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Non-Cumulation Clauses in CGL Policies: Anti-Stacking Provisions? Allocating Liability Among Multiple Policies in Long-Tail Claims

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WEDNESDAY, MAY 9, 2012

Presenting a live 90-minute webinar with interactive Q&A

Christopher C. French, Partner, K&L Gates, Pittsburgh

Gretchen A. Ramos, Partner, Carroll Burdick & McDonough, San Francisco

Sherilyn Pastor, Partner, McCarter & English, Newark, N.J.

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Copyright © 2012 by K&L Gates LLP. All rights reserved.

Non-Cumulation Clauses in CGL Policies: Anti-Stacking Provisions?

Webinar May 9, 2012

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Christopher French

AREAS OF PRACTICE Mr. French is a partner in the firm’s Pittsburgh office. His practice focuses on commercial litigation with an emphasis on insurance coverage litigation on behalf of policyholders. Mr. French’s practice is nationwide and encompasses both first and third party claims. He has tried cases in the states of Arizona, Delaware, Iowa, Kentucky, Ohio, Pennsylvania and Washington. By way of example, Mr. French has been involved in the prosecution of significant environmental insurance coverage cases in the states of Delware, Kentucky, Louisiana and Washington. He also has litigated insurance coverage actions for product liability and premises claims in the states of Delaware, Florida, Texas and West Virginia. In addition, Mr. French has litigated property damage and business interruption claims that have arisen due to floods, hurricanes and equipment failure in Iowa, Florida and Ohio. In addition to his work as an advocate, Mr. French has served as both neutral and party-appointed arbitrators and currently he is an adjunct professor of law at Duquesne Law Schoo where he teaches Insurance Law.

PITTSBURGH OFFICE

412.355.6238 T

412.355.6051 F

[email protected]

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Christopher French

PROFESSIONAL/CIVIC ACTIVITIES

• Allegheny County Bar Association • American Bar Association, Insurance Coverage Committee • Pennsylvania Bar Association SPEAKING ENGAGEMENTS

• Occurrences in Construction Defect Claims, Stafford Legal Webinar, February 28, 2012.

• Key Issues in Business Interruption Insurance, February 8, 2012. • Insurer Bad Faith, September 2, 2009. • State of the Insurance Market, presented in Los Angeles, California, May 9, 2007. • Insurance Coverage for Mold-Related Losses and Liabilities, presented at

Mealey’s Mold Insurance Litigation Conference, September 23-25, 2002. • First Party Insurance Coverage for Mold Claims, presented at Lorman Education

Services’ Seminar entitled Solving Water Intrusion and Mold Problems in Pennsylvania, May 14, 2002.

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Christopher French

PUBLICATIONS

• The “Non-Cumulation Clause”: An “Other Insurance Clause” by Another Name, 60 Kan. L. Rev. 375 (2012).

• Debunking The Myth that Insurance Coverage is Not Available or Allowed for Intentional Torts or Damage, 8 Hastings Bus. L.J. 65 (2012).

• Construction Defects: Are They “Occurrences”?, 47 Gonz. L. Rev. 1 (2011).

• Contributing author of A Policyholder’s Guide to the Law of Insurance (Wolters Kluwer, annually updated)

• Bad Faith: Insurers Spending Their Policyholders’ Money Without Their Policyholders’ Consent, The Journal of Insurance Coverage (Spring 2001).

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Christopher French

COURT ADMISSIONS

• All Commonwealth of Pennsylvania courts • United States Court of Appeals for the Sixth Circuit • United States Court of Appeals for the Third Circuit • United States District Court for the Western District of Pennsylvania

BAR MEMBERSHIP

Pennsylvania EDUCATION

J.D., Harvard University, 1991 (cum laude) B.A., Columbia University, 1988

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Christopher French

Introduction Overview

• How should long-tail claims such as asbestos bodily injury claims and environmental claims, which have damage processes that take place during multiple policy years, be allocated among the numerous policy years that often are triggered by such losses when non-cumulation clauses are in play?

