Insurance Company Conduct Endorsing the Fairness of 'All Sums' Allocation

“There is no intimation in the language of the standard policy that proration amongst the insured and its insurer is contemplated in cumulative trauma cases.“

' Federal Insurance Company's amicus brief in Forty-Eight

The passage quoted above is just one of many examples of insurance company statements and conduct that have endorsed the fairness of the “all sums” approach to allocation, or argued against the imposition of extracontractual proration. This conduct contradicts the unsupported arguments these insurance companies now make in favor of extracontractual proration; that enforcing the “all sums” policy language somehow would lead to unfair or unintended results.

Background

In the decades of litigation over insurance coverage for latent injury claims, insurance companies and their policyholders have disputed the scope of coverage under an “occurrence” based general liability policy triggered by an injury or damage during its policy period, when the same occurrence also caused harm in other policy periods. Policyholders typically seek to apply the “all sums” language in the policies, which renders each triggered policy liable in full, up to its limits, for “all sums” the policyholder is legally obligated to pay arising out of an occurrence. Decisions applying the “all sums” language recognize that the “[f]irst, and most compelling” support for “all sums” is “the language of the policies themselves.” J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502, 507 (Pa. 1993); see also Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 769 N.E.2d 835, 840 (Ohio 2002); Hercules, Inc. v. AIU Ins. Co., 784 A.2d 481, 489-90 (Del. 2001) (“Hercules“); Am. Nat'l Fire Ins. Co. v. B & L Trucking & Constr. Co., 951 P.2d 250, 256 (Wash. 1998) (“B&L Trucking“). As the Wisconsin Supreme Court recently held, “to insert the pro rata language, we would have to rewrite the insurance policy.” Plastics Eng'g Co. v. Liberty Mut. Ins. Co., 759 N.W.2d 613, 627 (Wis. 2009) (“Plastics Engineering“).

By contrast, courts imposing the extracontractual proration sought by insurance companies have tended to disregard policy language, and instead “strayed ' in the direction of vague 'fairness' and rough 'justice,'” which they incorrectly conclude favors proration. Aerojet-General Corp. v. Transp. Indem. Co., 948 P.2d 909, 930 & n.22 (Cal. 1998) (“Aerojet“) (criticizing leading pro rata case law). Indeed, leading pro rata jurisdictions expressly admit that they disregard express policy language that is “inconsistent” with their preferred “methodology” of proration. Benjamin Moore & Co. v. Aetna Cas. & Sur. Co., 843 A.2d 1094, 1102-03 (N.J. 2004); see also, Spaulding Composites Co. v. Aetna Cas. & Sur. Co., 819 A.2d 410, 419-20 (N.J. 2003).

Similarly, those advocating for proration often make unsupported assertions about the insurance industry's intent in drafting the policies and setting the premiums, arguing that the “all sums” result provides an unintended windfall to policyholders. See, e.g., Brief for Complex Insurance Claims Litigation Association as Amicus Curiae Supporting Defendant-Appellant, Plastics Engineering, 2008 WL 5635829, at *10-*14 (Wis. May 2, 2008) (insurance industry trade group asserts that “all sums” result was not contemplated by insurance companies when they accepted the risk); Michael G. Doherty, Comment, “Allocating Progressive Injury Liability Among Successive Insurance Policies,” 64 U. Chi. L. Rev. 257, 268-69 (1997) (asserting that insurance industry did not intend “all sums” result in setting premiums).

Moreover, a frequent refrain among courts imposing proration is that the “all sums” approach “could easily be extremely unfair to an insurer who was on the risk for a day but who then is burdened with the entire loss incurred over several years,” which it purportedly did not contemplate in setting premiums. Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. 1368, 1392 (E.D.N.Y. 1988) (“Uniroyal“). Of course, there is nothing unfair about applying the “all sums” language that the insurance companies expressly wrote into their policies. See, e.g., Aerojet, 948 P.2d at 931-32; Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034, 1048-49 (D.C. Cir. 1981) (“Keene“); Plastics Engineering, 759 N.W.2d at 626-27.

