Category Archives: Allocation

Join Me for “The Hot Buttons in Asbestos Insurance Litigation”

On Wednesday, June 23, 2010. from 2:00 – 3:40 pm (Eastern).  I’m going to be part of a panel discussing “The Hot Buttons in Asbestos Insurance Litigation.”

We’re going to cover:

  • The Keasbey ruling: contribution and trigger
  • Allocation–pro rata or all sums: jurisdictions still at play, choice of law and related
  • Aggregate limits and “non-products” disputes
  • Insurance and bankruptcy: the current landscape
  • This discussion qualifies for between 1.5 to 2.0 continuing legal education (CLE) credits, depending on state requirements. View the CLE credit details.

    Want to sign up?  Purchase the teleconference Audio Package (includes MP3 audio recording files and handbook on CD). To order or learn more, click here, call 484-324-2755, or email allison.emery@litigationconferences.com.

    Disclaimer:

    This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2010.

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    “Issues Confronting Insureds and Excess Insurers in Large-Scale, Long-Tail Claims”

    At the 2010 Insurance Coverage Litigation Committee CLE Seminar, which the American Bar Association Insurance Coverage Litigation Committee hosted in Tucson, Arizona on March 4-6, 2010, I filled in for my former colleague, Jim Murray, for the plenary session”Knockin’ on Heaven’s Door:  Perspectives on Litigation and Negotiation of High-Damage Claims in 2010 and Beyond.”  I was joined by William B. Hedrick of Marsh USA Inc., Laura McKay of Hinkhouse Williams Walsh LLP, Gordon McKay of Arcina Risk Group, and Jeffrey M. Posner of JM Posner, Inc.

    We had a great discussion about the practical issues facing policyholders and insurance companies when claims reach high level excess policies.  Our topics ranged from the duty to defend, changes in London market insurance in the last few decades, and who handles and pays for claims handling when in high levels of coverage.

    The Lexis Insurance Law Center has posted a brief recap of the panel and the supporting materials, in a blog post entitled “Issues Confronting Insureds and Excess Insurers in Large-Scale, Long-Tail Claims.”  You can see the post by clicking here.

    Disclaimer:

    This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2010.

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    Join me for “The Hot Buttons in Asbestos Insurance Litigation.”

    On March 30, 2010, from 2:00 – 3:40 pm (Eastern), I will be presenting at a CLE teleconference:  “The Hot Buttons in Asbestos Insurance Litigation,” hosted by HB Litigation Conferences.  My co-presenters will be Barry Buchman of Gilbert LLP andAndrew Frankel of Simpson Thacher & Bartlett LLP.

    It should be a great CLE, as the three panelists have a good deal of experience in litigating coverage for asbestos claims, both in coverage litigation in state and federal courts, as well as in the context of asbestos-related bankruptcies, including adversary actions.

    Here’s the agenda:

    • Choice of law: what rules govern your claims and policies
    • Update on current coverage litigation cases that are impacting the litigation
    • The contribution issue in light of Keasbey
    • Allocation issues–the ol’ debate–pro rata or all sums: the jurisdictions still at play and why
    • Multiple party, multiple policy claims on the rise: why and what kinds of cases are we seeing?
    • Insurance and bankruptcy: premises/operations claims and standing in a 524(g) plan?
    • The big elephant in the room–MMSEA: what are the insurers and self-insured responsibilities with reporting?

    To register, you can download the Registration Form and mail/fax/email it to HB Litigation Conferences, complete the online form, or e-mail or call Brownie Bokelman at 484-324-2755 x 212 to register.

    Disclaimer:

    This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2010.

    myspace profile views counterNote:  as a speaker at the conference, I was not charged a fee to attend the remainder of the conference.

    Delaware Court Refuses to Apply Pro Rata Allocation to Directors and Officers Insurance Policy and Rejects Excess Insurers’ Attempts to Deny Coverage Because There Were Settlements of Lower Layers of Coverage

    In HLTH Corp. v. Agricultural Excess & Surplus Insurance Co., No. 07C-09-102-RRC, 2008 Del. Super. LEXIS 280 (Del. Super. Ct. July 31, 2008), the insurance companies that sold HTLH Corp. multiple directors and officers insurance policies tried to limit their obligation to pay defense costs by asking the Delaware Superior Court to apply a pro rata allocation of defense costs. The excess insurers tried to avoid paying at all, asserting that because there were settlements of the lower layers of coverage for less than the full policy limits, the excess insurers did not have to pay at all. The court correctly rejected both arguments.

