All Sums Great And Small

How is loss allocated when bodily injury or property damage occurs in several successive policy periods? Can the insured choose the policy that it wishes to cover the loss, limiting itself to one deductible and forcing a single year”s primary (and excess) policy to respond? Or consistent with the policy, the rules of construction, and prudent public policy, should the loss be allocated evenly to each policy period in which injury or damage occurred ” allocating to the insured loss falling within each policy”s deductible and every period for which the insured is without insurance?

In answering these questions, courts have applied either the “all-sums” approach first set forth in Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034 (D.C. Cir. 1981) or the “pro rata” approach pioneered in Insurance Co. of North America v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. 1980). Courts across the country remain divided on which approach is the most sound as a matter of law and public policy. Moreover, as many as 20 states have either no or very limited case law on this complex and often hotly disputed subject, making predictions on outcomes in those jurisdictions difficult. Simply put, the results in Long-Term Exposure (“LTE”) cases are driven by the state law governing the dispute. And in many cases, that law is limited, leaving to insurers and their counsel the delicate task of predicting which set of competing principles a court will apply to an often-intricate array of facts.

Introduction

Depending on the approach taken, an insurer”s exposure can vary widely from state to state. Suppose, for example, $5 million in property damage occurs over five years. For years one, two and three, the insured has purchased $1 million in primary CGL insurance subject to a $250,000 deductible and a $5 million excess policy. For years four and five, however, the insured has no insurance.

In a state following the all-sums approach, the insured would be permitted to select the policy period to which the loss is allocated. Naturally, the insured would select year one, two or three, ignoring the years for which it was self-insured. And as to any one of those years, the insured would pay a single, $250,000 deductible, the primary insurer would pay the next $1 million in loss, exhausting its policy, and the excess insurer would pay the remaining $3.75 million, 75% of its limit. These insurers could seek contribution from the other insurers on the risk for years two and three, but they would have to bring a second round of litigation to do so. And depending on state law, they might be unable to allocate any loss to the insured in the second round, even if the insured consciously chose to “go bare” in years four and five.

In a state taking the pro rata approach, the result would differ markedly. The loss would be allocated evenly across each of those five years, with the insured paying $2.75 million ” $750,000 in deductibles for years one, two and three plus the $2 million in loss allocated to years four and five, for which the insured was essentially self-insured. The remaining $2.25 million would be allocated equally to years one, two and three, with each primary insurer liable for $750,000 and the excess insurers off the risk entirely. The dispute would, moreover, be addressed in a single action in which all interested parties were joined. With these thoughts in mind, we turn to the different approaches taken by courts when analyzing these types of claims.

Competing Approaches: All-Sums Versus Pro Rata Allocation

“Trigger” refers to the event or series of events that determine whether a policy will, by its terms, respond to an occurrence, claim, or suit. See, e.g., Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994). The principal trigger theories are “exposure,” “manifestation” and “continuous trigger.” Two other theories ” the “injury-in-fact,” which prevails in New York, and the “double trigger” theory ” are followed less often. Assuming that a state”s trigger theory contemplates bodily injury or property damage occurring over successive policy periods, the courts of that state will be called upon to determine whether (and, if so, how) to allocate the resulting loss to all the policies triggered by the loss.

The All-Sums Approach

Considered by some to be the “majority rule,” the all-sums approach has been applied (in whole or in part) in 19 states, including California and Pennsylvania. Two states, Oregon and Wisconsin, have enacted statutes requiring the all-sums approach in certain circumstances. Under this approach, any triggered policy must respond to the entire loss up to its applicable limits. Since this approach is analogous to the rule enabling tort plaintiffs to seek full compensation from any one of several tortfeasors, it is also called the “joint-and-several” approach. Aside from its deductible or retention, the insured is not liable for the loss, even if it were uninsured during a period when the injury or damage occurred. Generally, the insured may select the policy or policy layer that will respond to the loss, subject to the pertinent state”s stacking rules, which control how overlapping policy years” policies are exhausted. After paying the loss, the primary and excess insurers in the chosen period may seek reimbursement from the insurers on the risk during other periods of loss. For these reasons, the all-sums approach is the one favored by policyholders.

As mentioned above, Keene, decided in 1981, is the leading all-sums case. The underlying claim in Keene involved a latent occupational disease resulting from asbestos. The policyholder sought a declaration of insurance coverage under a series of commercial general liability policies sold to the insured or its predecessors from 1961 to 1980. The policies were substantially the same in all respects, providing in Keene that the insurer would “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury ” to which this insurance applies, caused by an occurrence ” [.]” Keene, 667 F.2d at 1039. The same case mentioned that the policies generally defined “occurrence” as “an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury ” .” Id.

