Non-Cumulation Clauses and Long-Tail Claims in CGL Policies: Latest - - PowerPoint PPT Presentation

Non-Cumulation Clauses and Long-Tail Claims in CGL Policies: Latest Developments

Allocating Liability Among Multiple Policies Triggered by Multi-Year Loss Today’s faculty features:

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Presenting a live 90-minute webinar with interactive Q&A

Sherilyn Pastor, Partner, McCarter & English, Newark, N.J. Robert Binion, Partner, Carroll Burdick & McDonough, San Francisco Christopher C. French, Visiting Assistant Professor, Villanova Law School, Villanova, Pa.

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Christopher French

Non-Cumulation Clauses in CGL Policies: Anti-Stacking Provisions?

Webinar May 7, 2013

• Visiting Assistant Professor of Law at Villanova Law School
• Former Partner at K&L Gates (1991-2012)
• Tried cases in federal and state courts in 7 states
• Served as a neutral and as a party-appointed arbitrator
• Handled first party and third party claims (environmental, hurricanes,

mold, business interruption, product liability, asbestos, etc.)

Christopher C. French french@law.villanova.edu (610) 519-6839

6

Christopher French

Background

COURT ADMISSIONS

• All Commonwealth of Pennsylvania courts
• United States Court of Appeals for the Sixth Circuit
• United States Court of Appeals for the Third Circuit
• United States District Court for the Western District of Pennsylvania

EDUCATION J.D., Harvard University, 1991 B.A., Columbia University, 1988

7

Christopher French

Publications

• Segmented Settlements Are Not the Answer: A Response to

Professor Squire’s Article, How Collective Settlements Camouflage the Costs of Shareholder Lawsuits, __ Va. L. &

• Bus. Rev. __ (forthcoming)
• The Aftermath of Catastrophes: Valuing Business

Interruption Insurance Losses , __ Ga. St. U. L. Rev. __ (forthcoming)

8

Christopher French

Publications

• The “Ensuing Loss” Clause in Insurance Policies: The

Forgotten and Misunderstood Antidote to Anti-Concurrent Causation Exclusions, 13 Nev. L. J. 215 (2012)

• Debunking The Myth that Insurance Coverage is Not

Available or Allowed for Intentional Torts or Damages, 8 Hastings Bus. L. J. 65 (2012) (reprinted in Defense Law Journal (2012))

9

Christopher French

Publications

• The “Non-Cumulation Clause”: an “Other Insurance

Clause” by Another Name, 60 Kan. L. Rev. 375 (2011)

• Construction Defects: Are They “Occurrences”?, 47 Gonz.
• L. Rev. 1 (2011) (reprinted in Issues in Construction and

Technology (2012) and Defense Law Journal (2013))

10

Christopher French

Publications

• Numerous chapters of a two-volume insurance law treatise

entitled, POLICYHOLDER’S GUIDE TO THE LAW OF INSURANCE COVERAGE (Wolters Kluwer, 1997, annually updated)

• Bad Faith: Insurers Spending Their Policyholders’ Money

Without Their Policyholders’ Consent, Journal of Insurance Coverage (2001)

11

Christopher French

Introduction

• How should long-tail claims such as asbestos bodily injury

claims and environmental claims, which have damage processes that take place during multiple policy years, be allocated among the numerous policy years that often are triggered by such losses when non-cumulation clauses are in play?

• We will attempt to answer that question over the course of

the next 90 minutes

12

Christopher French

Introduction

• The “Non-Cumulation Clause”: An “Other Insurance

Clause” by Another Name, 60 Kan. L. Rev. 375 (2011) (provided with materials)

• Olin Corp. v. American Home Ass. Co., 704 F.3d 89 (2d
• Cir. 2012)
• Our presentation will be divided into 3 parts
• Part 1 will include a discussion of the language contained in

Non-Cumulation Clauses and the original drafting and purpose of the clause

13

Christopher French

Introduction

• Part 1 also will include a brief overview of the relevant

insurance policy interpretation principles and some policyholder arguments regarding how the clause should be interpreted

• Part 2 will involve a discussion of the case law from the

policyholder’s and insurer’s perspective

• Robert Binion (Insurer)
• Sheri Pastor (Policyholder)
• Part 3 will be a question and answer period

14

Christopher French

Typical Insurance Programs

A graphic depiction of a typical insurance program of a commercial policyholder is as follows:

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Christopher French

Coverage Liability of Insurer F

• Insurer F is on the risk in various layers of the 1984,

1985, 1986 and 1987 policy years.

• How much does Insurer F owe for a $15 million long-

tail claim that manifests in 1987, but the exposure giving rise to the claim ended in 1970?

