Court of Appeals Bolsters Insured’s Right to Control Coverage
Commercial Litigation Law Update 11/07/13 Jeffrey O. Davis, Keith A. Bruett
So-called “long tailed” toxic tort claims, such as asbestos or environmental liabilities, are among the most pervasive corporate liability exposures around. Insurance coverage is a critical (and sometimes essential) part of the strategy in dealing with such exposures. While the coverage issues are complex, fortunately for Wisconsin policyholders, Wisconsin law is generally very favorable to insureds in this area. Wisconsin is a “continuous trigger” state, meaning that any policy on the risk during a period when continuous injury is occurring is responsible for responding to the claim. Wisconsin has adopted “joint and several” or “all sums” allocation, meaning that any policy that is “triggered” must pay in full up to policy limits, even if part of the damage takes place in uninsured periods. Finally, Wisconsin has adopted “vertical exhaustion,” meaning that an insured can access excess coverage without necessarily exhausting all primary coverage.
Last week, the Wisconsin Court of Appeals continued this pro-insured trend with its decision in Cleaver Brooks v. AIU Ins. Co., in which the court ruled that an insured under an excess layer “quota share” (three insurers shared the risk by percentages under separately issued policies) had the right to force all three insurers to simultaneously respond to the loss. The insurers had attempted to have the policies respond sequentially, with the two policies that included a defense obligation responding (and exhausting) first. The insured argued that the insurers “sequencing of their joint and several obligations may deprive Cleaver Brooks of more than $30 million in its defense coverage.”
The facts of the case were somewhat unusual. The insured, Cleaver Brooks, was the subject of massive, on-going asbestos litigation, with 200,000 suits filed against it, and many more likely to be filed in the future. Most of the suits included allegations that the claimants were exposed to asbestos in periods that included 1979 and 1980, when Cleaver Brooks had two $35 million blocks of solvent, unexhausted excess liability insurance coverage. In each of these years, three excess policies formed part of a “quota share,” meaning that a percentage of the policy limits was assigned to each of the three insurers. Of the three policies, two had duties to defend; the third only included a duty to indemnify. It followed that the insured wanted policies with defense obligations to stay on the risk for as long as possible, and the best way of doing that was to invoke joint and several liability to require that all three policies pay any judgments or settlements. The insurers objected to this approach, wanting the three policies to respond sequentially.
The court agreed with the insured. The court ruled that the very nature – and definition – of joint and several liability was that who pays among equally responsible insurers could be apportioned at the discretion of the insured. In essence, the court said that the insured has the right to choose, and control, how its policies will respond. While the court found additional support in the unique aspects of the quota share structure, noting that the policies stated that they were “part of” a coverage block that was above a single primary policy and by their terms, attached upon exhaustion of a single underlying limit, insureds should not view this decision as limited to those peculiar facts. The larger impact of the decision seems clear: the insured, not the insurer, has the right to control the manner and order in which multiple triggered policies respond to a given claim, a principle that could have far reaching consequences, since there are numerous circumstances going well beyond quota share policies where dictating which policy responds first can have a significant impact on the amount of available coverage.
If you have questions about the subject matter of this update, please contact Jeffrey Davis at (414) 277-5317 / [email protected], Keith Bruett at (414) 277-5411 / [email protected], or your Quarles & Brady LLP attorney.