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Allocating Costs to Policyholders for Periods of No Insurance

By Elaine A. Panagakos
November 02, 2014

Last month, we discussed the fact that the “unavailability exception” originated with Owens-Illinois, Inc. v. United Insurance Co., 650 A.2d 974 (N.J. 1994), one of the first state supreme court decisions to adopt pro rata allocation. In Olin Corp. v. Insurance Company of North America, 221 F.3d 307 (2d Cir. 2000), an environmental coverage case, the policyholder argued that coverage became “unavailable” after the point at which it could no longer obtain comprehensive general liability insurance without a pollution exclusion, and further, that it did not subjectively “elect” to be self-insured during those periods. According to the court, however, the evidence demonstrated that a “new type of insurance” became available “to fill the void created by the unavailability of CGL policies without pollution exclusion clauses” during the periods at issue, i.e. , claims-made environmental impairment liability (EIL) insurance, and the policyhlder failed to purchase it. The discussion continues herein.

Court Rejects Policyholder's Argument

Based on that evidence, the court rejected the policyholder's arguments, and held the unavailability exception inapplicable to preclude allocation to the policyholder for the uninsured periods. The court determined, in essence, that neither the type of available insurance, nor the policyholder's reasons for failing to obtain it, were relevant to the inquiry; rather, “the general availability of insurance that would have covered the risk at issue here and Olin's failure to obtain it were all that was necessary to allocate the uninsured years to Olin. There was no need to analyze whether Olin subjectively elected to forego insurance and self-insure.” Id. at 326.

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