Interpreting these policies, the D.C. District Court held that defense and indemnification should be allocated pro rata to the insurers according to the relative extent of exposure during their respective policy periods. It also held that the insured was liable for a pro rata share of those costs when exposure took place during a period in which it was uninsured.

On appeal, however, the D.C. Circuit reversed. Finding that inhalation exposure, exposure in residence, and manifestation of disease could each trigger coverage, the court held that once an insurer”s policy was triggered, the insurer was liable in full for the insured”s loss. Id. at 1047. In adopting this approach over the pro rata approach taken below, the Keene court relied on three concepts. First, it noted that the policies required each insurer to pay “all sums” that the insured becomes legally obligated to pay, and that their definitions of “occurrence” contemplated coverage for events that spanned over an extended period of time ” even beyond the policy period. “There is nothing in the policies,” the court noted, “that provides for a reduction of the insurer”s liability if an injury occurs only in part during a policy period.” Id. at 1048. Since each insurer is “fully liable,” the insured may collect in full from any insurer whose policy is triggered. Id. at 1050.

Second, the court found no basis upon which to allocate liability to the insured. Setting aside the insured”s conscious decision not to purchase insurance in certain years, the court reasoned that the insured could not be liable because the concept of self-insurance necessarily implied a “”self-insurance policy,” the provisions of which would have to be created by the court. Id. at 1048-49.

Third, and most important, the court reasoned that the pro rata approach would upset the “reasonable expectations” of the insured. In the court”s view, the insurers promised “certainty” to the insured; namely, relief from the “risk of liability for latent injury of which [the insured] could not [have been] aware when it purchased insurance. [The insured] did not expect, nor should it have expected, that its security was undermined by the existence of prior periods in which it was uninsured, and in which no known or knowable injury occurred.” Id. at 1047-48. Obligating an insurer to pay only a pro rata share of the insured”s liability would, therefore, violate those reasonable expectations.

Several questions were raised by the holding, however. Does an insurance policy promise “certainty,” or does it promise limited coverage subject to its terms, definitions, limitations, and exclusions? If an insured consciously chooses not to purchase insurance for a given period, is it reasonable for the insured to expect coverage for loss taking place in that period? And as the New York Court of Appeals asked in Consolidated Edison Co. of N.Y., Inc. v. Allstate Ins. Co., 98 N.Y.2d 208, 224 (2002), doesn”t collecting “all sums” from a single policy presuppose the ability to “pin an accident to a particular policy period”?

These and other questions have led some jurisdictions to reject the all-sums approach in favor of pro rata allocation, to which we now turn.

The Pro Rata Approach

Although it has been considered the “minority rule,” the pro rata approach has been applied (in whole or in part) in 25 states, including New York and New Jersey. Under this approach, all triggered policies must pay covered loss on a proportional basis. Depending on the jurisdiction, the proportion analysis is based on either each insurer”s time on the risk or on the insurers” respective limits. In the former, the liability of each insurer is a fraction, with its numerator the number of policy periods for which the insurer is on the risk, and its denominator the total number of periods in which injury or damage occurred. In the latter, the fraction”s numerator is the sum of the limits of all the insurer”s policies on the risk, and its denominator is the sum of the limits of all insurers” policies. The insured is, moreover, liable for loss allocated to any period for which it was self-insured or uninsured. Imposing this liability is known as “proration to the insured.” In this way, according to a leading New York case on the issue (Stonewall Ins. Co. v. Asbestos Claims Management Corp., 73 F.3d 1178 (2d Cir. 1995)), the insured is simply required to assume the risk that it chose to assume, “either by declining to purchase available insurance or by purchasing what turned out to be an insufficient amount of insurance.” Id. at 1204.

As mentioned above, the leading case for the pro rata approach is Forty-Eight Insulations. But the New York Court of Appeals and the New Jersey Supreme Court have issued decisions more recently that are as persuasive in their criticism of the all-sums approach as they are in their support for pro rata allocation. See Consolidated Edison, 98 N.Y.2d at 221-25; Owens-Illinois, 650 A.2d at 991-992; Stonewall, 73 F.3d at 1203.

