IN THE SUPREME COURT OF
CALIFORNIA
MONTROSE CHEMICAL CORPORATION
OF CALIFORNIA,
Petitioner,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY,
Respondent;
CANADIAN UNIVERSAL INSURANCE
COMPANY, INC., et al.,
Real Parties in Interest.
S244737
Second Appellate District, Division Three
B272387
Los Angeles County Superior Court
BC005158
April 6, 2020
Justice Kruger authored the opinion of the Court, in which
Chief Justice Cantil-Sakauye and Justices Liu, Cuéllar,
Groban, Elia,* and Brown** concurred.
*
Associate Justice of the Court of Appeal, Sixth Appellate
District, assigned by the Chief Justice pursuant to article VI,
section 6 of the California Constitution.
**
Associate Justice of the Court of Appeal, First Appellate
District, Division Four, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.
MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
S244737
Opinion of the Court by Kruger, J.
Montrose Chemical Corporation (Montrose) was sued for
causing continuous environmental damage in the Los Angeles
area between 1947 and 1982 and subsequently entered into
partial consent decrees to resolve various claims. Montrose now
seeks to tap its liability insurance to cover amounts it owes in
connection with those claims. For each policy year from 1961 to
1985, Montrose had secured primary insurance and multiple
layers of excess insurance. This case concerns the sequence in
which Montrose may access the excess insurance policies
covering this period.
Montrose argues it is entitled to coverage under any
relevant policy once it has exhausted directly underlying excess
policies for the same policy period. The insurers, by contrast,
argue that Montrose may call on an excess policy only after it
has exhausted every lower level excess policy covering the
relevant years. Reading the insurance policy language in light
of background principles of insurance law, and considering the
reasonable expectations of the parties, we agree with Montrose:
It is entitled to access otherwise available coverage under any
excess policy once it has exhausted directly underlying excess
policies for the same policy period. An insurer called on to
provide indemnification may, however, seek reimbursement
from other insurers that would have been liable to provide
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
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Opinion of the Court by Kruger, J.
coverage under excess policies issued for any period in which the
injury occurred.
I.
We have previously recounted the basic facts underlying
this dispute. (See Montrose Chemical Corp. v. Superior Court
(1993) 6 Cal.4th 287, 292–294.) To summarize, Montrose
manufactured the insecticide dichloro-diphenyl-trichloroethane
(DDT) at its facility in Torrance from 1947 to 1982. In 1990, the
United States and the State of California sued Montrose for
environmental contamination allegedly caused by Montrose’s
operation of this facility. Montrose entered into partial consent
decrees in which it agreed to pay for environmental cleanup. To
meet its obligations, Montrose has now expended millions of
dollars—Montrose represents the total is more than $100
million—and asserts that its anticipated future liability could
approach or exceed this amount.
Montrose purchased primary and excess comprehensive
general liability insurance to cover its operations at the
Torrance facility from defendant insurers between 1961 and
1985. Primary insurance refers to the first layer of coverage,
whereby “liability attaches immediately upon the happening of
the occurrence that gives rise to liability.” (Olympic Ins. Co. v.
Employers Surplus Lines Ins. Co. (1981) 126 Cal.App.3d 593,
597.) Excess insurance, by contrast, “refers to indemnity
coverage that attaches upon the exhaustion of underlying
insurance coverage for a claim.” (County of San Diego v. Ace
Property & Casualty Ins. Co. (2005) 37 Cal.4th 406, 416, fn. 4.)
An excess insurer’s coverage obligation begins once a certain
level of loss or liability is reached; that level is generally referred
to as the “attachment point” of the excess policy. (Rest., Liability
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v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
Insurance, § 39, com. d, p. 338.) Here, 40 insurers collectively
issued more than 115 excess policies during the 1961 to 1985
period, which collectively provide coverage sufficient to
indemnify Montrose’s anticipated total liability.
Montrose and the insurers, which are the real parties in
interest here,1 agree for purposes of this dispute that Montrose’s
1
The real party insurers are: Continental Casualty
Company and Columbia Casualty Company, joined by AIU
Insurance Company; Allstate Insurance Company (solely as
successor in interest to Northbrook Excess and Surplus
Insurance Company); American Centennial Insurance
Company; American Home Assurance Company; Federal
Insurance Company; Employers Insurance of Wausau; Everest
Reinsurance Company (as successor in interest to Prudential
Reinsurance Company); Fireman’s Fund Insurance Company;
General Reinsurance Corporation; Granite State Insurance
Company; Lamorak Insurance Company (formerly known as
OneBeacon America Insurance Company, as successor in
interest to Employers Commercial Union Insurance Company of
America, The Employers Liability Assurance Corporation, Ltd.,
and Employers Surplus Lines Insurance Company); Employers
Mutual Casualty Company; Landmark Insurance Company;
Lexington Insurance Company; Mt. McKinley Insurance
Company (as successor in interest to Gibraltar Casualty
Company); Munich Reinsurance America, Inc. (formerly known
as American Re-Insurance Company); National Surety
Corporation; National Union Fire Insurance Company of
Pittsburgh, PA; New Hampshire Insurance Company; North
Star Reinsurance Corporation; Providence Washington
Insurance Company (as successor by way of merger to Seaton
Insurance Company, formerly known as Unigard Security
Insurance Company, formerly known as Unigard Mutual
Insurance Company); Transport Insurance Company (as
successor in interest to Transport Indemnity Company);
Westport Insurance Corporation (formerly known as Puritan
Insurance Company, formerly known as The Manhattan Fire
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
primary coverage has been exhausted. Further, the parties
have stipulated to the relevant language found in the excess
policies.2 Specifically, each policy provides that Montrose must
exhaust the limits of its underlying insurance coverage before
there will be coverage under the policy. The policies describe
the applicable underlying coverage in four main ways:
1. Some policies contain a schedule of underlying
insurance listing all of the underlying policies in the same policy
period by insurer name, policy number, and dollar amount.
2. Some policies reference a specific dollar amount of
underlying insurance in the same policy period and a schedule
of underlying insurance on file with the insurer.
3. Some policies reference a specific dollar amount of
underlying insurance in the same policy period and identify one
or more of the underlying insurers.
4. Some policies reference a specific dollar amount of
underlying insurance that corresponds with the combined limits
of the underlying policies in that policy period.
and Marine Insurance Company); Zurich International
(Bermuda), Ltd.
Insurers Travelers Casualty and Surety Company
(formerly known as Aetna Casualty and Surety Company) and
The Travelers Indemnity Company opposed Montrose on
independent grounds and filed a separate answering brief.
2
The record does not contain complete copies of every policy
between Montrose and the insurers. Instead, the parties have
identified the terms of these policies that they believe are
sufficient to resolve this dispute. The parties agree the various
policies use different language that all communicates the same
exhaustion requirement in different ways.
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
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Opinion of the Court by Kruger, J.
In a variety of ways, the excess policies also provide that
“other insurance” must be exhausted before the excess policy
can be accessed. Relevant examples include the following:
• Some policies provide that they will “indemnify the
insured for the amount of loss which is in excess of the
applicable limits of liability of the [scheduled] underlying
insurance,” and then define “loss” as “the sums paid as
damages in settlement of a claim or in satisfaction of a
judgment for which the insured is legally liable, after
making deductions for all recoveries, salvages and other
insurances (whether recoverable or not) other than the
underlying insurance and excess insurance purchased
specifically to be in excess of this policy.” (Italics added.)
• Some policies state that the insurer is liable for “the
ultimate net loss in excess of the retained limit” and define
“retained limit” to mean, among other things, the “total of
the applicable limits of the underlying policies listed in [a
schedule] [and] the applicable limits of any other
underlying insurance collectible by the insured.” (Italics
added.)
• Under a “Loss Payable” provision, one policy provides it
will pay “any ultimate net loss,” which is separately
defined as “the sums paid in settlement of losses for which
the Insured is liable after making deductions for all
recoveries, salvages and other insurance (other than
recoveries under the underlying insurance, policies of co-
insurance, or policies specifically in excess hereof).” (Italics
added.)
• Under a “Limits” provision, some policies provide that “the
insurance afforded under this policy shall apply only after
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
all underlying insurance has been exhausted.” (Italics
added.)
• One policy states that “[i]f other valid and collectible
insurance with any other insurer is available to the
Insured covering a loss also covered by this policy, other
than insurance that is in excess of the insurance afforded
by this policy, the insurance afforded by this policy shall
be in excess of and shall not contribute with such other
insurance.” (Italics added.)
Montrose and the insurers disagree whether these
clauses—which we will collectively call “other insurance”
clauses—require Montrose to exhaust other insurance coverage
from other policy periods. This dispute dates to 1990, when
Montrose first sued its insurers to resolve various coverage
disputes, but the relevant filing for our purposes occurred in
2015, when Montrose’s fifth amended complaint asserted a new
cause of action seeking the following declaration:
“a. In order to seek indemnification under the Defendant
Insurers’ excess policies, Montrose need only establish that its
liabilities are sufficient to exhaust the underlying policy(ies)
in the same policy period, and is not required to establish that
all policies insuring Montrose in every policy period (including
policies issued to cover different time periods both before and
after the policy period insured by the targeted policy) with limits
of liability less than the attachment point of the targeted policy,
have been exhausted; and
“b. Montrose may select the manner in which [to] allocate
its liabilities across the policy(ies) covering such losses.”
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
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Opinion of the Court by Kruger, J.
The rule Montrose proposes in its amended complaint is a
rule of “vertical exhaustion” or “elective stacking,” whereby it
may access any excess policy once it has exhausted other policies
with lower attachment points in the same policy period. The
insurers, in contrast, each of which has issued an excess policy
to Montrose in one of the triggered policy years, argue for a rule
of “horizontal exhaustion,” whereby Montrose may access an
excess policy only after it has exhausted other policies with
lower attachment points from every policy period in which the
environmental damage resulting in liability occurred. The
parties filed cross-motions for summary adjudication of this
issue.3
The trial court denied Montrose’s motion and granted the
insurers’ motion, holding that the excess policies required
horizontal exhaustion in the context of this multiyear injury.
The court concluded there is a “ ‘well-established rule that
horizontal exhaustion should apply in the absence of policy
language specifically describing and limiting the underlying
insurance.’ ” Montrose filed a petition for a writ of mandate,
3
One set of insurers, Travelers Casualty and Surety
Company and The Travelers Indemnity Company (collectively,
Travelers), opposed Montrose’s motion for summary
adjudication for two independent reasons. First, Travelers
argued that Montrose’s requested declaration would entitle
Montrose to indemnification without actually exhausting the
relevant underlying insurance, as required by the terms of the
Travelers policies. Travelers further argued that California law
did not apply to their policies. Because the Court of Appeal
concluded for other reasons that Montrose was not entitled to
summary adjudication, it did not address the issues raised by
Travelers. We did not grant review of either question, as
discussed at part II.D., post.
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v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
which the Court of Appeal summarily denied. We granted
Montrose’s petition for review and transferred the case to the
Court of Appeal with instructions to issue an order to show
cause why the relief Montrose sought should not be granted.
The Court of Appeal affirmed the trial court’s denial of
Montrose’s motion for summary adjudication and affirmed in
part the trial court’s grant of the insurers’ parallel motion.
(Montrose Chemical Corp. v. Superior Court (2017) 14
Cal.App.5th 1306, 1321, 1338 (Montrose II).) The court
concluded that the plain language of many of the excess policies
purchased by Montrose provide that they “attach not upon
exhaustion of lower layer policies within the same policy period,
but rather upon exhaustion of all available insurance.” (Id. at
p. 1327.)