    Access a full copy of the opinion on Lexis.com.

    The court decided properly that the insurers could not rely on a pro rata allocation of defense costs.

    The corporate entity insureds under the directors and officers insurance policies in question went through various corporate transactions, including name changes and acquisitions, and there were multiple towers of coverage at issue in HLTH Corp. See 2008 Del. Super. LEXIS 280, at *5-*9. The underlying actions at issue were indictments against certain former directors and officers, with allegations of improper inflation of the earnings of the corporate insured entities. See generally id. at *10-*12. The plaintiff corporate insured entity HLTH Corp. (HLTH) indemnified the former directors and officers for the defense costs that they incurred in defending the underlying actions. See id. At *9-*10 HTLH “assert[ed] claims for coverage only” under two out of the three triggered towers of coverage; the third tower contained a $10 million deductible, and HTLH did not seek coverage under that tower. Id. at *13. Of those two towers under which HTLH asserted claims for coverage, “[t]he limits of the policies” in one of the two towers “[we]re no longer available as a result of” multiple coverage settlements. Id.

    As they have sought to do in other cases involving general liability policies, the insurers asked the court to invent a pro rata allocation scheme that was found nowhere in the policies. See id. at *21-*22; see also, e.g., Rich Scislowski, Allocating Losses under a 1973 CGL, Int’l Risk Mgmt. Inst., Inc., Sept. 2007, http://www.irmi.com/expert/Articles /2007/Scislowski09.aspx (“pro rata allocation is a theory that ‘was invented out of whole cloth by the federal courts as a mere judicial convenience.’”); cf. Consol. Edison Co. of N.Y., Inc. v. Allstate Ins. Co., 774 N.E.2d 687, 695 (N.Y. 2002) (admitting that courts have created various methods to implement the insurers’ pro rata theory). The insurers sought to allocate 77 percent of the defense costs to the towers that were unavailable because of settlement and had a large deductible, suggesting that they had reached the percentages by considering “the alleged dates of their occurrences as set forth in the indictment” and assigning them “to each tower’s coverage period and then dividing by the total.” HLTH Corp., 2008 Del. Super. LEXIS 280, at *31-*32.

    The court explained that, although the insurers had conceded that each of the three towers of coverage was obligated to pay defense costs independently, the insurers nonetheless argued that each policy’s promise to pay should be limited because the insured had settled some coverage and had a high deductible for other coverage. See id. at *29-*34. The court rejected the insurers’ requests, looking to Delaware and New Jersey law. See id. at *32-*35. The court explained that the proposed pro rata allocation was not found in “any contract provision or case that would specifically require it.” Id. at *32. The court explained further that had the insurers wished to limit their obligations, they “could have explicitly included an allocation requirement in their contracts that would require the very allocation that they now ask this Court to order, but they did not.” It is a well-accepted concept in insurance coverage law that if an insurer could have included restrictive language in a policy, but did not, it cannot then enforce this restriction in litigation. Id. at *37-*38; see, e.g., Hercules, Inc. v. AIU Ins. Co., 784 A.2d 481, 491 n.28 (Del. 2001) (Refusing to grant insurers’ requests for pro rata limitation of CGL because “the policies could have contained proration provisions, but did not.”) In addition to the strict construction reason for rejecting the insurers’ arguments, the court noted that the insurers’ requests to limit artificially their coverage obligations would be “unfair to” the insureds. HLTH Corp., 2008 Del. Super. LEXIS 280, at *32.

    The court decided properly that the lower layers of coverage were exhausted as a matter of law.

