In Ruling For Policyholders On “All Sums” Language, California Finally Defers To Insurance Policy Drafters

October 25, 2012
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The California Supreme Court has unanimously recognized that all insurance policies triggered by continuing injury or damage must pay “all sums” they have promised in their language, and that the policyholder therefore may obtain the benefits of a stacking of policy limits for different policies obtained over many years.  (State v. Cont’l Ins. Co., 281 P.3d 1000 (Cal. 2012)). In addition to the policy language, the California court cited “precedent, principles of equity, and sound insurance policy interpretation” in concluding that the all sums approach to insurance indemnity allocation applies to the State’s liability for successive or long-tail property damage.” The court did not cite any policy drafting history.  It did not mention that its ruling was compatible with the result insurance policy drafting committee members had years before anticipated and intended, indeed had publicized through articles and speeches.  These drafters published broad “all sums” policy language on various occasions, most notably in 1965. The insurance industry policy drafters thought that premiums charged should, and would, fairly reflect the risk to the carriers of continuous triggering and stacking.  Basically, they viewed the issue as an underwriting issue, not as an issue requiring an exclusion.  They thought policyholders would benefit by obtaining more complete coverage; and insurers would benefit by collecting profitably enhanced premiums. Years later, however, insurance companies began to deny indemnification up to the limits of the triggered policies.  They argued that each triggered policy only should pay a pro-rata fraction of the liability, not the “all sums” stated. Some courts, trying to be equitable, accepted the carriers’ new arguments and ruled in favor of implicit limitations.  New Jersey’s Supreme Court, in the “Owens-Illinois/Carter-Wallace” decisions, did so.  These decisions have reduced coverage.  They have also made insurance claim procedures inefficient, time-consuming, and expensive. In its coverage-confirming decision, the California Supreme Court reminds the insurance industry that a clear denial would achieve a different result:  “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.” It remains to be seen whether in light of the California decision the industry will broadly include such limitations, and correspondingly reduce their premium charges.  Because the policy drafters have repeatedly rejected such provisions, perhaps the better bet is on the industry keeping the premiums and providing the needed coverage. In sum, the California ruling is good news for policyholders, especially those who may be facing claims involving typically long-term exposures such as those posed by chemicals, food ingredients and contaminants, and minerals such as asbestos. If you have any questions about this case or would like to discuss the issue further, please contact me, Charles Yuen, or the Scarinci Hollenbeck attorney with whom you work.