Opinion ID: 2164986
Heading Depth: 1
Heading Rank: 8

Heading: The Reasons for Our Decision

Text: No great difference in principle divides Keene and Forty-Eight Insulations. Using either method, allocation will exist among the insurance companies on the risk. And using either method, the use of a multi-year trigger will not end the litigation. The real difference between Keene and Forty-Eight Insulations is in their treatment of periods of self-insurance. Each court was equally certain that the policy language dictated the result. Forty-Eight Insulations said that it requires only a straightforward interpretation of the policy language for us to adopt the exposure theory. 633 F. 2d at 1222. Once the exposure theory was adopted, proration followed, in its view, because [a]n insurer contracts to pay the entire cost of defending a claim which has arisen within the policy period. The insurer has not contracted to pay defense costs for occurrences which took place outside the policy period. Id. at 1224-25. Keene said: As we interpret the policies, they cover Keene's entire liability once they are triggered. That interpretation is based on the terms of the policies themselves. 667 F. 2d at 1048. We are unable to find the answer to allocation in the language of the policies. The occurrence clauses undoubtedly contemplated indemnity for provable damages incurred by the policyholder because of injury that occurred during the policy period. The continuous-trigger theory coupled with joint-and-several liability is premised on a tenuous foundation: that at every point in the progression the provable damages due to injury in any one of the years from exposure to manifestation will be substantially the same (the collapsed accordion). As we have seen, our law has been developing in a different manner. Some drafting history suggests that more than one year's policy would be applicable in the case of progressive environmental disease. The O-I briefs refer us to industry-group acknowledgments in 1977 that coverage existed for each carrier throughout the period of time an asbestosis condition developed, that is, from the first exposure through the discovery and diagnosis. A majority of that same group also contended that each carrier on risk during any part of the period could be fully responsible for the cost of defense and loss. (The Insurance Companies' response is that those views were predictions of what courts might do, rather than what courts should do.) On other occasions insurance industry officials acknowledged that multiple policies of insurance would be triggered by a gradual release of contaminants causing progressive injury or damage. See Eugene R. Anderson, et al., Liability Insurance Coverage for Pollution Claims, 59 Miss.L.J. 699, 729-30 (1989) (quoting (1) Gilbert L. Bean, a drafter of the CGL policy: [I]f the injury or damage from waste disposal should continue after the waste disposal ceased, as it usually does, it could produce losses on each side of a renewal date, and in fact over a period of years, with a separate policy applying each year.; (2) a company claims manual: When the injury is gradual, resulting from continuous or repeated exposures, and occurs over a period of time, coverage may be afforded under more than one policy  the policies in effect during the period of injury; and (3) another drafter of the CGL policy: [T]here is no pro-ration formula in the policy, as it seemed impossible to develop a formula which would handle every possible situation with complete equity.) Still, to say that coverage is afforded under more than one policy seems different from saying that a policyholder may stack the limits of all the policies in effect during a period of repeated or continuous exposure. The Keene court declined to make such an interpretation, at least in the context of a single claim as for governmental cleanup costs at a landfill site. Other drafting history reflects the considerations that went into the writing of the occurrence clause. If the drafters had chosen the manifestation-of-disease single trigger, insurance companies would have been encouraged to dump risks when the first few cases of occupational disease appeared. American Home Prods., supra, 565 F. Supp. at 1501. Perhaps the drafters sensed, too, a corresponding inequity in absolving from responsibility carriers on the risk during early years of exposure. If absolved during periods of early exposure, those carriers would have less incentive to monitor the risks insured. See Developments in the Law, supra, at 1577-81. Although the drafters seemed to acknowledge that some continuum existed between exposure and manifestation of disease when coverage was provided, they did not (or