Splitting the Baby: Apportioning Environmental Liability Among Triggered Insurance Policies

"Though this be madness, Yet there is method in 't."1 "The only thing on which all parties agree is that there is a need for us to arrive at an administratively manageable interpretation of the insurance policies--one that can be applied with minimal need for litigation."2 In 1980, the Comprehensive Environmental Responsibility, Compensation and Liability Act3 ("CERCLA" or "Superfund") won congressional approval by an overwhelming majority. CERCLA was to be the answer to the nation's hazardous waste disposal problems. Not only would the new law clean up hazardous waste sites, but, through retroactive strict liability,4 it would also make polluters pay the costs associated with this cleanup. To that end, CERCLA gave the federal government the authority to cleanup a site using the Superfund5 and then seek reimbursement from the Potentially Responsible Parties6 ("PRPs"); or to require PRPs to undertake the cleanup themselves.7 Either way, the private-sector PRPs would finance the cleanup of polluted sites. The costs associated with these CERCLA cleanups are staggering. Indeed, the Congressional Budget Office ("CBO") estimates that the total costs for cleaning up all sites currently listed on the National Priorities List ("NPL")8 will exceed seventy-four billion in 1994-constant dollars.9 Of that sum, fiftyeight percent, or forty-three billion dollars, will be born by the PRPs.10 The average cost per Superfund site can exceed thirty million dollars.11 In the face of these huge numbers, PRPs look to spread the burden of paying CERCLA cleanup costs. Specifically, PRPs seek to invoke their insurers' duties to defend and indemnify them (PRPs) under Comprehensive General Liability ("CGL") insurance policies.12 Unfortunately, CERCLA cleanup costs typically arise from long-tail injuries that fit awkwardly into existing insurance models.13 Long-tail injuries are progressive-that is, they take place slowly, over an extended period of time. Because these long-tail injuries occur gradually, PRPs often claim coverage under multiple insurance policies issued over the course of many years. Frequently, insurers are reluctant to pay these atypical claims, and disclaim coverage. PRPs respond with coverage suits. The resulting litigation can be inordinately complex, involving scores of insurance policies covering numerous industrial sites for the better part of the century. A policyholder might have purchased intricate layers of insurance coverage within each policy period. As an added complexity, a policyholder will often have gaps in its insurance coverage. As a result, parties frequently spend more time and money litigating responsibility for cleanup costs than in actually cleaning up the sites.14 Fashioning a remedy under these circumstances involves reconciling otherwise unrelated insurance contracts. The CGL policies themselves provide no guidance on apportioning liability for a long-tail injury, nor does CERCLA address the question of insurance coverage. In the absence of clear statutory or contractual authority, common law must fill the gaps and chart the interplay between state insurance law and federal environmental law. Unfortunately, the few jurisdictions to confront the long-tail allocation question have responded fitfully and unsystematically. While nominally applying the same principles of insurance contract interpretation, they have reached disparate, if not downright contradictory, results," An almost uniform failure to articulate the reasoning driving a particular allocation remedy further amplifies the confusion, making it virtually impossible to project future outcomes. PRPs and insurers are left without predictable guidelines: facing enormous but uncertain liabilities.16 This article examines several core questions in the allocation process. When is insurance triggered to cover a loss? How should responsibility for covering a loss be divvied up? Should the policyholder be assigned any share of the loss? …