Trigger of Coverage
“Trigger of coverage” is a concept used by courts to determine what event or events must occur during a policy period for insurance coverage to be implicated under the policy terms. Id. at *96. Courts have developed four main theories for determining when coverage is triggered for long-tail claims under occurrence-based policies: (1) the “exposure” theory, holding that the policies in effect when the allegedly injured person was exposed to the allegedly injurious substance are triggered; (2) the “manifestation” theory, holding that the policies in effect when the injury was first discovered are triggered; (3) the “injury in fact” theory, holding that the policies in effect when the injury actually occurred (regardless of when it was first discovered) are triggered; or (4) the “continuous” trigger theory, holding that all policies in effect from first exposure through manifestation of the injury are triggered. Id. at *98.
The Vanderbilt court began its trigger analysis by holding that a trigger theory should be adopted as a matter of law, noting three reasons: (1) trigger analysis is a matter of determining the plain meaning of policy terms like “bodily injury” and experts are not qualified to determine the meaning of nontechnical contract terms; (2) the relevant medical facts about the nature of asbestos-related diseases “are now so widely understood and incontrovertible that many courts simply assume their truth when resolving the trigger of coverage question”; (3) a case-by-case approach to trigger would “create uncertainty and significantly increase litigation costs” because, for any given underlying claimant, “it is almost impossible for a doctor to look back and testify with any precision as to when the development of asbestosis crossed the line and became a disease.” Id. at *110-113.
The court then rejected the argument of the principal insurer, Mt. McKinley, on appeal: that the prevailing medical understanding of oncology precluded the adoption of the either the exposure or continuous trigger theories. Id. at *115-118. The court wrote that Mt. McKinley’s oncologist expert had stated that the term “injury” is a term “reserve[d] for major systemic diseases and traumas,” and that “oncologists such as himself would not characterize [tissue inflammation, cellular division, and the release of toxins] as ‘injuries’ or ‘diseases’ until such time as the cellular damage actually manifests as a malignancy.” Id. at *118-119. Therefore, Mt. McKinley argued, if no disease or injury existed until manifestation or malignancy, neither the exposure trigger theory nor the continuous trigger theory were appropriate, because each would trigger policies allegedly before the disease or injury occurred.
Disagreeing with Mt. McKinley, the court found that “there is no indication that the term ‘injury,’ as used in a comprehensive general liability policy, is intended to be a medical term of art, much less a term of art specific to the subspecialty of medical oncology.” The court noted that pathologists and cellular biologists fairly characterize damage inflicted on the cellular level by asbestos fibers as “injuries.” Thus, the court concluded that “current medical understanding of asbestos related cancers … is not incompatible with any of the prevailing legal theories of trigger.” Id. at *117.
Having thus determined that it could do so, the court adopted the continuous trigger theory as a matter of law. The court found that the continuous trigger was preferable to the alternatives for three reasons: (1) it best reflected the medical facts, i.e., “asbestos begins to injure the body on a cellular level within hours or days of initial exposure and contributes to the progressive worsening both of asbestosis and of precancerous conditions until the time that those diseases manifest”; (2) it best reflected the lack of information about the progression of asbestos-related disease in any one claimant such that “we simply will never know exactly when a particular claimant was exposed to a particular policyholder’s asbestos, how much of that policyholder’s asbestos was inhaled, when that claimant contracted an asbestos related disease or diseases, and the precise relationship between these events”; and (3) it is the most fair and efficient “way to distribute indemnity and defense costs among the various policies in effect over the course of a long latency disease claim.” Id. at *117-122.
Unavailability of Insurance
“Allocation of coverage” refers to the extent to which each of multiple policies triggered by a claim may be held liable in full or, in the alternative, only in part for such claim. Just as courts have developed different trigger of coverage theories for dealing with the unique and difficult trigger issues that long-tail liabilities present, they have also developed different allocation approaches. The two most common allocation schemes are: (1) “all sums” allocation (which some courts refer to as the “joint and several” approach), which holds that each policy triggered by a long-tail claim is independently liable in full for the claim; and (2) “pro rata” allocation, which holds that each triggered policy pays a portion of the claim, with the portion calculated differently in different jurisdictions. Id. at *102.