could not) decide how to apportion the responsibility. Almost wistfully, one of the drafters acknowledged that at one time in the process, they sought a simple approach that would allow some latitude in each case for the courts to make an equitable decision on the facts. Memorandum from George Katz, et al. to National Bureau of Casualty Underwriters, Joint Forms Committee 2 (Apr. 17, 1961), quoted in Eugene R. Anderson, History of Disputed Provisions of the 1966 Standard Form Comprehensive General Liability Insurance Policy, Drafting History, Sales History and Historical Review of Commentators, in Insurance, Excess, and Reinsurance Coverage Disputes 1989, at 203 (PLI Litig. & Admin. Practice Course Handbook Series No. 369, 1989), available in WESTLAW, PLI-LIT Database, []7. Except for periods of self-insurance involved, the Keene court sought to reach an equitable decision on the facts apportioning the damages among the successive carriers. Although it collapsed the injury/occurrence into a single year, the Keene court allowed contribution from the policies in force in the other years. However, that court's invocation of the other insurance clauses in the policies is strained. Historically, other insurance clauses were designed to prevent multiple recoveries when more than one policy provided coverage for a given loss. Kahn, supra, at 591-92. An example of a typical multiple-coverage case is the situation in which a loss is incurred by an insured driver while driving an automobile of an insured owner with the owner's permission. 3 Rowland H. Long, The Law of Liability Insurance § 22.01 (1992). In such a case both policies clearly cover the entire loss. [T]here are three general types of other insurance clauses  excess, pro rata and escape. Excess insurance kicks in to provide additional coverage once the policy limits of other available insurance are exhausted. Pro rata provisions allocate financial responsibility between concurrent policies based upon the percentage of coverage each policy bears to the net amount of coverage under all applicable policies. An escape clause attempts to release the insurer from all liability to the insured if other coverage is available. [ Contrans, Inc. v. Ryder Truck Rental, Inc., 836 F. 2d 163, 166 (3d Cir.1987).] Generally speaking, pro-rata provisions are intended to apply only when the coverage is concurrent. St. Paul Fire & Marine Ins. Co. v. Vigilant Ins. Co., 919 F. 2d 235, 241 (4th Cir.1990). If the policies do not overlap, such clauses are not generally applicable. Ibid. But see Glacier Gen. Assurance Co. v. Continental Casualty Co., 605 F. Supp. 126, 130 n. 6 (D.D.C. 1985) (explaining Keene as having rendered much of traditional insurance law inapplicable and adopting its own analysis for proration of loss when two consecutive malpractice policies are triggered, one by medical incident and the other by bodily injury during the policy period). The Glacier court declined to give effect to an other insurance provision that would have withdrawn coverage if other valid insurance exists. 605 F. Supp. at 130-31. In the absence of other grounds for decision, the Glacier court decided to prorate evenly the loss between the two insurance companies. Id. at 132. The other usual principles of interpretation of contracts of insurance do not provide much guidance. As the Appellate Division noted, O-I was a sophisticated insured and cannot seek refuge in the doctrine of strict construction by pretending it is the corporate equivalent of the unschooled, average consumer. 264 N.J. Super. at 489, 625 A. 2d 1. Assessing the objectively reasonable expectations of a policyholder in this context of long-tail injuries is also very difficult. Sparks v. St. Paul Ins. Co., 100 N.J. 325, 330, 495 A. 2d 406 (1985). At least in the case of property damages due to environmental contamination, the retroactive imposition of absolute liability under laws like CERCLA, 42 U.S.C. §§ 9601-9675, was surely unknown, if not unknowable. And the doctrine of contra preferentem, construing any ambiguity against the insurer as drafter, Uniroyal, supra, 707 F. Supp. at 1376, can produce uneven results. For example, in Eagle-Picher Industries v. Liberty Mutual Insurance Co., 523 F. Supp. 110 (D.Mass. 1981), aff'd as modified, 682 F. 2d 12 (1st Cir.1982), cert. denied, 460 U.S. 1028, 103 S.Ct. 1280, 75 L.Ed. 2d 500 (1983), the insured preferred a manifestation theory. (On appeal, the insured in Eagle-Picher advocated the continuous-trigger theory. 