• We will attempt to answer that question over the course of the next 90 minutes

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Christopher French


• The “Non-Cumulation Clause”: An “Other Insurance Clause” by Another Name, 60 Kan. L. Rev. 375 (2012)

• Our presentation will be divided into 3 parts

• Part 1 will include a discussion of the language contained in non-cumulation clauses and the original drafting and purpose of the clause

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Christopher French


• Part 1 also will include a brief overview of the relevant insurance policy interpretation principles and some policyholder arguments regarding how the clause should be interpreted

• Part 2 will involve a discussion of the case law from the policyholder’s and insurer’s perspective - Sherry Pastor (Policyholder) - Gretchen Ramos (Insurer)

• Part 3 will be a question and answer period

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Christopher French

Typical Insurance Programs A graphic depiction of a typical insurance program of a commercial policyholder is as follows:

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Christopher French

Triggers of Coverage

• “exposure” trigger

• “injury in fact” trigger

• “manifestation” trigger

• “continuous” trigger

• Non-cumulation clauses not in play under manifestation trigger and, in most situations, exposure trigger

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Christopher French

Allocation

• “All sums” - the policyholder can select which of the triggered

policy years will cover the liability subject only to the limits of coverage provided by the policies selected

• Pro rata allocation - divides the liability amount equally among the

policy years triggered

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Christopher French

Non-Cumulation Clauses • As an example, the Non-Cumulation Clause

commonly found in historical London Market Umbrella liability policies states as follows:

“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 Insured prior to the inception date hereof the limit of liability hereon . . . shall be reduced by any amounts due to the Insured on account of such loss under such prior insurance.”

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Christopher French

Non-Cumulation Clauses (cont.)

• The insurers’ argument is that the Non-Cumulation Clause shifts the responsibility for paying for losses that trigger multiple policy years to any and all triggered insurance policies that were issued prior to their own policy year

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Christopher French

Non-Cumulation Clauses (cont.)

• Under the insurers’ argument, if the policies in the earlier triggered policy years have unpaid limits, then the limits of those policies should pay until their limits are exhausted

• If the limits of the policies in the earlier triggered policy years have been exhausted due to settlements or by the prior payment of other unrelated claims, then, according to some insurers, the policyholder becomes self insured for the remaining amount of the loss

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Christopher French

The Drafting of the London Version of the Non-Cumulation Clause

• The London Market version of the Non-Cumulation Clause was first drafted by London Underwriters in 1960 in connection with the development of a new umbrella liability form known as the “LRD 60” form

• The LRD 60 form was named after the initials of the principal draftsman, Leslie R. Dew, who was then the chief underwriter for the Merrett syndicate at Lloyd’s

• Mr. Dew was assisted in the drafting of the LRD 60 form by the then-senior underwriter in the Merrett syndicate at Lloyd’s, Henry Weavers

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Christopher French

The Drafting of the London Version of the Non-Cumulation Clause (cont.)

• When the LRD 60 form was originally drafted in 1960, it contained two paragraphs worded as follows:

“It is agreed that if any loss covered hereunder is also covered in whole of 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 item 2 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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Christopher French


“Subject to the foregoing paragraph and to all the other terms and conditions of this policy in the event that personal injury or property damage arising out of an occurrence covered hereunder is continuing at the time of termination of this policy Underwriters will continue to protect the Assured for liability in respect of such personal injury or property damage without payment of additional premium.”

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Christopher French


• The Non-Cumulation Clause was inserted in the LRD 60 form to to prevent a double recovery by the policyholder in the narrow circumstance where a LRD 60 form policy is issued and is triggered by a claim and the same claim also triggers a prior policy issued under another policy form such as a Price Forbes “accident” form

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Christopher French


• For example, in a situation where machinery was defectively manufactured in 1958 that resulted in an injury in 1961, both a Price Forbes form policy issued in 1958 (when the “accident” of the defective manufacture arguably took place) and a 1961 policy using the LRD 60 form (when the injury arguably “occurred”) would be triggered by the liability

- One of the reasons for the shift to “occurrence” policy forms was insurers’ concern that some courts were interpreting “accident” under the older policy form to cover both the defective manufacture of a product and the resulting injury