First, these courts note that the language of a typical CGL policy does not support the all-sums approach, as Keene and its proponents contend. Indeed, the language arguably supports the pro rata approach. Although typical policy language may provide indemnification for “all sums,” that indemnification is expressly limited to injury or damage occurring “during the policy period.” See Consolidated Edison, 98 N.Y.2d at 224; Owens-Illinois, 650 A.2d at 983-984. Even in states applying the all-sums approach generally, insurers argue, in effect, that a pro rata “exception” should apply if the policy reads “the sums,” “those sums,” or “ultimate net loss,” rather than “all sums.” This necessarily implies that, for a claim involving long-term exposure, an insurer should be liable only for loss taking place during its policy period.

Second, courts applying the pro rata approach conclude it is reasonable to prorate loss to the insured for periods in which the insured consciously chose not to purchase insurance. After all, the insured did not bargain for coverage for those periods, and enabling the insured to allocate the entire loss to a period for which it did purchase insurance “reduces the incentive of the property owners to insure against future risks.” Owens-Illinois, 650 A.2d at 992. Indeed, adopting the all-sums approach would mean that an insured having purchased insurance for just one year out of five could be entitled to the same indemnification as an insured having coverage for the entire five-year period. As the Sixth Circuit opined in Forty-Eight Insulations, “[n]either logic nor precedent support[s] such a result.” 633 F.2d at 1225.

Third, courts typically find that the rule respecting the “reasonable expectations of the insured” should not be used to impose liability on an insurer for which its policy was never intended to indemnify. Simply put, if an insured has chosen to “go bare” for a period of time, it cannot possibly, let alone reasonably, expect coverage for loss taking place during that period.

Finally, at the heart of the all-sums approach is the notion that an insured can obtain full indemnity under a single policy. But as the Consolidated Edison court observed, this concept presupposes the ability to “pin an accident to a particular policy period.” 98 N.Y.2d at 224. Often this cannot be done. Indeed, typically the most the evidence shows is the long-term progression of injury, which, in turn, creates an inference of loss during successive policy periods. Id. In circumstances like this, neither the evidence nor the policy language supports the selection of a single policy to which all loss should be allocated.

The pro rata approach is routinely attacked by policyholders and courts. In Aerojet-General Corp. v. Transport Indemnity Co. 948 P.2d 909 (Cal. 1997), for example, the California Supreme Court condemned the pro rata approach for relying on “vague ”fairness” and rough ”justice.”” Id. at 925. Indeed, the pro rata approach is sometimes perceived as unfair because it subjects the insured to more than one deductible and the costs necessary to litigate its insurers” liability for a single loss. By contrast, the all-sums approach limits the insured to a single deductible and shifts the risks of coverage litigation largely to the insurers, who must allocate among themselves after the “chosen” insurer has defended and indemnified the insured for the loss. For this reason, the all-sums approach has a practical appeal that the more logical, pro rata approach lacks. This is, we think, the reason that the all-sums approach continues to be favored by roughly half of the jurisdictions that have addressed allocation in long-term exposure cases.

Conclusion

As much as the advocates of either approach have attempted to tie their arguments to specific policy language, the typical CGL policy does not squarely support either the all-sums or pro rata method of allocation. Additionally, there do not appear to be cases in which a policy endorsement specifies one method or another. As a result, we think courts across the country will continue to be divided over the proper method for allocating loss in long-term exposure cases.

This division presents insurance carriers with an opportunity to shape the law. As mentioned above, each method is applied in a fair share of states. States applying one method sometimes have conflicting case law providing for application of the other method in certain circumstances. In Illinois, for example, the courts have yet to settle on a single approach. New York, which leads the way in pro rata allocation, has permitted the all-sums approach in cases involving a single insurer for successive policy periods. And Florida, which is no stranger to long-term construction-defect claims involving property damage, has only one federal-court decision on point, applying the all-sums approach with no analysis whatsoever. Its state courts have not addressed the issue.

In sum, allocation of loss in long-term exposure cases is a complex, unsettled area of law requiring careful attention to the facts and the ever-evolving legal precedents. A proactive approach not only helps to limit exposure for a single claim, but also to lay the groundwork for future success in states where the law is not yet fully developed.

Patrick M. Tomovic is a Partner at Hodgson Russ LLP. He has served as national coverage counsel for insurers for the past 20 years. He is the Chair and Practice Group Leader of the firm”s Insurance Coverage & Reinsurance Practice Group. Kevin D. Szczepanski is also a Partner at firm, and member of the firm”s Insurance Coverage & Reinsurance Practice Group. ”

How is loss allocated when bodily injury or property damage occurs in several successive policy periods? Can the insured choose the policy that it wishes to cover the loss, limiting itself to one deductible and forcing a single year”s primary (and excess) policy to respond? Or consistent with the policy, the rules of construction, and prudent public policy, should the loss be allocated evenly to each policy period in which injury or damage occurred ” allocating to the insured loss falling within each policy”s deductible and every period for which the insured is without insurance?

