Century Indemnity Company v. Liberty Mutual Insurance Company
Filing
50
OPINION AND ORDER granting 7 MOTION for Summary Judgment Awarding Century Contribution from Liberty Mutual filed by Century Indemnity Company and denying 22 RESPONSE in Opposition and Cross-Motion for Summary Judgment filed by Liberty Mutual Insurance Company. So Ordered by Judge William E. Smith on 9/6/11. (Jackson, Ryan)
UNITED STATES DISTRICT COURT
DISTRICT OF RHODE ISLAND
___________________________________
)
CENTURY INDEMNITY COMPANY,
)
)
Plaintiff,
)
)
v.
)
)
LIBERTY MUTUAL INSURANCE COMPANY, )
)
Defendant.
)
___________________________________)
C.A. No. 09-285 S
OPINION AND ORDER
WILLIAM E. SMITH, United States District Judge.
This
running
clean-up
dispute
-of
and
the
marks
one
constantly
more
evolving
Centerdale
Manor
chapter
--
in
the
battle
Superfund
“Site”) in North Providence, Rhode Island.
over
Site
long
the
(the
This chapter
involves a kind of spillover fight among two insurers who
were previously allied in the defense of an action brought
by
Emhart
Industries,
Inc.
responsible for the clean-up.
(“Emhart”),
the
company
The two parted ways when one
Liberty Mutual Insurance Company (“Liberty Mutual”) settled
for a relative pittance while the other Century Indemnity
Company (“Century”) marched into battle, winning a somewhat
pyrrhic
victory
Liberty
Mutual
at
to
great
help
expense.
pay
the
Century
lion’s
now
share
wants
of
its
substantial debt for Emhart’s cost of defense.
While the
questions
Century’s
raised
are
difficult
and
close,
tactical gambit has paid off for the reasons set forth
below.
I.
Background
After being ordered by the Environmental Protection
Agency (“EPA”) to take remedial actions to repair damage to
the Site in North Providence, Rhode Island, Emhart1 filed a
1
In a prior decision in Emhart Industries, Inc. v.
Home Insurance Co., this Court provided a brief history of
the beginnings of Emhart’s legal involvement at the Site:
[T]he EPA sent Emhart a Notice of Potential
Liability (the “PRP Letter”) on February 28,
2000. The PRP Letter informed Emhart that, under
CERCLA § 107(a), it was a potentially responsible
party (“PRP”) based on its status as “a successor
to the liability of a chemical company which
operated at the Site.” The PRP Letter also
invited Emhart to participate in the clean-up
activities at the Site.[] Shortly thereafter, on
April 12, 2000, the EPA issued a Unilateral
Administrative Order for Removal Action (the
“First Administrative Order”), which identified
certain time-critical removal actions that Emhart
was required to undertake.[] Among other things,
the First Administrative Order made a finding of
fact that “[h]azardous substances [ i.e., dioxin]
were disposed of at the Site as part of the
former operations of several chemical companies,”
and observed that “Emhart is . . . a successor to
liability of several chemical companies which
2
lawsuit
in
this
Court
asserting,
inter
alia,
that
its
insurers, Liberty Mutual and Century, were obligated under
their respective policies to defend and indemnify Emhart
against
any
claims,
administrative
proceedings,
and/or
lawsuits arising from the release of hazardous substances
at the Site.
Liberty Mutual settled all claims with Emhart
for $250,000. Century went to trial, after which this Court
sustained
the
jury’s
finding
that
Century
did
not
owe
Emhart a duty to indemnify but held that Century did owe
Emhart a duty to defend.
See generally Emhart Indus., Inc.
v. Home Ins. Co., 515 F. Supp. 2d 228 (D.R.I. 2007), aff’d,
Emhart Indus., Inc. v. Century Indem. Co., 559 F.3d 57 (1st
Cir. 2009).
After the judgment of this Court was affirmed
on appeal, Century promptly paid Emhart $6,067,290.11 in
full satisfaction.
On June 29, 2009, Century brought the present action
seeking equitable contribution from Liberty Mutual for the
operated at the Site from approximately 1943 to
approximately 1971.”
515 F. Supp. 2d 228, 231 (D.R.I. 2007).
In that same
Opinion this Court also observed the extent to which the
EPA’s invitation to participate was “an invitation [] not
easily declined.