In addition, commentators reviewing the drafting history of the policy language involved in the allocation disputes, such as the mid-1960s adoption of “occurrence” based coverage, have reached the conclusion that “individual insurers and perhaps the entire industry knew that multiyear torts would trigger several policy periods but the CGL drafters specifically declined to seek an express proration provision in the policies.” See, e.g., Jeffrey W. Stempel, “Domtar Baby: Misplaced Notions of Equitable Apportionment Create a Thicket of Potential Unfairness for Insurance Policyholders,” 25 Wm. Mitchell L. Rev. 769, 879 (1999) (“Stempel“).

Evidence that the insurance companies themselves contemplated the “all sums” result further rebuts the industry's assertions as to purported fairness or intent in support of proration. The relevant drafting history has been discussed at length elsewhere. It is often overlooked that insurance companies' own conduct subsequent to this drafting also undercuts any assertion of unfairness in the “all sums” result of a single policy responding to a multi-year loss. Indeed, insurance companies themselves frequently have advocated that very result. This article addresses the considerable amount of insurance company conduct, beyond the drafting history, that has endorsed the fairness of the “all sums” result.

Courts Have Long Applied The 'All Sums' Approach

Insurance company conduct in relation to the allocation of long-term losses must be evaluated beginning with the background law. The first wave of asbestos coverage cases in the late 1970s and early 1980s brought “all sums” allocation to the forefront of insurance coverage litigation, beginning with the seminal 1981 Keene decision. Well before that time, however, courts had interpreted the standard policy language to provide what is now called the “all sums” approach to long-term liabilities. Keene, for example, relied on a 1974 decision, Gruol Construction Co. v. Insurance Co. of North America, 524 P.2d 427 (Wash. Ct. App. 1974), which held successive policies jointly and severally liable for long-term dry rot damage that continued throughout each policy period.

Similarly, in Kissel v. Aetna Casualty & Surety Co., 380 S.W.2d 497, 507-09 (Mo. Ct. App. 1964) (“Kissel“), the court upheld a finding of full coverage under a policy in effect during part, but not all, of a multi-year progressive earth movement that harmed the property of the poliycholder's neighbors. Kissel relied on Travelers v. Humming Bird Coal Co., 371 S.W.2d 35, 38-39 (Ky. 1963), which similarly found a single policy responsible, up to its limits, for liability from progressive earth movement that continued after the policy period. In McGroarty v. Great American Insurance Co., 351 N.Y.S.2d 428, 430, 439-40 (App. Div. 1974), aff'd, 329 N.E.2d 172 (N.Y. 1975), the court held that three successive policies were liable for a progressive loss from earth movement, in a way that gave the policyholder the full benefit of the highest policy limit, when straight proration would not have done so.

Indeed, while long-term injury cases present the allocation issue most starkly, any tort action, even one for an abrupt occurrence such as an automobile accident, potentially involves recovery for prospective harm that continues beyond the period of a single policy: “One injured by the tort of another is entitled to recover damages from the other for all harm, past, present and prospective, legally caused by the tort.” Restatement (Second) of Torts '910 (1979) (emphasis added); see also Id., cmt. b, illus. 1. Thus, insurance policies paying for tort judgments and settlements have been covering sums attributable to continuing harm outside the policy period long before asbestos and environmental coverage disputes brought the issue to the forefront. See, Stempel, 25 Wm. Mitchell L. Rev. at 826-27.

It is against this backdrop, with courts repeatedly applying what is now called the “all sums” method when faced with coverage disputes involving progressive losses, that the insurance industry's subsequent conduct must be addressed. While the industry may have misjudged the magnitude of the risk they were taking on in insuring liability for continuous or repeated exposures, it cannot be said that the industry did not ' or could not ' have contemplated the “all sums” result when courts already had begun to uphold that result well before asbestos and environmental liabilities exploded.

Even after long-term liability mass torts came to the forefront, and numerous courts enforced the “all sums” language, the insurance companies still did not add pro rata clauses to their policies. This failure came despite courts repeatedly urging them to do so, if they actually intended a pro rata result. “There is nothing in the policies that provides for a reduction of the insurer's liability if an injury occurs only in part during a policy period.” Keene, 667 F.2d at 1048. “If the insurer wished to limit its liability through a pro rata allocation of damages once a policy is triggered, the insurer could have included that language in the policy. ' We will not add language to the policy that the insurer did not include.” B & L Trucking, 951 P.2d at 256-57; accord Hercules, 784 A.2d at 491 n.28; Monsanto Co. v. C.E. Heath Comp. & Liab. Ins. Co., 652 A.2d 30, 35 (Del. 1994). Instead of including actual pro rata language in their policies, the insurance industry has advanced a series of “solutions” to the problem of the scope of coverage for long-term injuries, and many of these solutions demonstrate that the industry itself sees nothing unfair in requiring a single year of coverage to apply in full to a multi-year loss.

