Thursday, July 18, 2013

U.S. District Court applies continuous trigger, holds that under Boston Gas insured is responsible for proportionate share of defense costs

D.N. Lukens, Inc. was a a defendant in several suits alleging harm from exposure to toxic substances owned, supplied, sold or controlled by Lukens.  

While one of the suits, Mastrogiacomo, was pending, the Boston Gas decision was handed down.  In that decision, the Supreme Judicial Court of Massachusetts surprised everyone by holding that long-tail losses would be allocated on a pro rata time-on-the-risk method, instead of by a joint and several liability method.  The SJC also held that the insured will bear a proportionate share of the loss for any time period during the long-tail loss that no coverage is available. 

Utica Mutual Insurance Company, Lukens' insurer, informed Lukens that under Boston Gas Lukens was responsible for its pro rata share of any settlement or judgment because there were periods of time during the risk exposure that Lukens was uninsured.  Utica informed Lukens that it was conveying settlement authority to counsel in an effort to resolve the case prior to trial.

Lukens informed Utica that it believed it was insured for all relevant periods and asked for time to search for additional insurance coverage.  (Such a situation is not unusual in long-tail losses.  That's why everyone should keep copies of every liability policy ever issued to them, forever, in a place where they can be found.  Otherwise, after staff turnover and changes of location and changes of insurance agents and changes of insurers, how will they know what policy they had fifty years ago?)

Utica nevertheless settled the Mastrogiacomo lawsuit for $145,000, and calculated that $14,964 of that amount was attributable to Lukens.  That amount remains unpaid.

Lukens also sought coverage from Utica for asbestos claims filed against it.  Utica agreed to indemnify Lukens for its time on the risk and reserved the right to seek contribution from Lukens for uninsured periods.  Based on that reservation, Lukens sought to take control over the defense in the asbestos cases. 

In Graphic Arts Mut. Ins. Co. v. D.N. Lukens, Inc., 2013 WL 2384333 (D. Mass.), Utica sought summary judgment. 

The court held, first, unsurprisingly, that the injuries alleged were long-tail losses that came within the Boston Gas analysis. 

The court noted that Boston Gas did not resolve the issue of triggers of coverage.  Triggers of coverage determine which policy periods are triggered by a long-tail loss.  There are four basic theories of triggers of coverage: manifestation, injury-in-fact, exposure, and continuous.  Massachusetts courts have declined to adopt a single theory, holding that which trigger applies depends on the circumstances. 

The court held that the continuous trigger method most accurately reflects the reasonable expectations of the insured.  Under that method a loss occurs from the time of exposure to a hazardous substance to the time when physical harm from such exposure becomes manifest.  It also noted that in the case before it the continuous trigger would provide Lukens with the greatest amount of insurance coverage, and implied that that was one reason to apply  that trigger. 

The court then turned to whether Lukens must contribute its proportionate share to the settlement in the Mastrogiacomo suit.  "What is troublesome .. . is the fact that a settlement was reached without  the input or acceptance from Lukens."  The court held that in such circumstances Lukens was not required to contribute to the settlement.  It noted that Boston Gas contemplates the written consent of all parties to the settlement.  It declined to grant summary judgment to Utica on a 93A count arising its actions with respect to the settlement. 

Lukens argued that in the asbestos cases Utica was barred from disclaiming its duty to indemnify because it refused to relinquish to Lukens control over the litigation even though Lukens would be assigned over 60 percent of the indemnity allocation. The court's analysis of the issue was somewhat murky, but it appears to have held that Lukens was not entitled to control the defense but that it was responsible for its proportionate share of the costs of defense. 

The court denied summary judgment on the issue of the actual allocation of loss, on the ground that there was a material dispute of fact over the underlying claimants' exposure to asbestos. 

No comments: