Opinion ID: 758543
Heading Depth: 2
Heading Rank: 4

Heading: the allocation issue

Text: 93 Prudential claims the contract right to designate any single policy to indemnify Prudential in full for any insurance claim arising out of injury that spans two or more policy periods. American Club argues that payment of each insurance claim should be allocated in the first instance among all triggered American Club policies (as opposed to such allocation as the Club and its members may accomplish through contribution or internal accounting). 11 We conclude that the policy does not demonstrate a clear intent to allocate a policyholder's claim among policies in the first instance and that no contract or equitable consideration militates in favor of such allocation under the circumstances of this case. The chief effect of such allocation in this case would be a multiplication of the deductibles applicable to each claim. We conclude that Prudential is within its contract rights to designate one policy to pay all of any claim covered by that policy subject of course to exhaustion of the policy limits. 94 American Club argues that two provisions of the policy compel allocation: (i) the indemnification clause, and (ii) the other insurance clause.
95 Each American Club policy covers a one-year period and provides that the Club will indemnify Prudential as 96 the Assured against any loss, damage or expense which the Assured shall become liable to pay and shall pay by reason of the fact that the Assured is the owner ... of the insured vessel and which shall result from the following liabilities, risks, events, occurrences and expenditures: ... Liability for ... loss of life, or personal injury to, or illness of any person.... 97 Applying New York law, the bankruptcy court held that injury-in-fact during the policy period triggers coverage. Prudential I, 148 B.R. at 742. Thus, each policy provides coverage for all losses or damages for which Prudential is held liable resulting from injury occurring during the policy period. 98 In the context of asbestos-related injuries, the bankruptcy court found that injury-in-fact in the form of tissue damage occurs simultaneously or soon after asbestos inhalation. Id. (citing Insurance Co. of N.A. v. Forty-Eight Insulations, Inc., 633 F.2d 1212, 1222 (6th Cir.1980), clarified and aff'd. on rehearing, 657 F.2d 814 (6th Cir.1981)). The court reasoned that [i]f a seaman were exposed to asbestos on more than one ship during any of the ships' insurance years, then more than one P & I policy would be triggered for that individual claimant. Id. at 743. The net effect of these findings--unchallenged on this appeal--is that multiple policies will likely be triggered on many of the asbestos-related claims. The question, then, is whether each policy is liable for the entirety of each claim or whether each policy is responsible for paying only the portion of the claim somehow attributable to the amount of injury during the policy period. 99 The answer is, it depends. When exposure, and therefore the cumulative injury, spans several policies, the harms resulting from exposure to asbestos cannot easily be assigned to a particular policy. See J.H. France Refractories Co. v. Allstate Ins. Co., 534 Pa. 29, 626 A.2d 502, 508 (Pa.1993) (To apportion liability among the insurers on a strictly temporal basis in direct proportion to the length of time each insurer was on the risk, however, notwithstanding its surface attractiveness, assumes a linearity of disease progression which this record does not support.); Comment, Allocating Progressive Injury Liability Among Successive Insurance Policies, 64 U. Chi. L.Rev. 257, 261 (1997) (hereinafter Allocating Liability ) (Theoretically, damages that occur in different policy periods are divisible. In practice, however, the harms are cumulative with, and thus indivisible from, harms suffered in earlier periods.). 100 Some courts dealing with similar coverage language have concluded that any single policy designated by the policyholder owes full coverage. In Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034 (D.C.Cir.1981), the court held that each triggered policy was jointly and severally liable for the insured's liability: 101 [E]ach policy has a built-in trigger of coverage. Once triggered, each policy covers Keene's liability. There is nothing in the policies that provides for a reduction of the insurer's liability if an injury occurs only in part during a policy period. As we interpret the policies, they cover Keene's entire liability once they are triggered. 102 Id. at 1048. Under this approach, (i) the insured selects a single policy from which to seek indemnification, (ii) that insurer pays the claim, and (iii) then the insurer seeks contribution from other liable insurers under the other insurance provisions of the policies or under the common law doctrine of contribution. Id. at 1049-50 & n. 35; see also ACandS, Inc. v. Aetna Cas. & Sur. Co., 764 F.2d 968, 974 (3d Cir.1985); J.H. France Refractories Co., 626 A.2d at 509. 103 This approach has its shortcomings. One commentator has noted that [s]hoehorning all damages into one policy period is 'intuitively suspect' and inconsistent with the development of toxic tort jurisprudence. An insured purchases an insurance policy to indemnify it against injuries occurring within the policy period, not injuries occurring outside that period. Allocating Liability, supra, at 270; see Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 650 A.2d 974, 989 (N.J.1994). And adoption of the injury-in-fact trigger approach in these asbestos cases means that the cumulative injuries are attributable to multiple policies. 104 Some courts have adopted an approach which allocates liability among triggered policies based upon some seemingly objective factor, such as proportion of exposure occurring during the policy period, or time on the risk. 12 For example, in Owens-Illinois, after finding that the policy language was no help, the court allocated liability among policies based on both the time on the risk and the degree of risk assumed, id. at 995, because it viewed such allocation as the most efficient and fair way to allocate losses, id. at 992-93. Further, it required the insured to bear its share of losses for periods when it was self-insured, noting: When periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable. Id. at 995; see also Gulf Chemical & Metallurgical Corp. v. Associated Metals & Minerals Corp., 1 F.3d 365, 372 (5th Cir.1993) (apportioning defense costs among periods of insurance and self-insurance); Forty-Eight Insulations, 633 F.2d at 1224-25 (endorsing pro rata allocation of defense costs to the insured for its fair share); Uniroyal, 707 F.Supp. at 1391 (allocating loss to each policy according to the proportion of injuries triggering that policy). 