California Supreme Court Watch

#22-91 Truck Insurance Exchange v. Kaiser Cement and Gypsum Corp. (London Market Insurers), S273179. (B278091; nonpublished opinion; Los Angeles Superior Court; BC249550). Petition for review after the Court of Appeal affirmed in part and reversed in part the judgment in a civil action. The court limited review to the following issue: May a primary insurer seek equitable contribution from an excess insurance carrier after the primary policy underlying the excess policy has been exhausted (vertical exhaustion), or is equitable contribution from an excess insurance carrier available only after all primary policies have been exhausted (horizontal exhaustion)?

Petition for review granted: 4/13/2022

Case fully briefed: 11/18/2022

Cause argued and submitted: 4/03/2024 (GMSR’s Bob Olson appeared for Truck Insurance Exchange)

Opinion filed: Judgment reversed: 6/17/2024

See the Court of Appeal Opinion

See the Petition for Review filed by Greines, Martin, Stein & Richland

See the Reply In Support Of Petition for Review filed by Greines, Martin, Stein & Richland

See the Opening Brief on the Merits filed by Greines, Martin, Stein & Richland

See the Reply Brief on the Merits filed by Greines, Martin, Stein & Richland

See the Combined Reply to Amicus Briefs filed by Greines, Martin, Stein & Richland

See the Oral Argument.

See the California Supreme Court Opinion.

“This case requires us to resolve the question that we left open in Montrose III: whether standard language in commercial general liability policies that are excess to primary insurance policies should be interpreted to require vertical or horizontal exhaustion. In other words, can an insured access a first-level excess insurance policy upon exhaustion of underlying primary insurance obtained for the same policy period (vertical exhaustion), or is the insured required to exhaust all primary policies issued during the continuous period of damage (horizontal exhaustion)?

…

According to the excess insurers, Montrose III’s analysis is limited to excess policies that sit over other excess policies, not first-level excess policies that sit over primary insurance. The Court of Appeal agreed that Montrose III did not extend to excess policies that sit over primary insurance, which has characteristics that are distinct from excess insurance including immediate coverage and defense obligations….  The court further concluded that because the excess insurers had no coverage obligation under their policies until all primary insurance had been exhausted (including Truck’s primary policy), Truck was not entitled to contribution.

Contrary to the Court of Appeal, we conclude that our analysis in Montrose III applies equally here. The language of the first-level excess policies at issue in this case is essentially identical — and in some cases actually identical — to the policy language in the higher-level excess policies that we considered in Montrose III. The policies also share many of the same characteristics that we found ‘strongly suggest[ive]’ (Montrose III, supra, 9 Cal.5th at p. 233) of vertical, rather than horizontal, exhaustion. Thus, as in Montrose III, we believe the first-level excess policies are most reasonably construed as requiring only vertical exhaustion.

…

Because the Court of Appeal rejected Truck’s contribution claim based entirely on its erroneous interpretation of the excess policies (i.e., that the excess insurers had no coverable obligation under the policies until Kaiser horizontally exhausted all primary insurance), it did not reach these alternative arguments regarding the fairness of ordering the excess insurers to contribute to Truck. Having now concluded that the excess policies require only vertical exhaustion, we remand the matter to allow the Court of Appeal to address these alternative arguments in the first instance.”

Justice Groban authored the opinion of the Court, in which Chief Justice Guerrero and Justices Corrigan, Liu, Kruger, Jenkins, and Evans concurred.