## Facts

- Montrose Chemical Corporation of California operated a chemical manufacturing facility in Torrance, California, and faced suits alleging continuous environmental damage in the Los Angeles area from 1947 to 1982.
- Montrose purchased primary and multiple layers of excess comprehensive general liability insurance spanning roughly 1961 to 1985.
- The primary policies were exhausted through environmental litigation and settlements.
- Because the alleged property damage was continuous and progressive, multiple policy years were potentially triggered, and coverage could be “stacked” across years.
- The dispute concerned the order for reaching excess coverage: whether Montrose had to exhaust all lower-level coverage across all triggered years (horizontal exhaustion) or could access an excess policy after exhausting lower layers in the same policy year (vertical exhaustion/elective stacking).
- Many excess policies contained “other insurance” clauses, but they did not clearly address cross-year exhaustion.

## Issues

1. In continuous-injury environmental damage cases, may an insured access an excess policy in a selected policy year after exhausting the directly underlying coverage for that same year (vertical exhaustion), or must it first exhaust all lower-level policies in every triggered year (horizontal exhaustion)?
2. Do standard “other insurance” clauses, absent clear language, require horizontal exhaustion across multiple policy periods for excess coverage?

## Decision

- The California Supreme Court reversed the Court of Appeal and held that vertical exhaustion applies to excess policies in this context.
- Montrose may access any excess policy in a chosen policy year once it has exhausted the primary and directly underlying excess policies in that same year; it need not exhaust lower-level excess coverage issued for other years first.
- The court emphasized that its holding did not alter the rule that all applicable primary insurance must be exhausted before any excess coverage is triggered.
- The case was remanded for further proceedings consistent with the vertical-exhaustion rule.

## Legal Principles

- When long-tail injury triggers multiple policy years, the insured may proceed vertically within a selected year’s “tower” of coverage (elective stacking) once the directly underlying layers in that year are exhausted.
- “Other insurance” clauses are generally construed to address allocation among concurrent, overlapping policies, and do not impose cross-period horizontal exhaustion unless the policy language clearly states that requirement.
- Ambiguity in exhaustion language is resolved in favor of coverage consistent with the insured’s objectively reasonable expectations.
- If an insurer is reached first under vertical exhaustion, it may pursue contribution or reimbursement from other insurers whose policies are also on the risk for the loss.

## Conclusion

The court adopted a vertical-exhaustion rule for excess insurance in continuous environmental injury cases, permitting the insured to access an excess layer in a chosen policy year after exhausting the directly underlying coverage in that year, while leaving insurer-to-insurer allocation to contribution claims and preserving the requirement that primary coverage be exhausted before excess coverage attaches.


Montrose Chem. Corp. of Cal. v. Superior Ct., 9 Cal. 5th 215 (Cal. 2020)