Insurance Companies Advocate the Manifestation Trigger

Among the first attempts many insurance companies made to address the mounting demands for coverage under “occurrence”-based policies for long-term losses was to argue for the application of a “manifestation” trigger. Under the manifestation trigger, coverage is triggered only in the single policy period in which injury or damage manifests. See, e.g., Keene, 667 F.2d at 1043. This approach incorporates the very feature these same insurance companies have argued is unfair in the context of “all sums” allocation ' a single year of coverage responding in full to a long-term injury process. In fact, unlike “all sums” allocation, the manifestation trigger does not even hold open the possibility of mitigating this result by spreading the loss through contribution from triggered policies in other years.

The manifestation trigger itself has been widely rejected, because “[n]othing in the language of the policies requires that the claimed property damage be discovered or manifested during the policy period.” Trs. of Tufts Univ. v. Commercial Union Ins. Co., 616 N.E.2d 68, 74 (Mass. 1993). Nevertheless, in arguing for this artificially restrictive trigger, insurance companies have accepted the proposition that a single year of triggered coverage can be required to respond in full to a multi-year occurrence.

In fact, in the earliest litigation over coverage for long-term asbestos injuries, insurance companies expressly argued against proration. The language of these arguments is very similar to that found in the leading “all sums” authority. For example, Federal filed an amicus brief in Insurance Co. of North America v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. 1980), arguing that the trial court judge's efforts, including employing proration, “is a sheer judicial fabrication that has no contractual support whatsoever. The structure of the basic contract is an object lesson against the proration ' .” Brief of Federal Insurance Co. et al. as Amici Curiae, Forty-Eight, 633 F.2d 1212 (Nos. 78-13223/24/25/26), 1979 WL 200320, at *13-*14. Federal further argued that: “[T]here is no intimation in the language of the standard policy that proration amongst the insured and its insurer is contemplated in cumulative trauma cases,” and “[t]he policy language itself does not communicate any evident intention of proration.” Id. at *38-*39, *41. In the same case, the Insurance Company of North America asserted that an approach prorating over a multi-year trigger period would be inconsistent with the entire basis of insurance: “A comprehensive insurance scheme in western world insurance practice, however, is designed to channel the risk of loss vertically, that is through the ascending coverage layers of different types of insurance.” Brief of Appellant at *38, Forty-Eight, 633 F.2d 1212, 1979 WL 200319, at *38 (6th Cir. June 29, 1979).

Thus, these insurance companies argued against proration, and in favor of a result that required a single policy to respond to liability for long-term injury (or “cumulative trauma”). The widespread rejection of the manifestation trigger does not change the fact that these insurance companies ' and others who also have advocated the manifestation trigger ' found nothing unfair or illogical about a single policy being required to respond in full to a multi-year loss.

Insurance Companies Sell Claims-Made Coverage

Even when the insurance companies revised their standard-form language in the 1980s, in reaction to the trigger and allocation disputes that had arisen, they again declined to include express pro rata clauses in their policies. Instead, many insurance companies attempted to sell general liability coverage on a claims-made, rather than “occurrence” basis. See, e.g., James F. Hogg, “The Tale of a Tail,” 24 Wm. Mitchell L. Rev. 515, 517-20, 532-33 (1998). Like the manifestation trigger, claims-made coverage embraces the idea that a single policy (the one in effect when the claim is made) can be required to respond in full to liability from a multi-year injury process. Id. at 532-33. The same insurance companies that affirmatively marketed and sold such claims-made coverage can hardly be heard to assert that this result is so unfair or illogical that a court should disregard the actual language of an “occurrence” policy leading to the same result, and impose extracontractual proration.