Shortly after the Court of Appeal published its opinion in
this case, another Court of Appeal disagreed with its reasoning
in State of California v. Continental Ins. Co. (2017) 15
Cal.App.5th 1017. The court in that case determined that
vertical exhaustion was appropriate given the relevant policy
language and our case law. (Id. at pp. 1031–1037.)
We granted review in this case to determine whether
vertical exhaustion or horizontal exhaustion is required when
continuous injury occurs over the course of multiple policy
periods for which an insured purchased multiple layers of excess
insurance. Reading the relevant policy language in light of
background principles of insurance law and considering the
parties’ reasonable expectations, we conclude that a rule of
vertical exhaustion is appropriate. Under that rule, the insured
has access to any excess policy once it has exhausted other
directly underlying excess policies with lower attachment
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
points, but an insurer called upon to indemnify the insured’s loss
may seek reimbursement from other insurers that issued
policies covering relevant policy periods.4
II.
A.
We begin our analysis with a few background insurance
law principles specific to the continuous or “long-tail” injury at
issue here, where damage occurs over multiple policy periods.
(See State of California v. Continental Ins. Co. (2012) 55 Cal.4th
186, 195–196 (Continental).) In a much earlier iteration of this
case, we noted “the settled rule” is that “an insurer on the risk
when continuous or progressively deteriorating damage or
injury first manifests itself remains obligated to indemnify the
insured for the entirety of the ensuing damage or injury,” up to
the policy’s limit. (Montrose Chemical Corp. v. Admiral Ins. Co.
(1995) 10 Cal.4th 645, 686, italics added (Montrose I).) “There
is no requirement that . . . the conditions giving rise to the
damage or injury . . . themselves occur within the policy period
in order for potential liability coverage to arise.” (Ibid.)
Extending this logic to the continuous injury context, we held
that “bodily injury and property damage which is continuous or
progressively deteriorating throughout several policy periods is
potentially covered by all policies in effect during those periods.”
(Id. at p. 689.) This principle is also known as the “continuous
injury trigger of coverage.” (Ibid.)
4
Because the question is not presented here, we do not
decide when or whether an insured may access excess policies
before all primary insurance covering all relevant policy periods
has been exhausted.
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
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Opinion of the Court by Kruger, J.
In Aerojet-General Corp. v. Transport Indemnity Co.
(1997) 17 Cal.4th 38, 57 (Aerojet), we illustrated the principle
with an example: If an insured company discharges a hazardous
substance that causes property damage in the amount of
$100,000 each year for a span of 30 years, a $1 million insurance
policy that is purchased for the first year of that 30-year span
would be required to pay the insured the full $1 million limit for
indemnification. Even though the damage traceable to the
policy year in which the insurance policy was in effect only
amounted to $100,000, the insurer is liable for all damages. As
we explained, the insurer’s obligation to pay is “triggered if
specified harm is caused by an included occurrence, so long as
at least some such harm results within the policy period.” (Id.
at p. 56, fn. omitted, citing Montrose I, supra, 10 Cal.4th at
pp. 669–673.) “It extends to all specified harm caused by an
included occurrence, even if some such harm results beyond the
policy period.” (Aerojet, at pp. 56–57.)
This “all sums” rule, as we described it in Aerojet, means
that “insurers [a]re responsible for defending the insured for all
claims that involved the triggering damage” in a continuous
injury case; “as long as the policyholder is insured at some point
during the continuing damage period, the insurers’ indemnity
obligations persist until the loss is complete, or terminates.”
(Continental, supra, 55 Cal.4th at p. 197, citing Aerojet, supra,
17 Cal.4th at p. 71; Continental, at p. 200 [under all sums
allocation, insurers must “pay all sums for property damage
attributable to the [polluted] site, up to their policy limits, if
applicable, as long as some of the continuous property damage
occurred while each policy was ‘on the loss’ ”].) We adopted this
rule because, contrary to Aerojet’s stylized example, “[i]t is often
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Opinion of the Court by Kruger, J.
‘virtually impossible’ for an insured to prove what specific
damage occurred during each of the multiple consecutive policy
periods in a progressive property damage case.” (Id. at p. 196.)
“If such evidence were required, an insured who had procured
insurance coverage for each year during which a long-tail injury
occurred likely would be unable to recover.” (Ibid.) The all sums
approach, we explained, “best reflects the insurers’ indemnity
obligations under the respective policies, the insured’s
expectations, and the true character of the damages that flow
from a long-tail injury.” (Id. at p. 200.)
Finally, recognizing that the limits of any one policy may
be insufficient to cover the entire liability resulting from a
continuous injury, we concluded in Continental that the insured
may seek indemnification from every policy that covered a
portion of the loss, up to the full limits of each policy.
(Continental, supra, 55 Cal.4th at p. 200.) This “all-sums-with-
stacking indemnity principle,” we said, “properly incorporates
the Montrose [I] continuous injury trigger of coverage rule and
the Aerojet all sums rule, and ‘effectively stacks the insurance
coverage from different policy periods to form one giant “uber-
policy” with a coverage limit equal to the sum of all purchased
insurance policies.’ ” (Id. at p. 201.) “ ‘[T]his approach treats all
the triggered insurance as though it were purchased in one
policy period’ ” and recognizes “the uniquely progressive nature
of long-tail injuries that cause progressive damage throughout
multiple policy periods.” (Ibid.) Importantly, “the insured has
immediate access to the insurance it purchased.” (Ibid.) The
insurers can then sort out their proportional share through
actions for equitable contribution or subrogation. (Id. at p. 200;
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
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Opinion of the Court by Kruger, J.
see Continental Cas. Co. v. Zurich Ins. Co. (1961) 57 Cal.2d 27,
37.)5
Having adopted an all-sums-with-stacking approach to
the coverage of long-tail injuries, we are now presented with a
follow-on question: In what order may an insured access excess
policies from different policy periods to cover liability arising
from long-tail injuries? To illustrate the parties’ competing
approaches, consider a hypothetical company that caused
property damage over three years that resulted in $90 million of
damage. Further imagine that in each of these three years, the
company had purchased primary insurance with a $10 million
limit and two layers of excess insurance, each providing an
additional $10 million of coverage:
5
In a contribution action, an insurer that paid more than
its share in the initial coverage action can seek reimbursement
from other insurers that were obligated to indemnify or defend
the same loss or claim. (Fireman’s Fund Ins. Co. v. Maryland
Casualty Co. (1998) 65 Cal.App.4th 1279, 1293.) The doctrine of
equitable subrogation allows an insurer to stand in the shoes of
the insured and recover from third parties that are liable to the
insured for a loss that the insurer both insured and paid. (Id. at
pp. 1291–1292.) As a general matter, these types of actions
allow insurers to apportion liability for losses among themselves
after the insured has been indemnified.
