Progressive Damage Construction Defect Cases

Construction Law Allocation of Risk Among Multiple Progressive Damage Insurers Construction

By R. Michael Ethridge Defect Cases and Katherine W. Sullivan

The landscape Deciding whether a construction defect claim is covered surrounding these issues by a contractor’s commercial general liability (CGL) pol- is constantly changing icy is always a sticky proposition. Among the most vexing and never boring. problems for coverage and defense counsel alike, in a case involving a progressive injury, is which Hypothetical Scenario insurance policy is implicated. Unlike the A general contractor builds a multimil- typical personal injury case that would lion dollar oceanfront home in 2005. At implicate only one CGL policy because the time of construction the general con- the injury would “occur” during one pol- tractor is insured under a standard CGL icy period, a progressive damage construc- policy, ISO Form CG 00 01 10 01. The anni- tion defect case creates a unique situation, versary date of the policy is January 1. Con- and depending on the state, multiple pol- struction began on June 1, 2005, and was icies can be triggered. Courts around the completed on April 1, 2006, with the certif- country have struggled with how to allo- icate of occupancy issued on May 1, 2006. cate damages among multiple insurers in Because of the collapse of the real estate these progressive damage cases. market, the general contractor goes out of This article will briefly attempt to business on December 31, 2008. address the different approaches that the In 2007, the homeowners notice water states have used to determine coverage coming into their home around windows triggers in construction cases as well as and doors and also begin to experience a the methods used by the states to allocate serious problem with mold growth on the risks among multiple insurers. The follow- interior walls. They contact the general ing hypothetical scenario will serve as the contractor who investigates and attempts framework for discussing some of the com- to perform certain repairs. The general plications that can arise when attempting contractor’s attempted repairs are not suc- to allocate damages in a progressive dam- cessful, and in October 2007, the home- age construction defect case. owners hire a lawyer who immediately

■ R. Michael Ethridge is a partner and Katherine W. Sullivan is an associate of Carlock Copeland & Stair in the firm’s Charleston, South Carolina, office. They are both regular contributors to the firm’s insurance -cov erage blog at http://www.insurancecoveragecorner.com/. Mr. Ethridge represents insurance companies, general contractors, construction design professionals, small business owners and others in insurance coverage and civil litigation. Ms. Sullivan focuses on general civil litigation, including construction, insurance coverage and bad faith, personal injury defense, and professional liability defense.

52 ■ For The Defense ■ June 2012 © 2012 DRI. All rights reserved. hires an engineering consultant to investi- the homeowners’ loss? “Trigger of cover- hypothetical “facts” may also trigger cover- gate the source of the water intrusion and age” is a term of art used to describe what age under each of the subsequent policies if to develop a repair plan delineating the must happen during the policy period for the water continued to intrude around the repair scope. The engineer’s report, dated the potential of coverage to arise. See Mon- windows and doors causing water dam- December 1st, 2007, identifies numerous trose Chem. Corp. v. Admiral Ins. Co., 10 age in each subsequent year. However, construction deficiencies and building Cal. 4th 645, 655, n.2, 913 P.2d 878, 880, the known loss provision in the 2008 pol- code violations. The consultant concludes n.2 (Cal. 1995). In a typical general liability icy could preclude coverage from that pol- that these deficiencies are causing signifi- scenario, the trigger of coverage is a specific icy since the contractor became aware of cant water intrusion around windows and point in time when the personal injury or the problems in 2007. Therefore, under doors and mold growth on the interior property damage occurred. However, in the injury-in-fact theory, the “facts” would walls. The lawyer hires another consultant construction defect cases when damages likely trigger CGL policy two covering 2006 to provide an estimate for the repairs. The are progressive in nature, such as with and CGL policy three covering 2007. estimated cost of repairs