County Of San Bernardino v. Insurance Co. Of The State Of Pennsylvania

In County of San Bernardino v. Ins. Co. of The State of PA, 174 F.4th 597 (9th Cir. April 24, 2026), the Ninth Circuit Court of Appeals, applying California law, reversed the District Court’s entry of judgment finding that its $9 million per year aggregate applied to property damage claims. The Court of Appeals reasoned that the language in the Insurance Company of the State of Pennsylvania (“ICSOP”) umbrella policies did not provide for an aggregate limit for property damage claims.

The parties’ dispute arose out of long-term pollution that occurred at the Chino Airport (“Airport”). The County of San Bernardino (the “County”) took full ownership of the Airport in 1949. In 1990, the California Regional Water Quality Control Board (the “Board”) found that hazardous amounts of trichloroethylene in the drinking water down gradient of the Airport required the clean-up of the groundwater. The County tendered the clean-up claim to ICSOP under policies issued from 1966 to 1975. During this period, ICSOP issued three policies, with each covering a three-year period, spanning a total of nine years. The policies afforded two different coverages: excess coverage which applied upon exhaustion of underlying insurance and umbrella coverage which applied when coverage was not afforded by underlying policies, but was potentially covered by the ICSOP policies.

The Court of Appeals described the policy language in each of the polices as follows:

The ICSOP policies cover three general categories of liability:

[D]amages, direct or consequential and expenses . . . on account of:

(i) Personal injuries, including death at any time resulting therefrom,

(ii) Property Damage,

(iii) Advertising liability,

caused by or arising out of each occurrence happening anywhere in the world.

Umbrella Policy: Insuring Agreements § I ("Coverage"). Each of the categories is defined. Relevant here, "Property damage" is defined as "loss of or direct damage to or destruction of tangible property." Id. Def. 3 ("Property Damage"). The policies identify as indemnifiable losses ("ultimate net loss")

the total sum which the [County] . . . become[s] obligated to pay by reason of personal injury, property damage or advertising liability claims, either through adjudication or compromise, and shall also include . . . expenses for . . . investigators and other persons, and for litigation settlement, adjustment and investigation of claims and suits. 

Id. Def. 6 ("Ultimate Net Loss"). When relevant losses occur, ICSOP's duty to indemnify arises after the County (or its primary insurer) has paid for the losses or its liability has been fixed by a judgment or a settlement.

ICSOP limited its liability under these policies in two ways. First, in Item 2(a) of the Declarations, the policies cap the amount of coverage they will provide for "each occurrence" at $9 million. Umbrella Policy: Declarations Item 2(a). An "occurrence," the policies elaborate, is

an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in personal injury, property damage or advertising liability during the policy period. All such exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence.

Second, ICSOP limits its liability by capping the total, or "aggregate" amount of coverage it will provide, regardless of the number of occurrences. Item 2(b) provides for a $9 million "[l]imit in the aggregate for each annual period where applicable."

In a separate section, entitled "Limit of Liability," the policies provide:

[ICSOP] shall only be liable for the ultimate net loss the excess of either

(a) the limits of the underlying insurances as set out in the schedule in respect of each occurrence covered by said underlying insurances;

(b) the amount as set out in the declarations as the self-insured retention in respect of each occurrence not covered by said underlying insurances. (hereinafter called the "Underlying Limits")

and then only up to a further sum as stated in Item 2(a) of the Declarations in all in respect of each occurrence - subject to a limit as stated in Item 2(b) of the Declarations in the aggregate for each annual period during the currency of this Policy, separately in respect of Products Liability and in respect of Personal Injury (fatal or non-fatal) by Occupational Disease sustained by any employees of the Assured.

Umbrella Policy: Insuring Agreements § II. The Limit of Liability provision refers both to Item 2(a), the per occurrence provision, and to Item 2(b), the annual aggregate limit.

The Court of Appeals referred to the parties’ dispute as follows:

The confusion stems from the clause that follows the reference to Item 2(b): "separately in respect of Products Liability and in respect of Personal Injury . . . by Occupational Disease." "Personal Injury" is a defined term and is one of the three categories of covered losses. "Products Liability" is also defined in the policies, but it is not one of the losses described in the coverage section. Recall that Item 2(b) provided an aggregate limit "where applicable." This policy language gives rise to two, different proposed interpretations of the aggregate limit. Are products liability and personal injury by occupational disease the only categories covered by the aggregate limit? Or is there a general aggregate limit for covered losses and a separate aggregate limit for products liability and occupational injury?

The answers to these questions lead to two possible degrees of exposure for ICSOP, all depending on whether property damage is subject to the annual aggregate limit provision. If property damage is subject to the annual aggregate limit, then the policy limits operate in the following manner. For any single occurrence, ICSOP's maximum liability is $9 million. If there are numerous occurrences (of whatever value) within the same year, ICSOP's maximum liability is also $9 million. If there are three or more occurrences across three separate years of a single three-year policy, then ICSOP would have a maximum liability of $27 million under a given policy. As the County had three three-year policies (covering nine years in total), ICSOP claims that its maximum exposure would be $81 million.

