Federal Court Rejects “Stacking” Consecutive Insurance Policies But Applies Highest Coverage Limit
The Insured operated a New Mexico brine well facility involved in solution mining of salt from brine water from 1995 to 2008. In a state court lawsuit, a neighboring property owner sued the Insured for property damage caused by the mining operation (specifically, damages caused when the roof of the underground cavern caused by the mining operation collapsed). The underlying lawsuit resulted in a verdict against the Insured for $703,000 in compensatory damages and $300,000 in punitive damages. The Insured and its general commercial liability insurer (Insurer) disputed whether the Insurer had a duty to indemnify the Insured.
The Insurer issued commercial liability policies to Insured for successive 12-month policy periods from June 1, 2000 through June 1, 2009. Each policy had a limit of $1,000,000 per occurrence and $2,000,000 aggregate except for the 2003-2004 policy, which had a $2,000,000 limit per occurrence. Last week, the U.S. District Court for the District of New Mexico granted summary judgment to the Insured on the coverage issue in that the Insured was obligated to indemnify Insured for the damages from the underlying state court lawsuit (the federal district court had previously granted summary judgment to Insurer but the Tenth Circuit reversed that decision and remanded the case).
The Insured also argued that coverage should be triggered under all of the general liability policies issued from 2000 to 2009 and thus $19 million in coverage was available but the court rejected this “stacking” argument. The court reasoned that the policies were based on claim occurrences, that each policy covered a discrete time period, and that consecutive policies covering distinct policy periods could not be “stacked” to multiply coverage for a single claim involving indivisible injury (the specific property damage alleged in the underlying lawsuit). In rejecting this argument, however, the New Mexico federal court did adopt the reasoning of the Texas Supreme Court when it conducted a similar analysis in concluding that the indemnity limit that was the highest should apply whenever an occurrence triggers more than one policy because it occurred across different policy periods. Accordingly, even though the Insured‘s policy limit per occurrence was lower in more recent years, the court concluded that the $2 million limit per occurrence from the 2003-2004 policy was applicable.