is $1.75 million, water intrusion, it is more difficult to deter- given the extensive nature of the damages mine when coverage is triggered. Continuous Trigger Theory and construction deficiencies. The home- In a progressive damage construction Under this theory, the time of the under- owners file a lawsuit in February 2009. defect case, the states mainly use one of lying injury-causing event would trigger Litigation ensues, and the wheels of jus- three primary methods to determine the coverage for each policy in effect at that tice turn slowly. Frustrated with the way trigger of coverage. The majority of the time, and coverage would continue until that the case is proceeding, the judge spe- states apply either the injury-in-fact trigger the damage is complete. So in the hypo- cially sets a trial date of April 1, 2012, and theory or the continuous trigger theory. A thetical scenario above, the “facts” would orders the parties to complete mediation by limited number of states use the manifes- likely trigger coverage from the date that February 1, 2012. tation trigger theory to determine which the certificate of occupancy was issued, On January 15, 2012, the parties convene policies may be triggered by a progressive May 1, 2006, until the date that the damage the court-ordered mediation. The general damage case. is complete. Similarly, the known loss pro- contractor is present, as are representa- vision in the policy would likely preclude tives from the various insurance carriers Injury-in-Fact Theory coverage for all policies after the contrac- that have provided coverage to the general Under the injury-in-fact theory, cover- tor became aware of the problems in 2007. contractor during the period of continuous age is triggered when property damage Therefore, under the continuous trigger damage. All of the insurers are present and occurs during the policy period. For cov- theory, the hypothetical facts likely would accompanied by coverage counsel as well. erage to arise under a particular policy, trigger CGL policy two covering 2006 and The general contractor is insured as follows property damage must occur during the CGL policy three covering 2007. for the relevant period: policy period. Because the injury-in-fact • CGL policy one, covering 2005, $250,000 theory typically is interpreted to trigger Manifestation Theory limits each insurance policy when property dam- Under the manifestation theory, cover- • CGL policy two, covering 2006, $250,000 age occurs during the policy period, in age is triggered when property damage limits progressive damage construction defect is discovered or should have reasonably • CGL policy three, covering 2007, 500,000 cases, the application of the injury-in-fact been discovered. Coverage will be limited limits with a 2294 endorsement rule can be remarkably similar to the con- to the policy that covers the period when • CGL policy four, covering 2008, $500,000 tinuous trigger rule, discussed below. For the damage is discovered. This theory is limits example, water damage resulting from applied to construction defect claims in a • Uninsured in 2009 construction defects often continues to limited number of states such as Florida, • Uninsured in 2010 occur every year until someone repairs the Louisiana, and New Jersey. See, e.g., Mid- • Uninsured in 2011 defects. In such a case, each policy would Continent Cas. Co. v. Siena Home Corp., While a standard CGL policy gener- be triggered on the date of the first property 2011 WL 2784200 (M.D. Fla. July 8, 2011); ally does not cover construction deficien- damage and continue through a settlement Rando v. Top Notch Props., L.L.C., 879 So. cies, many states have concluded that water or judgment or until someone repairs the 2d 821 (La. Ct. App. 2004); Winding Hills intrusion that causes property damage is property damage- causing condition. Condo. Ass’n, Inc. v. N. Am. Specialty Ins. an accident that potentially would impli- In the hypothetical scenario outlined Co., 332 N.J. Super. 85, 752 A.2d 837 (N.J. cate coverage. For purposes of this factual above, the “facts” could trigger coverage Super. Ct. App. Div. 2000). scenario, assume water intrusion can qual- as early as 2006, on the date of substantial In the hypothetical scenario above, cov- ify as an occurrence. completion, should the plaintiffs success- erage would have likely been triggered fully demonstrate that the construction under the manifestation theory for the Trigger of Coverage defects led to some level of water intrusion 2007 policy, CGL policy three, when the For purposes of the coverage analysis in upon completion of the work, even if the homeowners noticed water intrusion our hypothetical scenario, the threshold homeowners did not know about it until around the windows and doors and began question is which policies are triggered for 2007. Under the injury-in-fact theory, the to experience mold growth, unless the