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Christopher French

Typical Insurance Programs

A graphic depiction of a typical insurance program of a commercial policyholder is as follows:

17

Christopher French

Triggers of Coverage

• “exposure” trigger
• “injury in fact” trigger
• “manifestation” trigger
• “continuous” trigger
• Non-Cumulation Clauses not in play under

manifestation trigger and, in most situations, exposure trigger

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Christopher French

Allocation

• “All sums”
• the policyholder can select which of the triggered

policy years will cover the liability subject only to the limits of coverage provided by the policies selected

• Pro rata allocation
• divides the liability amount equally among the

policy years triggered

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Christopher French

Non-Cumulation Clauses

• As an example, the Non-Cumulation Clause commonly

found in historical London Market Umbrella liability policies (London ’71 Umbrella form) states as follows: It is agreed that if any loss covered hereunder is also covered in whole or in part under any other excess Policy issued to the Insured prior to the inception date hereof the limit of liability hereon . . . shall be reduced by any amounts due to the Insured on account

• f such loss under such prior insurance.

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Christopher French

Non-Cumulation Clauses (cont.)

• The insurers’ argument is that the Non-Cumulation

Clause shifts the responsibility for paying for losses that trigger multiple policy years to any and all triggered insurance policies that were issued prior to their own policy year

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Christopher French

Non-Cumulation Clauses (cont.)

• Under the insurers’ argument, if the policies in the

earlier triggered policy years have unpaid limits, then the limits of those policies should pay until their limits are exhausted

• If the limits of the policies in the earlier triggered

policy years have been exhausted due to settlements or by the prior payment of other unrelated claims, then, according to some insurers, the policyholder becomes self insured for the remaining amount of the loss

22

Christopher French

The Drafting of the London Version of the Non- Cumulation Clause

• The London Market version of the Non-Cumulation Clause was first

drafted by London Underwriters in 1960 in connection with the development of a new “occurrence”-based umbrella liability form known as the “LRD 60” form to replace the Price Forbes “accident”- based policy form

• The LRD 60 form was named after the initials of the principal

draftsman, Leslie R. Dew, who was then the chief underwriter for the Merrett syndicate at Lloyd’s

• Mr. Dew was assisted in the drafting of the LRD 60 form by the then-

senior underwriter in the Merrett syndicate at Lloyd’s, Henry Weavers

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Christopher French

The Drafting of the London Version of the Non- Cumulation Clause (cont.)

• When the LRD 60 form was originally drafted in 1960, it

contained two paragraphs worded as follows: It is agreed that if any loss covered hereunder is also covered in whole of in part under any other excess policy issued to the Assured prior to the inception date hereof the limit of liability hereon as stated in item 2 of the Declarations shall be reduced by any amounts due to the Assured on account of such loss under such prior insurance.

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Christopher French

The Drafting of the London Version of the Non- Cumulation Clause (cont.) Subject to the foregoing paragraph and to all the

• ther terms and conditions of this policy in the event

that personal injury or property damage arising out of an occurrence covered hereunder is continuing at the time of termination of this policy Underwriters will continue to protect the Assured for liability in respect

• f such personal injury or property damage without

payment of additional premium.

• This was the version of the Non-Cumulation Clause at

issue in Olin

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Christopher French

The Drafting of the London Version of the Non- Cumulation Clause (cont.)

• The Non-Cumulation Clause was inserted in the

LRD 60 form to prevent a double recovery by the policyholder in the narrow circumstance where a LRD 60 form policy is issued and is triggered by a claim and the same claim also triggers a prior policy issued under another policy form such as a Price Forbes “accident” form

26

Christopher French

The Drafting of the London Version of the Non- Cumulation Clause (cont.)

• For example, in a situation where machinery was defectively

manufactured in 1958 that resulted in an injury in 1961, both a Price Forbes form policy issued in 1958 (when the “accident” of the defective manufacture arguably took place) and a 1961 policy using the LRD 60 form (when the injury arguably “occurred”) would be triggered by the liability

• One of the reasons for the shift to “occurrence” policy forms was

insurers’ concern that some courts were interpreting “accident” under the older policy form to cover both the defective manufacture of a product and the resulting injury

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Christopher French

The Drafting of the London Version of the Non- Cumulation Clause (cont.)

• Thus, according to one of the original London

underwriters, the Non-Cumulation Clause was designed to thwart a policyholder that was attempting to obtain twice as much coverage as the amount of the liability by pursuing coverage under both policies for the same liability

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Christopher French

The Drafting of the London Version of the Non- Cumulation Clause (cont.)

