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(Article from Insurance Law Alert, July/August 2020)

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Our April 2020 Alert reported on the California Supreme Court’s decision in Montrose Chem. Corp. of Ca. v. Superior Court of Los Angeles Cty., 2020 WL 1671560 (Cal. Apr. 6, 2020), which held that applicable policy language entitled the policyholder to access coverage under a higher level policy once it had exhausted directly underlying excess policies for the same policy period, and did not require exhaustion of every lower level excess policy during the relevant time frame. 

Last month, a California appellate court, citing Montrose, reversed a trial court decision that applied horizontal exhaustion to determine excess insurers’ obligations.  SantaFe Braun, Inc. v. Ins. Co. of N. Am., 52 Cal. App. 5th 19 (2020).  The appellate court concluded that exhaustion of only primary policies directly underneath an excess insurance policy is required in order to trigger excess coverage.  Noting that the policy language at issue was comparable to that in Montrose, the court stated that “[t]he ‘other insurance’ clauses are similarly ambiguous and the ‘other aspects of the insurance policies’ including the scheduling of the applicable primary policies and definitions of ultimate net loss suggest ‘the exhaustion requirements were meant to apply to directly underlying insurance and not to insurance purchased for other policy periods.’”  The court declined to rule on the rights of excess carriers to seek contribution from primary insurers whose policies do not directly underlie the excess policies.