second wave allocation issues: deductibles, exhaustion ......#aciinsurance self-insured-retentions...

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ACI’s 2nd National Forum on Insurance Allocation

Donna J. Vobornik

Dentons US LLP

Second Wave Allocation Issues:Deductibles, Exhaustion, and More

Alex E. Potente

Segdwick LLP

Timothy R. Sullivan

McCormick Barstow, LLP

June 25-26, 2015

Tweeting about this conference?

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Donna Vobornik, Esq.Dentons US LLP

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Number of Occurrences

• Liability policies generally provide coverage for bodily injury and property damage that takes place during the policy period and that is caused by an "occurrence."

• The number of occurrences is often determinative of which insurance policies provide coverage for the insured, whether multiple sets of limits apply, and how many deductibles / SIRs apply.

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Self-Insured-Retentions and Deductibles

• A deductible is "a portion of an insured loss for which the insured is responsible. The deductible is generally a specific sum that the insured must pay before the insurer owes its duty to indemnify the insured for a loss. A deductible usually relates only to the damages sustained by the insured, not to defense costs. That is, the insurer is fully responsible for defense costs as long as the loss is potentially covered under the policy."

• A SIR "is generally a specific amount of loss that is not covered by the policy but instead must be borne by the insured. A SIR endorsement may provide that the insurer shall have the right, but not the duty, to assume charge of the defense and settlement of any claim, including those below the level of the SIR."

Gen. Star Nat. Ins. Corp. v. World Oil Co., 973 F. Supp. 943, 948-949 (C.D. Cal. 1997)

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Number of Occurrences• Two Approaches:

• Majority Approach: Cause Test• Ask whether "there was but one proximate, uninterrupted, and continuing

cause which resulted in all of the injuries and damage." Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56, 61 (3d Cir. 1982).• General or immediate?

• Liability-Triggering Events Test

• Unfortunate Events Test

• Minority Approach: Effects Test• “[L]imits in a liability policy which limit the insurer’s liability to a specific

amount ‘per occurrence’ or ‘per accident’ refers to the effect of the occurrence or accident, thus making the entire policy limits available to each injury or damaged party.” Am. Modern Select Ins. Co. v. Humphrey, No. 3:11-CV-129, 2012 WL 529576, at *4 (E.D. Tenn. Feb. 17, 2012).• See e.g., Nicor, Inc. v. Associated Elec. & Gas Ins. Servs. Ltd., 223 Ill. 2d 407, 418, 860,

N.E.2d 280, 287 (Ill. 2006) (declining to adopt the effects test).

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• Implications of Each Test for Finding Single or Multiple Occurrences:• Both inquiries are fact-specific.

• "Neither the cause theory nor the effect theory inevitably favors one party to an insurance contract over another." Nicor, Inc. v. Associated Elec. & Gas Ins. Servs. Ltd., 223 Ill. 2d 407, 419, 860 N.E.2d 280, 287 (2006).

• Effects Test: courts find multiple occurrences more often.

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Number of Occurrences: The Cause Test

Factors that Influence the Number of Occurrences • Contract language and claim-specific facts:

• Temporal and spatial relationship

• "accident" vs. "occurrence"

• Burden of proof on insured to show number of causes.

• Although the insured may strategically try change its position on the number of occurrences, the "mend the hold" doctrine limits this behavior.

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Number of Occurrences:Why does it matter?

Single occurrence theory is beneficial if…

Multiple occurrence theory is beneficial if…

Policyholders • significant SIRs must be satisfied for each occurrence

• A single primary insurance limit already is exhausted, in order to access excess coverage

• the claim is large, in order to maximize policy limits available

• Defense costs erode excess policy limits, so it is better to stay in the primary layer

• A policy does not contain aggregate limits

Insurers • To limit exposure to a single limit of liability

• policyholder has significant per-occurrence SIRs

• excess insurer wants to stay out of reach

• Tension between excess carriers and primary carriers due to per occurrence / aggregate limits

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• Issues arising from long-tail claims

• Pro-Rata allocation is more manageable and keeps litigation costs down.

• Multi-year policies.

• SIRs.

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• Similarities:• Both represent risk sharing between the INSURED and the

INSURER.

• Both represent the amount of the loss the INSURED is required to cover before coverage under the policy is triggered.

• Both can only be satisfied by payments made that would be covered by the policy.

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•Differences:• When the INSURER's duty to defend begins:

• Deductible policies: the INSURER's duty to defend begins immediately.

SIR policies: the INSURER's duty to defend begins after the SIR is exhausted.

• Depending on the policy language, typically policy limits apply on top of the SIR, while the deductible reduces the policy limits.

• Who the INSURED pays:• Deductible policies: INSURED pays the amount to the INSURER.

SIR policies: INSURED pays the amount to the CLAIMANT.

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Issues Unique to SIRs

• Who pays the SIR?

• Insured? Another insurer? Unrelated third party?

• Policy language is key.

• Is a self-insured retention the same as self insurance for allocation purposes? Is it considered primary insurance?

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SIRs and Deductibles When Multiple Policies Are Triggered

• Multiple policies from different carriers:

• Majority approach: the INSURED is responsible for the full deductible or SIR on each triggered policy, as agreed to in the plain language of the insurance policy.

• Minority approach: the INSURED pays a pro rata share of the deductible or SIR amount in the same percentage as the INSURER's liability as apportioned on a pro rata basis.

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Who Pays the SIR When Insured is Insolvent?• Self-Insured Retention: Normally, an insured is

responsible for paying its SIR to exhaust the primary layer of coverage. However, when the insured is bankrupt or insolvent and cannot make payment of its SIR, the excess carrier’s coverage obligation is triggered.

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Allocation of Coverage for Policy Years with Insolvent Insurers

Where coverage spans multiple policy periods, who bears the burden of covering an insolvent

carrier’s portion of the loss?

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Allocation of Coverage for Policy Years with Insolvent Insurers:

The Insured Pays

• MAJORITY APPROACH: The insured is generally liable for an insolvent carrier’s allocated loss before an umbrella or excess carrier will be required to “drop-down” to cover an insolvent carrier’s loss.

• MINORITY APPROACH: An insurer is jointly and severally liable for all of an insured’s losses. Accordingly, an insured can elect one or more solvent carriers to cover “all sums” (i.e., the total loss amount), including an insolvent carrier’s allocated loss, up to that solvent carrier’s policy limits.

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Allocation of Coverage for Policy Years with Insolvent Insurers:

State Guaranty Funds Pay

• State guaranty funds (“Funds”) are statutory non-profit organizations that provide gap coverage for insolvent insurance carriers.

• The Funds each have certain per-claim and/or per-policy coverage limits, and provide coverage for certain defined claims.

• Before an insured can recover from the Funds, the insured must first exhaust all other available coverage (e.g., primary, excess, umbrella, self-insured retention, etc.).

