Defense Costs For Long-Tail Claims: Making The Most Of Your Insurance Coverage

• Published date: 17 November 2022
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Venable LLP
• Author: Mr John Mavretich and Waymon T. Peer

Long-tail claims involve continuous or progressive injuries that occur over the course of multiple years. Often these claims occur in the context of long-latency diseases, such as those arising from asbestos exposure, or long-term pollution releases in the environmental context.

Business entities may be found liable for these "long-tail" exposures and, as a result, may be required to pay large sums in damages. Since the "bodily injury" or "property damage" occurs over the course of multiple years, successive years of insurance policies may provide coverage. Determining the availability for insurance coverage in these instances can be a complex exercise and depends largely on applicable state law.

In general, when dealing with insurance coverage for damages or settlements, jurisdictions have adopted either the "pro rata" or "all sums" approach. Under the "pro rata" approach, when multiple policies are triggered, insurance carriers are responsible only for the portion commensurate with that insurer's time on the risk. For example, if one insurer issued the policies for 5 out of the 10 years at issue, that insurer would be allocated 50% of the responsibility. By contrast, under the "all sums" approach, each of the "triggered" insurance carriers is jointly and severally liable for the entire loss, up to the applicable policy limit.

An additional layer of complexity arises in the context of legal fees expended in connection with defending against the long-tail claim, since most occurrence-based policies provide a duty to defend that does not reduce the policy limits and continues through the claim's resolution. Insureds should closely examine the policy language and relevant case law to determine the availability of coverage for these fees.

Jurisdictional Approaches

In general, insurance carriers will argue that they are responsible only for a "pro-rata" share of defense costs, but this argument often does not withstand scrutiny. For example, in an ongoing long-tail case in Massachusetts (where indemnity costs are generally allocated on a pro-rata basis, subject to certain exceptions), the insurance carriers recently argued that defense costs should be similarly allocated based on a time-on-the-risk formula. Crosby Valve LLC et al. v. OneBeacon America Insurance Company, et al.,1284 CV 02705-BLS2 (Mass. Super. Ct. Feb. 22, 2022), order superseded on different grounds by July 19, 2022 order on a motion for reconsideration. The judge disagreed, finding that...