The Allocation of Coverage Responsibility Among Multiple Triggered Commercial General Liability Policies in Environmental Cases: Life After Owens-Illinois
By Garrett G. Gillespie
INTRODUCTION
The scenario is familiar. The EPA or private citizens bring expensive cleanup, or bodily injury, and property damage claims against a policyholder to compensate for the harm caused by long-term environmental pollution. The policyholder is held liable for the injury and damages and then requests indemnification from its commercial general liability (CGL) insurers. The liability insurers respond by disputing the coverage claims, and the battle begins.
If the policyholder and the insurers fail to resolve their dispute through settlement, they will fight many coverage battles. A few of the most crucial skirmishes will hinge on whether the harm was ‘ expected or intended,‘ the proper number of ‘occurrences,‘ and the proper ‘trigger of coverage.‘ If the policyholder prevails on these issues, it wins the opportunity to wage yet another critical campaign: the war over coverage allocation. This note focuses on the allocation issue.
When the harm occurs over time, which is almost always the case in environmental contamination claims, the court overseeing the coverage conflict could invoke the ‘continuous injury‘ trigger, meaning that every policy on the risk from the time the property or persons were initially exposed to harmful environmental pollutants, to the time when injury or damage manifested itself would be ruled ‘triggered,‘ and would have to provide coverage. Once the court rules that multiple policies are triggered, the allocation question arises. That question may be summarized as follows: When multiple CGL policies are triggered, how should coverage responsibility for indemnity be allocated among the policies? As will be demonstrated below, allocation takes on tremendous significance in coverage disputes because the apportionment formula has a dramatic effect on the amount of coverage a policyholder will recover.
Courts resolve insurance contract interpretation disputes in the following manner. Initially, the court looks to the contract language. If the language clearly dictates one answer, the inquiry ends. If the contract language is ambiguous, however, the court employs contract interpretation doctrines to settle the conflict. As will be shown below, a court might decide to base its allocation decision on public policy grounds instead of contract law doctrines. Unfortunately, analyses of the contract language, doctrines of contract interpretation, and public policy yield no simple solution to the allocation problem.
Part II of this note discusses the background information needed to understand the allocation issue. First, it discusses in greater detail the normal process by which courts settle disputes over insurance contracts. Second, Part II describes the two basic types of allocation: ‘joint and several‘ allocation and ‘pro rata‘ allocation. Third, this part addresses the ‘stacking‘ and ‘exhaustion‘ issues, which concern, respectively, the number of policies from which the policyholder may obtain coverage, and the order in which policies may be called on to provide coverage. Fourth, it presents one of the major issues arising from the allocation debate: how to cope with the fact that, after a certain point, most CGL policies included in their terms an exclusion for harms caused by environmental pollutants. Finally, this part describes how insurer insolvency and years of self-insurance or non-insurance enter into allocation.
Part III sets out three approaches to allocation which courts have chosen, and will provide those courts' justifications for their assertions. This part includes a discussion of the recent Owens-Illinois v. United Insurance Company decision from New Jersey. Part III also addresses the significance of the fact that several of the major allocation decisions involved injury or damage caused by asbestos, not by environmental pollutants. The author argues that, because the magnitude of the claims brought in environmental cases often greatly exceeds the size of the claims filed in asbestos cases, courts should allocate coverage somewhat differently in environmental and asbestos coverage actions.
Part IV presents the author's proposal for resolving the allocation problem through an analysis of contract language, the doctrines of contract interpretation, and public policy. The author concludes that the policy language at issue does not provide a clear solution to the allocation issue. As a result, courts should settle the allocation conflict by invoking the doctrine of contra proferentem, under which ambiguous policy language is construed so as to maximize coverage. A court utilizing contra proferentem to apportion coverage will choose the pro-policyholder joint and several allocation scheme with the stacking and exhaustion combination which provides the largest insurance recovery to the insured, and will reject the pro rata Owens-Illinois formula.
The scenario is familiar. The EPA or private citizens bring expensive cleanup, or bodily injury, and property damage claims against a policyholder to compensate for the harm caused by long-term environmental pollution. The policyholder is held liable for the injury and damages and then requests indemnification from its commercial general liability (CGL) insurers. The liability insurers respond by disputing the coverage claims, and the battle begins.
If the policyholder and the insurers fail to resolve their dispute through settlement, they will fight many coverage battles. A few of the most crucial skirmishes will hinge on whether the harm was ‘ expected or intended,‘ the proper number of ‘occurrences,‘ and the proper ‘trigger of coverage.‘ If the policyholder prevails on these issues, it wins the opportunity to wage yet another critical campaign: the war over coverage allocation. This note focuses on the allocation issue.
When the harm occurs over time, which is almost always the case in environmental contamination claims, the court overseeing the coverage conflict could invoke the ‘continuous injury‘ trigger, meaning that every policy on the risk from the time the property or persons were initially exposed to harmful environmental pollutants, to the time when injury or damage manifested itself would be ruled ‘triggered,‘ and would have to provide coverage. Once the court rules that multiple policies are triggered, the allocation question arises. That question may be summarized as follows: When multiple CGL policies are triggered, how should coverage responsibility for indemnity be allocated among the policies? As will be demonstrated below, allocation takes on tremendous significance in coverage disputes because the apportionment formula has a dramatic effect on the amount of coverage a policyholder will recover.
Courts resolve insurance contract interpretation disputes in the following manner. Initially, the court looks to the contract language. If the language clearly dictates one answer, the inquiry ends. If the contract language is ambiguous, however, the court employs contract interpretation doctrines to settle the conflict. As will be shown below, a court might decide to base its allocation decision on public policy grounds instead of contract law doctrines. Unfortunately, analyses of the contract language, doctrines of contract interpretation, and public policy yield no simple solution to the allocation problem.
Part II of this note discusses the background information needed to understand the allocation issue. First, it discusses in greater detail the normal process by which courts settle disputes over insurance contracts. Second, Part II describes the two basic types of allocation: ‘joint and several‘ allocation and ‘pro rata‘ allocation. Third, this part addresses the ‘stacking‘ and ‘exhaustion‘ issues, which concern, respectively, the number of policies from which the policyholder may obtain coverage, and the order in which policies may be called on to provide coverage. Fourth, it presents one of the major issues arising from the allocation debate: how to cope with the fact that, after a certain point, most CGL policies included in their terms an exclusion for harms caused by environmental pollutants. Finally, this part describes how insurer insolvency and years of self-insurance or non-insurance enter into allocation.
Part III sets out three approaches to allocation which courts have chosen, and will provide those courts' justifications for their assertions. This part includes a discussion of the recent Owens-Illinois v. United Insurance Company decision from New Jersey. Part III also addresses the significance of the fact that several of the major allocation decisions involved injury or damage caused by asbestos, not by environmental pollutants. The author argues that, because the magnitude of the claims brought in environmental cases often greatly exceeds the size of the claims filed in asbestos cases, courts should allocate coverage somewhat differently in environmental and asbestos coverage actions.
Part IV presents the author's proposal for resolving the allocation problem through an analysis of contract language, the doctrines of contract interpretation, and public policy. The author concludes that the policy language at issue does not provide a clear solution to the allocation issue. As a result, courts should settle the allocation conflict by invoking the doctrine of contra proferentem, under which ambiguous policy language is construed so as to maximize coverage. A court utilizing contra proferentem to apportion coverage will choose the pro-policyholder joint and several allocation scheme with the stacking and exhaustion combination which provides the largest insurance recovery to the insured, and will reject the pro rata Owens-Illinois formula.
