April 10, 2020
In a highly-anticipated decision of national importance for policyholders, a San Diego-based team of insurance litigators obtained a significant victory this week when the California Supreme Court released its unanimous opinion in favor of our longstanding client Montrose Chemical Corporation of California.
Montrose has sustained over $150 million in damages arising from environmental contamination at and from its DDT-manufacturing operations in Torrance, California (although the Government had sought multiple billions of dollars in damages). After achieving favorable settlements with its primary insurance carriers, Montrose turned its sights on its excess insurers. Despite having billions of dollars of potential insurance coverage spread over 30 years of coverage triggered by Montrose’s continuous, “long-tail” environmental liabilities, each of Montrose’s excess insurers asserted they were not required to indemnify the liabilities because Montrose was required to “horizontally exhaust” all lower lying policies in every implicated policy year. Conversely, Montrose argued that, consistent with the terms of each policy, it could obtain coverage from any insurer provided that the policies immediately underlying that policy were exhausted. The parties teed up the issue via cross-motions for summary adjudication.
The trial court ruled in favor of the insurers, holding that “mandatory horizontal exhaustion” was compelled by prior Court of Appeal precedent. Montrose filed a statutory writ, which was summary rejected by the Court of Appeal. Montrose then filed a writ petition with the California Supreme Court. The Supreme Court granted the Petition after substantive briefing, and eventually sent the matter back to the Court of Appeal with direction to consider the merits of Montrose’s petition. Following briefing and oral argument, the Court of Appeal affirmed the trial court’s ruling in the fall of 2017. Montrose again successfully petitioned the California Supreme Court for review, and briefing was completed in the fall of 2018. The Court held oral argument in January, and issued its opinion on March 6, resolving this issue once and for all.
Adopting Montrose’s arguments across the board, the Supreme Court held in a unanimous 7-0 opinion that Montrose is entitled to coverage under any policy covering its continuous loss once it has exhausted directly underlying excess policies for the same policy period. The Court’s approach ensures policyholders are promptly indemnified for their losses, eliminates the need for policyholders to litigate coverage defenses under each policy, and more fairly assigns to insurers the cost of pursuing contribution battles to assign liability amongst themselves. Because California routinely leads the nation on insurance issues, the decision should have significant influence and unlock tens of billions in proceeds for policyholders across the country.
The San Diego-based team was led by partners John Wilson (who argued Montrose’s position at the Supreme Court), Brook Roberts and Drew Gardiner and associate Steven Lesan, with assistance from associates John Niemeyer and Irene Fedoseienko, as well as retired partners David Mulliken and Kristine Wilkes.