Excess Insurer Owes Nothing Because Stacked Policies Were Not Exhausted

Ninth Circuit Upholds Escape Clause

Insureds, claimants, lawyers and courts dislike escape “other insurance” clauses since the completely eliminate the obligation of the insurer whose policy contains an escape clause to defend or indemnify the insured. However, when properly written and when the facts allow, an escape clause can be enforced.

In Atain Specialty Insurance Company v. Sierra Pacific Management Company, and California Capital Insurance Company v. Jerry Lee; Betty Lee, No. 16-17221, United States Court Of Appeals For The Ninth Circuit, (March 13, 2018) California Capital Insurance Company (“California Capital”) insured Jerry and Betty Lee, the landlords of Pagoda Garden Apartments (“Pagoda Garden”). Sierra Pacific Management Company (“Sierra Pacific”) managed Pagoda Garden and was an “insured” by definition under California Capital’s insurance policy. Sierra Pacific also had its own insurance through Atain Specialty Insurance Company (“Atain”). California Capital sought contribution from Atain for the costs it incurred in settling a personal injury lawsuit brought by a Pagoda Garden tenant.

Atain sued seeking declaratory judgment that it had no duty to defend or indemnify Sierra Pacific in the underlying personal injury lawsuit. California Capital counter-claimed for breach of contract, for breach of the implied covenant of good faith and fair dealing, for a declaration that Atain had a duty to defend and indemnify Sierra Pacific, and for equitable contribution and indemnity from Atain. California Capital also alleged that its policy contained an anti-stacking provision, which limited its policy coverage to $1 million over six policy periods, and filed a third-party complaint against the Lees to recover the $900,000 it paid over the annual policy limit.


The District Court granted Atain’s and the Lees’ motions for summary judgment finding Atain’s “Real Estate Property Managed” endorsement was an “excess clause” that rendered its insurance excess to California Capital’s insurance, and that Atain’s coverage was excess in one particular scenario—when liability arose out of Sierra Pacific’s property management activities. The court held that Atain had no duty to defend or indemnify Sierra Pacific. The District Court also determined that California Capital’s policies did not contain an anti-stacking provision, and that California Capital’s consecutive policies provided more than enough coverage for the settlement in the underlying personal injury lawsuit.

California Capital argues that Atain’s excess clause should not be enforced because it is an “escape clause” that attempts to shift the burden of coverage away from Atain to other insurers such as California Capital and because it conflicts with an excess insurance clause in its own policy. In California, excess insurance clauses in otherwise primary insurance policies may be enforceable in the limited circumstance of a narrow clause declaring the policy “to be excess in the situation where the parties and the insurers are most likely to intend that result—when the insured is covered as an additional insured on another party’s policy for some specific event or situation.” Hartford Cas. Ins. Co. v. Travelers Indem. Co., 2 Cal. Rptr. 3d 18, 31 (Cal. Ct. App. 2003).


Atain’s coverage is excess in the “specific instance” of when Sierra Pacific’s liability arises out of its property management operations. Its policies contain an endorsement for “Real Estate Property Managed” that states, “With respect to your liability arising out of your management of property for which you are acting as real estate manager[,] this insurance is excess over any other valid and collectible insurance available to you.” California Capital’s “other insurance” provision contains no such specific exclusion or limitation and states its policy is excess “[i]f there is other insurance covering the same loss or damage.”

The relationship between the parties in this case—and particularly the contractual requirement that the Lees obtain insurance to cover Sierra Pacific and the comparatively low premiums for property management in the Atain policy—suggest that the Atain policy was intended to be excess to a landlord’s underlying insurance policy. In this context, the Ninth Circuit declined to order equitable contribution based on the interaction of the other insurance clauses.

California Capital further argued that its policies contain an anti-stacking provision that limits its coverage to $1 million and that Atain is liable for the $900,000 California Capital paid over that limit in settlement of the personal injury lawsuit.

Insurance policy limits may be stacked “when more than one policy is triggered by an occurrence,” which creates one giant ‘uber-policy’ with a coverage limit equal to the sum of all purchased insurance policies.  Although insurers may include anti-stacking language in their policies, the District Court held that California Capital’s policies do not contain such language. California Capital’s $1 million limit for bodily injury “arising out of any one ‘occurrence'” “appl[ies] separately to each consecutive annual period.”

The policies do not indicate that the per-occurrence limit applies across policy periods. California Capital issued six policies to the Lees with a $1 million limit per policy, and those policies stacked to create “a coverage limit equal to” $6 million.

Because the $1.9 million settlement that California Capital paid did not exceed that amount, Atain is not liable as an excess insurer.


The California Capital policies were “stacked” because the injuries occurred over more than one policy period and the wording of its policy did not have effective anti-stacking language. This case teaches insurers to modify the language of their policies to include that the per-occurrence limit applies to both the policy period and across any further policy periods that might apply.


© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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