Post on 28-Oct-2014
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Insurance Allocation Strategies 2013
October 28-29, 2013
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Recent Trends in Allocation of Continuous or Progressive Losses
Insurance Allocation Strategies 2013HB Litigation Conferences
October 28-29, 2013
Los Angeles, California
Paul A. Zevnik
Morgan, Lewis & Bockius LLP
Max H. SternDuane Morris LLP
Philip R. Watters, P ERimkus Consulting Group, Inc.
Max H. SternDuane Morris LLP
The Speakers
Paul ZevnikMorgan Lewis LLP
Philip R. Watters, P.E.Rimkus Consulting Group
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Case Studies In Allocation For Continuous Injury/Damage Liabilities Goulds v. Travelers
(Los Angeles Superior Court)
Plant Insulation Co. v. Fireman’s Fund (San Francisco Superior Court)
State of California v. Continental(California Supreme Court)
Lennar v. Markel(Texas Supreme Court)
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Goulds v. Travelers
Asbestos bodily injury Excess insurance coverage New York law Pro rata allocation
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Goulds v. Travelers Allocation Issues
Pro rata allocation: what does it mean when dealing with language and insurer differences?
Impact of allocation method employed by underlying insurer to exhaust policies
Allocation to insured for so-called “uninsured” or “under-insured” periods◦ Post-1985 asbestos coverage◦ Pre-1955 asbestos coverage◦ So-called “under-insured” periods at excess level prior to 1963
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Goulds Insurance Program
Pro Rata Allocation Hypothetical (Slide 3 - interactive)
Hypothetical Pro Rata Allocation/Exhaustion ModelDate of First Exposure "DOFE”
1 2 3 4 5 6 7 8 9 10POLICYYEAR
Loss Two - $400,000
Loss Three - $900,000
Loss Four - $1,000,000
Loss Five - $700,000
$500,000 Primary
Loss One - $600,000
Triggers Umbrella Coverage
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Hypothetical Pro Rata Allocation/Exhaustion ModelDate of First Exposure "DOFE”
1 2 3 4 5 6 7 8 9 10POLICYYEAR
Loss Two - $400,000
Loss Three - $900,000
Loss Four - $1,000,000
Loss Five - $700,000
$500,000 Primary
Loss One - $600,000
NONAGGREGATED
Triggers Umbrella Coverage
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Allocation To Insured For So-Called “Uninsured” Or “Under-insured” PeriodsInsurers argued for allocation to Goulds for so-called uninsured and under-insured periods. Post-1985 asbestos coverage. Pre-1955 asbestos coverage. (Greenman v. Yuba Power Products) “Under-insured”
periods at excess level prior to 1963.
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Plant v. Fireman’s Fund
Asbestos bodily injury Primary, umbrella and excess insurance coverage California law Continuous trigger Policyholder selection/equitable contribution “Operations” coverage
◦ Wallace & Gale Double anchor trigger Cancer trigger
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Plant v. Fireman’s Fund Allocation Issues
“Operations” coverage◦ Wallace & Gale
Double anchor trigger Cancer trigger
Known General Liability Coverage Issued To Plant Insulation Company/Plant Asbestos Company
1978
1977
1979
1980
1982
1981
1983
1984
1985
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
0.5MM -
$15MM -
0.25MM -
- 0.5MM
- 5MM
- $15MM
- 10MM
- 0.25MM
1986
1961
1962
1963
1964
1965
1966
5MM -
10MM -
1MM -
2MM -
3MM -
OneBeacon OneBeacon OneBeacon OneBeacon OneBeacon
American Home614-1047
OneBeacon OneBeacon OneBeacon
ISOP410-4478
ISOP4173-5420
Fireman’s FundLC 2389305
SompoJapan
USF&G USF&G
Granite
State
6180-6900
1952
1954
1955
1956
1957
1958
1959
1953
1960
0.5MM -
0.3MM -
1961
1952-1961
$1MM -
RoyalIndem.
FundMXP
457-25-57
Unavailable
Unavailable
Unavailable
Unavailable
Ins. Co. ofthe WestUC 363062
Mt. McKinleyGMX00183
ACE Fire
MFC DO612527A
ACE P&C
UL 851337
Unavailable
UnitedNational
SMP 12132
UnavailableGranite
State
6181-5654
Transport
TEL900340
Unavailable
Fireman’s Fund/American Auto
Mt. McKinley
OneBeacon
USF&G
Royal Indemnity
Transport Insurance
Insurance Company of the West
United National
AIG (Granite State; ISOP; American Home)
Sompo Japan
ACE (ACE Fire and ACE P/C)
Unavailable Coverage
Unavailable
Industrial Indemnity/U.S. Fire
Safety National
Safety National
Unavailable
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Operations Coverage
Aggregate limit applies only to claims falling within the “products hazard” or the “completed operations hazard.”Aggregate limit does not apply to “operations” claims that do not fall within the definitions of these two hazards.
