The Ninth Circuit just handed insurers with legacy umbrella policies a ruling that could reshape how they think about aggregate limits.
In a decision filed on April 23, 2026, the United States Court of Appeals for the Ninth Circuit reversed a lower court ruling and found that the annual aggregate limits provision in three umbrella policies issued by the Insurance Company of the State of Pennsylvania does not apply to property damage claims. The case centers on who pays for the environmental cleanup of Chino Airport in San Bernardino County – and how much.
The facts go back a long way. During World War II, the federal government leased and later expanded the Chino Airport for wartime operations, including the dismantling and melting of surplus aircraft into ingots. Those activities generated significant industrial waste that was discharged into the ground. In the 1960s and 70s, during the Vietnam War, tenants at the Airport produced napalm, bombs, and other incendiary devices for sale to the federal government. In 1990, the California Regional Water Quality Control Board determined that decades of industrial activity had contaminated the drinking water downgradient of the site with hazardous levels of trichloroethylene and ordered the County to investigate and clean up the contamination. The County has been at it ever since – drilling and sampling over 280 soil borings, installing seventy-five groundwater monitoring wells, removing underground storage tanks and hundreds of drums of hazardous waste and napalm, and conducting ongoing remediation. The costs keep mounting.
To cover those costs, the County turned to three identically worded umbrella policies it held with the insurer from 1966 through 1975. Each policy covered a three-year period and provided up to $9 million per occurrence. The policies also contained an annual aggregate limit of $9 million, described in the Declarations as applying "where applicable." The Limit of Liability section elaborated that this aggregate applied "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."
That language became the crux of the entire dispute. The insurer argued it created a general aggregate cap of $9 million per year across all covered claims, including property damage. Under that reading, its maximum exposure across all three policies would top out at $81 million. The County read the same language very differently – that the aggregate applied only to products liability and personal injury by occupational disease, since those were the only categories named. Property damage, never mentioned, was subject only to the $9 million per-occurrence cap with no annual aggregate. Under the County's math, the insurer's exposure could reach $162 million, or theoretically more, depending on how many occurrences were identified during the policy period.
The insurer began making payments in 2012 and by 2021 had paid $9 million, which it characterized as the limit for a single occurrence. It told the County that nothing more was available under the policy for that year. The County disagreed, maintained that the contamination arose from multiple separate occurrences, and filed suit in November 2021, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and seeking declaratory relief.
An early discovery admission added a notable wrinkle. The insurer itself initially acknowledged that its policies did not contain any aggregate limits applicable to the Chino Airport claim. It later moved to withdraw that admission, and the magistrate judge allowed it, recognizing the aggregate limit question as critically important to the case and finding that the insurer had a strong argument favoring its preferred interpretation.
The district court sided with the insurer, finding the policies unambiguously included a general aggregate limit covering property damage. It leaned heavily on a 2005 California Court of Appeal decision, Garamendi v. Mission Insurance Co., which interpreted similar policy language and concluded there was a general aggregate. The district court reasoned that no rational insurer would expose itself to unlimited liability for covered injuries other than products liability and occupational injury.
The Ninth Circuit was not persuaded. Writing for the panel, Judge Jay S. Bybee found that both sides had plausible readings of the policy language, making it ambiguous. The court noted that the insurer had the stronger argument on the word "separately" – reading it to mean the products liability and occupational disease aggregates were separate from, and in addition to, a general aggregate. But the County had the stronger argument on "where applicable," which suggested the aggregate limit kicked in only where the policy specified – and the policy only specified products liability and personal injury by occupational disease. Property damage was never named. The court found these two readings irreconcilable and concluded the policies were poorly drafted and genuinely ambiguous.
The panel then declined to follow Garamendi, for two reasons. First, it found that a judicial construction of ambiguous policy language cannot be retroactively applied to policies that predated the court decision. The policies at issue were from the 1960s and 70s; Garamendi was decided in 2005. Second, the factual circumstances were materially different. In Garamendi, the construction of the aggregate limit favored the insured. In this case, the same construction would favor the insurer – running contrary to the well-established California principle that ambiguous policy language should be resolved in favor of the policyholder.
The court also noted that Garamendi did not consider the impact of the "where applicable" phrase present in the policies at issue here.
With the text of the policies unable to resolve the dispute, the court turned to extrinsic evidence – and found it telling. The County presented historical evidence showing that standard form commercial general liability policies from the 1960s and 70s frequently did not include a general aggregate limit. Aggregate limits for general liability claims did not become standard until the 1986 revision of the ISO CGL form. Before that, many policies capped exposure only for products and completed operations claims, leaving other categories – including property damage – without an aggregate ceiling. The court cited multiple industry commentators and a 1986 GAO report to Congress confirming that this gap had exposed insurers to open-ended risks and contributed to a crisis in the insurance industry.
The court was unimpressed by the argument that no sensible insurer would leave itself exposed this way, calling it a standard for business judgment rather than a rule of contract interpretation. The court observed that oversights in policy drafting are not unusual, and that policies must be interpreted as written – not as they might have been written with the benefit of hindsight.
Perhaps the most damaging evidence came from the insurer's own files. Four internal documents – a 2012 payment authority memorandum, a 2014 file memo, a 2014 report to reinsurers, and a loss-run summary – all stated, in one form or another, that no general aggregate limit applied to the County's claims. The 2014 file memo specifically noted that the aggregate limit on the Declarations page was qualified by the phrase "where applicable" and that the annual aggregate was provided only in respect of products liability and occupational disease. The loss-run document recorded there was no general aggregate limit.
The court found that this evidence confirmed what the policy language already suggested – that reasonable people, including the insurer's own employees, could and did read these policies the way the County reads them, reinforcing the conclusion that the policies were ambiguous and not susceptible to only one reasonable interpretation.
Having exhausted its interpretive tools and finding the policies genuinely ambiguous, the Ninth Circuit applied the settled California canon that doubts, uncertainties, and ambiguities in insurance policies should be resolved in favor of the insured. It concluded that the policies do not specify an aggregate limit for property damage, reversed the district court's dismissal of the County's declaratory relief claim, and remanded the case for further proceedings. The County's breach of contract and bad faith claims remain pending in the district court.
The Roman Catholic Bishop of Orange appeared as amicus curiae in the appeal, suggesting that other policyholders with similar vintage policies have a stake in how these provisions are interpreted.
For insurers still carrying legacy umbrella and excess policies from the 1960s and 70s, the ruling is a reminder that ambiguous aggregate limit language – particularly provisions that name only products liability and occupational disease – may not provide the protection they assumed. And as this case illustrates, an insurer's own internal claims files can become some of the most powerful evidence used against it.
