1. final
October 28-29, 2013
1

3. Max H. Stern
Duane Morris LLP
Paul Zevnik
Morgan Lewis LLP
Philip R. Watters, P.E.
RimkusConsulting Group

4. 
Goulds v. Travelers
(Los Angeles Superior Court)

Plant Insulation Co. v. Fireman’s Fund
(San Francisco Superior Court)

State of California v. Continental
(California Supreme Court)

Lennar v. Markel
(Texas Supreme Court)
4

5. 



Asbestos bodily injury
Excess insurance coverage
New York law
Pro rata allocation
5

6. 


Pro rata allocation: what does it mean when dealing
with language and insurer differences?
Impact of allocation method employed by underlying
insurer to exhaust policies
Allocation to insured for so-called “uninsured” or
“under-insured” periods
◦ Post-1985 asbestos coverage
◦ Pre-1955 asbestos coverage
◦ So-called “under-insured” periods at excess level prior to 1963
6

7. 

Pro Rata Allocation Hypothetical
(Slide 3 - interactive)
7

8. Hypothetical Pro Rata Allocation/Exhaustion Model
Date of First Exposure "DOFE”
POLICY
YEAR
1 2 3 4 5 6 7 8 9 10
Loss Five - $700,000
Loss Four - $1,000,000
Loss Three - $900,000
Loss Two - $400,000
Loss One - $600,000
Triggers Umbrella Coverage
$500,000 Primary

9. Hypothetical Pro Rata Allocation/Exhaustion Model
Date of First Exposure "DOFE”
NON
AGGREGATED
POLICY
YEAR
1 2 3 4 5 6 7 8 9 10
Loss Five - $700,000
Loss Four - $1,000,000
Loss Three - $900,000
Loss Two - $400,000
Loss One - $600,000
Triggers Umbrella
Cov
$500,000 Primary
9

10. Insurersargued for allocation to Goulds for so-called
uninsured and under-insured periods.



Post-1985 asbestos coverage.
Pre-1955 asbestos coverage.
(Greenman v. Yuba Power Products) “Under-insured”
periods at excess level prior to 1963.
10

11. 





Asbestos bodily injury
Primary, umbrella and excess insurance coverage
California law
Continuous trigger
Policyholder selection/equitable contribution
“Operations” coverage
◦ Wallace & Gale


Double anchor trigger
Cancer trigger
11

12. 
“Operations” coverage
◦ Wallace & Gale


Double anchor trigger
Cancer trigger
12

13. Known General Liability Coverage Issued To Plant Insulation Company/Plant Asbestos Company
ACE (ACE Fire and ACE P/C)
Transport Insurance
Mt. McKinley
USF&G
Fireman‟s Fund/American Auto
Royal Indemnity
United National
Insurance Company of the West
Safety National
Unavailable Coverage
Industrial Indemnity/U.S. Fire
$15MM -
OneBeacon
AIG (Granite State; ISOP; American Home)
Sompo Japan
- $15MM
Granite
State
6181-5654
Unavailable
Transport
TEL900340
Unavailable
Unavailable
1952-1961
10MM -
- 10MM
Unavailable
$1MM -
0.5MM -
ACE P&C
UL 851337
Mt. McKinley
GMX00183
0.3MM -
- 5MM
5MM -
ISOP
4173-5420
Safety
National
Granite
State
6180-6900
Unavailable
3MM Ins. Co. of
the West
UC 363062
Unavailable
ISOP
410-4478
2MM Unavailable Unavailable
American Home
614-1047
Unavailable
1MM OneBeacon
OneBeacon
OneBeacon
OneBeacon
OneBeacon
OneBeacon
OneBeacon
OneBeacon
0.5MM -
0.25MM -
- 0.5MM
Fireman‟s Fund
LC 2389305
Sompo
Japan
USF&G
USF&G
Royal
Indem.
Fund
MXP
457-25-57
ACE Fire
MFC DO
612527A
United
National
SMP 12132
- 0.25MM

14. Aggregate
limit applies only to claims falling within
the “products hazard” or the “completed operations
hazard.”
Aggregate limit does not apply to “operations” claims
that do not fall within the definitions of these two
hazards.
14

