The application of per‐occurrence limits from successive policies

Abstract

One of the most important emerging issues in environmental insurance coverage litigation concerns application of the dollar limits on coverage for successive insurance policy periods. The typical insured with ten years of annual $1 million insurance policies no doubt believes that $10 million of coverage is available for property damage occurring continuously over the ten-year period; after all, the insured bought ten policies, each providing $ 1 million of coverage. This belief, however commonsensical, has come under attack. Some in the insurance industry now seek to restrict the amount of coverage available for each long-term environmental property damage claim to the amount provided in a single policy period, regardless of how many consecutive policies apply to the claim.1 Since most insureds have multiple years of coverage, the insurance industry stands to gain a great deal. Indeed, such a coverage restriction would cut the industry's liability to a tenth of what our typical insured expects. This article sets out two straightforward responses to this proposed restriction. First, in both 1961 and 1978 the insurance industry drafted, debated, and then rejected a standard form policy provision that was designed to accomplish the very limitation that some in the industry now advocate. In the process, industry representatives acknowledged repeatedly that our typical insured's commonsensical belief is correct: coverage up to the full dollar limits of every standard form CGL policy on the risk when property damage takes place is available. Second, there is a wealth of precedent from the uninsured motorists coverage case law that stands for the same proposition: absent explicit policy language to the contrary, the insured is entitled to be indemnified up to the full limits of triggered policies. The drafting history and the uninsured motorists case law identify four important principles that should govern how the limits of successive CGL policies are applied to environmental property damage. (1) The standard form policy language requires each triggered policy to pay all sums up to Thomas Baker and Eva Orlebeke are attorneys at Covington & Burling, which represents policyholders in environmental and other insurance coverage litigation. The views expressed in this article are the views of the authors and not necessarily those of the clients of Covington & Burling.