For The Defense ■ June 2012 ■ 53 Construction Law insurer introduced evidence showing that have used these provisions with varying CGL coverage throughout the entire pro- the homeowners should have discovered success, and how courts will apply them gressive damage period. the problems sooner. For example, a Flor- often depends on the specific facts in a case. The seminal case endorsing the joint- ida court recently determined that cover- Id. at 440. and-several approach is the asbestos- age is triggered under the manifestation A large majority of the states apply either related case, Keene Corp. v. Ins. Co. of N. theory when “damage was discernable and the injury-in-fact theory or the continu- Am., 667 F.2d 1034 (D.C. Cir. 1981). In reasonably discoverable either because it ous trigger theory in progressive damage Keene, the policyholder did not have insur- was open and obvious or upon a prudent construction defects cases, both of which ance for a portion of the time of asbes- engineering investigation, and not the time can trigger multiple insurance policies in tos exposure and manifestation. Basing an individual case. When the facts trig- the analysis on the “all sums” language in ger multiple insurance policies, how to the policy, the court held that all triggered allocate the damages among the multiple insurers had a joint obligation to provide Among the most insurance carriers becomes the next inev- coverage, and the court permitted the pol- itable question. icyholder to select the insurer which would vexing problems for provide defense and indemnification. Id. Allocation of Damages at 1050. The Keene court specifically held coverage and defense How to allocate damages among multiple that “[t]here is nothing in the policies that insurance carriers and/or a self-insured provides for a reduction of the insurer’s counsel alike in a case party is highly contested in most progres- liability if an injury occurs only in part sive damage construction defect cases, and during a policy period.” Id. at 1048. The involving a progressive the approach varies by state. The method court noted that the function of each pol- of allocating damages can significantly icy was to relieve the insured “of all risk injury is which insurance impact an insurance company’s liability of liability.” Id. The court noted that, once under a CGL policy during either the set- the policyholder tenders to an insurer, that policy is implicated. tlement negotiations or after a court has insurer can seek contribution from other rendered a judgment. There are two pri- insurers for the indemnification of the mary approaches to allocation: joint and policyholder. of actual discovery.” Mid-Continent Cas. several and pro rata. The most significant Another case that joint-and-several Co. v. Siena Home Corp., 2011 WL 2784200 difference between the joint-and-several approach proponents often cite is J.H. (M.D. Fla. July 8, 2011). approach and the pro rata approach is how France Refractories Co. v. Allstate Ins. Co., they treat uninsured time periods, dis- 534 Pa. 29, 626 A.2d 502 (Penn. 1993), Application of Trigger Theories cussed in greater detail below. But the way another asbestos-related case. The court In certain circumstances a policy’s provi- courts apply the frameworks of these two noted that “[u]nder any given policy, the sions can supersede the default trigger the- primary approaches can vary significantly insurer contracted to pay all sums which ory adopted by a state. Therefore, analyzing by state. the insured becomes legally obligated to trigger of coverage must begin with an pay, not merely some pro rata portion examination of the policy provisions. Not Joint-and-Several Approach thereof.” 534 Pa. at 39, 626 A.2d at 507 surprisingly, “insurers have attempted to to Allocation (emphasis in original). The court held that limit courts’ discretion over trigger of cov- A minority of jurisdictions have approached the policyholder “should be free to select erage and take back control of the issue… allocation of damages by adopting the the policy or policies under which it is to [by]… adopting policy provisions that were joint-and-several approach, which requires be indemnified.” 