51'70560 Supreme Court No. SUPREME COURT COPY IN THE SUPREME COURT OF THE STATE OF CALIFORNIA STATE OF CALIFORNIA, Plaintiff; Cross-Defendant and Appellant SUPREME COURT vs. FILED CONTINENTAL INSURANCE COMPANY etal., Defendants, Cross-Complainants and Appellants; FEB 1 3 2009 EMPLOYERS INSURANCE OF WAUSAU, Frederick K, Ohirich Defendant, Cross-Complainant and Respondent Deputy PETITION FOR REVIEW From an Opinion of the Court of Appeal, Fourth Appellate District, Division Two, Case No.Civil E041425 From a Decision of the Riverside County Superior Court Case No. 239784 (Consolidated with Case No. RIC-381555) The Hon. E. Michael Kaiser, Judge Steven M. Crane (SBN 108930) Barbara S. Hodous (SBN 102732) BERKES CRANE ROBINSON & SEAL LLP 515 S. Figueroa, Suite 1500 Los Angeles, CA 90071 Telephone: (213) 955-1150 Facsimile: (213) 955-1555 scrane@bcrslaw.com bhodous@berslaw.com Attorneys for CONTINENTAL INSURANCE COMPANYas successorin interest to the policy issued by HarborInsurance Company and CONTINENTAL CASUALTY COMPANY, for itself and as successor by merger to CNA Casualty CompanyofCalifornia John E. Peer (SBN 95978) H. Douglas Galt (SBN 100756) WOOLLS & PEER, A Professional Corp. One Wilshire Blvd., Floor 22 Los Angeles, CA 90017 Telephone: (213) 629-1600 Facsimile: (213) 629-1660 jpeer@woollspeer.com dgalt@woollspeer.com Attorneys for YOSEMITE INSURANCE COMPANY Paul E. B. Glad (SBN 079045) SONNENSCHEIN NATH & ROSENTHAL LLP 525 MarketStreet, 26th Floor San Francisco, CA 94105 Telephone: (415) 882-5000 Facsimile: (415) 882-0300 pglad@sonnenschein.com Attorneys for STONEBRIDGE LIFE INSURANCE COMPANY Bryan M.Barber (SBN 118001) BARBER LAW GROUP 101 Califomia Street, Suite 810 San Francisco, CA 94111-5802 Telephone: (415) 273-2930 Facsimile: (415) 273-2940 bbarber@barberlg.com Attorneys for EMPLOYERS INSURANCE OF WAUSAU i e Supreme Court No. IN THE SUPREME COURT OF THE STATE OF CALIFORNIA STATE OF CALIFORNIA, Plaintiff; Cross-Defendant and Appellant vS. CONTINENTAL INSURANCE COMPANY etal., Defendants, Cross-Complainants and Appellants; EMPLOYERS INSURANCE OF WAUSAU, Defendant, Cross-Complainant and Respondent PETITION FOR REVIEW From an Opinion of the Court of Appeal, Fourth Appellate District, Division Two, Case No. Civil E041425 From a Decision of the Riverside County Superior Court Case No. 239784 (Consolidated with Case No. RIC-381555) The Hon.E. Michael Kaiser, Judge Steven M. Crane (SBN 108930) Barbara S. Hodous (SBN 102732) BERKES CRANE ROBINSON & SEAL LLP 515 S. Figueroa, Suite 1500 Los Angeles, CA 90071 Telephone: (213) 955-1150 Facsimile: (213) 955-1555 scrane@bcrslaw.com bhodous@bcrslaw.com Attorneys for CONTINENTAL INSURANCE COMPANY as successorin interest to the policy issued by Harbor Insurance Company and CONTINENTAL CASUALTY COMPANY, for itself and as successor by merger to CNA Casualty Companyof California John E. Peer (SBN 95978) H. Douglas Galt (SBN 100756) WOOLLS & PEER,A Professional Corp. One Wilshire Blvd., Floor 22 Los Angeles, CA 90017 Telephone: (213) 629-1600 Facsimile: (213) 629-1660 jpeer@woollspeer.com dgalt@woollspeer.com Attorneys for YOSEMITE INSURANCE COMPANY Paul E. B. Glad (SBN 079045) SONNENSCHEIN NATH & ROSENTHAL LLP 525 Market Street, 26th Floor San Francisco, CA 94105 Telephone: (415) 882-5000 Facsimile: (415) 882-0300 pglad@sonnenschein.com Attorneys for STONEBRIDGE LIFE INSURANCE COMPANY Bryan M. Barber (SBN 118001) BARBER LAW GROUP 101 Califomia Street, Suite 810 San Francisco, CA 94111-5802 Telephone: (415) 273-2930 Facsimile: (415) 273-2940 bbarber@barberlg.com Attorneys for EMPLOYERS INSURANCE OF WAUSAU Il. II. VI. TABLE OF CONTENTS Page ISSUES FOR REVIEW ........cccccscssccsceeeceseeseteceresecesceeeecaeeeacaneesasenecaeeneseaeensenenseseseees 1 REASONS WHY REVIEW SHOULD BE GRANTED... cceeceeeseeeeteeeterseteeeees 1 PETITION FOR REHEARING...cece eesceseceeenereseecaeeeaeceacesseceaeenseesseseaseaeeneeeneres 5 INTRODUCTION....... cc ccccccsccsscesceseceseessecseessecsaeesaeceseeusesseesseceseseceesaeseneseeenseaeeets 5 STATEMENTOF THE CASE,Q.u....ccecccceessssceeesseesetceeseeeensececseessesseeaeeaeeaseeseeeacens 8 A. The Petitioners ..........:cccesccesccesecsseeeceseceeecsceesceceseseaecesscanecsaesaeecaseesevseeeeeentes 8 B. The Coverage Action In The Superior Court............ccccceecseseeeesereeteeeereeenes9 C. The Policies.........escsecceccsssceseceseeseeeeceasesseescesceeeeecsaeesaeseaecaaesseeeaeseasenseasented9 D. The Trial Court’s Rulings As Relevant Here... ceseeeseeececesneeeeeeneeees 10 E. The Court Of Appeal Opinion 000...eee ee ceeeeneeeeeeseeeeeesesaneeeceeseeeneeaeraseees 11 ARGUMENT......ccccccsscsssesscsnecsecsseserecscecsceesecseeeseeesensaeeenseescesececsaesnaseseeaeessetseeneents 11 A. The Court of Appeal's "All Sums" Decision Should Be Rejected............. 11 1. This Court Has Not Yet Decided How Indemnity Coverage Should Be Allocated In A Continuing Loss Context........0..... 11 2. "All Sums" In The Indemnity Context Is Inconsistent With The Policy Language ..........esceeecesscsesseceteeeesseeeceeeeceteeaeecsseeneeeeees 14 3. The "All Sums" Approachis Objectively Unreasonable............... 17 4. The Court Should Adopt A Pro Rata Approach To Allocation Of Indemnity For Damages Which Cannot Be Allocated To Specific Policy Periods 0.00.0... seesseeeceeeesseneeeeseeees20 5. Numerous Courts Across The Country Have Rejected "All Sums" As Unreasonable........cceeecesscssseeeseeeseenseessesseesseesseeseeneass23 6. Armstrong, FMC And Stonewall Are Wrong On The “AI! SUMS” [Ssue.......ceceeeesesseceesseeessesseesseeseeseeeneesseeseesaeceseesseeuenseesas26 B. The Court of Appeal CompoundedIts Error By Deciding That The State Could Recover "All Sums" From Every Insurer By Allowing "Stacking" OfLimits... ceeeseescesecssessecseeeeceseeeeseesseeseeeseeeeaeeensesenesereeaees29 VIL CONCLUSION(0...cece cccccccseereecseceeesersersecseensecsessesstesesaessesaeenaesseesaeteseesaetats 35 ll TABLE OF AUTHORITIES Page FEDERAL CASES Insurance Company ofNorth America v. Forty-Eight Insulations, Inc. 633 F.2d 1212 (6th Cir. 1980)...ccc ceeseescesressceseeseeevsecceeeceaeceseeaeeseseeeesecsesesecersrseneens 31, 32 Keene Corporation v. Insurance Company ofNorth America, 667 F.2d 1034 (D.C. Cir.1981)cece eeeesesseeeceseesseecsnecsseseneesaceeeesseeeeaeenaeeaees 31, 32 Olin Corporation v. Insurance Company ofNorth America, 221 F.3d 307 (2d Cir. 2000)....... ccc eesesseesecseeeneceeeeseeeccesseesaeeeesesseeeseesenees 21, 22, 24 STATE CASES Aerojet-General Corporation v. Transport Indemnity Company, 17 Cal.4th 38 (1997) oecseescessecessecsssesevsesseessneceeceseesseceaeessessseseneeeaeseneesas passim Armstrong World Industries, Inc. v. Aetna Casualty & Surety Company, 45 Cal.App.4th 1 (1996)occecceecssessccesersecesesssesseeesseceseesseseeeeseseneees 6, 19, 26, 27 Bank ofthe West v. Superior Court, 2 Cal.4th 1254 (1992) .cceccceccccssesscsserseesessecseessceceesecseessecsesenesseceeeeaeenssateaeensees 17 Buss v. Superior Court, 16 Cal.4th 35 (1997) oo .ceeccecsessccessceseeeseceeesecnseensceseeeseceneensessatenetesseeeaeonees 3, 13, 16 California Union Insurance Company v. Landmark Insurance Company, 145 Cal.App.3d 462 (1983)cece eesceesessecssetsecsaecsaecsseceneessecesecsaeseaeeesereneesaseneenees 18 Certain Underwriters at Lloyds ofLondon v. Superior Court (Powerine Oil Company), 24 Cal.4th 945 (2001) oeceececseceseecssseessessscesseccseeesseesrseeesseeesarensaeensaeeeaes passim FMCCorporation v. Plaisted & Company, 61 Cal.App.4th 1132 (1998) ooo.eescesecneecsceeeeeeeseneeecenecesaeeecseeceeersneees passim La Jolla Beach and Tennis Club, Inc. v. Industrial Indemnity Company, 9 Cal.4th 27 (1995) ...cccececcccesscsseccsecesseeseceeevsesseeseeesseesnaeeseeeneeesaeesaeerseesareeated 14, 34 Montrose Chemical Corporation v. Admiral Insurance Company, 10 Cal.4th 645 (1995) ooo. cc cccccccscecsssccsscessecessceseeecssesessecesaeceseeeseeeessetessseessees passim Padilla Construction Company v. Transportation Insurance Company, 150 Cal.App.4th 984 (2007) oo... ceccceeccecceesceseeseessesssecessecseecsteessecseeeseccsseeatecsuesseaes 16 lll we al o e Palmerv. Truck Insurance, 21 Cal.4th 1109 (1999) ooceceeecseeseceeseeeeseeecsseesersesteessasessecsseseseseaseneeens 3,13 Rosen v. State Farm General Insurance Company, 30 Cal.4th 1070 (2003) .0... ee ceceescesseescessseeseessesseeessasseesseesseesseeesssccssesseeseeseaesanenase 17 Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., 78 Cal.App.4th 847 (2000) ...ecccecccsceteceeecseccaeceeccaeeseecseceeeesrssecserecaeeseesseonees 13 Stonewall Insurance Company v. City ofPalos Verdes Estates, 46 Cal.App.4th 1810 (1996) oo.eeeseesccseeseceresseceeeseneesaecereeneseneenesaeeaes 6, 13, 26 Waller v. Truck Insurance Exchange, 11 Cal.4th 1 (1995)oeecscssecescesesseessecseesseecesssesecseesseeceseensasneeseseseeeeneeeneoeas 20 OUT OF STATE CASES American Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994)... eeceeccseceseeseeseeesseersneesesssecseeeeseseaeeesessseeceeeseeeaeeaes 33 Carter-Wallace v. Admiral Insurance Company, 712 A.2d 1116 (NJ. 1998)... cecececcsesseecneessesesseceeseeeaeesseesanersessaeesseseeseneres 25 Consolidated Edison Company ofNew York v. Allstate Insurance Company, 774 N.E.2d 687 (N.Y. 2002)... eecceseseceseeeeeecneeseeeeneeeeneseeeenaeeeaneeneres 17, 21, 23, 24 Domtar, Inc. v. Niagara Fire Insurance Company, 563 N.W.2d 724 (Minn. 1997)... cecscesscsceseccneesseeeecsseessesenersneeensessesseeenseeatonss 25 Empire Fire & Marine Insurance Company v. North Pacific Insurance Company, 905 P.2d 1025 (Idaho 1995)...eee ceseesessseeeseeecessccsecseceeceaeeseeenevereaesaeseeeneseesatens 25 Energy North Natural Gas, Inc. v. Certain Underwriters at Lloyds, 934 A.2d 517 (N.H. 2007) oo. eeecseeseneeesesseeeceseeseeseceaseeeeneensesaecsseeaeeasesesaeearens 26 Northern States Power v. Fidelity & Casualty Company ofNew York, 523 N.W.2d 657 (Minn.1994)... eeeeseseeesecsseceeeceseesnecsnessseeeeeeeseecsecseesseseaeeaes 25 Owens-Illinois, Inc. v. United Insurance Company, 650 A.2d 974 (N.J. 1994)...ceecsseseesesseecneeeseeceserscecseesseeseaeesaeccaeseeeeesesseeereees 25 Public Service Company ofColorado v. Wallis and Companies, 986 P.2d 924 (Colo. 1999)oeeeseceseeessesseceeeseseseeesesseesteeseseteneeseeeeees 17, 22, 24 Security Insurance Company ofHartford v. Lumberman's Mutual Casualty Company, 826 A.2d 107 (Conn. 2003) 0... eeeeeeeeeeseeseceeseeceseeeneecseeseeseseeesaeeseccaressessaeeseenes 25 Sharon Steel Corporation v. Aetna Casualty & Surety Company, 931 P.2d 127 (Utah 1997)... cceccececsccescessccseessesseeeesecssecseesseecsecesccsessecessessaceeees 25 iv * STATUTES Civil Code 1636.0... cececcecesessetectetsessesaesseeseeeesecsceessaessesasaesecsesssesesaeseessecsecaesssaersesesaeeaesaees 34 Civil Code Section 1641 oo.eeecseescessereenerseeersersessussesseesscsaesasesssesestetssetsaseasaseneones 14 Rules of Court 8.500(D)(1).....ee eeeceseessecsessscnesessersesseresacesaseseuseeevsesseeuseaseereseesaeseseoesaaes 1 TO THE HONORABLE CHIEF JUSTICE RONALD M. GEORGE AND THE HONORABLEASSOCIATE JUSTICES OF THE SUPREME COURT Petitioners Continental Insurance Company, Continental Casualty Company, Yosemite Insurance Company, Stonebridge Life Insurance Company and Employers Insurance of Wausau,(collectively "Insurers" or "Petitioners") seek review of the January 5, 2009 Opinion of the Court of Appeal, Fourth District, Division 2, attached as Exhibit A to this Petition, with modifications. I. ISSUES FOR REVIEW 1, Wheregradual harm triggers several insurance policies, each of which covers property damage during the policy period, doesit impermissibly rewrite the policies to hold that each insurer must pay for all property damage both during and outside the policy period? 