The inconsistency of insurance company positions is revealed by two decisions handed down a month apart in the U.S. Court of Appeals for the Second Circuit. In August 2000, the Second Circuit imposed proration for coverage of long-term environmental liabilities under “occurrence” policies, based on its impression that enforcing the “all sums” language could lead to unfair results: “'Th[e] [joint and several] approach could easily be extremely unfair to an insurer who was on the risk for a day but who then is burdened with the entire loss incurred over several years.'” Olin Corp. v. Ins. Co. of N. Am., 221 F.3d 307, 323 (2d Cir. 2000) (quoting Uniroyal, 707 F. Supp. at 1392). The very next month, however, the Second Circuit, in construing a “claims made” liability policy, implied that it also would be extremely unfair to allow a policyholder to burden more than one policy with a multi-year loss:

[I]t would be child's play for a policyholder to double its coverage limits on large losses by sending notice in one policy year of circumstances, potentially giving rise to a subsequent claim (to trigger coverage in that policy period), and by sending notice of the subsequent claim in a subsequent policy period (to trigger coverage in that second, subsequent policy period).

Morgan Stanley Group Inc. v. New England Ins. Co., 225 F.3d 270, 281 (2d Cir. 2000).

Apparently, in the Second Circuit, in the context of losses spanning multiple years, policyholders are accused of acting unfairly both when they seek to have a single policy respond (Olin), and when they seek to have multiple policies respond (Morgan Stanley). While the “occurrence” and claims-made policies contain different language, that is the whole point. Courts addressing allocation issues should be guided by the policy language, including the express “all sums” promise, rather than unsupported insurance company assertions about what appears fair in hindsight.

The Industry Clarifies The Language Requiring Coverage for Liability for Continuing Harm

A more recent revision to the industry standard general liability form further demonstrates that the insurance companies themselves find nothing unfair or illogical about a policy covering harm that continues well past its policy period. Many standard-form liability policies now contain a clause expressly stating that bodily injury or property damage continuing beyond the policy period is deemed to have taken place within the policy period:

“Bodily injury” or “ property damage” which occurs during the policy period and was not, prior to the policy period, known to have occurred by any insured listed under Paragraph 1. of Section II ' Who Is An Insured or any “employee” authorized by you to give or receive notice of an “occurrence” or claim, includes any continuation, change or resumption of that “bodily injury” or “property damage” after the end of the policy period.

Jack P. Gibson et al., Commercial Liability Insurance, Commercial General Liability Coverage Form, IV.T.171 (2000) (emphasis added). Similar language has been held to support the “all sums” result. See, e.g., Hercules, 784 A.2d at 493-94 & n.45. Other recent amendments to standard policy language similarly fail to include the pro rata scheme insurance companies have claimed to intend. See, Michael T. Sharkey, “Substitution of 'The Sums' or 'Those Sums' for 'All Sums' Does Not Alter the Scope of Coverage,” The Insurance Coverage Law Bulletin (Mar. 2006).

Insurance companies hardly can argue that coverage extending to liability for harm continuing after the policy period is somehow “unfair” or absurd when they have revised their own policies to clarify that is the very result they intend.

Conclusion

Policyholders and courts should be vigilant to prevent insurance companies from escaping their express “all sums” promises by unsupported assertions based on purported fairness or intent. While the policy language should be sufficient to overcome such unsupported assertions, the true record of the insurance companies' drafting and conduct in relation to the relevant language also rebuts their repeated assertion that the “all sums” result was not contemplated and is not fair. Such evidence is relevant to counter unsupported insurance company assertions. See, e.g., Montrose Chem. Corp. v. Admiral Ins. Co., 913 P.2d 878, 891 (Cal. 1995) (evidence of industry intent found “relevant in evaluating [the insurance company's] argument that, from a public policy standpoint, the insurance industry will be harmed by the adoption of a continuous injury trigger that the industry assertedly never anticipated would be applied to these policies”); Ins. Co. of N. Am. v. Universal Mortgage Corp., 262 N.W.2d 92, 96 (Wis. 1978) (rejecting as “speculations of counsel” unsupported insurance company assertions that a certain interpretation had influenced the premium charged, particularly when contradicted by scholarly commentary on the industry's actual intent).

Michael T. Sharkey is a partner, and Paul Spackman is an associate, with the law firm of Dickstein Shapiro LLP, Washington, DC. The firm (which also has offices in New York and California) represents policyholders in insurance coverage cases nationwide. The opinions expressed in this article are those of the authors and not necessarily those of their clients.