In answering these questions, courts have applied either the “all-sums” approach first set forth in Keene Corp. v. Insurance Co. of North America , 667 F.2d 1034 (D.C. Cir. 1981) or the “pro rata” approach pioneered in Insurance Co. of North America v. Forty-Eight Insulations, Inc. , 633 F.2d 1212 (6th Cir. 1980). Courts across the country remain divided on which approach is the most sound as a matter of law and public policy. Moreover, as many as 20 states have either no or very limited case law on this complex and often hotly disputed subject, making predictions on outcomes in those jurisdictions difficult. Simply put, the results in Long-Term Exposure (“LTE”) cases are driven by the state law governing the dispute. And in many cases, that law is limited, leaving to insurers and their counsel the delicate task of predicting which set of competing principles a court will apply to an often-intricate array of facts.

Introduction

Depending on the approach taken, an insurer”s exposure can vary widely from state to state. Suppose, for example, $5 million in property damage occurs over five years. For years one, two and three, the insured has purchased $1 million in primary CGL insurance subject to a $250,000 deductible and a $5 million excess policy. For years four and five, however, the insured has no insurance.

In a state following the all-sums approach, the insured would be permitted to select the policy period to which the loss is allocated. Naturally, the insured would select year one, two or three, ignoring the years for which it was self-insured. And as to any one of those years, the insured would pay a single, $250,000 deductible, the primary insurer would pay the next $1 million in loss, exhausting its policy, and the excess insurer would pay the remaining $3.75 million, 75% of its limit. These insurers could seek contribution from the other insurers on the risk for years two and three, but they would have to bring a second round of litigation to do so. And depending on state law, they might be unable to allocate any loss to the insured in the second round, even if the insured consciously chose to “go bare” in years four and five.

In a state taking the pro rata approach, the result would differ markedly. The loss would be allocated evenly across each of those five years, with the insured paying $2.75 million ” $750,000 in deductibles for years one, two and three plus the $2 million in loss allocated to years four and five, for which the insured was essentially self-insured. The remaining $2.25 million would be allocated equally to years one, two and three, with each primary insurer liable for $750,000 and the excess insurers off the risk entirely. The dispute would, moreover, be addressed in a single action in which all interested parties were joined. With these thoughts in mind, we turn to the different approaches taken by courts when analyzing these types of claims.

Competing Approaches: All-Sums Versus Pro Rata Allocation

“Trigger” refers to the event or series of events that determine whether a policy will, by its terms, respond to an occurrence, claim, or suit. See, e.g., Owens-Illinois, Inc. v. United Ins. Co. , 650 A.2d 974 (N.J. 1994). The principal trigger theories are “exposure,” “manifestation” and “continuous trigger.” Two other theories ” the “injury-in-fact,” which prevails in New York, and the “double trigger” theory ” are followed less often. Assuming that a state”s trigger theory contemplates bodily injury or property damage occurring over successive policy periods, the courts of that state will be called upon to determine whether (and, if so, how) to allocate the resulting loss to all the policies triggered by the loss.

The All-Sums Approach

Considered by some to be the “majority rule,” the all-sums approach has been applied (in whole or in part) in 19 states, including California and Pennsylvania. Two states, Oregon and Wisconsin, have enacted statutes requiring the all-sums approach in certain circumstances. Under this approach, any triggered policy must respond to the entire loss up to its applicable limits. Since this approach is analogous to the rule enabling tort plaintiffs to seek full compensation from any one of several tortfeasors, it is also called the “joint-and-several” approach. Aside from its deductible or retention, the insured is not liable for the loss, even if it were uninsured during a period when the injury or damage occurred. Generally, the insured may select the policy or policy layer that will respond to the loss, subject to the pertinent state”s stacking rules, which control how overlapping policy years” policies are exhausted. After paying the loss, the primary and excess insurers in the chosen period may seek reimbursement from the insurers on the risk during other periods of loss. For these reasons, the all-sums approach is the one favored by policyholders.