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Operations Coverage -- Definitions
◦“’Products Hazard’ includes bodily injury and property damage arising out of the Named Insured’s products or reliance upon a representation or warranty made at any time with respect thereto, but only if the ‘bodily injury or property damage occurs away from premises owned by or rented to the Named Insured and after physical possession of such products has been relinquished to others.’”
◦ “‘Completed Operations Hazard’ includes bodily injury and property damage arising out of operations or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to the named insured.”
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“Operations” Coverage – California Court of Appeal
◦ “A manufacturer or service provider can incur liability both while work is in progress and after completion. Claims for injuries arising while an activity is in progress fall within ‘non-products’ or ‘operations’ coverage. Claims for injuries arising once the product has been completed and sent to market fall within ‘products’ or ‘completed operations’ coverage. The coverages are complementary and not overlapping. Products coverage takes over where operations coverage leaves off.”
Employers Reinsurance Co. v. Superior Court (Thorpe), 161 Cal. App. 4th 906, 911 fn. 2 (2008)
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Plant Applied Wallace & Gale385 F.3d 820 (4th Cir. 2004) Plant Court applied a Wallace & Gale approach, which
provides that non-aggregated coverage is limited to policies in effect at the time of exposure to asbestos during “operations.” ◦ “If a claimant’s initial exposure occurred while Wallace & Gale was
still conducting operations, policies in effect at that time will not be subject to any aggregate limit. If, however, initial exposure is shown to have occurred after operations were concluded or if exposure that began during operations continued after operations were complete, then the aggregate limits of any policy that came into effect after operations were complete will apply. Where a given claimant falls within this framework will have to be considered on a case-by-case basis.”
In Re Wallace & Gale, 385 F.3d at 833
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Insurers Argued For A “Double Anchor” Trigger Certain insurers argued that both exposure to asbestos
and resulting bodily injury must occur during the policy period for coverage to apply.
Operative policy provisions:
◦ “Policy period, Territory: This policy applies only to accidents or occurrences which take place during the policy period.”
◦ “Occurrence” means “an accident or continuous or repeated exposure to conditions that results in bodily injury during the policy period.”
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Plant Rejected A “Double Anchor” Trigger
“[T]his Court concludes that the normal trigger of coverage under California law applies to the policies here at issue. In other words, coverage under those policies is triggered solely by injury during the policy period. The injury-causing event need not occur during the policy period to trigger coverage.”
Plant, Final Statement of Decision on the Phase III Issues, April 8, 2013, at p. 30.
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Insurers Argued For A “Cancer” Trigger
Certain insurers argued that coverage for asbestos-related cancers would only be provided under policies issued within a few years of diagnosis.
The impact of certain insurers’ trigger approach would eliminate coverage for most asbestos claims.
Based on a thorough review of medical scientific evidence, the Court rejected a separate trigger for asbestos-related cancers, and instead applied the traditional California continuous trigger of coverage.
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Plant Rejected A “Cancer” Trigger
“In sum, although Armstrong was decided in 1987, this Court finds that the factual findings of Armstrong regarding the timing of injury due to inhalation of asbestos have been confirmed and augmented by subsequent developments in the medical and scientific fields. Specifically, as in Armstrong and as previously noted, the Court finds that in those who develop asbestos-related disease, the disease process begins soon after inhalation of asbestos fibers. The injurious process begins at initial exposure, continues after cessation of exposure and throughout an individual’s life.”
Plant, Final Statement of Decision on the Phase III Issues, April 8, 2013, at p. 43.
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State of California v. Continental Ins. Co.55 Cal.4th 186 (2012) Environmental damage. Primary, umbrella and excess insurance coverage. California law. Continuous trigger. Rejected pro rata allocation. All-sums-with-stacking adopted.
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State of California Allocation Issues
Insurers argued for a “pro rata” allocation approach to coverage for continuous and progressive environmental property damage.
Insurers also argued for “anti-stacking” of policy limits, which would limit coverage to one policy period.
Supreme Court rejected “pro rata” allocation and confirmed California’s “continuous” trigger and an “all-sums-with-stacking” approach.
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State of California Holding – Continuous Trigger of Coverage
“We therefore conclude that the policies at issue obligate the insurers to pay all sums for property damage attributable to the Stringfellow site, up to their policy limits, if applicable, as long as some of the continuous property damage occurred while each policy was “on the loss.” The coverage extends to the entirety of the ensuing damage or injury (Montrose, supra, 10 Cal.4th at p. 686, 42 Cal.Rptr.2d 324, 913 P.2d 878), and best reflects the insurers’ indemnity obligation under the respective policies, the insured’s expectations, and the true character of the damages that flow from a long-tail injury.”