“There is no intimation in the language of the standard policy that proration amongst the insured and its insurer is contemplated in cumulative trauma cases.“

' Federal Insurance Company's amicus brief in Forty-Eight

The passage quoted above is just one of many examples of insurance company statements and conduct that have endorsed the fairness of the “all sums” approach to allocation, or argued against the imposition of extracontractual proration. This conduct contradicts the unsupported arguments these insurance companies now make in favor of extracontractual proration; that enforcing the “all sums” policy language somehow would lead to unfair or unintended results.

Background

In the decades of litigation over insurance coverage for latent injury claims, insurance companies and their policyholders have disputed the scope of coverage under an “occurrence” based general liability policy triggered by an injury or damage during its policy period, when the same occurrence also caused harm in other policy periods. Policyholders typically seek to apply the “all sums” language in the policies, which renders each triggered policy liable in full, up to its limits, for “all sums” the policyholder is legally obligated to pay arising out of an occurrence. Decisions applying the “all sums” language recognize that the “[f]irst, and most compelling” support for “all sums” is “the language of the policies themselves.” J.H. France Refractories Co. v. Allstate Ins. Co. , 626 A.2d 502, 507 (Pa. 1993); see also Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co. , 769 N.E.2d 835, 840 (Ohio 2002); Hercules, Inc. v. AIU Ins. Co. , 784 A.2d 481, 489-90 (Del. 2001) (“ Hercules “); Am. Nat'l Fire Ins. Co. v. B & L Trucking & Constr. Co. , 951 P.2d 250, 256 (Wash. 1998) (“ B&L Trucking “). As the Wisconsin Supreme Court recently held, “to insert the pro rata language, we would have to rewrite the insurance policy.” Plastics Eng'g Co. v. Liberty Mut. Ins. Co. , 759 N.W.2d 613, 627 (Wis. 2009) (“ Plastics Engineering “).

By contrast, courts imposing the extracontractual proration sought by insurance companies have tended to disregard policy language, and instead “strayed ' in the direction of vague 'fairness' and rough 'justice,'” which they incorrectly conclude favors proration. Aerojet-General Corp. v. Transp. Indem. Co. , 948 P.2d 909, 930 & n.22 (Cal. 1998) (“ Aerojet “) (criticizing leading pro rata case law). Indeed, leading pro rata jurisdictions expressly admit that they disregard express policy language that is “inconsistent” with their preferred “methodology” of proration. Benjamin Moore & Co. v. Aetna Cas. & Sur. Co. , 843 A.2d 1094, 1102-03 (N.J. 2004); see also , Spaulding Composites Co. v. Aetna Cas. & Sur. Co. , 819 A.2d 410, 419-20 (N.J. 2003).

Similarly, those advocating for proration often make unsupported assertions about the insurance industry's intent in drafting the policies and setting the premiums, arguing that the “all sums” result provides an unintended windfall to policyholders. See, e.g., Brief for Complex Insurance Claims Litigation Association as Amicus Curiae Supporting Defendant-Appellant, Plastics Engineering, 2008 WL 5635829, at *10-*14 (Wis. May 2, 2008) (insurance industry trade group asserts that “all sums” result was not contemplated by insurance companies when they accepted the risk); Michael G. Doherty, Comment, “Allocating Progressive Injury Liability Among Successive Insurance Policies,” 64 U. Chi. L. Rev. 257, 268-69 (1997) (asserting that insurance industry did not intend “all sums” result in setting premiums).

Moreover, a frequent refrain among courts imposing proration is that the “all sums” approach “could easily be extremely unfair to an insurer who was on the risk for a day but who then is burdened with the entire loss incurred over several years,” which it purportedly did not contemplate in setting premiums. Uniroyal, Inc. v. Home Ins. Co. , 707 F. Supp. 1368, 1392 (E.D.N.Y. 1988) (“ Uniroyal “). Of course, there is nothing unfair about applying the “all sums” language that the insurance companies expressly wrote into their policies. See, e.g., Aerojet, 948 P.2d at 931-32; Keene Corp. v. Ins. Co. of N. Am. , 667 F.2d 1034, 1048-49 (D.C. Cir. 1981) (“ Keene “); Plastics Engineering, 759 N.W.2d at 626-27.