15. ◦“’Products Hazard‟ includes bodily injury and property damage
arising out of the Named Insured‟s products or reliance upon a
representation or warranty made at any time with respect thereto,
but only if the „bodily injury or property damage occurs away from
premises owned by or rented to the Named Insured and after
physical possession of such products has been relinquished to
others.‟”
◦ “„Completed Operations Hazard‟ includes bodily injury and
property damage arising out of operations or reliance upon a
representation or warranty made at any time with respect thereto, but
only if the bodily injury or property damage occurs after such
operations have been completed or abandoned and occurs away from
premises owned by or rented to the named insured.”
15

16. ◦ “A manufacturer or service provider can incur liability both
while work is in progress and after completion. Claims for
injuries arising while an activity is in progress fall within „nonproducts‟ or „operations‟ coverage. Claims for injuries arising
once the product has been completed and sent to market fall
within „products‟ or „completed operations‟ coverage. The
coverages are complementary and not overlapping. Products
coverage takes over where operations coverage leaves off.”
Employers Reinsurance Co. v. Superior Court (Thorpe),
161 Cal. App. 4th 906, 911 fn. 2 (2008)
16

17. 
Plant Court applied a Wallace & Gale approach, which
provides that non-aggregated coverage is limited to policies
in effect at the time of exposure to asbestos during
“operations.”
◦ “If a claimant‟s initial exposure occurred while Wallace & Gale was
still conducting operations, policies in effect at that time will not be
subject to any aggregate limit. If, however, initial exposure is shown
to have occurred after operations were concluded or if exposure that
began during operations continued after operations were complete,
then the aggregate limits of any policy that came into effect after
operations were complete will apply. Where a given claimant falls
within this framework will have to be considered on a case-by-case
basis.”
In Re Wallace & Gale, 385 F.3d at 833
17

18. 
Certain insurers argued that both exposure to asbestos
and resulting bodily injury must occur during the policy
period for coverage to apply.

Operative policy provisions:
◦ “Policy period, Territory: This policy applies only to accidents
or occurrences which take place during the policy period.”
◦ “Occurrence” means “an accident or continuous or repeated
exposure to conditions that results in bodily injury during the
policy period.”
18

19. “[T]his Court concludes that the normal trigger of coverage
under California law applies to the policies here at issue. In
other words, coverage under those policies is triggered solely
by injury during the policy period. The injury-causing event
need not occur during the policy period to trigger coverage.”
Plant, Final Statement of Decision on the Phase III Issues,
April 8, 2013, at p. 30.
19

20. 


Certain insurers argued that coverage for asbestosrelated cancers would only be provided under policies
issued within a few years of diagnosis.
The impact of certain insurers‟ trigger approach would
eliminate coverage for most asbestos claims.
Based on a thorough review of medical scientific
evidence, the Court rejected a separate trigger for
asbestos-related cancers, and instead applied the
traditional California continuous trigger of coverage.
20

21. “In sum, although Armstrong was decided in 1987, this
Court finds that the factual findings of Armstrong regarding
the timing of injury due to inhalation of asbestos have been
confirmed and augmented by subsequent developments in
the medical and scientific fields. Specifically, as in
Armstrong and as previously noted, the Court finds that in
those who develop asbestos-related disease, the disease
process begins soon after inhalation of asbestos fibers. The
injurious process begins at initial exposure, continues after
cessation of exposure and throughout an individual‟s life.”
Plant, Final Statement of Decision on the Phase III Issues, April 8,
2013, at p. 43.
21

22. 





Environmental damage.
Primary, umbrella and excess insurance coverage.
California law.
Continuous trigger.
Rejected pro rata allocation.
All-sums-with-stacking adopted.
22

23. 
Insurers argued for a “pro rata” allocation approach to
coverage for continuous and progressive
environmental property damage.

Insurers also argued for “anti-stacking” of policy limits,
which would limit coverage to one policy period.