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End Notes - Number of Occurrences

Cause Test:Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56 (3rd Cir. 1982) (applying Pennsylvania law).U.E. Texas One-Barrington, Ltd. v. General Star Indem. Co., 332 F.3d 274 (5th Cir. 2003) (applying Texas law).Associated Indem. Corp. v. Dow Chem. Co., 814 F. Supp. 613 (E.D. Mich. 1993).Barrett v. Iowa Nat. Mut. Ins. Co., 264 F.2d 224 (9th Cir. 1959) (applying Montana law).Business Interiors, Inc. v. Aetna Cas. & Sur. Co., 751 F.2d 361 (10th Cir. 1984) (applying Oklahoma law).Dow Chem. Co. v. Associated Indem. Corp., 727 F. Supp. 1524 (E.D. Mich. 1989).Home Indem. Co. v. City of Mobile, 749 F.2d 659 (11th Cir. 1984) (applying Alabama law).RLI Ins. Co. v. Simon's Rock Early College, 54 Mass. App. Ct. 286, 289 (Mass. App. Ct. 2002).United Services Auto. Ass'n v. Neary, 307 P.3d 907 (Alaska 2013).Arizona Property & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, (1987).State Farm Fire & Casualty Co. v. Elizabeth N., 9 Cal. App. 4th 1232 (1st Dist. 1992).Metro. Life Ins. Co. v. Aetna Cas. & Sur. Co., 255 Conn. 295 (Conn. 2001).Stonewall Ins. Co. v. E.I. Du Pont De Nemours & Co., 996 A.2d 1254 (Del. 2010).Koikos v. Travelers Ins. Co., 849 So. 2d 263 (Fla. 2003).Nicor, Inc. v. Associated Elec. & Gas Ins. Servs. Ltd., 223 Ill. 2d 407 (Ill. 2006).Bomba v. State Farm Fire & Cas. Co., 379 N.J. Super. 589 (N.J. App. Div. 2005).Arthur A. Johnson Corp. v. Indemnity Ins. Co. of N. Am., 7 N.Y.2d 222 (N.Y. 1959).Appalachian Ins. Co. v. General Elec. Co., 8 N.Y.3d 162, 171-72 (2007).Donegal Mut. Ins. Co. v. Bauhammers, 938 A.2d 286, 293 (Pa. 2007).Greengo v. Public Employees Mut. Ins. Co., 135 Wash. 2d 799 (Wash. 1998).Plastics Engineering Co. v. Liberty Mut. Ins. Co., 315 Wis. 2d 556 (Wis. 2009).Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Puget Plastics Corp., 649 F.Supp.2d 613, 617 (S.D. Tex. 2009).Westchester Surplus Lines Ins. Co. v. Maverick Tube Corp., 722 F.Supp.2d 787 (S.D. Tex. 2010).

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End Notes - Number of Occurrences

Effects Test:

Maurice Pincoffs Co. v. St. Paul Fire & Marine Ins. Co., 447 F.2d 204 (5th Cir. 1971) (applying Texas law).

State Farm Lloyds, Inc. v. Williams, 960 S.W.2d 781, 785 (Tex. App. Dallas 1997).

Lombard v. Sewerage & Water Bd., 284 So.2d 905 (La. 1973).

Am. Modern Select Ins. Co. v. Humphrey, No. 3:11-CV-129, 2012 WL 529576 (E.D. Tenn. Feb. 17, 2012).

Brooks v. Memphis & Shelby Cnty. Hosp. Auth., 717 S.W.2d 292 (Tenn. Ct. App. 1986).

Elston-Richards Storage Co. v. Indemnity Ins. Co. of N. Am., 194 F.Supp. 673 (W.D. Mich. 1960), aff'd, 291 F.2d 627 (6th Cir. 1961).

General:

Elston-Richards Storage Co. v. Indemnity Ins. Co. of N. Am., 194 F.Supp. 673 (W.D. Mich. 1960), aff'd, 291 F.2d 627 (6th Cir. 1961).

CSX Transp., Inc. v. Commercial Union Ins. Co., 82 F.3d 478 (D.C. Cir. 1996).

Roman Catholic Diocese of Brooklyn v. National Union Fire Insurance Co. of Pittsburgh, Pa., 991 N.E. 2d 666 (N.Y. 2013).

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End Notes - SIRs and Deductibles

Generally

Gen. Star Nat. Ins. Corp. v. World Oil Co., 973 F. Supp. 943, 948-949 (C.D. Cal. 1997).

Fireman's Fund Ins. Co. v. TD Banknorth Ins. Agency Inc., 644 F.3d 166, 172 (2d Cir. 2011).

Penthouse Owners Ass'n, Inc. v. Certain Underwriters at Lloyds, London, 612 F.3d 383, 387 (5th Cir. 2010).

Eakin v. Indiana Intergovernmental Risk Management Authority, 557 N.E.2d 1095, 1098 (Ind. Ct. App. 4th Dist. 1990).

Duty to Defend not triggered until after SIR exhausted:

Southern Healthcare Services, Inc. v. Lloyd's of London, 110 So. 3d 735, 748 (Miss. 2013).

U.S. Fire Ins. Co. v. Scottsdale Ins. Co, 264 S.W.3d 160, 173 (Tex. App. Dallas 2008), reh'g overruled, (Aug. 13, 2008).

Hormel Foods Corp. v. Northbrook Property and Cas. Ins. Co., 938 F. Supp. 555, 560 (D. Minn. 1996), aff'd, 131 F.3d 143 (8th Cir. 1997).

Duty to Defend triggered immediately:

American Safety Cas. Ins. Co. v. City of Waukegan, 776 F. Supp. 2d 670, 699 (N.D. Ill. 2011).

American Safety Indemnity Company v. Admiral Insurance Company, 220 Cal. App. 4th 1, 162 Cal. Rptr. 3d 699, 706-708 (4th Dist. 2013).

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Insured must pay the SIR:

Forecast Homes, Inc. v. Steadfast Ins. Co., 181 Cal. App. 4th 1466, 105 Cal. Rptr. 3d 200, 207-208 (4th Dist. 2010), review denied, (May 12, 2010).

Centex Homes v. Lexington Ins. Co., 2014 U.S. Dist. LEXIS 164472, *15 (C.D. Cal. Nov. 24, 2014).

Other Insurance or other party can pay the SIR:

Mt. McKinley Ins. Co. v. Swiss Reinsurance America Corp., 757 F. Supp. 2d 952, 958 (N.D. Cal. 2010).

Vons Companies, Inc. v. United States Fire Ins. Co., 78 Cal. App. 4th 52, 92 Cal. Rptr. 2d 597, 604-605 (2d Dist. 2000), as modified, (Mar. 6, 2000).

Continental Cas. Co. v. North American Capacity Ins. Co., 683 F.3d 79, 90 (5th Cir. 2012) (Texas law).

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Exhaustion of SIRs:

Westchester Fire Ins. v. Heddington Ins. Ltd., 883 F. Supp. 158, 166–67 (S.D. Tex. 1995), aff'd without op., 84 F.3d 432 (5th Cir. 1996).

Cordova v. Wolfel, 120 N.M. 557, 903 P.2d 1390, 1392 (1995).

State v. Continental Cas. Co., 126 Idaho 178, 879 P.2d 1111, 1116, 94 Ed. Law Rep. 548 (1994).

Eakin v Intergovernmental Risk Management Authority, 557 N.E.2d 1095, 1098 (Ind. Ct. App. 4th Dist. 1990).

Montgomery Ward & Company, Inc. v. Imperial Cas. & Indem. Co., 81 Cal. App. 4th 356, 97 Cal. Rptr. 2d 44, 49-53 (2d Dist. 2000).

Gen. Star Nat. Ins. Corp. v. World Oil Co., 973 F. Supp. 943, 948-949 (C.D. Cal. 1997).

Vons Companies, Inc. v. United States Fire Ins. Co., 78 Cal. App. 4th 52, 92 Cal. Rptr. 2d 597, 604-605 (2d Dist. 2000), as modified, (Mar. 6, 2000).

PECO Energy Co. v. Boden, 64 F.3d 852, 857, 42 Fed. R. Evid. Serv. 1354 (3d Cir. 1995).

Roman Catholic Diocese of Brooklyn v. National Union Fire Ins. Co. of Pittsburgh, Pa., 87 A.D.3d 1057, 930 N.Y.S.2d 215, 220 (2d Dep't 2011).

