December 12, 2012 Articles

Mediation of Coverage Disputes: Best Practices and Trends

Like any other weapon in the litigator’s arsenal, mediation can be an effective tool for obtaining the best possible result for a client if used properly and at the right time. Thus, counsel should consider when and whether to mediate throughout a dispute

by Noah B. Wallace

The basic principles of allocating long-tail losses to commercial general liability (CGL) policies have been adjudicated in many jurisdictions, but many practical issues of quantifying how losses are allocated to the individual policies within coverage programs have not been addressed. One such issue is the allocation of losses to policies governed by various allocation rulings within one or more lines of coverage.

The case of policies governed by a distinct choice of law within a single coverage line could potentially occur if policies were purchased in multiple jurisdictions or if a policyholder relocated to or reincorporated within a new jurisdiction.

A more typical situation is one in which two or more lines of coverage are implicated by the same loss. This situation is often a result of corporate transactions such as acquisitions, mergers, or joint ventures. In these cases, it is possible that an examination of the transaction itself may yield clarity regarding indemnification of one or more of the participating entities. However, the contracts have often not considered the existence of long-tail losses. In these cases, there is little guidance for practitioners as to the coverage afforded by the policies issued to the entities involved in the transaction.

When multiple programs are available, there is the possibility that the programs originated in jurisdictions with different governing allocation precedents. The question then is how losses with access to these programs should be allocated both between the programs and to the policies within the programs.

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