The U.S. First Circuit Court of Appeals recently certified to the Massachusetts Supreme Judicial Court the following critical questions regarding allocation of loss to multiple insurers for long-term environmental contamination:
1. Where an insured protected by standard CGL policy language incurs covered costs as a result of ongoing environmental contamination occurring over more than one year and the insurer provided coverage for less than the full period of years in which contamination occurred, should the direct liability of the sued insurer be pro rated in some manner among all insurers “on the risk,” limiting the direct liability of the sued insurer to its share but leaving the insured free to seek the balance from the other insurers?
2. If some form of pro rata liability is called for in such circumstances, what allocation method or formula should be used?
3. If a single insurer in such circumstances is subject to liability under more than one policy and each policy has a separate deductible or self-insured retention, should the insured be able to collect covered losses from a single policy subject only to that policy’s deductible or self-insured retention, or should liability be reduced by the sum of the applicable self-insured retentions, effectively allocating total liability across the policies of that insurer in effect during the contamination period?
The court further stated that “We would also welcome any additional guidance about relevant Massachusetts law that the Supreme Judicial Court may wish to offer.” Boston Gas Co. v. Century Indemnity Co., No. 07-1452 (1st Cir. June 10, 2008).
In reaching its decision to certify these questions, the First Circuit noted that, although one Massachusetts Appeals Court decision had considered the issue of proper allocation in cursory fashion, the Massachusetts Supreme Judicial Court has not yet resolved the question. The court further recognized that no clear consensus exists among the states: “A growing plurality have adopted some form of pro rata allocation, but a significant number of courts impose joint and several allocation.” Finally, the court noted that policy arguments can be made in favor of both allocation methods:
Nor do policy arguments line up solely behind one solution. At first blush it may seem illogical to hold a single insurer, who may have only covered the insured for a single year, fully liable for the costs of environmental damage that may have accrued over the course of a century. But that insurer can seek contribution from other insurers “on the risk” during the contamination period. And the alternative may force the insured to sue numerous companies in one suit, if this is possible at all, to avoid inconsistencies.
Rather than “make [its] best guess on this de novo review issue”, the court instead certified the above questions to the Supreme Judicial Court.
Several other aspects of the dispute are worth noting:
1. The appeal concerns only one of twenty-nine Boston Gas manufactured gas production sites where environmental contamination allegedly occurred and that are the subject of ongoing coverage disputes. Boston Gas intends to use the outcome of the instant dispute “as an exemplar to establish its rights against Century with respect to the other sites.”
2. Century Indemnity has impleaded the following insurers as third-party defendants in the case, indicating that they also provided CGL coverage to Boston Gas at some point during the contamination period:
Certain Underwriters at Lloyd’s London
Certain London Market Insurance Companies
Travelers Casualty and Surety Company
Associated Electric & Gas Insurance Services Limited
Aetna Casualty & Surety Company
The Hartford Insurance Company3. United Policyholders and Invensys Systems, Inc. filed amicus curiae briefs below in favor of joint and several allocation.
The Court’s certification decision and order are attached here and here.
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