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Christopher French


• Thus, according to one of the original London underwriters, the Non-Cumulation Clause was designed to thwart a policyholder that was attempting to obtain twice as much coverage as the amount of the liability by pursuing coverage under both policies for the same liability

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Christopher French


• At the time the clause was drafted in 1960, the London underwriters who drafted the clause did not contemplate the situation, as later developed in insurance coverage law in the United States because of concepts such as continuous trigger and “all sums” allocation, that the policyholder would be permitted to “pick and choose” which policy year would provide coverage for the entire amount of the liability

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Christopher French


• In 1971, the London Market insurers decided to modify the LRD 60 policy form for use in the North American insurance market and to make certain changes to the form that they designated the “Umbrella Policy (London 1971)” form, or the “London ’71 Umbrella form”

• The London 1971 Umbrella form was prepared by three underwriters in the London Market, Peter Wilson, Cliff Richies and John Byrd

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Christopher French


• In preparing the London ’71 Umbrella form, the first paragraph of the Non-Cumulation Clause in the LRD 60 form was transferred verbatim

• The second paragraph of the Non-Cumulation Clause was not transferred from the LRD 60 form because the London underwriters who prepared the London ’71 Umbrella form believed the second paragraph was redundant of other language in the policy

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Christopher French

The Doctrine of Contra Proferentem

• Any ambiguities in the policy language should be construed against insurers and in favor of coverage

• The test under many states’ laws for determining whether policy language is ambiguous is whether the provisions at issue are reasonably or fairly susceptible to different interpretations or meanings

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Christopher French

The Doctrine of Contra Proferentem (cont.)

• Consider again the language of the London version of the Non-Cumulation Clause:

“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 Insured prior to the inception date hereof the limit of liability . . . shall be reduced by any amounts due to the Insured on account of such loss under such prior insurance.”

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Christopher French

Ambiguities in the Clause

• How does one determine if a loss is “covered” under a prior-incepting policy?

- Must there be a court judgment stating such? - Must there be an admission of coverage by the prior

insurers (not likely to happen)? - Need there only be an assertion of the prior insurer’s

coverage responsibility by the subsequent insurer?

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Christopher French

Ambiguities in the Clause (cont.)

• In long-tail liability cases in “all sums” jurisdictions, the liabilities are “covered” by the policies in whatever year the policyholder has selected to cover them

• Necessarily, therefore, these same liabilities are not “covered” by prior years because the policyholder has not selected those prior years for coverage

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Christopher French


• What constitutes an amount “due” under prior insurance?

- Is it an amount that a court adjudged was due? - Is it an amount that the subsequent insurer alleges

is due from the prior-year insurer? - Is it an amount that the prior insurer acknowledges

is due? - Is it an amount actually paid by a prior insurer on the

same loss?

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Christopher French

Ambiguities in the Clause (cont.) • Given that the policyholder can choose the policy year

that should cover its liabilities in an “all sums” jurisdiction, insurers’ contention that the same amounts are “due” under prior-year policies makes no sense

• What about due process? - If one were to accept the insurers’ argument, it very

well could be determined that amounts are “due” from prior-incepting policies even though the insurers that issued the policies are not even parties to the case

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Christopher French


• Such a result arguably would not even be enforceable against the insurers that issued prior-incepting policies under the well-established rule of law that a judgment cannot be entered against a party that was not a party in the case

• What happens if the policyholder has settled with prior insurers even though the settling insurers denied any obligation to pay for the liabilities and continued to deny such liability in the settlement agreements themselves?

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Christopher French

Ambiguities in the Clause (cont.) • Surely, the payments made by such insurers cannot be

viewed as having been “due” when the settling insurers continue to contend they owed nothing but settled for business reasons

• Additionally, what does it mean that the limits are “reduced”?

- For example, are the limits of the policy reduced for just the loss at issue but then reinstated for the next loss?

- Are the limits reduced for all future losses as well?

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Christopher French

Ambiguities in the Clause (cont.) • Another unanswered question is how does the

“reduction of limits” apply when multiple policies in the same policy year all contain the same Non-Cumulation Clause?