• At the time the clause was drafted in 1960, the London

underwriters who drafted the clause did not contemplate the developments in insurance coverage law in the United States that occurred decades later such as continuous trigger and “all sums” allocation, which allow the policyholder to “pick and choose” which policy year will provide coverage for the entire amount of the liability

29

Christopher French

The Drafting of the London Version of the Non- Cumulation Clause (cont.)

• In 1971, the London Market insurers decided to

modify the LRD 60 policy form for use in the North American insurance market and to make certain changes to the form that they designated the “Umbrella Policy (London 1971)” form, or the “London ’71 Umbrella form”

• The London 1971 Umbrella form was prepared by

three underwriters in the London Market, Peter Wilson, Cliff Richies and John Byrd

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Christopher French

The Drafting of the London Version of the Non- Cumulation Clause (cont.)

• In preparing the London ’71 Umbrella form, the first

paragraph of the Non-Cumulation Clause in the LRD 60 form was transferred verbatim

• The second paragraph of the Non-Cumulation Clause

was not transferred from the LRD 60 form because the London underwriters who prepared the London ’71 Umbrella form believed the second paragraph was redundant of other language in the policy

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Christopher French

Relevant Policy Interpretation Rules The Doctrine of Contra Proferentem

• Any ambiguities in the policy language should be

construed against insurers and in favor of coverage

• The test under many states’ laws for determining whether

policy language is ambiguous is whether the provisions at issue are reasonably or fairly susceptible to different interpretations or meanings

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Christopher French

The Doctrine of Contra Proferentem (cont.)

• Consider again the language of the London version
• f the Non-Cumulation Clause:

It is agreed that if any loss covered hereunder is also covered in whole or in part under any

• ther excess Policy issued to the Insured prior

to the inception date hereof the limit of liability . . . shall be reduced by any amounts due to the Insured on account of such loss under such prior insurance.

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Christopher French

Ambiguities in the Clause

• How does one determine if a loss is “covered” under

a prior-incepting policy?

• Must there be a court judgment stating such?
• Must there be an admission of coverage by the

prior insurers (not likely to happen)?

• Need there only be an assertion of the prior

insurer’s coverage responsibility by the subsequent insurer?

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Christopher French

Ambiguities in the Clause (cont.)

• In long-tail liability cases in “all sums” jurisdictions,

the liabilities are “covered” by the policies in whichever year(s) the policyholder has selected to cover them

• Necessarily, therefore, these same liabilities are not

“covered” by prior years because the policyholder has not selected those prior years for coverage

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Christopher French

Ambiguities in the Clause (cont.)

• What constitutes an amount “due” under prior

insurance?

• Is it an amount that a court adjudged was due?
• Is it an amount that the subsequent insurer alleges

is due from the prior-year insurer?

• Is it an amount that the prior insurer

acknowledges is due?

• Is it an amount actually paid by a prior insurer on

the same loss?

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Christopher French

Ambiguities in the Clause (cont.)

• Given that the policyholder can choose the policy year that

should cover its liabilities in an “all sums” jurisdiction, insurers’ contention that the same amounts are “due” under prior-year policies makes no sense

• What about due process?
• If one were to accept the insurers’ argument, it very well

could be determined that amounts are “due” from prior- incepting policies even though the insurers that issued the policies are not even parties to the case

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Christopher French

Ambiguities in the Clause (cont.)

• Such a result arguably would not even be enforceable

against the insurers that issued prior-incepting policies under the well-established rule of law that a judgment cannot be entered against a party that was not a party in the case

• What happens if the policyholder has settled with

prior insurers even though the settling insurers denied any obligation to pay for the liabilities and continued to deny such liability in the settlement agreements themselves?

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Christopher French

Ambiguities in the Clause (cont.)

• Surely, the payments made by such insurers cannot

be viewed as having been “due” when the settling insurers continue to contend they owed nothing but settled for business reasons

• Additionally, what does it mean that the limits are

“reduced”?

• For example, are the limits of the policy reduced

for just the loss at issue but then reinstated for the next loss?

• Are the limits reduced for all future losses as

well?

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Christopher French

Ambiguities in the Clause (cont.)

• Another unanswered question is how does the “reduction of

limits” apply when multiple policies in the same policy year all contain the same Non-Cumulation Clause?

• Which policies in that year receive the benefit of the reduction of

limits, and which ones do not?

