Opinion ID: 2509803
Heading Depth: 2
Heading Rank: 4

Heading: Joint and Several vs. Pro Rata/Time on Risk

Text: In this case, Crossmann argues in favor of a joint and several approach to the allocation of damages, while Harleysville advocates a pro rata/time on risk approach. We adopt the pro rata/time on risk approach. Courts adhering to the joint and several theory require each triggered insurer to indemnify its policyholder for the entire loss caused by the progressive injury, up to the policy limit, even if the majority of the loss occurred after the policy period expired. A key feature of this approach is that a policyholder may be indemnified in full despite its failure to purchase CGL coverage throughout the entire progressive damage period. Further, under this theory, where multiple insurance policies are triggered, the policyholder often is permitted to choose the policy from which it will seek indemnity. The chosen insurer may then seek partial reimbursement from any other insurers triggered by the progressive injury. [10] Because joint and several jurisdictions typically allow a selected insurer to bring a separate lawsuit seeking such reimbursement, many have criticized the theory as inefficient and wasteful of judicial resources. E.g., Boston Gas Co., 910 N.E.2d at 311. The seminal case advocating a joint and several approach is Keene Corporation v. Insurance Company of North America, 667 F.2d 1034 (D.C.Cir.1981). Keene rested primarily on the view that a policyholder's purchase of insurance entitled it to certainty that it had limited its liability to the cost of the policy itself. Id. at 1047-48. Advocates of a joint and several approach typically contend that the plain language of the insuring agreement requires an insurer to pay all sums or those sums the insured becomes legally obligated to pay, as long as some property damage occurs during the policy period. See, e.g., Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 95 Ohio St.3d 512, 769 N.E.2d 835, 841 (2002). [11] As we detail below, we believe this interpretation ignores critical language limiting the insurer's obligation to pay to sums that are attributable to property damage that occurred during the policy period. In contrast to the joint and several approach, courts adhering to a pro rata theory of the scope of each triggered insurer's obligation to its insured hold each insurer responsible only for some pro rata portion of the loss caused by a progressive injury, regardless of whether there are other triggered insurers available to cover the remainder. Thus, unlike jurisdictions using a joint and several theory, courts subscribing to a pro rata theory generally require the policyholder to bear the portion of the loss attributable to the policyholder's assumption of the risk. Boston Gas Co., 910 N.E.2d at 303 (One important feature of a pro rata allocation is that courts adopting this type of allocation generally require the policyholder to participate in the allocation . . . for those periods of no insurance, self-insurance, or insufficient insurance. (alteration in original) (quoting J.M. Seaman & J.R. Schulze, Allocation of Losses in Complex Insurance Coverage Claims § 4:3[c], at 4-21 (2d ed.2008))). As a result, for those periods of no insurance, self-insurance, or insufficient insurance during the progressive damage period, a portion of the loss will be borne by the policyholder. Pro rata theorists have developed several different methods for calculating each insurer's pro rata portion of the loss, each supported by its own notions of fairness and the nature of CGL insurance. Time on risk is one such method, and in our opinion, is the method most consistent with the language of a standard CGL policy. [12] Our approach relies heavily on the opinion of the Supreme Judicial Court of Massachusetts in Boston Gas Company v. Century Indemnity Company, which provides the reading of the relevant policy language that we believe is correct: Once the policy is triggered . . . the insuring agreement provides that [the insurer] will indemnify [the insured] only for the ultimate net loss that [the insured] is legally obligated to pay [as damages] ` because of ' . . . ` property damage ' . . . ` to which this policy applies. ' [The insurer] then looks to the Policy Period, Territory provision as supplying a definition of the phrase to which this policy applies. That provision states that [t]his policy applies to. . . property damage . . . which occurs anywhere during the policy period.  [The insurer] concludes that the policy provides coverage only for [the insured's] liability resulting from property damage occurring during the policy period. 910 N.E.2d at 305 (emphasis in original); id. at 306-07 (adopting this interpretation of the policy language). This interpretation is consistent with various other courts around the country, including, among others, the Second and Sixth Circuit Courts of Appeal and the courts of Minnesota, New York, and Vermont. Id. at 307 n. 34 (citing cases). While Boston Gas dealt with an excess insurance policy, rather than a standard CGL policy, the key language is the same. As in Boston Gas, Harleysville agreed to pay for damages incurred because of `bodily injury' or `property damage' to which this insurance applies. The insurance applies only if . . . [t]he `bodily injury' or `property damage' occur[red] during the policy period. In other words, the insurance does not apply to property damage that did not occur during the policy period. Though the insurer in Boston Gas agreed to pay the ultimate net loss above a certain threshold amount while a standard CGL policy promises payment for those sums that the insured becomes legally obligated to pay as damages, both phrases are modified by the requirement that covered damages must be because of . . . `property damage' to which th[e] insurance applies. This requirement limits the promise of payment, obligating the insurer to pay only those damages caused by property damage that occurs during the policy period. Not only does the Boston Gas interpretation give effect to each part of the insuring agreement (rather than focusing solely on the terms all sums or those sums), it is consistent with the objectively reasonable expectations of the contracting parties. As the Boston Gas Court explained: [W]e doubt that an objectively reasonable insured reading the relevant policy language would expect coverage for liability from property damage occurring outside the policy period. . . . No reasonable policyholder could have expected that a single one-year policy would cover all losses caused by [a progressive injury] over the course of several decades. Any reasonable insured purchasing a series of occurrence-based policies would have understood that each policy covered it only for property damage occurring during the policy year. [T]here is no logic to support the notion that one single insurance policy among 20 or 30 years worth of policies could be expected to be held liable for the entire time period. Nor is it reasonable to expect that a single-year policy would be liable, for example, if the insured carried no insurance at all for the other years covered by the occurrence. 910 N.E.2d at 309-10 (quoting Public Service Co. of Colorado v. Wallis & Cos., 986 P.2d 924, 940 (Colo.1999) (en banc)). Further, this interpretation forwards important policy goals. Specifically, it preserves the incentive for businesses to purchase sufficient insurance, which in turn promotes stability in the marketplace. See id. at 311 ([T]he pro rata allocation method . . . engenders stability and predictability in the insurance market, provides incentive for responsible commercial behavior, and produces an equitable result.). By contrast, the joint and several theory creates a false equivalence between an insured who has purchased insurance coverage continuously for many years and an insured who has purchased only one year of insurance coverage. Id. (quoting Public Serv. Co. of Colo., 986 P.2d at 939-940). For these reasons, we reverse the trial court's order allocating the entire $7.2 million in stipulated damages to Harleysville and hold that the proper method for allocating damages in a progressive property damage case is to assign each triggered insurer a pro rata portion of the loss based on that insurer's time on the risk. [13] We remand for further proceedings consistent with a time on risk approach. To aid the trial court in applying the time on risk framework, we provide guidance in the section below.