Presenting a live 90-minute webinar with interactive Q&A Allocation of Liability for Continuous Damage Losses: All Sums v. Pro Rata Best Practices for Policyholders and Insurers to Allocate Indemnity and Expenses WEDNES DAY, APRIL 18, 2012 1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific Today’s faculty features: Laura A. Foggan, Part ner, Wiley Rein , Washingt on, D.C. Robert M. Horkovich, S hareholder, Anderson Kill & Olick , New Y ork The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Strafford Litigation Teleconference “Allocation of Liability for Continuous Damage Losses: All Sums v. Pro Rata: Best Practices for Policyholders and Insurers to Allocate Indemnity and Expenses ” Wednesday, April 18, 2012 1:00 p.m. Eastern Time / 12:00 p.m. Central Time / 11:00 a.m. Mountain Time / 10:00 a.m. Pacific Time Laura A. Foggan, Esq. Robert M. Horkovich, Esq. WILEY REIN LLP ANDERSON KILL & OLICK PC lfoggan@wileyrein.com rhorkovich@andersonkill.com (202) 719-3382 (212) 278-1322
ALLOCATION OF LIABILITY (Robert Horkovich) All sums rule 6
ALLOCATION OF LIABILITY (Laura Foggan) Pro rata/Time on the risk allocation 7
COURT TREATMENT (Laura Foggan) Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, et al., Nos. 10- 1987, 10-1988, 2012 WL 336150 (4th Cir. Feb. 3, 2012). Coverage is limited to bodily injury “occur[ing] during the policy period.” To hold the insurer liable for any other period would “upend insurance underwriting.” 8
COURT TREATMENT (Laura Foggan) Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, et al., Nos. 10-1987, 10-1988, 2012 WL 336150 (4th Cir. Feb. 3, 2012). A teenager sued the policyholder, a realty company, that had managed her home from her birth in January 1991 until November 1993, when the company sold the property, alleging the policyholder’s negligence caused her to suffer lead poisoning. The claimant had been diagnosed with the condition in September 1992 and continued to exhibit an elevated blood lead level until August 1995. The insurer had issued liability insurance policies covering the period from January 1992 to January 1994. 9
COURT TREATMENT (Laura Foggan) Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, et al., Nos. 10-1987, 10-1988, 2012 WL 336150 (4th Cir. Feb. 3, 2012). The insurer believed that it should be liable only for a 22- month portion of the period of the underlying plaintiff’s exposure to the risk of lead poisoning: from January 1992, when the first policy period started, to November 1993, when the policyholder sold the property. The underlying plaintiff countered that the insurer should be liable for the entire judgment “in light of ‘the joint and several liability of [its] insured.’” 10
COURT TREATMENT (Laura Foggan) Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, et al., Nos. 10-1987, 10-1988, 2012 WL 336150 (4th Cir. Feb. 3, 2012). Adopting pro rata allocation, the court rejected the underlying plaintiff’s effort to impute the policyholder’s joint and several liability to the insurer. That position defied the contract, Maryland law, and fundamental insurance principles. The insurer had contracted to provide coverage only for damages “to which this insurance applies.” Because the policies covered only harm “occur[ing] during the policy period,” the insurer was not liable for harm sustained outside that period. In contrast to the policyholder’s joint and several liability, the question of an insurer’s liability “can be answered only by reference to the insurance contract.” 11
COURT TREATMENT (Laura Foggan) Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, et al., Nos. 10-1987, 10-1988, 2012 WL 336150 (4th Cir. Feb. 3, 2012). Holding the insurer liable for the entire judgment “would upend insurance underwriting.” “[The underlying plaintiff’s] approach would impose the same amount of liability on an insurance company whether it provided coverage for one month or for 10 years.” Not only would such an approach yield higher costs and accompanying higher policyholder premiums, it also would “disincentize” tortfeasors from obtaining comprehensive insurance coverage. 12
COURT TREATMENT (Laura Foggan) Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, et al., Nos. 10-1987, 10-1988, 2012 WL 336150 (4th Cir. Feb. 3, 2012). “The pro rata approach not only allocates liability across multiple insurers of a single tortfeasor, but also ‘accommodates the need to hold liable those businesses that chose not to purchase insurance or coverage’ by allocating liability to them for periods which they were uninsured.” 13
COURT TREATMENT (Laura Foggan) Boston Gas Co. v. Century Indemnity Co., 910 N.E. 2d 290, (Mass. 2009). Direct liability should be prorated among all insurance companies “on the risk”. Where it is not feasible to make fact-based allocation of losses for each policy period, losses should be allocated using time-on-the-risk method. 14
COURT TREATMENT (Laura Foggan) Policyholders are responsible under time-on-the-risk method for any periods that they went without insurance. But, policyholders are liable for only a prorated portion of the per occurrence self-insured retention for each triggered policy period, to be prorated on same basis as the insurance companies’ liability, unless policy language unambiguously provides otherwise. 15
COURT TREATMENT (Laura Foggan) “No reasonable policyholder could have expected that a single one-year policy would cover all losses caused by toxic industrial wastes released into the environment over the course of several decades. Any reasonable insured purchasing a series of occurrence-based policies would have understood that each policy covered it only for property damage occurring during the policy year.” Boston Gas , 910 N.E.2d at 309. 16
COURT TREATMENT (Laura Foggan) “In sum, the pro rata allocation method promotes judicial efficiency, engenders stability and predictability in the insurance market, provides incentive for responsible commercial behavior, and produces an equitable result.” Boston Gas , 910 N.E.2d at 311. 17
COURT TREATMENT (Laura Foggan) “ [T]he joint and several allocation method is improvident. It ‘does not solve the Allocation problem; it merely postpones it.” Boston Gas , 910 N.E.2d at 311 (quoting EnergyNorth Natural Gas, Inc. v. Certain Underwriters at Lloyd’s , 934 A.2d 517, 527 (N.H. 2007). 18
COURT TREATMENT (Robert Horkovich) S tate of California v. Continental Ins. Co. , 88 Cal. Rptr. 3d 288 (2009), review pending , Cal. Sup. Court No. S170560. 19
ALL-SUMS RULE (Robert Horkovich) In its “all-sums” ruling, the trial court had ruled in favor of the State: “[O]nce coverage for…continuous…damage…is triggered under a liability policy, the insurer is required to pay for all sums (up to the policy limits) of the insured’s liability – not just liability specifically allocable to damage during the policy period.” 20
ALL-SUMS RULE (Robert Horkovich) Insuring Agreement: “To pay on behalf of the Insured all sums which the Insured shall become obligated to pay by reason of liability imposed by law…for damages…because of injury to or destruction of property, including loss of use thereof.” 21
ALL-SUMS RULE (Robert Horkovich) It is a “settled rule that an insurer on the risk when continuous or progressively deteriorating damage or injury first manifests itself remains obligated to indemnify the insured for the entirety of the ensuing damage or injury.” Montrose Chem. Corp. v. Admiral Ins. Co. , 10 Cal. 4th 645, 686 (1995) (emphasis added). 22
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