State of California, 55 Cal.4th at 200.
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State of California Holding – All-Sums-With-Stacking
“An all-sums-with-stacking rule has numerous advantages. It resolves the question of insurance coverage as equitably as possible, given the immeasurable aspects of a long-tail injury. It also comports with the parties’ reasonable expectations, in that the insurer reasonably expects to pay for property damage occurring during a long-tail loss it covered, but only up to its policy limits, while the insured reasonably expects indemnification for the time periods in which it purchased insurance coverage. All-sums-with-stacking coverage allocation ascertains each insurer’s liability with a comparatively uncomplicated calculation that looks at the long-tail injury as a whole rather than artificially breaking it into distinct periods of injury.”
State of California, 55 Cal.4th at 201
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Policy language limiting obligation to pay to damage “during the policy period.”
Anti-stacking language – what language overcomes SOC?
Effect of case when property damage partially or entirely divisible
Choice of law / application in other jurisdictions
Application to other types of (non-environmental, non-property damage) cases
State of California -Application / Open Issues
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Construction defect allowing water damage. One umbrella insurer; all other insurance had settled. Texas law. Continuous trigger. Rejected pro rata allocation.
Lennar Corp. v. Markel Amer. Ins. Co. 2013 Tex. LEXIS 597 (Tex. August 23, 2013)
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Lennar received homeowner complaints regarding EIFS causing water damage. Lennar notified insurers of plans to remediate homes after it had commenced remediation efforts, but insurers refused to participate, instead opting to respond to any individual homeowner claims. Lennar proceeded to replace EIFS in all homes. In the ensuing coverage dispute, Lennar ultimately settled with all insurers, except for Markel.
Lennar v. Markel – Factual Background
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Markel: Pro-Rata - only responsible for its share of remediation expenses associated with the “property damage” occurring during its policy period.
Lennar: All Sums – Markel is responsible for all of the loss from all years in which
“property damage occurred. The policy does not require it to prove a specific amount of damage during the policy period to each house and it is practically impossible to do so.
Court’s Holding: All sums where “property damage” began before or during the policy period and continued until it was repaired. Markel is obligated to pay the total amount of Lennar’s loss.
Relied on Amer. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 8442 (Tex. 1994), and stated allocation discussion in Garcia was not dicta.
Markel must first pay then can reallocate the loss among insurers according to their respective subrogation rights. .
Lennar v. Markel - Allocation Arguments and Court’s Holding:
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Garcia held:
If a single occurrence triggers more than one policy, covering different policy periods, then different limits may have applied at different times. In such a case, the insured's indemnity limit should be whatever limit applied at the single point in time during the coverage periods of the triggered policies when the insured's limit was highest. The insured is generally in the best position to identify the policy or policies that would maximize coverage. Once the applicable limit is identified, all insurers whose policies are triggered must allocate funding of the indemnity limit among themselves according to their subrogation rights.
Lennar v. MarkelAllocation Arguments and Court’s Holding:
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What are the “respective subrogation rights” in this type of scenario?
When other insurers settled with the insured, how is the last to settle insurer able to reallocate indemnity with previously settled insurers?
Lennar v. Markel – Questions Left Unanswered
Max H. Stern Duane Morris LLP (415) 957-3129 MHStern@duanemorris.com
Paul Zevnik Morgan Lewis LLP (213) 612-2501 Pzevnik@morganlewis.com
Philip R. Watters, P.E. Rimkus Consulting Group (713) 621-3550 PRW@Rimkus.com
Speaker Contact Info
Demonstrate contributions are distinguishable
Hazardous waste amounts Hazardous waste toxicity Parties involvement in waste generation…… Degree of care Cooperation with government
Before “Global Warming” 2006
Before “The Internet” 1983The “Gore Factors” 1980Environmental Allocations
Relative fault of the parties Property use during ownership State of mind of the parties Who benefited from disposal Parties ability to pay Weighted site attribute modeling Monte Carlo statistical method
Beyond the “Gore Factors”
Regulatory changes◦Clean-up standards◦Allowed remediation technologies◦Vapor intrusion
Chemicals of concern◦Newly identified at site◦Detection limits◦Nanotechnology
Changing Fact-Based Allocations
Construction Defect AllocationClaimant’s Perspective
Claimed Damages 1,2,3,4,5...
Product Defects A,B,... Product Defects Q,R,… Product Defects X,Y,…
$$$ Replace or Repair Everything $$$
Construction Defect AllocationInsured and Insurer Perspective
Investigate Damage
Product Defect Maintenance Issue
No Damage Unrelated Damage
Resultant Damage $
$ Resultant Damage $
Replace Product $ Resultant Damage $
s s s
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Questions