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
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Opinion of the Court by Kruger, J.
Year 1 Year 2 Year 3
$50 million
$40 million
$30 million Policy 2A Policy 2B Policy 2C
$20 million Policy 1A Policy 1B Policy 1C
$10 million Primary Primary Primary
Insurance Insurance Insurance
We are tasked with deciding between two proposed
methods by which these six excess insurance policies might be
stacked after the primary insurance has been exhausted to cover
the $90 million liability in a way that “ ‘treats all the triggered
insurance as though it were purchased in one policy period.’ ”
(Continental, supra, 55 Cal.4th at p. 201.) Under the insurers’
proposed rule of horizontal exhaustion, the insured would have
to exhaust all of its lower layer excess coverage across all
relevant policy periods before accessing any of its higher layer
coverage:
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
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Opinion of the Court by Kruger, J.
$90 million Policy 2C
$80 million Policy 2B
$70 million Policy 2A
$60 million Policy 1C
$50 million Policy 1B
$40 million Policy 1A
$30 million Primary
Insurance
$20 million Primary
Insurance
$10 million Primary
Insurance
Under Montrose’s proposed rule of vertical exhaustion, in
contrast, an insured would be permitted to access any higher
layer excess policy once it has exhausted the directly underlying
excess policy covering the same period:
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Opinion of the Court by Kruger, J.
$90 million Policy 2C
$80 million Policy 1C
$70 million Policy 2B
$60 million Policy 1B
$50 million Policy 2A
$40 million Policy 1A
$30 million Primary
Insurance
$20 million Primary
Insurance
$10 million Primary
Insurance
Which approach applies depends on the terms of the
parties’ agreement. We therefore begin by looking, as we must,
to the language of the insurance policies at issue. (Minkler v.
Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 321 (Minkler);
AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 822–823.)
B.
“The principles governing the interpretation of insurance
policies in California are well settled. ‘Our goal in construing
insurance contracts, as with contracts generally, is to give effect
to the parties’ mutual intentions. [Citations.] “If contractual
language is clear and explicit, it governs.” [Citations.] If the
terms are ambiguous [i.e., susceptible of more than one
reasonable interpretation], we interpret them to protect “ ‘the
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objectively reasonable expectations of the insured.’ ” ’ ”
(Minkler, supra, 49 Cal.4th at p. 321.) If these rules do not
resolve an ambiguity, we may then “ ‘resort to the rule that
ambiguities are to be resolved against the insurer.’ ” (Ibid.)
The parties’ dispute centers on the meaning of the “other
insurance” clauses in the excess insurance policies. These
clauses provide, in a variety of ways, that each policy shall be
excess to other insurance available to the insured, whether or
not the other insurance is specifically listed in the policy’s
schedule of underlying insurance. The insurers argue that these
clauses call for a rule of horizonal exhaustion because they
restrict indemnification from any excess policy until the insured
has exhausted all other available insurance—which, in a case of
long-tail injury, means every policy with a lower attachment
point from every policy period triggered by the continuous
injury.
Although the insurers’ interpretation is not an
unreasonable one, it is not the only possible interpretation of the
policy language.6 The “other insurance” clauses at issue clearly
6
Nor, contrary to the insurers’ suggestion, has this
interpretation already been adopted in California cases. The
insurers invoke various cases interpreting “other insurance”
clauses in other settings, but none addresses the question here:
whether “other insurance” clauses require horizontal
exhaustion of excess insurance policies in cases involving long-
tail injury. (See, e.g., Legacy Vulcan Corp. v. Superior Court
(2010) 185 Cal.App.4th 677, 689–690 [addressing defense
obligations of a policy providing both excess and “umbrella”
defense coverage]; Peerless Cas. Co. v. Continental Cas. Co.
(1956) 144 Cal.App.2d 617, 625–626 [excess insurer not required
to contribute when insurance settlement was prorated across
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require exhaustion of underlying insurance, but none clearly or
explicitly states that Montrose must exhaust insurance with
lower attachment points purchased for different policy periods.
Policies that disclaim coverage for amounts covered by “other
underlying insurance,” or require exhaustion of “all underlying
insurance,” for example, could fairly be read to refer only to
other directly underlying insurance in the same policy period
that was not specifically identified in the schedule of underlying
insurance, anticipating that the scheduled underlying
insurance may later be replaced or supplemented with different
policies.
Other formulations require deductions for, in the words of
one set of representative policies, all “other insurances (whether
recoverable or not) other than the underlying insurance and
excess insurance purchased specifically to be in excess of this
policy.” (Italics added.) If this language were read to apply to
insurance purchased for other policy periods, it could fairly be
understood to require the exhaustion of every other insurance
policy at every attachment point—not merely, as the insurers’
theory of horizontal exhaustion would have it, excess policies
from other policy periods that contain lower attachment points.
The insurers do not advance this expansive reading, however;
they contend that the reference to “other insurance,” properly
understood, means “other underlying insurance”—that is, only
excess insurance with lower attachment points from all relevant
policy periods. The insurers do not explain why the reference is
not properly understood to mean “other directly underlying
two primary insurers and at least one primary policy remained
unexhausted].)
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insurance”—that is, a requirement that the insured exhaust
only excess insurance with lower attachment points from the
same policy period. This is one clue that the plain language of
these clauses is not adequate to resolve the dispute in the
insurers’ favor.
