Opinion ID: 148187
Heading Depth: 3
Heading Rank: 4

Heading: The Post-Settlement Allocation and Reinsurance Billing

Text: Once the settlement agreement was finalized, Miley and Kingston proceeded to allocate the settlement among the different policies. As agreed, of the $20 million dedicated to the chemical products claims, $5 million was allocated to the TIC policies and $15 million to the XN policies. Travelers characterized the $80 million dedicated to the breast implant claims entirely as indemnity, not defense coverage. In allocating that $80 million, Travelers began with the AL layer of policies, but, in accord with the agreement, confined itself to the pre-April 1982 AL policies. In allocating within that layer, it employed the so-called fill the bathtub method. [19] Starting with the earliest of the policies, Travelers allocated to each eligible AL policy up to its single-occurrence limit (minus the amount owed in retrospective premiums) before moving on to the next policy. [20] This resulted in a total of $24 million being allocated to the AL policies. The remaining $56 million of the $80 million dedicated to the breast implant claims was then allocated to the XN policies in accordance with the fill-the-bathtub method (starting with the XN policies with the lowest attachment points). Two of the XN policies implicated by Travelers' allocation of the breast implant claims settlement had three-year policy periods. In exhausting those three-year policies (each of which was reinsured by INA), Travelers treated their per-occurrence limits as applying separately to each policy year, a decision that tripled the amount that could be allocated to those policies. Ultimately, six of the nine XN policies reinsured by INA had settlement dollars allocated to them. Pursuant to its allocation, Travelers billed INA $11,604,328 for the breast implant claims and $2,158,067 for the chemical products claims. Travelers agrees that the following decisions likely increased the amount of its coverage it was able to allocate to INA(1) treating the breast implant claims as arising out of a single occurrence; (2) bypassing the post-April 1982 AL policies in allocating the $80 million dedicated to the breast implant claims; (3) bypassing the XS policies in allocating the $20 million dedicated to the chemical products claims; (4) not allocating the $80 million for the breast implant claims exclusively to defense costs (even though, at the time of the settlement, Acme had not yet incurred any liability on those claims); and (5) allocating to the three-year XN policies on the assumption that their per-occurrence limits applied separately to each policy year. [21] The decision to annualize the per-occurrence limits alone resulted in an increase of $5,535,578 to the amount of loss assigned to INA. At any rate, INA refused to pay any of the amount Travelers allocated to it.