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Winning Strategies to Defeat the “All Sums” Allocation Approach

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Winning Strategies to Defeat the “All Sums” Allocation Approach Allocation Trends By Lawrence D. Mason Winning Strategies to Defeat the “All Sums” Allocation Approach Courts throughout the United bermens Mut. Cas. Co., 826 A.2d 107, 116-17 1222–23 (6th Cir. 1980), cert. denied, 454 (Conn. 2003). Under the all sums method, U.S. 1109, 70 L. Ed. 2d 650, 102 S. Ct. 686 States are frequently challenged all costs are allocated solely among the (1981), contained the following “all sums” insurers and the insured receives a wind- language: with the question of how defense fall for any uninsured periods, its deduct- [The insurer] will pay on behalf of the ibles, and retentions. Id. at 117–18. insured all sums which the insured shall and indemnity payments should Insurers confronted with the alloca- be legally obligated to pay as damages tion challenge, especially in jurisdictions because of… bodily injury or… prop- be allocated in commercial general lia- where the allocation issue is a matter of erty damage to which this policy applies bility (CGL) coverage disputes arising out first impression, should be mindful of sev- caused by an occurrence. of long-tail bodily injury claims. Further eral persuasive arguments in favor of a pro The coverage provided by most CGL complicating the issue is the typical sce- rata approach, including: “all sums” pol- policies is unambiguously limited to inju- nario where courts are confronted with the icy language does not bar pro rata allo- ries or damages suffered “during the pol- need to analyze multiple layers of disparate cation; the overwhelming judicial trend icy period.” CGL policies are underwritten insurance coverage spanning several pol- supports pro rata allocation; pro rata allo- with a policy period and a calculated pre- icy periods. cation fairly apportions responsibility for mium based on the risks to be insured There are two allocation methods courts coverage gaps to the insured; pro rata allo- during the policy period. The CGL poli- commonly apply: (i) pro rata allocation, in cation avoids the necessity of a subsequent cies provide coverage for damages arising which costs are spread among the triggered contribution lawsuit, which would other- out of bodily injury [and property dam- insurers, and to the insured for uninsured wise be required by all sums allocation; and age] that occurs during the applicable pol- periods, in a time-on-the-risk manner; and insureds do not have a reasonable expecta- icy period. These policies typically define (ii) all sums allocation, in which a triggered tion of all sums coverage. “bodily injury” to mean “bodily injury, insurer is liable for all costs associated with sickness or disease sustained by any per- a claim, subject to a right of contribution All Sums Policy Language Does son which occurs during the policy period, among any other triggered insurers. Not Bar Pro Rata Allocation including death at any time resulting there- A principal difference between the pro Insureds advocating the all sums approach from.” Consequently, the insuring agree- rata and all sums allocation methods is routinely argue that the presence of the ment means that the insurer agrees to pay their treatment of uninsured periods, term “all sums” in most CGL insuring all sums the insured must pay as damages deductibles, and self-insured retentions. agreements requires an application of an because of bodily injury during the pol- See, e.g., Owens-Illinois, Inc. v. United Ins. all sums allocation approach. It does not. icy period. The insurer is only responsible Co., 650 A.2d 974, 989 (N.J. 1994). Under This is clear from the fact that most, if not for the bodily injury that takes place dur- the pro rata method, the insured is liable all, courts adopting pro rata allocation have ing its policy period, not all bodily injury for costs attributable to losses occurring done so relative to policies containing the to an underlying plaintiff, so long as any during periods it was uninsured, as well same “all sums” language. For example, portion of it occurred during the policy as the insured’s contractual risk- sharing the coverage grant in the seminal pro rata period. Instead, all implicated policies will responsibilities for deductibles and self- allocation case of Insurance Co. of N. Am. share the obligation. Accordingly, the only insured retentions. Security Ins. Co. v. Lum- v. Forty-Eight Insulations, 633 F.2d 1212, appropriate way to allocate damages from ■ Long-term DRI Insurance Law Committee member Larry Mason is a senior shareholder in the Chicago office of Segal McCam- bridge Singer & Mahoney, where he serves as co-chair of the firm’s Insurance Coverage/Bad Faith Practice Group. His complex commercial litigation experience includes a concentration in insurance and reinsurance coverage, product liability, contract, envi- ronmental, toxic tort, construction, cyber liability, and