Consideration of the traditional use of “other insurance”
clauses reinforces our doubts about the insurers’ interpretation.
As we have previously explained, “ ‘[h]istorically, “other
insurance” clauses were designed to prevent multiple recoveries
when more than one policy provided coverage for a particular
loss.’ ” (Dart Industries, Inc. v. Commercial Union Ins. Co.
(2002) 28 Cal.4th 1059, 1079 (Dart).) They have not generally
been understood as dictating a particular exhaustion rule for
policyholders seeking to access successive excess insurance
policies in cases of long-tail injury.
In Dart, we considered the meaning of an “other
insurance” clause in a different context. There, the policyholder
had acquired successive primary policies covering multiple
decades and subsequently sought defense and indemnity from
one of its primary insurers for a continuous injury during that
time even though the policy provided by that insurer had been
lost or destroyed. (Dart, supra, 28 Cal.4th at pp. 1064–1065.)
The policyholder was able to prove the material terms of the
policy, but the insurer argued that its contractual obligations
may have been relieved or reduced by an “other insurance”
clause in the lost policy, pointing to the other policies purchased
for the period during which the injury occurred. (Id. at p. 1078.)
We rejected this argument, explaining that reliance on an “other
insurance” clause could not be used to “defeat the insurer’s
obligations altogether.” (Id. at p. 1079.) In other words, the
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insurer in Dart could not simply invoke the possibility of an
“other insurance” clause to escape its coverage obligations. We
reasoned, in a passage the parties have focused on here:
“ ‘[A]pportionment among multiple insurers must be
distinguished from apportionment between an insurer and its
insured. When multiple policies are triggered on a single claim,
the insurers’ liability is apportioned pursuant to the “other
insurance” clauses of the policies [citation] or under the
equitable doctrine of contribution [citations]. That
apportionment, however, has no bearing upon the insurers’
obligations to the policyholder. . . . The insurers’ contractual
obligation to the policyholder is to cover the full extent of the
policyholder’s liability (up to the policy limits).’ ” (Id. at p. 1080,
quoting Armstrong World Industries, Inc. v. Aetna Casualty &
Surety Co. (1996) 45 Cal.App.4th 1, 105–106.)
The parties dispute whether Dart meant to set out a
categorical view of the meaning of “other insurance” clauses in
cases of continuous injury and whether that view forecloses the
insurers’ proposed interpretation of the “other insurance”
clauses in the distinct context we confront here. Citing Dart,
Montrose asserts that the “other insurance” clauses are relevant
to contribution actions between insurers but not to coverage
actions between insurers and policyholders. (See State of
California v. Continental Ins. Co., supra, 15 Cal.App.5th at
p. 1032.) We need not rely on any such categorical rule in this
case, however; it is enough to observe that Dart undermines the
insurers’ claim that the “other insurance” clauses clearly and
explicitly call for a rule of horizontal exhaustion.
In rejecting the insurer’s claim in Dart, we emphasized
that “other insurance” clauses have not traditionally been used
19
MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
to address questions concerning the obligation of successive
insurers to indemnify policyholders for a continuously
manifesting injury (a question which, as Dart reminds us, “is a
separate issue from the obligations of the insurers to each other”
(Dart, supra, 28 Cal.4th at p. 1080)). (Id. at p. 1078, fn. 6.)
Elaborating on the same point, the Restatement explains that
“other insurance” clauses have generally been used to address
“[a]llocation questions with respect to overlapping concurrent
policies.” (Rest., Liability Insurance, supra, § 40, com. c, p. 345,
italics added.) Consistent with this understanding, most courts
to address the issue have found that “other insurance” clauses
are not aimed at governing the proper allocation of liability
among successive insurers in cases of long-tail injury or the
appropriate sequence in which a policyholder may access its
insurance across several policy periods. (Id., § 41, com. j, p. 361;
see In re Viking Pump, Inc. (2016) 27 N.Y.3d 244, 266 [52 N.E.3d
1144, 1157] [holding that “other insurance” clauses do not
mandate horizontal exhaustion under all sums allocation, and
explaining that “ ‘other insurance’ clauses ‘apply when two or
more policies provide coverage during the same period, and they
serve to prevent multiple recoveries from such policies’ . . . .
[O]ther insurance clauses are not implicated in situations
involving successive—as opposed to concurrent—insurance
policies”]; see also Steadfast Insurance Co. v. Greenwich Ins.
(2019) 385 Wis.2d 213, 228 [922 N.W.2d 71, 79] [“ ‘The accepted
meaning of “other insurance” provisions does not include
application to successive insurance policies.’ ”]; Ohio Cas. Ins.
Co. v. Unigard Ins. Co. (Utah 2012) 268 P.3d 180, 184 [“ ‘[O]ther
insurance’ provisions do not apply to successive insurers.”];
Boston Gas Co. v. Century Indem. Co. (2009) 454 Mass. 337, 361
20
MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
[910 N.E.2d 290, 308] [“ ‘[O]ther insurance’ clauses simply
reflect a recognition of the many situations in which concurrent,
not successive, coverage would exist for the same loss.”];
Benjamin Moore & Co. v. Aetna Cas. (N.J. 2004) 843 A.2d 1094,
1101 [“ ‘[O]ther insurance’ clauses, which are provisions
typically designed to preclude a double recovery when multiple,
concurrent policies provide coverage for a loss[,] . . . [are] not
generally applicable in the continuous-trigger context where
successive rather than concurrent policies [are] at issue.”].)
Given the generally understood purpose of “other insurance”
clauses, it is difficult to read the clauses here as a clear and
explicit direction to adopt a requirement of horizontal
exhaustion in cases of long-tail injury.
