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Archive for the ‘Environmental Contamination Claims’ Category

One Per Occurrence Limit per Policy Period or One Per Occurrence Limit . . . Period? — New York Court of Appeals Reaffirms Noncumulation Clause Means what it Says  

December 2nd, 2014 Accumulation of Loss, Allocation, Allocation of Settlements, Anti-Stacking Provisions, Certificate or Treaty Limits, Claims Handling, Definition of Occurrence, Environmental Contamination Claims, Insurance Contracts, Insurance Coverage, Lead Paint Claims, New York Court of Appeals, New York State Courts, Noncumulation Clauses, Nuts & Bolts, Nuts & Bolts: Reinsurance, Reinsurance Allocation, Reinsurance Claims, Timing and Number of Occurrences, Trigger of Coverage Comments Off on One Per Occurrence Limit per Policy Period or One Per Occurrence Limit . . . Period? — New York Court of Appeals Reaffirms Noncumulation Clause Means what it Says  

Introduction

Liability insurance policies written on a per occurrence basis generally provide coverage for losses that occur during the policy period and arise out of an “occurrence.” In general (and subject to policy definitions) “occurrence” means not only a temporally discrete accident or event, but also “continuous exposure” to the same harmful conditions. Such “continuous exposure” may occur during more than one consecutive policy period and cause what is, for all intents and purposes, indivisible, continuing injury or property damage. Examples of that type of continuous exposure resulting in continuing injury or damage include, among others, exposure of tenants to cracked or peeling lead paint in an apartment building for a period of years, exposure of persons to asbestos products, or exposure of groundwater to hazardous waste over a period of years, resulting in liability for clean-up costs under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) (a/k/a “Superfund”).

Issues concerning the timing and number of occurrences, and per-policy allocation of loss, are particularly important in coverage cases where continuous exposure to conditions spans multiple policy periods and causes continuing, indivisible injury or property damage during those periods. The liability insurer’s indemnity obligation is limited to a specified limit per occurrence. In a continuous exposure case, the “occurrence” happens continuously over a period during which multiple consecutive policies are in effect.. There is one occurrence—sometimes referred to as a “continuing occurrence”—but it takes place during each of several consecutive policy periods. Does that mean that the insurer is obligated to pay a maximum of one per occurrence limit for all loss that occurs during its total coverage period, irrespective of how many policies it issued during that period, or must it pay up to one per occurrence limit per policy for whatever portion of the loss falls, or is deemed to fall, within that policy?

The answer to that question can have significant economic consequences for the liability insurer, and, of course, its reinsurers. If a liability insurer issues a landlord three, consecutive one-year-term policies with per occurrence limits of $X, and a tenant sustains injury attributable to continuous exposure to cracked or peeling lead paint, then, all else equal, the answer will determine whether the insurer’s maximum total indemnity obligation is $X or three-times that amount ($X multiplied by the number of policies involved).

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The Great Debate Over Written Claims Guidelines and Procedures

February 18th, 2010 Asbestos-Related Claims, Bad Faith, Claims Guidelines and Procedures, Claims Handling, Claims Spot, Environmental Contamination Claims, Internal Controls, Late Notice, Reinsurance Claims, Utmost Good Faith 1 Comment »

Our friend and fellow Long Islander Marc Lanzkowsky, Founder and Principal of Lanzko Consulting, Inc., recently launched the blog Claims Spot, which discusses and comments on direct, excess and reinsurance-related claims issues.  Marc has done a great job with Claims Spot and, not surprisingly, his blog is drawing some heavy traffic. 

A controversial issue that Marc has been covering is whether or not insurance companies should have in place written claims guidelines and procedures.  One school of thought is fearful of their use (or abuse) by insureds in coverage actions.  For example, a company employee might mistakenly not follow written guidelines and procedures in the course of handling a claim, and a dispute might arise as a result.  The insured will legitimately be able to argue  that the company’s handling of the claim did not comply with its own guidelines and procedures, and that, accordingly, the company mishandled the claim.  Proponents of this view will say that having claims guidelines and procedures is fine as long as they are merely aspirational and not in writing. 

Others advocate the “damned if you do, damned if you don’t” view.  If a large, professional insurer has no written guidelines and procedures, then the insured’s refrain in a coverage or bad faith action will be that the company is grossly negligent because it lacks the internal or external controls necessary to regulate a very significant portion of its business operations.   But if the company has written claims guidelines and procedures, then surely they will come back to haunt it in the event of litigation.  

Others, including Marc, believe the benefits associated with well-drafted and carefully considered claims guidelines and procedures outweigh the costs associated with formulating and implementing them, and, more importantly, whatever costs might be incurred by the insured’s potential use or abuse of the procedures in the event of a dispute.  Drawing on his experience as a lawyer and a claims executive for two major insurance companies, Marc offers assistance to companies that are interested in implementing written claims guidelines and procedures or improving existing ones. 