Benjamin Moore & Co. v. Aetna Cas. & Sur. Co., 179 N.J. 87, 843 A.2d 1094, 1105-1107 (2004).

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Who Pays the SIR When Insured is Insolvent?:

• Majority Position (Excess Layer Drops Down):

• Am. Safety Indem. Co. v. Vanderveer Estates Holding, LLC (In re Vanderveer Estates Holding, LLC), 328 B.R. 18 (E.D.N.Y. 2007)

• Home Ins. Co. of Ill. v. Hooper, 294 Ill. App. 3d 626, 691 N.E.2d 65 (Ill. App. Ct. 1998)

• Admiral Ins. Co. v. Grace Indus. Inc., 409 B.R. 275 (E.D.N.Y. 2009)

• Minority Position (Insured Must Pay):

• Amatex Corp. v. Aetna Cas. & Sur. Co. (In re Amatex Corp.), 107 B.R. 856 (E.D. Pa. 1989)

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End Notes - Insolvent Carriers

Majority Approach - Insured Pays

• AAA Disposal, 821 N.E.2d 1278, 290 Ill. Dec. 704 (Ill. App. Ct. 2005).

• Koppers Co. Inc. v. Aetna Cas. & Sur. Co., 98 F.3d 1440 (3d Cir. 1996).

• RT Vanderbilt Co., Inc. v. Hartford Accident & Indem. Co., No. X02UWYCV075016321, 2014 WL 1647135 (Conn. Super. Ct. March 28, 2014).

• Premcor USA, Inc. v. Am. Home Assurance Co., 400 F. 3d 523 (7th Cir. 2005).

• State Farm Mut. Ins. Co. v. Vines, 193 So. 2d 180 (Fla. 1st DCA 1966)

Minority Approach - Insurer Pays

• Reserve Ins. Co. v. Pisciotta, 30 Cal. 3d 800, 640 P.2d 764 (Cal. 1982 ) (en banc).

• Donald B. MacNeal, Inc. v. Interstate Fire & Cas. Co., 132 Ill. App. 3d 564, 477 N.E.2d 1322 (Ill. App. Ct. 1985)

State Guaranty Funds

• Survey of state guaranty fund laws: http://ncigf.org/GF-laws-and-summaries-by-state.

• Farmers Mut. Ins. Co. v. N.J. Prop.-Liab. Guarantee Ass’n, 74 A.3d 860 (N.J. Sept. 24, 2013)

• HELD: “In long-tail, continuous trigger cases where an insolvent carrier is on the risk along with solvent carriers, an insured must first exhaust the policy limits of the solvent carriers before seeking statutory benefits from the [state guaranty fund].”

• NOTE: The opinion technically is limited to those circumstances when an insured seeks coverage from a state guaranty fund to cover insolvent carriers’ allocated losses.

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Timothy R. Sullivan, Esq.McCormick Barstow LLP

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Anti-Stacking Provisions

• Non-cumulation Clause

• Non-cumulation of Limits Provision

• Prior Insurance Clause

• Related Claims Provision

• Interrelated Claims Provision

• Post-Inception Occurrence Clause

• Deemer Clause

• Telescope Clause

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Non-cumulation Clause

• Example:

•“Regardless of the number of years this insurance remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or period to period.”

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Non-cumulation Provision Held Enforceable:

California1, Colorado2, Delaware3, Florida4, Georgia5, Maryland6, Massachusetts7, Minnesota8, New Hampshire9, New Jersey10, New York11, Oregon12, Pennsylvania13, Washington14, Wisconsin15

See End Notes for case authorities.

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Non-cumulation Provision Held to be Ambiguous:

California16, Georgia17, Illinois18, Louisiana19, Maryland20, New Jersey21, Ohio22, Texas23

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Non-cumulation Provision Enforceable, But Limited:

California24, Delaware25, New Jersey26

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Non-cumulation Provision Held To Be Unenforceable

Illinois27, Massachusetts28, New Jersey29, New York30

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Enforceable:California1, Colorado2, Delaware3, Florida4, Georgia5, Maryland6, Massachusetts7, Minnesota8, New Hampshire9, New Jersey10, New York11, Oregon12, Pennsylvania13, Washington14,Wisconsin15

Ambiguous:California16, Georgia17, Illinois18, Louisiana19, Maryland20, New Jersey21, Ohio22, Texas23

Limited:California24, Delaware25, New Jersey26

Unenforceable:Illinois27, Massachusetts28, New Jersey29, New York30

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Anti-Stacking Provisions: A Four Step Analysis

(1) Is it unenforceable (as contrary to the jurisdiction’s allocation principles)?

(2) Is it ambiguous (in whole or in part)?

(3) To what “loss” does it apply?

(4) Is it limited?

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Unenforceable• Spaulding Composites Company, Inc. v.

Aetna Cas. & Sur. Co.31

• New Jersey Supreme Court held clause inapplicable and unenforceable in light of the state's allocation law;

• Because enforcement “would thwart the Owens-Illinois pro-rata allocation modality” and “allow the insurer to avoid its fair share of responsibility, [the provision] drops out of the policy.”

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Unenforceable

• Outboard Marine Corp. v. Liberty Mutual Ins. Co.32

• Illinois Court of Appeal declined to enforce clause in an environmental coverage case;

• Enforcement would be "illogical and at odds with the other policy language given the nature of this 'occurrence' and our application of the pro rata, time-on-the-risk theory."

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Non-Cumulation Clauses

(2) Is it ambiguous (in whole or in part?)

Several cases have found non-cumulation provisions to be ambiguous or ineffective:

California33, Georgia34, Illinois35, Louisiana36, Maryland37, New Jersey38, Ohio39, Texas40

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Is it Ambiguous?

•A.B.S. Clothing Collection, Inc. v. Home Ins. Co.41

• “Regardless of the number of years this insurance remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or period to period.”

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Is it Ambiguous?

• A.B.S. Clothing 42

• Held the clause was 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.”

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Is it Ambiguous?

• Sherman & Hemstreet, Inc. v. Cincinnati Ins. Co.43

• “Regardless of the number of years this insurance remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or period to period.”

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Is it Ambiguous?

• Sherman & Hemstreet, Inc. v. Cincinnati Ins. Co.44

• The Georgia Supreme Court concluded that portions of the non-cumulation clause in a renewal commercial insurance policy were ambiguous, construed them in favor of the policyholder, and held it did not apply; but the initial policy’s non-cumulation clause limited the insured’s recovery to single year’s policy limit.

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Is it Ambiguous?

Sherman & Hemstreet, Inc. v. Cincinnati Ins. Co.44

• It was precisely the same clause. • The same insurance company issued the

policies.• It was the same claim, and the same set

of facts.The exact same language, unambiguous and enforceable as applied at one point in time, but ambiguous when applied at a different time.

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(3) To what “loss” does it apply?Stonewall Ins. Co. v. E.I. du Pont de Nemours & Co., 996 A.2d 1254 (Del. 2010)45

“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 Items 5 and 6 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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Non-Cumulation Clauses(3) To what “loss” does it apply?

“…interpreting the non-cumulation clause to limit how much DuPont may seek from the selected tower of insurance by subtracting any amounts received by or payable to DuPont from prior excess insurers, is the only proper interpretation”

Not apply to the “entire loss” but the “subset” of amounts received by or payable to the insured from prior excess insurers in the same tower.

Stonewall Ins. Co. v. E.I. du Pont de Nemours & Co.46

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(4) Is it limited?

•to insurers at the same level?

•to the same or an “affiliated” insurer?

•to policies issued to “you” or “the insured”?

