Pro Rata Time-on-Risk Allocation Method Applied to Claims for Alleged Asbestos-Related Injuries, Massachusetts Appeals Court Decides

May 31, 2013 | Insurance Coverage

An appellate court in Massachusetts has ruled that the pro rata time-on-the-risk allocation method adopted by the Massachusetts Supreme Judicial Court in 2009 in Boston Gas Co. v. Century Indem. Co. should be applied to determine the extent of indemnity coverage owed by Liberty Mutual Insurance Company for claims brought against its insured, New England Insulation Company, Inc. (“NEIC”), for alleged asbestos-related injuries. 

The Case 

In a complaint against Liberty, NEIC alleged that it had been in the business of installing insulating materials in commercial buildings for more than 70 years; that from 1973 through 1983 it was insured under a series of comprehensive general liability (“CGL”) insurance policies issued by Liberty; that at other times it was insured under CGL policies issued by Travelers Insurance Company, Century Indemnity Company, and Kemper Insurance Company; and that in or around 1980 it began to receive claims for damages from individuals asserting that they were victims of asbestos-related diseases from materials it installed from 1935 to the early 1970s. 

On July 24, 2009, the Massachusetts Supreme Judicial Court issued its decision in Boston Gas, adopting a pro rata mechanism for determining damage allocation among multiple insurers and their insured in the context of a case where an environmental hazard gave rise to a lengthy period of property damage. 

NEIC argued that its case fell outside the framework established by Boston Gas because the particular wording of the definition of “bodily injury” in the Liberty policies mandated the use of joint and several allocation. The question of whether the Boston Gas approach should be applied in the NEIC case reached an appellate court in Massachusetts. 

The Court’s Decision

The appellate court decided that pro rata approach approved in Boston Gas should be applied in this case. It explained that the pro rata allocation method “promotes judicial efficiency, engenders stability and predictability in the insurance market, provides incentive for responsible commercial behavior, and produces an equitable result.” 

The appellate court found that NEIC had offered “no persuasive reason why the pro rata method articulated in Boston Gas should not control” in this case, finding that the terms of the Liberty  policies were not meaningfully different from the terms of the policies at issue in Boston Gas. It pointed out that the policies analyzed in Boston Gas and the Liberty policies all limited the promised “all sums” coverage to injuries that occurred “during the policy period,” which, it said, supported the use of pro rata allocation. 

Finally, the appellate court also rejected NEIC’s argument that, even if pro rata allocation was used, NEIC should not be required to participate in the allocation during periods when it could not buy insurance covering asbestos-related claims, finding that argument foreclosed by Boston Gas, where the Massachusetts Supreme Judicial Court considered and rejected as inequitable any such “unavailability exception.” 

The case is New England Insulation Co., Inc. v. Liberty Mutual Ins. Co., No. 11-P-1617 (Mass Ct. App. May 22, 2013).

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