Over the lifespan of a business, it is not uncommon for the business to have insurance policies with multiple different companies. The needs of a company change over time, and certain insurers may offer products that better align with those needs. Often, companies have a primary insurance CGL policy, and then will have additional coverage from purchasing multiple layers of excess insurance. This is to ensure that they have adequate resources available if they suffer losses or face potential litigation.
Questions may arise regarding which insurance policy or which companies are responsible for coverage at a time a triggering event occurs. These can be exceedingly difficult issues to resolve, as you need to not only determine when the event happened, but also the terms of the policy in effect at the time of the matter. Additionally, the provisions in the primary insurance policy and the excess insurance policies need to be closely examined to truly learn how much coverage is available.
Continuous Events and The Impact on Insurance
It can be hard enough to determine what’s happening in these cases, but they become even more complex in situations where there are continuous events that potentially subject an insured to litigation, such as exposure to asbestos. In those cases, workers over several decades may be exposed to asbestos, which can lead to confusion when it comes time for the insurers to provide a defense on behalf of the insured.
A recent California case, Santa Fe Braun, Inc. v. Insurance Company of North America, 52 Cal.App.5th 19, took a closer look at this issue. Here, Santa Fe Braun had several asbestos-related claims pending against it from a period that spanned several years and involved many different insurance companies. These insurers included both primary and excess insurers, and there were questions regarding when excess policies would kick in.
At the trial court level, the court held that all of the primary insurance policies must be exhausted before the excess insurance would be required to step in. Meaning, as an example, if each primary insurance policy had a $10 million limit, and there were 10 years in question, $100 million must be spent before the excess insurers would be required to provide additional coverage.
While this case was on appeal, a subsequent case, Montrose Chemical Corp. of California v. Superior Court (2020) 9 Cal.5th 215, 260 Cal.Rptr.3d 822, 460 P.3d 1201 (Montrose III), was decided. In Montrose III, the California Supreme Court looked specifically at this issue. The court held that the insured “is entitled to access otherwise available coverage under any excess policy once it has exhausted directly underlying excess policies for the same policy period.”
The court then ruled in Santa Fe that it is not a requirement that the insured exhaust all of its policies before excess insurance coverage can be sought. In short, the court looked at the terms of the policies and the language addressing excess coverage. Many of the policies said that coverage would be provided after x amount of dollars was spent during that policy period. The court felt that the language here meant you look at all the policies in effect for that particular year in question, not for the entire time that the injurious event was occurring. It held that vertical exhaustion of insurance policies should apply, not horizontal, as horizontal did not provide the insured with the benefits that it believed it had obtained under the policy.
What This Means for You
These cases serve as a reminder to be sure you understand the terms of your insurance policies. Additionally, you need to double-check the coverage you have in place in the event that you face unexpected litigation due to problems that may arise. Our team can help you review your current situation or explain your options should you have questions about an insurance dispute.