534 Pa. at 41, 626 A.2d at designed to qualify and more specifically each triggered policy to indemnify the in- 508. However, the J.H. France court took pin-point when ‘bodily injury’ or ‘prop- sured for the entire loss caused by the pro- the analysis one step further and held that, erty damage’ must take place for it to be gressive injury. This method is sometimes when the policy limits of a particular in- covered.” Randy Maniloff & Jeffrey Stem- called the “all sums method,” because its sured are exhausted, the policyholder is pel, General Liability Insurance Coverage: proponents argue that “the insurer’s prom- entitled to choose again from the triggered Key Issues in Every State 438–39 (2nd ed. ise to pay ‘all sums’ trumps the policy policies and may continue to do so until 2012). Some of the policy provisions and language limiting coverage to the bodily fully indemnified for the claims. Id. endorsements used by insurance carriers injury or property damage that occurs dur- Depending on how a state applies the to attempt to define or narrow when covering the policy period.” Randy Maniloff & joint-and-several approach to a construc- age is triggered include, among others, the Jeffrey Stempel, General Liability Insur- tion case, any insurer that a policyholder “Montrose endorsement,” the “first man- ance Coverage: Key Issues in Every State selects could have to provide a full defense ifestation endorsement,” the “claims-in- 464 (2nd ed. 2012). Under the joint and sev- and full indemnification to the insured for progress exclusion,” the “discovered injury eral approach, a policyholder is indemni- the entire period of progressive damage or damage exclusion,” and the “prior man- fied up to the policy limits for all damages up to the policy limits even if the insured ifestation exclusion.” Id. at 439. Insurers even if the policyholder failed to purchase didn’t purchase insurance for that period

54 ■ For The Defense ■ June 2012 in some states. For example, a contrac- known as the Owens-Illinois approach. ment—irrespective of whether the poli- tor that purchases a one-year CGL policy A majority of the states with law on this cyholder had coverage for the remaining in 2001, goes out of business in 2002, does issue have adopted some form of pro rata years. The court reasoned that this inter- not purchases insurance between 2002 and allocation, and among them are Colorado, pretation would encourage businesses to 2010, and is sued for construction defects Connecticut, Kansas, Kentucky, Louisi- purchase insurance, which in turn would in 2010 could receive the same benefits as ana, Massachusetts, Minnesota, Nebraska, promote market stability. a contractor that purchases insurance and New Jersey, New Hampshire, New York, A number of other states have similarly is continually insured between 2001 and South Carolina, Utah, and Vermont. Randy adopted the time-on-risk approach to dam- 2010 (assuming the claim could be resolved Maniloff & Jeffrey Stempel, General Lia- ages allocation. For example, the Supreme within the policy limits of the 2001 policy). bility Insurance Coverage: Key Issues in Judicial Court of Massachusetts adopted a A few states have adopted the joint-and- Every State 465 (2nd ed. 2012). strict time-on-risk approach in Boston Gas several allocation method in some form Co. v. Century Indem. Co., 454 Mass. 337, or another. See, e.g., Aerojet-Gen. Corp. v. Calculating Pro Rata Damages 910 N.E.2d 290 (Mass. 2009). The Boston Transp. Indem. Co., 17 Cal. 4th 38, 948 P.2d Allocation by Time on Risk Gas court cited the following advantages 909 (Cal. 1997); Hercules, Inc. v. AIU Ins. The time-on-risk approach apportions lia- of a time-on-risk approach: “spreading Co., 784 A.2d 481 (Del. 2001); Zurich Ins. bility among insurers in proportion to the the risk to the maximum number of car- Co. v. Raymark Indus., Inc., 118 Ill. 2d 23, length of their coverage period. In our riers, easily identifying each insurer’s 514 N.E.2d 150 (Ill. 1987); Allstate Ins. Co. home state of South Carolina, the South liability through a relatively simple calcu- v. Dana Corp., 759 N.E.2d 1049 (Ind. 2001); Carolina Supreme Court recently adopted lation, and reducing the necessity for sub- Goodyear Tire & Rubber Co. v. Aetna Cas. a time-on-risk pro rata approach to allo- sequent indemnification actions between & Sur. Co., 95 Ohio St. 3d 512, 769 N.E.2d cating fault among insurance carriers in and among the insurers.” 