NJ Court Finds Another Piece of the Insurance Allocation Puzzle

NJ Court Finds Another Piece of the Insurance Allocation Puzzle
Riker Danzig Environmental UPDATE October 2016

Under New Jersey insurance law, many of the coverage issues arising under comprehensive general liability (“CGL”) policies related to long-tail environmental claims have been resolved, however, allocation issues, what percentage of the loss each carrier and/or the policyholder is responsible for, are hotly disputed.  In a recent decision, the Appellate Division considered what cost a policyholder should bear if it did not purchase insurance responsive to its claim and determined that a policyholder does not share in the allocation for the period that insurance is not reasonably available.  Continental Ins. Co. v. Honeywell International, Inc., Docket Nos. A-1071-13T1, A-1100-13T1 (App. Div. July 20, 2016).

Before explaining in more detail the relevant holding from the case, it is necessary to understand the basis on which courts will assign or allocate responsibility among multiple policies triggered by environmental or other long-tail claims, such as asbestos.  Under New Jersey Supreme Court precedent, a continuous trigger period is applied, meaning all policies in effect from the date contamination or injurious conditions began until the time they are discovered or manifested are triggered (i.e., called upon to respond to the claim).  See Owens-Illinois Inc. v. United Ins. Co., 138 N.J. 437 (1994).  All triggered policies are then assigned a portion of the risk on a pro-rata basis.  Id.  In many situations involving environmental claims, the continuous trigger period extends beyond 1986, which is the date when many carriers added the absolute pollution exclusion to their CGL policies thus excluding from coverage claims arising from environmental contamination.  The issue for allocation then becomes who bears responsibility for covering the period during the continuous trigger after the exclusion comes into effect?

In Continental Ins. Co. v. Honeywell International, Inc., policyholder Honeywell sought coverage from its primary and excess CGL insurers for asbestos personal injury claims resulting from exposure to asbestos in brake and clutch pads manufactured and sold by its predecessor Bendix Corp.  Honeywell had settled with all but two of its excess carriers (Travelers and St. Paul’s).  One issue appealed by the two excess carriers was the decision by the trial court that Honeywell did not have to share in the allocation as if it was self-insured after 1987.  The trial court had found that insurance for asbestos liabilities was not reasonably available after 1986 (for primary policies) and 1987 (for excess policies) because of asbestos exclusions that were added to the policies.  These asbestos exclusions are similar to the absolute pollution exclusion inserted into CGL policies around the same time and were intended to exclude from coverage all asbestos related claims.  

The Appellate Division noted that the “practical effect of this ruling means that Honeywell need not share in the allocation of insurance coverage as if it were self-insured for the period of time from 1987-2001.”  The Appellate Division analyzed the Supreme Court’s decision in Owens-Illinois and clarified that it distinguishes between situations where an insured consciously decides not to buy available insurance, as compared to a situation where “no insurance was reasonably available to purchase.”  The effect is that in the former situation the policyholder would be allocated responsibility for the uninsured period of time, whereas in the latter “no portion of liability would be allocated to the time period where insurance is not available to the insured.”

Because there may be many years in a trigger period where policies purchased during that time contain exclusions precluding coverage for the specific claims at issue, whether insurance in another form was reasonably available to cover those risks is a critical determination for both the policyholder and carrier.