2. Did the Court of Appeal improperly allow the insured to "stack" the limits ofall policies triggered by a single occurrence,directly conflicting with the Sixth District's decision in FMC Corporationv. Plaisted & Company, 61 Cal.App.4th 1132, 1188 (1998)? II. REASONS WHY REVIEW SHOULD BE GRANTED This case presents two issues that are ideal for review under Rules of Court 8.500(b)(1). First, the Court of Appeal determinedthat the insured may obtain indemnity coverage for damages because of property damage that did not take place during the policy period if any property damage took place during the policy period ("all sums"ruling), contrary to the express policy languagethat the insured may only recover for damages for the property damage that occurred during the policy period. This issue is at the heart of every insurance case involving continuous harm. In its ruling in favor of the “all sums” approach, the Court of Appeal relied on this Court's decisions in Montrose Chemical Corporation v. Admiral Insurance Company, 10 Cal.4th 645 (1995) and Aerojet-General Corporation v. Transport Indemnity Company, 17 Cal.4th 38 (1997). However, in Montrose, the Court only addressed whether general liability policies “obligate Admiral to defend Montrose in lawsuits seeking damages for continuousor progressively deteriorating bodily injury and property damagethat occurred during the successive policy periods.” Montrose, supra, 10 Cal.4th at 645. The Court held that each policy was potentially triggered becausepart of the ongoing damageallegedly happened during each policy period, creating a potential for coverage that gave rise to a duty to defend undereach policy. Jd.at 689. In deciding the duty to defend question, the Court did not need to determine the extent of the indemnity obligation or whether each policy required to defend must also indemnify the insured for property damagethat did not happen during its policy period. In Aerojet, the Court addressed(as relevant here) the issue of “whether defense costs may beallocated to the insured.” Aerojet, supra, 17 Cal.4th at 45. Like the issue raised in Montrose, the question in Aerojet only concerned the duty to defend. The Court explained that the duty to defend is broader than the duty to indemnify, and that different analyses apply in determining whethercosts are properly included within these distinct duties. (“It is plain that the insurer’s duty to defendis broader than its duty to indemnify...It extends beyond claimsthat are actually covered to those that are merely potentially so... .”) Jd. at 59. In Aerojet, the Court determined that, because an insurer must payall defense costs for a claim that is at least potentially covered, the duty to defend undera triggered policy extendsto the entire defense whereat least part of the potentially covered damage happened duringthe policy period. Jd. at 68-76. The duty to defend analysis does not apply to the duty to indemnify, however, which extends only to “harm proved within coverage.” Certain Underwriters at Lloyds ofLondon v. Superior Court (Powerine Oil Company), 24 Cal.4th 945, 950 (2001); Palmer v. Truck Insurance, 21 Cal.4th 1109, 1120 (1999) (“While an insurer has a duty to defend suits which potentially seek covered damages,it has a duty to indemnify only where a judgment has been entered on a theory whichis actually (not potentially) covered by the policy.”); Buss v. Superior Court, 16 Cal.4th 35, 45-46 (1997) (the duty to indemnify runsto claims that are actually covered in light of facts proved, while the duty to defend encompassesclaims that are merely potentially coveredin light of facts alleged); Montrose, supra, 10 Cal.4th at 659, fn.9. (“Although an insurer may have a duty to defend,it ultimately may have no obligation to indemnify, either because no a damages were awardedin the underlying action against the insured, or because the actual judgment was for damages not covered underthe policy.”) The Court has not yet directly addressed and determined the proper method of allocating indemnity coveragein a continuing or progressive losssituation. Such a determination will provide critical guidance to policyholders, insurers and the courts. Thus, review is necessary to settle an important question of law - - is indemnity coverage limited to damages because of property damage during the policy period, or can the insured recover damages for property damage that took place outside the policy period simply because some property damagetook place during the policy period? Second, the Court of Appeal's decision that the insured mayaddall the per occurrence limits of its policies together to cover the damages from one occurrence (the "stacking"issue) directly conflicts with FMC Corporationv. Plaisted and Company, 61 Cal.App.4th 1132, 1188-1190 (1998). The FMCcourt ruled that the insured may notstack policy limits of each policy triggered by a continuous occurrence of property damage;rather the insured wasentitled to select a single policy period triggered by the occurrence. "Anti- stacking ensures that the insured does not obtain much moreinsurancethan it paid for." FMC, supra, 61 Cal.App.4th at 1189. Thus, review is necessary to secure uniformity of decision as to whether an insured may stack the per occurrence limits of multiple policies in a continuing injury context. Additionally, because the "stacking" issue is a natural outgrowth of the "all sums"issue andarises in virtually every case involving continuing injury or damage, review is necessary to settle this important question of law. Il. PETITION FOR REHEARING No Petition for Rehearing wasfiled in the Court of Appeal as to the two issues involvedin this Petition for Review. The State's Petition for Rehearing on an unrelated issue was denied on January 28, 2009. IV. INTRODUCTION Petitioners seek review ofthe portion of the Court of Appeal Opinion entitled "The 'All Sums’ and "No Stacking Ruling’." (Section III of the Slip Opinion ("Slip Op.")) The Court of Appeal determined that once an insurancepolicy is triggered by continuous damageit must pay "all sums" for the insured's liability, not just damages because of property damage during the policy period. Thus,it held that whenthere is a continuing loss spanning multiple policy periods, each insurer that covered any period is liable for the loss [up to the policy limits] including for property damage that occurred before or after the policy period. (Slip Op.at 19- 20.) The Court of Appeal did not undertake any independentanalysis of the policy language or apply the important distinction between the duty to defend and the duty to indemnify. Rather, it concluded that it was bound by what this Court said in Montrose and Aerojet. The Court of Appeal also referenced other courts of appeal that extended this Court's duty to defend rulings to the context of the duty to indemnify. See, Armstrong World Industries, Inc. v. Aetna Casualty & Surety Company, 45 Cal.App.4th 1, 49 (1996); FMC, supra, 61 Cal.App.4th at 1184- 1187; Stonewall Insurance Companyv. City ofPalos Verdes Estates, 46 Cal.App.4th 1810, 1854-1855 (1996). (Slip Op.at 16-17.) The Courts of Appeal in FMC and Armstrong extended the “all sums” approach applicable in the defense context to indemnity, citing Montrose and Aerojet as providing support. See, FMC, supra, 61 Cal.App.4th at 1181, 1187, Armstrong, supra, 45 Cal.App.4th at 49-50. Stonewall simply relies on Montrose and Armstrong. 46 Cal.App.4th at 1855. These Courts appear to have concluded that Montrose and Aerojet resolved the “all sums”issue in the indemnity context, even though, as discussed above, the question was not before the Supreme Court in either case. Neither Montrose nor Aerojet decided that liability policy provides indemnity for property damageoutside the policy period. That issue was not before the Court. Petitioners contend that the court below and the courts in FMC and Armstrong erred in applying the “all sums” approach to the duty to indemnify, wrongly relying on this Court’s analysis concerning the duty to defend. The “all sums”approach to the duty to indemnify conflicts with the policy languageat issue, which expressly limits coverage to property damage occurring during the policy period. The policies provide they will pay all sums for damages because of property damage during the policy period. They do not provide that they will pay all sums for damages because of property damage during and outside the policy period. The “all sums”result improperly replaces the policy terms limiting coverage to damages becauseofproperty damage during the policy period with damagesbecause of property damage during andat any time before andafter the policy period. The “all sums”ruling violates the rules of contract interpretation by rendering policy terms meaningless and by rewriting the contracts. Having adopted an "all sums" approach contrary to the policy language,the Court of Appeal compoundedtheerror in concluding that the State could stackall the horizontal per occurrence limits to cover an occurrence, contrary to FMC; FMChad held that such stacking of limits would create an unbargained windfall for the insured. FMC, supra, 61 Cal.App.4th 1188-1190. The Court of Appeal here determinedthat there was no policy language that prohibited stacking. (Slip. Op. at 26-27.) But, the stacking issue arises when a court already has determinedthat each insurer is responsible for "all sums"forall property damage onceits policyis triggered. The "property damage during the policy period" requirementis the policy language that precludes stacking of limits here. The Court of Appeal's conclusion that there was no language preventing stacking was bootstrapping, because it had already read out of the policy the language that wouldresult in no stacking - - each policy is only responsible for damages because ofproperty damage during that policy period. There is no need to discuss or address stacking if the Court determines that each insurer is only required to pay for damages because of property damage during the policy period. The anti-stacking rule ofFMCis a natural consequenceofan "all sums" ruling. Thus, Petitioners request that this Court first consider the "all sums" issue and reject the Court of Appeal's "all sums"ruling as contrary to the plain language of the policies. If the Court reverses the decision on "all sums" and determines that the policies are obligated to pay only for injury during the policy period,as required bythe policies, there is no need to address the "stacking"issue. If the State is allowed to obtain coverage for damage outside the policy period, then its recovery should be limited to one set of per occurrencelimits consistent with what the Court of Appeal in FMC determined. Vv. STATEMENT OF THE CASE A. The Petitioners This Petition is submitted by Continental Insurance Company, Continental Casualty Company, Yosemite Insurance Company, Stonebridge Life Insurance Companyand Employers Insurance of Wausau, excess insurer defendants in the action below ("coverage action"). The insured, State of California,is the plaintiff in the coverageaction. B. The Coverage Action In The Superior Court The State filed this coverage action against petitioners in September 2002. The State seeks to establish indemnity coverage for its costs in remediating the contamination arising from the Stringfellow Acid Pits.’ (Slip Op.at 3.) The State selected, designed and constructed the Stringfellow Acid Pits as a Class J hazardous dumpsite. The site operated from 1956 through 1972, during whichtime the State directed more than 30,000,000 gallons of liquid industrial wastes to unlined pondsat the site. (Slip Op. at 6.) The site was closed in 1972 when groundwater contamination was found. (Slip Op. at 6.) In subsequent Federal Court proceedings, the State was found 100% liable for the cost of remedying the contamination. (Slip Op. 6-7; United States ofAmerica v. J. B. Stringfellow, Jr., et al. (1995 WL 450856).) C. The Policies Petitioners Continental Insurance Company, Continental Casualty Company, Yosemite Insurance Company and Employers Insurance Company of Wausau issued excesspolicies to the State during the period September 1970 through September 1975. Stonebridge Life Insurance Companyis alleged to have issued an excess policy for the period September 1964 through September 1966. The policies were drafted by the State and/or the State’s broker. (Slip Op. at 8; 6AA 1672-1673). * ' The duty to defendis notatissue. * "AA"refers to the Appellant's Appendix in the Court ofAppeal proceedings. Each policy issued contains the same languagerelevanthere: 1. Insuring Agreement: “To pay on behalf of the Insured all sums whichthe Insured shall becomeobligated to pay by reason of liability imposed by law...for damages, including consequential damages, becauseof injury to or destruction of property, including the loss of use thereof.” (Slip. Op.at 8; e.g., 39AA 10149, 10173, 10187). 2. Occurrence Definition: “ ‘Occurrence’ meansan accident or a continuous or repeated exposure to conditions whichresult in injury to persons or damage to property during the policy period... .” (Slip. Op.at 8; e.g., 39AA 10151, 10175, 10189). 