• Top down or bottom up
• In Stonewall Ins. Co. v. E.I. duPont de Nemours & Co., 996

A.2d 1254 (Del. 2010), a first layer insurer argued its limits should be reduced, which meant the higher layer insurers would basically drop down in coverage and the first layer insurer would owe nothing

40

Christopher French

The “Reasonable Expectations” Doctrine

• Another staple of insurance policy interpretation law

is that the policy should be interpreted in such a way as to fulfill the “reasonable expectations” of the policyholder

• The policyholder should receive in coverage what it
• bjectively can reasonably expect to receive even if

the policy language does not expressly support coverage

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Christopher French

The “Reasonable Expectations” Doctrine (cont.)

• Under the “all sums” language, a policyholder

reasonably can expect to receive payment of the full amount of the loss up to the policy limits despite the presence of a Non-Cumulation Clause in the policy if the policyholder: (1) paid a premium for the policy; and (2) the policy is triggered by a covered loss

42

Christopher French

Similarity to “Other” Insurance Clauses

• Non-Cumulation Clauses should be treated in the

same way that “other insurance” clauses have been applied because “other insurance” clauses purportedly serve a similar function as Non- Cumulation Clauses – i.e., they attempt to shift liability from one insurer to another insurer

• Of course, “other insurance” clauses should not

impact the recovery of the policyholder, but, instead,

• nly should come into play when insurers are

fighting among themselves to apportion the liability

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Christopher French

Similarity to “Other” Insurance Clauses (cont.)

• When two or more policies cover a policyholder’s

loss or liability, and each policy contains an “other insurance” clause that states the policy is “excess”

• ver other insurance or the insurer “escapes” or

avoids its coverage obligations due to the existence

• f other insurance (which is similar to what Non-

Cumulation Clauses purport to do), then courts generally consider the clauses to be mutually repugnant and thus, unenforceable

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Christopher French

Similarity to “Other” Insurance Clauses (cont.)

• In such circumstances, after the policyholder has

been paid in full, the courts then pro-rate the loss or liability between the triggered policy years

• According to Resolute Management’s in-house

counsel, “other insurance” clauses are really intended only to “prevent double recoveries by insureds”

45

Christopher French

Similarity to “Other” Insurance Clauses (cont.)

• Thus, an “other insurance” clause is really designed

to allow “equitable contribution” between and among insurers after the policyholder’s claim has been paid in full by the insurers

• The same result should apply to Non-Cumulation

Clauses

46

Non-Cumulation Clauses Cases Where the Courts Have Applied the Clause

Robert Binion

Robert Binion

• Mr. Binion is a partner in CBM's Insurance Practice Group.
• His practice focuses on complex civil litigation, including insurance

coverage and bad faith litigation relating to emerging technologies, professional liability issues, property damage, title issues and complex environmental and mass tort claims.

• He litigates complex insurance disputes on behalf of insurers in federal

and state courts throughout the country, as well as in domestic and international arbitrations, and provides advice on a wide-range of coverage issues.

• Over the last decade, Robert has given numerous presentations and

written several articles on insurance coverage issues. See http://www.cbmlaw.com/attorneys/Robert-Binion

San Francisco 415-743-2421

rbinion@cbmlaw.com 48

Non-Cumulation Clauses

Robert Binion

A number of courts have enforced the same-insurer non-cumulation clause as written, finding the limits of a later policy containing the condition are reduced by the amounts owed or paid under the earlier policy.

49

Non-Cumulation Clauses

Many courts have determined the non-cumulation condition is NOT an “other insurance” clause.

• In a separate section of the policy.
• Non-cumulation condition applies to consecutive

policies.

• Non-cumulation condition simply defines which one

policy period provides coverage.

Robert Binion

50

Non-Cumulation Clauses

Pennsylvania

 Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330 (3d Cir. 2005).

Georgia

 Plantation Pipeline Co. Continental Casualty Company, 2008 U.S. Dist.

LEXIS 80680 (N.D. Ga. July 8, 2008).

New York

 Olin Corp. v. American Home Assurance Co., No. 11-4055-cv (2d Cir.

• Dec. 19, 2012).

Oregon

 Cal. Ins. Co. v. Stimson Lumber Co., 2004 U.S. Dist. LEXIS 10098 (D. Or.

May 26, 2004), aff’d in part, rev’d in part, 325 F. App’x 496 (9th Cir 2009).

Delaware

 Hercules Inc. v. AIU Ins. Co., 784 A.2d 481 (Del. 2001).

Robert Binion

51

Non-Cumulation Clauses

Robert Binion

Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330 (3d

• Cir. 2005)

Liberty Mutual Policy Language

If the same occurrence gives rise to personal injury, property damage or advertising injury or damage which occurs partly before and partly within any annual period of this policy, each occurrence limit and the applicable aggregate limit or limits of the policy shall be reduced by the amount of each payment made by the company with respect to each occurrence, either under a previous policy or policies of which this policy is a replacement, or under this policy with respect to previous annual periods thereof.