While the “other insurance” clauses do not speak clearly
to the question before us, other aspects of the insurance policies
strongly suggest that the exhaustion requirements were meant
to apply to directly underlying insurance and not to insurance
purchased for other policy periods. First and most obviously,
the excess policies explicitly state their attachment point,
generally by referencing a specific dollar amount of underlying
insurance in the same policy period that must be exhausted. For
example, certain Fireman’s Fund Insurance Company policies
provide: “It is a condition of this policy that the insurance
afforded under this policy shall apply only after all underlying
insurance has been exhausted.” The policies then list the
“Underlying Insurance Limit of Liability”—for example,
“$30,000,000 each occurrence $30,000,000 aggregate.” In other
words, this policy agrees to indemnify Montrose once it has
exhausted $30 million of underlying insurance. But under the
insurers’ theory of horizontal exhaustion, Montrose would not
21
MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
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Opinion of the Court by Kruger, J.
be permitted to access this policy until it has exhausted $30
million of underlying insurance for every relevant policy period—
which would add up to substantially more than $30 million.
Indeed, here, where the continuous injury occurred over the
course of a quarter century, such a rule would increase the
operative attachment point for this policy from $30 million to
upwards of $750 million. Thus, where aggregate liability
amounts to approximately $200 million, Montrose would not be
able to access an insurance policy that, by its terms, kicks in
after $30 million of underlying insurance is exhausted.
Relatedly, the excess policies regularly include or
reference schedules of underlying insurance—all for the same
policy period. Under Montrose’s reading, these schedules
provide a presumptively complete list of insurance coverage that
must be exhausted before the excess policy may be accessed,
with the “other insurance” clauses serving as a backstop to
prevent double recovery in the rare circumstance where
underlying coverage changes after the excess policy is written.
(See Dart, supra, 28 Cal.4th at p. 1079.) But under the insurers’
rule of horizontal exhaustion, these schedules would represent
only a fraction—perhaps only a small fraction—of the insurance
policies that must be exhausted before a given excess policy may
be accessed.
In sum, the “other insurance” clauses do not clearly specify
whether a rule of horizontal or vertical exhaustion applies here.
Read in isolation, the “other insurance” clauses might plausibly
be read to perform the function the insurers ascribe to them.
But read in conjunction with the actual language of other
provisions in the policies, and in light of their historical role of
governing allocation between overlapping concurrent policies,
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
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Opinion of the Court by Kruger, J.
the insurers’ reading becomes less likely. Rather, in the absence
of any more persuasive indication that the parties intended
otherwise, the policies are most naturally read to mean that
Montrose may access its excess insurance whenever it has
exhausted the other directly underlying excess insurance
policies that were purchased for the same policy period.
C.
To the extent any of the language of these policies remains
ambiguous, we resolve these ambiguities to protect “ ‘ “ ‘the
objectively reasonable expectations of the insured.’ ” ’ ”
(Minkler, supra, 49 Cal.4th at p. 321.) Consideration of the
parties’ reasonable expectations favors a rule of vertical
exhaustion rather than horizontal exhaustion.
For starters, applying the horizontal exhaustion rule
would be far from straightforward. The insurers describe the
rule in simple terms: as a matter of traveling across “layers” of
stacked “blocks” of excess insurance coverage before the insured
may travel upwards. But this depiction suggests a degree of
standardization across policies that does not exist. The policies
Montrose purchased come in all shapes and sizes, each covering
different periods of time, providing different levels of coverage,
and setting forth distinct exclusions, terms, and conditions.
Given all of these variations across the relevant dimensions,
how would a rule of horizonal exhaustion apply? If one were to
stack the excess policies on a graph based on their coverage
limits or attachment points, the first layer of excess insurance
in 1984, for example, would appear to reach as high as the 13th
layer of excess coverage in 1974. To which horizontal layer does
the 1984 policy belong? The policies do not say. Nor does
anything in the text of these policies tell us how an “other
23
MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
insurance” clause in a policy from one period ought to apply to a
policy from another period that contains both a lower
attachment point and a higher coverage limit. The policies’
silence on these basic, foundational questions tends to
undermine the idea the parties expected such a rule to apply.
But perhaps more importantly, because the exclusions,
terms, and conditions may vary from one policy to another, a
rule of horizontal exhaustion would create significant practical
obstacles to securing indemnification. As the Court of Appeal
stated in State of California v. Continental Ins. Co., supra, 15
Cal.App.5th at page 1033, “if a lower-layer insurer for a different
policy period happened to claim that some exclusion in its policy
applied, a court could not determine whether Continental’s
policies were triggered without first determining that exclusion
claim.” Such a rule would put the insured to the considerable
expense of establishing a right to coverage under the definitions,
terms, conditions, and exclusions from policies in every policy
period triggered by the continuous injury. Coverage under less
restrictive policies would be delayed until more restrictive policy
terms are adjudicated. In sum, “[h]orizontal exhaustion would
create as many layers of additional litigation as there are layers
of policies.” (Westerport Ins. Corp. v. Appleton Papers Inc.
(Wis.Ct.App. 2010) 787 N.W.2d 894, 918.) What is more,
requiring a policyholder to litigate the terms and conditions of
all policies with lower attachment points in every policy period
before accessing policies with higher attachment points would
effectively increase the attachment point—thereby
undermining the policyholder’s reasonable expectation that
coverage would be triggered upon the exhaustion of the amount
listed as the policy’s stated attachment point. Objectively
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
speaking, the parties could not have intended to require the
insured to surmount all these hurdles before the insured may
access the excess insurance it has paid for.
The insurers counter that the rule of horizontal
exhaustion is logically compelled by our adoption of an all-sums-
with-stacking approach to liability for long-tail injuries. They
argue that if the insured is to have access to all policies across
all relevant policy periods, it only makes sense that the insured
must seek indemnification based on its excess coverage across
all relevant policy periods; to do otherwise, the insurers assert,
would “artificially break[]” the long-tail injury into distinct
periods, contrary to our holding in Continental. (Continental,
supra, 55 Cal.4th at p. 201.) But the insurers’ conclusion does
not follow. A rule of vertical exhaustion does not restrict the
insured from accessing excess coverage from other policy periods
if the terms and conditions are otherwise met; it merely relieves
the insured of the obligation of establishing whether all of the
applicable terms and conditions at any given “layer” of excess
coverage are met before it accesses the next “layer” of coverage.
