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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 [email protected]
Speaker Contact Info