As the PRP letter observes, failure to
accept responsibility may result in a fine of $27,500 per
day, CERCLA § 106(b), or damages well in excess of the
ultimate costs of remediation.” Id. at 231 n.4.
3
payment
of
Emhart’s
defense
costs.
Liberty
Mutual
counterclaimed seeking a declaration that it (1) had no
duty
to
defend
contribute
Emhart
equitably
to
and
(2)
has
Emhart’s
no
obligation
defense,
or,
in
to
the
alternative, that any such obligation was satisfied through
its settlement with Emhart.
On April 27, 2010, this Court
held that Liberty Mutual owed Emhart a duty to defend, but
granted
Liberty
Mutual
a
limited
period
to
conduct
discovery on “(i) what, if any, settlement offers Emhart
made to Century in connection with the claims at issue in
the Emhart lawsuit, and how Century responded; and (ii)
whether any other insurers owed Emhart a duty to defend the
EPA action.”
Century Indem. Co. v. Liberty Mut. Ins. Co.,
708 F. Supp. 2d 202, 215 (D.R.I. 2010).
Discovery
has
now
closed.
In
a
new
round
of
submissions on Century’s motion for summary judgment (ECF
No.
7)
and
Liberty
Mutual’s
cross-motion
for
summary
judgment (ECF No. 34), the parties no longer contest the
two
issues
discovery.
failed
to
on
which
Liberty
mitigate
this
Court
had
Mutual
does
not
its
damages
by
ordered
argue
additional
that
rejecting
Century
reasonable
settlement offers from Emhart or that other insurers may
have owed Emhart a duty to defend.
4
Rather, the dispute has
now shifted to the amount of equitable contribution Liberty
Mutual
owes
to
Century.
This
question
implicates
two
difficult and important issues regarding risk allocation
among insurers, particularly in large-scale environmental
claims
like
this
one:
first,
the
effect
of
Liberty
Mutual’s settlement with Emhart on the amount of equitable
contribution
it
owes
Century;2
and,
second,
the
proper
method for allocating defense costs between Liberty Mutual
and Century.3
II.
Discussion
A.
The Settlement between Liberty Mutual and Emhart
Liberty Mutual argues that its duty to defend Emhart
terminated as of their March 24, 2005 settlement and that
the Court should not require it to contribute to Emhart’s
2
For the purposes of summary judgment, Liberty Mutual
concedes that “the law permits Century to seek equitable
contribution for any amount that it has paid in excess of
its proportionate share.” (Liberty Mutual’s Mem. in Opp’n
to Century’s Mot. for Summ. J. 10, ECF. No. 38-4 [SEALED].)
3
The parties agree that Rhode Island law governs.
Equitable principles are controlled by the laws of the
forum state, here, Rhode Island, Thomas v. Jacobs, 751 A.2d
732, 733 (R.I. 2000), and thus, “[t]his Court is compelled
by the United States Supreme Court to follow the Rhode
Island Supreme Court in the area of choice or conflict of
laws.”
Barkan v. Dunkin' Donuts, Inc., 520 F. Supp. 2d
333, 340 (D.R.I. 2007) (citing Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496-97 (1941)).
5
defense costs after that date.
Century disputes this claim
on several grounds.
First,
Century
claims
that
the
Court
has
already
rejected Liberty Mutual’s settlement argument, pointing to
the
following
excerpts
from
the
Court’s
April
27,
2010
Opinion and Order:
[T]he
parties
agree
that
Liberty
Mutual’s
settlement with Emhart is not relevant to the
scope of its duty to defend the company.
. . . .
In terms of timing, the duty to defend takes
effect when a complaint “reasonably susceptible”
to coverage is filed, and continues until the
insurer obtains a judgment that there is no
coverage.
In this case, those dates begin when
the EPA issued its charges (starting in February
2000), and end when the jury delivered its
verdict in the Emhart trial (October 19, 2006).
Century
Indem.,
omitted).
708
These
F.
Supp.
excerpts
are
2d
at
taken
207-08
out
(citation
of
context,
however, and surely were not intended to foreclose Liberty
Mutual’s
settlement
argument.
The
first
excerpt
is
contained in a discussion of the settlement with regard to
its effect on whether Liberty Mutual had a duty to defend
Emhart,
and
the
second
is
merely
a
possible temporal range of that duty.
description
of
the
In holding that
Liberty Mutual had a duty to defend Emhart, notwithstanding
6
its settlement, the Court did not attempt to define the
nature of any equitable burden flowing to Century from that
duty.