454 Mass. at 367– 835 (Ohio 2002); J.H. France Refractories Crossmann Communities of N. Carolina, 68, 910 N.E.2d at 313. Co. v. Allstate Ins. Co., 534 Pa. 29, 626 A.2d Inc. v. Harleysville Mut. Ins. Co., 395 S.C. Practically, the strict pro rata approach 502 (Penn. 1993); Am. Nat. Fire Ins. Co. v. B 40, 63, 717 S.E.2d 589, 601 (S.C. 2011). Not- has the potential to make settlement nego- & L Trucking & Const. Co., Inc., 134 Wash. ing that “the proper method for allocating tiations more complex in construction 2d 413, 951 P.2d 250 (Wash. 1998); Plas- damages in a progressive property dam- cases because the policyholder is respon- tics Eng’g Co. v. Liberty Mut. Ins. Co., 315 age case is to assign each triggered insurer sible for a pro rata portion of the settle- Wis. 2d 556, 759 N.W.2d 613 (Wis. 2009). a pro rata portion of the loss based on that ment covering the years for which it didn’t However, in some of those states, there is a insurer’s time on the risk,” the court pro- have insurance, and often the policyholder split in authority regarding the appropriate vided the following method for allocating does not have liquid assets. In addition, method of allocation, or the method of allo- damages: questions always arise about how it affects cation varies depending on the type of case. The basic formula consists of a numera- allocation when an insurance carrier that In the hypothetical scenario outlined tor representing the number of years an issued a policy during one or more years of about, the general contractor would proba- insurer provided coverage and a denom- progressive damage denies coverage. bly strategically choose to tender the claim inator representing the total number of Using the hypothetical scenario out- to the 2008 policy, CGL policy four, because years during which the damage pro- lined above, let’s assume that coverage was the 2008 policy has the highest policy lim- gressed. This fraction is multiplied by triggered on May 2, 2006, and coverage its, $500,000, and it does not contain the the total amount the policyholder has continued through the end of 2012. Let’s limiting 2294 endorsement. Assuming that become liable to pay as damages for the also assume that that a trial judgment was the total settlement or verdict against the entire progressive injury. In this way, rendered against the general contractor general contractor amounts to less than each triggered insurer is responsible for in the amount of $1,000,000. This would $500,000, the insurer for CGL policy four a share of the total loss that is propor- implicate the following policies: CGL pol- for 2008 would have to pay for the entire tionate to its time on the risk. icy two for 2006, CGL policy three for 2007, settlement or judgment and would then Id. at 65, 717 S.E.2d at 602. and CGL 4, for 2008. In addition, we need have to attempt to seek contribution from Although the Crossmann Communities to consider the years during which the the other insurance carriers. court characterized this formula as the general contractor did not have insurance. default rule for allocating damages, it indi- Let’s also assume that subcontractors per- Pro Rata Approach to Allocation cated willingness to modify the method of formed all of the work on the home, and In general terms, courts applying the pro allocation if “proof is available showing the insurer for the 2007 policy issued a rata approach to damages allocation hold that the damage progressed in some dif- denial of coverage letter based on the 2294 that each insurer is only liable for its pro ferent way” than in equal portions during endorsement. The general contractor did rata portion of a loss caused by progressive each year it progressed. Id. not purchase insurance after 2008. A strict damage. However, state courts use at least Significantly, under the Crossmann pro rata approach would require the gen- three different approaches to calculate pro Communities court’s strict time-on-risk eral contractor to contribute pro rata to rata allocation: (1) time on risk, (2) divisi- approach, an insurer is only responsible for the settlement for the 2007 policy period ble injury, and (3) by limits and years, also a pro rata portion of a settlement or judg- for which coverage is denied and for the

