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Showing posts with label allocation. Show all posts
Showing posts with label allocation. Show all posts
Sunday, December 13, 2015
New York times discusses allocation of loss in football concussion lawsuits
The article, here, is a bit overwrought about possible difficulty that youth sports leagues might have in obtaining insurance in the future, but it does nicely describe the issues facing both insureds and insurers at the beginning of long-tail loss claims.
Tuesday, September 15, 2015
Superior Court applies Boston Gas rule to asbestos case
A little more than a year ago the Supreme Judicial Court adopted in Boston Gas Co. v. Century Indem. Co., 454 Mass. 336 (2009) pro rata time-on-the-risk allocation for long tail losses.
In New England Insulation Co., Inc. v. Liberty Mut. Ins. Co., 2010 WL 3219436 (Mass Super.), Judge Fabricant of the Superior Court applied that rule to an asbestos case. Although her decision does not discuss the facts, one can infer from reading it that a company that (for reasons not addressed by the court) does not have significant insurance available and was a "relatively minor contributor to the injury" is being hit with a large portion of the damages due to the insolvency of other companies.
Monday, August 3, 2015
Allocation question certified to Supreme Judicial Court
The United States Court of Appeals for the First Circuit has put hope into the hearts of those of us who deal frequently with questions of allocation of loss. In Boston Gas Co. v. Century Indem. Co., 529 F.3d 8 (1st Cir. 2008), the court certified questions to the Supreme Judicial Court of Massachusetts about how insurance in environmental damage cases should be allocated among insurers and between insurers and insureds.
Allocation is an issue that comes up most frequently in environmental and toxic tort cases, in which damage occurred over years or decades before it was discovered, thereby possibly triggering coverage by many insurance policies. The Boston Gas case is a typical example: over the course of decades, Boston Gas had factories that produced fuel along with hazardous by-products that leached into the environment. During one 18 year period, Boston Gas had insurance with three consecutive insurers. It sought coverage for the environmental damage from one of the insurers. That insurer wants the other two insurers to contribute to the loss. Whether they must do so is a question of allocation.
Another issue that came up in the Boston Gas case is whether coverage is triggered separately for each policy year. That issue is significant because Boston Gas had a yearly self-insured retention (a deductible) of $100,000. If each policy year is triggered separately, then Boston Gas will have to contribute several deductibles instead of just one.
There are numerous other issues with respect to allocation, from how to deal with periods where the insurance company that provided coverage no longer exists; to how to divide coverage where more than one insurer covers the same policy year; to how to allocate loss among insurers with different policy limits; to . . . I could go on and on.
But the answer to every such question that has come up under Massachusetts law, until now, has been: Who knows? The Supreme Judicial Court of Massachusetts has never issued a clear ruling on allocation. Other states are sharply divided on every issue.
The United States Court of Appeals has now asked the Supreme Judicial Court to answer three basic questions:
1. Should a pro rata (all insurers initially contribute) or joint and several (only one insurer initially contributes) allocation method be used?
2. If a pro rata method should be used, which pro rata method?
3. For an insurer who covered the risk for more than one policy period, should only one self-insured retention apply, or should the self-insured retention for each policy period apply?
Although some allocation methods tend to be more helpful to insurers and some more helpful to insureds (always with exceptions, depending on the case), in the long run clarity will help everyone. Here's hoping the Supreme Judicial Court agrees and chooses to answer the certified questions.
Friday, July 24, 2015
Stop the presses! SJC adopts pro rata allocation!
As I discussed here nearly a year ago the United States Court of Appeals certified to the SJC questions regarding allocation. Today the SJC issued its decision in Boston Gas Co. v. Century Indem. Co. The decision is not yet available from the on-line SJC docket. The Westlaw citation is 2009 WL 2184647.
In a nutshell
The court adopted pro rata time-on-the-risk allocation, thereby overthrowing ten years of attorneys and litigants using their best guess that Massachusetts is a joint and several liability state based on a couple of not-very-clear Massachusetts Appeals Court decisions. The court also held that the insured must pay only a proportionate share of a self-insured retention for each triggered policy period.