• Which policies in that year receive the benefit of the reduction of limits, and which ones do not?

- Top down or bottom up - In Stonewall Ins. Co. v. E.I. duPont de Nemours &

Co., 996 A.2d 1254 (Del. 2010), a lower layer insurer argued for top down

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Christopher French

The “Reasonable Expectations” Doctrine

• Another staple of insurance policy interpretation law is that the policy should be interpreted in such a way as to fulfill the “reasonable expectations” of the policyholder

• The policyholder should receive in coverage what it objectively can reasonably expect to receive even if the policy language does not expressly support coverage

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Christopher French

The “Reasonable Expectations” Doctrine (cont.)

• Under the “all sums” language, a policyholder reasonably can expect to receive payment of the full amount of the loss up to the policy limits despite the presence of a Non-Cumulation Clause in the policy if the policyholder: (1) paid a premium for the policy; and (2) the policy is triggered by a covered loss

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Christopher French

Similarity to “Other” Insurance Clauses

• Non-Cumulation Clauses should be treated in the same way that “other insurance” clauses have been applied because “other insurance” clauses purportedly serve a similar function as Non-Cumulation Clauses – i.e., they attempt to shift liability from one insurer to another insurer

• Of course, “other insurance” clauses should not impact the recovery of the policyholder, but, instead, only should come into play when insurers are fighting among themselves to apportion the liability

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Christopher French

Similarity to “Other” Insurance Clauses (cont.)

• When two or more policies cover a policyholder’s loss or liability, and each policy contains an “other insurance” clause that states the policy is “excess” over other insurance or the insurer “escapes” or avoids its coverage obligations due to the existence of other insurance (which is similar to what Non-Cumulation Clauses purport to do), then courts generally consider the clauses to be mutually repugnant and thus, unenforceable

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Christopher French


• In such circumstances, after the policyholder has been paid in full, the courts then pro-rate the loss or liability between the triggered policy years

• According to Resolute Management’s in-house counsel, “other insurance” clauses are really intended only to “prevent double recoveries by insureds”

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Christopher French


• Thus, an “other insurance” clause is really designed to allow “equitable contribution” between and among insurers after the policyholder’s claim has been paid in full by the insurers

Non-Cumulation Clauses

Cases Where the Courts Have Applied the Clause

Gretchen A. Ramos

Gretchen A. Ramos Ms. Ramos is Chair of CBM's Insurance Practice Group.

Her practice focuses on insurance coverage and bad faith litigation involving emerging risks such as cyber risk and data breach claims, technology and media liability, professional liability issues, and complex environmental and mass tort claims.

She litigates complex insurance disputes on behalf of insurers in federal and state courts throughout the country, and provides advice on a wide-range of coverage issues.

Over the last decade, Ms. Ramos has given numerous seminars and written several articles on insurance coverage issues. See http://www.cbmlaw.com/attorneys/Gretchen-A-Ramos

Ms. Ramos was one of ten insurance lawyers that Law360 identified as Rising Stars under 40 to watch in 2010.

She serves as Co-Chair of CLM’s Insurance Coverage Litigation Committee.

San Francisco

415-743-2576 [email protected]

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mailto:[email protected]�


Gretchen A. Ramos

A number of courts have enforced the same-insurer non-cumulation clause as written, finding the limits of a later policy containing the condition are reduced by the amounts owed or paid under

the earlier policy.

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Many courts have determined the non-cumulation condition is NOT an other insurance clause.

In a separate section of the policy.

Non-cumulation condition applies to consecutive policies.

Non-cumulation condition simply defines which one policy period provides coverage.

Gretchen A. Ramos 46


Pennsylvania

Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330 (3d Cir. 2005).

Georgia

Plantation Pipeline Co. Continental Casualty Company, 2008 U.S. Dist. LEXIS 80680 (N.D. Ga. July 8, 2008).

New York

Hiraldo v. Allstate Ins. Co., 5 N.Y.3d 508, 840 N.E.2d 563 (2005).