That issue was expressly reserved for the present
decision.
See Id. at 215 (“[The Court] further GRANTS
Liberty Mutual's motion for a continuance to conduct the
discovery described above before ruling on the issue of
equitable contribution.”).
On the merits, Liberty Mutual asserts that, because
the
right
to
equitable
contribution
exists
to
prevent
coinsurers from paying more than their “fair share of a
common burden,” its “common burden” existed only during the
period that both it and Century shared a duty to defend
Emhart (i.e., prior to settlement).
734.
Thomas, 751 A.2d at
To hold otherwise, it posits, would frustrate the
public
policy
in
favor
of
settlements
by
penalizing
insurers who settle early rather than refusing to defend.
See Skaling v. Aetna Ins. Co., 799 A.2d 997, 1012 (R.I.
2002) (“It is the policy of this state to encourage the
settlement of controversies in lieu of litigation.”).
Century
points
to
several
cases
holding
that
an
insurer’s settlement with the insured does not extinguish
the
right
contribution
of
other
from
the
coinsurers
settling
7
to
obtain
insurer.
equitable
See,
e.g.,
Maryland Cas. Co. v. W.R. Grace & Co., 218 F.3d 204, 211
(2d Cir. 2000) (“[T]he contract of settlement an insurer
enters into with the insured cannot affect the rights of
another
insurer
who
is
not
a
party
to
it.
Instead,
whatever obligations or rights to contribution may exist
between two or more insurers of the same event flow from
equitable principles.”); Sharon Steel Corp. v. Aetna Cas. &
Sur. Co., 931 P.2d 127, 139 (Utah 1997) (“[A]n insurer who
is
on
notice
that
another
insurer
has
been
paying
significant defense costs should not be allowed to settle
for a minimal sum to avoid having to contribute its fair
share.”).
Further, Century also analogizes this case to
claims under the Rhode Island Joint Tortfeasor Act, which
provides that a settling joint tortfeasor is not protected
from contribution claims absent a release from the injured
plaintiff.
See R.I. Gen. Laws § 10-6-8.
The few courts and commentators to have pondered the
issue
have
roundly
rejected
Liberty
Mutual’s
proposed
bright line rule that “one insurer's settlement with the
insured is [always] a bar to a separate action against that
insurer
by
the
other
insurer
contribution or indemnity.”
or
insurers
for
equitable
Clarendon Am. Ins. Co. v. Mt.
Hawley Ins. Co., 588 F. Supp. 2d 1101, 1106 (C.D. Cal.
8
2008) (quoting Fireman's Fund Ins. Co. v. Maryland Cas.
Co., 65 Cal. App. 4th 1279, 1289 (Cal. Ct. App. 1998)); see
also Maryland Cas., 218 F.3d at 211; Certain Underwriters
at Lloyd's London v. Mass. Bonding & Ins. Co., 235 Or. App.
99, 113 (Or. Ct. App. 2010); Emp’rs Ins. Co. of Wausau v.
Travelers Indem. Co., 141 Cal. App. 4th 398, 405-06 (Cal.
Ct.
App.
2006);
15
L.R.
Russ
&
T.F.
Insurance, § 218.29 (3d ed. 2005).
Segalla,
Couch
on
By the same token,
however, there is no prevailing bright line rule to the
contrary--that a settlement should have no effect at all on
Century’s potential equitable entitlement to contribution
from
Liberty
effect
of
Mutual.
such
Most
courts,
settlements,
have
in
determining
proceeded
with
a
the
view
toward upholding equity and preventing unjust enrichment.
See Maryland Cas., 218 F.3d at 210-12 (holding that the
relevant considerations under “an equitable analysis [are]
whether one party is unjustly enriched at the expense of
another”
and
“whether
the
settlement
of
the
suit
was
reasonable or equitable, not simply whether there was a
settlement”); accord Emp’rs Ins. Co. of Wausau, 141 Cal.
App.
4th
at
405-06;
cf.
Thomas,
751
A.2d
at
734
(“The
doctrine of equitable contribution is applied to prevent
one of two or more guarantors from being obliged to pay
9
more than his or her fair share of a common burden, or to
prevent one guarantor from being unjustly enriched at the
expense of another.”).
