Insurance Allocation Strategies 2013

October 28-29, 2013

Allocation of Indemnity Where Multiple

Claimants & Claims Are Involved

John T. HardingMorrison Mahoney LLP

The Speakers

Frank LukinsLiberty Mutual

Marc S. MaisterIrell & Manella LLP

Elizabeth HankeKCIC

Using the hypothetical we will discuss complications which arise due to multiple claimants or claims◦ Number of occurrences◦ Split of dollars between multiple defendants◦ Trigger◦ Defense costs◦ Allocation: pro-rata, all-sums, Carter-Wallace, Post

Contribution, etc.◦ SIRs/Deductibles, Insolvents/Gaps◦ Stacking and non-cumulation of limits◦ Multiple Year Policies

Agenda

Valuable Valves used asbestos containing gaskets in their valves

Great Gaskets supplied the asbestos containing gaskets to Valuable Valve

Asbestos was encapsulated Each defendant has separate coverage but both

now owned by the same holding company Primary policies, excess and SIR’s, missing

policies and insolvent coverage 1000’s of claimants so far filed in Illinois and

California

Hypothetical Recap

Options – One, Two, Multiple either by claimant, claim or product

Legal theories used– cause or effect Policy language Why does it matter?

◦ Application of aggregate limits when greater than per occurrence

◦ Annual aggregate limits for multiple year policies◦ SIRs per occurrence per policy◦ Potential non-product claims for the same underlying product

(relatives of worker, premise exposure on manufacturing site)

Lots of data points to keep in an organized fashion

Number of Occurrences

Single or Multiple With Agg Limits

Single Occurrence – Stacking up

Single Occurrence – Stacking up

Multiple Occurrences Stay Low

Asbestos Holding owns both Great Gaskets and Valuable Valves

Claims defended and settled together How should they be applied to coverage? Any claims that should go to one or the

other coverage ONLY? What data nightmares does this present?

Split between Defendents

Continuous Triggers - policies from first date of exposure to date of diagnosis, death or filing ◦ or 1986!

Exposure Trigger - policies from first date of exposure to last date of exposure

Complications◦ Pre and post coverage trigger dates ◦ Lack of data, particularly before a case is settled while it is

being defended◦ Every claim has different dates◦ Defense costs of ultimately uncovered or covered by dismissed

($0) claims◦ Not one trigger is always “better” for either side – coverage and

claim dependent

Trigger

Trigger: Continuous vs Exposure

Pick and spike each claimant separately? What rules would apply?

◦ Pick any year anytime◦ Pick one year and stick with it◦ Go up until insolvent layer (or other “bad” layer) then pick

another year? Pro-rata

◦ Across all of time or triggered coverage?◦ Pro-rata by what???

By day, by month, by year, by policy period, by limits◦ What happens when some years exhaust? “white space” or “blue

sky” or under covered years? What does a post-contribution all-sums allocation look

like with multiple claimants?

All Sums or Pro-rata?

All Sums or Pro Rata

Contribution Claims

Affects allocation Observe how the coverage “fills up” with

each trigger type using◦ Continuous with straight pro-rata to covered years

only◦ Continuous with pro-rata by annual limits (aka

Carter-Wallace)◦ Exposure with straight pro-rata to covered years

Trigger

Pro Rata Allocation Using Continuous

Trigger

Trigger: Continuous vs ExposurePro Rata Allocation Using Continuous Trigger

Pro Rata Allocation Using Exposure Trigger

Trigger: Continuous vs ExposurePro Rata Allocation Using Exposure Trigger

Carter Wallace Allocation Using

Continuous Trigger

Trigger: Continuous vs ExposureCarter Wallace Allocation Using Continuous Trigger

If primary must be exhausted first◦ Depending on how on how it can be allocated –

Do you have to spread to the entire triggered primaries Can you pick and spike each claimant in a year to

maximize coverage? With different trigger dates this could make it impossible

for primary to EVER exhaust What about insolvent primary coverage?

Does it make sense in a program with very different values of primary policies over the years? Or with different SIR’s?

How to prove exhaustion to excess layers?

Exhaustion Rules

Exhaustion

Exhaustion

How do you allocate defense costs?◦ Primary◦ Excess policies which only reimburse

Use a trigger “curve” for costs not associated with particular claimants or for claimants dismissed with $0 paid

Should defendants track costs on a by claimant basis?

Defense Costs

One per year?◦ per claimant or per occurrence?

One per claimant?◦ Per year or just once?

Pro-rated or weighted SIR per year◦ 1/(Number of SIR’s)*SIR OR $SIR/(Sum of All

$SIR’s) Does the occurrence definition matter for

SIRs? Does defense go toward exhaustion of SIR’s?

SIRs

SIRs

SIRs

SIRs

SIRs

..in the aggregate for each annual period

…

Multi-Year Policies

Liability … shall be limited in the aggregate to the sum of … all accidents occurring during each

twelve (12) months of the currency of this policy

In no event …liable for an amount in excess of $… on

account of each “occurrence” happening

during the period commencing with the

effective or anniversary date of this policy

Aggregate limit being the maximum amount payable

… during any one policy year

Multi-Year Policies

Multi-Year Policies

Multi-Year Policies

Questions

John T. Harding Morrison Mahoney LLP Phone Email

Frank Lukins Liberty Mutual Phone Email

Marc S. Maister Irell & Manella LLP Phone Email

Elizabeth Hanke KCIC 202.772.3931 hankee@kcic.com

Speaker Contact Info