In addition, commentators reviewing the drafting history of the policy language involved in the allocation disputes, such as the mid-1960s adoption of “occurrence” based coverage, have reached the conclusion that “individual insurers and perhaps the entire industry knew that multiyear torts would trigger several policy periods but the CGL drafters specifically declined to seek an express proration provision in the policies.” See, e.g., Jeffrey W. Stempel, “Domtar Baby: Misplaced Notions of Equitable Apportionment Create a Thicket of Potential Unfairness for Insurance Policyholders,” 25 Wm. Mitchell L. Rev. 769, 879 (1999) (“Stempel“).

Evidence that the insurance companies themselves contemplated the “all sums” result further rebuts the industry's assertions as to purported fairness or intent in support of proration. The relevant drafting history has been discussed at length elsewhere. It is often overlooked that insurance companies' own conduct subsequent to this drafting also undercuts any assertion of unfairness in the “all sums” result of a single policy responding to a multi-year loss. Indeed, insurance companies themselves frequently have advocated that very result. This article addresses the considerable amount of insurance company conduct, beyond the drafting history, that has endorsed the fairness of the “all sums” result.

Courts Have Long Applied The 'All Sums' Approach

Insurance company conduct in relation to the allocation of long-term losses must be evaluated beginning with the background law. The first wave of asbestos coverage cases in the late 1970s and early 1980s brought “all sums” allocation to the forefront of insurance coverage litigation, beginning with the seminal 1981 Keene decision. Well before that time, however, courts had interpreted the standard policy language to provide what is now called the “all sums” approach to long-term liabilities. Keene , for example, relied on a 1974 decision, Gruol Construction Co. v. Insurance Co. of North America , 524 P.2d 427 (Wash. Ct. App. 1974), which held successive policies jointly and severally liable for long-term dry rot damage that continued throughout each policy period.

Similarly, in Kissel v. Aetna Casualty & Surety Co. , 380 S.W.2d 497, 507-09 (Mo. Ct. App. 1964) (“ Kissel “), the court upheld a finding of full coverage under a policy in effect during part, but not all, of a multi-year progressive earth movement that harmed the property of the poliycholder's neighbors. Kissel relied on Travelers v. Humming Bird Coal Co. , 371 S.W.2d 35, 38-39 (Ky. 1963), which similarly found a single policy responsible, up to its limits, for liability from progressive earth movement that continued after the policy period. In McGroarty v. Great American Insurance Co. , 351 N.Y.S.2d 428, 430, 439-40 (App. Div. 1974), aff'd , 329 N.E.2d 172 (N.Y. 1975), the court held that three successive policies were liable for a progressive loss from earth movement, in a way that gave the policyholder the full benefit of the highest policy limit, when straight proration would not have done so.

Indeed, while long-term injury cases present the allocation issue most starkly, any tort action, even one for an abrupt occurrence such as an automobile accident, potentially involves recovery for prospective harm that continues beyond the period of a single policy: “One injured by the tort of another is entitled to recover damages from the other for all harm, past, present and prospective, legally caused by the tort.” Restatement (Second) of Torts '910 (1979) (emphasis added); see also Id., cmt. b, illus. 1. Thus, insurance policies paying for tort judgments and settlements have been covering sums attributable to continuing harm outside the policy period long before asbestos and environmental coverage disputes brought the issue to the forefront. See, Stempel, 25 Wm. Mitchell L. Rev. at 826-27.

It is against this backdrop, with courts repeatedly applying what is now called the “all sums” method when faced with coverage disputes involving progressive losses, that the insurance industry's subsequent conduct must be addressed. While the industry may have misjudged the magnitude of the risk they were taking on in insuring liability for continuous or repeated exposures, it cannot be said that the industry did not ' or could not ' have contemplated the “all sums” result when courts already had begun to uphold that result well before asbestos and environmental liabilities exploded.

Even after long-term liability mass torts came to the forefront, and numerous courts enforced the “all sums” language, the insurance companies still did not add pro rata clauses to their policies. This failure came despite courts repeatedly urging them to do so, if they actually intended a pro rata result. “There is nothing in the policies that provides for a reduction of the insurer's liability if an injury occurs only in part during a policy period.” Keene, 667 F.2d at 1048. “If the insurer wished to limit its liability through a pro rata allocation of damages once a policy is triggered, the insurer could have included that language in the policy. ' We will not add language to the policy that the insurer did not include.” B & L Trucking, 951 P.2d at 256-57; accord Hercules, 784 A.2d at 491 n.28; Monsanto Co. v. C.E. Heath Comp. & Liab. Ins. Co. , 652 A.2d 30, 35 (Del. 1994). Instead of including actual pro rata language in their policies, the insurance industry has advanced a series of “solutions” to the problem of the scope of coverage for long-term injuries, and many of these solutions demonstrate that the industry itself sees nothing unfair in requiring a single year of coverage to apply in full to a multi-year loss.

