DIVISION I ENFORCES ANTI-STACKING CLAUSE IN CGL POLICIES!
Repeated Water Intrusion Is One Occurrence 
Certain Underwriters at Lloyds v. Valiant Insurance Co., 155 Wn. App. 469, 229 P.3d 930 (2010) (Div. I)
by Pamela A. Okano, Reed McClure
June 2010

Facts:

The insured general contractor was retained to construct a four-story retirement center. Leakage developed as a result of a variety of different construction defects in the building envelope. For example, one subcontractor had improperly installed windows; another had improperly installed roofing and stucco. The damage started soon after construction was completed and continued thereafter.

The developer sued. The case was settled for $5 million.

The insured had six different insurers over the life of the project to the time suit was filed. The insurance included primary CGL insurance from Zurich affiliated carriers for three consecutive years, followed by primary CGL insurance from Lloyds for two consecutive years. There was also some umbrella coverage.
Zurich contributed its $1 million per occurrence limit for its first policy only to the settlement. Its policies contained an anti-stacking clause that provided:

If this Coverage Form and any other Coverage Form or policy issued to you by us or any company affiliated with us apply to the same “occurrence”, the maximum Limit of Insurance under all the Coverage Forms or policies shall not exceed the highest applicable Limit of Insurance under any one Coverage Form or policy. This condition does not apply to any Coverage Form or policy issued by us or an affiliated company specifically to apply as excess insurance over this Coverage Form.

The Zurich policies also contained the following “Limits” section:

The limits of this Coverage Part apply separately to each consecutive annual period and to any remaining period of less than 12 months, starting with the beginning of the policy period shown in the Declarations, unless the policy period is extended after the issuance for an additional period of less than 12 months. In that case, the additional period will be deemed part of the last preceding period for purposes of determining the Limits of Insurance.

The carriers reserved their rights against each other as to the allocation of the settlement.

Lloyd’s sued Zurich. The trial court granted Zurich summary judgment.

Held:

Division I affirmed. It rejected Lloyd’s argument that a jury could find more than one “occurrence.” Under Washington law, the number of occurrences equals the number of causes of liability. Here, the property damage was caused by a single occurrence of continuous exposure to water intrusion. Because the Zurich policies all applied to the same occurrence, the anti-stacking provision limited coverage to the highest applicable limit under any one of those policies.

The court rejected the argument that the anti-stacking provision was ambiguous when read with the statement of limits. The limits section does not deal with the limits available per occurrence, as does the anti-stacking provision. Therefore, the two provisions do not conflict.

The anti-stacking policy does not violate public policy. Insurers are permitted to limit their contractual liability unless the limitation is against public policy. A contract is not against public policy unless prohibited by statute, case law, or public morals.

The anti-stacking provision does not mean the Zurich coverage is illusory. Had there been separate covered occurrences in each of the three separate policy periods, the anti-stacking provision would not apply and the full $1 million limit per period would have been available for each occurrence.