Opinion ID: 2164986
Heading Depth: 1
Heading Rank: 6

Heading: Pro-Rata Allocation

Text: Several courts selecting multi-year triggers of coverage have held that triggered policies must respond to a claim on a prorated basis and that a policyholder is responsible for a portion of indemnification and defense obligations as a result of periods of time when it was uninsured or self-insured. Steuber, supra, at []60. The leading case for that proposition is Insurance Co. of North America v. Forty-Eight Insulations, Inc., 633 F. 2d 1212 (6th Cir.1980), clarified, 657 F. 2d 814 (6th Cir.), cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed. 2d 650 (1981). Courts taking the same allocation approach as Forty-Eight Insulations include Gulf Chemical & Metallurgical Corp. v. Associated Metals & Minerals Corp., 1 F. 3d 365, 372 (5th Cir.1993) (apportioning cost of policyholder's defense among insurers on risk; policyholder must bear its share of defense costs determined by fraction of time it lacked coverage) (applying Texas law); Fireman's Fund Insurance Cos. v. Ex-Cell-O Corp., 685 F. Supp. 621, 626 (E.D.Mich. 1987) (holding insurer on risk during period of alleged exposure liable for policyholder's defense in proportion that period on risk bears to total period of alleged exposure; policyholder must bear pro-rata share of costs for uninsured periods); and Northern States Power, supra, 523 N.W. 2d at 662 (allocating damages to insurers in proportion to time on risk; policyholder carrying only excess insurance must assume retained limit with respect to each policy). Forty-Eight Insulations concluded that a reasonable means of allocating costs among the triggered policies was available based on the number of years of exposure. 633 F. 2d at 1225. (The policyholder disputed only the allocation of defense costs in the Court of Appeals in Forty-Eight Insulations. ) In Uniroyal, supra, 707 F. Supp. 1368, Judge Weinstein applied a different formula because evidence was available to differentiate between the various periods of coverage. He applied a pro-rata method under which the loss would be allocated to each policy according to the portion of injuries triggering that policy. Id. at 1393. He resolved that portion by the quantity of the substance released during the policy periods. Id. at 1393-94. He appeared to reject the Keene theory of joint-and-several liability because for one period the manufacturer had had no insurance, and the Keene court viewed its mission as ensuring that the manufacturer received complete indemnity for all its asbestos-related losses. A firm that fails to purchase insurance for a period, however, is self-insuring for all the risk incurred in that period; otherwise it would be receiving coverage for a period for which it paid no premium. Self-insurance is called going bare for a reason. [ Id. at 1392 (citation omitted).] In Diamond Shamrock Chemicals Co. v. Aetna Casualty & Surety Co., 258 N.J. Super. 167, 222-23, 609 A. 2d 440 (App.Div. 1992), certif. denied, 134 N.J. 481, 634 A. 2d 528 (1993), the Appellate Division, applying New York law, let stand a similar allocation among policies covering liabilities for dispersal of Agent Orange.