3. Limits of Liability: “The limit of Underwriters’ liability shall be as stated below, subjectto all the terms ofthis policy having reference thereto: Coverage A Personal Liability $ Part of $ Coverage Band Property Ultimate Net Loss Each Combined Damage Liability Occurrence Excess of $ Ultimate Net Loss Each Occurrence(hereinafter called ‘The Insured’s Retention’).” (Slip. Op.at 8; e.g., 39AA 10151, 10175, 10189.) 4. Policy Period Territory: "This policy applies only to occurrences which take place during the policy period commencing [ ] and ending[ ]...." (e.g. 39AA10149, 10173, 10187.) D. The Trial Court’s Rulings As Relevant Here The trial court determinedthat if there is any property damage during a particular policy term,that policy is responsible for all the insured’s liability for property damage even for property damage which did nottake place during the 10 policy period. Thetrial court relied on Aerojet for this ruling. (Slip. Op. at 9-10; 34AA 8732). Thetrial court also determined that the State may not stack the consecutive per occurrencepolicy limits of all the policies in effect during which property damage took place. Thetrial court determined that the State may recoverthe full amountofthe policy limits of the policies in the period it selected from the period of triggered policies. (Slip. Op. at 9-10; 34AA 8732). Thetrial court relied on FMC, which had rejected a similar attempt to stack per occurrencelimits in the context of continuous property damagearising from contamination. E. The Court Of Appeal Opinion The Court of Appeal affirmed the trial court's decision on "all sums" and reversedthetrial court's decision rejecting "stacking," finding that the State was allowedto stack limits. (Slip Op.at 20, 43.) VI. ARGUMENT A. The Court of Appeal's "All Sums" Decision Should Be Rejected 1. This Court Has Not Yet Decided How Indemnity Coverage Should Be Allocated In A Continuing Loss Context The Court of Appeal Opinion concludesthat “all sums” in the indemnity context is a “done deal” in California, citing Montrose and Aerojet. Petitioners acknowledge that Montrose and Aerojet discuss “all sums”in relation to indemnity. But neither case held anything regarding indemnity since indemnity 11 was neither before the Court nor briefed. The opinions in Montrose and Aerojet makethat clear. In Montrose the Court stated what issue was being decided: In this case we addressthe issue reserved in Prudential-LMI. Specifically, we must determine whether four comprehensive generalliability (CGL) policies issued by defendant and respondent Admiral Insurance Company (Admiral) to plaintiff and appellant Montrose Chemical Corporation of California (Montrose) obligate Admiral to defend Montrosein lawsuits seeking damages for continuousor progressively deteriorating bodily injury and property damagethat occurred during the successive policy periods. Montrose, supra, 10 Cal.4th at 654. * ok It must be borne in mind that Admiral’s duty to defend Montrose is all that is directly at issue in this proceeding. The obligation to indemnify must be distinguished from the duty to defend. Jd. at 659 n.9. The Court also made plain that indemnity issues were not being decided in Aerojet: The issues to be resolved are whether, under standard comprehensive or commercial general liability insurance policies, site investigation expenses may constitute defense costs 12 that the insurer mustincur in fulfilling its duty to defend, and whether, under such policies, defense costs may be allocated to the insured. Aerojet, supra, 17 Cal.4th at 55-56. Essentially, the "all sums" approach applicable to defense has been extended by the Courts of Appeal to the duty to indemnify bytheir reliance on this Court's decisions in Montrose and Aerojet, even though the indemnity issue was not presented or decided in those cases. See, Stonewall, supra, 46 Cal.App.4th at 1835-1836 (1996) (question of what proportion ofliability triggered insurers bear was not resolved in Montrose becausethe issue "was only whether there was potential coverage underthe policy issued by that one insurer."); Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., 78 Cal.App.4th 847, 897-899 (2000)(referring to the "liable in full" language in Montroseas dicta "that has shaped subsequent Court of Appeal decisions.") This Court previously has explained the important difference between the duty to defend and the duty to indemnify. “It is plain that the insurer’s duty to defend is broader than its duty to indemnify...it extends beyond claimsthat are actually covered to those that are merely potentially so... .” Aerojet, supra, 17 Cal.4th at 59. The duty to defend analysis does not apply to the duty to indemnify, which extends only to “harm proved within coverage.” Powerine, supra, 24 Cal.4th at 950; Palmer, supra, 21 Cal.4th at 1120 (1999) (insurer only has a duty to indemnify where a judgment has been entered on a theory which ts actually (not potentially) covered by the policy); Buss v. Superior Court, 16 Cal.4th 35, 45-46 13 (1997) (the duty to indemnify runsto claimsthat are actually coveredin light of the facts proved); Montrose, supra, 10 Cal.4th at 659 fn. 9 (“although an insurer may havea duty to defend,it ultimately may have noobligation to indemnify, either because no damages were awardedin the underlying action against the insured, or because the actual judgment was for damages not covered underthe policy.”) Yet, this important distinction is not addressed in appellate cases that extend Montrose and Aerojet to the indemnity context. 2. "All Sums" In The Indemnity Context Is Inconsistent With The Policy Language In the context at issue here, the distinction between the duty to defend and the duty to indemnify is an important one. As discussed below,actual coverage underthe policies at issue, as opposed to a potential for coverage,is limitedto all sums for damages because of property damage during the policy period,notall sums if any property damage happensduringthe policy period,or all sums for damages because of property damage during and outside the policy period. Insurance policy language must be construed in the context of the entire policy read together as a whole. La Jolla Beach and Tennis Club, Inc. v. Industrial Indemnity Company,9 Cal4th 27, 37-38 (1995). Policies must be interpreted so that each wordis given independent meaning and notermsare read out or made redundant. /d.; Civil Code Section 1641 (“The whole of a contractis 14 to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.”). The “all sums” approach cannotbe applied to the policy language at issue without violating these fundamental rules of contract construction. Thepoliciesat issue provide in relevant part: To pay on behalf of the Insured all sums whichthe Insured shall becomeobligated to pay by reason ofliability imposed by law...for damages, including consequential damages, because of injury to or destruction of property, including the loss of use thereof. This policy applies only to occurrences which take place during the policy period... ‘Occurrence’ means an accident or a continuousor repeated exposure to conditions whichresult in injury to persons or damage to property during the policy period... . Likewise, limits of liability are stated, "each occurrence.” (e.g., 39AA 10149, 10151). (Emphasis added) Taken together and read in harmony,these policy provisions cannot be construed to coverall property damage that takes place outside the policy period simply because someproperty damageresulted during the policy period. The policies specified that they cover only those sums which the State is obligated to 15 pay as damages for property damageduring the policy period. The requirement of property damage duringthe policy period qualifies the “all sums” language otherwise provided for in the policies. Applying the “all sums” approach to indemnity obligations underthese policies would nullify the plain meaning of the policy language whichis limited to damages because ofproperty damage during the policy period.’ "All sums" cannot be reconciled with the "actually covered" standardapplicable to the duty to indemnify.’ See, e.g. Padilla Construction Company v. Transportation Insurance Company, 150 Cal.App.4th 984, 996 (2007), illustrating the important difference between the duty to defend andthe duty to indemnify here. In the indemnity context, only the actual "incrementof harm" during the policy period is indemnified, even though a defense was due for the entire claim involving damage during andoutside the policy. It requires an impermissible strained and disharmoniousreading to conclude that the policies pay “all sums” for property damageoutside the policy >In Powerine, the Supreme Court observed that the word “damages”in the insuring agreement doesnot “constitute a redundancyto a ‘sum that the insured becomeslegally obligated to pay,’ but a limitation thereof.” Powerine, supra, 24 Cal.4th at 963. Similarly, property damage during the policy period is a qualification on the “all sums” that the policy covers. “ Evenin the broader duty to defend context, insurers are not ultimately responsible for defense costs relating to all damage outside the policy period. Because defense is provided only prophylactically as to claims of injury or damageoutside the policy period, insurers may recoverthe defense costs associated therewith. Buss, supra, 16 Cal.4th at 50 et.seq. In the narrower context of the duty to indemnify, in which actual coverage is the touchstone, there is no basis to provide the insured "prophylactic indemnity" for injury outside the policy period. 16 period. In order to reach the conclusion the Court of Appeal does, the policies would have to be rewritten to provide that they pay all sums for damages because of property damageduring and atanytime before andafter the policy period. But, adding those wordsto or subtracting the words “damages because of property damage during the policy period,” from the contracts is simply not allowed. Rosenv. State Farm General Insurance Company, 30 Cal.4th 1070, 1077-1078 (2003); Powerine, supra , 24 Cal.4th at 967 (2001); Aerojet, supra, 17 Cal.3d at 75-76. (Contract language cannot be rewritten for any reason.) See, also Consolidated Edison Company ofNew York v. Allstate Insurance Company, 774 N.E.2d 687, 695 (N.Y. 2002) (“Although more than one policy may be implicated by a gradual harm,joint and several allocation is not consistent with the language of the policies providing indemnification for “all sums”of liability that resulted from an accident or occurrence ‘during the policy period,’”’ internal citations omitted, emphasis in original); Public Service Company ofColorado v. Wallis and Companies, 986 P.2d 924, 940 (Colo. 1999) (“[W]e doubt that PSC [insured] could have had a reasonable expectation that each single policy would indemnify PSC forliability related to property damage occurring due to events taking place years before and years after the term of each policy.”) 