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Long-tail claims involve continuous or progressive injuries that occur over the course of several years. Often these claims occur in the context of diseases with long latency, such as those resulting from asbestos exposure, or long-term pollutant releases in the environmental context.
Business entities can be found liable for these “long tail” exposures and, as a result, can be required to pay large sums in damages. Since the “bodily injury” or “property damage” occurs over the course of several years, consecutive years’ insurance policies may provide coverage. Determining the availability for insurance coverage in these cases can be a complex exercise and depends largely on applicable state law.
Generally, when dealing with insurance coverage for damages or settlements, jurisdictions have adopted either the “pro rata” or “all sums” approach. Under the “pro rata” approach, when multiple policies are activated, insurance companies are only responsible for the portion corresponding to that insurer’s time on the risk. For example, if one insurer issued the policies for 5 out of the relevant 10 years, that insurer will be allocated 50% of the responsibility. In contrast, under the “all sums” approach, each of the “triggered” insurance companies is jointly and severally liable for the entire loss, up to the applicable policy limit.
An additional layer of complexity arises in the context of legal fees incurred in defending against the long-tail claim, as most event-based policies provide a duty to defend that does not reduce the policy limits and continues through the claim’s solution. Insureds should carefully examine the policy language and relevant case law to determine the availability of coverage for these fees.
Generally, insurance companies will argue that they are only responsible for a “pro-rata” share of defense costs, but this argument often does not stand up to scrutiny. For example, in an ongoing long-tail case in Massachusetts (where indemnification costs are generally allocated on a pro-rata basis, subject to certain exceptions), the insurance companies recently argued that defense costs should be similarly allocated based on a time-at-the-risk formula. Crosby Valve LLC et al. f. OneBeacon America Insurance Company, et al.,1284 CV 02705-BLS2 (Mass. Super. Ct. Feb. 22, 2022), order superseded on various grounds by July 19, 2022 order on motion for reconsideration. The judge disagreed, finding that apportionment was not appropriate with respect to the duty to defend. In a subsequent order, the court reiterated that the insured “is entitled to a full and complete defense of every insurer having a duty to defend” and the defending carrier may not award any defense costs to the insured, even for uninsured portions of the relevant period. Crosby Valve LLC et al. f. OneBeacon America Insurance Company, et al.,1284 CV 02705-BLS2 (Mass. Super. Ct. July 19, 2022) (quoting
Rubenstein v. Royal Ins. co. of Am., 44 Mass. App. Ct. 842, 849 (1998) (“The rules governing the award of defense costs are simply different from the rules governing the award of indemnity costs”).
On the other hand, certain states have endorsed the pro rata allocation of defense costs for long-tail claims. See e.g. Dept. Inc. Co. v. Lumberman Mut. Cas. co.826 A.2d 107 (Conn. 2003); Villages v. N. Dept. Inc. co., 184 Ft. 322 (Vt. 2008); Arceneaux v. Amstar Corp., 200 So. 3d 277 (La. 2016).
Finally, other courts have declined to endorse a standard allocation method and instead focus on the specific language of the insurance contract to determine the appropriate allocation method. See e.g. Danaher Corporation v. Travelers Indem. co, 414 F. Supp. 3d 436, 449 (SDNY 2019) (cit
Keyspan Gas E. Corp. f. Munich Reinsurance Am., Inc., 31 NY3d 51, 58 (2018)).
When pursuing coverage for defense costs associated with long-tail claims, insureds should keep the following in mind:
- Find all applicable insurance policies and provide notice under each
- As an initial matter, commercial general liability policies are event-based, so each policy period in which the alleged damage occurred may be available to respond to a claim. It is essential that insureds give prompt notice under all policies (primary and excess) for the entire exposure/long tail period.
- Do not assume that the carrier is allowed to allocate defense costs
- An insurance carrier will typically take an initial position that it is only responsible for an allocated portion of defense costs based on the number of policies issued by the carrier that are triggered by the claim. This is because pro-rata allocation allows the carrier to limit its exposure to defense costs and return periods when the company may not have coverage to the policyholder for self-assurance. It may also allow a carrier that has issued multiple policies to trigger multiple excesses/retentions. Insureds must demand that the carrier provide sufficient case law to support its position that pro-rata award applies to their defense costs. You may find that the service provider’s position has no basis in applicable law.
- Explore all possible legal options
- Choosing the law applicable to the interpretation of an insurance policy can involve a complex analysis, and there may be arguments that different states’ laws apply. Insureds should explore all possible options and determine whether the law of a favorable jurisdiction (for example, a state that has strong “all sums” jurisprudence) applies to the policies’ interpretation.
- Make arguments based on the specific policy language
- Insureds’ first recourse should always be the policy/contract language, especially in jurisdictions where no bright-line rule has been adopted regarding the allocation method for long-tail claims. For example, the presence of a non-cumulation clause usually weighs in favor of a catch-all approach.
The content of this article is intended to provide a general guide to the topic. Specialist advice should be sought regarding your particular circumstances.
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