52

Non-Cumulation Clauses

Robert Binion

The Third Circuit holds the clause is not an escape clause, but an anti-stacking clause.

However, the Non-Cumulation provision, like all anti-stacking provisions, does not eliminate coverage. It simply provides that if a single occurrence gives rise to an injury during more that one policy period, only one occurrence limit will apply. The provision limits the dollar amount recoverable under the policies, but it does not eliminate coverage.

53

Application of the Non-Cumulation Clause

Illustrative Example  A $5 million occurrence.  The occurrence triggers the umbrella policies for the 1/1/75-1/1/78 period.  The 1976 and 1977 umbrella policies contain the Liberty Mutual non-cumulation clause.

Robert Binion

54

All Primary Coverage Exhausted

Application of the Non-Cumulation Clause

75/76 Policy Pays the Entire Loss

Non-Cumulation Clauses

Robert Binion

Plantation Pipeline Co. v. Continental Casualty Company, 2008 U.S. Dist. LEXIS 80680 (N.D. Ga. July 8, 2008) Continental Casualty Policy Language

Prior Insurance and Non-Cumulation of Liability It is agreed, that if any loss is also covered in whole or in part under any other excess policy issued to the insured prior to the inception date hereof, the Company's limit of liability as stated in Item 3 of the Declarations shall be reduced by any amounts due to the Insured on account of such loss under such prior insurance.

56

Non-Cumulation Clauses

Robert Binion

Plantation Pipeline Co. v. Continental Casualty

The court rejected the policyholder’s arguments that the continuous trigger/pro-rata allocation doctrines must be applied, especially when no Georgia court has adopted them, and enforced the non-cumulation clause.

57

Non-Cumulation Clauses

Robert Binion

Olin Corp. v. American Home Assurance Co., No. 11- 4055-cv (2d Cir. Dec. 19, 2012) Policy Language:

It is agreed that if any loss covered hereunder is also covered in whole or in part under any other excess policy issued to the Assured prior to the inception date hereof, the limit of liability hereon … shall be reduced by any amounts due to the Assured on account of such loss under such prior insurance. Subject to the foregoing paragraph and to all the other terms and conditions of this Policy, in the event that personal injury or property damage arising out of an

• ccurrence covered hereunder is continuing at the time of

termination of this Policy, Underwriters will continue to protect the Assured for Liability in respect of such personal injury or property damage without payment of additional premium.

58

Non-Cumulation Clauses

Olin Corp. v. American Home Assurance Co., No. 11-4055-cv (2d Cir. Dec. 19, 2012)



Second Circuit ruled that, under non-cumulation clause, recovery under a 1969-1972 policy was reduced by amounts recovered under a 1966-1969 policy.



Non-cumulation clause limited to policies on the same level; not applicable with respect to lower-level excess policies.

59

Robert Binion

Non-Cumulation Clauses

Robert Binion

• Cal. Ins. Co. v. Stimson Lumber Co., 2004 U.S. Dist.

LEXIS 10098 (D. Or. May 26, 2004), aff’d in part, rev’d in part, 325 F. App’x 496 (9th Cir 2009) National Union Policy Language

If a loss covered by this policy is also covered in whole or in part under any other excess policy issued to the Insured prior to the effective date of this policy, the limits

• f liability as stated in the declarations will be reduced by

any amounts due to the Insured under such prior insurance.

60

Non-Cumulation Clauses

Robert Binion

The Stimson court finds:

To the extent that there is any excess insurance coverage available for the . . . loss, the non- cumulation provision applies to reduce [the later] policy limits by the amounts paid in prior policy years

• r amounts paid by other excess settling insurers.

61

Non-Cumulation Clauses

Robert Binion

Hercules Inc. v. AIU Ins. Co., 784 A.2d 481 (Del. 2001) Relevant Policy Language

It is agreed that if any loss covered hereunder is also covered in whole or in part under any other excess policy issued to the Assured prior to the inception date hereof the limit of liability hereon as stated in Item 2 of the Declaration shall be reduced by any amounts due to the Assured on account of such loss under such prior insurance.

62

Non-Cumulation Clauses

Robert Binion

In Hercules, the Delaware Supreme Court reversed the trial court decision that Home’s non-cumulation clause did not apply:

The only issue concerns the trial court's conclusion that the clause did not apply because there was no "prior insurance." We disagree with this conclusion as to Home. Since the inception date of the Home policy is July 31, 1968, policies providing coverage before that date implicate the non-cumulation clause in Home's favor.

