St. of CA v. Continental Ins. Co.
E064518
| Cal. Ct. App. | Sep 29, 2017Background
- The State sued insurers to recover Stringfellow hazardous‑waste remediation costs; only Continental remained and paid $12 million policy limits in 2015 under a stipulation reserving prejudgment‑interest issues.
- A 1998 federal Rule 54(b) judgment allocated CERCLA and state‑law liability and found the United States incurred $80,174,584.22 in response costs; the State later settled with the U.S. for $99.4 million and paid it in 2001.
- Earlier trial rulings (one‑occurrence, no‑annualization, all‑sums, and later reversed no‑stacking) and appeals/Supreme Court decisions shaped the coverage landscape; on remand the trial court held vertical exhaustion applied.
- The trial court awarded mandatory prejudgment interest (Civ. Code § 3287(a)) at 7% from September 11, 1998 (the Rule 54(b) date), totaling about $13.9 million; alternately, discretionary interest from 2002.
- Continental appealed, arguing (inter alia) vertical exhaustion was wrong, damages were uncertain (so mandatory interest was improper), offsets should apply, and the start date/rate were incorrect. The Court of Appeal affirmed the mandatory interest award.
Issues
| Issue | Plaintiff's Argument (State) | Defendant's Argument (Continental) | Held |
|---|---|---|---|
| Whether vertical or horizontal exhaustion governs Continental’s policies | Policies are excess to the insured’s retention and attach when that period’s retention is exhausted (vertical) | Coverage shouldn’t attach until all lower‑layer limits across periods are exhausted (horizontal/rising bathtub) | Vertical exhaustion applies: policies attach upon exhaustion of the specified retention for that policy period; rising bathtub theory rejected |
| Whether judicial estoppel barred State from asserting vertical exhaustion | State’s prior statements didn’t bind the court and earlier opinions didn’t adopt the attacked position | State previously argued horizontal exhaustion and is estopped from opposing it | Judicial estoppel did not apply; prior appellate statements did not adopt the position Continental alleges |
| Whether the Rule 54(b) judgment (Sept. 11, 1998) fixed a sum that starts prejudgment interest | Rule 54(b) fixed liability for at least $80M and effectively put Continental on notice and triggered/exhausted its limits, so interest runs from that date | Rule 54(b) was not a damages judgment against the State and did not order payment to the U.S.; thus it did not start interest | Rule 54(b) adjudicated liability and amounts sufficiently to trigger Continental’s policies and start mandatory interest from that date |
| Whether damages were "certain" for mandatory prejudgment interest | Legal disputes over exhaustion, occurrences, all‑sums, stacking, annualization are questions of law; amounts were ascertainable on Sept. 11, 1998 | Multiple unresolved coverage/ allocation issues meant damages were not certain and interest was premature | Damages were capable of being made certain by calculation; legal (not factual) disputes do not preclude mandatory interest |
| Whether prior settlements/ offsets reduce the amount subject to interest | State had not been made whole; settlements did not fully compensate loss so no offset applied | Approximately $160M in settlements must offset the State’s damages before computing Continental’s share | Offsets not applied: Continental did not prove State was made whole; trial court’s prior offset ruling was moot or inapplicable post‑stacking reversal |
Key Cases Cited
- Montrose Chemical Corp. v. Admiral Ins. Co., 10 Cal.4th 645 (adopted continuous‑injury trigger for long‑tail losses)
- Aerojet‑General Corp. v. Transport Indem. Co., 17 Cal.4th 38 (adopted all‑sums approach to indemnity)
- State of California v. Continental Ins. Co., 55 Cal.4th 186 (supreme court decision on stacking and related issues in this litigation)
- Dart Industries, Inc. v. Commercial Union Ins. Co., 28 Cal.4th 1059 (other‑insurance/apportionment between insurers does not reduce insurer’s contractual obligation to insured)
- Montgomery Ward & Co. v. Imperial Cas. & Indem. Co., 81 Cal.App.4th 356 (vertical exhaustion applies to self‑insured retentions)
- Community Redevelopment Agency v. Aetna Casualty & Surety Co., 50 Cal.App.4th 329 (horizontal exhaustion for primary policies in continuous loss context)
- Hartford Accident & Indemnity Co. v. Sequoia Ins. Co., 211 Cal.App.3d 1285 (legal allocation issues do not preclude prejudgment interest when amounts are calculable)
- Fireman’s Fund Ins. Co. v. Allstate Ins. Co., 234 Cal.App.3d 1154 (distinguishing legal from factual uncertainty for prejudgment interest)
- Shell Oil Co. v. National Union Fire Ins. Co., 44 Cal.App.4th 1633 (alternative measures of damages that raise only legal questions do not preclude prejudgment interest)
- St. Paul Mercury Ins. Co. v. Mountain West Farm Bureau Mut. Ins. Co., 210 Cal.App.4th 645 (prejudgment interest improper where allocation depended on factual determinations)