3. The "All Sums" Approach is Objectively Unreasonable Another fundamental rule of contract construction is that an insurance policy will not be given a meaning thatis objectively unreasonable. See, e.g., Bank ofthe West v. Superior Court, 2 Cal.4th 1254, 1265 (1992). “All sums” 17 violates this rule because it unreasonably requires an insurerthat issued a single triggered policy to pay all damage occurring over time, despite the explicit terms of the policy to the contrary and although the insurer only received premiumsfor the risk of harm during the policy period. Thus, under "all sums" in a continuous harm situation, if any property damage happens during the policy period, then for example, a policy issued in 1970 would pay for property damage that happened in 1980 - - contrary to whatthe parties intended when they limited coverage to property damage during the policy period. In Montrose, the Court expressly rejected the view that each insureris jointly and severally liable where damage occurs over multiple policy periods, specifically disapproving California Union Insurance Company v. Landmark Insurance Company, 145 Cal.App.3d 462 (1983): Wedonot endorsethat aspect of the California Union court’s holding that both insurers in that case were jointly and severally liable for the full amount of damage occurring during the successive policy periods. Allocation of the cost of indemnification once several insurers have been foundliable to indemnify the insuredfor all or some portion of a continuing injury or progressively deteriorating property damagerequires application ofprinciples of contract law to the express terms and limitations of the variouspolicies of 18 insurance on the risk. Montrose, supra, 10 Cal.4th at 681, n. 19 (citations omitted). The Court in Montrose acknowledgedthat the insurers’ general liability policies “did not purport to cover damageor injury that occurredprior to the time those policies went into effect, and only covered those bodily injuries and damages(or continuing bodily injuries and damages resulting from ‘continuous or repeated exposure to conditions’) that might occur in the future during the policy period.” Jd. at 691. Thus, the duty to indemnify extends only to property damage during the policy period, not to damage that occurs before the policy incepts or after it expires. FMCand Armstrong have respondedto the inescapable fact that “all sums” is, in effect, joint and several liability - - a concept Montrose explicitly rejected -- by pointing out that an insurer saddled with all of an insured’s lossas a result of “all sums” would have contribution rights against other insurers whose policies werealso triggered. FMC, supra, 61 Cal.App.4th at 1185; Armstrong, supra, 45 Cal.App.4th at 55. But this response is too facile. Countless scenarios exist where an insurer required to pay “all sums” for damage occurring outside its policy period may not have contribution rights against other insurers. For example, deliberate decisions not to purchase insurance, exhaustion oflimits, the presence of applicable exclusions,self-insured retentions and the insolvency of other carriers wouldall preclude contribution, leaving the insurer responsible for property damageit never agreed to cover. Indeed, the Court of Appeal in this case 19 an e stated that although the "all sums" approachis not "literally" joint and several liability, "[a]dmittedly, the outcome is muchthe sameasif it were[.]" (Slip Op.at 18.) The policies expressly limit coverage to property damage occurring during the policy period and Montrosehasalready rejected joint and several liability. Yet “all sums” makesan insurer jointly and severally liable for property damage outside the policy period, depending on whetherthe insured purchased insurance in other periods, on the policy terms of such other policies and on the solvency of those other insurers. In short, the "all sums" approach to indemnity is not only inconsistent with the policy language,but it is also objectively unreasonable. 4. The Court Should Adopt A Pro Rata Approach To Allocation Of Indemnity For Damages Which Cannot Be Allocated To Specific Policy Periods If the policies are applied as written, as required by the rules of contract construction, each policy would be properly interpreted only to cover damages because of property damageduringits policy period. Theinsured, accordingly,is required to prove what property damage happenedin each policy period, because the insured has the burden to provethe claim falls within the coverage. Wallerv. Truck Insurance Exchange, 11 Cal.4th 1, 16 (1995). Each insurer, then, would be responsible only for those damagesallocable to the harm that occurred duringits 20 a policy period. There would be no overlapping coverage andthe issue of stacking would notarise. Recognizing that in many progressive injury cases the insured can prove that some damage happenedin each policy period but may be unable to prove the specific damage that occurred during each policy period, some courts have applied a presumption of continuous damage. Underthis approach,if a court determines that there is continuous damage but the damageis unallocable to particular policy periods, the court presumes that an equal amount of damage occurs in each time period throughoutthe years of property damage. See, e.g. Consolidated Edison, supra, 774 N.E.2d at 695. This presumption is rebuttable. A party could show that the damagescan in fact be allocated. This accommodation protects the insured where it would otherwise be unable to prove the specific damage during each policy period, butit should not create a windfall for the insured by providing coverage for damage which falls outside of the policy period. The rationale for the "trigger" analysis as to continuous or progressive damage in Montroseleads to the conclusion that the loss must be evenly allocated on pro rata basis across the years of property damage,including allocation to the insured for time periods during whichit was uninsured for the loss. Courts in other jurisdictions haverelied on this pro rata approach. For example, Olin Corporation v. Insurance Company ofNorth America, 221 F.3d 307 (2d Cir. 2000) involved insurance coverage for the insured’s liability 21 for continuing environmental damage. The insured contended the court should have applied a “joint and several” approachto allocation. Instead, the court adopted a prorata allocation, noting that the policies apply only to property damage during the policy period. Jd. at 323-24. Although most courts which reject “all sums” do so based on the policy language, Olin gave additional reasons for rejecting “all sums:” [A|n insured purchases an insurance policy to indemnify it against injuries occurring within the policy period, not injuries occurring outside that period. Jd. at 322;...[pro rata allocation rather than “all sums”] “avoids saddling oneinsurer with the full loss, the burden ofbringing a subsequent contribution action [against other insurers who provided coverageto the insured for policy periods outside of the periods of the targeted insurer], and the risk that recovery in such an action will prove to be impossible because, for instance, the insurer of other triggered policies is unable to pay.” Jd. at 323. The Olin court foundthat a pro rata allocation was necessary to prevent the insured from imposingliability on insurers for injuries that did not occur during the insurers’ policy periods. See, also Public Service Company ofColorado, supra, 986 P.2d at 940 (pro rata apportionment in environmental contamination was appropriate when property damage continuous andindivisible.); Consolidated 22 a t Edison, supra, 774 N.E.2d 687 (2002) (applying pro rata allocation among excess insurers and rejecting “all sums.”). Adoption ofa pro rata time-on-the risk allocation comports with the policy limitation of only providing coverage for property damage taking place during the policy period, eliminates the need for contribution suits among insurers, does not unfairly saddle one insurer with the whole loss with the attendant risk that it will be impossible to recover from otherinsurers and is consistent with the objectively reasonable expectations ofthe parties. 5. Numerous Courts Across The Country Have Rejected "All Sums" As Unreasonable The majority ofjurisdictions that have consideredthis issue have rejected the “all sums” approach in the indemnity context. For example, in a case concerming insurance coverage for environmental cleanup of contamination which occurred over multiple policy periods, the Colorado Supreme Court explained the reasoning behindits decision to reject the “all sums” approach: Wedonotbelieve that these policy provisions can reasonably be read to mean that one single-year policy out of dozens of triggered policies must indemnify the insured’s liability for the total amountofpollution caused by events over a period of decades, including events that happened both before andafter the policy period.... 23 As manycourts have commented,the [“‘all sums”’] method followed bythetrial court creates a false equivalence between an insured whohas purchasedinsurance coverage continuously for many years and an insured whohas purchased only one year of insurance coverage....[citations omitted and paragraph break added.] Public Service Company ofColorado, supra, 986 P.2d at 939. In Consolidated Edison, supra, 774 N.E.2d 687 (2002), the highest court in New York also addressed the same issue on facts comparable to the facts in the present case. For more than 100 years, Consolidated Edison (“Con Ed”)orits corporate predecessors operated a gas plant which caused contamination. After Con Edentered an agreement with the Department of Environmental Conservation to clean up the site, Con Ed sued 24 insurers whohadissuedliability policies from 1936 to 1986, demanding defense and indemnity for Con Ed’s liability for environmental damages arising from the contamination. For many ofthe years of the property damage, Con Ed had self-insured retention rather than primary policies. Con Ed arguedit should be able toallocate all ofits liability to any one of its insurers, at its choosing (“‘all sums”). The New York court rejected “all sums” as being inconsistent “with the language of the policies providing indemnification for ‘all sums’ ofliability that resulted from an accident or an occurrence ‘during the policy period’ [citing to Olin Corporation v. INA, 221 F.3d 307, 323]” (emphasisin original). The Court went on to explain: 24 be t Most fundamentally, the policies provide indemnification for liability incurred as a result of an accident or occurrence during the policy period, not outside that period [citation]. [The policyholder’s] singular focus on “all sums” would readthis important qualification out of the policies. 774 N.E.2d at 695. In addition to the highest courts in Colorado and New York, the Supreme Courts of Connecticut, New Jersey, Minnesota, Utah, Idaho, New Hampshire as well as many other courts have rejected the “all sums” approach. See, Security Insurance Company ofHartford v. Lumberman's Mutual Casualty Company, 826 A.2d 107 (Conn. 2003) (rejecting "all sums" in favor ofpro rata allocation); Carter-Wallace v. Admiral Insurance Company, 712 A.2d 1116, 1123-1125 (N.J. 1998) (specifically rejecting an “all sums” joint andseveral approach), citing Owens-Illinois, Inc. v. United Insurance Company, 650 A.2d 974, 995 (N.J. 1994); Domtar, Inc. v. Niagara Fire Insurance Company, 563 N.W.2d 724, 732 (Minn. 1997) (finding liability under each policy according to the time each policy was on the risk and absolving insurers ofliability for costs allocated outside of their policy periods, explaining that “all sums”is inconsistent with an “actual injury” trigger), citing Northern States Powerv. Fidelity & Casualty Company ofNew York, 523 N.W.2d 657 (Minn. 1994); Sharon Steel Corporation v. Aetna Casualty & Surety Company, 931 P.2d 127, 140-142 (Utah 1997) (rejecting “all sums” even in the defense context); Empire Fire & Marine Insurance Company v. North Pacific Insurance Company, 905 P.2d 1025 (Idaho 1995) (applying pro rata 25 a t allocation); Energy North Natural Gas, Inc. v. Certain Underwriters at Lloyds, 934 A.2d 517 (N.H. 2007) (rejecting “all sums” as insured could not have a reasonable expectation that a single policy would indemnify it for property damage years before and years after the policy term). 6. Armstrong, FMC And Stonewall Are Wrong On The “All Sums”Issue The Court of Appeal references Armstrong, FMC and Stonewall in support of its “all sums” decision. Petitioners recognize that those cases reject pro rata allocation in favor of “all sums.” However, those cases rely on two false assumptions: (1) that the Court in Montrose had decided in favorof “all sums” as to indemnity; and (2) that the distinction between trigger and scope of coverage dictates an “all sums”result. Petitioners showed in Section VI.A.1. whythefirst assumption is wrong. The second assumption is equally erroneous. Armstrong stated its reliance on the distinction between the trigger and scope of coverage in this way: The insurers have confused the trigger of coverage and the scope of coverage. As wehave explained...the event whichtriggers an insurance policy’s coverage doesnotdefine the extent of the coverage. Although a policy is triggered only if property damage takes place ‘during the policy period,’ once a policyis triggered, the policy obligates the insurerto pay ‘all sums’ which the insured shall becomeliable to pay as damagesfor bodily injury 26 or property damage. Theinsureris responsible for the full extent of the insured’s liability (up to the policy limits), not just for the part of the damagethat occurred during the policy period. Armstrong, supra, 45 Cal.App.4th at 105. FMCstated that its “review satisfied us that the Armstrong World Industries analysis is sound” and then repeated it. FMC, supra, 61 Cal.App.4th at 1184. Both cases invokethe trigger/scope distinction to explain the result, but the trigger versus scope mantra presupposes the outcomeand ignoresthe actual policy language. The policy language properly read as a whole addresses bothtrigger and scope of coverage, not just trigger as Armstrong and FMC improperly conclude. The policies’ basic grant of coverage requires that (1) property damage must occur during the policy period [trigger] and (2) that the policies do not pay expansively for all sums the insured may owe once any property damage happens, but only all sums for property damage because of property damage during the policy period [scope]. Armstrong and FMC’s interpretation simply ignores the requirementthat all sums for damagesis qualified by “becauseof” property damage during the policy period. The phrase serves both as a trigger of coverage and as a limitation on “all sums.” Nothing in the policy language suggests the phrase only relates to “trigger.” Courts that haverelied on theartificial "trigger versus scope of coverage" mantra have ignored the dual function of “property damage during the policy period.” 