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Same Level?• Olin Corp. v. American Home Assur. Co.47

• “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.”

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Same Level?

•Olin Corp. v. American Home Assur. Co.48

•Held the provision did not apply to prior insurance policies at a lower level of excess coverage.

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“Affiliated” InsurerMarshall v. Air Liquide-Big Three, Inc.,49

8. TWO OR MORE COVERAGE FORMS ORPOLICIES ISSUED BY USIf this Coverage Form and any other Coverageform or policy issued to you by us or anycompany affiliated with us apply to the same“accident”, the aggregate maximum Limit ofInsurance under all the Coverage Forms orpolicies shall not exceed the highest Limit ofInsurance under any one Coverage Form orpolicy. This condition does not apply to anyCoverage Form or policy issued by us or anaffiliated company specifically to apply as excessinsurance over this Coverage Form.

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“Affiliated” Insurer

Marshall v. Air Liquide-Big Three, Inc.,

107 So.3d 13 (La. Ct. App. 4th Cir.

2012), decision clarified on reh'g, (Oct.

5, 2012) and writ denied, 104 So.3d

451 (La. 2012) and writ denied, 104

So.3d 449 (La. 2012) and writ denied,

104 So.3d 450 (La. 2012) and writ

denied, 104 So.3d 448 (La. 2012) 49

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“Affiliated” InsurerMarshall v. Air Liquide-Big Three, Inc.,49

Although the tern “affiliated” was not defined in thepolicy, but the court found that the declaration pageof the C & I policies, the other insurance companies“are clearly enumerated, and therefore, any insuredwould have to reasonably assume that C & I andAISLIC are affiliated.” We agree with the trial court'sassessment. Construing the policy as a whole, weopine the term “affiliated” is defined as “closelyassociated with another typically in a dependent orsubordinate position.” We conclude the trial court'sinterpretation of “affiliated” was within the commonmeaning, is not confusing, and is not susceptible tomultiple interpretations. The term does not render thepolicies ambiguous.

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Other Policy Issued To “You”Travelers Property Cas. Co. of America v.LK Transp., Inc.50

• “If this Coverage Form and any other Coverage Form or policy issued to youby us or any company affiliated with us apply to the same ‘accident,’ the aggregate maximum Limit of Insurance under all the Coverage Forms or policies shall not exceed the highest applicable Limit of Insurance under any one Coverage Form or policy.”

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Other Policy Issued To “You”• Travelers Property Cas. Co. of America v. LKTransp., Inc.50

• Accordingly, this limitation only applies when two policies are issued to the same named insured. Here, the named insured under the Travelers Policy was Descor, Inc. . . . Conversely, the named insured under the Northland Policy was LK Transportation, Inc. . . . Therefore, the “anti-stacking” provisions do not block duplicate coverage under the Travelers Policy and the Northland Policy….

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Horizontal Exhaustion• Horizontal exhaustion rule - - An insured with

multiple primary and excess policies covering a common risk must exhaust all primary policy limits before invoking excess coverage.

• Vertical exhaustion rule - - An insured with multiple primary and excess policies covering a common risk may seek coverage from an excess insurer as long as the insurance policies immediately beneath that policy, as identified in the excess policy's declaration page, have been exhausted, regardless of whether other primary insurance may apply.

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Horizontal Exhaustion

Bathtub AnalogyUnder the Bathtub Methodology, the policies are metaphorically stacked in a bathtub according to their excess layer, while the liability—represented by water—is poured into the tub. Any policies that are “underwater” are paid out to their limit and policies that are “dry” are not implicated. • Bathtub Methodology51

• Rising bathtub52

• Fill the Bathtub53

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Horizontal Exhaustion: For Primary Policies

Horizontal exhaustion: California54, Illinois55, Maryland56, Oregon,57 *Indiana58

Vertical exhaustion: New Jersey59, Wisconsin60, Washington61

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Horizontal Exhaustion: For Excess Policies

•While horizontal exhaustion may apply to primary policies, vertical exhaustion may be applied to the excess layer.• Kaiser Aluminum and Chemical Corporation v. Certain

Underwriters At Lloyds, London62

• Viking Pump, Inc. v. Century Indemnity Company63

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Gaps

•Gaps

•White Space

•Orphan Shares

• Self-Insured

•Uninsured

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Gaps•Courts That Have Permitted Apportionment To The Insured• California64, Connecticut65, Florida66, Illinois67,

Maryland68, Minnesota69, New Jersey70, New York71, Vermont72, Washington73

•Courts That Have Rejected Apportionment To The Insured:• *California74, D.C. Circuit75, Pennsylvania76

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Five Principal Reasons For Gaps

(1) A conscious business decision to not buy insurance;

(2) The insured is unable to locate the policy, or prove its existence, terms or conditions;

(3) An exclusion or limitation precludes coverage;

(4) A carrier becomes insolvent; or(5) Insurance is unavailable due to market

conditions or statutory mandates.

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Does The Reason For The Gap Matter?

• Maybe.

• Some courts have recognized a possible exception to be applied where insurance was “unavailable.”77, 78

• However, they place the burden on the insured to prove insurance was unavailable (not just too expensive or hard to obtain) under an objective standard.

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Two Decisions That Won’t Be Coming To A Theater Near You

• Lincoln Electric Co. v. Travelers Cas. & Sur. Co., 2103 W.L. 9894215 (N.D. Ohio 2013), No. 2013-1088, case dismissed December 24, 2014.

• Thomson, Inc. v. Insurance Company of North America, 11 N.E.3d 982 (Ind. App. 2014), transfer denied - - N.E.3d - - (May 15, 2015)

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End Notes1. Kaiser Cement and Gypsum Corp. v. Insurance Company of the State of Pennsylvania, 155

Cal.Rptr.3d 283 (April 8, 2013), rehearing denied May 1, 2013 and ordered not published July 17, 2013.

2. Wausau Business Ins. Co. v. U.S. Motels Management, Inc., 341 F.Supp.2d 1180, 1184 (D. Colo. 2004).

3. Stonewall Ins. Co. v. E.I. du Pont de Nemours & Co., 996 A.2d 1254 (Del. 2010).

4. Reliance Ins. Co. v. Treasure Coast Travel Agency, Inc., 660 So. 2d 1136 (Fla. Dist. Ct. App. 4th Dist. 1995).

5. Plantation Pipeline Co. v. Continental Cas. Co., No. 03-CV-2811 (N.D. Ga., July 31, 2008).

6. Emcor Group, Inc. v. Great American Ins. Co., 2013 W.L. 1315029 (D. Md. 2013).

7. Liberty Mut. Ins. Co. v. Black & Decker Corp., 383 F. Supp. 2d 200 (D. Mass. 2004) (applying Massachusetts law).

8. Landico, Inc. v. Am. Family Mut. Ins. Co., 559 N.W.2d 438 (Minn.1997).

9. State Farm Mut. Auto. Ins. Co. v. Holyoke Mut. Ins. Co., 150 N.H. 527, 529 (2004) (quoting Brouillard v. Prudential Prop. & Cas. Ins. Co., 141 N.H. 710, 712 (1997).

10. I-O Brockway Glass Container, Inc. v. Liberty Mut. Ins. Co., 1994 WL 910935 (D.N.J. 1994) (applying New Jersey law); Federal Ins. Co. v. Purex Industries, Inc., 972 F.Supp.2d 812 (D. N.J. 1997).

