Key Points

  • Ninth Circuit held that an aggregate-limit provision was ambiguous, declining to follow Garamendi v. Mission Insurance Co. as binding on policies issued decades earlier.
  • Internal insurer documents and industry history supported the panel's conclusion that the policies did not unambiguously cap property-damage claims in the aggregate.
  • California law requiring ambiguities to be construed against the insurer drove the result, giving policyholders a template to resist early dismissal in large public-entity coverage disputes.
  • Case remanded for the district court to reconsider declaratory relief on the county's claim that each of up to 18 occurrences entitles it to $9 million in coverage.

The Ninth Circuit on April 23 revived San Bernardino County's declaratory relief claim against the Insurance Company of the State of Pennsylvania, ruling that the insurer's annual aggregate limit provision was ambiguous and did not clearly cap property-damage claims arising from decades-old environmental contamination at the county-owned Chino Airport.

The panel, in an opinion by Judge Bybee, reversed the Central District of California's entry of final judgment on the county's declaratory action and remanded for further proceedings. The decision gives the county a path to argue that ICSOP's potential exposure for cleanup costs runs as high as $162 million—or more—rather than the $81 million ICSOP contends is the maximum under the policies.

The policies at issue, three successive identically worded umbrella/excess policies spanning 1966 to 1975, capped coverage at $9 million per occurrence and included an item stating: 'Limit in the aggregate for each annual period where applicable.' A limit-of-liability clause further provided that the aggregate cap applied 'separately in respect of Products Liability and in respect of Personal Injury . . . by Occupational Disease.'

The county argued that the phrase 'where applicable' limited the aggregate cap only to those two categories—products liability and occupational disease—so that property-damage claims were subject only to the per-occurrence limit. ICSOP countered that the provision imposed a general $9 million annual aggregate cap on all covered losses, including property damage. The district court agreed with ICSOP, relying heavily on the California Court of Appeal's 2005 decision in Garamendi v. Mission Insurance Co.

The Ninth Circuit found both readings 'plausible' but neither 'obvious nor compelling.' The panel concluded that the phrase 'where applicable' suggested the aggregate limit might not apply to all claims, while the word 'separately' supported ICSOP's view that the policy set a general aggregate limit with additional sub-limits. The result, the panel said, was an ambiguity. 'We think that the better reading of 'separately' is ICSOP's,' the panel wrote. 'But at the same time, we also conclude that the County has the stronger reading of 'where applicable.''

The panel then declined to treat Garamendi as binding, noting that the ICSOP policies dated to the 1960s and 1970s—decades before Garamendi was decided—so that decision could not have informed the parties' intent at contracting. The panel also observed that Garamendi did not address the 'where applicable' phrase present in the ICSOP policies.

Turning to extrinsic evidence, the panel pointed to historical commentary showing that standard-form commercial general liability policies from the 1960s often lacked general aggregate limits, applying them only to products and completed operations. The majority also cited internal ICSOP documents—including a 2012 memorandum stating 'There are no applicable aggregate limits' and a 2014 loss run noting 'NO GA LIMIT'—as evidence that even ICSOP's own personnel read the policies as lacking a general aggregate cap for non-products claims.

'The extrinsic evidence thus reinforces our conviction that the policies are ambiguous and not susceptible to only one reasonable interpretation,' the panel wrote. Applying California's rule that ambiguities in insurance policies are construed against the drafter, the panel concluded 'that these policies do not specify an aggregate limit for property damage.'

On remand, the district court must reconsider the county's request for declaratory relief, which the lower court had dismissed after ruling that the aggregate cap applied and that the county could not offer evidence of future damages. The panel did not address the county's remaining breach-of-contract and bad-faith claims, which the district court had stayed pending appeal.