., 964 A. 2d 1150 (Vt. 2008); (add Bradford).