Supreme Court rejected “pro rata” allocation and
confirmed California‟s “continuous” trigger and an
“all-sums-with-stacking” approach.
23

24. “We therefore conclude that the policies at issue obligate the
insurers to pay all sums for property damage attributable to the
Stringfellow site, up to their policy limits, if applicable, as long
as some of the continuous property damage occurred while
each policy was “on the loss.” The coverage extends to the
entirety of the ensuing damage or injury (Montrose, supra, 10
Cal.4th at p. 686, 42 Cal.Rptr.2d 324, 913 P.2d 878), and best
reflects the insurers‟ indemnity obligation under the respective
policies, the insured‟s expectations, and the true character of
the damages that flow from a long-tail injury.”
State of California, 55 Cal.4th at 200.
24

25. “An all-sums-with-stacking rule has numerous advantages. It
resolves the question of insurance coverage as equitably as possible,
given the immeasurable aspects of a long-tail injury. It also comports
with the parties‟ reasonable expectations, in that the insurer
reasonably expects to pay for property damage occurring during a
long-tail loss it covered, but only up to its policy limits, while the
insured reasonably expects indemnification for the time periods in
which it purchased insurance coverage. All-sums-with-stacking
coverage allocation ascertains each insurer‟s liability with a
comparatively uncomplicated calculation that looks at the long-tail
injury as a whole rather than artificially breaking it into distinct
periods of injury.”
State of California, 55 Cal.4th at 201
25

26. Policy language limiting obligation to pay to damage
“during the policy period.”
Anti-stacking language – what language overcomes SOC?
Effect of case when property damage partially or entirely
divisible
Choice of law / application in other jurisdictions
Application to other types of (non-environmental, nonproperty damage) cases
26

27. 




Construction defect allowing water damage.
One umbrella insurer; all other insurance had settled.
Texas law.
Continuous trigger.
Rejected pro rata allocation.
27

28. Lennar received homeowner complaints regarding EIFS
causing water damage. Lennar notified insurers of
plans to remediate homes after it had commenced
remediation efforts, but insurers refused to participate,
instead opting to respond to any individual homeowner
claims. Lennar proceeded to replace EIFS in all homes.
In the ensuing coverage dispute, Lennar ultimately
settled with all insurers, except for Markel.
28

29. Markel: Pro-Rata - only responsible for its share of remediation expenses
associated with the “property damage” occurring during its policy period.
Lennar: All Sums – Markel is responsible for all of the loss from all years in which
“property damage occurred. The policy does not require it to prove a specific
amount of damage during the policy period to each house and it is practically
impossible to do so.
Court’s Holding: All sums where “property damage” began before or during the
policy period and continued until it was repaired. Markel is obligated to pay the
total amount of Lennar‟s loss.
Relied on Amer. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 8442 (Tex.
1994), and stated allocation discussion in Garcia was not dicta.

Markel
must first pay then can reallocate the loss among insurers according to
their respective subrogation rights.
.
29

30. Garcia
held:
If a single occurrence triggers more than one policy,
covering different policy periods, then different limits
may have applied at different times. In such a case, the
insured's indemnity limit should be whatever limit
applied at the single point in time during the coverage
periods of the triggered policies when the insured's limit
was highest. The insured is generally in the best position
to identify the policy or policies that would maximize
coverage. Once the applicable limit is identified, all
insurers whose policies are triggered must allocate
funding of the indemnity limit among themselves
according to their subrogation rights.
30

31. What are the “respective subrogation rights” in this type
of scenario?
When other insurers settled with the insured, how is the
last to settle insurer able to reallocate indemnity with
previously settled insurers?
31

32. 








Max H. Stern
Duane Morris LLP
(415) 957-3129 MHStern@duanemorris.com
Paul Zevnik
Morgan Lewis LLP
(213) 612-2501 Pzevnik@morganlewis.com
Philip R. Watters, P.E.
Rimkus Consulting Group
(713) 621-3550 PRW@Rimkus.com

33. 





Demonstrate contributions are distinguishable
Hazardous waste amounts
Hazardous waste toxicity
Parties involvement in waste generation……
Degree of care
Cooperation with government

34. Relative fault of the parties
 Property use during ownership
 State of mind of the parties
 Who benefited from disposal
 Parties ability to pay
 Weighted site attribute modeling
 Monte Carlo statistical method


35. 
Regulatory changes
◦ Clean-up standards
◦ Allowed remediation technologies
◦ Vapor intrusion

Chemicals of concern
◦ Newly identified at site
◦ Detection limits
◦ Nanotechnology

36. Claimed Damages
Product Defects A,B,...
1,2,3,4,5...
Product Defects Q,R,…
Product Defects X,Y,…
$$$ Replace or Repair Everything $$$

37. Construction Defect Allocation
Insured and Insurer Perspective
Investigate Damage
Product Defect Maintenance No Damage Unrelated
Damage
Issue
Replace Product $
Resultant Damage $
$Resultant Damage $
Resultant Damage $

38. Questions
38