13 105 Both approaches allow allocation among policies at some transactional point, i.e., either when the loss is paid, or when it becomes the subject of contribution among policies and insurers. The courts that have endorsed allocation when the loss is paid have generally been motivated by considerations of equity and policy, rather than contract wording. First, these courts have sought to ensure that a single insurer underwriting a small proportion of the risk does not get saddled with the full loss, see Uniroyal, 707 F.Supp. at 1392; Owens-Illinois, 650 A.2d at 992-93, a loss that may prove uncollectible from other companies. Second, courts enforce allocation to require the insured to absorb losses for periods when it was self-insured. As the New Jersey Supreme Court noted, The real difference between Keene and Forty-Eight Insulations is in their treatment of periods of self-insurance. Owens-Illinois, 650 A.2d at 989. Third, these courts see allocation as the most efficient way to assign liability among policies, reasoning that any contribution proceeding will involve many of the same issues that are raised in the initial liability proceeding, and that it is more efficient to deal with these issues in a single proceeding. See Lafarge Corp. v. National Union Fire Ins. Co., 935 F.Supp. 675, 688 (D.Md.1996) (An equitable apportionment scheme should lessen or obviate the need for subsequent rounds of litigation.... [S]econd and third rounds of litigation can be expected to result in substantial additional litigation costs for the parties.). 106 Fortunately, a number of factors that often complicate the inquiry are absent here. Prudential had insurance coverage in each policy period implicated by the claims, and had no periods of self-insurance. In any event, no issue has been raised that a self-insured period existed, or arose by exhaustion of limits. And for virtually the entire span of years, American Club was Prudential's only insurer. In 1971-74, Prudential was insured by another club that is not a party to this litigation, though apparently there exists an understanding among the insured shipowners and P & I insurers providing for allocation of loss among themselves. 14 American Club argues that its membership varies year by year, and that allocation among the policy years is important to determine each member's liability. However, American Club may develop (and seems already to have developed) an internal allocation mechanism for claims. 107 The financial significance of the allocation issue in this proceeding lies in its impact on the number of deductibles that will be applied to each claim. Under American Club's pro rata allocation approach, one deductible would apply per claim as well as per triggered policy, whereas under the Claimants' approach, all losses from any single claim would be recovered under a single policy and therefore a single deductible would apply to each claim. Given: (i) the policy's broad language covering any loss [or] damage which Prudential becomes liable to pay resulting--presumably even in part--from injuries occurring during the policy period; (ii) the absence of a contractual intent to require allocation of liability among policies in the first instance; and (iii) the lack of any compelling policy or equitable considerations favoring allocation, we decline to read the policies in a way that would have the (probably unintended) effect of multiplying the deductibles applicable to each claim. 108 We hold that, in the circumstances presented, Prudential has the right to demand that a policy pay full coverage for each insurance claim in which the underlying Claimant suffered asbestos exposure and therefore asbestos injury during the policy period.
109 The other insurance clause does not compel allocation of liability among triggered American Club policies in the first instance: The Association shall not be liable for any loss, damage or expense against which, but for the insurance herein provided, the Assured is or would be insured under existing insurance. 110 In construing this clause, we must determine the intent of the parties as expressed by the policy's words and purposes. See American Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F.Supp. 1485, 1492 (S.D.N.Y.1983), aff'd as modified, 748 F.2d 760 (2d Cir.1984). The wording says that the Association, i.e., American Club, will not be liable if there is other existing insurance that would cover the particular loss. The evident intent of this clause is to reduce American Club's liability when insurers other than American Club also insure against the same risk. This clause does not reduce liability or compel allocation in the first instance when more than one of American Club's own policies is triggered. Moreover, we will not infer from this clause an intent to allocate liability among American Club's own policies when the only consequence of such allocation would be to multiply the deductibles applicable to each claim. 111 Whether the other insurance clause reduces Prudential's liability for claims which are covered by Prudential's 1971-74 coverage is a different question. But it is inappropriate to resolve that issue at this stage because we do not know whether such claims exist and do not have before us the other club's policy. Moreover, cases following the approach which we adopt here have employed other insurance clauses to distribute liability in the contribution phase, not in the liability phase. See, e.g., Keene Corp., 667 F.2d at 1050; Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 45 Cal.App.4th 1, 52 Cal.Rptr.2d 690, 707-08 (Cal.App.1996); J.H. France Refractories Co. v. Allstate Ins. Co., 534 Pa. 29, 626 A.2d 502, 509 (1993). It may be that such an arrangement would be appropriate in this case as well. 112 Accordingly, we hold that the other insurance clause does not mandate allocation of liability among triggered American Club policies in the first instance. That is, Prudential may seek recovery under a single triggered policy of its choosing, and American Club presumably will allocate liability among the triggered policies as an internal accounting matter, or through claims for contribution, or not at all, as its board and internal governance provide or allow. See, e.g., Keene Corp., 667 F.2d at 1049-50.