Allocating Insurance For Environmental Contamination Claims

Environmental claims brought by governments or private parties against owners or operators of property inevitably raise the question of whether insurance coverage is available to pay for all or some of the costs associated with such liabilities. In many cases the answer is yes, but properly assessing coverage prospects in cases of environmental damages claims can be a daunting prospect. This type of insurance claim often involves interpreting numerous historical policies, different layers of coverage, time periods that may span decades, uncertain facts, and competing court decisions interpreting similar policy language. Allocating responsibility among insurers is a task so complex, it has been labeled, in one case, as "both scientifically and administratively impossible." Boston Gas Co. v. Century Indem. Co., 454 Mass. 337, 351 (2009). Yet, it is an issue that policyholders are wise to pursue, with competent counsel, in light of the large potential liabilities such cases present, and the prospect of significant recovery from insurers.

A recent First Circuit decision in Boston Gas Co. v. Century Indem. Co., 708 F.3d 254 (2013), applying Massachusetts law, presents an opportunity to compare the approach of the New Hampshire Supreme Court and the Massachusetts Supreme Judicial Court in addressing the complexities presented by so-called long-tail environmental claims. Making this comparison also will demonstrate some of the difficulties insureds and their insurers confront in this area of the law.

When faced with allocating coverage for environmental damages across multiple commercial general liability policies, courts generally apply two principal methods: all-sums or pro-rata allocation. Under the all-sums approach (also known as "joint and several liability"), any policy triggered during the period when the damage occurred can be obligated to pay for the entirety of the loss, up to the policy limit. Keene Corp. v. Ins. Co. of North America, 667 F.2d 1034, 1050 (D.C. Cir. 1981). This method is frequently preferred by policyholders, as they only need to identify one insurance policy to respond to the claim, and that insurer may be required to pay "all sums" for which the insured is liable. Boston Gas, 454 Mass. at 352. Once the insurer pays, it may then bring contribution actions against other insurers. Until recently, the all-sums approach was the method prescribed by Massachusetts courts. Compare e.g., Rubenstein v. Royal Ins. Co., 44 Mass....