Presenting a live 90-minute webinar with interactive Q&A
Allocation of Liability for Continuous
Damage Losses: All Sums v. Pro Rata
Best Practices for Policyholders and Insurers to Allocate Indemnity and Expenses
WEDNESDAY, APRIL 18, 2012
1pm Eastern
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Today’s faculty features:
Laura A. Foggan, Partner, Wiley Rein, Washington, D.C.
Robert M. Horkovich, Shareholder, Anderson Kill & Olick, New York
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Strafford Litigation Teleconference
“Allocation of Liability for Continuous
Damage Losses: All Sums v. Pro Rata: Best
Practices for Policyholders and Insurers to
Allocate Indemnity and Expenses ”
Wednesday, April 18, 2012
1:00 p.m. Eastern Time / 12:00 p.m. Central Time /
11:00 a.m. Mountain Time / 10:00 a.m. Pacific Time
Laura A. Foggan, Esq.
WILEY REIN LLP
lfoggan@wileyrein.com
(202) 719-3382
Robert M. Horkovich, Esq.
ANDERSON KILL & OLICK PC
rhorkovich@andersonkill.com
(212) 278-1322
ALLOCATION OF LIABILITY
(Robert Horkovich)
All sums rule
6
ALLOCATION OF LIABILITY
(Laura Foggan)
Pro rata/Time on the risk allocation
7
COURT TREATMENT
(Laura Foggan)

Pennsylvania National Mutual Casualty
Insurance Co. v. Roberts, et al., Nos. 101987, 10-1988, 2012 WL 336150 (4th Cir.
Feb. 3, 2012).
Coverage is limited to bodily injury “occur[ing]
during the policy period.”
To hold the insurer liable for any other period
would “upend insurance underwriting.”
8
COURT TREATMENT
(Laura Foggan)

Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, et
al., Nos. 10-1987, 10-1988, 2012 WL 336150 (4th Cir. Feb. 3,
2012).

A teenager sued the policyholder, a realty company, that had
managed her home from her birth in January 1991 until November
1993, when the company sold the property, alleging the
policyholder’s negligence caused her to suffer lead poisoning. The
claimant had been diagnosed with the condition in September 1992
and continued to exhibit an elevated blood lead level until August
1995.

The insurer had issued liability insurance policies covering the
period from January 1992 to January 1994.
9
COURT TREATMENT
(Laura Foggan)

Pennsylvania National Mutual Casualty Insurance Co. v.
Roberts, et al., Nos. 10-1987, 10-1988, 2012 WL 336150
(4th Cir. Feb. 3, 2012).

The insurer believed that it should be liable only for a 22month portion of the period of the underlying plaintiff’s
exposure to the risk of lead poisoning: from January 1992,
when the first policy period started, to November 1993,
when the policyholder sold the property.

The underlying plaintiff countered that the insurer should
be liable for the entire judgment “in light of ‘the joint and
several liability of [its] insured.’”
10
COURT TREATMENT
(Laura Foggan)
Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, et al.,
Nos. 10-1987, 10-1988, 2012 WL 336150 (4th Cir. Feb. 3, 2012).
Adopting pro rata allocation, the court rejected the underlying
plaintiff’s effort to impute the policyholder’s joint and several liability
to the insurer. That position defied the contract, Maryland law, and
fundamental insurance principles.
The insurer had contracted to provide coverage only for damages
“to which this insurance applies.” Because the policies covered only
harm “occur[ing] during the policy period,” the insurer was not liable
for harm sustained outside that period. In contrast to the
policyholder’s joint and several liability, the question of an insurer’s
liability “can be answered only by reference to the insurance
contract.”
11
COURT TREATMENT
(Laura Foggan)
Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, et al.,
Nos. 10-1987, 10-1988, 2012 WL 336150 (4th Cir. Feb. 3, 2012).
Holding the insurer liable for the entire judgment “would upend
insurance underwriting.”
“[The underlying plaintiff’s] approach would impose the same
amount of liability on an insurance company whether it provided
coverage for one month or for 10 years.” Not only would such an
approach yield higher costs and accompanying higher policyholder
premiums, it also would “disincentize” tortfeasors from obtaining
comprehensive insurance coverage.
12
COURT TREATMENT
(Laura Foggan)
Pennsylvania National Mutual Casualty Insurance Co. v.
Roberts, et al., Nos. 10-1987, 10-1988, 2012 WL
336150 (4th Cir. Feb. 3, 2012).
“The pro rata approach not only allocates liability across
multiple insurers of a single tortfeasor, but also
‘accommodates the need to hold liable those
businesses that chose not to purchase insurance or
coverage’ by allocating liability to them for periods
which they were uninsured.”
13
COURT TREATMENT
(Laura Foggan)
Boston Gas Co. v. Century Indemnity Co., 910 N.E. 2d
290, (Mass. 2009).

