The conflict between policyholders and insurers over “long-tail” insurance coverage took an unfortunate turn with a recent decision by the New York Court of Appeals on the issue of allocation for long-tail claims. On March 27, 2018, the court issued a decision in Keyspan that significantly impacts policyholders by decreasing the insurers’ proportionate share of financial responsibility and increasing the share imposed on the insured. This case involved long-term and continuous environmental contamination that began before comprehensive general liability insurance became available in the marketplace and continued, unobserved, across multiple policy periods. At issue was whether, under the “pro rata time-on-the-risk” method of allocation, Century Indemnity Company was liable to its insured, KeySpan Gas East Corporation, for years outside of its policy periods when there was no applicable insurance coverage offered on the market.
What happens when you have a claim arising from circumstances that unfolded over many policy years—like environmental property damage or asbestos bodily injury claims? Which policies are triggered? How much coverage does each policy provide? Unsurprisingly, insurers and policyholders disagree on the answers. And courts across the country have been grappling with the issue for decades.
Some courts apply the “all sums” approach, which allows a policyholder to recover in full—subject to policy limits—from any insurer whose policy has been “triggered.” Other courts apply the “pro rata” approach, under which each triggered insurer must pay only a portion of the loss allocated to its policy periods. This is a closely watched issue among the insurance bar as it can dramatically impact the amount of a recovery depending on the contours of the policyholder’s insurance program.
The universe of insurers still available to pay long-tail liability claims (e.g., asbestos, pollution, and other health hazards) is getting smaller every year. Significant domestic insurers like The Home, Midland and Mission declared bankruptcy years ago. Significant London Market companies continue to fade away, depriving policyholders with historic London Market policies of the opportunity to fully collect upon claims made and satisfied under those policies. Continue reading →