Certain jurisdictions adopting pro rata allocation have also adopted the unavailability-of-insurance rule, which holds that policyholders may not be allocated any portion of the claim on account of periods when true risk-transfer insurance for the relevant liabilities was not reasonably available to them in the market place. Id. at *129. ( See also id., n.29 for citations to additional cases discussing different methods of allocation.)
Mt. McKinley argued on appeal that Connecticut does not follow the unavailability-of-insurance rule and that Vanderbilt should be allocated costs for all periods when it did not have insurance. Id. at *84. The Appellate Court concluded that “as a matter of first impression … the trial court properly determined that an unavailability rule” should be adopted in Connecticut. Id. at *126.
The court rejected Mt. McKinley’s argument that the unavailability rule unfairly allocates costs to periods for which insurers did not provide coverage or collect premiums because, in its view, the nature of long-tail claims (the fact that they arise out of indivisible injuries that progress through multiple policy periods), combined with occurrence-based policy language that does not account for differences between long-tail claims and other types of claims, necessarily means that— under any allocation scheme— insurers must pay for some portion of the loss that occurred outside their policy periods. Id. at *132. Moreover, the court appeared to imply that Mt. McKinley would not be heard to complain about unfairness on this point when it was already receiving the benefit of an “insurer friendly pro rata allocation system.” Id.
Ultimately, the Appellate Court opined that the “the question of how to allocate uninsurable portions of the allocation block is not so much one of fairness but, rather, of which party should bear the risk that the insurance pool will be terminated if substantial new long-tail risks are identified after significant liabilities already have accrued.” Id. at *134. The court concluded that “it is more efficient and reasonable for such risks to be borne by the insurers rather than the policyholder,” and therefore endorsed the unavailability rule. Id. at *136.
The court also reversed the trial court on proration of defense costs to Vanderbilt for the period where claims-made policies were available to it, holding that because the triggering occurrence in occurrence-based policies is the injury and as “progressive, long latency diseases . . . continually reinjure the body,” it is impossible to pinpoint when those injuries occur, and therefore a continuous trigger, pro rata allocation scheme is the proper judicial solution for occurrence based policies. Id. at *131.
Claims-Made Coverage and the Unavailability Rule
The trial court had found that Vanderbilt was self-insured for purposes of allocating defense costs (but not indemnity costs) for certain years during which Vanderbilt had obtained some claims-made coverage that covered defense costs during that period, reasoning that since claims-made coverage was available during those years, Vanderbilt was under-insured to the extent it did not get sufficient claims-made coverage for those years. Id. at *80. Vanderbilt appealed this ruling.
The Appellate Court agreed with Vanderbilt. Id. at *142. The court reiterated that the basic feature undergirding the pro-rata allocation method for long-tail claims was that progressive, indivisible injuries trigger policies over multiple policy periods, resulting in a situation where costs are allocated among the triggered policies even though (according to the Court) some portion of the injury occurred outside each policy’s period. Id. This feature, however, only applies to occurrence-based policies, and expressly does not apply to claims-made policies.
Equitable Exception to the Unavailability Rule
Mt. McKinley argued in the alternative, that if the court adopted the unavailability rule, it should adopt an “equitable exception” to that rule, which would prevent application of the unavailability rule if the policyholder “continues to place allegedly harmful products into the stream of commerce during a time when no coverage is available for losses attributed to those products.” Id. at *85.
The Appellate Court, in a matter of first impression under Connecticut law, refused the adoption of an “equitable exception.”
“Qualified” Pollution Exclusion
The court considered the application of the “qualified” pollution exclusion to the alleged underlying bodily injury claims. A qualified pollution exclusion generally excludes coverage for injury or damage caused by industrial environmental pollutants, unless the discharge, dispersal, release or escape of the pollutants was “sudden and accidental.” Id. at *216.
As a matter of first impression in Connecticut, the Appellate Court held that the qualified pollution exclusion did not bar coverage for the underlying bodily injury claims at issue in the case, finding that the terms referred to “traditional” environmental pollution— e.g., contamination of the broader environment—and not to “the release of asbestos dust and similar toxic industrial products within a building when used as intended.” Id. at *219.
Keywords: trigger of coverage; allocation; qualified pollution exclusion
Paul Fuener, David Osipovich, and Isaac Smith are with K&L Gates.This article is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the authors and not necessarily those of the K&L Gates or its clients.