The term “allocation” with respect to liability insurance coverage pertains to the triggering of more than one insurance policy for the same occurrence. There are, however, several different scenarios in which allocation principles, as determined by the policy language itself and precedential case law, are applied. Examples include: multiple primary insurance policies that cover the same insured; multiple insurance policies that cover the same occurrence, but with one policy excess to the other(s); an occurrence that spans more than one insurance policy period; or an occurrence that spans periods of insurance coverage as well as periods of time when the insured had no or previously exhausted insurance coverage. Allocation, therefore, refers to a variety of situations where coverage analysis requires the examination of the language of more than one policy and potentially the law of the relevant jurisdiction in applying such policy language to the concept of shared coverage among multiple entities.
The “Other Insurance” Clause
The starting point for claims that may be covered by multiple policies that cover the same insured during the same policy period is the “Other Insurance” clause, a policy Condition that is contained in virtually all liability insurance policies. This clause sets forth the basis upon which coverage is allocated among multiple policies that are triggered by a single claim. Connecticut follows the general rule that such clauses are enforceable provided they do not operate to deny or diminish coverage. Aetna C&S Co. v. CNA Ins. Co., 221 Conn. 779 (1992). While the examination of respective “Other Insurance” clauses may readily resolve the defense and indemnification responsibilities of each of the respective insurers, it is often the case that each policy proclaims itself to be excess over all other valid and collectible insurance coverage, leaving no clear directive of which policy is primary. In such circumstances, courts will declare that the policies are “mutually repugnant,” meaning that the identical “Other Insurance” clauses cancel each other out, and the policies must share the loss on a co-primary basis. The policy language may dictate that the basis of sharing is either pro rata based on the policies’ respective policy limits, or equal shares. If the policy language is not conclusive, courts generally will require pro rata allocation. “Where two policies contemplate the particular risk equally, liability will be pro-rated based on the total policy limits.” 14 Couch, Insurance (2d Ed.) § 51-36; 7C Appleman, Insurance Law and Practice § 4682. See also, Continental Cas. Co. v. Aetna Cas. & Sur. Co., 823 F.2d 708 (2d Cir. 1987)(applying Connecticut law)(two excess policies with mutually repugnant “Other Insurance” clauses must share on a pro rata basis); Sacharko v. Center Equities Limited Partnership, 2 Conn. App. 439, 479 A.2d 1219 (1984)(the doctrine of equitable contribution requires that all primary insurers are duty bound to contribute their pro rata share of the cost of defense).
It is important to note that clear and unambiguous policy language dictates how the insurers will – or will not – contribute, and courts will honor such contract language before imposing interpretative solutions of their own. See, e.g., RLI Ins. Co. v. Hartford A&I Co., 980 F. 2d 120 (2d Cir. 1992)(policy not required to participate where it did not state that it was primary “other insurance” and did not provide for contribution with other applicable policies).
Continuous Trigger Claims
Allocation principles are frequently invoked in claims that span multiple policy periods, e.g., drug, toxic chemical and pollution claims. The majority rule in Connecticut and elsewhere is that relevant policy periods are triggered by “injury in fact,” i.e., when the injury or damage occurred. Aetna C&S Co. v. Abbott Lab., Inc., 636 F. Supp. 546 (D. Conn. 1986). “Injury in fact “ frequently has been found to take place (more so in bodily injury rather than property damage claims) over months or years, thus occurring over multiple policy periods, which may not be covered by a single insurer. The “Other Insurance” clause offers little to no guidance in determining which insurer(s) are required to defend and indemnify such claims, as the “Other Insurance” clause pertains to concurrent, not successive, coverage. In these circumstances, insureds and insurers have turned generally on each other and thus to the courts to determine their respective rights and obligations.
Court decisions involving continuous trigger claims vary considerably among jurisdictions. Some, particularly those that faced the issue early in the history of such coverage disputes, allow the insured to designate certain policy years within the time span of injury or damage into which to assign the claims. This result imposes duties and obligations only on certain insurer(s), generally those with the highest policy limits and/or the lowest deductibles. Other jurisdictions, including Connecticut, which represent a more recent analysis of the allocation issue, employ pro rata allocation, consistent with the principles in interpreting “Other Insurance” clauses.
The “Uninsured” Insured
Continuous-trigger claims may present a scenario in which some of the triggered policy periods are covered by insurance, but others are not. Uninsured periods of time within the span of a continuous trigger claim can be caused by an entity’s choice to self-insure, by the exhaustion of insurance that had existed for that policy term, or by a “buy-back” agreement wherein the insured and insurer agree to release the insurer from its coverage obligations in exchange for payment of a sum of money, often the policy limits. However they are caused, uninsured time periods create gaps in insurance coverage that pose the question of who should pay for defense and indemnity costs that are allocated to the uninsured time periods. Earlier court decisions tended to relieve insureds from assuming a share of at least the defense costs, an extension of a tenet of insurance law that dictates that if a lawsuit contains both insured and uninsured allegations, the insurer bears the duty to defend the entire claim. More recently, however, courts have recognized that the absence of insurance imposes on the insured its own pro rata share of defense and indemnity costs for uninsured policy periods. An extensive analysis of allocation principles is set forth in Security Ins. Co. of Hartford v. Lumbermens Mutual Cas. Co., 264 Conn. 688 (2003), which held that the legal doctrine of equitable contribution fairly imposes on the insured its pro rata contribution for self-insured or uninsured periods. Following what had evolved over several decades to be the majority rule, the Connecticut Supreme Court thus concluded that where multiple successive policy periods are triggered, the pro rata method of allocation requires allocating costs to the insured for uninsured or self-insured policy periods.
Conclusion
Insurance claims that trigger multiple policies require prompt analysis of the allocation of the duties and costs to defend and indemnify. The starting point, as with all other coverage issues, is the policy language itself. The “Other Insurance” clause usually provides for the resolution of disputes among concurrent insurers. However, coverage issues of greater complexity, such as continuous-trigger claims that involve consecutive policy periods, some of which may be insured but others not, call for research of applicable jurisdictional law to determine the parties’ rights and obligations. As if these considerations were not challenging enough, insurers and insureds cannot lose sight of the underlying litigation that spawned the coverage questions and must assure that the insured’s defense is not impeded by coverage disputes that have the capacity to take on a life of their own.
— Kathleen F. Munroe
