Will insurance allocation ever be simple in New Jersey? Comparing Owens‐Illinois and Carter‐Wallace

Abstract

In 1994, the New Jersey Supreme Court set out on a new direction with respect to allocating a liability claim over a multiyear period. In Owens‐Illinois the court rejected both joint‐and‐several allocation and pro‐rata allocation. Finding a method lacking in the policies themselves, the court turned to public‐interest factors and developed a methodology whereby loss would be allocated “in proportion to the degree of the risks transferred or retained during the years of exposure. “Although Owens‐Illinois did not define the specific parameters of the allocation, it did describe its basic methodology. Its approach, commonly referred to as a by‐limits allocation, has been the subject of scrutiny and interpretation by courts and insurance coverage practitioners. Now before the New Jersey Supreme Court, however, is an allocation methodology that, on its face, seems inconsistent with the approach taken in Owens‐Illinois. The Carter‐Wallace allocation methodology, while purporting to adhere to the principles espoused in Owens‐Illinois, disregards the apportionment methodology developed in that case. Its vertical allocation, combined with a pro‐rata spreading of the loss to each of the triggered years—an approach that prorates the allocation rather than the loss—is now under review by the court. This will be one of the first real reviews of insurance allocation methodologies since Owens‐Illinois and, if accepted, will once again rewrite insurance allocation laws in New Jersey—with potentially adverse results for policyholders.