What pro rata and joint and several allocation mean
In pro rata allocation a long-term loss, such as environmental contamination, is allocated among all insurers who provided insurance covering the time the loss was occurring (or "triggered"), and the loss is frequently allocated to the insured for periods where it had no or insufficient insurance.
In joint and several allocation, one insurer must pay the entire loss up to its policy limit even if there were several insurers on the risk or a period of uninsurance.
The basis for the pro rata decision
The court based its decision on both the policy language at issue and on public policy. In my opinion allocation issues should not be based on policy language because when more than one insurer, or even more than one policy form issued by the same insurer in different years, is involved they may have different policy language which would compel different results; but one loss cannot be allocated in more than one way. Had the court based its decision only on the policy language, it would not be clear that pro rata allocation would apply to other cases.
However, the court also adopted pro rata allocation based on public policy reasons. It stated that joint and several allocation does not "solve the Allocation problem; it merely postpones it." That is only partially correct. In many jurisdictions that have adopted joint and several allocation, an insurer who initially pays the loss may bring a suit for equitable contribution against other insurers to have them contribute their pro rata share to the loss. However, under joint and several allocation there is no contribution from the insured and no suit for equitable contribution can be brought against the insured.
Adoption of time-on-the-risk allocation
The court also adopted the time-on-the-risk method of pro rata allocation. Under that method each insurer pays up to its policy limits in proportion to the number of years it was on the risk. If a loss occurred over ten years and one insurer provided coverage for five years, it would be responsible for fifty percent of the loss up to its policy limits.
The insured will bear its proportionate share of the loss
The court held that the insured will be allocated losses for periods where it was self-insured, uninsured, or insufficiently insured. The court did not address a scenario where an insured had insurance but that insurance is no longer available due to bankruptcy of the insurer, but based on its discussion regarding periods where no insurance was available the court would almost certainly hold the insured responsible for loss during that period.
The insured must pay only a proportionate share of its self-insured retention for each policy period
The court held that the insured must satisfy only a prorated amount of its self-insured retention for each triggered policy period, to be prorated on the same basis as the insurer's liability. "Thus, if the pollution in this case had occurred over the course of a decade, then one-tenth of the total cleanup cost would be apportioned to each policy year and Boston Gas would be responsible for one-tenth of its applicable self-insured retention for each year."
More later
That's it in a nutshell. I'll be out of the office for a while, so you'll be reading some posts about some less earth-shattering decisions. But I will come back to this decision and provide more analysis of it.
As usual, thanks to Mike Tracy of Rudolph Friedmann LLP for bringing this decision to my attention within minutes of it being issued.
Saturday, July 18, 2015
U.S. District Court applies continuous trigger, holds that under Boston Gas insured is responsible for proportionate share of defense costs
D.N. Lukens, Inc. was a a defendant in several suits alleging harm from exposure to toxic substances owned, supplied, sold or controlled by Lukens.
While one of the suits, Mastrogiacomo, was pending, the Boston Gas decision was handed down. In that decision, the Supreme Judicial Court of Massachusetts surprised everyone by holding that long-tail losses would be allocated on a pro rata time-on-the-risk method, instead of by a joint and several liability method. The SJC also held that the insured will bear a proportionate share of the loss for any time period during the long-tail loss that no coverage is available.
Utica Mutual Insurance Company, Lukens' insurer, informed Lukens that under Boston Gas Lukens was responsible for its pro rata share of any settlement or judgment because there were periods of time during the risk exposure that Lukens was uninsured. Utica informed Lukens that it was conveying settlement authority to counsel in an effort to resolve the case prior to trial.
Lukens informed Utica that it believed it was insured for all relevant periods and asked for time to search for additional insurance coverage. (Such a situation is not unusual in long-tail losses. That's why everyone should keep copies of every liability policy ever issued to them, forever, in a place where they can be found. Otherwise, after staff turnover and changes of location and changes of insurance agents and changes of insurers, how will they know what policy they had fifty years ago?)
Utica nevertheless settled the Mastrogiacomo lawsuit for $145,000, and calculated that $14,964 of that amount was attributable to Lukens. That amount remains unpaid.