11. Hiraldo v. Allstate Ins. Co., 5 N.Y.3d 508, 806 N.Y.S.2d 451, 840 N.E.2d 563 (2005); Hanover Ins. Co. v. Vermont Mut. Ins. Co., -- F.Supp.3d --, 2014 W.L. 6387061 (N.D. N.Y. 2014) [applying New York law]; Endicott Johnson Corp. v. Liberty Mut. Ins. Co., 928 F. Supp. 176 (N.D. N.Y. 1996) (applying New York law).

#ACIInsurance

End Notes12. California Ins. Co. v. Stimson Lumber Co., 2004 WL 1173185 (D. Or. 2004) (applying Oregon law).

13. Greene, Tweed & Co., Inc. v. Hartford Acc. & Indem. Co., 2006 WL 1050110 (E.D. Pa. 2006) (applying Pennsylvania law); Westinghouse Elec. Corp. v. American Home Assurance Co., 2004 WL 1878764 (N.J. Super. Ct. 2004), cert. denied, 182 N.J. 141, 861 A.2d 845 (2004) (applying Pennsylvania law); Reliance Ins. Co. v. IRPC, Inc., 2006 PA Super 150, 904 A.2d 912 (2006); Third Circuit: Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330 (3rd Cir. 2005) [applying Pennsylvania law]

14. Philadelphia Indem. Ins. co. v. Olympia Early Learning Center, 980 F.Supp.2d 1266 (W.D. Wash. 2013).

15. Plastics Engineering Co. v. Liberty Mutual Ins. Co., 351 Wis.2d 613 (2009).

16. A.B.S. Clothing Collection, Inc. v. Home Ins. Co., 34 Cal. App. 4th 1470, 41 Cal. Rptr. 2d 166 (2d Dist. 1995).

17. Sherman & Hemstreet, Inc. v. Cincinnati Ins. Co., 277 Ga. 734, 594 S.E.2d 648 (2004).

18. Continental Casualty Co., et al. v. Borg Warner Inc., et al., No. 04 CH 1708 (Ill. Cir. Ct.).

19. Marshall v. Air Liquide-Big Three, Inc., 107 So. 3d 13 (La. Ct. App. 4th Cir. 2012), decision clarified on reh'g, (Oct. 5, 2012) and writ denied, 104 So. 3d 451 (La. 2012) and writ denied, 104 So. 3d 449 (La. 2012) and writ denied, 104 So. 3d 450 (La. 2012) and writ denied, 104 So. 3d 448 (La. 2012).

20. Glaser v. Hartford Cas. Ins. Co., 364 F.Supp.2d 529 (D. Md. 2005).

21. Carter-Wallace, Inc. v. Admiral Ins. Co., No. L–12287–89 (N.J. Super. Ct. 1994), aff'd on other grounds, 154 N.J. 312, 712 A.2d 1116 (1998); Spaulding Composites Co., Inc. v. Aetna Cas. and Sur. Co., 176 N.J. 25, 28, 819 A.2d 410 (2008); IMO Industries, Inc. v. Transamerica Corp., 437 N.J.Super. 577, 101 A.3d 1085 (2014).

#ACIInsurance

End Notes22. E.J. Zeller, Inc. v. Auto Owners Ins. Co., 2014 W.L. 5803028 (Ohio App. 2014).

23. American Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994).

24. Travelers Property & Cas. Co. v. LK Transp., 3 F.Supp.3d 799 (E.D. Cal. 2014).

25. Stonewall Ins. Co. v. E.I. du Pont de Nemours & Co., 996 A.2d 1254 (Del. 2010).

26. Olin Corp. v. American Home Assurance Co., 704 F.3d 89 (2nd Cir. 2012) (N.J. law).

27. Outboard Marine Corp. v. Liberty Mut. Ins. Co., 283 Ill. App. 3d 630, 219 Ill. Dec. 62, 670 N.E.2d 740 (2d Dist. 1996), appeal denied, 675 N.E.2d 634 (Ill. 1996),

28. Chicago Bridge & Iron Co. v. Certain Underwriters at Lloyd's London, 1999 WL 1336605 (Mass. Super. Ct. 1999), judgment aff'd, 59 Mass. App. Ct. 646, 797 N.E.2d 434 (2003).

29. Spaulding Composites Co., Inc. v. Aetna Cas. & Sur. Co., 176 N.J. 25, 819 A.2d 410. (2003), cert. denied, 540 U.S. 1142, 124 S. Ct. 1061, 157 L. Ed. 2d 953 (2004).

30. Marshall v. Air Liquide-Big Three, Inc., 107 So. 3d 13 (La. Ct. App. 4th Cir. 2012), decision clarified on reh'g, (Oct. 5, 2012) and writ denied, 104 So. 3d 451 (La. 2012) and writ denied, 104 So. 3d 449 (La. 2012) and writ denied, 104 So. 3d 450 (La. 2012) and writ denied, 104 So. 3d 448 (La. 2012).

#ACIInsurance

End Notes31. Spaulding Composites Co., Inc. v. Aetna Cas. 7 sur. Co., 176 N.J. 25, 819 A.2d 410 (2003).32. Outboard Marine Corp. v. Liberty Mutual Ins. Co., 154 Ill.App.2d 90, 607 N.E.2d 1204 (1993). 33. A.B.S. Clothing Collection, Inc. v. Home Ins. Co., 34 Cal. App. 4th 1470 (1995).

34. Sherman & Hemstreet, Inc. v. Cincinnati Ins. Co., 594 S.E.2d 648, 650 (Ga. 2004) 35. Continental Casualty Co., et al. v. Borg Warner Inc., et al., No. 04 CH 1708 (Ill. Cir. Ct.),

36. Marshall v. Air Liquide-Big Three, Inc., 107 So. 3d 13 (La. Ct. App. 4th Cir. 2012), decision clarified on reh'g, (Oct. 5, 2012) and writ denied, 104 So. 3d 451 (La. 2012) and writ denied, 104 So. 3d 449 (La. 2012) and writ denied, 104 So. 3d 450 (La. 2012) and writ denied, 104 So. 3d 448 (La. 2012) 37. Glaser v. Hartford Cas. Ins. Co., 364 F. Supp. 2d 529, 538 (D. Md. 2005) 38. Federal Ins. Co. ex rel. Associated Aviation Underwriters v. Purex Indus., Inc., 972 F. Supp. 872 (D.N.J. 1997). 39. E.J. Zeller, Inc. v. Auto Owners Ins. Co., 2014 W.L. 5803028 (Ohio App. 2014)40. American Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994).

#ACIInsurance

End Notes41. A.B.S. Clothing Collection, Inc. v. Home Ins. Co., 34 Cal. App. 4th 1470 (1995).42. A.B.S. Clothing, supra. 43. Sherman & Hemstreet, Inc. v. Cincinnati Ins. Co., 594 S.E.2d 648, 650 (Ga. 2004).44. Sherman, supra. 45. Stonewall Ins. Co. v. E.I. du Pont de Nemours & Co., 996 A.2d 1254 (Del. 2010).46. Stonewall, supra. 47. Olin Corp. v. American Home Assurance Co., 704 F.3d 89 (2nd Cir. 2012) (N.J. law).48. Olin, supra. 49. Marshall v. Air Liquide-Big Three, Inc., 107 So. 3d 13 (La. Ct. App. 4th Cir. 2012), decision clarified on reh'g, (Oct. 5, 2012) and writ denied, 104 So. 3d 451 (La. 2012) and writ denied, 104 So. 3d 449 (La. 2012) and writ denied, 104 So. 3d 450 (La. 2012) and writ denied, 104 So. 3d 448 (La. 2012).