27 Thus, Armstrong and FMCartificially used the concepts of trigger and scope of coverageto truncate the policy termsrather than read them together in harmony. The fallacy of the trigger versus scope of coverage position is demonstrated by reference to another phrase in the insuring provision - - “as damages.” The Court in Powerine determinedthat the phrase “as damages” limited coverage to liability that was adjudicated in court. 24 Cal.4th at 945. Thus, notwithstanding that property damage may have happenedduring the policy period,i.e. coverage was “triggered,” the insurer was not obligated to pay “all sums.” It was only required to pay “all sums” which the insured waslegally obligated to pay “as damages.” The Court did not truncate the policy language or simply stopits analysis at “all sums.” The position asserted by the State and adopted by the Court of Appeal, that oncetriggered, the policy pays “all sums” (including for property damage before and after the policy period) cannot be sustainedin light of Powerine. As Powerine madeplain, the policies do not pay simply for “all sums”simpliciter, once triggered. Powerine provides one example demonstrating that the policies do not pay “all sums,” merely because property damage happened duringthe policy period. Another exampleis the limitation on “all sums”at issue here- - “all sums” mustbe “because of property damage during the policy period.” Just as “damages”in the policies at issue constitutes a limitation on “all sums” under Powerine, so does the requirement of “property damage during the policy period.” No other reading of the policies is semantically permissible. 28 B. The Court of Appeal CompoundedIts Error By Deciding That The State Could Recover "All Sums" From Every Insurer By Allowing "Stacking" Of Limits The Court of Appeal found that not only does a 1970 policy pay for property damage that happened before andafter that policy period if any damage happened duringthe policy period, but also that every triggered insurer has to pay "all sums." Each policy that had to pay "all sums" could be added together or "stacked" to make a "super occurrence"policy. As discussed above,if the Court reverses the Court of Appeal's decision on “all sums” as not supported by the policy language, it need not address the Court of Appeal's decision on stacking, since it becomes mootif insurers are responsible only for the property damage that takes place during the policy period. However, in the context of an "all sums" ruling, the Court of Appeal in FMC recognizedthe unreasonable results that might follow from its “all sums”decision, and rejected stacking oflimits of each policy triggered by a continuous occurrence of property damage. FMC,like this case, involved the insured’s attempt to obtain coverage from its excess insurers for continuous property damage arising from contamination. FMC,like the State here, sought to add the limits ofall policies together to cover the damagesfor an occurrence at the contaminated site. The Court of Appeal rejected FMC’s position, finding that even though multiple policies were 29 “triggered” because damage was continuous, FMC wasonly entitled to select a single policy period during the triggered years - - it could not stack the horizontal limits ofall triggered policies. The FMC Court heldthat: only the policy limits of London umbrella and excesspolicies in effect as of July 1 in any one ofthe policy periods in which coverageis triggered for a single occurrence can apply to property damageattributable to that occurrence, but if coverage for that occurrenceis triggered in more than one policy period FMCmayselect the policy period in whichthe limits are to be fixed. FMC, supra, 61 Cal.App.4th at 1190. In other words, the insured mayselect the triggered period with the highest available excess policy limits, even if the period includes several layers of excess insurance, but its recovery for one occurrence cannot exceed that amount. The FMCcourt recognizedthat “all sums” combined with “stacking” (which would result from the Court of Appeal Decision here), would be fundamentally unreasonable. FMC, supra, 61 Cal.App.4th at 1188-1190. Addressing FMC’s claim that it was entitled to “stack” policy limits, the court observed that, under the facts in question, “stacking” would potentially allow FMCto recover $7 million for each occurrence- - far more than the policies’ stated limit of $1 million per occurrence. Jd. at 1188. The FMCcourt rejected this inequitable result, noting: 30 This kind of “stacking” of the limits of an insurer’s policies for consecutive policy periods has beencriticized as affording the insured substantially more coverage...than the insured bargained or paid for. Jd. at 1188-1189, citations omitted. In support of its anti-stacking decision, FMC cited Keene Corporationv. Insurance Company ofNorth America, 667 F.2d 1034, 1049 (D.C. Cir.1981) and Insurance Company ofNorth America v. Forty-Eight Insulations, Inc. 633 F.2d 1212 at 1226 (6th Cir. 1980). In Keene, the court held that the policyholder could not stack limits: The principle of indemnity implicit in the policies requires that successive policies cover single asbestos-related injuries. That principle, however, does not require that Keenebeentitled to ‘stack’ applicable policies’ limits of liability. To the extent possible, we havetried to construe the policies in such a waythat the insurers’ contractual obligations for asbestos-related diseases are the same astheir obligations for other injuries. Keene is entitled to nothing more. Therefore, we hold that only one policy’s limit can apply to each injury. Keene, supra, 667 F.2d at 1049, In Forty-Eight Insulations the court also rejected the insured’s attempt to stack limits, stating: 31 The district court recognized the problem which stacking presented. The court stated: “In any event, no insurer should be held liable in any one case to indemnify Forty-Eight for judgmentliability for more than the highest single yearly limit in a policy that existed during the period of the claimant’s exposure for which judgment was obtained.” 451 F.Supp. at 1243. We agree with the district court....Forty-Eight Insulations, supra, 633 F.2d at 1226, n.28. Similarly, the Texas Supreme Court rejected stacking limits, observing: The consecutive policies, covering distinct policy periods, could not be “stacked” to multiply coverage for a single claim involving indivisible injury. . . . Simply because a “Claim Occurrence” extends throughout several policy periods does not raise the per-occurrence indemnity cap established in every policy. Even the jurisdiction embracing the broadest coverage trigger rule has held that multiple coverage does not permit an insured to “stack”the limits of multiple policies that do not overlap [citing Keene]....Although the triggering of multiple policies would provide multiple funding sources...it cannot lead to the conclusion that Garcia’s total coverage for a ‘continuing’ Claim Occurrence somehow exceedsthe ‘Per Claim Occurrence’ limit stated in every policy he purchased. American Physicians 32 Insurance Exchange v. Garcia, 876 S.W.2d 842, 853-855 (Tex. 1994). Thus, a continuoustrigger coupled with an “all sums”allocation would meanthat the State has the right to assign continuous property damageresulting from a single occurrenceto any given policy, but not the right to assign that property damageto every triggered policy. Stacking would result in the fiction that one occurrenceis treated the same as many occurrences implicating many occurrence limits. The State could not have reasonably expected when it bought occurrence coverage in different policy periodsthat all of those policies could be “stacked”across policy periods to provide redundant coverage for the same occurrence. The Court of Appealin this case declined to follow the anti-stacking holding in FMC, which would preclude the State from adding the limits from multiple policy periods to cover a single occurrence. This direct conflict in appellate decisions makes review appropriate and necessary. The real vice is “all sums.”’ But allowing the State to “stack” policy limits would compoundthe unreasonable results of the “all sums” approach, by requiring every insurer to pay for all property damage before, during andafter its policy periods. Such a result is objectively unreasonable. In fact, "stacking"is incompatible with the justification for "all sums"- - that a targeted insurer who has to pay "all sums" can seek contribution from other insurers. If every insurer must pay "all sums" as would result if limits were stacked, then no insurer could seek contribution from anyotherinsurer. 33 The Court of Appeal's decision in this case provides the State more thanit bargained for. Indeed, "stacking" of limits combined with "all sums" stretches the policy language to the point that it bears no resemblance to whatthe parties contemplated at the time of contracting. See, La Jolla Beach, supra, 9 Cal.4th at 37 (fundamental goal of contract interpretation is to give effect to the mutual intention of the parties); Civil Code 1636. In sum,if the State is allowed to claim coverage for damage outside the policy period underthe "all sums" doctrine, then the State's recovery should be limited to one set of "per occurrence"policy limits for a single occurrence,as the trial court ruled. FMC, supra, 61 Cal.App.4th at 1191. Otherwise, the windfall already resulting from "all sums" is magnified. 34 VII. CONCLUSION For the foregoing reasons,Petitioners request that review be granted to resolve these important questions of law and to secure uniformity of decision as to how indemnity should be allocated in a continuinglosssituation. DATED:February 12, 2009 Respectfully submitted, BERKES CRANE ROBINSON & SEAL LLP MW STEVE . CRANE BARB S. HODOUS Attorn¢ys for CONTINENTAL INSURANCE COMPANY AS SUCCESSORIN INTEREST TO THE POLICY ISSUED BY HARBOR INSURANCE COMPANY AND CONTINENTAL CASUALTY COMPANY, FOR ITSELF AND AS SUCCESSOR BY MERGER TO CNA CASUALTY COMPANY OF CALIFORNIA SONNENSCHEIN NATH & ROSENTHAL LLP By: Ltb4: Boal 4J PAUL E. B. GLAD Attorneys for STONEBRIDGE LIFE INSURANCE COMPANY 35 WOOLLS & PEER,A Professional Corp. By: Jbmé Cer AA JOHN E. PEER H. DOUGLAS GALT Attorneys for YOSEMITE INSURANCE COMPANY BARBER LAW GROUP py: 2904Sod by BRYAN M. BARBER Attorneys for EMPLOYERS INSURANCE OF WAUSAU 36 CERTIFICATION Pursuant to California Rules of Court 8:504(d), I certify that this PETITION FOR REVIEW contains 8,041 words, not including the Tables of Contents and Authorities, attachments, the caption page, signature blocksor this Certification page. Dated: February 12, 2009 STEVEN M. CRANE 62694.} 37 CERTIFIED FOR PARTIAL PUBLICATION* IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATEDISTRICT DIVISION TWO STATE OF CALIFORNIA, Plaintiff, Cross-Defendant and E041425 Appellant, (Super.Ct.No. 239784) V. OPINION CONTINENTALINSURANCE COMPANYet al., Defendants, Cross-Complainants and Appellants; EMPLOYERS INSURANCE OF WAUSAU, Defendant, Cross-Complainant and Respondent. APPEALfrom the Superior Court of Riverside County. Sharon J. Waters, Stephen D. Cunnison, and Erik Michael Kaiser, Judges.! Reversed with directions. Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110,this opinion1s certified for publication with the exception of parts V. and VIII.C. t Judge Waters ruled that there was no duty to mitigate damages. (See part VIIL., post.) [footnote continued on next page] Cotkin & Collins, Roger Ww. Simpson; Edmund G. Brown,Jr., Attorney General, Darryl L. Doke and Jill Scally, Deputy Attorneys General; Law Offices of Daniel J. ‘Schultz, Daniel J. Schultz; Anderson Kill & Olick, Robert M. Horkovich, Edward J. Stein, Robert Chung, and Cort Malonefor Plaintiff, Cross-Defendant, and Appellant. Berkes Crane Robinson & Seal, Steven M. Crane, Barbara S. Hodous; Berman & Aiwasian, Deborah A. Aiwasian, Steven M. Haskell; Woolls & Peer, John E. Peer and H. Douglas Galt for Defendants, Cross-Complainants, and Appellants Continental Insurance Company, Continental Casualty Company, Horace Mann Insurance Company and Yosemite Insurance Company. Barber Law Group, Bryan M.Barber, and Steven D. Meier for Defendant, Cross- Complainant, and Respondent Employers Insurance of Wausau. Wilson, Elser, Moskowitz, Edelman & Dicker, Patrick M. Kelly, Carey B. Moorehead, Craig C. Hunter, Robert Cooper; Sonnenschein Nath & Rosenthal, Paul E.B. Glad and Katherine J. Evans for Defendant, Cross-Complainant, and Appellant Stonebridge Life Insurance Company. Gauntlett & Associates, David A. Gauntlett and James A. Lowe for the Center for Community Action & Environmental Justice and United Policyholders as Amici Curiae on behalf of Plaintiff, Cross-Defendant, and Appellant. [footnote continuedfrom previous page] Judge Cunnison ruled that the policy limits under multi-year policies applied per occurrence,rather than per year. (See part V., post.) Judge Kaiser madeall of the other challenged rulings. Winston & Strawn, Scott P. DeVries and Yelitza V. Dunham for the League of California Cities as Amicus Curiae on behalf of Plaintiff, Cross-Defendant, and Appellant. Latham & Watkins, David L. Mulliken, Kristine L. Wilkes, Johanna S. Schiavoni and Drew T. Gardiner for Montrose Chemical Corporation of California as Amicus Curiae on behalf of Plaintiff, Cross-Defendant, and Appellant. Heller Ehrman, Reynold L. Siemens and David A. Thomas for Whittaker Corporation as Amicus Curiae on behalf of Plaintiff, Cross-Defendant, and Appellant. In this action, the State of California (the State) seeks to recover from its liability insurers the amounts that a federal court has orderedit to pay for the cleanup of the Stringfellow hazardous waste site. Some insurers were granted summary judgment; the propriety of that ruling is currently before the California Supreme Court in State of California v. Underwriters at Lloyd’s London (2006) 146 Cal.App.4th 851, review granted April 18, 2007, S149988. Other insurers settled with the State. Bythe timethe trial court entered the judgmentthat is the subject of this appeal, there were only six insurers left standing: ‘Continental Insurance Company (Continental), Continental Casualty Company (Casualty), Employers Insurance of Wausau (Wausau), Horace Mann Insurance Company (Horace Mann), Stonebridge Life Insurance Company (Stonebridge), and Yosemite Insurance Company (Yosemite) (collectively the Insurers). Each of them had issued to the State an excess corporate generalliability policy covering a two- or three-year policy period. Thetrial court ruled that every policy in effect for any policy period during which the loss was occurring covered the entire loss - which wasat least $50 million, and could be as much as $700 million - subjectto the policy limits. However,italso ruled that the State could not recover more than the total policy limits for any one policy period; this effectively limited the State’s recovery to $48 million. Finally,it ruled that the Insurers were entitled to a setoff for settlement amounts previously paid by other insurers. Because the State had already recovered approximately $120 million in settlements, the trial court entered a judgment awardingthe State “$0” against the Insurers. The State has appealed; the Insurers (other than Wausau) havefiled a protective cross-appeal. In the end, we will uphold (or find moot) all of the trial court’s rulings, with two exceptions: Thetrial court did err by (1) ruling that the State could not recover more than the total policy limits in effect for any one policy period, and (2) admitting certain documents under the ancient documents exceptionto the hearsay rule (Evid. Code, § 1331). Accordingly, we must reverse and remandfor further proceedings. Wehasten to add that we do not fault the trial court in any way. Each of the successive judges who have handledthe casesinceit wasfirst filed, way back in 1993, has done yeoman’s service. In particular, Judge Erik Michael Kaiser (now retired), who handled the case throughoutits final stages, including the jury trial, did an outstanding job of organizing, managing,and ultimately adjudicating this complex case. Judge Kaiser ruled that the State could recover for only one policy period because he believed that he was boundto follow FMC Corp.v. Plaisted & Companies (1998) 61 Cal.App.4th 1132 (FMC), which wasthe closest case on point. As an appellate court, however, we can and do respectfully disagree with FMC. It failed to follow other, closely analogous California cases, based on reasoning that wefind to be flawed and unconvincing. Similarly, in ruling on the ancient documents exception, Judge Kaiser entered uncharted territory, as this exception has not been the subject of an appellate opinion since it becameeffective, along with the rest of the Evidence Code, in 1967. Wewill construeit for the first time. 1 FACTUAL BACKGROUND A. The Stringfellow Site. J.B. Stringfellow,Jr., owned a quarry near Glen Avonin Riverside County. In 1955, a state geologist inspected the quarry to determine whetherit was suitable for use as an industrial waste disposal site. He reported that the site lay in a canyon, underlain by impermeable rock. He recommended that a concrete barrier dam be built to close a 250-foot gap in the canyon’s natural walls. He concluded that, once such a dam was built, “the operation of the site for industrial wastes will not constitute a threat of 3pollution... The State therefore proceeded to design the site and to supervise its construction. The site went into operation in 1956. More than 30 million gallons of industrial waste was deposited into unlined pondsatthesite. Actually, the site was badly flawed. First, an underground stream channellay about 70 feet below the surface; it carried groundwaterinto and outofthe site. Second, the underlying rock was fractured; contaminants could leak down throughit and reach the groundwater. Third, the barrier dam was inadequate;it allowed contaminantsto escape. In 1969, heavy rains caused contaminants to overflow the dam. In 1972, groundwater contamination wasdiscovered, and the site was closed. However,it continued to leak. In 1978, heavy rains once again made the ponds overflow; the State decided to allow a “controlled discharge” of contaminants into Pyrite Channel. Hazardous waste released from thesite merged into a plumethat ultimately extended miles away. B. The Underlying Federal Action. In 1983, the United States and the State filed suit against numerous defendants, including companiesthat had deposited wasteat the site, as well as the hapless Mr. Stringfellow, alleging that they were liable for the resulting contamination. Certain defendants counterclaimed against the State. In September 1998, the federal court found the State lable for, among other things, negligence in investigating the site, choosing the site, designingthesite, supervising construction ofthe site, failing to remedy conditionsat the site, and delaying 6 the clean up of the site. The State was held liable for all past and future remediation _costs, which the State claims could be as much as $700 million. TheInsurers stipulated that the State wasliable for at least $50 million. C. The Insurance Policies at Issue. Each ofthe Insurers (or their predecessors in interest) had issued one or more excessliability policies to the State, covering a multi-year policy period, as follows: 7 Insurer (short name) Policy No. Start End Limit per Occurrence ] Wausau 063700030896 9/20/64 9/20/67 $2 million Beneficial 11694 9/20/64 9/20/66 $2.05 million (Stonebridge’s predecessor)’ Wausau 063700030896 9/20/67 9/20/70 $2 million Continental 914-12-35 9/20/70 9/20/73 $5 million Harbor 109822 9/20/70 9/20/73 $5 million (Continental’s predecessor) Wausau 333300112690 9/20/70 9/20/73 $2 million CNA 954-37-53 9/20/73 9/20/76 $2 million (Casualty’s predecessor) Horace Mann GLA 500063 9/20/73 8/7/75 $1 million Wausau 063600036713 9/20/73 9/20/76 $2 million Yosemite |YXL 105118 9/20/73 9/20/75 $5 million 1 Stonebridge disputes the existence of the alleged policy. The State had drafted a master liability policy form, whichit required its insurers to use. However, many provisions of the form used languagethat was standardin the industry. It is undisputed that the relevant language of each of the Insurers’ policies was essentially the same, as follows: 1. Insuring agreement: “To pay on behalf of the Insured all sums which the Insured shall becomeobligated to pay by reason ofliability imposed by law ... for damages . . because of injury to or destruction of property, including loss of use thereof.” 2. Limitation ofliability: This was stated as a specified dollar amountof the “ultimate net loss each occurrence.” (Capitalization omitted.) : 3. Definition of occurrence: ‘“‘Occurrence’ means an accident or a continuous or repeated exposure to conditions whichresult in... damage to property during the policy period....” 4. Definition of ultimate net loss: “‘[U]ltimate net loss’ shall be understood to mean the amount payable in settlement of the liability of the Insured arising only from the hazards covered bythis policy after making deductionsfor all recoveries and for 5 other valid and collectible insurances... .’ II. PROCEDURAL BACKGROUND In September 1993, the State filed an action against five named insurers, seeking indemnity forits liability in the underlying federal action. Thetrial court ordered the case tried in a series of phases. On June 10, 1999, following a benchtrial, the trial court (per Judge Cunnison) entered its statement of decision regarding phase II. It ruled, amongotherthings, that the policy limits under policies with a multi-year policy period applied per occurrence, not annually (no-annualization ruling). In April 2002, the trial court (per Judge Waters) ruled that the State’s negligence in failing and delaying remediation at the site did not breach any duty to mitigate the defendant insurers’ damages (no-mitigation ruling). In September 2002, the State filed a second action, asserting similar claims against additional insurers, including the-six that are parties to this appeal. In October 2003, the trial court consolidated the two actions. The defendants in the second action agreed to be bound byall previous rulings in the first action. In November2003, the case wasassignedto judge Kaiser. The State and the defendant insurers stipulated that third party property damage resulting from the selection, design and construction ofthe site occurred continuously throughoutall of the relevant policy periods. In March 2004,the trial court ruled that each of the defendant insurers was potentially liable for the total amountof the loss (subject to their policy limits), rejecting their contention that they could be liable only for the portion ofthe loss attributable to their own policy periods (all-sums ruling). At the same time, however, it also ruled that the State could not recover the policy limits in effect for every policy period. Instead, the State had to choose onepolicy period, and it could recover only upto the policy limits of the policies in effect during that period (no-stackingruling). In February 2005, the trial court ruled that, for purposes of policy limits, there had been only a single occurrence, rejecting the State’s contention that there had been as many as five occurrences (one-occurrence ruling).’ On March 28, 2005, a jury trial on phase HI began. On May 16, 2005, the jury rendered special verdicts, finding, among otherthings, that the Insurers had breached their respective policies. At that point, the State had already entered into settlements with other insurers totaling approximately $120 million. Thetrial court ruled that these settlement amounts hadto beset off against the Insurers’ liability (setoff ruling). Under the trial court’s one-occurrence, no-annualization and no-stacking rulings, the most the State could recover was $48 million. Accordingly,the trial court entered judgment nominally in favor of the State, but in the amountof “$0.” The State filed a timely notice of appeal. Except for Wausau,all of the Insurers filed timely notices of cross-appeal. Ii. THE “ALL-SUMS” AND “NO-STACKING” RULINGS The State contends that the trial court erred by limiting it to the policy limits in effect for any one policy period. 