Reed Smith Client Alerts

A recent California Court of Appeal decision may make it more difficult for policyholders to obtain payment from excess insurers when a claim involves multiple policy periods. The court held that where a loss triggers policies across multiple policy periods, a policyholder must demonstrate exhaustion of all triggered underlying policies before any excess policy will be called upon to pay a claim, unless the excess policy has specific language that would require a different result. Accordingly, policyholders faced with long-tail claims should be cautious when considering settlements with primary and lower-level excess insurers. Because states treat exhaustion requirements differently and there is conflicting California law regarding the applicability of so-called “other insurance” provisions, the Montrose decision may well be headed to the California Supreme Court.

Authors: David E. Weiss Dominic Rupprecht Adrienne N. Kitchen

Type: Client Alerts

On August 31, 2017, the Second Appellate District of the California Court of Appeal adopted the horizontal exhaustion method of allocating responsibility between excess and underlying insurance for long-tail claims that trigger multiple policy periods. In Montrose Chemical Corporation v. Superior Court, B272387 (Cal. App. 2nd Dist. Aug. 31, 2017), the court held that where a loss triggers policies across multiple policy periods, a policyholder must demonstrate exhaustion of all triggered underlying policies before any excess policy will be called upon to pay a claim, unless the excess policy has specific language that would require a different result. In reaching this decision, the court rejected the policyholder’s arguments in favor of vertical exhaustion, which only requires exhaustion of underlying policies in concurrent coverage periods without requiring exhaustion of policies covering different periods.