Direct liability should be prorated among all insurance
companies “on the risk”.

Where it is not feasible to make fact-based allocation of
losses for each policy period, losses should be
allocated using time-on-the-risk method.
14
COURT TREATMENT
(Laura Foggan)
Policyholders are responsible under
time-on-the-risk method for any periods that they went
without insurance.
But, policyholders are liable for only a prorated portion of
the per occurrence self-insured retention for each
triggered policy period, to be prorated on same basis as
the insurance companies’ liability, unless policy language
unambiguously provides otherwise.
15
COURT TREATMENT
(Laura Foggan)
“No reasonable policyholder could have expected that a single
one-year policy would cover all losses caused by toxic industrial
wastes released into the environment over the course of several
decades. Any reasonable insured purchasing a series of
occurrence-based policies would have understood that each
policy covered it only for property damage occurring during the
policy year.”
Boston Gas, 910 N.E.2d at 309.
16
COURT TREATMENT
(Laura Foggan)
“In sum, the pro rata allocation method promotes
judicial efficiency, engenders stability and
predictability in the insurance market, provides
incentive for responsible commercial behavior, and
produces an equitable result.”
Boston Gas, 910 N.E.2d at 311.
17
COURT TREATMENT
(Laura Foggan)
“[T]he joint and several allocation method is
improvident. It ‘does not solve the Allocation
problem; it merely postpones it.”
Boston Gas, 910 N.E.2d at 311 (quoting EnergyNorth
Natural Gas, Inc. v. Certain Underwriters at Lloyd’s, 934
A.2d 517, 527 (N.H. 2007).
18
COURT TREATMENT
(Robert Horkovich)
State of California v. Continental Ins. Co., 88 Cal.
Rptr. 3d 288 (2009), review pending, Cal. Sup.
Court No. S170560.
19
ALL-SUMS RULE
(Robert Horkovich)
In its “all-sums” ruling, the trial court had ruled in favor
of the State:
“[O]nce coverage for…continuous…damage…is
triggered under a liability policy, the insurer is
required to pay for all sums (up to the policy limits) of
the insured’s liability – not just liability specifically
allocable to damage during the policy period.”
20
ALL-SUMS RULE
(Robert Horkovich)
Insuring Agreement:
“To pay on behalf of the Insured all sums which the
Insured shall become obligated to pay by reason of
liability imposed by law…for damages…because of
injury to or destruction of property, including loss of
use thereof.”
21
ALL-SUMS RULE
(Robert Horkovich)
It is a “settled rule that an insurer on the risk
when continuous or progressively deteriorating
damage or injury first manifests itself remains
obligated to indemnify the insured for the
entirety of the ensuing damage or injury.”
Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal. 4th
645, 686 (1995) (emphasis added).
22
ALL-SUMS RULE
(Robert Horkovich)
Every insurer that issued a liability policy for any
period during which a continuous loss occurred
was liable for “the full extent of the loss up to
the policy’s limits….”
Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co.,
45 Cal. App. 4th 1, 49 (1996).
23
ALL-SUMS RULE
(Robert Horkovich)
The duty to indemnify “is triggered if specified harm is
caused by an included occurrence, so long as at least
some such harm results within the policy period…. It
extends to all specified harm caused by an included
occurrence, even if some such harm results beyond
the policy period.…”
Aerojet-General Corp. v. Transport Indem. Co., 17 Cal. 4th
38, 56-57 (1997) (emphasis added).
24
ALL-SUMS RULE
(Robert Horkovich)
“The all-sums approach, however, is not literally
joint and several liability…. The insurers are
not jointly liable on each other’s policies; rather,
each insurer is severally liable on its own
policy.”
88 Cal. Rptr. 3d at 301 (emphasis in original).
25
ALL-SUMS RULE
(Robert Horkovich)
“To summarize, then, in California, when there
is a continuous loss spanning multiple policy
periods, any insurer that covered any policy
period is liable for the entire loss, up to the
limits of its policy.”
88 Cal. Rptr. 3d at 301 (emphasis in original).
26
ALL-SUMS RULE
(Robert Horkovich)
Implications of the ruling
Each insurance company is wholly responsible for
the whole loss imposed upon the policyholder up
to its policy limits. The exposure of each
insurance company is not limited to just the dollar
liability presented only by that amount of property
damage taking place during the policy period.
27
ALL-SUMS RULE
(Laura Foggan)
Insurance Industry View:
The California Supreme Court has not decided how indemnity
should be allocated in a continuing loss context.


