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June 25, 2024

Truck Insurance Exchange v. Kaiser Cement and Gypsum, S273179 (decided June 17, 2024)

After making indemnity payments to resolve its insured’s asbestos liabilities over a number of primary insurance policy periods, an insurer sought declaratory relief that its primary coverage had been exhausted and that it had no further duty to defend or indemnify its insured.  The insurer also sought equitable contribution from excess policies above already-exhausted primary policies.  The trial court found that not all of the insurer’s primary policies had exhausted and that no excess insurers had a duty to “drop down” or equitably contribute before all primary policies exhausted (“horizontal exhaustion”).  The trial court rejected the insurer’s argument that as long as one primary policy had exhausted, the excess policies above that exhausted primary policy were triggered (“vertical exhaustion”) and the excess carriers were therefore obligated to contribute. 

The Supreme Court reversed, extending the vertical exhaustion rule adopted in Montrose Chemical Corp. v. Superior Court of Los Angeles County (2020) 9 Cal.5th 21 to primary policies. The Court held that under standard policy language, horizontal exhaustion of all primary policies applicable to a continuing loss is not required before the insured can access and seek to exhaust the excess policies above an exhausted primary policy.  However, the Court did not resolve whether a primary carrier can rely on the vertical exhaustion rule to seek equitable contribution from excess carriers, and remanded to the Court of Appeal for further consideration of that issue.