63

Non-Cumulation Clauses Checklist

• Continuing Loss
• Specific Policy Language
• Occurrence or Loss Language
• Same Policy or Other Insurer’s Policy Language
• All Sums or Pro Rata Jurisdiction

Robert Binion

64

Non-Cumulation Clauses: Not Just in CGL Policies

• Superstition Crushing, LLC v. Travelers Cas. &
• Sur. Co. of Am., 2009 WL 5196076 (9th Cir. Dec.

29, 2009) (applying a non-cumulation condition in an employee dishonesty policy).

• Bahar v. Allstate Ins. Co., 2004 WL 1782552

(S.D.N.Y. Aug. 9, 2004) (applying a non- cumulation condition in a homeowner’s policy).

Robert Binion

65

Non-Cumulation Clauses

Cases Where the Courts Have Rejected Them

By SHERILYN PASTOR

BOSTON // HARTFORD // NEW YORK // NEWARK // STAMFORD // PHILADELPHIA // WILMINGTON

SHERILYN PASTOR, ESQ.

Sherilyn Pastor is the Practice Leader of McCarter & English’s Insurance Coverage Group, and a member of the Firm’s Executive Committee. She has secured hundreds of millions

• f dollars in insurance assets for a broad range of policyholder clients. She also assists

clients assessing their potential risks and in analyzing their insurance programs.

• Ms. Pastor is the Chair of the ABA’s Insurance Coverage Litigation Committee

(Policyholder Side). She serves on the Editorial Board of the Insurance Coverage Law Bulletin, is a consultant on the New Appleman Insurance Law Practice Guide, and has taught the National Institute for Trial Advocacy’s trial and deposition skills programs. Ms. Pastor is a member of the International Center for Conflict Prevention & Resolution’s Director & Officer Liability Insurance Committee and its Insurance Neutrals Review

• Committee. She is a founding member of the American College of Coverage and

Extracontractual Counsel.

• Ms. Pastor is rated AV Preeminent by Martindale-Hubbell, recognized by Chambers USA

as among “Leaders in their Field,” and she is a recipient of the YMCA’s Tribute to Women in Industry award. She also was named one of New Jersey’s “Best 50 Women in Business” by NJBIZ, and is recognized as a New Jersey Super Lawyer. Ms. Pastor is a member of the New Jersey Supreme Court’s Professional Responsibility Rules Committee. She has served as a Special Master in ethics proceedings, and was a member of the District VA Ethics Committee. She publishes and lectures frequently on a variety of topics including insurance coverage, trial advocacy, pretrial practice and professional responsibility.

McCARTER & ENGLISH, LLP Four Gateway Center 100 Mulberry Street Newark, NJ 07102 (973) 639-2070 spastor@mccarter.com

68

Non-Cumulation” or “Anti-Stacking”

• Insurers’ response to continuous trigger

cases and concerns about horizontal stacking

• When more than one policy is triggered by

an occurrence and each triggered policy is called upon to respond to the claim up to the full limits of the policy

69

Stacking

• Some Courts have permitted “horizontal

stacking” in cumulative injury tort cases:

• Cole v. Celotex Corp., 599 So. 2d 1058 (La. 1992)

(permitting “horizontal stacking” of multiple annual policies in connection with underlying asbestosis claims)

• Society Ins. v. Town of Franklin, 607 N.W.2d 342, 346

(Wis. Ct. App. 2000) (finding the language of the policies, and case law, required horizontal stacking of successive CGL policies where environmental claim resulted from

• ne ongoing occurrence giving rise to property damage

each year and thereby triggering coverage under each policy).

70

“Non-Cumulation” Provisions

• Provisions attempt to limit coverage available:

– Regardless of the number of insured persons, injured persons, claims, claimants

• r policies involved, our total liability for damages resulting from one loss will not

exceed the limit of liability for coverage shown on the declarations page. All bodily injury, personal injury and property damage resulting from one accident or from continuous or repeated exposure to the same general conditions is considered the result of one loss. – Regardless of the number of (1) insureds under this policy, (2) persons or

• rganizations who sustain personal injury or property damage, (3) claims made
• r suits brought on account of personal injury or property damage to which this

policy applies, the Company's liability is limited as follows: . . . If the same

• ccurrence gives rise to personal injury or property damage which occurs partly

before and partly within the policy period, the each occurrence limit and the applicable aggregate limit of this policy shall be reduced by the amount of each payment made by the company with respect to such occurrence under a previous policy or policies of which this policy is a replacement.

