1Question: In June of 2024, the CA Supreme Court approved of insureds’ use of “vertical exhaustion” in continuing loss situations. The prior rule of “horizontal exhaustion” was replaced. In the fall of 2024 I had a client, a CA County, which faced a continuing loss situation spanning two policy periods. The County’s coverage for the two years in question was as follows: 2018-2019, $1M retention, $2M primary with PESLIC, and $7M excess with Trident; for 2019-2020, $2M retention, $2M primary with SN (this policy required that the County satisfy the SIR), and $6M excess with AIG. The County paid $750,000 in defense expenses and needed $8M to settle. Under horizontal exhaustion (no excess pays until all primary policies are exhausted) the result would be as follows: County pays $250k to satisfy the 2018-2019 retention, PESLIC pays $2M, County pays another $1M to satisfy the 2019-2020 retention, SN pays $2M, Trident and AIG each pay $1.375M. What is the result under vertical exhaustion?