(Article from Insurance Law Alert, May 2026)
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Holding
In a case involving ongoing environmental remediation efforts, the Ninth Circuit held that annual aggregate limits in umbrella policies were ambiguous and did not apply to property damage. Cnty. of San Bernardino v. Ins. Co. of Pa., 2026 U.S. App. LEXIS 11589 (9th Cir. Apr. 23, 2026).
Background
The dispute involved environmental clean-up on land owned by the County of San Bernardino. In 1990, the California Regional Water Quality Control Board found hazardous trichloroethylene in drinking water downgradient of the site and directed the County to investigate and remediate the contamination. The County sought coverage from the Insurance Company of the State of Pennsylvania (“ICSOP”), which issued a series of umbrella policies to the County for the relevant period of 1966-1975.
At issue was whether ICSOP’s maximum total exposure over the nine-year policy period was capped at $81 million, or could reach $162 million, based on the County’s contention that 18 separate occurrences occurred during the period. The policies define an “occurrence” as an accident or continuous or repeated exposure to conditions resulting in personal injury, property damage, or advertising liability. Item 2(a) of the policies caps ICSOP’s coverage for any single occurrence at $9 million, while Item 2(b) set a $9 million annual aggregate “where applicable.” The dispute centered on the “Limit of Liability” section, which states that ICSOP will pay only up to Item 2(a), subject to Item 2(b), “separately in respect of Product Liability and . . . Personal Injury . . . by Occupational Disease.”
ICSOP argued that Item 2(b) established a generally applicable annual aggregate unless the policy expressly states otherwise. The County countered that “where applicable” in 2(b) restricts the annual aggregate, such that it only applies for occupational injuries and products liability. The district court sided with ICSOP, and the County appealed.
Decision
The Ninth Circuit reversed. The court concluded that both parties’ interpretations were reasonable, but “neither is obvious nor compelling.” Having found the policies ambiguous, the court turned to extrinsic evidence. The County presented evidence that pre-1980s liability policies generally did not have aggregate limits, along with ICSOP memoranda, a report to reinsurers, and an internal loss-run document stating no annual aggregate limits applied. The Ninth Circuit found this evidence reinforced the conclusion that the policies were genuinely ambiguous.
In support of its position, ICSOP relied on Garamendi v. Mission Insurance Co., 31 Cal. Rptr. 3d 395 (Cal. Ct. App. 2005), in which a California appellate court construed similar aggregate language as creating a general aggregate limit. The Ninth Circuit declined to follow Garamendi, concluding that it could not retroactively apply Garamendi’s construction to policies issued before the decision and that the case involved materially different circumstances and potentially different policy language.
Resolving the ambiguity in favor of the insured, the Ninth Circuit concluded that the policies do not specify an aggregate limit for property damage. The court reversed the district court’s judgment and remanded for further proceedings, including with respect to number of occurrences.
Comments
The Ninth Circuit noted that, historically, standard form CGL policies relied on the concept of an “occurrence” to limit liability and did not foresee environmental- or asbestos-related tort litigation. “This was a standard form policy, drafted in an era when the industry did not anticipate the consequences of not specifying the aggregate limits for umbrella and excess policies.” Notably, the policies at issue did not include pollution exclusions.