#ACIInsurance

End Notes50. Travelers Property Cas. Co. of America v. LK Transp., Inc., 3 F.Supp.3d 799 (E.D. Cal. 2014).51. Lexington Ins. Co. v. Clearwater Ins. Co., 28 Mass.L.Rptr. 519 (Mass.Super. 2011).52. North River Insurance Co. v. ACE American Reinsurance Co., 361 F.3d at 138, n. 6 (2nd Cir. 2004); Viking Pump, Inc. v. Century Indemnity Company, 2014 W.L. 1305003 (Del.Super. 2014).53. Travelers Cas. and Sur. Co. v. Insurance Co. of North America, 609 F.3d 143, 154 fn. 19 (3rd Cir. 2010); Travelers Cas. and Sur. Co. v. Gerling Global Reinsurance Corp. of America, 419 F.3d 181, 185 (2nd Cir. 2005)54. Padilla Constr. Co. v. Transp. Ins. Co., 150 Cal. App. 4th 984 (2007); Community Community Redev. Agency v. Aetna Cas. & Sur. Co., 50 Cal. App. 4th 329, 339 (1996) Stonewall Ins. Co. v. City of Palos Verdes Estates, 46 Cal. App. 4th 1810, 1850-53 (1996) 55. Kajima Constr., 856 N.E.2d at 456; Missouri Pacific, 679 N.E.2d at 809 United States Gypsum Co. v. Admiral Ins. Co., 643 N.E.2d 1226, 1261 (Ill. App. Ct. 1994).56. Mayor & City Council of Baltimore v. Utica Mut. Ins. Co., 802 A.3d 1070, 1102(Md. Ct. Spec. App. 2002) 57. Cal. Ins. Co. v. Stimson Lumber Co., No. Civ. 01-514-HA, 2005 WL 627624 at *4 (D. Or. Mar. 17, 2005); 58. Trinity Homes LLC v. Ohio Cas. Ins. Co., No. 1:04-cv-1920-SEB-DML, 2009 WL 3163108 at *11 (S.D. Ind. Sept. 25, 2009).59. Benjamin Moore & Co. v. Aetna Cas. & Sur. Co., 843 A.2d 1094 (N.J. 2004).

#ACIInsurance

End Notes60. Cook v. Cook, 560 N.W.2d 246 (Wisc. 1997); Westport Ins. Corp. v. Appleton Papers Inc., 787 N.W.2d 894 (Wisc. Ct. App. 2010).

61. Cadet Mfg. Co. v. Am. Ins. Co., 391 F.Supp. 2d 884, 892 (W.D. Wash. 2005).

62. Kaiser Aluminum and Chemical Corporation v. Certain Underwriters At Lloyds, London, Cal. Super. Ct. Case No, 312415, Kramer, J. (June 13, 2003) (Mem.Op.).

63. Viking Pump, Inc. v. Century Indemnity Company, 2014 W.L. 1305003 (Del.Super. 2014)

64. IMCERA Group, Inc. v. Liberty Mut. Ins. Co., 50 Cal.Rptr.2d 583 (Cal.App. 1996), as modified on denial of rehearing (March 29, 1996), review granted and opinion superseded, 54 Cal.Rptr.2d 41, 917 P.2d 1164 (Cal. 1996) and review dismissed, and cause remanded, 65 Cal.Rptr.2d 346, 939 P.2d 746 (Cal. 1997).

65. Security Ins. Co. of Hartford v. Lumbermens Mutual Casualty Co., 264 Conn. 688, 718–720, 826 A.2d 107 (Conn. 2003)

66. Royal Surplus Lines Ins. Co. v. Delta Health Group, Inc., 2006 W.L. 167565 (N.D. Fla. 2006)

67. Outboard Marine Corp. v. Liberty Mut. Ins. Co., 670 N.E.2d 740, 748-49 (Ill. App. Ct. 1996)

68. Riley v. United Services Auto. Assn., 161 Md.App. 573, 871 A.2d 599 (2005)

69. Domtar, Inc. v. Niagara Fire Ins. Co., 552 N.W.2d 738, 745 (Minn. Ct. App. 1996), rev'd in part on other grounds, 563 N.W.2d 724 (Minn. 1997).

#ACIInsurance

End Notes70. Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974, 995 (NJ. 1994).71. Uniroyal, Inc. v. Home Insurance Co., 707 F. Supp. 1368 (E.D.N.Y. 1988); NL Indus., Inc. v. Commercial Union Ins. Co., 926 F. Supp. 446, 465-466.72. Bradford Oil Co., Inc. v. Stonington Ins. Co., 190 Vt. 330, 54 A.3d 983 (2011) 73. Polygon Northwest Co. v. American Nat. Fire Ins. Co., 143 Wash.App. 753, 189 P.3d 777 (2008) 74. Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 45 Cal.App.4th

1, 52 Cal. Rptr. 2d 690 (1996).75. Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034, 1048-1049 (D.C. Cir. 1981).76. J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502, 508 (Pa. 1993) (concluding that to treat uninsured periods as self-insured periods is to "create a judicial fiction which cannot be supported").77. Champion Dyeing & Finishing Co., Inc. v. Centennial Ins. Co., 355 N.J.Super. 262, 810 A.2d 68 (2002).78. Riley v. United Services Auto. Assn., 161 Md.App. 573, 871 A.2d 599 (2005).

#ACIInsurance

Alex Potente, Esq.Sedgwick LLP

#ACIInsurance

Stacking & Types

• “Stacking” allows a policyholder to combine the policy limits of each

triggered policy to respond to a single loss.

• Intra-policy: Stacking different limits of coverage in a single policy

• UM coverage

• Stacking aggregate limits in general liability policies?

• Multiple coverages: such aggregate limit shall apply separately

to (1) premises/operations and (2) independent contractor; (3)

complete operations and (4) contractual liability

• Inter-policy: Stacking limits of multiple policies to cover a single

loss or multiple losses

• General liability: environmental, asbestos, products liability

• Multi-year GL policies: annualized limits?

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Pro Rata v. All Sums

• Pro rata • Generally insurer preference

• Alabama, Alaska, Arizona, Colorado, Connecticut, Georgia, Hawaii, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, North Carolina, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Wyoming

•All sums• Policyholder preference

• California, Delaware, District of Columbia, Illinois, Indiana, Missouri, Ohio, Oregon (by statute), Pennsylvania, Washington, West Virginia, Wisconsin

• State of California v. Continental Insurance Company, 55 Cal. 4th

186, 201 (2012) (all sums plus stacking)

#ACIInsurance

Trends: Pro Rata v. All Sums

#ACIInsurance

Stacking of Self-InsuredRetentions & Deductibles•Some courts allow SIR stacking for

continuing loss:• E.g., Kansas & Illinois

•Others do not:• E.g., California & Washington

#ACIInsurance

Proving Exhaustion of

Underlying Coverage

1. Vertical exhaustion or horizontal exhaustion

2. Satisfaction of SIR by underlying insured required?• Some courts require exhaustion by underlying insurer

• Others allow “functional” exhaustion by insured

3. What limits must be exhausted• Are occurrence aggregate limits applicable?

• Is the number of occurrences in play?

• Annualization for continuing loss?

#ACIInsurance

Trends: Vertical Exhaustion v.


#ACIInsurance

Excess Insurers –

Exhaustion Issues• Majority view: excess insurer not required to defend

insured if primary carrier required to defend.• Some courts have held that an excess insurer must defend an insured

where the primary indemnity limits have been exhausted and the primary carrier has refused to continue the defense, regardless of the extent of the primary insurer’s duty to defend.

• E.g. Kansas, New Mexico, Washington, Utah, Wisconsin

• A minority of courts apply an “equitable” division of defense costs between primary and excess carriers.• If an excess insurer refuses to acknowledge exhaustion of the primary

policy, the excess carrier must reimburse the primary carrier for excess carrier’s share of defense costs.

