Insurers and insureds face a challenging set of legal issues when liability claims span multiple policy periods. Those legal issues often include disputes about the number of policy and occurrence limits that are available to satisfy the insured’s liability; whether “non-cumulation” provisions in insurance policies are enforceable; and whether the insured’s entire liability can be allocated to one or more policy periods determined by the insured. Late last week, in Plastics Engineering Company v. Liberty Mutual Insurance Company, 2009 WI 13, the Wisconsin Supreme Court addressed these issues for liability risks in Wisconsin.
The plaintiff-insured, Plastics Engineering Company (Plenco), manufactured asbestos-containing molding compounds from 1950 – 1983. As a result of Plenco’s use of asbestos, it had been named as a defendant in hundreds of lawsuits for claims arising from individuals’ exposure to Plenco’s asbestos-containing products. Plenco sought coverage for these lawsuits from one of its insurers under a series of general liability and umbrella policies issued between 1968 and 1989. Thus, Plenco’s insurer was on the risk for some, but not all, of the years in which the claimants were exposed to, and allegedly sustained injuries from, asbestos. The dispute concerned the extent of the insurer’s share of the risk.
Legal Issues Resolved by Plenco
The Wisconsin Supreme Court resolved three legal issues in its ruling:
- How many “occurrences” had taken place and, as a result, how many per-occurrence limits were available to Plenco;
- Whether the non-cumulation clauses in the insurance policies were barred by Wisconsin law; and
- Whether an “all sums” or pro rata method should be used to allocate liability across multiple policy periods.
In its decision, the Court ruled for Plenco on the first and third issues, holding that each individual claimant’s injury constitutes a separate occurrence and that Plenco’s insurer was liable under the all sums allocation method. The Court ruled for Plenco’s insurer on the second issue by holding that the non-cumulation clauses did not violate Wisconsin law.
Number of Occurrences
General liability policies typically establish a per-occurrence limit. Plenco’s insurer argued that Plenco’s continuous manufacture and sale of asbestos-containing molding compounds constituted a single occurrence such that Plenco would be entitled to a single occurrence limit for all of its asbestos claims. The Court rejected this argument and held that multiple occurrences had arisen because each individual’s injury stemmed from his or her own repeated exposure to asbestos-containing products. As a result, a separate per-occurrence limit was available to Plenco for each claimant.
Non-Cumulation Provisions and Wis. Stat. § 631.43(1)
The policies at issue in Plenco contained non-cumulation clauses, which limit an insurer’s exposure to its per-occurrence and aggregate limits, minus any payments made by that insurer for the same occurrence under a prior policy. Plenco argued that such clauses are prohibited under Wis. Stat. § 631.43(1), which provides that when two or more policies promise to indemnify an insured against the same loss, no “other insurance” provisions of the policy may reduce the aggregate protection of the insured below the lesser of the insured’s actual loss or the total indemnification promised by the policies.
The Court held that Wis. Stat. § 631.43(1) did not apply to the non-cumulation provisions. First, the Court found that Wis. Stat. § 631.43(1) does not apply to policies insuring successive policy periods; rather, it applies only to policies insuring concurrent policy periods. Second, the Court ruled that Wis. Stat. § 631.43(1) regulates only other-insurance clauses and not non-cumulation provisions. As a result, Plenco’s recovery was limited to one per-occurrence limit for each individual claimant.
All Sums or Pro Rata Allocation?
When an occurrence insured by a liability policy spans multiple policy periods, questions about the extent of coverage can arise. How should an individual insurer’s liability to its insured be determined when different insurers have been on the risk? How should allocation be handled if an insured elected to self-insure for one or more policy periods in a multi-year claim? Should any portion of the loss be allocated to years in which coverage is already exhausted? What happens if one insurer in a multi-year claim is insolvent? Courts faced with these questions have typically adopted either an “all sums” (sometimes called joint and several) or a pro rata allocation approach.
The Plenco court adopted the “all sums” approach. Under this allocation methodology, any insurer whose policy is triggered is jointly and severally responsible, subject to its coverage limits, for providing a complete defense and indemnity for all damages or injuries, even if only a portion of the damage or injury occurred while the insurer was on the risk. Under a pro rata approach, which the Court rejected, the insurer is responsible for only that portion of the damage that occurs while the insurer was on the risk. The Court reasoned that an all sums allocation approach was proper not only because the insurer expressly agreed in its policies to pay “all sums” for which Plenco might be held liable, but also because the policies at issue did not contain any pro rata allocation language.
The Plenco decision significantly affects the extent of insurers’ liability for occurrences that span multiple policy periods and resolved several previously unanswered questions under Wisconsin law.
Legal News Alert is part of our ongoing commitment to providing up-to-the minute information about pressing concerns or industry issues affecting our insurance clients and our colleagues.
Please contact your Foley attorney or the individual listed below if you have any questions about these issues or want additional information regarding insurance matters:
Bartholomew F. Reuter