Horizontal Exhaustion Rule California
In Community Redevelopment Agency v. Aetna Casualty & Surety Co. (1996) 50 Cal. App. 4th 329, 339 57 Cal. Rptr. 2d 755, California court applied, in a continuing loss case, the long-settled rule "an excess or secondary policy does not cover a loss, nor does any duty to defend the insured arise, until all of the primary insurance has been exhausted."
The court explained this general rule "favors and results in what is called 'horizontal exhaustion.' " (Id. at p. 339.)
The court concluded:
"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. In other words, all of the primary policies in force during the period of continuous loss will be deemed primary policies to each of the excess policies covering that same period. Under the principle of horizontal exhaustion, all of the primary policies must exhaust before any excess will have coverage exposure." (Id. at p. 340.)
In Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal. 4th 645 42 Cal. Rptr. 2d 324, 913 P.2d 878, the California Supreme Court established certain principles applicable in third party liability insurance cases involving continuous or progressively deteriorating damage or injury.
Specifically, Montrose established that standard comprehensive general liability (CGL) language provides coverage for property damage occurring during the policy period, and in the case of successive policies, damage that is continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods (the continuous injury trigger of coverage). (Montrose, supra, 10 Cal. 4th at pp. 654-655.)
The Montrose court described the "settled rule" 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 policy limits. (Id. at p. 686.)