As mentioned above, Keene, decided in 1981, is the leading all-sums case. The underlying claim in Keene involved a latent occupational disease resulting from asbestos. The policyholder sought a declaration of insurance coverage under a series of commercial general liability policies sold to the insured or its predecessors from 1961 to 1980. The policies were substantially the same in all respects, providing in Keene that the insurer would “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury ” to which this insurance applies, caused by an occurrence ” [.]” Keene, 667 F.2d at 1039. The same case mentioned that the policies generally defined “occurrence” as “an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury ” .” Id.

Interpreting these policies, the D.C. District Court held that defense and indemnification should be allocated pro rata to the insurers according to the relative extent of exposure during their respective policy periods. It also held that the insured was liable for a pro rata share of those costs when exposure took place during a period in which it was uninsured.

On appeal, however, the D.C. Circuit reversed. Finding that inhalation exposure, exposure in residence, and manifestation of disease could each trigger coverage, the court held that once an insurer”s policy was triggered, the insurer was liable in full for the insured”s loss. Id. at 1047. In adopting this approach over the pro rata approach taken below, the Keene court relied on three concepts. First, it noted that the policies required each insurer to pay “all sums” that the insured becomes legally obligated to pay, and that their definitions of “occurrence” contemplated coverage for events that spanned over an extended period of time ” even beyond the policy period. “There is nothing in the policies,” the court noted, “that provides for a reduction of the insurer”s liability if an injury occurs only in part during a policy period.” Id. at 1048. Since each insurer is “fully liable,” the insured may collect in full from any insurer whose policy is triggered. Id. at 1050.

Second, the court found no basis upon which to allocate liability to the insured. Setting aside the insured”s conscious decision not to purchase insurance in certain years, the court reasoned that the insured could not be liable because the concept of self-insurance necessarily implied a “”self-insurance policy,” the provisions of which would have to be created by the court. Id. at 1048-49.

Third, and most important, the court reasoned that the pro rata approach would upset the “reasonable expectations” of the insured. In the court”s view, the insurers promised “certainty” to the insured; namely, relief from the “risk of liability for latent injury of which [the insured] could not [have been] aware when it purchased insurance. [The insured] did not expect, nor should it have expected, that its security was undermined by the existence of prior periods in which it was uninsured, and in which no known or knowable injury occurred.” Id. at 1047-48. Obligating an insurer to pay only a pro rata share of the insured”s liability would, therefore, violate those reasonable expectations.

Several questions were raised by the holding, however. Does an insurance policy promise “certainty,” or does it promise limited coverage subject to its terms, definitions, limitations, and exclusions? If an insured consciously chooses not to purchase insurance for a given period, is it reasonable for the insured to expect coverage for loss taking place in that period? And as the New York Court of Appeals asked in Consolidated Edison Co. of N.Y., Inc. v. Allstate Ins. Co. , 98 N.Y.2d 208, 224 (2002), doesn”t collecting “all sums” from a single policy presuppose the ability to “pin an accident to a particular policy period”?

These and other questions have led some jurisdictions to reject the all-sums approach in favor of pro rata allocation, to which we now turn.

The Pro Rata Approach

Although it has been considered the “minority rule,” the pro rata approach has been applied (in whole or in part) in 25 states, including New York and New Jersey. Under this approach, all triggered policies must pay covered loss on a proportional basis. Depending on the jurisdiction, the proportion analysis is based on either each insurer”s time on the risk or on the insurers” respective limits. In the former, the liability of each insurer is a fraction, with its numerator the number of policy periods for which the insurer is on the risk, and its denominator the total number of periods in which injury or damage occurred. In the latter, the fraction”s numerator is the sum of the limits of all the insurer”s policies on the risk, and its denominator is the sum of the limits of all insurers” policies. The insured is, moreover, liable for loss allocated to any period for which it was self-insured or uninsured. Imposing this liability is known as “proration to the insured.” In this way, according to a leading New York case on the issue ( Stonewall Ins. Co. v. Asbestos Claims Management Corp. , 73 F.3d 1178 (2d Cir. 1995)), the insured is simply required to assume the risk that it chose to assume, “either by declining to purchase available insurance or by purchasing what turned out to be an insufficient amount of insurance.” Id . at 1204.

As mentioned above, the leading case for the pro rata approach is Forty-Eight Insulations. But the New York Court of Appeals and the New Jersey Supreme Court have issued decisions more recently that are as persuasive in their criticism of the all-sums approach as they are in their support for pro rata allocation. See Consolidated Edison, 98 N.Y.2d at 221-25; Owens-Illinois, 650 A.2d at 991-992; Stonewall, 73 F.3d at 1203.

