Opinion ID: 2318759
Heading Depth: 1
Heading Rank: 5

Heading: Insurers Are Liable for All Sums They Are Obligated to Pay Under the Policies

Text: The policies sold to Hercules from 1960 to 1964 and from 1970 to 1980 contain pollution exclusions that bar coverage for property damage caused by pollution unless the pollution is caused by a sudden, unexpected and unintended event. The jury found that the pollution damage at the Jacksonville site was continuous from 1957 through 1980 and that such damage constituted a single occurrence under the insurance policies at issue. Because the jury also found that none of this pollution damage resulted from any sudden, unexpected and unintended event, however, insurance coverage for such damage is excluded under the policies containing the exclusion, leaving only the policies issued during the period 1964-70. Before trial, Hercules sought a ruling that the insurers whose policies were triggered by an occurrence and which policies did not contain operative exclusions would be jointly and severally liable for damage arising out of the occurrence. The insurers argued that liability should be apportioned on a pro rata basis. In its Summary Judgment Opinion, the Superior Court agreed with the insurers that the liability should be allocated pro rata among the insurers according to time on the risk. [20] The Superior Court rejected Hercules' argument, based principally on all sums language in the policies, that insurers whose policies were triggered should be held joint and severally liable. The Superior Court's decision was based on E.I. du Pont de Nemours and Co. v. Admiral Ins. Co. ( DuPont ). [21] Hercules' points to the all sums language in support of joint and several liability. According to Hercules, given this language and the absence of any proration clause, there is no basis to apply pro rata allocation. Hercules relies on Monsanto Co. v. C.E. Heath Compensation and Liability Ins. Co. ( Monsanto ). [22] In Monsanto, we held under Missouri law that policy provisions similar to those in this case preclude pro rata allocation. The insurers argue that because Monsanto did not interpret Delaware law, and because it did not address the implications of the continuous trigger theory allegedly applicable to this case of long-term gradual pollution, the trial court properly chose pro rata allocation under DuPont. We hold that pro rata allocation is inconsistent with the all sums provisions in the policies. Our analysis of this issue begins with the language of the insurance policies. Proper construction of the policy language is a question of law that we review de novo. [23] Our goal is to ascertain the intent of the contracting parties based on the contract terms. [24] Ambiguity exists when the contractual provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings. [25] The policies contain or follow form to generally similar provisions, which provide: Underwriters hereby agree, subject to the limitations, terms and conditions hereinafter mentioned to indemnify the Assured for all sums which the Assured shall be obligated to pay by reason of the liability ... for damage, direct or consequential and expenses, all as more fully defined by the term ultimate net loss on account of ... Property Damage... caused by or arising out of each occurrence happening anywhere in the world. In addition, the policies define occurrence as: An accident or happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in personal injury, property damage or advertising liability during the policy period. All such exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence. In Monsanto, this Court held that a nearly identical all sums provision did not support pro rata allocation. The reasoning in Monsanto applies to this case, and we therefore quote from the portion of the Monsanto decision explaining the operation of the all sums language: The ESLIC policy provides that it will indemnify the Assured, Monsanto, for all sums which Monsanto becomes obligated to pay for particular types of harm, such as bodily injury or property damage that is caused by an occurrence. An occurrence, in turn, is defined as an accident, happening or event that results in unexpected and unintended injury or damage during the policy period. A policy is activated by bodily injury or property damage that takes place during the policy period. The triggering language in the Monsanto insurance policies does not define the extent of the coverage. Once a policy is on the risk, the unambiguous policy language requires the insurance company to pay all sums for which the policy holder shall become liable, up to the policy limits. That language defines ESLIC's duty under its policies as the obligation to pay all sums for which Monsanto becomes liable  not a proportionate share. [26] Thus in Monsanto we held that the all sums language is inconsistent with pro rata allocation based on time on the risk. To the extent this holding was based on unambiguous policy language, it is not limited by the fact that Monsanto decided an issue of Missouri law. Furthermore, Monsanto noted that a majority of courts do not prorate liability where the policy does not contain a proration provision. [27] We believe that the Monsanto doctrine should be applied here. Therefore, we will follow the majority rule and not read a pro rata allocation of coverage into the insurer's policies in this case. [28] Accordingly, the insurers are jointly and severally liable for sums they are legally obligated to pay. [29] Although our holding is based on the all sums