71

“Non-Cumulation” Provisions

Some courts have found the provisions void for public policy reasons:

• Spaulding Composites Co., Inc. v. Aetna Cas.

and Sur. Co., 176 N.J. 25, 819 A.2d 410, 420-22 ( 2003).

• Outboard Marine Corp. v. Liberty Mut. Ins. Co.,

283 Ill. App. 3d 630, 219 Ill. Dec. 62, 670 N.E.2d 740 (2d Dist.), as modified on denial of reh'g, (1996).

72

Spaulding Composites

• New Jersey Supreme Court held clause

inapplicable and unenforceable in light of the state's allocation law.

• Enforcement that “would thwart the Owens-

Illinois pro-rata allocation modality” and “allow the insurer to avoid its fair share of responsibility, drops out of the policy.”

73

Spaulding Composites

• The court rejected argument that the provision

was an invalid “escape” clause

• Rather, it concluded that when addressing

complex environmental insurance coverage issues, a court must look beyond the contract language and traditional rules of insurance contract interpretation to serve specific goals including the maximization of resources for environmental cleanup, creating incentives for purchasing insurance, and “notions of simple justice.”

74

Outboard Marine v. Liberty Mutual

• Declined to enforce clause in environmental

coverage case

• Clause would be "illogical and at odds with the
• ther policy language given the nature of this

'occurrence' and our application of the pro rata, time-on-the-risk theory."

75

Other Cases

• Chicago Bridge & Iron Co. v. Certain

Underwriters at Lloyd's, London, No. 94-07495 (Mass. Super. Jan. 7, 1999), in 13-11 MEALEY'S LITIG. REP.: INS. (Jan. 19, 1999) at 9, aff'd, 797 N.E.2d 434 (Mass. App. Ct. 2003) (holding clause is inconsistent with Illinois’ pro rata allocation law).

76

Other Cases

• Viking Pump, Inc. v. Century Indem. Co., 2009

WL 3297559 (Del. Ch. Oct. 14, 2009) (holding clause cannot be applied sensibly within a pro rata allocation scheme and therefore must be nullified).

• Hartford Accident & Indem. Co. v. Emp’rs Ins. Of

Wausau, No. 847212, 1995 WL 870851, at *21 (Cal. Super. Ct. 1995) (disfavoring application of “prior insurance” clauses that result in no coverage for a loss that the insured reasonably assumed would be covered)

77

“Non-Cumulation” Provisions

Some courts have found the provision ambiguous and therefore construed it against the insurer

• Federal Ins. Co. ex rel. Associated Aviation

Underwriters v. Purex Indus., Inc., 972 F.

• Supp. 872 (D.N.J. 1997).
• A.B.S. Clothing Collection, Inc. v. Home Ins.

Co., 34 Cal. App. 4th 1470, 41 Cal. Rptr. 2d 166 (2d Dist. 1995).

78

A.B.S. Clothing v. Home

• Clause is ambiguous
• “While the clause might be construed to

mean the insurer's liability is limited to a maximum aggregate amount, it can also reasonably be read to mean the limit of liability in one policy year cannot be carried over and added to the limit of liability in the succeeding policy year.”

79

Carter-Wallace v. Admiral Ins. Co.

The clause is subject to at least two potential interpretations: An “anti-stacking” provision that would preclude stacking of excess coverage over different contract periods, or as an “other insurance” clause that requires the policyholder to be indemnified from prior issued excess contracts that covered part of the period in which the contracts with such clauses were present.

• No. L–12287–89 (N.J. Super. Ct. Law Div.1994), aff'd on other

grounds, 154 N.J. 312, 712 A.2d 1116 (1998).

80

Other Cases

• Spartan Iron & Metal Corp. v. Liberty Ins. Corp., 6 Fed. App’x

176, 179 (4th Cir. 2001) (finding non-cumulation clause ambiguous and construing it against the insurer)

• Glaser v. Hartford Cas. Ins. Co., 364 F. Supp. 2d 529, 538 (D.
• Md. 2005) (finding ambiguities in the policies and resolving

them against the insurer)

• Shemitz Lighting, Inc. v. Hartford Fire Ins. Co., 2000 WL

1781840, at *7 (Conn. Super. Ct. Nov. 9, 2000) (finding policy terms ambiguous and construing against insurer)

• Sherman & Hemstreet, Inc. v. Cincinnati Ins. Co., 594 S.E.2d

648, 650 (Ga. 2004) (finding the non-cumulation clause ambiguous and construing the ambiguity in favor of the insured)

81

“Non-Cumulation” Provisions

Some courts have analogized the clause to an “escape” clause and have refused to enforce it.

