• Montrose Chemical Corporation of Cal. v. Superior Court (2nd Dist. Ct. App. 2017) ___Cal. App. 5th ___, 2017 DJDAR 8674, Case No. B272387
  • November 7, 2017

    Montrose manufactured DDT at a facility in Torrance, California from 1947 to 1982. In 1990, the United States and the State of California sued Montrose under CERLA for environmental contamination. Montrose entered into partial consent decrees, incurring damages exceeding $100 million with the expectation that future damages could exceed that amount. Montrose filed the present action against its various insurers to resolve coverage disputes. Following the California Supreme Court's decision in State of California v. Continental Ins. Co. (2012) 55 Cal. 4th 186, Montrose amended its complaint to add a cause of action seeking a declaration that with respect to its excess policies, Montrose could apply principles of vertical exhaustion, was not bound by principles of horizontal exhaustion and was entitled to allocate its liabilities across policies.

    Montrose moved for summary adjudication on the new cause of action alleging that there was a dispute between it and its insurers over the manner in which it could obtain indemnification under its excess policies. The insurers claimed that Montrose could not seek indemnification under any excess policy until all underlying excess insurance had been exhausted in every applicable policy year. Montrose contended that based on the decision in Continental, supra, it was entitled to electively "stack" its coverage and thereby select any policy for indemnification, as long as the policies directly underlying that policy for the same policy year had been exhausted. Various excess insurers opposed the motion and certain excess carriers also filed their own cross motions for summary adjudication claiming that all underlying excess policy limits, across the numerous policy periods, had to be exhausted before higher excess policies could be called upon to indemnify. The trial court denied Montrose's motion and granted the insurers' motions. Montrose filed a petition for writ of mandate which petition was denied. It then filed a petition with the California Supreme Court which granted review and transferred the matter to the Second District Court of Appeal with directions to issue an order to show cause as to why the relief sought should not be granted.


    First, the appellate court addressed the applicability of the Continental decision to the facts of the present case. It determined that both the policy language and the issues before that court were very different and, therefore, that decision did not dictate the result sought by Montrose. In Continental, the California Supreme Court addressed the stacking of insurance policies in a case involving continuing environmental contamination. The Continental court explained that the "all-sums with stacking indemnity principle" "'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. Instead of treating a long-tail injury as though it occurred in one policy period, this approach treats all the triggered insurance as though it were purchased in one policy period."

    The Continental court determined, because the policies contained no anti-stacking provisions, stacking was permitted.

    As the appellate court explained, the court in Continental addressed the issue of whether the insured could access policies over numerous policy years or whether it could only access a single policy year as argued by the insurers. On the other hand, the present case addressed not whether the insured could access policies over various years, but the order in which it must do so. In addition, the court in Continental was dealing with policies promising to pay "all sums" while many of the policies in the present case did not contain this language. Furthermore, the appellate court found that Continental did not stand for the general proposition that insureds covered by multiple policies could select which policies to access regardless of policy language. The court in Continental instead reaffirmed that policies must be interpreted according to their terms. Finally, although the court in Continental held that all triggered polices may be called upon to cover a claim, it did not even consider the issue of whether a higher layer excess policy could be called upon to respond to a claim prior to exhaustion of a lower layer excess policy covering a different policy year.

    The appellate court next addressed Montrose's contention that the excess policies contained language stating that coverage would attach upon exhaustion of a specified amount of underlying coverage in the same policy year. The appellate court agreed that, assuming the policies so provided, elective stacking would be permissible. However, the appellate court found that this contention by Montrose was "largely unsubstantiated" by the policy language. Instead, the appellate court found that many of the policies provided that they would attach upon exhaustion of all available insurance. The appellate court gave the example of a policy issued by American Centennial which stated in the insuring agreement that it would pay loss in excess of the retained limit. However, relying on this language alone required ignoring other policy provisions such as the "retained limit" clause and the "other insurance" clause, both of which referred to all other collectible insurance. Montrose thus failed to show that its entire insurance portfolio allowed for elective stacking.

    Next, the appellate court rejected Montrose's various arguments to the effect that horizontal exhaustion is inconsistent with public policy. First, Montrose contended it should not be forced to access coverage it does not wish to access. The appellate court noted in response that it was only ruling that insureds must exhaust lower level excess policies before accessing higher levels when the policy language so requires. Second, Montrose contended that horizontal exhaustion penalizes insureds for purchasing additional coverage. Again, the appellate court disagreed, noting that horizontal exhaustion dictates the sequence in which policies are accessed and does not affect the total amount of available coverage. Finally, Montrose argued that horizontal exhaustion would be unworkable in cases such as this due to the complexity of its coverage portfolio. However, the appellate court found that the complexity of the issues was irrelevant to its analysis as it could not rewrite the policies in the interest of expediency.

    Since Montrose failed to show that all of its policies allowed for elective stacking, its motion for summary adjudication on the new cause of action was properly denied. Furthermore, the insurers' motions for summary adjudication as to this cause of action were properly granted.

    Finally, the appellate court addressed the insurers' motions for summary adjudication of the issue of whether all underlying policy limits across the years of continuing property damage must be exhausted before they owed a duty to pay any claims. Because the insurers failed to provide the court with all the policy language or with copies of the policies, it was not possible for the court to interpret such policies and thereby determine the insurers' duties. Since the court could not conclude that each of the 115 policies at issue required horizontal exhaustion, summary adjudication on this issue was improper.


    This case is significant in that it addresses the California Supreme Court's ruling in Continental, supra, and holds that the court's decision in that case does not stand for the proposition that an insured in a continuous loss case is entitled to electively stack policies vertically regardless of policy language. To the contrary, if the policy language in an excess policy states that all available underlying coverage must be exhausted, the court and the insured are bound by that language. However, the court also made it clear that, absent such policy language, the insured would be free to electively stack coverage.