Complexities in assigning insurance responsibility 409, continuing efforts to re- testimony that the tank had been requiring scientific proof By Lynda A. Bennett solve environmental liabilities leaking, undetected, under- regarding the date contaminants After nearly 20 years of hard- reveal that many questions re- ground for 12 years. were most likely to have fought litigation, New Jersey main. This article discusses the leached into the groundwater. law is now well-settled on the Supreme Court decisions and Under a continuous-trigger dispositive issues associated highlights issues currently fuel- theory of coverage, the policy- The court explained, “From a with the typical environmental ing insurance coverage litigation holder may obtain coverage for theoretical point of view, when insurance coverage claim. In- in New Jersey. the claim under all 12 policies in toxic material deposited in or on surers no longer attempt to effect while the tank was leak- property creates a condition that avoid coverage based on late ing. The court held in Owens- is dangerous to life or health, Trigger notice, pollution exclusion, In order to obtain coverage Illinois , “When progressive in- the deposit itself affects the util- owned property, statute of limi- for an environmental claim un- divisible injury or damage re- ity of the property, and the tation, or expected/intended der a comprehensive general li- sults from exposure to injurious property is thereby damaged.” grounds. ability policy, a policyholder conditions for which civil liabil- must prove an “occurrence” ity may be imposed, courts may Allocation Instead, New Jersey courts took place during the insurance reasonably treat the progressive Once a policyholder has es- are now presented with issues company’s policy period. Of injury or damage as an occur- tablished it is entitled to cover- over how much coverage is course, one of the most difficult rence within each of the years of age for an environmental claim available for a particular envi- questions presented by an envi- a CGL policy.” that has occurred over multiple ronmental claim and how that ronmental claim is pinpointing policy periods, the debate be- coverage should be allocated be- when the alleged damage took Because the very nature of gins over who must pay, how tween the policyholder and its place. The state Supreme Court environmental contamination is much must be paid, in what or- various insurers. Although the has resolved this dilemma by amorphous, it is sometimes dif- der payment must be made, and New Jersey Supreme Court has adopting in Owens-Illinois and ficult for policyholders to dem- whether defense costs should be provided some guidance for Carter-Wallace a “continuous onstrate exactly when the injury apportioned based on covered these trigger and allocation is- trigger” theory of coverage. or damage began. The state Su- versus non-covered claims, etc. sues in such leading cases as preme Court recently provided In other words, how should the Let’s assume, for instance, a policyholders with significant claim be allocated? Owens-Illinois, Inc. v. United Insurance Company, 138 N.J. policyholder owned a parcel of assistance in this regard by 437, Carter-Wallace v. Admiral property for 25 years and it had adopting in Quincy a “bright There generally are two Insurance Co. , 154 N.J. 312, an underground storage tank. line rule triggering coverage schools of thought in the insur- and Quincy Mut. Fire Ins. Co. v. Assume further that the policy- when toxic waste is first depos- ance-coverage community re- Borough of Bellmawr , 172 N.J. holder can show through expert ited in a landfill” as opposed to garding the answer to this ques- Reprinted with permission from the February 24, 2003 issue of the New Jersey Lawyer .
tion: Policyholders generally mined by evaluating the trigger Thus, less than five years af- pro rata allocation method has take the position that each and period and total damages in ter deciding Owens-Illinois , the the potential to drastically re- every insurance company on the relation to each party’s “time on New Jersey Supreme Court duce a policyholder’s recovery risk during the trigger period is the risk” (number of years and again was called on to resolve a if it has large deductibles or responsible for “all sums” the sometimes days on the risk) and sticky allocation question be- self-insured retentions. policyholder becomes legally “degree of risk assumed” (the tween primary and excess insur- obligated to pay. amount of coverage limits pro- ers. In Carter-Wallace , the Su- For example, assume a loss of vided by the insurer in propor- preme Court established that $1 million occurs over 10 years. Several courts throughout the tion to total available limits). New Jersey’s pro rata method Further assume the policyholder country have adopted this “joint of allocation rejects both has $100 million of coverage and several” method of alloca- The court also held that a straight horizontal exhaustion per year with an annual deducti- tion. See Keene Corp. v. Insur- policyholder may be allocated a (when all primary coverage ble of $100,000. Insurers rou- ance Co. of North America, 667 share of the loss but only if a pe- must be exhausted before any tinely argue that 10 full deducti- F.2d 1034, J.H. France Refrac- riod of “no insurance” reflects excess carrier pays) and linear bles must be allocated to the “a decision (by the policy- exhaustion (when the insurers in policyholder such that the de- tories Co. v. Allstate Insurance Co. , 626 A.2d 502, American holder) to assume or retain a year two of the trigger period ductibles devour coverage, leav- risk, as opposed to periods when pay nothing until all the insurers ing the policyholder to pay the National Fire Insurance Co. v. coverage for a risk is not avail- on the risk in year one pay in full amount of the loss. B&L Trucking and Construction Co., Inc. , 951 P.2d 250. able …” full). New Jersey, however, has not New Jersey insurance law adopted the joint-and-several- While the Owens-Illinois Instead, damages are allo- does not support such an inter- allocation method. Rather, in court was optimistic that the cated to each policy year based pretation because it would effec- Owens-Illinois, the Supreme parties to a coverage dispute on the total available limits in tively negate bargained-for cov- Court adopted the other leading could fairly and promptly re- that policy year in relation to the erage and frustrate the allocation method known as solve environmental claims us- total available limits over the policyholder’s reasonable ex- “ pro rata ” allocation. Under this ing its time-on-risk in relation to entire trigger period. Once a pectation it had externalized its method, long-term progressive degree-of-risk-assumed method portion of the damages is allo- risk of loss. See Werner Indus- damages must be allocated of allocation, policyholders and cated to a particular policy year, tries, Inc. v. First State Ins. Co. , among all parties, including the insurers continued to argue over the primary carriers must pay 112 N.J. 30, holding that “[t]he policyholder, in certain circum- how much coverage was avail- their limit in full before the first- fundamental principle of insur- stances, based on a risk-transfer able and insurers even argued layer excess carrier must pay ance law is to fulfill the objec- analysis. among themselves over the cor- anything and so on. tively reasonable expectations rect priority for paying claims of the parties.” Under the Supreme Court’s under a pro rata allocation Reduced recovery holding in Owens-Illinois, each method. In addition to encouraging in- Moreover, Owens-Illinois un- party’s pro rata share is deter- surer infighting, New Jersey’s derscored the importance of the Reprinted with permission from the February 24, 2003 issue of the New Jersey Lawyer .
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