Armstrong and Aerojet addressed the duty to defend,
and statements in those opinions regarding the duty to
indemnify were dicta.
Later California appellate decisions addressing the
duty to defend extended “all sums” to indemnity, in
reliance on Montrose and Aerojet, although the
indemnity issue was not presented or decided in those
cases.
28
ALL-SUMS RULE
(Laura Foggan)
Insurance Industry View:
“All-sums” in the indemnity context is inconsistent with the policy
language.


Occurrence Definition: “‘Occurrence’ means an
accident or a continuous or repeated exposure to
conditions which result in injury to persons or damage
to property during the policy period….”
Policy Period Territory: “This policy applies only to
occurrences which take place during the policy period
commencing _______ and ending ______.”
29
ALL-SUMS RULE
(Laura Foggan)
Insurance Industry View:
The “all-sums” approach is contrary to the California rules of
contract interpretation.

The “all sums” approach rewrites the insurance contracts
– replacing policy terms limiting coverage to property
damage “during the policy period” with property damage
“during and before and after the policy period.”

The “all sums” approach deprives policy terms of
meaning, contrary to the rule that each term in a contrary
to the rule that each term in a contract must be given
independent meaning and effect. (Civil Code § 1641.)
30
ALL-SUMS RULE
(Laura Foggan)
Insurance Industry View:
The “all-sums” approach is objectively unreasonable.

“All sums” unreasonably requires an insurer to pay all
damage occurring over time (subject to other policy
terms and Insurance Code § 533), despite policy
language limiting coverage to risk of harm during the
policy period.

“All sums” unreasonably requires insurers to pay for
damage that took place in periods in which the insured
did not buy insurance or its policies exclude coverage.
31
COURT TREATMENT
Court treatment in other jurisdictions
32
ALL-SUMS RULE
(Robert Horkovich)
Other Jurisdictions That Have Adopted “All-Sums”:

Washington: American Nat’l Fire Ins. Co. v. B & L
Trucking & Constr. Co., 951 P.2d 250, 256-257
(Wash. 1998). See also Gruol Constr. Co. v. Ins. Co.
of North America, 524 P.2d 427 (Wash. Ct. App.
1974).

Oregon: Cascade Corp. v. American Home
Assurance Co., 135 P.3d 450, 455-56 (Or. Ct. App.
2006).

Pennsylvania: J.H. France Refractories Co. v.
Allstate Ins. Co., 626 A.2d 502, 507-508 (Pa. 1993).
33
ALL-SUMS RULE
(Robert Horkovich)
Other Jurisdictions That Have Adopted “All-Sums”:

Delaware: Monsanto Co. v. C.E. Heath
Compensation and Liab. Ins. Co., 652 A.2d 30, 35
(Del. 1994); Viking Pump, Inc. v. Century Indem. Co.,
2 A.3d 76 (Del. Ch. 2009) (applying New York law).

