Pillsbury & Coleman Achieves Landmark Decision that Strikes Down Insurers’ Occurrence Limit of Liability Endorsements

In a significant decision – the first of its kind in California – the Napa County Superior Court struck down five separate Occurrence Limit of Liability Endorsements (“OLL Endorsements”) that insurers were relying upon to limit coverage for a significant fire loss.  Commercial insurers often employ OLL Endorsements as a mechanism for limiting the amount of coverage available for specific buildings or properties.  In the event of a catastrophic loss, insurers rely on their OLL Endorsements to claim that the policyholder cannot recover more than the specifically stated value for that particular building or property.

That is precisely what happened in Calistoga Ranch Owner, LLC v. AIG Specialty Insurance Company, et al., Napa County Superior Court, Case No. 21CV001530, which involved a luxury resort that was burned to the ground by wildfire.  The policyholders claimed that they were entitled to the full $100,000,000 insurance program limits.  However, several of the insurers refused to pay their full policy limits citing OLL Endorsements in their policies.  The validity of the OLL Endorsements was challenged on cross-motions for judgment on the pleadings before the Trial Court.

In a landmark decision, the Napa County Superior Court held that the OLL Endorsements were “unenforceable” as a matter of law.  (Order, p. 20.)  The Court reasoned that the Endorsements, when employed in the context of a quota-share insurance program, violated California’s fundamental “conspicuous, plain and clear” rule of policy interpretation: “As discussed above, there are indications from the Policies that significantly undermine Insurers’ interpretation and leave questions as to what was actually intended.  This cannot be ‘clear and unmistakable’ as a matter of law.  Based on the foregoing, the Court finds that the limitations in the OLL Endorsements are not plain and clear.”  (Order, p. 19, emphasis added.)

Read Opinion Here: Order Granting in Party Plaintiffs’ Motion for Judgment on the Pleadings