Lukens also sought coverage from Utica for asbestos claims filed against it. Utica agreed to indemnify Lukens for its time on the risk and reserved the right to seek contribution from Lukens for uninsured periods. Based on that reservation, Lukens sought to take control over the defense in the asbestos cases.
In Graphic Arts Mut. Ins. Co. v. D.N. Lukens, Inc., 2013 WL 2384333 (D. Mass.), Utica sought summary judgment.
The court held, first, unsurprisingly, that the injuries alleged were long-tail losses that came within the Boston Gas analysis.
The court noted that Boston Gas did not resolve the issue of triggers of coverage. Triggers of coverage determine which policy periods are triggered by a long-tail loss. There are four basic theories of triggers of coverage: manifestation, injury-in-fact, exposure, and continuous. Massachusetts courts have declined to adopt a single theory, holding that which trigger applies depends on the circumstances.
The court held that the continuous trigger method most accurately reflects the reasonable expectations of the insured. Under that method a loss occurs from the time of exposure to a hazardous substance to the time when physical harm from such exposure becomes manifest. It also noted that in the case before it the continuous trigger would provide Lukens with the greatest amount of insurance coverage, and implied that that was one reason to apply that trigger.
The court then turned to whether Lukens must contribute its proportionate share to the settlement in the Mastrogiacomo suit. "What is troublesome .. . is the fact that a settlement was reached without the input or acceptance from Lukens." The court held that in such circumstances Lukens was not required to contribute to the settlement. It noted that Boston Gas contemplates the written consent of all parties to the settlement. It declined to grant summary judgment to Utica on a 93A count arising its actions with respect to the settlement.
Lukens argued that in the asbestos cases Utica was barred from disclaiming its duty to indemnify because it refused to relinquish to Lukens control over the litigation even though Lukens would be assigned over 60 percent of the indemnity allocation. The court's analysis of the issue was somewhat murky, but it appears to have held that Lukens was not entitled to control the defense but that it was responsible for its proportionate share of the costs of defense.
The court denied summary judgment on the issue of the actual allocation of loss, on the ground that there was a material dispute of fact over the underlying claimants' exposure to asbestos.
Thursday, March 19, 2015
SJC holds prevailing insurer not entitled to attorney's fees when it establishes another insurer's duty to defend
From my best source, Mike Tracy at Rudolph Friedmann LLP comes a decision issued today by the Supreme Judicial Court of Massachusetts:
As I have discussed in a previous post, an insured is entitled to recover attorney's fees and expenses incurred in successfully establishing in a declaratory judgment action that an insurer has a duty to defend.
In John T. Callahan & Sons, Inc. v. Worcester Ins. Co., the SJC held today that that rule does not apply when the insured's attorney's fees in the declaratory judgment action are paid by a second insurer.
Callahan was a general contractor on a construction site and was insured by Zurich. NEAC was its subcontractor, and was insured by Worcester. Callahan was an additional insured on the Worcester policy.
Lagoa, an employee of another subcontractor, was injured at the job site. He sued Callahan. Zurich agreed to defend and indemnify Callahan. Worcester refused to defend Callahan.
Callahan and Zurich brought a declaratory judgment action against Worcester, seeking a declaration that Worcester had a duty to defend and indemnify Callahan. Zurich paid the attorneys in the declaratory judgment action on behalf of itself and Callahan. Zurich and Callahan won the declaratory judgment action. Zurich sought reimbursement of the attorney's fees it incurred in the declaratory judgment action.
The SJC denied the claim for attorney's fees. It stated that the policy reason for awarding attorney's fees to insureds who are successful in establishing a duty to defend is not to punish wrongdoers or reward those who act responsibly. Rather, it is to protect the insured's right to receive the full benefit of its liability insurance contract. The court stated that Callahan received that benefit at no cost to itself because Zurich defended it.
Rather disingenuously, the court stated that Zurich also received a benefit from bringing the declaratory judgment action, because it received a judgment that Worcester reimburse it for one half of the settlement amount and attorney's fees in the underlying action. The court does not address whether that amount was more or less than the attorney's fees incurred in the declaratory judgment action.