Ohio: Goodyear Tire & Rubber Co. v. Aetna Cas. &
Sur. Co., 769 N.E.2d 835, 841 (Ohio 2002);
Pennsylvania General Ins. Co. v. Park-Ohio Indus.,
930 N.E.2d 800 (Ohio 2010).
34
ALL-SUMS RULE
(Robert Horkovich)
Other Jurisdictions That Have Adopted “All-Sums”:

Illinois: Zurich Ins. Co. v. Raymark Indus., Inc., 514
N.E.2d 150, 165 (Ill. 1987); Caterpillar, Inc. v.
Century Indem. Co., No. 3-09-0456, 2011 WL
488935 (Ill. App. Ct. Feb. 1, 2011) (defense).

Massachusetts: Rubenstein v. Royal Ins. Co. of Am.,
694 N.E.2d 381 (Mass. App. Ct. 1998), aff’d, 708
N.E.2d 639 (Mass. 1999).

Wisconsin: Plastics Engineering Co. v. Liberty Mut.
Ins. Co., 759 N.W. 2d 613 (Wis. 2009).
35
ALL-SUMS RULE
(Robert Horkovich)
Other Jurisdictions That Have Adopted “All-Sums”:

Texas: Union Pac. Res. Co. v. Continental Ins. Co.
(Tex. Dist. Ct. Dec. 17, 1998), No. 249-23-98,
reprinted in 13 Mealey’s Litig. Rep. Ins. No. 11,
Section A (Jan. 19, 1999).

Arkansas: Murphy Oil USA, Inc. v. United States Fid.
& Guar. Co. (Ark. Cir. Ct. Feb. 21, 1995) No. 91-4392, reprinted in 9 Mealey’s Litig. Rep. Ins. No. 19,
Section I (Mar. 21, 1995).
36
ALL-SUMS RULE
(Robert Horkovich)
Memorandum of Meeting of Discussion Group
Asbestosis – April 21, 1977
“The majority also contended that each carrier on risk
during any part of that period could be fully responsible
for the cost of defense and loss.”
37
ALLOCATION RULE
(Laura Foggan)
Insurance Industry View:
Numerous courts across the country have endorsed allocation of loss
“during the policy period.”

“We do not believe that these policy provisions can
reasonably be read to mean that one single-year policy out
of dozens of triggered policies must indemnify the
insured’s liability for the total amount of pollution caused
by events over a period of decades, including events that
happened both before and after the policy period….”
(Public Serv. Co. of Colorado v. Wallis & Cos., 986 P.2d
924, 939 (Colo. 1999).)
38
ALLOCATION RULE
(Laura Foggan)
Other Jurisdictions Adopting Allocation:

Nebraska: Dutton-Lainson Co. v. Continental
Ins. Co., 778 N.W.2d 433 (Neb. 2010).

Vermont: Towns v. Northern Security Ins. Co.,
964 A. 2d 1150 (Vt. 2008).

Colorado: Public Serv. Co. of Colorado v.
Wallis & Cos., 986 P.2d 924 (Colo. 1999).
39
ALLOCATION RULE
(Laura Foggan)
Other Jurisdictions Adopting Allocation:

New York: Consolidated Edison Co. of New York
v. Allstate Ins. Co., 774 N.E.2d 687 (N.Y. 2002).

Connecticut: Security Ins. Co. of Hartford v.
Lumbermens Mut. Cas. Co., 826 A.2d 107 (Conn.
2003).

New Jersey: Carter-Wallace, Inc. v. Admiral Ins.
Co., 712 A.2d 1116 (N.J. 1998).
40
ALLOCATION RULE
(Laura Foggan)
Other Jurisdictions Adopting Allocation:

Minnesota: Domtar, Inc. v. Niagara Fire Ins.
Co., 563 N.W.2d 724 (Minn. 1997); Cargill,
Inc. v. Ace American Ins. Co., 784 N.W.2d
341 (Minn. 2010) (defense).

Utah: Sharon Steel Corp. v. Aetna Cas. &
Sur. Co., 931 P.2d 127 (Utah 1997).
41
ALLOCATION RULE
(Laura Foggan)
Other Jurisdictions Adopting Allocation:

Idaho: Empire Fire & Marine Ins. Co. v. North
Pacific Ins. Co., 905 P.2d 1025 (Idaho 1995).

