Stonewall Ins. Co. v. Superior Court

Issue Discussed: Exhaustion of Underlying Policy Limits

Submitted by Cecilia Froelich Moss, Karen C. Baswell

Date Promulgated: November 1, 2010


Stonewall Ins. Co. v. Superior Court, 2010 WL 4277559 (Cal. Ct. App. Nov. 1, 2010) [unpublished decision]

Court: California Court of Appeal, Second District

Issues Decided: Whether an insurer’s excess policy, which required underlying insurers to “have paid or have been held liable to pay the full amount of the Primary and Underlying Excess Limit(s),” was triggered when the underlying carriers settled for less than full policy limits?

Factual Background

The insured, Fuller-Austin, sought coverage from its insurance carriers for asbestos-related personal injury claims.  Fuller-Austin settled with many of its carriers for less than full policy limits.  Stonewall, an excess insurer, argued that its policy was not triggered because underlying carriers had settled for less than full limits.  The trial court rejected this argument, finding that the underlying policy limits had been exhausted by virtue of the settlements.  Stonewall appealed.

Key Holdings

The appellate court affirmed the trial court ruling that the underlying policies had been “exhausted” by settlement.  The court ’s decision was based on several factors: (1) the “general rule” from Zeig v. Massachusetts Bonding & Ins. Co., 23 F.2d 655  (2d Cir. 1928), that exhaustion may occur by way of a settlement for less than a policy’s limits; (2) the determination that Stonewall had waited too long to raise the exhaustion issue (i.e. finding that Stonewall should have notified Fuller-Austin that it intended to raise this argument before Fuller-Austin settled with the other carriers); and (3) public policy issues promoting settlement as opposed to litigation.

The Stonewall policy provided that liability under the policy would attach “only after the Primary and Underlying Excess Insurers have paid or have been held liable to pay the full amount of the Primary and Underlying Excess Limit(s).”  Although this language was similar to the language at issue in Qualcomm Inc. v. Certain Underwriters at Lloyd’s, London, 161 Cal. App. 4th 184 (Cal. Ct. App. 2008), the court here declined to follow Qualcomm, finding factual differences, and noting that the “settlement of mass tort claims . . . implicates public policy considerations not present in Qualcomm.”  Stonewall Ins. Co. v. Superior Court, 2010 WL 4277559, at *5.


* Cecilia Froelich Moss is a founding partner of Chaffetz Lindsey LLP, where her practice focuses on representing major insurance companies in reinsurance disputes and in coverage litigation.  Ms. Moss also handles large scale commercial disputes in court and in international arbitration.

* Karen C. Baswell is an associate of Chaffetz Lindsey LLP, focusing on insurance and reinsurance dispute resolution.