professional liability issues. In addition to Mr. Mason’s trial and appellate work, he is retained as an expert witness, mediator, arbitrator, and appraiser. Mr. Mason is frequently called upon to protect the interests of insurers and reinsurers in complex insurance coverage disputes and to defend their insureds concerning a variety of third-party liability issues. © 2017 DRI. All rights reserved. In-House Defense Quarterly ■ Spring 2017 ■ 53 a long-term exposure claim is by pro- rating providing indemnification for ‘all-sums’ cy’s liability for damage or loss that occurs those damages among all years during the of liability that resulted from an accident during the policy period”); Owens-Illinois, continuum over which the bodily injury or occurrence ‘during the policy period.’”) 138 N.J. at 459–62 (questioning Keene). occurred. (internal citation omitted). This reading of Owens-Illinois specifically rejected an all Insureds purchase CGL insurance to pro- the policy language “give[s] effect to each sums allocation in the context of a long-tail tect themselves from third-party bodily in- part of the insuring agreement rather than exposure claim, stating: jury and property damage liability risks focusing solely on the terms ‘all sums’ or [T]o convert the ‘all sums’ or ‘ultimate that might occur during a discrete policy ‘those sums’.…” Crossmann Cmtys. of N. net loss’ language into the answer to ap- period. Policyholders buy CGL insurance portionment when injury occurs over a INSURANCE LAW in exchange for a premium paid to the in- ■ period of years is like trying to place one’s surer that was calculated based on the po- hat on a rack that was never designed to tential risks during a particular time period. The overwhelming trend hold it. It does not work. The language In contrast, imposing liability on an all was never intended to cover apportion- sums basis would give insureds that pur- in jurisdictions across the ment when continuous injury occurs chased CGL insurance for a specific policy over multiple years. In addition, the ar- period the same coverage as policyholders United States is toward gument that all sums to be assessed be- that bought CGL insurance continuously cause of long-term exposure to asbestos over many years. pro rata allocation. could have been established in any one As the Louisiana Supreme Court [one of the policy years is intuitively suspect of the most recent state supreme courts to ■ and inconsistent with our developing address the issue] concluded, this “policy jurisprudence in the field of toxic torts. language limits coverage for bodily injury C., Inc. v. Harleysville Mut. Ins. Co., 395 S.C. Id. at 465–66. to that which occurs during the policy 40, 62, 717 S.E.2d 589, 600–01 (S.C. 2011). As recognized by these courts, an all period.” Arceneaux v. Amstar Corp., 200 Other courts in diverse jurisdictions ap- sums allocation in a longtail exposure So.3d 277, 286 (La. 2016) (adopting pro ply a pro rata allocation in the context of context is inconsistent with the unambig- rata allocation of defense and indemnity long-tail claims and “all sums” policy lan- uous language of the typical CGL policy costs for progressive bodily injury caused guage See, e.g., Security Ins. Co. v. Lumber- and should be rejected in favor of pro rata by noise exposure). With its holding, the mens Mut. Cas. Co., 826 A.2d 107; 264 Conn. allocation. Louisiana Supreme Court joined the major- 688, (Conn. 2003); Owens-Illinois, Inc. v. ity of courts in interpreting the typical CGL United Ins. Co., 138 N.J. 437, 650 A.2d 974 A Majority of Jurisdictions language as unambiguously requiring the (N.J. 1994); Stonewall Ins. Co. v. Asbestos Adopt Pro Rata Allocation use of pro rata allocation for long-tail inju- Claims Mgmt. Corp., 73 F.3d 1178 (2d Cir. The overwhelming trend in jurisdictions ries or damage. See, e.g., Boston Gas Co. v. 1995). In each of these cases, the clear pol- across the United States is toward pro rata Century Indem. Co., 454 Mass. 337, 359-60, icy language and ability to apportion claims allocation. These pro rata decisions encom- 910 N.E.2d 290, 307 (Mass. 2009) (citing directly over the coverage block were the pass allocation for both long-tail property EnergyNorth Natural Gas, Inc. v. Certain keys to the application of pro rata allocation. damage (e.g., pollution) and bodily injury Underwriters at Lloyd’s, 156 N.H. 333, 340, Consequently, the presence of all sums (e.g., asbestos). State Supreme Courts in 934 A.2d 517 (N.H. 2007)) (“We read the language in a policy’s coverage grant is not Alabama, Alaska, Colorado, Connecticut, phrase ‘during the policy period’ in the an a priori bar to pro rata allocation. Those Hawaii, Indiana, Kansas, Kentucky, Louisi- definitions of ‘occurrence’ as limiting the courts that find in favor of all sums alloca- ana, Massachusetts, Minnesota, Nebraska, promised ‘ultimate net loss’ coverage.”); see tion in a multi-insurer long-tail claim situ- New Hampshire, New York, South Carolina, also Towns v.
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