• Hercules Inc. v. Aetna Cas. & Sur. Co., 1998 WL 62089

(Del. Super. Ct. Sept. 30, 1998)

• Greene, Tweed & Co. v. Hartford Accident & Indem. Co.,

2006 WL 1050110, at *16 (E.D. Pa. Apr. 21, 2006)

• UTI Corp. v. Fireman’s Fund Ins. Co., 896 F. Supp. 362,

378 (D.N.J. 1995)

• Varian Assocs., Inc. v. Aetna Cas. & Sur. Co., No. 944196,

at 30–31 (Cal. Super. Ct. 1997), in 11-11 MEALEY’S

• LITIG. REP.: INS. (Jan. 21, 1997)

82

Hercules v. Aetna

• Applying provision would be unfair and

inconsistent with modified pro rata allocation and the jury's factual findings.

• It “would give the insurers a double credit

and would deprive the insured of the full value of its premium.”

83

Consolidated Asbestos Coverage, Phase IV

• Declined to enforce:

“[A]t best for the insurers, the ‘non-cumulation’ clause is ambiguous. If given any effect, a reasonable interpretation of the clause is that it merely prevents the ‘stacking’ of ‘per person’ or ‘per occurrence’

• limits. Since the court concludes that the ‘stacking’ of ‘per person’ or

‘per occurrence’ limits is not allowed, independent of the ‘non- cumulation’ clauses, the result would be no different if the clauses were given effect.”

In re Asbestos Insurance Coverage Cases, Judicial Council Coordination Proceeding No. 1072, at 30–32 (Cal. Super. Ct. Aug. 29, 1988), in 2:21 MEALEY’S LITIG. REP.: INS. (Sept. 14, 1988)

• Such a clause would place an enormous burden
• n policyholders by requiring them to determine

the “amounts due” under prior contracts

84

“Non-Cumulation” Provisions Statutes may affect the application of these limitations

E.g., COLO. REV. STAT. § 10-4-110.4(1) provides that an insurer shall not issue a liability policy to an insured in the construction industry that includes a provision “excluding or limiting coverage for one or more claims arising from . . . property damage . . . that occurs before the policy's inception date and that continues, worsens, or progresses when the policy is in effect [if the exclusion or limitation applies to injury

• r damage that] was unknown to the insured at the policy's

inception.”

85

Deemer Clauses

• “Deems” a particular date in the progression of

injury or damage as the relevant triggering date

“With respect to injury or destruction of property . . . caused by exposure to injurious conditions over a period of time involving two or more liability policies . . . all such injury, destruction . . . caused by the same injurious conditions shall be deemed to occur only on the last day of the last exposure and the applicable limit

• f liability contained in the policy in effect on the last day
• f such exposure shall be the applicable limit of liability.”

86

Several Courts Have Refused to Apply

• Endicott Johnson Corp. v. Liberty Mut. Ins. Co., 928 F. Supp. 176,

182 (N.D.N.Y. 1996) (finding deemer clause is ambiguous in environmental contamination cases because the last day of “exposure” could either be the last day of the dumping of waste or the last day the waste was finally cleaned and remediated).

• United Techs. Corp. v. Liberty Mut. Ins. Co, 1 Mass. L. Rptr. 91,

1993 WL 818913 (Sup. Ct. Aug. 3, 1993) (holding deemer clause is unenforceable in environmental context where it would be difficult, if not impossible, to apply the clause consistently to gradual pollution claims, particularly where the damage may never be cleaned up and there may never be a last day of exposure).

87

Liberty Mut. Ins. Co. v. Black & Decker Corp., 383

• F. Supp. 2d 200 (D. Mass. 2004)
• Court noted clause was designed to prevent

“stacking” of claims by assigning a claim to a single contract.

• Clause limits each accident to a single contract

year.

• Inapplicable under Massachusetts law where, as

there, the property damage occurred during every year that dumping took place.

88

Westinghouse v. Am. Home Assurance Co.

• Applied Pennsylvania law
• Rejected application of “deemer” clause, finding

it ambiguous and that enforcement would be “incompatible with the precepts of the continuous-trigger theory.”

2004 WL 1878764, *35-36 (N.J. App. Div. 2004), cert. denied, 182 N.J. 141 (2004).

89

Tips

• Confirm the type of clause involved (non-

cumulation, deemer, other insurance)

• Consider the precise contract language,

applicable law, and specific facts

• When reviewing the law, bear in mind the

difference between cases dealing with whether coverage under a particular policy is triggered and those dealing with the related but somewhat different question of whether the triggered limits are available