Montrose Chemical Corporation Of California v. The Superior Court

Facts

P manufactured the insecticide dichloro-diphenyl-trichloroethane (DDT) at its facility in Torrance from 1947 to 1982. P was sued for causing continuous environmental damage from 1947 to 1982. and subsequently entered into partial consent decrees to resolve various claims. In 1990, the United States and the State of California sued P for environmental contamination allegedly caused by P's operation of this facility. P entered into partial consent decrees in which it agreed to pay for environmental cleanup. P has now expended more than $100 million-and asserts that its anticipated future liability could approach or exceed this amount. P now seeks to tap its liability insurance to cover amounts it owes in connection with those claims. P had purchased primary and excess comprehensive general liability [insurance to cover its operations between 1961 and 1985. Primary insurance refers to the first layer of coverage, whereby “liability attaches immediately upon the happening of the occurrence that gives rise to liability.” Excess insurance “refers to indemnity coverage that attaches upon the exhaustion of underlying insurance coverage for a claim.” An excess insurer's coverage obligation begins once a certain level of loss or liability is reached; that level is generally referred to as the “‘attachment point’” of the excess policy. Here, 40 insurers collectively issued more than 115 excess policies during the 1961 to 1985 period, which collectively provided coverage sufficient to indemnify P's anticipated total liability. The dispute before this court presents no issue about the exhaustion of P's primary insurance. The parties have stipulated to the relevant language found in the excess policies. Each policy provides that P must exhaust the limits of its underlying insurance coverage before there will be coverage under the policy. The policies describe the applicable underlying coverage in four main ways: (1) Some policies contain a schedule of underlying insurance listing all of the underlying policies in the same policy period by insurer name, policy number, and dollar amount. (2) Some policies reference a specific dollar amount of underlying insurance in the same policy period and a schedule of underlying insurance on file with the insurer. (3) Some policies reference a specific dollar amount of underlying insurance in the same policy period and identify one or more of the underlying insurers. (4) Some policies reference a specific dollar amount of underlying insurance that corresponds with the combined limits of the underlying policies in that policy period. The excess policies also provide that “other insurance” must be exhausted before the excess policy can be accessed. P and the insurers disagree on whether the contracts require P to exhaust other insurance coverage from other policy periods. P asserted a new cause of action seeking the following declaration: In order to seek indemnification under the Ds' excess policies, P 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 P 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 P may select the manner in which [to] allocate its liabilities across the policy(ies) covering such losses.” P seeks an order from the court for “vertical exhaustion” or “elective stacking,” whereby it may access any excess policy once it has exhausted other policies with lower attachment points in the same policy period. Ds in contrast, each of which has issued an excess policy to P in one of the triggered policy years, argue for a rule of “horizontal exhaustion,” whereby P may access an excess policy only after it has exhausted other policies with lower attachment points from every policy period in which the environmental damage resulting in liability occurred. The parties filed cross-motions for summary adjudication. The trial court denied P's motion and granted Ds' motion, holding that the excess policies required horizontal exhaustion in the context of this multiyear injury. It held that a “‘well-established rule that horizontal exhaustion should apply in the absence of policy language specifically describing and limiting the underlying insurance.’” P filed a petition for a writ of mandate, which the Court of Appeal summarily denied. The State Supreme Court granted P's petition for review and transferred the case to the Court of Appeal with instructions to issue an order to show cause why the relief P sought should not be granted. The Court of Appeal affirmed the trial court's denial of P's motion for summary adjudication and affirmed in part the trial court's grant of the Ds' parallel motion. The State Supreme Court granted review to determine whether vertical exhaustion or horizontal exhaustion is required when a continuous injury occurs over the course of multiple policy periods for which an insured purchased multiple layers of excess insurance.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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