There is no evident inconsistency between an all sums approach
and one that avoids placing this burden on the insured, with its
associated delays, before the insured may access its excess
insurance.
But if horizontal exhaustion imposes a heavy burden on
the insured, the insurers claim that vertical exhaustion is
“totally unfair” to them because “decades’ worth of
environmental damage [could] fall on the shoulders of
disfavored insurers who happened to provide excess insurance
. . . during that single unlucky year or two.” This argument is
not different in kind from arguments we have already
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MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
considered and rejected in adopting the all-sums-with-stacking
approach to the coverage of long-tail injuries. (See, e.g.,
Continental, supra, 55 Cal.4th at pp. 199–200; id. at pp. 201–
202.) What we have said in prior cases applies here as well:
There is no evident unfairness to insurers when their insureds
incur liabilities triggering indemnity coverage under the
negotiated policy contract.7 Just as the all-sums-with-stacking
approach allows the insured “immediate access to the insurance
it purchased,” so, too, does vertical exhaustion in a continuous
injury case. (Continental, at p. 201.)
Equally to the point, nothing about the rule of vertical
exhaustion requires a single insurer to shoulder the burden of
indemnification alone. As we explained in the context of
primary insurance, “the obligation of successive primary
insurers to cover a continuously manifesting injury is a separate
issue from the obligations of the insurers to each other.” (Dart,
supra, 28 Cal.4th at p. 1080.) Even though a rule of vertical
exhaustion permits Montrose to access excess insurance from
any given policy period, provided the directly underlying
insurance has been exhausted, insurers may seek contribution
from other excess insurers also liable to the insured. The
exhaustion rule does not alter the usual rules of equitable
contribution between insurers. An insurer required to provide
excess coverage for a long-tail injury may lessen its burden by
seeking reimbursement from other insurers that issued policies
during the relevant period. Once again, the critical difference
7
Whether losses may be partially allocated to the insured
for policy periods in which the insured chose to self-insure is a
question not presented here.
26
MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
between a rule of vertical exhaustion and horizontal exhaustion
thus is not whether a single disfavored excess insurer will be
made to carry a disproportionate burden of indemnification, but
instead whether the administrative task of spreading the loss
among insurers is one that must be borne by the insurer instead
of the insured. There is no obvious unfairness to insurers from
a rule that requires them to bear this administrative burden.
The insurers lean heavily on Community Redevelopment
Agency v. Aetna Casualty & Surety Co. (1996) 50 Cal.App.4th
329, but that case addresses a meaningfully different scenario
and thus offers no real lessons for resolving the question now
before us. In Community Redevelopment, a primary insurer
sought contribution from an excess insurer for defense costs on
behalf of the insured in a case involving continuous loss. To
resolve the conflict, the court applied what it termed a
“horizontal exhaustion rule”; under that rule, the court held, an
excess insurer in a continuous injury case is not required “to
‘drop down’ and provide a defense to a common insured before
the liability limits of all primary insurers on the risk have been
exhausted.” (Id. at p. 332.) In adopting that rule, the court
explained: “Absent a provision in the excess policy specifically
describing and limiting the underlying insurance, a horizontal
exhaustion rule should be applied in continuous loss cases
because it is most consistent with the principles enunciated in
Montrose [I, supra, 10 Cal.4th 645]. . . . Under the principle of
horizontal exhaustion, all of the primary policies must exhaust
before any excess will have coverage exposure.” (Community
Redevelopment, at p. 340.)
This case differs from Community Redevelopment in
fundamental respects. This case, unlike Community
27
MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
Redevelopment, is not a contribution action between primary
and excess insurers; it is, rather, a coverage dispute between
excess insurers and their insured. Regardless of whether
Community Redevelopment was correct to apply a rule of
horizontal exhaustion in that distinct context—a question not
presently before us—we are unpersuaded that the reasoning of
Montrose I requires us to apply a rule of horizontal exhaustion
that would limit Montrose’s ability to access the excess
insurance coverage it has paid for.
In sum, we conclude that in a case involving continuous
injury, where all primary insurance has been exhausted, the
policy language at issue here permits the insured to access any
excess policy for indemnification during a triggered policy period
once the directly underlying excess insurance has been
exhausted. Parties to insurance contracts are, of course, free to
write their policies differently to establish alternative
exhaustion requirements or coverage allocation rules if they so
wish. (See Continental, supra, 55 Cal.4th at p. 202.)
D.
As noted earlier, Travelers opposes Montrose’s motion for
summary adjudication on two independent grounds. First,
Travelers argues that Montrose’s requested declaration, which
would permit Montrose to “seek indemnification” from an excess
policy upon establishing that “its liabilities are sufficient to
exhaust the underlying policy(ies) in the same policy period,” is
directly contrary to the terms of the Travelers policies, which
require actual exhaustion before a policyholder may access
excess coverage. Second, Travelers argues that its policies with
Montrose must be construed under Connecticut or New York
law, rather than California law as assumed by Montrose’s
28
MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
petition, given Montrose’s principal place of business at the time
the Travelers policies were issued. The lower court did not reach
either of these issues because it determined for other reasons
that Montrose is not entitled to summary adjudication.
(Montrose II, supra, 14 Cal.App.5th at p. 1336, fn. 9.)
These arguments are not properly before us. We granted
Montrose’s petition to determine whether Montrose may seek
coverage from its excess policies under a rule of vertical
exhaustion rather than horizontal exhaustion. The choice
between these two rules does not alter any of the remaining
prerequisites Montrose must satisfy to obtain indemnification,
including actual exhaustion of directly underlying insurance,
according to the specific terms of its excess policies. And because
the lower courts have not addressed the competing claims about
choice of law, we decline to resolve the matter in the first
instance. (See Guz v. Bechtel National Inc. (2000) 24 Cal.4th
317, 348.) Whether California law governs the construction of
Montrose’s policies with Travelers is a question for the Court of
Appeal on remand.