2 Actually, at the time, the trial court left it open to the State to prove that the 1969 storm overflow constituted a separate occurrence. Later, however, the parties stipulated that the 1969 storm overflow did not constitute an occurrence. 10 In their protective cross-appeal, the Insurers? contend thatthetrial court erred by ruling that they could be liable for property damage that occurred outside their respective policy periods. Because these contentions are related, and becausethetrial court ruled on them both at the same time, we consider them seriatim. Forclarity, however, we address them in the reverse order. A. Additional Factual and Procedural Background. In phase II, the parties stipulated that the trial court could resolve certain legal issues by motion. Accordingly, the State filed a motionfor a ruling that, because it had been held liable for property damage that was continuousacross multiple policy periods, it was “entitled to indemnity up to the combinedlimitsofall policies in effect during those policy periods... .” At the sametime, the Insurersfiled briefs asking thetrial court to rule that each of their policies covered only property damageattributable to the stated policy period, as opposed to the entire continuous loss. Alternatively, they argued that, even assuming each policy was deemedto coverthe entire loss, the State could not recover the policy limits in effect for more than one policy period. In its all-sumsruling, the trial court ruled in favor ofthe State: “[O}nce coverage for... continuous... damage... is triggered undera liability policy, the insureris 3 Once again, Wausau has not cross-appealed. Accordingly, all references to the “Insurers”in the context of the cross-appeal exclude Wausau. 1] required to pay forall sums(upto the policy limits) of the insured’s liability - not just liability specifically allocable to damage during the policy period.” In its no-stacking ruling, however,it ruled in favor of the Insurers: “[The] State may not ‘stack’ or combinepolicy periods....[§]...(] [The] State is entitled to select a single policy period triggered by continuing damage from the occurrenceat the Stringfellow site. [It] may recover the full amount of the limits of the policies in that period....” It explained, in part: ‘“{I]t appears that the court is boundbythe holding in FMC Corp. [v]. Plaisted & Companies (1998) 61 Cal.App.4th 1132, which seemsto be the case mostfully on point.” B. The “All-Sums” Ruling. Webegin with Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645 (Montrose). There, the California Supreme Court held that “bodily injury and property damagethat is continuousor progressively deteriorating throughoutseveral policy periods is potentially covered byall policies in effect during those periods.” (/d. at p. 655; see also id. at pp. 654-655, 675, 685-689.) In other words,it adopted the “continuous injury’ trigger of coverage.” (/d.at p. 655.) In Montrose, seven insurers had issued series ofliability policies, collectively covering the period from 1960 to 1986. Admiral Insurance Company (Admiral) had issued polices covering only the last four years of this period. (Montrose, supra, 10 Cal.4th at p. 656.) The issue before the court was whether Admiral had a duty to defend actions alleging either continuousor progressively deteriorating bodily injury or property 12 damage,resulting from toxic chemicals manufactured by the insured, that began before, but continued during, Admiral’s policy periods. Admiral argued that a “manifestation”trigger of coverage applied; in other words, the only relevant “occurrence,” within the meaning ofits policies, was when appreciable bodily injury or property damagefirst appeared. (Montrose, supra, 10 Cal.4th at pp. 662- 663, 669, 677 & fn. 17.) The Supreme Court disagreed. It noted that Admiral’s policies defined “property damage”as “physical injury to or destruction of tangible property which occurs during the policy period’; similarly, they defined “bodily injury”as “bodily injury, sickness or disease sustained by any person which occurs during the policy period....” (Id. at p. 668.) They then defined “‘occurrence”as “an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage....” (/d. at p. 669.) The court concluded: “[T]his policy language unambiguously distinguishes between the causative event - an accident or ‘continuous and repeated exposure to conditions’ - andthe resulting ‘bodily injury or property damage.’ It is the latter injury or damage that must ‘occur’ during the policy period, and ‘which results’ from the accident or ‘continuous and repeated exposure to conditions.’” (Ibid.) The Insurers do concede that, under Montrose, they are liable for any property damagethat actually occurred during their respective policy periods. They deny, however,that they are liable for any property damage that occurred before or after their policy periods. They acknowledgethat on the facts of this case neither side would be able to prove that any particular property damage occurred during anyparticular policy 13 period. Hence, they urge us to adopt a rule allocating the total property damageprorata, based on each insurer’s time on therisk. Technically, the issue in Montrose wasthe trigger of coverage, not the allocation of coverage. In other words, the court was only called upon to decide which policies provided any coverage for a continuousloss. It was not called upon to decide how much of the loss was covered undereachpolicy. Nevertheless, Montrose did declare it to be a “settled rule that an insurer on the risk when continuousor progressively deteriorating damageorinjury first manifests itself remains obligated to indemnify the insured for the entirety of the ensuing damageor injury.” (Montrose, supra, 10 Cal.4th at p. 686,italics added.) It also cited Gruol Construction Co. v. Insurance Co. ofNorth America (1974) 11 Wn.App. 632 [524 P.2d 427] with apparent approval, noting that “the holding of Gruol was that, when warranted by the facts, property damage should be deemed to occur overthe entire process of the continuing injury. An insurer would becomeliable at any point in the process for the entire loss up to the policy limits, even though the continuing injury or progressively deteriorating damage may extend overseveral policy periods.” (Montrose, at p. 678, italics added.) Similarly, it cited California Union Ins. Co. v. Landmark Ins. Co. (1983) 145 Cal.App.3d 462 (California Union) as holding that: “[A]n insurer’s liability for a still insured and continuing eventis not terminated by the expiration of the policy term. [Citations.] ... ‘[I]n a “one occurrence” case involving continuous, progressive and deteriorating damage,the carrier in whosepolicy period the damage first becomes apparent remainsonthe risk until the damageisfinally and totally complete, 14 notwithstanding a policy provision which purports to limit the coverage solely to those accidents/occurrences within the time parameters of the stated policy term.’ [Citation.]” (Montrose,at p. 680, quoting California Union,at p: 476.) Accordingly, in Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co. (1996) 45 Cal.App.4th | (Armstrong), the appellate court held squarely that every insurer that issued a liability policy for any period during which a continuousloss occurred was liable for “the full extent of the loss up to the policy’s limits... .” (/d. at p. 49.) Armstrong relied primarily on out-of-state cases involvingliability coverage for asbestos-related diseases. Those cases, in turn, had relied on the words“‘all sums”in the insuring agreement: “‘The policies at issue in this case provide that the insurance company will pay on behalf of [the insured] “all sums”that [the insured] becomeslegally obligated to pay as damagesbecause of bodily injury during the policy period.... [W]hen [the insured] is held liable for an asbestos-related disease, only part of that disease wil] have developed during any single policy period. Therest of the development may have occurred during anotherpolicy period or during a period in which [the insured] had no insurance. Theissue that arises is whether aninsureris liable in full, or in part, for [the insured]’s liability once coverageis triggered. We conclude that the insureris liable in full, subject to the “other insurance” provisions... .’ [Citation.]” (/d. at p. 49, quoting Keene Corp. v. Ins. Co. ofNorth America-(D.C. Cir. 1981) 667 F.2d 1034, 1047 (Keene).) Subsequent decisions by oursister courts have unanimously concurred with Armstrong and followedthe all-sums approach. (Stonelight Tile, Inc. v. California Ins. 15 Guarantee Assn. (2007) 150 Cal.App.4th 19, 37; FMC, supra, 61 Cal.App.4th at pp. 1184-1187; Stonewall Ins. Co. v. City ofPalos Verdes Estates (1996) 46 Cal.App.4th 1810, 1854-1855 (Stonewall).) Moreover, in Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, the Supreme Court itself followed the all-sums approach. It stated that the duty to indemnify “‘is triggered if specified harm is caused by an included occurrence, so long as at least some such harm results within the policy period. [Citation.] Jt extendsto all specified harm caused by an included occurrence, even ifsome such harm results beyond the policy period. [Citation.] In other words, if specified harm is caused by an included occurrenceandresults, at least in part, within the policy period, it perduresto all points of time at which somesuch harm results thereafter.” (/d. at pp. 56-57, italics added,fns. omitted.) The court added: “Toillustrate by a hypothetical ...: Insurer has a duty to indemnify Insured for those sums that Insured becomeslegally obligated to pay as damages for property damage caused byits discharge of hazardous substances, up to a limit of $1 million. Insured discharges such a substance. It thereby causes property damage to Neighbor’s land, in the amount of $100,000 (determined by the cost of returningthe soilto its original condition), within the policy period of year one. It causes further damage ofthis sort as the substance spreads underthe surface, in the amount of $100,000 annually, in year two through yearthirty. Insured must pay Neighbor $3 million in damages under judgment. Insurer must pay Insured the limit of $1 million 16 for indemnification.” (Aerojet-General Corp. v. Transport Indemnity Co., supra, 17 Cal.4th at p. 57.) Admittedly, Aerojet-General, like Montrose, involved the duty to defend. The Insurers therefore argue that this language was dictum. But not so. The precise issue in Aerojet-General was whetherthe insurer could make the insured pay anypart ofthe costs of defense. (Aerojet-General Corp. v. Transport Indemnity Co., supra, \7 Cal.4th at pp. 45, 51, 55-56.) The court reasoned that the insurer would beliable to indemnify the insured againstall claims that resulted from some “triggering harm”during the policy period, even if the claimsarose after the policy period. Ud. at pp. 59-60, 68-69.) The court therefore held that the insurer wasliable to defend the insured, unless it could prove that those claims did not result from sometriggering harm during the policy period. (Ud. at p. 71.) It added: “[T]he insurers assumethat their contractual duty to defendis limited to only that part of a ‘mixed’ claim that comes within a policy period because specified harm may possibly have been caused by an included occurrence therein. They are wrong. As explained above, the duty to defend embracesall the parts of such a claim in which some such harm maypossibly have resulted, whether within the policy period or beyond.” (Ibid., italics added; see also id. at p. 74.) Thus, the all-sums approachto the duty to indemnify was crucial to the court’s holding regarding the duty to defend. In any event, ‘‘‘“[e]ven if properly characterized as dictum, statements of the [California] Supreme Court should be considered persuasive. [Citation.]” [Citation.]’ [Citation.]” (People ex rel. Totten v. Colonia Chiques (2007) 156 Cal.App.4th 31, 39, fn. 6, quoting Hubbard v. Superior Court (1997) 66 Cal.App.4th 1163, 1169.) 