First, these courts note that the language of a typical CGL policy does not support the all-sums approach, as Keene and its proponents contend. Indeed, the language arguably supports the pro rata approach. Although typical policy language may provide indemnification for “all sums,” that indemnification is expressly limited to injury or damage occurring “during the policy period.” See Consolidated Edison, 98 N.Y.2d at 224; Owens-Illinois, 650 A.2d at 983-984. Even in states applying the all-sums approach generally, insurers argue, in effect, that a pro rata “exception” should apply if the policy reads “the sums,” “those sums,” or “ultimate net loss,” rather than “all sums.” This necessarily implies that, for a claim involving long-term exposure, an insurer should be liable only for loss taking place during its policy period.

Second, courts applying the pro rata approach conclude it is reasonable to prorate loss to the insured for periods in which the insured consciously chose not to purchase insurance. After all, the insured did not bargain for coverage for those periods, and enabling the insured to allocate the entire loss to a period for which it did purchase insurance “reduces the incentive of the property owners to insure against future risks.” Owens-Illinois, 650 A.2d at 992. Indeed, adopting the all-sums approach would mean that an insured having purchased insurance for just one year out of five could be entitled to the same indemnification as an insured having coverage for the entire five-year period. As the Sixth Circuit opined in Forty-Eight Insulations, “[n]either logic nor precedent support[s] such a result.” 633 F.2d at 1225.

Third, courts typically find that the rule respecting the “reasonable expectations of the insured” should not be used to impose liability on an insurer for which its policy was never intended to indemnify. Simply put, if an insured has chosen to “go bare” for a period of time, it cannot possibly, let alone reasonably, expect coverage for loss taking place during that period.

Finally, at the heart of the all-sums approach is the notion that an insured can obtain full indemnity under a single policy. But as the Consolidated Edison court observed, this concept presupposes the ability to “pin an accident to a particular policy period.” 98 N.Y.2d at 224. Often this cannot be done. Indeed, typically the most the evidence shows is the long-term progression of injury, which, in turn, creates an inference of loss during successive policy periods. Id. In circumstances like this, neither the evidence nor the policy language supports the selection of a single policy to which all loss should be allocated.

The pro rata approach is routinely attacked by policyholders and courts. In Aerojet-General Corp. v. Transport Indemnity Co. 948 P.2d 909 (Cal. 1997), for example, the California Supreme Court condemned the pro rata approach for relying on “vague ”fairness” and rough ”justice.”” Id . at 925. Indeed, the pro rata approach is sometimes perceived as unfair because it subjects the insured to more than one deductible and the costs necessary to litigate its insurers” liability for a single loss. By contrast, the all-sums approach limits the insured to a single deductible and shifts the risks of coverage litigation largely to the insurers, who must allocate among themselves after the “chosen” insurer has defended and indemnified the insured for the loss. For this reason, the all-sums approach has a practical appeal that the more logical, pro rata approach lacks. This is, we think, the reason that the all-sums approach continues to be favored by roughly half of the jurisdictions that have addressed allocation in long-term exposure cases.

Conclusion

As much as the advocates of either approach have attempted to tie their arguments to specific policy language, the typical CGL policy does not squarely support either the all-sums or pro rata method of allocation. Additionally, there do not appear to be cases in which a policy endorsement specifies one method or another. As a result, we think courts across the country will continue to be divided over the proper method for allocating loss in long-term exposure cases.

This division presents insurance carriers with an opportunity to shape the law. As mentioned above, each method is applied in a fair share of states. States applying one method sometimes have conflicting case law providing for application of the other method in certain circumstances. In Illinois, for example, the courts have yet to settle on a single approach. New York, which leads the way in pro rata allocation, has permitted the all-sums approach in cases involving a single insurer for successive policy periods. And Florida, which is no stranger to long-term construction-defect claims involving property damage, has only one federal-court decision on point, applying the all-sums approach with no analysis whatsoever. Its state courts have not addressed the issue.

In sum, allocation of loss in long-term exposure cases is a complex, unsettled area of law requiring careful attention to the facts and the ever-evolving legal precedents. A proactive approach not only helps to limit exposure for a single claim, but also to lay the groundwork for future success in states where the law is not yet fully developed.

Patrick M. Tomovic is a Partner at Hodgson Russ LLP. He has served as national coverage counsel for insurers for the past 20 years. He is the Chair and Practice Group Leader of the firm”s Insurance Coverage & Reinsurance Practice Group. Kevin D. Szczepanski is also a Partner at firm, and member of the firm”s Insurance Coverage & Reinsurance Practice Group. ”