III.
California law permits Montrose to seek indemnification
under any excess policy once Montrose has exhausted the
underlying excess policies in the same policy period. Montrose
is not required to exhaust excess insurance at lower levels for
all periods triggered by continuous injury before obtaining
29
MONTROSE CHEMICAL CORPORATION OF CALIFORNIA
v. SUPERIOR COURT
Opinion of the Court by Kruger, J.
coverage from higher level excess insurance in any period. We
reverse the judgment of the Court of Appeal and remand for
further proceedings consistent with this opinion.
KRUGER, J.
We Concur:
CANTIL-SAKAUYE, C. J.
LIU, J.
CUÉLLAR, J.
GROBAN, J.
ELIA, J.*
BROWN, J.**
*
Associate Justice of the Court of Appeal, Sixth Appellate
District, assigned by the Chief Justice pursuant to article VI,
section 6 of the California Constitution.
**
Associate Justice of the Court of Appeal, First Appellate
District, Division Four, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.
30
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Montrose Chemical Corp. v. Superior Court
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 14 Cal.App.5th 1306
Rehearing Granted
__________________________________________________________________________________
Opinion No. S244737
Date Filed: April 6, 2020
__________________________________________________________________________________
Court: Superior
County: Los Angeles
Judge: Elihu Berle
__________________________________________________________________________________
Counsel:
Latham & Watkins, Brook B. Roberts, John M. Wilson and Drew T. Gardiner for Petitioner.
Morgan Lewis & Bockius, Michel Y. Horton, Jeffrey S. Raskin, Thomas M. Peterson, Paul A. Zevnik
and David S. Cox for ITT LLC and Santa Fe Braun, Inc., as Amici Curiae on behalf of Petitioner.
No appearance for Respondent.
Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Julian W. Poon, Jeremy S. Smith and Madeleine F.
McKenna for Real Parties in Interest Continental Casualty Company, Columbia Casualty Company,
American Centennial Insurance Company and Lamorak Insurance Company.
Sinnott, Puebla, Campagne & Curet, Kenneth H. Sumner and Lindsey A. Morgan for Real Parties in
Interest AIU Insurance Company, American Home Assurance Company, Granite State Insurance
Company, Landmark Insurance Company, Lexington Insurance Company, National Union Fire Insurance
Company of Pittsburgh, PA, and New Hampshire Insurance Company.
Sinnott, Puebla, Campagne & Curet, Randolph P. Sinnott, Mary E. Gregory; Cozen O'Conner and John
Daly for Real Party in Interest Zurich International (Bermuda) Ltd.
Duane Morris, Max H. Stern and Jessica E. La Londe for Real Party in Interest American Centennial
Insurance Company.
Craig & Winkelman and Bruce H. Winkelman for Real Party in Interest Munich Reinsurance America, Inc.
Selman & Breitman, Ilya A. Kosten, Kelsey C. Start; Barbanel & Treuer and Alan H. Barbanel for Real
Parties in Interest Transport Insurance Company and Lamorak Insurance Company.
Selman & Breitman and Elizabeth M. Brockman for Real Party in Interest Federal Insurance Company.
Berkes, Crane, Robinson & Seal, Steven M. Crane and Barbara S. Hodous for Real Parties in Interest
Continental Casualty Company and Columbia Casualty Company.
Lewis Brisbois Bisgaard & Smith, Peter L. Garchie and James P. McDonald for Real Party in Interest
Employers Mutual Casualty Company.
Barber Law Group and Bryan M. Barber for Real Party in Interest Employers Insurance of Wausau.
McCurdy & Fuller, Kevin G. McCurdy and Vanci Y. Fuller for Real Parties in Interest Everest Reinsurance
Company and MT. McKinley Insurance Company.
Chamberlin & Keaster, Chamberlin Keaster & Brockman, Kirk C. Chamberlin, Michael
Denlinger and Kevin J. Schettig for Real Party in Interest Providence Washington Insurance Company.
Tressler, Linda Bondi Morrison and Ryan B. Luther for Real Party in Interest Allstate Insurance Company.
Archer Norris, Andrew J. King, GailAnn Y. Stargardter; Tressler and Charles R. Diaz for Real Parties in
Interest Fireman's Fund Insurance Company and National Surety Corporation.
Lewis, Brisbois, Bisgaard & Smith, Jordon E. Harriman, Shannon L. Santos; Budd Larner and Michael J.
Balch for Real Parties in Interest General Reinsurance Corporation and North Star Reinsurance
Corporation.
Hinshaw & Culbertson, Thomas R. Beer and Peter J. Felsenfeld for Real Party in Interest Gerling Konzern
Allgemeine Versicherungs-Aktiengesellschaft.
O'Melveny & Myers, Richard B. Goetz, Zoheb P. Noorani and Michael Reynolds for Real Party in Interest
TIG Insurance Company.
McCloskey, Waring, Waisman & Drury and Andrew McCloskey for Real Party in Interest
Westport Insurance Corporation.
Simpson Thacher & Bartlett, Peter R. Jordon, Andrew T. Frankel, Deborah Lynn Stein and Tyler Z.
Bernstein for Real Parties in Interest Travelers Casualty and Surety Company and The Travelers Indemnity
Company.
Covington & Burling, David B. Goodwin, Reynold L. Siemens, Jeffrey A. Kiburtz and Heather W. Habes
for United Policyholders as Amicus Curiae on behalf of Petitioner.
Counsel who argued in Supreme Court (not intended for publication with opinion):
John Wilson
Latham & Watkins LLP
12670 High Bluff Drive
San Diego, CA 92130
(858) 523-5400
Theodore J. Boutrous, Jr.
Gibson, Dunn & Crutcher, LLP
333 South Grand Avenue
Los Angeles, CA 90071
(213) 229-7500