Oregon

Cal. Ins. Co. v. Stimson Lumber Co., 2004 U.S. Dist. LEXIS 10098 (D. Or. May 26, 2004), aff’d in part, rev’d in part, 325 F. App’x 496 (9th Cir 2009).

Delaware

Hercules Inc. v. AIU Ins. Co., 784 A.2d 481 (Del. 2001).



Gretchen A. Ramos

Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330 (3d Cir. 2005)

Liberty Mutual Policy Language

If the same occurrence gives rise to personal injury, property damage or advertising injury or damage which occurs partly before and partly within any annual period of this policy, each occurrence limit and the applicable aggregate limit or limits of the policy shall be reduced by the amount of each payment made by the company with respect to each occurrence, either under a previous policy or policies of which this policy is a replacement, or under this policy with respect to previous annual periods thereof.

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Gretchen A. Ramos

The Third Circuit holds the clause is not an escape clause, but an anti-stacking clause.

However, the Non-Cumulation provision, like all anti-stacking provisions, does not eliminate coverage. It simply provides that if a single occurrence gives rise to an injury during more that one policy period, only one occurrence limit will apply. The provision limits the dollar amount recoverable under the policies, but it does not eliminate coverage.

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Application of the Non-Cumulation Clause

Illustrative Example

A $5 million occurrence.

The occurrence triggers the umbrella policies for the 1/1/75-1/1/78 period.

The 1976 and 1977 umbrella policies contain the Liberty Mutual non-cumulation clause.


All Primary Coverage Exhausted

Application of the Non-Cumulation Clause

75/76 Policy Pays the Entire Loss

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Gretchen A. Ramos

Plantation Pipeline Co. v. Continental Casualty Company, 2008 U.S. Dist. LEXIS 80680 (N.D. Ga. July 8, 2008)

Continental Casualty Policy Language

Prior Insurance and Non-Cumulation of Liability It is agreed, that if any loss is also covered in whole or in part under any other excess policy issued to the insured prior to the inception date hereof, the Company's limit of liability as stated in Item 3 of the Declarations shall be reduced by any amounts due to the Insured on account of such loss under such prior insurance.

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Gretchen A. Ramos

Plantation Pipeline Co. v. Continental Casualty

The court rejected the policyholder’s arguments that the continuous trigger/pro-rata allocation doctrines must be applied, especially when no Georgia court has adopted them, and enforced the non-cumulation clause.

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Gretchen A. Ramos

Hiraldo v. Allstate Ins. Co., 5 N.Y.3d 508, 840 N.E.2d 563 (2005)

Allstate Policy Language:

This policy applies only to losses which occur during the policy period, as shown on the declarations page. * * * * * * * Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability under Business Liability Protection coverage for damages resulting from one loss will not exceed the limit of liability for Coverage X shown on the declarations page. All bodily injury, personal injury and property damage resulting from one accident or from continuous or repeated exposure to the same general conditions is considered the result of one loss. .

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Gretchen A. Ramos

Cal. Ins. Co. v. Stimson Lumber Co., 2004 U.S. Dist. LEXIS 10098 (D. Or. May 26, 2004), aff’d in part, rev’d in part, 325 F. App’x 496 (9th Cir 2009)

National Union Policy Language

If a loss covered by this policy is also covered in whole or in part under any other excess policy issued to the Insured prior to the effective date of this policy, the limits of liability as stated in the declarations will be reduced by any amounts due to the Insured under such prior insurance.

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Gretchen A. Ramos

The Stimson court finds:

To the extent that there is any excess insurance coverage available for the . . . loss, the non-cumulation provision applies to reduce [the later] policy limits by the amounts paid in prior policy years or amounts paid by other excess settling insurers.

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Gretchen A. Ramos

Hercules Inc. v. AIU Ins. Co., 784 A.2d 481 (Del. 2001) Relevant Policy Language

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 Item 2 of the Declaration shall be reduced by any amounts due to the Assured on account of such loss under such prior insurance.