For The Defense ■ June 2012 ■ 55 Construction Law remaining years when he was uninsured. typically don’t favor the divisible injury ap- ing Theories and Practical Applications, 42 With 80 total months of progressive dam- proach and reject it in favor of a less difficult Tort Trial & Insurance Practice Law Jour- age from May 2006 through December and more cost-effective method of calculat- nal 999, 1003–04 (2007). 2012, and factoring in that the general con- ing damages allocation. See, e.g., Crossmann The first case to endorse the limits-and- tractor would have to take personal respon- Communities of N. Carolina, Inc. v. Har- years approach was Owens-Illinois, Inc. v. sibility for 2007 (coverage denied), 2009 leysville Mut. Ins. Co., 395 S.C. 40, 63, 717 United Ins. Co., 138 N.J. 437, 650 A.2d 974 (uninsured), 2010 (uninsured), 2011 (unin- S.E.2d 589, 601 (S.C. 2011) (adopting time (N.J. 1994). The Owens-Illinois court noted sured), and 2012 (uninsured), we calculate on risk as the default rule due to the diffi- that “[a] fair method of allocation appears the damages allocation as follows: culty in determining precisely what damage to be one that is related to both the time on occurred during each policy period; Boston the risk and the degree of risk assumed. 138 Gas Co. v. Century Indem. Co., 454 Mass. N.J. at 479, 650 A.2d at 1995. 337, 910 N.E.2d 290 (Mass. 2009) (noting The limits and years approach was sub- When the facts of a case that it is often both “scientifically and -ad sequently adopted by the Supreme Court of ministratively impossible” to determine New Hampshire, which explained: trigger multiple policies, how to determine the proportion of dam- Under pro-ration by years and limits, age that occurred in each policy period). loss is allocated among policies based one of the most contested Returning to the hypothetical scenario on both the number of years a policy and making the same assumptions as we is on the risk as well as that policy’s issues is whether a made for the time-on-risk discussion, the limits of liability. The basis of an indi- parties could employ some interesting vidual insurer’s liability is the aggre- policyholder must pay the strategies. For example, the plaintiffs could gate coverage it underwrote during the retain an expert to attempt to show that all period in which the loss occurred. Under deductible of each policy or most of the water damage occurred in this approach, an insurer’s proportion- 2006 and 2008 when coverage is not con- ate share is established by dividing its or only one deductible. tested. Using this method, the plaintiffs’ aggregate policy limits for all the years counsel could attempt to recover the entire it was on the risk for the single, continu- judgment from the insurers that provided ing occurrence by the aggregate policy • The general contractor: 60 months / 80 coverage in 2006 and 2008. On the other limits of all the available policies and months = 75 percent of $1,000,000 = hand, the coverage counsel for the 2008 then multiplying that percentage by the $750,000 policy, CGL policy four, could retain an amount of indemnity costs. • The insurer that issued CGL policy two: expert to attempt to show that all or most of Energy North Natural Gas, Inc. v. Certain 8 months / 80 months = 10 percent of the water damage occurred in 2006. If the Underwriters at Lloyd’s, 156 N.H. 333, 341, $1,000,000 = $100,000 2008 insurer can show that all of the water 934 A.2d 517, 523 (N.H. 2007) (citations • The insurer that issued CGL policy four: damage occurred in 2006, then the 2006 omitted). 12 months / 80 months = 15 percent of insurer would bear the entire loss. Using the hypothetical scenario above $1,000,000 = $150,000 and assuming that coverage was triggered However, the general contractor went Calculating Pro Rata Damages on January 1, 2006, and continued through out of business and had limited, if any, per- Allocation by Limits and Years December 31, 2008, the facts would impli- sonal assets. Obviously, the strict pro rata The limits and years approach allocates cate the following policies: CGL policy two approach can have a serious impact on set- the loss among the policies based on both for 2006 ($250,000 limits); CGL policy three tlement negotiations because an insurer the policy period as well as the liability for 2007 ($500,000 limits); and CGL policy with a small percentage of time on risk limits. The limits and years approach is four for 2008($500,000 limits). For the may be more willing to risk a trial when it the most complicated method for calcu- sake of simplicity, let’s also assume that no knows that it will only be responsible for a lating pro rata damages allocation. There exclusions applied. To calculate each insur- small percentage of a judgment. are two rationales for taking the limits of er’s pro rata portion of damages, divide the liability into account when apportioning policy limits for each policy by the total Calculating Pro Rata Damages damages: (1) “insurers that issue policies