Opinion ID: 466346
Heading Depth: 1
Heading Rank: 3

Heading: apportionment formula

Text: 33 The district court found that the only claim against LOF covered by its policy with American Home was the $25.9 million for loss of use of the Hancock Building. The court then concluded that it needed to determine how much of the $26 million settlement amount paid by LOF was attributable to that covered loss of use claim. In doing so, the court used an apportionment formula that led to the conclusion that LOF had already been overly compensated for its only covered claim of loss of use. 34 The district court first noted that there was no evidence in the record before it to establish how the $26 million that LOF contributed to the Hancock settlement had been apportioned among the various Hancock claims. The district court concluded that it must assume accordingly that the amount attributable to the covered loss of use is the proportion represented by the percentage of the total claim represented by loss of use. Thus, the $25.9 million loss of use claim, representing 29% of Hancock's total claim of $89 million, was deemed to represent only 29% of LOF's $26 million settlement contribution, or $7,507,913. The district court then considered the amount already paid to LOF by its primary insurer, Commercial Union. Because Commercial Union's policy was identical to that of American Home, the court concluded that Commercial Union also would have been legally liable only for the loss of use claim. The court therefore attributed Commercial Union's entire payment of $7,643.272 to the loss of use claim, and then subtracted that amount from the $7,507,913 deemed to have been paid by LOF for the loss of use claim. Because Commercial Union's payment was actually $135,359 above that amount, the court found that there was no excess or umbrella liability to be covered by American Home. 35 The district court cited no specific precedent for its apportionment approach, but rather appeared to assume that its approach was the one that made the most sense. In addition, the district court refused to accept any affidavits from LOF regarding if and how any apportionment had been made in the settlement decision. The court stated that any noncontemporary allocation would inevitably be tainted by a witness's desire to attribute most of the settlement money to the loss of use claim. 36 Although we conclude that American Home is liable for all consequential damages arising from damage to LOF's windows, and not just for loss of use, the allocation issue may conceivably arise once again if LOF fails to prove at trial that Hancock's claims were indeed for such covered consequential damages. See supra n. 18. We therefore put forth our view on the allocation to be applied. 37 We agree with the district court that some form of allocation is appropriate. See e.g., Employers Mutual Liability Insurance Co. of Wisconsin v. Hendrix, 199 F.2d 53, 57-59 (insurer not liable for all damages paid in settlement of a claim where some causes of action were beyond the scope of the policy); Bundy Tubing Co. v. Royal Indemnity Co., 298 F.2d 151, 154 (6th Cir. 1962) (on remand, district court must determine whether items of damage included in a settlement were all covered damages to property under the policy as interpreted by appellate court). Even in American Motorists Ins. Co. v. Trane Co., 544 F.Supp. 669, 690-91 (E.D. Wisc. 1982), aff'd 718 F.2d 842 (7th Cir. 1983), a case relied on extensively by LOF, the court pointed out that [t]here may be cases where a trial court must attempt to make a precise finding regarding the propriety of the portion of a settlement represented by the insurer's policy limits. 19 38 We do not believe, however, that it was appropriate to make this allocation without accepting any evidence from the parties. It may not be correct to assume that LOF considered the $26 million to be allocated equally to each of the Hancock claims. As LOF pointed out during the summary judgment hearing, it may have felt that the loss of use claim was one that could be more easily proven at trial, given the availability and exactness of figures for lost rents, than could, for example, the $50 million claim for increased operating costs. Thus, despite the problems that are inherent in any post facto analysis of settlement claims, if the district court is to make an allocation of the settlement amount, it should accept whatever evidence is available regarding the intent behind the settlement decision. If the court finds that there is a material issue of fact as to how the settlement amount was allocated, that finding should be made at trial and not on summary judgment. 39 Whatever apportionment figure the district court arrives at for the covered claims, that apportionment figure should be equally applied to the $7,643,272 paid by Commercial Union. It is true that Commercial Union, had it litigated its coverage, would have been responsible only for those Hancock claims found to be consequential losses from the breakage of the LOF windows. Nevertheless, although Commercial Union originally informed LOF that its policy might not cover the claims against LOF, Commercial Union did not choose to litigate its coverage. Rather, it undertook LOF's defense of the Hancock claims, participated in the settlement negotiations, and then entered into negotiations with LOF to determine the amount the insurance company would pay. As John Schreiber, the branch manager of Commercial Union explained, LOF had four policy years of coverage with Commercial Union, an aggregate of $37 million of coverage, and various lawsuits at issue. In the final agreement, Commercial Union and LOF agreed that the date of the occurrence for the Hancock claims would be set as of June 1, 1972--within the 1972-73 policy year--and that Commercial Union would pay the balance remaining from the $10 million coverage available for that policy year. Regarding the applicability of the various policy exclusions, Schrieber explained that [w]e ultimately reached a decision so that we had no policy exclusions to be concerned with when we reached the agreement. 40 It is clear, therefore, that Commercial Union did not assume that its payment was to cover only a selected number of Hancock's claims. Rather, because it chose to settle rather than litigate its policy coverage, Commercial Union had no particular interest in how the $26 million contributed by LOF was allocated among the various Hancock claims nor how its payment was to be allocated in turn. It would be inequitable now to consider Commercial Union's payment to apply solely to a selected number of Hancock's covered claims. If LOF's contribution of $26 million is ultimately apportioned in some fashion among the eight Hancock claims, Commercial Union's payment should be apportioned in the same fashion.