Insurance Companies Advocate the Manifestation Trigger

Among the first attempts many insurance companies made to address the mounting demands for coverage under “occurrence”-based policies for long-term losses was to argue for the application of a “manifestation” trigger. Under the manifestation trigger, coverage is triggered only in the single policy period in which injury or damage manifests. See, e.g., Keene, 667 F.2d at 1043. This approach incorporates the very feature these same insurance companies have argued is unfair in the context of “all sums” allocation ' a single year of coverage responding in full to a long-term injury process. In fact, unlike “all sums” allocation, the manifestation trigger does not even hold open the possibility of mitigating this result by spreading the loss through contribution from triggered policies in other years.

The manifestation trigger itself has been widely rejected, because “[n]othing in the language of the policies requires that the claimed property damage be discovered or manifested during the policy period.” Trs. of Tufts Univ. v. Commercial Union Ins. Co. , 616 N.E.2d 68, 74 (Mass. 1993). Nevertheless, in arguing for this artificially restrictive trigger, insurance companies have accepted the proposition that a single year of triggered coverage can be required to respond in full to a multi-year occurrence.

In fact, in the earliest litigation over coverage for long-term asbestos injuries, insurance companies expressly argued against proration. The language of these arguments is very similar to that found in the leading “all sums” authority. For example, Federal filed an amicus brief in Insurance Co. of North America v. Forty-Eight Insulations, Inc. , 633 F.2d 1212 (6th Cir. 1980), arguing that the trial court judge's efforts, including employing proration, “is a sheer judicial fabrication that has no contractual support whatsoever. The structure of the basic contract is an object lesson against the proration ' .” Brief of Federal Insurance Co. et al. as Amici Curiae, Forty-Eight, 633 F.2d 1212 (Nos. 78-13223/24/25/26), 1979 WL 200320, at *13-*14. Federal further argued that: “[T]here is no intimation in the language of the standard policy that proration amongst the insured and its insurer is contemplated in cumulative trauma cases,” and “[t]he policy language itself does not communicate any evident intention of proration.” Id. at *38-*39, *41. In the same case, the Insurance Company of North America asserted that an approach prorating over a multi-year trigger period would be inconsistent with the entire basis of insurance: “A comprehensive insurance scheme in western world insurance practice, however, is designed to channel the risk of loss vertically, that is through the ascending coverage layers of different types of insurance.” Brief of Appellant at *38, Forty-Eight, 633 F.2d 1212, 1979 WL 200319, at *38 (6th Cir. June 29, 1979).

Thus, these insurance companies argued against proration, and in favor of a result that required a single policy to respond to liability for long-term injury (or “cumulative trauma”). The widespread rejection of the manifestation trigger does not change the fact that these insurance companies ' and others who also have advocated the manifestation trigger ' found nothing unfair or illogical about a single policy being required to respond in full to a multi-year loss.

Insurance Companies Sell Claims-Made Coverage

Even when the insurance companies revised their standard-form language in the 1980s, in reaction to the trigger and allocation disputes that had arisen, they again declined to include express pro rata clauses in their policies. Instead, many insurance companies attempted to sell general liability coverage on a claims-made, rather than “occurrence” basis. See, e.g., James F. Hogg, “The Tale of a Tail,” 24 Wm. Mitchell L. Rev. 515, 517-20, 532-33 (1998). Like the manifestation trigger, claims-made coverage embraces the idea that a single policy (the one in effect when the claim is made) can be required to respond in full to liability from a multi-year injury process. Id. at 532-33. The same insurance companies that affirmatively marketed and sold such claims-made coverage can hardly be heard to assert that this result is so unfair or illogical that a court should disregard the actual language of an “occurrence” policy leading to the same result, and impose extracontractual proration.