Marc recently brought the discussion up to the reinsurance level in his post, “Absence of Procedures to Notify Reinsurance is a Basis for Bad Faith.”   He was kind enough to mention what inspired his thoughtful post — an interesting discussion he and I had about the subject not long ago over a delicious sushi and bento box lunch at Misaki — Manhasset, New York’s best (and only) Japanese restaurant. 

As Marc points out there has been law in the Second Circuit for some time stating that a ceding company’s failure to have in place procedures for notifying reinsurers of claims can constitute bad faith, which may relieve a reinsurer of liability for a late-noticed claim without any showing of prejudice.    That is a pretty good argument for having in place written, ceded-claims handling procedures designed to ensure timely notice to reinsurers.    

In the reinsurance-late-notice context the cost-benefit analysis is probably less challenging than it might be in the direct-insurance-bad-faith context.  If the ceding company does not have in place written guidelines and procedures, and cannot establish by credible and consistent testimony the existence of unwritten guidelines and procedures, then, at least in a case pending in court (as opposed to arbitration), the reinsurer may get a “pass” on a claim based on late notice without any showing of prejudice.  (Prejudice has been defined as “tangible economic injury.”)

On the other hand, if the ceding company has written procedures in place, but they are not followed in a given case, then that, in conjunction with other evidence, may establish that notice was late.  But the reinsurer still has to show prejudice to be relieved of liability.   

So in our hypothetical, counsel for the reinsurer may be able to make some hay at a deposition concerning the cedent’s failure to follow its own guidelines and procedures.  But points scored at depositions can be (and in this case are) ephemeral:  without evidence of prejudice, failure to comply with the guidelines is, for all practical purposes, irrelevant.  

In this day and age of internal controls and corporate responsibility, it seems to us that appropriate written claims guidelines and procedures can benefit insurers, cedents and reinsurers, provided they are carefully drafted, implemented and managed.  We offer the following, very general and non-exclusive list of things companies might consider:   

1.  If written claims procedures are to be adopted and implemented they should be carefully prepared by claims experts and reviewed by experienced counsel.   Poorly drafted and ill-conceived written claims procedures are probably worse than none at all. 

2. Careful thought should be given to privilege issues associated with in-house or outside attorney review of draft guidelines and the involvement of counsel in other aspects of the drafting and implementation process.   The process should be carefully managed and attention should be paid to the company’s document retention policies as respects the maintenance or destruction of drafts.   Remember, in a future litigation or arbitration the insured’s attorneys will likely request prior drafts and depositions of all involved in the preparation and implementation process.  While the insured may or may not be successful in obtaining all the discovery it seeks, it will likely get at least some of it.  

3.  Written claims procedures should be drafted to confer upon claims personnel an appropriate degree of discretion where such discretion is appropriate.   Locking adjusters into particular claims positions without regard to the facts, circumstances and practical realities can cause a myriad of problems. 

4.  To the extent claims procedures provide a certain period of time within which a particular action must be taken, and to the extent that the period is not an inflexible one provided by law or contract, flexibility should be built in to account for minor delays caused by special circumstances or the press of business.   

5.  If written claims guidelines and procedures are to be adopted, the company should ensure claims personnel take them very seriously and do their best to abide by them at all times.   

6.  Written claims procedures should be subject to periodic review by in-house counsel and the claims department to ensure that they comply with current legislation and recent case law developments. 

7.  Outside counsel handling coverage or other, claims-related matters for the company should keep the company’s general counsel apprised of any problems that might be caused or exacerbated by written guidelines and procedures.  

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

August 22nd, 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 II of a Two-Part Post

Introduction

In Part I we discussed the controversy surrounding the House of Lords decision in Lexington Insurance Co. v. AGF Insurance Co. [2009] UKHL 40.  The House ruled that two proportional facultative reinsurers were not obligated to indemnify the cedent for their share of the entire amount of a judgment a Washington State court rendered against the cedent in an environmental coverage action.  The judgment, which was based on Pennsylvania law, rendered the cedent liable under the policy jointly and severally for property damage caused by environmental contamination that occurred before, during and after the three-year policy period.  The House ruled that the reinsurers could be held liable only for their respective shares of the loss that occurred during the three-year term of the reinsurance contract (which was concurrent with that of the cedent’s policy), not their shares of the total amount of loss for which the Washington judgment held the cedent liable under the reinsured policy. 

In this Part II we briefly summarize the pertinent background of the case, walk the reader through the House’s reasoning and offer a few parting thoughts.      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

Introduction

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 »