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Claims Practices

Stacking Insurance Limits

Barry Zalma | July 1, 2004

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Stack of insurance policies

When faced with a long-term damage claim that covers more than one policy period where more than one policy might apply, it is essential to examine the law of the jurisdiction relating to stacking of policy limits and self-insured retentions before making a decision on how to handle the claim.

When a person is insured over multiple policy periods with multiple policies, and incurs a loss that caused damage over two or more policy periods, the procedure of applying the policy limit of each policy to the loss is known as stacking. Although the loss is, by definition, a single occurrence, the limits available to the insured can be multiplied by the number of policies available. Insurers attempt to avoid stacking, while insureds pressure their insurers to stack the limits.

Can limits of liability be "stacked" if a third-party loss extends over multiple policy periods? California and the Ninth Circuit Court of Appeals, running contrary to other states, recently answered the question in the affirmative in Employers Insurance of Wausau v Granite State Insurance Co., 330 F3d 1214 (9th Cir 2003).

Wausau issued five general liability insurance policies to California Water Services (CWS) during the 5-year period from January 1, 1980, to January 1, 1985. Granite State Insurance issued five excess policies covering the same time period. The parties agreed that their policies could be characterized as follows.

  • Each of the Wausau policies contained a per year limit of liability of $2 million for each occurrence and a $2 million aggregate limit of liability.
  • The Granite State policies were first layer excess policies over the Wausau policies, and each of the Granite State policies contained a $5 million limit of liability for each occurrence and a $5 million aggregate limit of liability. [Employers Insurance of Wausau v Granite State Insurance Co., supra.]

Although the agreements concerning the policies were destined to be dispositive, the facts of the case also controlled the reasoning of the Ninth Circuit. The Wausau case resulted from problems beginning in 1980 when a group of homeowners experienced property damage caused by a landslide that was activated, in part, by ruptures in CWS's underground waterlines. Thirty-two homeowners subsequently brought suit against CWS. Wausau defended CWS and ultimately settled the homeowners' claims for a total of $7,752,070.

Wausau filed an equitable subrogation action against Granite on January 21, 1992, seeking $5 million, the difference between one Wausau annual aggregate limit and the settlement amount.

Wausau and Granite concluded that the settlement of the land was a single occurrence. They also agreed that continuous damage occurred proportionately throughout five policy periods, thereby making it impossible for the loss in any 1-policy year to exceed the limits of the Wausau primary policy limits. It was agreed, for all purposes in the trial, that each of Wausau's five insurance policies limited Wausau's annual liability to $2 million, per occurrence and in the aggregate. Similarly, the parties did not dispute the fact that Wausau's policy limit is properly characterized as a "per occurrence per year" limit.

The Ninth Circuit found that the narrow issue before it was to determine whether a primary insurer's total exposure can be greater than its annual policy limit, where a single occurrence caused damage during multiple years in which annual "per occurrence, per year" policies were in effect.

The Ninth Circuit based its decision in favor of "stacking" of annual policy limits on Stonewall Insurance Co. v City of Palos Verdes Estates, 46 Cal App 4th 1810 (1996). Stonewall arose out of the negligence on the part of an insured party over a 3-year period and ordered the insurer to stack its limits over the 3-year period of coverage.

Wausau argued that Stonewall conflicted with another recent decision from the California Court of Appeal. In FMC Corp. v Plaisted and Cos., 61 Cal App 4th 1132 (1998), the court of appeal held that, where "coverage is ultimately keyed to and limited by the concept of 'occurrence,'" and that "an insured may recover an amount no greater than the policy limit for one policy period." The court reasoned that allowing the insured to "stack" policy limits would give the insured more coverage for any given occurrence than the parties had bargained for. The FMC court expressly distinguished Stonewall by noting that it addresses a situation involving a "per occurrence, per year" stipulation which did not exist in FMC.

The Ninth Circuit, based on what it described to be the weight of California authority, concluded:

  • [C]alifornia courts have not broadly rejected "stacking" in the primary insurer context. To the contrary, California courts have expressly approved stacking successive "per occurrence per year" policy limits where, as here, a single occurrence extends through more than one policy period. See Stonewall, 46 Cal. App. 4th at 1849 (stacking three "per occurrence per year" limits). Here, Wausau's policy provides $2 million in coverage per year. The parties have stipulated that $7,752,070 in damage occurred proportionately during the five policy periods. Per the parties' stipulation, we must conclude that $1,550,414 of damages occurred during each policy period. Because Wausau's policy provided up to $2 million in coverage per year, Wausau is responsible for the entire settlement paid on behalf of CWS.