provision as interpreted by this Court in Monsanto, we also conclude that the equitable considerations [30] underlying the decision of the Superior Court in DuPont do not have force in this case. [31] The DuPont Court imposed pro rata allocation based on time on the risk notwithstanding all sums provisions in the policies at issue. [32] The rationale for this method of allocation rested on the trial court's use of the continuous trigger method of determining which policies are triggered. [33] Having chosen the continuous trigger, the DuPont Court next explained why in its view the continuous trigger theory requires pro rata allocation: The use of the continuous trigger requires the presumption damage occurred at a constant, continuous rate from the inception of the environmental damage. The method of allocation must coincide with that presumption. For this reason, the Court concludes joint and several allocation is inconsistent with the imposition of the continuous trigger.    [I]t is illogical to compress all of this damage into one policy period and hold each insurer fully liable. The presumption of continuous damage logically and fairly requires the imposition of the modified pro rata allocation of damage. [34] The DuPont case concerned potential liability [35] for damages occurring over a period of at least five decades and implicating nearly twenty years of coverage. The insured in DuPont was seeking coverage for damages arising from manufacturing activities at three locations that had been ongoing for decades ... resulting in the contamination of the surrounding land, surface waters and ground waters. [36] The disposal of hazardous waste at one of the sites occurred from 1930 until 1977. [37] It is apparent that in the view of the DuPont court this factual scenario lent itself to the continuous trigger presumption. [38] In DuPont the insured requested the continuous trigger, presumably in order to avoid having to prove perceptible harm for each year for which it sought coverage. [39] In this case, however, Hercules was required to prove by a preponderance of the evidence that it had been held liable for property damage during each policy year from 1961 to 1980. [40] The insurers concede that no evidence to the contrary was offered. [41] Given the relatively limited time frame ultimately involved in this case, [42] and the fact Hercules proved by a preponderance of the evidence the occurrence of property damage in each relevant policy year, Hercules has derived little if any benefit from a continuous trigger theory. Therefore, it would not be equitable to diminish its coverage as a result of a presumption of continuous damage. Additionally, one of the key equitable considerations in DuPont was that the insured consciously chose to self-insure until [it] began to purchase excess insurance, and had not demonstrated the unavailability of insurance during the period [it] self-insured. [43] Proration according to time on the risk would include those years in which the insured was self-insured, thus preventing the windfall to the insured that would supposedly result from joint and several liability. [44] The insurers argue that joint and several liability would result in a windfall in this case because it would allow Hercules to recover for the years in which it had not purchased applicable pollution insurance, i.e., continuing, post-1970 damages would be telescoped into policies issued during 1964-70. In this case, however, the policies contain or follow form to non-cumulation clauses that provide: It is agreed that if any loss covered hereunder is also covered in whole or in part under any other excess policy issued to the Assured prior to the inception date hereof the limit of liability hereon as stated in Item 2 of the Declaration shall be reduced by any amounts due to the Assured on account of such loss under such prior insurance. Subject to the foregoing paragraph and to all other terms and conditions of this policy in the event that personal injury or property damage arising out of an occurrence covered hereunder is continuing at the time of termination of this policy Underwriters will continue to protect the Assured for liability in respect of such personal injury or property damage without payment of additional premiums. Together with the all sums provisions set forth above, the second paragraph of this clause extends coverage beyond the policy period in the case of continuing damage. [45] Recognizing that this clause cannot be reconciled with pro rata allocation, the Superior Court held that pro rata allocation ... implicitly prevents [the second] paragraph [from] applying for Hercules' benefit. [46] Rather than giving way to pro rata allocation, this contract provision undercuts the rationale for pro rata allocation because it provides continuing insurance for post-1970 damage arising out of a continuing occurrence (subject, of course, to the policy limits). Joint and several liability does not result in a windfall to Hercules because of the continuing coverage Hercules purchased. Under the contract, Hercules is entitled to coverage for damages occurring after the insurer's time on the risk once a policy has been triggered. The DuPont decision did not take into account any type of non-cumulation clause similar to the one present in this case. Although our holding rests solely on our decision in Monsanto based on the unambiguous all sums provision, this strengthens the conclusion that the equitable considerations on which the decision in DuPont rested are inapplicable to this case in any event.