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Gretchen A. Ramos

In Hercules, the Delaware Supreme Court reversed the trial court decision that Home’s non-cumulation clause did not apply:

The only issue concerns the trial court's conclusion that the clause did not apply because there was no "prior insurance." We disagree with this conclusion as to Home. Since the inception date of the Home policy is July 31, 1968, policies providing coverage before that date implicate the non-cumulation clause in Home's favor.

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Non-Cumulation Clauses Checklist

Continuing Loss

Specific Policy Language

Occurrence or Loss Language

Same Policy or Other Insurer’s Policy Language

All Sums or Pro Rata Jurisdiction


Non-Cumulation Clauses: Not Just in CGL Policies

Superstition Crushing, LLC v. Travelers Cas. & Sur. Co. of Am., 2009 WL 5196076 (9th Cir. Dec. 29, 2009) (applying a non-cumulation condition in an employee dishonesty policy).

Bahar v. Allstate Ins. Co., 2004 WL 1782552 (S.D.N.Y. Aug. 9, 2004) (applying a non-cumulation condition in a homeowner’s policy).



Cases Where the Courts Have Rejected Them

By SHERILYN PASTOR

BOSTON // HARTFORD // NEW YORK // NEWARK // STAMFORD // PHILADELPHIA // WILMINGTON

SHERILYN PASTOR, ESQ.

Sherilyn Pastor is the Practice Leader of McCarter & English’s Insurance Coverage Group, and a member of the Firm’s Executive Committee. She has secured hundreds of millions of dollars in insurance assets for a broad range of policyholder clients. She also provides advice to clients assessing their potential risks, and she analyzes their insurance, considering the adequacy of their programs. Ms. Pastor is a member of the New Jersey Supreme Court’s Professional Responsibility Rules Committee. She is rated AV Preeminent by Martindale-Hubbell, recognized by Chambers USA as among “Leaders in their Field,” and she is a recipient of the YMCA’s Tribute to Women in Industry award. She also was named one of New Jersey’s “Best 50 Women in Business” by NJBIZ, and is recognized as a New Jersey Super Lawyer. Ms. Pastor is the Vice-Chair of the ABA’s Insurance Coverage Litigation Committee. She publishes and lectures frequently on a variety of topics including insurance coverage, trial advocacy, pretrial practice and professional responsibility. She serves on the Editorial Board of the Insurance Coverage Law Bulletin, is a consultant on the New Appleman Insurance Law Practice Guide, and has taught the National Institute for Trial Advocacy’s trial and deposition skills programs.

McCARTER & ENGLISH, LLP Four Gateway Center 100 Mulberry Street Newark, NJ 07102 (973) 639-2070 [email protected]

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Non-Cumulation” or “Anti-Stacking”

Insurers’ response to continuous trigger cases and concerns about horizontal stacking

When more than one policy is triggered by an occurrence and each triggered policy is called upon to respond to the claim up to the full limits of the policy

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Stacking Some Courts have permitted “horizontal

stacking” in cumulative injury tort cases:

• Cole v. Celotex Corp., 599 So. 2d 1058 (La. 1992) (permitting “horizontal stacking” of multiple annual policies in connection with underlying asbestosis claims)

• Society Ins. v. Town of Franklin, 607 N.W.2d 342, 346 (Wis. Ct. App. 2000) (finding the language of the policies, and case law, required horizontal stacking of successive CGL policies where environmental claim resulted from one ongoing occurrence giving rise to property damage each year and thereby triggering coverage under each policy).

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“Non-Cumulation” Provisions Provisions attempt to limit coverage available:

– Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability for damages resulting from one loss will not exceed the limit of liability for coverage shown on the declarations page. All bodily injury, personal injury and property damage resulting from one accident or from continuous or repeated exposure to the same general conditions is considered the result of one loss.

– Regardless of the number of (1) insureds under this policy, (2) persons or organizations who sustain personal injury or property damage, (3) claims made or suits brought on account of personal injury or property damage to which this policy applies, the Company's liability is limited as follows: . . . If the same occurrence gives rise to personal injury or property damage which occurs partly before and partly within the policy period, the each occurrence limit and the applicable aggregate limit of this policy shall be reduced by the amount of each payment made by the company with respect to such occurrence under a previous policy or policies of which this policy is a replacement.