If Wausau had not agreed that any of the plaintiff's damages exceeded $2 million in any policy year then Granite would be required to pay the excess. Since the parties stipulated that no single year involved a loss of more than $2 million, Wausau was obligated to pay up to its limits for each policy year.

In Alpha Therapeutic Corp. v The Home Ins. Co., 90 Cal App 4th 1330 (2001), the court of appeal rejected a broad anti-stacking rule. The court held that where an insured suffered for several years from injuries caused by a single "occurrence," recovery should not be limited to a single year's policy limit. 1 The Ninth Circuit, recognizing the fact that Alpha Therapeutic was not officially published and, therefore not binding authority, agreed with Granite that Alpha Therapeutic, while not dispositive of how the California Supreme Court would rule, lends support to Granite's contention that Stonewall accurately represents California law.

Is an SIR Insurance?

In Montgomery Ward & Co.. v Imperial Casualty and Indemnity Co., 81 Cal App 4th 356, 97 Cal Rptr 2d 44 (Cal App 2000), the California Court of Appeal refused to consider that the "self-insured retention" (SIR) could be stacked over various policy periods as the Wausau court stacked primary limits of liability. (An SIR is that part of a loss that the insured must pay before an insurer is obligated to pay.) The court of appeal concluded that in a strict sense, "self-insurance" is a "misnomer."

  • Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event. [California Insurance Code section 22.]

Since an insured who self-insures and accepts a limited part of the risk, cannot, by definition, be an insurer because it is not undertaking to "indemnify another," the SIR cannot be stacked over various policy periods. Only insurance can be stacked; self-insurance or an SIR is not insurance.

"[S]elf-insurance ... is equivalent to no insurance.... As such, it is 'repugnant to the [very] concept of insurance....' If insurance requires an undertaking by one to indemnify another, it cannot be satisfied by a self-contradictory undertaking by one to indemnify oneself." [Montgomery Ward & Co. v Imperial Casualty and Indemnity Co., supra.] Therefore, it concluded, the self-insured-retention could not be stacked because it was not "insurance" although the promise to pay the self-insured retention each year is the same as the promise to pay up to the limit each year made by the insurer.

The Kansas Supreme Court, on the other hand, in Atchison, Topeka & Santa Fe Railway Co. v Stonewall Insurance Co., 275 Kan 698, 71 P3d 1097 (Kan 2003), found that the self-insured retentions were "other insurance" that must be exhausted before the excess insurance policies must assume an obligation because the only insurance policies issued to the railroad were excess insurance policies which, by their nature, assume that there is primary coverage. The Kansas Supreme Court concluded:

  • The SIRs are other insurance under the policies, and thus primary insurance. We further recognize that primary coverage attaches upon the happening of an occurrence … An excess policy covers the loss over and above that provided by the primary insurance.… the insured must exhaust its SIRs per annual policy period. … We cannot ignore the stated terms of the policies, nor the reality of SIRs as primary insurance where the expectation and intent is to provide excess coverage.

Similarly, the Illinois Court of Appeals in Missouri Pacific R.R. v International Insurance Co. (MoPac), 288 Ill App 3d 69, 679 NE2d 801, appeal denied 174 Ill 2d 567, 686 NE2d 1164 (1997), the Illinois trial court concluded as a matter of law that the claims arose from a single occurrence and that Missouri Pacific was required to horizontally exhaust all self-insured retentions for implicated policy periods before looking to the insurers for coverage. The Illinois Court of Appeals did not consider whether a self-insured retention is a deductible because it held that the SIR is the equivalent of underlying insurance coverage. The Illinois court reasoned that exhaustion of the self-insured retentions was required by the "other insurance" policy provisions.

In California Pacific Homes v Scottsdale Insurance Co., 69 Cal App 4th 1448, 82 Cal Rptr 2d 343 (Cal App Dist 1 1999) the principle of horizontal exhaustion was addressed with one insurer unsuccessfully attempting to base its argument on Stonewall. In California Pacific Homes Inc. horizontal exhaustion was not allowed where there was no layer of primary insurance policies below the excess policy. It concluded that there was no question of allocation of liability because any one Scottsdale or National Casualty policy provides sufficient coverage to indemnify the insured.

Anti-Stacking Clauses

Insurers, to avoid stacking of coverages in multiple policy situations have added language to their policies designed to prevent courts from stacking coverages. The effectiveness of the anti-stacking language has been mixed. Some have found the language to be ambiguous and stack coverages while refusing to enforce the language while others find there is no ambiguity and enforce the anti-stacking language.

