In one of the top insurance-coverage decisions of 2021, the Montana Supreme Court at the end of the year handed down a landmark decision adopting the continuous trigger of coverage and “all sums” allocation, finding a duty to defend and ruling that the qualified, or “sudden and accidental” pollution exclusion did not apply. Nat’l Indem. Co. v. State, 499 P.3d 516 (Mont. 2021). The Supreme Court affirmed in part and reserved in part the rulings entered by the trial court, largely upholding a $98,000,000 judgment for the State against its CGL insurer for the policy years 1973 to 1975. The ruling thus helps ensure coverage for the hundreds of claims alleging that the State had failed to warn claimants of the dangers of asbestos exposures to workers in vermiculite mining and milling operations in Libby, Montana, operated by W. R. Grace (the “Libby Mine”).
Representing amicus curiae United Policyholders (“UP”), Hunton Andrews Kurth supported the position of the policyholder, the State of Montana, on the key rulings on trigger of coverage, allocation, and the pollution exclusion, with the court specifically citing to the Hunton brief in adopting all-sums allocation. This first post in our series covering the Montana Supreme Court’s decisions will address the court’s rulings on trigger of coverage and allocation.
The ruling on allocation is particularly noteworthy as it confirmed that standard-form general-liability insurance policies require insurers to pay for the policyholder’s entire liability up to the full limits of the policies, rejecting the insurance industry’s arguments that long-term (or “long-tail”) liabilities that take place over years should be prorated, assigning liability to the policyholder. This ruling brings Montana into line with those states that have rejected the “public policy” arguments insurers use to argue for pro-rata allocation, choosing instead to enforce the promise of “all sums” as written by the insurance industry.
In the Hunton brief (reproduced on the UP website at https://uphelp.org/amicus-briefs/national-indemnity-co-v-state-of-montana/), UP argued that the lower court correctly held that the insurer, National Indemnity, owed the State a complete defense and indemnity for long-tail asbestos claims under the “all sums” language in its insurance policy. UP contended that interpretation accords not only with the contract language; but also, with the insurance industry’s stated intent when it drafted the CGL Policy and marketed it to policyholders.
UP presented the insurance industry’s drafting history of standard-form CGL policy language on the key allocation issues in the case, showing that:
(1) The standard-form CGL policy language supports a continuous-injury trigger of coverage, activating coverage when—as in this case with longtail asbestos liabilities —injury is shown to have taken place during each of the policy periods at issue.
(2) Once triggered, CGL policies provide coverage, as written, for “all sums,” without assignment of any portion of the liability to the policyholder.
Court Ruling on Trigger
On trigger of coverage, the court specifically rejected the insurer’s narrow exposure-only arguments and made clear that the standard-form CGL policy language does not require a showing of manifestation of injury during the policy period. Id. at 544–45. Applying, in effect, the concept called “exposure-in-residence” in the landmark continuous-trigger decision, Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034, 1042–47 (D.C. Cir. 1981), the Montana Supreme Court, instead, found that injury can happen during the policy period even if exposure took place before the policy period:
Given the ongoing progressive nature of asbestos injury, we agree with the State regarding the eligibility of claimants exposed only prior to the policy period. A [c]laimant exposed either during or prior to the policy period may, despite a lack of manifestation of injury during the policy period, be covered under the policy “as long as it can be determined, even retroactively, that some injury did occur during the policy period[.]
Nat’l Indem. Co., 499 P.3d at 545. The Court remanded for further proceedings on this issue because the lower court had held that asbestos claimants “who were exposed only before the Policy period could not qualify for coverage.” Id.
Court Ruling on Allocation
On the dispute over “pro rata” or “all sums” allocation, relying in part on Hunton’s brief for UP, the Court rejected the insurer’s argument, based on the “during the policy period” language in the definition of “occurrence,” that limited the amount of coverage to that proven to have taken place in the policy period. The Court relied, instead, on the standard-form CGL policy Insuring Agreement, noting that the plain language supported the State’s argument. The Court emphasized that the standard-form CGL policy included no clause requiring proration:
Pro rata allocation is a significant limitation of coverage, but it is not expressly provided in the policy, though it clearly could have been. National’s interpretation also ignores and fails to give meaning to the “all sums“ language in [insuring agreement]….
Id. at 544. The Court also specifically rejected the insurer’s argument that the State’s self-insurance fund should somehow reduce the insurer’s obligation and refused then to apply the “other insurance” clause to require proration of liability to the policyholder. Id.
This ruling brings Montana into the “continuous trigger” and “all sums” camp. It provides further confirmation that standard-form CGL policies apply when injury or damage takes place over a period of years—and that, consistent with insurance-industry intent, liability for injury or damage taking place over a period of years should not be assigned, or “prorated,” to the policyholder.