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“Non-Cumulation” Provisions

Some courts have found the provisions void for public policy reasons:

• Spaulding Composites Co., Inc. v. Aetna Cas. and Sur. Co., 176 N.J. 25, 819 A.2d 410, 420-22 ( 2003).

• Outboard Marine Corp. v. Liberty Mut. Ins. Co., 283 Ill. App. 3d 630, 219 Ill. Dec. 62, 670 N.E.2d 740 (2d Dist.), as modified on denial of reh'g, (1996).

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Spaulding Composites

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

Enforcement that “would thwart the Owens-Illinois pro-rata allocation modality” and “allow the insurer to avoid its fair share of responsibility, drops out of the policy.”

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Spaulding Composites The court rejected argument that the provision

was an invalid “escape” clause Rather, it concluded that when addressing

complex environmental insurance coverage issues, a court must look beyond the contract language and traditional rules of insurance contract interpretation to serve specific goals including the maximization of resources for environmental cleanup, creating incentives for purchasing insurance, and “notions of simple justice.”

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Outboard Marine v. Liberty Mutual

Declined to enforce clause in environmental coverage case

Clause 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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Other Cases Chicago Bridge & Iron Co. v. Certain

Underwriters at Lloyd's, London, No. 94-07495 (Mass. Super. Jan. 7, 1999), in 13-11 MEALEY'S LITIG. REP.: INS. (Jan. 19, 1999) at 9, aff'd, 797 N.E.2d 434 (Mass. App. Ct. 2003) (holding clause is inconsistent with Illinois’ pro rata allocation law).

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Other Cases Viking Pump, Inc. v. Century Indem. Co., 2009

WL 3297559 (Del. Ch. Oct. 14, 2009) (holding clause cannot be applied sensibly within a pro rata allocation scheme and therefore must be nullified).

Hartford Accident & Indem. Co. v. Emp’rs Ins. Of Wausau, No. 847212, 1995 WL 870851, at *21 (Cal. Super. Ct. 1995) (disfavoring application of “prior insurance” clauses that result in no coverage for a loss that the insured reasonably assumed would be covered)

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Some courts have found the provision ambiguous and therefore construed it against the insurer

• Federal Ins. Co. ex rel. Associated Aviation Underwriters v. Purex Indus., Inc., 972 F. Supp. 872 (D.N.J. 1997).

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

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A.B.S. Clothing v. Home Clause is 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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Carter-Wallace v. Admiral Ins. Co.

The clause is subject to at least two potential interpretations: An “anti-stacking” provision that would preclude stacking of excess coverage over different contract periods, or as an “other insurance” clause that requires the policyholder to be indemnified from prior issued excess contracts that covered part of the period in which the contracts with such clauses were present. No. L–12287–89 (N.J. Super. Ct. Law Div.1994), aff'd on other grounds, 154 N.J. 312, 712 A.2d 1116 (1998).

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Other Cases Spartan Iron & Metal Corp. v. Liberty Ins. Corp., 6 Fed. App’x

176, 179 (4th Cir. 2001) (finding non-cumulation clause ambiguous and construing it against the insurer)

Glaser v. Hartford Cas. Ins. Co., 364 F. Supp. 2d 529, 538 (D. Md. 2005) (finding ambiguities in the policies and resolving them against the insurer)

Shemitz Lighting, Inc. v. Hartford Fire Ins. Co., 2000 WL 1781840, at *7 (Conn. Super. Ct. Nov. 9, 2000) (finding policy terms ambiguous and construing against insurer)

Sherman & Hemstreet, Inc. v. Cincinnati Ins. Co., 594 S.E.2d 648, 650 (Ga. 2004) (finding the non-cumulation clause ambiguous and construing the ambiguity in favor of the insured)

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Some courts have analogized the clause to an “escape” clause and have refused to enforce it.

