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Posts Tagged ‘Joint and Several’

Time-on-the-Risk Allocation: Are Periods when Coverage is Unavailable in the Market Part of the Time-on-the-Risk?  

September 23rd, 2018 Absolute Pollution Exclusions, Allocation, Allocation of Settlements, Claims Handling, Follow-the-Settlements/Follow-the Fortunes, Insurance Contracts, Insurance Coverage, Long-Tail Claims, New York Court of Appeals, New York State Courts, Reinsurance Allocation, Reinsurance Arbitration, Reinsurance Claims, Reinsurance Litigation, Sudden and Accidental Pollution Exclusions Comments Off on Time-on-the-Risk Allocation: Are Periods when Coverage is Unavailable in the Market Part of the Time-on-the-Risk?  
TIme-on-the-Risk 1

TIme-on-the-Risk 1

We’ve discussed various issues concerning the allocation of asbestos or hazardous waste claims by insurers or cedents in situations where losses occur in multiple policy periods over time. (See here, here, & here.) Issues relating to allocation of such claims have, for many years, arisen in both insurance coverage cases and reinsurance litigation and arbitration, and they still do.

Earlier this year in Keyspan Gas East Corp. v. Munich Reins. Am., Inc., ___ N.Y.3d ___, N.Y. Slip Op. 2116 (March 27, 2018), New York State’s highest court held that, where applicable policy language contemplates a pro-rata time-on-the-risk allocation of loss, the damages or liability should be allocated over the entire period during which it occurred, including periods during which insurance was not available in the market because of exclusions or other reasons. While the outcomes it will generate are more favorable to insurers than policyholders, the Keyspan decision is sound and consistent with prior New York Court of Appeals cases on allocation and insurance generally. Given New York’s highest court’s historically excellent reputation for resolving insurance and reinsurance issues in an objectively fair and commercially reasonable manner, we suspect that Keyspan may prove to be an influential decision that other states will consider carefully when they are faced with questions concerning what should or should not be counted as part of the time-on-the-risk.

Time-on-the Risk Allocation: Contextual Background

Time-on-the-Risk 2

Time-on-the-Risk 2

Hazardous waste and asbestos claims are unique because the “injury producing harm is gradual and continuous and typically spans multiple insurance policy periods….” Keyspan, 2018 N.Y. Slip Op. 2116, at *4. Typically the “environmental contamination” or asbestos injury “that occurred in any given year is unidentifiable and indivisible from the total resulting damages.” See 2018 N.Y. Slip Op. at 2.

Allocating a multi-policy-period loss in different ways can have very significant financial consequences to reinsurers and cedents, and insurers and their insureds. The amount of loss allocated to a given policy determines the applicability of deductibles, the exhaustion (or non-exhaustion) of limits, and the amount the insured is entitled to collect from the insurer under each policy. It factors into whether reinsurance retentions have been met or whether reinsurance contract limits have been exceeded. It can even determine whether certain insurers (e.g. excess or umbrella carriers) or reinsurers are responsible for any of the loss. Continue Reading »

House of Lords Hands Down Landmark Reinsurance Decision: Lexington Insurance Co. v. AGF Insurance Ltd.

August 18th, 2009 Asbestos-Related Claims, Environmental Contamination Claims, Follow-the-Settlements/Follow-the Fortunes, House of Lords, Reinsurance Allocation, Reinsurance Claims Comments Off on House of Lords Hands Down Landmark Reinsurance Decision: Lexington Insurance Co. v. AGF Insurance Ltd.

Part I of a Two-Part Post


Effective October 1, 2009 the House of Lords will be replaced by the Supreme Court of the United Kingdom (more information here).  In what may be among its last official acts, on July 30, 2009 the House decided an important reinsurance case concerning the scope of a reinsurer’s indemnity obligation to a U.S. cedent under English law.  See Lexington Insurance Co. v. AGF Insurance Co. [2009] UKHL 40.  The reinsurance contract was back-to-back with the reinsured policy in all but one respect:  it was governed by English law, while the insurance policy was, in the event of coverage litigation, potentially subject to the laws of any number of U.S. jurisdictions, depending on venue, applicable choice of law rules and other considerations.  Relying on a long-line of English law precedent, and distinguishing other precedent, the House ruled that a proportional facultative reinsurer was not obligated to indemnify the cedent for the reinsurer’s share of the entire amount of a judgment a state court in Washington rendered against the cedent.  The judgment resulted from a Washington Supreme Court decision which, applying Pennsylvania law, ruled that the cedent was jointly and severally liable under its policy for property damage caused by environmental contamination that occurred before, during and after the cedent’s three-year policy period.  The House said that, judgment or no judgment, the reinsurer agreed to reinsure only loss or damage occurring during the coterminous, three-year period of the reinsurance contract, and the reinsurer’s obligation was limited to its share of that loss. 

The House’s decision is likely to be controversial.  In this Part I of a two-part post, we shall discuss the controversy and seek to allay it a bit.  In Part II we’ll walk the reader through that reasoning and offer some parting comments. 

The Controversy

Complex environmental-contamination and asbestos-related claims are anything if not costly.  American insurers have been fighting an expensive, multi-front war with their insureds for many years over the scope and extent of their liability for these claims.  They raise a myriad of issues and are potentially governed by the laws of at least fifty different jurisdictions (some sympathetic to insurers, some not).   These jurisdictions have adopted different approaches to resolving the issues (some favorable to insurers, some not), which means that no matter where may be the venue, complex choice-of-law questions are likely to arise.  And the coverage actions usually involve multiple insurers, sites, claimants, years of coverage, and layers of coverage.  The amount at stake and the concomitant expense can be staggering.  For the most part, these claims and coverage disputes — let alone how some courts might resolve them — could not reasonably have been anticipated at the time when most of the occurrence policies on which they arose were written (generally prior to 1980 and sometimes going back to the 1930s).  Continue Reading »