Multi-Year and Stub Policies: The Expectations and Economics of Providing Full Limits of Liability

When an insurance policy is written for a single year, little controversy exists regarding the limits of liability. Multi-year policies, those written for more than one annual period, and stub policies, those in effect for less than a year, are, however, becoming a source of disagreement. Particularly with long-tail claims such as asbestos, chemical exposures, and welding rod litigation triggering historic policies from the 1960s and 1970s, litigation on these issues is becoming ever more important. There is no established general rule regarding the available limits for these types of policies. Rather, courts apply a case-specific analysis of the evidence and policy language to determine the parties' intent regarding the policy's limits. Based on the policy language, or lack thereof, courts have, with limited exceptions, found full aggregate limits during each annual period for multi-year policies and an additional set of limits for stub policies. Such findings are supported by policy language, general legal principles, the economics of the parties' transactions, and industry practice.