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(Article from Insurance Law Alert, April 2017)

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A California federal district court ruled that a non-cumulation clause is an anti-stacking provision and therefore that the policyholder is entitled to recover only a single policy limit rather than the sum of three consecutive policy limits.  Ins. Co. of the State of PA. v. Cnty. of San Bernardino, No. CV 16-0128 (C.D. Cal. Mar. 8, 2017).

The County had incurred approximately $30 million in environmental cleanup costs and expects to incur substantially more in projected costs.  The Insurance Company of the State of Pennsylvania (“ICSOP”) sought a declaration of its obligations under three umbrella liability policies issued to the County of San Bernardino.  Each policy contains a $9 million per occurrence limit, as well as a “non-cumulation” provision that states:  “if any loss covered hereunder is also covered in whole or in part under another excess policy . . . the limit of liability hereon . . . shall be reduced by any amounts due to the Assured on account of such loss under such prior insurance.”  The parties disputed whether this provision operates as an “anti-stacking clause.”  Finding the provision unambiguous, the court held that it does.

Under California law, stacking is permissible “as a default” under standard policy language, but insurers may include anti-stacking provisions to limit coverage.  Although the court noted that the ICSOP policies at issue (sold in the 1960s and 1970s) did not contain the explicit anti-stacking verbiage commonly included in more recent policies, the court held that the effect of the language at issue is the same.  The court explained that the only reasonable interpretation of the provision is to reduce the limits of policies in later years by the amounts due under earlier policies for ongoing, continuous damage.  The court rejected various arguments asserted by the County, including that the clause constituted an impermissible escape clause.