Louisiana: Southern Silica of Louisiana, Inc.
v. Louisiana Insurance Guar. Ass’n, 979 So.
2d 460 (La. 2008).

New Hampshire: Energy North Natural Gas,
Inc. v. Certain Underwriters at Lloyds, 934
A.2d 517 (N.H. 2007).
42
COURT TREATMENT
(Robert Horkovich/Laura Foggan)
Comparison of these rulings -- and a debate
about “what’s next” where courts apply an “all
sums” rule
43
COURT TREATMENT
(Laura Foggan)
Leading Case Example: What’s Next After “All Sums”
– Defense Costs
Cargill, Inc. v. ACE American Insurance Co., No. A081082 (Minn. June 30, 2010).
The Minnesota Supreme Court held that the primary
insurer could seek equitable contribution for defense
costs from any other insurer that also has a duty to
defend the same risk. Defense costs would be
allocated equally amongst all the primary insurers on
the risk.
44
COURT TREATMENT
(Laura Foggan)
Leading Case Example: What’s Next After All Sums:
Indemnity Costs
Pennsylvania General Insurance Co. v. Park-Ohio
Industries, Inc., 126 Ohio St.3d 98, 930 N.E.2d 800 (Ohio
2010).
The Ohio Supreme Court reaffirmed all-sums but found a
contribution right against other insurers. It held that it
would be inequitable to deny contribution from nontargeted insurers based solely on the policyholder’s
failure to give them prompt notice. Contribution would be
allowed unless the non-targeted insurers could show
prejudice.
45
Insurer Perspective Re Set-Off
(Laura Foggan)
Where the policyholder has compromised a coverage dispute with
another insurer, the remaining insurers should be allowed to
“set off” the share of the carrier with whom the policyholder
settled.
Through a set off, the policyholder is held to the agreement it made
in compromising its coverage claim against another party and
the remaining insurer’s share of responsibility is not somehow
expanded by the policyholder’s actions. Each insurer should
face liability no greater than for the time its policy was in force.
Further, under no circumstances should a double recovery be
allowed.
46
Insurer Perspective Re Contribution
(Laura Foggan)
Contribution is far from a panacea for the unlucky
insurer that is targeted under “all sums” to respond in
full for damage spanning multiple policies.
Allowing “all sums” liability and forcing a targeted
insurer to seek contribution or subrogation
impermissibly foists the evidentiary burden of proving
coverage under other policies on the insurer, not the
policyholder. This approach is neither fair nor efficient.
47
Policyholder Perspective Re Set-Off
(Robert Horkovich)
“[T]he insured must first be fully compensated for its loss before
any set-off is ever allowed.”
“[The insurance company] bears the burden of establishing a
double recovery.”
“Were we to hold that the insured bears the burden of proving it
had not received a double recovery, such a rule would encourage
litigation and reward the non-settling insurer for refusing to settle”.
Weyerhaeuser Co. v. Commercial Union Ins. Co.,
15 P.3d 115, 125-127 (Wn. 2001)
48
Policyholder Perspective Re Contribution
(Robert Horkovich)

Equitable right. Difficult for a breaching insurance company to seek equity. E.R.
Squibb & Sons, Inc. v. Acc. & Cas. Ins. Co., No. 82 Civ. 7327, 1997 WL 251548, at
*3 (SDNY May 13, 1997)
“The non-settling insurers ask the Court to reward them for not settling the case
and give them the benefit of monies paid by the settling defendants. A rule
allocating such a windfall to non-settling insurers would encourage insurers to
refuse to settle and force the case to trial, knowing that they will never be
required to pay more than what they are legally obligated to pay and hoping that
they can reap a windfall if settlements by other insurers prove to be in excess of
their legal obligation. The courts should not encourage that type of ‘dog in the
manger’ approach to litigation.”

No rights vest in an insurance company to seek contribution or subrogation if at all at
least until after the breaching insurance company pays full judgment.

Policyholder must be made whole. Policyholder does not have to pay “self-insured”
or “vertical gap” allocations or even insolvent insurance company shares.
49