California Supreme Court Adopts Vertical Exhaustion for Long-Tail Claims

Gavel

The California Supreme Court ruled in favor of Montrose, adopting vertical exhaustion of excess policies.

June 15, 2020
Tred R. Eyerly - Insurance Law Hawaii

In another round of litigation involving coverage issues between Montrose Chemical Corporation and its insurers, the California Supreme Court ruled in favor of Montrose, adopting vertical exhaustion of excess policies. Montrose Chem. Corp. of Calif. v. The Superior Court of Los Angeles County, 9 Ca. 5th 215 (2020).

In 1990, the United States and the State of California sued Montrose for contamination from 1947 to 1982 caused by Montrose's facility manufacturing insecticides. Montrose had primary and excess liability policies from defendant insurers between 1961 and 1985. Forty insurers collectively issued more than 115 excess policies, which collectively provided coverage sufficient to indemnify Montrose's anticipate total liability.

Primary coverage was exhausted. Each excess policy provided that Montrose had to exhaust the limits of its underlying coverage before there would be excess coverage. Which excess carrier could be called on first was the issued before the California Supreme Court.

Montrose proposed a rule of "vertical exhaustion" or "elective stacking," whereby it could access any excess policy once it exhausted other policies with lower attachment points in the same policy period. The insurers, in contract, argued for "horizontal exhaustion," whereby Montrose could access an excess policy only after it exhausted other policies with lower attachment points from every policy period in which the environmental damage resulting in liability occurred.

Mr. Eyerly may be contacted at te@hawaiilawyer.com



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