Reviewing Allocation Law in The Wake of Con Edison

Abstract

INTRODUCTION Generally, there are two approaches to allocating long-term toxic tort claims like asbestos or environmental contamination. One is the “prorata” allocation method, whereby each party, including policyholders in certain circumstances, is held responsible only for its “fair share” of the liability. Courts who adopt this position rely on the policy language that states that the insurer will only cover bodily injury or property damage taking place during the policy period. The difficulty lies in determining how to calculate the “fair share.” Courts have approached the calculation issue in different ways, such as straight time on the risk, time on the risk in relation to limits, or horizontal exhaustion before any excess carrier pays. However, pro rata allocation is not favorable to policyholders because it usually places responsibility on them for periods of insurance gaps, whether by reason of missing policies, insolvencies, self-insured retentions/deductibles, or periods of no insurance. The second method is known as “joint and several liability” or “pick and choose”. This method is more favorable to policyholders because it places the burden of allocating “fair share” responsibility for the claim on the insurers. Specifically, pick and choose allows the policyholder to select the policy (and sometimes policies) that will respond to a tendered claim. Notwithstanding that the loss takes place over a long period of time, under a pick and choose method of allocation, the insurer issuing the selected policy becomes responsible to pay for the policyholder’s entire liability up to its policy limit. Thereafter, that insurer is entitled to seek contribution from any other insurer that may have responsibility for the loss, but not from the insured.