• Primary insurer must continue to defend until exhaustion issue decided by the court.

• E.g. California, Michigan, New York

#ACIInsurance

Excess Insurers –

Control of Defense• To exclude the duty to defend, the excess

policy’s exclusion must be clear and specific. Any ambiguity will be resolved against the excess insurer.

• For long-tail claims, there is a split in authority regarding whether an excess carrier must defend when primary coverage has been exhausted and there is other primary insurance available.• Some courts have held that the excess insurer’s defense duty attaches when

the insured has exhausted the primary coverage for the policy year covered by the excess policy.

• Other courts have held that primary insurance must be exhausted by layers.

#ACIInsurance

References: Pro Rata v. All SumsPro RataAlabama: Am. Mut. Liab. Ins. Co. v. Milwaukee Ins. Co., 283 Ala. 414, 218 So. 2d

129 (Ala. 1969) (pro rata by limits)

Alaska: Cont’l Ins. Co. v. U.S. Fid. & Guar. Co., 528 P.2d 430 (Alaska 1974),

appeal after remand 552 P.2d 430 (Alaska 1974) (pro rata by limits)

Arizona: Owners Ins. Co v. Ill. Union Ins. Co., 2007 WL 5471953 (Ariz. Ct. App.

Div. 1 2007) (unpublished op.) (pro rata by time on the risk)

Colorado: Pub. Serv. Co. of Colo. v. Wallis & Cos., 986 P.2d 924 (Colo. 1999) (pro

rata by time on the risk and other factors)

Connecticut: Travelers Cas. and Sur. Co. of America v. Netherlands Ins. Co., 312

Conn. 714, 95 A.3d 1031 (2014) (pro rata by time on the risk)

Georgia: Nat’l Serv. Indus., Inc. v. St. Paul Guardian Ins. Co., No. 2004CV83960

(Ga. Super. Ct., Fulton. Cty., June 7, 2005), reprinted in Mealey’s Ins. Litig. Rep.,

Vol. 19, #30 (June 14, 2005) (pro rata by time on the risk)

Hawaii: Sentinel Ins. Co. v. First Ins. Co. of Haw., Ltd., 875 P.2d 894 (Haw. 1994)

(pro rata by time on the risk)

Illinois: Outboard Marine Corp. v. Liberty Mut. Ins. Co., 670 N.E.2d 740 (Ill. App.

Ct. 1996) (pro rata by time on the risk)

Iowa: Federated Ins. v. Iowa Mut. Ins. Co., 659 N.W.2d 207 (Iowa 2003) (pro rata

by limits)

Kentucky: Aetna Cas. & Sur. Co., v. Commonwealth, 179 S.W.3d 830 (Ky. 2006)

(pro rata by limits)

Louisiana: Arceneaux v. Amstar Corp., 66 So. 3d 438 (La. 2011) (pro rata by time

on the risk)

Maine: State Farm Mut. Auto. Ins. Co. v. Universal Underwriters Ins. Co., 513

A.2d 283 (Me. 1986) (pro rata)

Maryland: Riley v. United Servs. Auto. Assoc., 871 A.2d 559 (Md. Ct. Spec. App.

2005), aff’d, 899 A.2d 819 (Md. 2006) (pro rata by time on the risk)

Massachusetts: Boston Gas Co. v. Century Indem. Co., 910 N.E.2d 290 (Mass.

2009) (pro rata by time on the risk)

Mississippi: Allstate Ins. Co. v. Chi. Ins. Co., 676 So. 2d 271 (Miss. 1996) (pro rata

by limits)

Montana: Am. Simmental Assoc. v. Coregis Ins. Co., 282 F.3d 582 (8th Cir. 2002)

(pro rata by limits)

Nebraska: Dutton-Lainson Co. v. Cont’l Ins. Co., 778 N.W.2d 433 (Neb. 2010)

(pro rata by time on the risk)

Nevada: Travelers Ins. Co. v. Lopez, 567 P.2d 471 (Nev. 1997) (pro rata by limits)

New Hampshire: Energy North Natural Gas, Inc. v. Certain Underwriters at

Lloyd’s, 934 A.2d 517 (N.H. 2007) (pro rata based on contract limits and time on

the risk)

New Jersey: Spaulding Composites v. Aetna Cas. & Sur. Co., 819 A.2d 410 (N.J.

2003) (pro rata as set out in Carter-Wallace)

New Mexico: Am. Gen. Fire & Cas. Co. v. Progressive Cas. Co., 799 P.2d 1113

(N.M. 1990) (pro rata allocation on same basis as indemnity)

New York: Roman Catholic Diocese of Brooklyn v. National Union Fire Ins. Co. of

Pittsburgh, Pa., 21 N.Y.3d 139, 969 N.Y.S.2d 808, 991 N.E.2d 666 (2013) (pro rata

by time on the risk)

North Dakota: Grinnell Mut. Reinsurance Co. v. Ctr. Mut. Ins. Co., 658 N.W.2d

363 (N.D. 2003) (pro rata by limits)

North Carolina: Ames v. Cont’l. Cas. Co., 340 S.E.2d 479 (N.C. Ct. App. 1986)

(equal shares)

Rhode Island: Peloso v. Imperatore, 434 A.2d 274 (R.I. 1981) (pro rata by limits)

South Carolina: Crossmann Communities of N.C. v. Harleysville Mut. Ins. Co.,

717 S.E.2d 589 (S.C. 2011) (pro rata by time on the risk if fact-based allocation is

not possible)

Tennessee: United Servs. Auto. Ass’n v. Hartford Acc. & Indem. Co., 414 S.W.2d

836 (Tenn. 1967) (pro rata by limits)

Utah: Ohio Cas. Ins. Co. v. Unigard Ins. Co., 268 P.3d 180 (Utah 2012) (pro rata

by time on the risk with no allocation to the insured for uninsured periods)

Vermont: Bradford Oil Co. v. Stonington Ins. Co., 2011 VT 108, 2011 WL

3962914 (Vt. 2011) (pro rata by time on the risk)

Wyoming: Aetna Cas. & Sur. Co. v. St. Paul Fire & Marine Ins. Co., 236 F. Supp.

289 (D. Wyo. 1964), aff’d, 357 F.2d 315 (10th Cir. 1966) (pro rata by limits)

#ACIInsurance

References: Pro Rata v. All SumsAll Sums

California: California v. Continental Ins. Co., 55 Cal.

4th 186, 281 P.3d 1000 Cal. (2012) (joint and several

allocation with stacking of limits permitted)

Delaware: Hercules Inc. v. AIU Ins. Co., 784 A.2d 481

(Del. 2001) (joint and several liability)

District of Columbia: Keene Corp. v. Ins. Co. of N. Am.,

667 F.2d 1034, 12 Envtl. L. Rep. 20105 (D.C. Cir. 1981)

(joint and several liability)

Illinois: Zurich Ins. Co. v. Raymark Industries, Inc.,

118 Ill. 2d 23 (1987)

Indiana: Allstate Ins. Co. v. Dana Corp., 759 N.E.2d

1049 (Ind. 2001) (joint and several liability)

Missouri: Doe Run Resources Corp. v. Certain

Underwriters at Lloyd’s London, 400 S.W.2d 463 (Mo.

Ct. App. 2013) (joint and several liability)

Ohio: Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur.