    The insurers also raised a “supplementary argument” that, because the insureds could not demonstrate “exhaustion of the underlying policies,” due to their decisions to settle lower layers of coverage for less than the full policy limits, the remaining insurers would never be obligated to pay under their policies. Id. at *42-*43. The insurers relied on the following clause to support their argument:

    Only in the event of exhaustion of the Underlying Limit by reason of the insurers of the Underlying Insurance, or the insureds in the event of financial impairment or insolvency of an insurer of the Underlying Insurance, paying in legal currency, loss which, except for the amount thereof, would have been covered hereunder, this policy shall continue in force as primary insurance, subject to its terms and conditions and any retention applicable to the Primary Policy, which retention shall be applied to any subsequent loss in the same manner as specified in the Primary Policy. The risk of uncollectability of any Underlying Insurance, whether because of financial impairment of insolvency of art [sic] underlying insurer [sic] other reason, is expressly retained by the Insureds and is not in any way insured or assumed by the Company.

    Id. at *43.

    The court held that under New Jersey and Delaware law, the excess layer policies are responsible for covered amounts in excess of the lower layer policy limits. See id. at *44. It was irrelevant whether the insured collected the full amount of the lower layers’ coverage limits; as long as the underlying liability reached the upper layers’ attachment point, the upper layers were obligated to respond. See id. at *45. The court explained it rejected the argument that the upper layers would not attach if the insured had settled the lower layers of coverage for less than their policy limits, because “the excess insurance company could not possibly claim to have a stake in whether the insured actually received all of the underlying insurance limits.” Id. In so ruling, the court rejected Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London, 161 Cal. App. 4th 184; 73 Cal. Rptr. 3d 770 (2008), review denied, 2008 Cal. LEXIS 6969 (Cal. June 11, 2008) and Comerica Inc. v. Zurich American Insurance Co., 498 F. Supp. 2d 1019 (E.D. Mich. 2007), two decisions on which the insurers relied on to support their argument that the lower layer settlements would vitiate the upper layers’ coverage obligations. See id. at *46. The court explained that those decisions are “contrary to the established case law of New Jersey and Delaware.” Id. The court concluded by holding that “to the extent that [the insureds’] defense costs exceed any loss they may have imposed on themselves by accepting settlements with underlying insurers for less than the policy limit, . . . those underlying policies have been exhausted as a matter of law.” Id. at *47.

    Conclusion

    The HLTH Corp. decision correctly rejected the insurers’ attempt to create a pro rata allocation of defense costs that is not supported by policy language, case law, or fairness, thereby ensuring that the insureds could recover their full defense costs. The decision also correctly rejected the insurers’ attempts to use the insureds’ decisions to settle its lower layer coverages as a sword against the insureds, and ruled that the lower layers of coverage were exhausted as a matter of law.

    Scott Godes [formerly] is counsel in Dickstein Shapiro’s Insurance Coverage Practice. Mr. Godes focuses on representing corporate policyholders in insurance coverage disputes. He is an experienced litigator who has an extensive background trying complex insurance coverage disputes, including class actions, in state, federal, bankruptcy, and appellate courts, as well as in commercial arbitrations.

    This was posted originally at Lexis’ Insurance Law Center.

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    Disclaimer:

    This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2009.

    Scott N. Godes on the New York Appellate Division’s Recent Decision Rejecting Allocation to the Policyholder for Latent Injury Claims: State of New York Insurance Department Liquidation Bureau v. Generali Insurance Company

    Scott N. Godes [formerly] is counsel in Dickstein Shapiro’s Insurance Coverage Practice.

    A recent New York Appellate Division decision is a breath of fresh air for policyholders. In State of New York Insurance Department Liquidation Bureau v. Generali Insurance Co., the Appellate Division, First Department, found that insurance companies had to cover all shares of defense and settlement costs related to lead paint claims, and could not pro-rate the costs to the policyholder, even when there were significant periods of time in which the policyholder had no insurance.  .  .  .

    Read the rest of the post here, at Lexis’ Insurance Law Center.

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    Disclaimer:

    This blog is for informational purposes only. This may be considered attorney advertising in some states. The opinions on this blog do not necessarily reflect those of the author’s law firm and/or the author’s past and/or present clients. By reading it, no attorney-client relationship is formed. If you want legal advice, please retain an attorney licensed in your jurisdiction. The opinions expressed here belong only the individual contributor(s). © All rights reserved. 2009.