limits for all three years. For example, we Allocation by Divisible Injury with lower limits collect smaller premi- would calculate the percentage allocated The divisible injury approach apportions ums, and so should not be forced to pay the to CGL policy two as follows: $250,000 / damages proportionately based on the per- same amounts paid by others that collected $1,250,000 = 20 percent. We would calcu- centage of injuries occurring during each larger premiums for the same risk,” and late the percentage allocated to CGL policy triggered policy. However, practically, at- (2) “it is easier for insurers to underwrite three as follows: $500,000 / $1,250,000 = tempting to determine which proportion risks if they know that future payments 40 percent. Likewise, we would calculate of progressive damage occurred during will be commensurate with the policy lim- the percentage allocated to CGL policy each policy period would become extremely its.” J. Stephen Berry & Jerry B. McNally, four as follows: $500,000 / $1,250,000 = difficult and expensive. Therefore, courts Allocation of Insurance Coverage: Prevail- 40 percent. Assuming that the settlement

56 ■ For The Defense ■ June 2012 amounted to $1,000,000, the CGL policy trict Court for the District of South Caro- cation of a partial occurrence.” The policy- two insurer would pay $200,000, the CGL lina addressed an issue of first impression holder further argued that it should only be policy three insurer would pay $400,000, in South Carolina and held that an insured required to pay a single $500,000 deductible and the CGL policy four insurer would pay “is not entitled to prorate any deductibles, for the resolution of a claim arising from $400,000. and must pay the full deductible for each progressive damage spanning six policy pe- policy triggered by the progressive dam- riods. After reviewing the policy language Deductibles age.” Liberty Mut. Fire Ins. Co. v. J.T. Walker and South Carolina case law, the court con- When the facts of a case trigger multi- Indus., Inc., 817 F. Supp. 2d 784 (D. S.C. cluded that the only reasonable interpreta- ple policies, one of the most contested 2011), reconsideration denied, 2011 WL tion was that the damage that happens in issues is whether a policyholder must pay 6130527, CIV.A. 2:08-2043-MBS (D. S.C. one policy year constitutes a single occur- the deductible of each policy or only one Dec. 8, 2011). rence. Noting that the majority of courts deductible. A deductible is a specified In Liberty Mutual, the underlying liti- applying a pro rata allocation method have amount of money that a policyholder must gation involved allegations that the win- agreed that an insurer is entitled to a full de- pay before an insurance company becomes dows manufactured by the policyholder ductible for each triggered policy, the court liable for payment. were defective, which allowed water to concluded that the policyholder must pay a In a joint-and-several jurisdiction, a pol- leak into homes causing progressive dam- separate deductible for each triggered policyholder typically can select the insurer age over a six-year period. The insured icy during progressive damage. with the lowest deductible and tender the window manufacturer maintained six, claim to that insurer to avoid paying mul- one-year standard CGL policies spanning Conclusion tiple deductibles. However, whether a pol- the time period involved in the underly- As you can see, complex and interesting icyholder must pay the deductible of each ing litigation. issues arise when attempting to allocate policy or only one becomes more compli- The policyholder argued that the entire damages among multiple insurers in pro- cated in pro rata jurisdictions. Typically, progressive water damage during the pe- gressive damage construction defect cases. when a case triggers multiple policy peri- riods covered by the policies constituted a The landscape surrounding these issues ods, the policyholder must pay the deduct- single occurrence so each insurer only was is constantly changing, and state courts ible for each policy. liable for part of an occurrence. The poli- haven’t adopted a consistent national In South Carolina, where the supreme cyholder argued that “it would be inequi- approach. One thing is certain, however: court recently adopted a strict time-on-risk table to force a policyholder to pay a full the intersection of construction claims and approach as discussed above, the U.S. Dis- per-occurrence deductible for indemnifi- insurance coverage is never boring.

For The Defense ■ June 2012 ■ 57