• Hercules Inc. v. Aetna Cas. & Sur. Co., 1998 WL 62089 (Del. Super. Ct. Sept. 30, 1998)

• Greene, Tweed & Co. v. Hartford Accident & Indem. Co., 2006 WL 1050110, at *16 (E.D. Pa. Apr. 21, 2006)

• UTI Corp. v. Fireman’s Fund Ins. Co., 896 F. Supp. 362, 378 (D.N.J. 1995)

• Varian Assocs., Inc. v. Aetna Cas. & Sur. Co., No. 944196, at 30–31 (Cal. Super. Ct. 1997), in 11-11 MEALEY’S LITIG. REP.: INS. (Jan. 21, 1997)

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Hercules v. Aetna

Applying provision would be unfair and inconsistent with modified pro rata allocation and the jury's factual findings. It “would give the insurers a double credit

and would deprive the insured of the full value of its premium.”

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Consolidated Asbestos Coverage, Phase IV

Declined to enforce: “[A]t best for the insurers, the ‘non-cumulation’ clause is ambiguous. If given any effect, a reasonable interpretation of the clause is that it merely prevents the ‘stacking’ of ‘per person’ or ‘per occurrence’ limits. Since the court concludes that the ‘stacking’ of ‘per person’ or ‘per occurrence’ limits is not allowed, independent of the ‘non-cumulation’ clauses, the result would be no different if the clauses were given effect.” In re Asbestos Insurance Coverage Cases, Judicial Council Coordination Proceeding No. 1072, at 30–32 (Cal. Super. Ct. Aug. 29, 1988), in 2:21 MEALEY’S LITIG. REP.: INS. (Sept. 14, 1988)

Such a clause would place an enormous burden on policyholders by requiring them to determine the “amounts due” under prior contracts

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Statutes may affect the application of these limitations

E.g., COLO. REV. STAT. § 10-4-110.4(1) provides that an insurer shall not issue a liability policy to an insured in the construction industry that includes a provision “excluding or limiting coverage for one or more claims arising from . . . property damage . . . that occurs before the policy's inception date and that continues, worsens, or progresses when the policy is in effect [if the exclusion or limitation applies to injury or damage that] was unknown to the insured at the policy's inception.”

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Deemer Clauses “Deems” a particular date in the progression of

injury or damage as the relevant triggering date

“With respect to injury or destruction of property . . . caused by exposure to injurious conditions over a period of time involving two or more liability policies . . . all such injury, destruction . . . caused by the same injurious conditions shall be deemed to occur only on the last day of the last exposure and the applicable limit of liability contained in the policy in effect on the last day of such exposure shall be the applicable limit of liability.”

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Several Courts Have Refused to Apply

Endicott Johnson Corp. v. Liberty Mut. Ins. Co., 928 F. Supp. 176, 182 (N.D.N.Y. 1996) (finding deemer clause is ambiguous in environmental contamination cases because the last day of “exposure” could either be the last day of the dumping of waste or the last day the waste was finally cleaned and remediated).

United Techs. Corp. v. Liberty Mut. Ins. Co, 1 Mass. L. Rptr. 91, 1993 WL 818913 (Sup. Ct. Aug. 3, 1993) (holding deemer clause is unenforceable in environmental context where it would be difficult, if not impossible, to apply the clause consistently to gradual pollution claims, particularly where the damage may never be cleaned up and there may never be a last day of exposure).

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

Court noted clause was designed to prevent “stacking” of claims by assigning a claim to a single contract.

Clause limits each accident to a single contract year.

Inapplicable under Massachusetts law where, as there, the property damage occurred during every year that dumping took place.

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Westinghouse v. Am. Home Assurance Co.

Applied Pennsylvania law Rejected application of “deemer” clause, finding

it ambiguous and that enforcement would be “incompatible with the precepts of the continuous-trigger theory.”

2004 WL 1878764, *35-36 (N.J. App. Div. 2004), cert. denied, 182 N.J. 141 (2004).

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Tips Confirm the type of clause involved (non-

cumulation, deemer, other insurance) Consider the precise contract language,

applicable law, and specific facts When reviewing the law, bear in mind the

difference between cases dealing with whether coverage under a particular policy is triggered and those dealing with the related but somewhat different question of whether the triggered limits are available

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