By contrast, if property damage is not subject to the annual aggregate limit (and only products liability and occupational injury are), ICSOP's exposure increases significantly. For each occurrence, ICSOP's maximum exposure remains $9 million. But if there were two occurrences in one year, for example, each totaling $9 million, then ICSOP's exposure would be $18 million because there is no annual aggregate limit. Supposing there are eighteen occurrences during the policy period—a number the County has proposed in this case—then ICSOP's liability could be as high as $162 million. Indeed, if there is no annual aggregate limit on liability for property damage, then the County would theoretically have unlimited coverage because a theoretically unlimited number of occurrences could take place during the same year.

ICSOP filed a declaratory relief action to determine the meaning of the aggregate clause in its policies. The District Court concluded that the aggregate provision provides for a general aggregate limit that includes property damage. Thereafter, the District Court dismissed the County’s declaratory relief claims and found that it had no basis for future damages claims covered by the ICSOP policies. Thereafter, the District Court entered judgment in favor of ICSOP.

In reversing the District Court’s decision, the Court of Appeals considered the arguments of the County and ICSOP as follows:

ICSOP's reading. ICSOP argued, and the district court agreed, that the policies created three separate annual aggregate limits: (1) an annual aggregate limit of $9 million for personal injuries (a covered category), but only if the injury results from occupational disease; (2) an annual aggregate limit of $9 million for products liability (which is a fourth category of liability not listed in the coverage section); and (3) an annual aggregate limit of $9 million for all other covered claims, including personal injuries not the result of occupational disease, property damage, and advertising liability.

ICSOP thus reads Item 2(b) as establishing a general aggregate limit of $9 million and the "separately" clause in the Limit on Liability section as imposing an aggregate limit on a subset of personal injury (occupational injury) and on an entirely new category of covered injury (products liability). Under ICSOP's theory, the term "where applicable" in Item 2(b) means the annual aggregate limit is generally applicable, except where the policies expressly state otherwise. ICSOP's reading of the policies is plausible.

The County's reading. On the other hand, the County offers a somewhat simpler reading. It reads the aggregate limit as applying to products liability and occupational personal injury only. For the County, Item 2(b) indicates from the outset that the annual aggregate limit applies only "where applicable," meaning it applies only for specified coverages. And when the Limit of Liability provision refers back to Item 2(b) and names occupational injury and products liability, it triggers the "where applicable" language. It observes that that the policies could very easily have made the annual aggregate limit applicable to property damage by simply naming it. The County's reading is also plausible.

Neither ICSOP's reading nor the County's reading is implausible, but neither is obvious nor compelling. The two critical terms here are "where applicable" and "separately." We think that the better reading of "separately" is ICSOP's: The phrase it introduces means "separate from the annual aggregate limit on covered injuries, the policy will also cover up to an additional $9 million per year for products liability and occupational personal injuries." But at the same time, we also conclude that the County has the stronger reading of "where applicable." That phrase strongly suggests that the annual aggregate limit may or may not be applicable, and that the policies will identify elsewhere what is subject to that cap—here, by expressly naming products liability and personal injuries caused by occupational disease. We think it obvious that these readings are inconsistent, and that leaves us in equipoise with three poorly drafted, ambiguous policies. See Unigard Mut. Ins. Co. v. Abbott, 732 F.2d 1414, 1418 (9th Cir. 1984) (suggesting that a "separately" clause in a form insurance policy was "[a]t the very least . . . an ambiguity"); see also Cnty. of San Diego v. Ace Prop. & Cas. Ins. Co., 37 Cal. 4th 406, 33 Cal. Rptr. 3d 583, 118 P.3d 607, 618 (Cal. 2005) (Our standard for declaring ambiguity in insurance policy language is . . . language capable of two or more constructions, both of which are reasonable . . . ." (quotation marks and citation omitted)).

The Court of Appeals considered extrinsic evidence introduced by the parties to assist in interpreting the language related to the aggregate limits clause. However, the evidence simply reinforced the Court of Appeals’ view that the language was ambiguous. 

In finding for the County, the Court of Appeals ultimately found as follows:

In the end analysis, we remain persuaded that the polices are genuinely ambiguous. At this junction, having exhausted other interpretive tools, we have to look to the well-established canon that when there are "doubts, uncertainties and ambiguities arising out of policy language," insurance policies "ordinarily should be resolved in favor of the insured." Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal. 3d 903, 226 Cal. Rptr. 558, 718 P.2d 920, 924 (Cal. 1986). 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. We conclude that these policies do not specify an aggregate limit for property damage.

Based on its decision, the Court of Appeals advised that the District Court will need to reconsider the dismissal of the County’s request for declaratory relief.

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