682 F. 2d at 16.) In Forty-Eight Insulations, supra, 633 F. 2d 1212, the exposure theory afforded the insured the most coverage. To have shifting rules of interpretation that depend on the configuration of insurance coverage is unacceptable to us. The language of the policies does not itself yield either result and the usual rules of interpretation are less helpful in this context. See Note, Adjudicating Asbestos Insurance Liability: Alternatives to Contract Analysis, 97 Harv.L.Rev. 739, 743 (1984), observing that traditional techniques of contract interpretation cannot produce a coherent result. Therefore, the public interest factors set forth in Ayers, supra, 106 N.J. at 608-10, 525 A. 2d 287, serve to guide us. Among the factors that we should consider is the extent to which our decision will make the most efficient use of the resources available to cope with environmental disease or damage. Id. at 608, 525 A. 2d 287. One of the principles of such decision-making is to provide incentives that parties should engage in responsible conduct that will increase, not decrease, available resources. See Douglas L. Hallett & Lawrence C. Berney, Trigger of Coverage: A Posnerian Analysis, in 10th Annual Insurance, Excess, and Reinsurance Coverage Disputes 39 (PLI Litig. & Admin. Practice Course Handbook Series No. 454, 1993), available in WESTLAW, PLI-LIT Database, []14-15. Among the costs of a product, direct or indirect, are the costs of risk management. One important argument generally advanced for imposing strict liability is that the manufacturers and distributors of defective products can best allocate the cost of injuries resulting from those products. The premise is that the price of the product should reflect all its costs, including the cost of injuries caused by the product. Those manufacturers and distributors can incorporate the cost in the price of the product. The cost of the product will thus be borne by all those who profit from it, including manufacturers and distributors who profit from its sale, and buyers who profit from its use. The policy considerations underlying those principles include the relative bargaining power of the parties and the allocation of the loss to the better risk-bearer in a modern marketing system. Spring Motors Distribs., Inc. v. Ford Motor Co., 98 N.J. 555, 576, 489 A. 2d 660 (1985). The theory of insurance is that of transferring risks. Insurance companies accept risks from manufacturers and either retain the risks or spread the risks through reinsurance. John A. Appleman & Jean Appleman, 13A Insurance Law and Practice § 7681 (1976). Because insurance companies can spread costs throughout an industry and thus achieve cost efficiency, the law should, at a minimum, not provide disincentives to parties to acquire insurance when available to cover their risks. Spreading the risk is conceptually more efficient. Almost all such insurance controversies are retrospective, and to reflect now on what might have been done if the parties had contemplated today's problem is almost fatuous. Our job, however, is not just to solve today's problems but to create incentives that will tend to minimize their recurrence. [T]o send the correct signals to the economic system, a judge must appreciate the consequences of legal decisions on future behavior. Hallett & Berney, supra, at []15. Future actors would know that if they do not transfer to insurance companies the risk of their activities that cause continuous and progressive injury, they may bear that untransferred risk. To return to our hypothetical of the building occupants, the Keene rule of law reduces the incentive of the property owners to insure against future risks. Recall the circumstances in the final three years: The exposure had taken place and some symptoms of disease had occurred, but grave cases of injury had not yet arisen. Assuming the availability of insurance, a principle of law that would act as a disincentive to the building owners in the hypothetical might serve in the long run to reduce the available assets to manage the risk. O-I's counsel counters that these are not correct assumptions about the way in which the real world responds. We cannot be sure that the policy will be effective. We believe, however, that the policy goal is sound. Finally, principles of simple justice cannot be entirely discounted. To rebut effectively the question posed in Forty-Eight Insulations is difficult: Were we to adopt [the policyholder's] position on defense costs a manufacturer which had insurance coverage for only one year out of 20 would be entitled to a complete defense of all asbestos actions the same as a manufacturer which had coverage for 20 years out of 20. Neither logic nor precedent support such a result. [633 F. 2d at 1225.] O-I emphasizes that its policies were in effect for eight years, but the principle that it advocates would apply if the policies had been in force for one day.