Written By: Roger J. Brothers, Esq.
Buchman Provine Brothers Smith LLP
Walnut Creek, California
The California Supreme Court recently held that a party may combine multiple insurance policies over a period of time in order to increase coverage. This practice is commonly referred to as "stacking" and it can provide the benefit of extensive insurance coverage for policyholders.
The Court in California v. Continental Insurance Co. ("Continental") wrote that the ability to stack policies "acknowledges the uniquely progressive nature of long-tail injuries that cause progressive damage throughout multiple policy periods" (Case No. S170560 at 15 (Aug. 9, 2012)). The Court noted that "stacking" comports with both the policyholder's and the insurers' reasonable expectations.
For example, policyholders who are seeking coverage for an expensive cleanup of contaminated property may want to stack their policies. If an insured purchased $1 million in coverage every year for 10 years—and damage was sustained over the course of the same 10 years—the insured may use the total sum of the policy periods (i.e., $10 million) to pay for the loss.
In Continental, the State of California designated a waste disposal site in Riverside County. Although the State determined that it was a proper site for waste disposal, groundwater contamination was discovered after the site began operating. The site was closed in 1972. The State was found liable for past and future cleanup costs estimated at $700 million. The parties agreed that the damage occurred over multiple policy periods, but disagreed as to whether the total amount of coverage could be applied in the aggregate or if the State was permitted to select only one policy period and recover no more than that policy's limit.
The separate contaminating events gave rise to insurance coverage over many decades, thereby encompassing multiple insurance policy periods. The Court in Continental allowed policy holders to stack "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." (Id., quoting Bratspies, Splitting the Baby: Apportioning Environmental Liability Among Triggered Insurance Policies (1999) 1999 B.Y.U. L.Rev. 1215, 1245.) Properly stacked policies may cover expensive environmental cleanup liabilities, even if the contaminating events span more than one policy period.
Policyholders should review carefully their current policies in order to determine whether or not they contain anti-stacking provisions. All policyholders—whether in anticipation of a specific issue or not—should attempt to avoid purchasing policies that prohibit stacking, if possible, in the wake of Continental. Insurers are expected to include anti-stacking provisions in their policies. Insurers that do not expressly prohibit stacking in their policies may be left without recourse sufficient to deny coverage, thereby allowing policyholders to enjoy greater coverage.