The inconsistency of insurance company positions is revealed by two decisions handed down a month apart in the U.S. Court of Appeals for the Second Circuit. In August 2000, the Second Circuit imposed proration for coverage of long-term environmental liabilities under “occurrence” policies, based on its impression that enforcing the “all sums” language could lead to unfair results: “'Th[e] [joint and several] approach could easily be extremely unfair to an insurer who was on the risk for a day but who then is burdened with the entire loss incurred over several years.'” Olin Corp. v. Ins. Co. of N. Am. , 221 F.3d 307, 323 (2d Cir. 2000) (quoting Uniroyal , 707 F. Supp. at 1392). The very next month, however, the Second Circuit, in construing a “claims made” liability policy, implied that it also would be extremely unfair to allow a policyholder to burden more than one policy with a multi-year loss:

[I]t would be child's play for a policyholder to double its coverage limits on large losses by sending notice in one policy year of circumstances, potentially giving rise to a subsequent claim (to trigger coverage in that policy period), and by sending notice of the subsequent claim in a subsequent policy period (to trigger coverage in that second, subsequent policy period).

Morgan Stanley Group Inc. v. New England Ins. Co. , 225 F.3d 270, 281 (2d Cir. 2000).

Apparently, in the Second Circuit, in the context of losses spanning multiple years, policyholders are accused of acting unfairly both when they seek to have a single policy respond (Olin), and when they seek to have multiple policies respond (Morgan Stanley). While the “occurrence” and claims-made policies contain different language, that is the whole point. Courts addressing allocation issues should be guided by the policy language, including the express “all sums” promise, rather than unsupported insurance company assertions about what appears fair in hindsight.

The Industry Clarifies The Language Requiring Coverage for Liability for Continuing Harm

A more recent revision to the industry standard general liability form further demonstrates that the insurance companies themselves find nothing unfair or illogical about a policy covering harm that continues well past its policy period. Many standard-form liability policies now contain a clause expressly stating that bodily injury or property damage continuing beyond the policy period is deemed to have taken place within the policy period:

“Bodily injury” or “ property damage” which occurs during the policy period and was not, prior to the policy period, known to have occurred by any insured listed under Paragraph 1. of Section II ' Who Is An Insured or any “employee” authorized by you to give or receive notice of an “occurrence” or claim, includes any continuation, change or resumption of that “bodily injury” or “property damage” after the end of the policy period.

Jack P. Gibson et al., Commercial Liability Insurance, Commercial General Liability Coverage Form, IV.T.171 (2000) (emphasis added). Similar language has been held to support the “all sums” result. See, e.g., Hercules, 784 A.2d at 493-94 & n.45. Other recent amendments to standard policy language similarly fail to include the pro rata scheme insurance companies have claimed to intend. See, Michael T. Sharkey, “Substitution of 'The Sums' or 'Those Sums' for 'All Sums' Does Not Alter the Scope of Coverage,” The Insurance Coverage Law Bulletin (Mar. 2006).

Insurance companies hardly can argue that coverage extending to liability for harm continuing after the policy period is somehow “unfair” or absurd when they have revised their own policies to clarify that is the very result they intend.

Conclusion

Policyholders and courts should be vigilant to prevent insurance companies from escaping their express “all sums” promises by unsupported assertions based on purported fairness or intent. While the policy language should be sufficient to overcome such unsupported assertions, the true record of the insurance companies' drafting and conduct in relation to the relevant language also rebuts their repeated assertion that the “all sums” result was not contemplated and is not fair. Such evidence is relevant to counter unsupported insurance company assertions. See , e.g. , Montrose Chem. Corp. v. Admiral Ins. Co. , 913 P.2d 878, 891 (Cal. 1995) (evidence of industry intent found “relevant in evaluating [the insurance company's] argument that, from a public policy standpoint, the insurance industry will be harmed by the adoption of a continuous injury trigger that the industry assertedly never anticipated would be applied to these policies”); Ins. Co. of N. Am. v. Universal Mortgage Corp. , 262 N.W.2d 92, 96 (Wis. 1978) (rejecting as “speculations of counsel” unsupported insurance company assertions that a certain interpretation had influenced the premium charged, particularly when contradicted by scholarly commentary on the industry's actual intent).

Michael T. Sharkey is a partner, and Paul Spackman is an associate, with the law firm of Dickstein Shapiro LLP, Washington, DC. The firm (which also has offices in New York and California) represents policyholders in insurance coverage cases nationwide. The opinions expressed in this article are those of the authors and not necessarily those of their clients.