15th May 2013

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State v. Continental Ins. Co. (2012) 55 Cal.4th 186

In general

CGL policies contain “all sums” language in the insuring clause. See § I53 INSURING CLAUSE. The “all sums” language of the agreement compels insurers to pay “all sums which the insured shall become obligated to pay … for damages … because of injury to or destruction of property”. [State v. Continental Ins. (2012) 55 Cal.4th 186, 199]


The expression “legally obligated” connotes legal responsibility that is broad in scope. This is directed as civil liability which can arise from either unintentional (negligence) or intentional tort, under common law, statute or contract. The coverage agreement which embraces “all sums which the insured shall become legally obligated to pay as damages” is intentionally broad enough to include the insured’s obligation to pay damages for breach of contract as well as for tort, within limitations imposed by other terms of the coverage agreement (e.g. bodily injury and property damage as defined, caused by an occurrence) and by exclusions. [Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 841] See § L23 LEGALLY OBLIGATED TO PAY ON BEHALF OF INSURED [§ L23:1 In general].

Stacking considerations

The “all sums indemnity coverage” envisions that each successive insurer is potentially liable for the entire loss up to its policy limits. Where the entire loss is within the limits of one policy, the insured can recover from that insurer, which may then seek contribution from the other insurers on the risk during the same loss. [State v. Continental Ins. Co. (2012) 55 Cal.4th 186, 200]

Stacking successive insurance policies covering the same risk

Where there is a continuous loss [long-tail loss, see § L54.06 LONG TAIL INJURY], obtaining recovery under the policy limits of one policy may leave the insured vastly uncovered for a significant portion of the loss. Where there exists “successive policies” [See § S110 SUCCESSIVE LIABILITY POLICIES [§ S110:5]], the insured may “stack” the consecutive policies and recover up to the policy limits of the multiple policies. “Stacking” generally refers to the stacking of policy limits across multiple policy periods that are on a particular risk. In other words, “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 of the policy. [State v. Continental Ins. Co. (2012) 55 Cal.4th 186, 200-201] See § S70 STACKING.


The above discussion regarding stacking is referred to as the “all-sums-with-stacking-rule”. [State v. Continental Ins. Co. (2012) 55 Cal.4th 186, 200] The Supreme Court has described that the rule has numerous advantages, to wit:

1. It resolves the question of insurance coverage as equitably as possible, given the immeasurable aspect of a long-tail injury,

2. It also comports to 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 period in which it purchased insurance coverage.

3. The all-sums-with-stacking coverage allocation 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. If 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 Ins. Co. (2012) 55 Cal.4th 186, 201-202] See § D1 DAMAGES [§ D1:02 Meaning of the term: “All sums”]; § C145 COVERED AND NONCOVERED CLAIMS [§ C145:11]; § L54.06 LONG TAIL INJURY; § S70 STACKING.

Pro rata argument of insurers – rejected in State v. Continental Ins. Co. (2012) 55 Cal.4th 186

Prior to and after Armstrong World Industries Inc. v. Aetna Cas. (1996) 45 Cal.App.4th 1, 57, insurers argued that the pro rata rule for indemnity allocation (for apportionment) assigns a dual purpose to the phrase “during the policy period” contained in the CGL policy’s definition of “occurrence”. The dual purpose is, according to insurers:

1. that the phrase “during the policy period” serves as both a trigger of coverage and as a limitation on the promised “all sums” coverage [language in the insuring agreement];

2. that under the most basic scheme of pro rata allocation, an equal share of the amount of damage is assigned to each year over which a long-tail injury occurred; [see § L54.06 LONG TAIL INJURY]

3. that the amount owed under any one policy is calculated by dividing the number of years an insurer was “on a risk” by the total number of years that the progressive injury took place. The resulting fraction is the portion of the liability owed by the particular insurer. [State v. Continental Ins. Co. (2012) 55 Cal.4th 186, 198-199]

Supreme Court rejection of arguments 1, 2 and 3

Under CGL policies, the Supreme Court observed that the plain “all sums” language of the agreement compels the insurers to pay “all sums which the insured shall become legally obligated to pay … for damages … because of the injury to or destruction of property …”. This grant of coverage does not limit the policies’ promise to pay “all sums” of the policy holder(s) liability solely to sums or damage “during the policy period”. [State v. Continental Ins. Co. (2012) 55 Cal.4th 186, 199]

The Supreme Court further observed that the CGL policy language does not contemplate such a limited result once there is a property damage occurrence that triggers the insurers’ indemnity responsibilities for the entire loss, and a growing number of states have similarly adopted this interpretation of the “all sums” language. [State v. Continental Ins. Co. (2012) 55 Cal.4th 186, 199-200] See § L54.06 LONG TAIL INJURY [§ L54.06:3 Indemnity obligations of multiple insurers].

Exception – long-tail anti-stacking provision

An insurance company may include language containing limitations on indemnity, equitable prorata coverage allocation rules, and prohibitions on stacking.] State v. Continental Ins. Co. (2012) 55 Cal.4th 186, 202] Such a provision may be one that describes a loss covered under an earlier policy, also covered under the policy in question, is limited by reducing the amount due to the insured for a loss under the policy. See § S70 STACKING [§ S70:2 Anti-stacking provision in policy].

Other insurance clauses

There is a split of authority as to whether the “all sums” rule [see § C145 COVERED AND NONCOVERED CLAIMS [§ C145:11 Meaning of the term: “All sums”]] is reduced by the policy’s “other insurance” provision. See § O39 OTHER INSURANCE. [Stonewall Ins. v. City of Palos Verdes Estates (1996) 46 Cal.App.4th 1810 (other insurance clause reduces “all sums” recovery); Armstrong World Ind. v. Aetna Cas. (1996) 45 Cal.App.4th 1, 57 (“once coverage is triggered, the insurer’s obligation to the policy holder is to cover the policy holder’s liability “in full” up to the policy limits”)]

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