The U.S. Circuit Court of Appeals for the Seventh Circuit, applying Illinois law, enforced the "anti-stacking" clauses of a personal auto policy. The court held that the clauses kept the insured and claimant from doubling the policy's single limit of liability in Grinnell Select Ins. Co. v Baker, 362 F3d 1005 (7th Cir 2004). The Grinnell case arose from an auto accident in which Martha Baker was injured. Ms. Baker sued the driver of the other car, Sheena George, who was an insured under an auto policy issued to her parents by Grinnell. The policy covered two of her parents' cars, including the one that was involved in the accident. The policy's declarations page stated that $100,000 was the "per person, per accident" maximum limit of liability coverage.

Grinnell tendered $100,000 to Ms. Baker as its applicable policy limit. However, Ms. Baker and the Georges contended that Grinnell's exposure was actually $200,000, on the basis that the $100,000 limit for each vehicle could be "stacked." Grinnell sued in federal court seeking a declaration that its payment of $100,000 had exhausted its coverage. The Grinnell policy provided:

  • The limit of liability shown in the Declarations for each person for Bodily Injury Liability is our maximum limit of liability for all damages, including damages for care, loss of services or death, arising out of "bodily injury" sustained by any one person in any one auto accident. Subject to this limit for each person, the limit of liability shown in the Declarations for each accident for Bodily Injury Liability is our maximum limit of liability for all damages for "bodily injury" resulting from one auto accident.

The court found that the clause quoted above meant that one injured person is matched against the limit of liability—$100,000—rather than against multiple limits. The second "anti-stacking" clause the court described as an "express" clause and provided that Grinnell's $100,000 limit of liability:

  • … (I)s the most we will pay regardless of the number of:
  • "Insureds";
  • Claims made;
  • Vehicles or premiums shown in the Declarations; or
  • Vehicles involved in the auto accident.

The court explained that even if it was assumed that the declarations page was ambiguous, the function of the clause quoted immediately above was to make clear that stacking was not allowed. The ambiguity, if any, was eliminated by the quoted clause.

Of course, courts are never totally in agreement and the court noted that the Fifth District, in two decisions, found similar language ambiguous, reasoning that, where the declarations page states "insurance is provided where a premium is shown," an insured might read that language to allow for stacking, citing to Hall v General Cas. Co., 328 Ill App 3d 655, 766 NE2d 680 (5th Dist 2002); Yates v Farmers Auto Ins. Assoc., 311 Ill App 3d 797 (5th Dist 2000). The court also noted, that two other districts of the appellate court have held, that similar clauses were unambiguous and enforceable, citing the reader to Domin v Shelby Ins. Co., 326 Ill App 3d 688, 761 NE2d 746 (1st Dist 2001); Pekin Ins. Co. v Estate of Ritter, 322 Ill App 3d 1004, 750 NE2d 1285 (4th Dist 2001).

After examining the conflicting appellate opinions and Illinois Supreme Court cases enforcing "anti-stacking" language in the context of uninsured and underinsured motorist coverage, the Seventh Circuit decided that the Illinois Supreme Court would find the language unambiguous and enforceable. In addition it found support in the decisions of other states enforcing anti-stacking language, including the following.

  • Rodriguez v General Accident Insurance Co., 808 SW2d 379 (Mo 1991) (addressing underinsured motorist coverage)
  • Saccucci v State Farm Mutual Automobile Ins. Co., 32 Ohio St 3d 273, 512 NE2d 1160 (1987) (addressing uninsured motorist coverage)
  • Antanovich v Allstate Insurance Co., 507 Pa 68, 488 A2d 571 (1985) (addressing "work loss" benefits under an auto policy)
  • Upshaw v Trinity Cos., 842 SW2d 631, 35 Tex Sup Ct J 1219 (Texas 1992) (addressing uninsured/underinsured motorist coverage)
  • Folkman v Quamme, 264 Wis 2d 617, 665 NW2d 857 (2003) (addressing auto liability coverage)


When faced with a long-term damage situation that covers more than one policy period or a situation where more than one policy might apply to a loss, it is incumbent on the adjusters and counsel for the insurers to determine the law of the jurisdiction relating to stacking of policy limits and self-insured retentions before making a decision on how to handle a particular claim. The investigation should be conducted subject to a reservation of rights until the facts and the applicability of the policies can be established. The insurer, in such a situation, should always consult with competent insurance coverage counsel since the states are clearly not in agreement. When litigating an issue of stacking between insured, primary insurers, and excess insurers the parties should avoid removing key issues by stipulation or face the automatic loss imposed on Wausau.

This article was adapted from Barry Zalma's book, Insurance Claims: A Comprehensive Guide published by Specialty Technical Publishers

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.


1 Alpha Therapeutic, 90 Cal App 4th at 1349, 1352 (not citable as authority since it was ordered not published by the Supreme Court.)