A Missouri appellate panel recently upheld a lower court’s ruling in favor of the insured that an “all-sums” allocation would apply to determining exhaustion of the insured’s liability insurance coverage and, in so holding, rejected the pro-rata, proportional allocation sought by the insurers. The appellate panel further held that coverage could be exhausted vertically.
Since 1990, the insured in Nooter Corp. v. Allianz Underwriters Ins. Co., et al., No. ED 103835 (Mo. Ct. App. filed Oct. 3, 2017), had faced approximately 20,000 claims by individuals alleging injury from exposure to asbestos in pressure vessels that the insured sold to refineries and chemical plants for over a century. The insured sued eight of its general liability excess insurers under policies dating back to 1949, alleging breach of contract for the insurers’ refusals to pay defense costs incurred in the underlying asbestos lawsuits. The jury found for the insured, after concluding that one of its insurers had improperly refused to pay its share of the defense. Based on that finding, the court utilized an all-sums allocation and vertical exhaustion, decisions that allowed the insured to access the protection of the excess coverages it purchased.
On appeal, the appellate panel affirmed the lower court’s holding based on the insurers’ promises to pay “all sums” contained in the excess policies. The court construed the plain language to require the insurers to pay all sums that the insured became obligated to pay in the underlying asbestos injury cases. The panel further found that nothing in the definition of an “occurrence” constrained the duty of the excess insurers on the risk to pay vertically within a single policy period, as policies became exhausted “up the stack.” Likewise, the panel found vertical exhaustion to be “conceptually consistent” with an all-sums allocation.
While this decision is in line with a growing number court opinions and the Proposed Final Draft of the Restatement of Law, Liability Insurance, insurers have long-argued that horizontal exhaustion–exhaustion of all triggered policies at the primary or same layer of excess coverage –should apply to long-tail liabilities. It is therefore important that insureds anticipate these arguments and understand whether their policies contain the appropriate language to support application of an all-sums and vertical exhaustion approaches.