Co., 95 Ohio St. 3d 512, 769 N.E.2d 835, 2002 Ohio 2842

(Ohio 2002) (joint and several liability)

Oregon: Or. Rev. Stat. § 465.480 (for environmental

coverage cases, allocation is based on joint and several

liability)

Pennsylvania: J.H. France Refractories Co. v. Allstate

Ins. Co., 534 Pa. 29, 626 A.2d 502 (Pa. 1993) (joint and

several liability following Keene)

Washington: Am. Nat’l Fire Ins. Co. v. B & L Trucking &

Constr. Co., Inc., 134 Wash. 2d 413, 951 P.2d 250 (Wash.

1998) (joint and several liability)

West Virginia: Wheeling Pittsburgh Corp. v. Am. Ins.

Co., No. 93-C-340 (W. Va. Cir. Ct. Ohio Cty., Oct. 18,

2003), reprinted in Mealey’s Ins. Litig. Rep., Vol. 18, #3

(Nov. 18, 2003) (joint and several liability with possible

re-allocation to policyholder for uninsured and self-

insured periods)

Wisconsin: Plastics Eng’g Co. v. Liberty Mut. Ins. Co.,

315 Wis. 2d 556, 759 N.W.2d 613 (Wis. 2009) (joint and

several liability)

#ACIInsurance

References: Impact on Self-

Insured Retentions & DeductiblesStacking of SIRs permitted:• Kansas: Atchinson, Topeka & Santa Fe Ry. Co. v. Stonewall Ins. Co., 275 Kan.

698, 743 (2003) (holding SIRs were primary coverage and “other insurance” and thus must be exhausted before excess insurance policies apply).

• Illinois: Missouri Pacific R. Co. v. Int’l Ins. Co., 288 Ill. App. 3d 69, 83 (1997) (finding SIR equivalent to primary insurance and “other insurance” provision required exhaustion of SIR).

No stacking of SIRs:• California: Montgomery Ward & Co., Inc. v. Imperial Cas. & Indemn. Co., 81

Cal. App. 4th 356, 360-70 (2000) (“Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event . . . [s]elf-insurance . . . is equivalent to no insurance . . . As such, it is repugnant to the very concept of insurance . . . If insurance requires an undertaking by one to indemnify another, it cannot be satisfied by a self-contradictory undertaking by one to indemnify oneself.”)

• Washington: Bordeaux, Inc. v. Am. Safety Ins. Co., 145 Wash. App. 687, 695 (2008)(holding SIR not primary insurance and noting that Washington courts have rejected the argument that self-insurance constitutes “insurance.”)

#ACIInsurance

References: Proving Exhaustion of

Underlying CoverageExhaustion must be by the underlying insurer:

• See, e.g., Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London, 161 Cal. App. 4th 184 (2008) (finding language of excess contract, read in context of an excess contract’s function, requires actual payment by underlying insurer).

“Functional” exhaustion by the insured permitted:

• See, e.g., Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (1928) (determining that policy was ambiguous warranted finding that policy did not have to be “exhausted” by underlying insurer).

#ACIInsurance

References: Vertical Exhaustion v.


Alaska: Mapco Express, Inc. v. Am. Int’l Specialty Lines Ins.

Co., No.3AN-95-830-9 CIV (Alaska Super. Ct., July 31,

1998), reprinted in Mealey’s Ins. Litig. Rep., Vol. 12, #40

(Aug. 31, 1998)

New Jersey: Benjamin Moore & Co. v. Aetna Cas. & Sur.

Co., 843 A.2d 1094 (N.J. 2004)

Texas: LSG Techs., Inc. v. U.S. Fire Ins. Co., 2010 WL

5646054 (E.D. Tex. 2010)

Wisconsin: Westport Ins. Corp. v. Appleton Papers Inc., 787

N.W.2d 894 (Wisc. Ct. App. 2010)

Washington: Cadet Mfg. Co. v. Am. Ins. Co., 391 F. Supp. 2d

884 (W.D. Wash. 2005)

Arizona: Nucor Corp. v. Hartford Acc. & Indem. Co., No. CV 1997-08308 (Super. Ct. Ariz., Maricopa Cty., Sept. 29, 1997) (Slip Op.)

California: Padilla Constr. Co. v. Transp. Ins. Co., 150 Cal. App. 4th 984 (2007)

Illinois: Kajima Constr. Serv., Inc. v. St. Paul Fire and Marine Ins. Co., 856 N.E.2d 452 (2007)

Indiana: Irving Materials, Inc. v. Zurich Am. Ins. Co., 2007 WL 1035098 (S.D. Ind. 2007) (applying Indiana law), reconsideration denied by 2008 WL 687126 (S.D. Ind. 2008)

Maryland: Mayor & City Council of Baltimore v. Utica Mut. Ins. Co., 802 A.3d 1070 (Md. Ct. Spec. App. 2002)

Missouri: Emerson Elec. Co. v. Aetna Cas. & Sur. Co., No. 01 CH 1129 (Ill. Cir. Ct. Cook Cty, Jan. 13, 2002), reprinted in Mealey’s Ins. Litig. Rep., Vol. 16, #24 (April 30, 2002)

Ohio: GenCorp, Inc. v. AIU Ins. Co., 297 F.Supp.2d 995 (N.D. Ohio 2003)

Oregon: Cal. Ins. Co. v. Stimson Lumber Co., No. Civ. 01-514-HA, 2005 WL 627624 (D. Or. Mar. 17, 2005)

Vertical Exhaustion Horizontal Exhaustion

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References: Excess Insurers –

Exhaustion IssuesMajority View

Kansas: Am. Fid. Ins. Co. v. Employers Mut. Cas. Co., 3 Kan. App. 2d 245 (1979)

New Mexico: State Farm Mut. Auto. Ins. Co. v. Found. Reserve Ins. Co., 1967-NMSC-197, 78 N.M. 359, 431 P.2d 737

Washington: W. Pac. Ins. Co. v. Farmers Ins. Exch., 69 Wash. 2d 11, 416 P.2d 468 (1966)

Utah: Nat'l Farmers Union Prop. & Cas. Co. v. Farmers Ins. Grp., 14 Utah 2d 89, 377 P.2d 786 (1963)

Wisconsin: Johnson Controls, Inc. v. London Mkt., 2010 WI 52, 325 Wis. 2d 176, 784 N.W.2d 579

Minority View

California: Aetna Cas. & Sur. Co. v. Certain

Underwriters, 56 Cal. App. 3d 791 (Ct. App.

1976); Signal Companies, Inc. v. Harbor Ins.

Co., 27 Cal. 3d 359 (1980)

Michigan: Celina Mut. Ins. Co. v. Citizens

Ins. Co. of Am., 133 Mich. App. 655 (1984)

New York: Gen. Motors Acceptance Corp. v.

Nationwide Ins. Co., 4 N.Y.3d 451 (2005)

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References: Excess Insurers –

Control of DefenseVertical Exhaustion

Associated Int'l Ins. Co. v. St. Paul

Fire & Marine Ins. Co., 220 Cal. App.

3d 692, 269 Cal. Rptr. 485 (Ct. App.

1990), review denied and opinion

withdrawn

Community Redevelopment Agency of

the City of Los Angeles v. Aetna Cas.

& Sur. Co., 50 Cal. App. 4th 329 (2d

Dist. 1996)


In re Asbestos Insurance Coverage

Cases, Judicial Council Coordination

Proceeding No. 1072, Judgment, slip

op. at 22 (Cal Super. Ct. San

Francisco County Jan. 24, 1990),

aff’d in part, remanded in part sub

nom. Armstrong World Indus. V.

Aetna Casualty & Sur. Co., 45 Cal.

App. 4th 1, review denied (Cal. Aug.

21, 1996)

Kajima Constr. Serv., Inc. v. St. Paul

Fire and Marine Ins. Co., 879 N.E.2d

305 (Ill. 2007)

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