17 The Insurers understandably rely on footnote 19 in Montrose, which stated: “We do not endorse that aspect of the California Union court’s holding that both insurers in that case werejointly and severally liable for the full amount of damage occurring during the successive policy period. [Citation.] Allocation of the cost of indemnification once several insurers have been found liable to indemnify the insured forall or some portion of a continuing injury or progressively deteriorating property damage requires application of principles of contract law to the express terms andlimitations of the various policies of insurance on therisk. [Citations.]” (Montrose, supra, 10 Cal.4th at p. 681, fn. 19.) The all-sums approach, however,is not /iterally joint and severalliability. Admittedly, the outcome is much the sameasif it were; hence,it is sometimes loosely referred to as such. Nevertheless, itis not. The insurers are not jointly liable on each other’s policies; rather, each insureris severally liable on its own policy. (See Rohr Industries, Inc. v. First State Ins. Co. (1997) 59 Cal.App.4th 1480, 1489 [insurersare, at most, serial obligors on separate contracts, not co-obligors on a contract debt]; Topa Ins. Co. v. Fireman’s Fund Ins. Companies (1995) 39 Cal.App.4th 1331, 1339-1340 [same]; Hartford Accident & Indemnity Co. v. Superior Court (1995) 37 Cal.App.4th 1174, 1181 [same].) In Aerojet-General, the Supreme Court explained that this was all that it meant by footnote 19 in Montrose: “In Montrose, we also made plain that ‘successive’ insurers ‘on the risk when continuousor progressively deteriorating [property] damageor [bodily] injury first manifests itself are separately and independently ‘obligated to indemnify the insured’: ‘[W]here successive ... policies have been purchased, bodily injury and 18 property damagethat is continuing or progressively deteriorating throughout more than one policy periodis potentially covered by all policies in effect during those periods.’ (Citation.] The successive insurers are not ‘jointly and severally liable.’ [Citation.]” (Aerojet-General Corp. v. Transport Indemnity Co., supra, 17 Cal.4th at p. 57, fn. 10, italics added, quoting Montrose, supra, 10 Cal.4th at pp. 686-687 & 681, fn. 19.) To summarize, then, in California, when there is a continuous loss spanning multiple policy periods, any insurer that covered any policy periodis liable for the entire loss, up to the limits of its policy. The insurer’s remedyis to seek contribution from any other insurers that are also on the risk. The Insurers’ arguments to the contrary founder on the fact that we must follow the California Supreme Court’s lead. For example, they argue that the trial court’s ruling is inconsistent with the languageof the applicable policies. That language, however, is not significantly different from the standard policy language that wasat issue in Montrose and Aerojet-General. (See Aerojet-General Corp. v. Transport Indemnity Co., supra, 17 Cal.4th at p. 49.) Similarly, they argue that it is “objectively unreasonable”to hold them liable for losses before or after their respective policy periods. The same argument, however, could have been made in Montrose and Aerojet-General. Finally, they argue that “[t]he majority ofjurisdictions that have considered this issue have rejected the ‘all sums’ approachin the indemnity context.” Even if so,* California has firmly aligned itself with the minority. 4 The Insurers proceed to cite out-of-state cases rejecting the all-sums approach. However, they do nottell us how many out-of-state cases accept it. Thus, [footnote continued on next page] 19 Wetherefore concludethat the trial court correctly ruled that each of the Insurers covered the total amount of the State’s liability for property damage (subject to their respective policy limits), including property damagethat actually occurred beforeorafter their policy periods. C. The “No-Stacking” Ruling. 1. Introduction. As we havejust held, each successive insurer is potentially liable up to the entire loss. Nevertheless, that liability is capped by the policy limits. Accordingly, the next question is whether the State is entitled to stack the policy limits of the different policy periods. “Stacking” is a useful shorthand term, but it can be ambiguous. Hence, we begin by defining what we meanbyit. In its broadest sense, stacking meanstreating multiple policies that apply to a single loss as cumulative - as a “stack” of coverage - rather than as mutually exclusive. Hence, stacking issues can arise almost any time multiple policies cover a single loss. In Wallace v. Farmers Ins. Group (1986) 177 Cal.App.3d 735, for example, “stacking” was used to refer to a husband’s recovery under both his and his wife’s automobile policies. (/d. at p. 740.) In Barrett v. Farmers Ins. Group [footnote continuedfrom previous page] they fail to support their assertion that a “majority ofjurisdictions”reject it. In 2004, one journalarticle reported that “states making the all-sums determination are currently in the majority.” (Smith, Environmental Cleanup and the Interpretation ofComprehensive General Liability Insurance Policies: A Lessonfrom the Oregon Legislature (2004) 31 J, Legis. 217, 219.) 20° (1985) 174 Cal.App.3d 747, “stacking” was used to refer to recovery by the victims of an auto accident underthree policies, each coveringa different vehicle. (/d. at p. 749.) Most often - as in this case - stackingrefers to stacking of policy limits. Thus, the California Supreme Court has defined stacking as “‘the ability of the insured, when covered by more than one insurance policy, to obtain benefits from a second policy on the same claim when recovery from the first policy would alone be inadequate’ to compensate for the actual damages suffered. [Citation.]” (Wagner v. State Farm Mutual Auto. Ins. Co. (1985) 40 Cal.3d 460, 463, fn. 2, quoting Nationwide Ins. Co. v. Gode (1982) 187 Conn.386, 388, fn. 2 [446 A.2d 1059].) However, as we will discuss in more detail in part ITI.C.5, post, there can also be issues as to stacking of deductibles. Also - andagain,as in this case - stacking is most often used to refer to the stacking ofpolicy limits across different policy periods. As we discussedin part IIIB, ante, under Montrose, a continuousloss that occurs across multiple policy periods may be covered underevery policy applicable to every such period; moreover, under Aerojet- General, each such policy may provide coverage up to the entire amountofthe loss. Whenthe entire loss is within the limits of any one policy, there is no stacking issue; the insured can recover from that insurer, which will then be entitled to contribution from the other insurers. However, wheneverthe lossis greater than the limits of any one applicable policy, the insured will seek to stack the policy limits acrossthe policy periods. 21 That is what the State seeks to do in this case. Accordingly, from now on, wheneverwerefer to “stacking,” without any further qualification, we will be referring to the stacking of policy limits across policy periods. Note that, in a jurisdiction that does not follow Montrose, holding instead that a single continuousloss can only be covered bythe policies in effect during a single policy period, an issue of stacking simply cannotarise. Likewise, in a jurisdiction that does not follow Aerojet-General, holding instead that a single continuousloss must be prorated across the applicable policy periods, stacking cannot be an issue. Stacking is an issue only in a jurisdiction that, like California, has both a continuousinjury trigger (Montrose) and an all-sumsrule (Aerojet-General). Under these circumstances, somejurisdictions have permitted stacking. (E.g., Society Ins. v. Town ofFranklin (Wis.App. 2000) 233 Wis.2d 207, 216 [607 N.W.2d 342]; J.H. France Refractories Co. v. Allstate Ins. Co. (1993) 534 Pa. 29, 42 [626 A.2d 502]; Cole v. Celotex Corp. (La. 1992) 599 So.2d 1058, 1077-1080.) Others have not. (E.g., American Physicians Ins. Exchange v. Garcia (Tex. 1994) 876 S.W.2d 842, 854-855; Keene, supra, 667 F.2d at pp. 1049-1050.)° 5 Sybron Transition Corp. v. Security Ins. ofHartford (7th Cir. 2001) 258 F.3d 595 is sometimescited as rejecting stacking. There, however, the parties agreed that, under New York law (id. at p. 597), the successive insurers’ liability had to be prorated based on time on the risk. The court referred briefly to “{s]tacking (aka joint and several hability),” then stated, “No matter what the right nameofthis possibility,it is antithetical to a time-on-the-risk approach.” (/d. at pp. 600-601, italics omitted.) Thus,it failed to recognizethatit is possible to have “joint and several liability” (i.e., the all-sums approach) without stacking. At most, Sybron standsfor the banal proposition that stacking is not allowedin a pro rata jurisdiction. This sheds no light on the question before us - whetherstacking is allowed in an all-sumsjurisdiction. 22 “Whether a policyholder may stack the applicable policy limits . . . can drastically affect the amountofthe policyholder’s eventual recovery.” (Gillespie, The Allocation of Coverage Responsibility Among Multiple Triggered Commercial General Liability Policies in Environmental Cases: Life After Owens-Illinois (1996) 15 Va. Envtl. L.J. 525, 533-534, fns. omitted.) Indeed, the choice between stacking and not stacking can have an even moredrastic effect than the choice betweenan all-sums approach and pro rata approach. Take the following hypothetical (summarized in the table below): Polluter Corp. is held liable for $30 million in property damage,resulting from six years of continuous pollution. In year one, it was insured by Insurer A, subject to policy limits of $1 million per occurrence. In each of years two andthree, it was insured by Insurer B, subject to policy limits of $10 million per occurrence. And in each ofyears four,five, and six,it wasinsured by Insurer C, subject to policy limits of $5 million per occurrence. In a jurisdiction that uses a pro rata approach basedon time on therisk, $5 million ofthe risk is allocated to Insurer A; however, Insurer A’s liability is limited to $1 million. $10 million of the risk is allocated to Insurer B, and $15 million of the risk is allocated to Insurer C. Thus, Polluter Corp. can recover $26 million. In a jurisdiction that uses the all-sums approach and thatalso allowsstacking, each insureris potentially liable for the full $30 million. Insurer A’s liability, however,is limited to $1 million; Insurer B’s liability is limited to $20 million; and Insurer C’s liability is lumited to $15 million. Thus, Polluter Corp. can recover the full $30 million. This will be allocated amongthe insurers in accordance with their contribution rights. 23 wa While the precise allocation may dependon the presence and the wording of any “other insurance”clausesin the policies, it is most likely to be pro rata, by policy limits. (Croskeyet al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2007) 4] 8:26.) In that event, Insurer A will contribute 1/36 of the $30 million, or $833,333; Insurer B will contribute 20/36 of the $30 million, or $16,666,667; and Insurer C will contribute 15/36 of the $30 million, or $12,500,000. In a jurisdiction that uses the all-sums approach but prohibits stacking, however, Polluter Corp.’s recovery is limited to $10 million. Moreover, this amountwill be allocated amongthe insurers in accordance with their contribution rights. Hence, no insurer will end up paying its own full policylimits.® Pro Rata All-Sums (Time onthe All-Sums with Without Year Insurer Limits Risk) Stacking Stacking l | A “|$1,000,000 $1,000,000 $833,333 $277,778 - Subtotal $1,000,000 - $833,333 $277,778 for A 2 B $10,000,000 $5,000,000 $8,333,333 $2,777,778 3 B $10,000,000 $5,000,000 $8,333,333 $2,777,778 Subtotal $10,000,000 $16,666,667 $5,555,556 | for B 4 C $5,000,000 $5,000,000 $4,166,667 $1,388,889 5 C $5,000,000 | $5,000,000 $4,166,667 $1,388,889 6 In the following table, totals may appearto be off by plus or minus one, due to rounding. 24 6 C $5,000,000 $5,000,000 $4,166,667 $1,388,889 Subtotal $15,000,000 $12,500,000 $4,166,667 for C Grand $26,000,000 $30,000,000 $10,000,000 total Z 2. The Policy Language. “Insurancepolicy interpretation is a question of law. [Citation.]” (Hameidv. ‘NationalFire Ins. ofHartford (2003) 31 Cal.4th 16, 21.) Accordingly, “the interpretation of an insurance policy is reviewed de novo underwell-settled rules of contract interpretation. [Citation.]” (£.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 470.) “