Courts have also rejected Liberty Mutual’s contention
that
a
public
finding
against
policy
by
settlement.
it
would
encouraging
categorically
litigation
undermine
in
lieu
of
See Certain Underwriters, 235 Or. App. at 114
(“We . . . are not persuaded that a public policy favoring
settlements
governing
merits
equitable
a
departure
from
contribution.”);
the
common-law
Emp’rs
Ins.
rule
Co.
of
Wausau, 141 Cal. App. 4th at 406 (“Defendants provide no
authority for their ipse dixit claim that policies favoring
the encouragement of settlements militate a rule that would
permit a coinsurer to evade its share of the defense burden
by separately settling with its insured.”).
courts
have
expressed
concern
that
Still, other
condoning
such
settlements could create an “incentive for an insurer to
engage in ‘sharp practices’ to settle for a limited amount
with the possibly unsophisticated insured” to avoid paying
contribution to a coinsurer.
Sharon Steel, 931 P.2d at
139.
There is nothing about the settlement here that would
appear to advance the public policy goals discussed in the
10
authorities.
case
True, Liberty Mutual settled early in the
while
Century
litigated
its
duty
to
defend
indemnify Emhart all the way to the First Circuit.
and
Yet,
the $250,000 settlement between Liberty Mutual and Emhart
was
but
a
slice
of
a
confidential
involving many different matters.
Emhart
had
already
incurred
global
settlement,
As it was reached after
approximately
$2
million
in
defense costs, it seems unlikely that Emhart would have
agreed
to
favorable
agreement.
neither
such
to
it
a
discounted
elsewhere
sum,
in
absent
the
terms
global
more
settlement
Moreover, and quite tellingly, the settlement
required
Emhart
to
release
any
claims
against
Century nor obligated it to indemnify Liberty Mutual in the
event
Century
sought
contribution
from
Liberty
Mutual.
What this reveals is an understanding that Emhart would no
doubt seek recovery from Century; that Century could be
saddled
with
the
risk
and
expense
of
litigating
with
Emhart; and that Liberty Mutual could sit back and preserve
these arguments until now.
from
Liberty
Mutual’s
This tactical ploy made sense
point
of
view,
but
it
has
done
nothing to promote the policy objectives touted by Liberty
Mutual now.
Moreover, Liberty Mutual’s approach virtually
ensured that no settlement would occur between Emhart and
11
Century.
Indeed, confirmation of this is that, after an
opportunity
for
apparently
found
discovery
no
on
this
evidence
failed to settle with Emhart.
that
issue,
Liberty
Century
Mutual
unreasonably
To reward Liberty Mutual for
its settlement with Emhart would do nothing to serve Rhode
Island’s public policy of “encourage[ing] the settlement of
controversies in lieu of litigation.”
1012.
Skaling, 799 A.2d at
Far from being a litigation killer, Liberty Mutual’s
settlement essentially ensured that this litigation would
not die.
Moreover, equity requires the Court to “prevent one of
two or more guarantors from being obliged to pay more than
his or her fair share of a common burden, or to prevent one
guarantor from being unjustly enriched at the expense of
another.”
Thomas, 751 A.2d at 734.
Here, considering the
merits of the settlement, and particularly the fact that
Liberty Mutual insured Emhart for a significantly longer
period
under
higher
policy
limits
and
collected
substantially more premiums, the balance of the equities
compels the Court to conclude that releasing Liberty Mutual
from
its
post-settlement
contribution
obligation
would
result in Century having to bear more than its fair share
of a common burden to defend Emhart.
12
Accordingly, for the
purposes
of
equitable
contribution,
the
March
24,
2005
settlement had no effect on Liberty Mutual’s duty to defend
Emhart.
B.
Whether Interest Is Appropriate
Liberty Mutual also argues that it did not share a
common burden with Century to pay pre- and post-judgment
interest.
This argument is derivative of Liberty Mutual’s
argument regarding the effect of its settlement (which the
Court has held had no effect on its duty to defend Emhart),
and
the
issue
requires
no
further
independent
analysis.
Liberty Mutual is responsible for pre- and post-judgment
interest pursuant to R.I. Gen. Laws § 9-21-10.
C.
The Proper Method of Allocation
The Court now turns to the stickier wicket of how to
equitably
apportion
defense
costs
between
the
parties.
Liberty Mutual argues that Emhart’s defense costs should be
divided
equally
shares” method).
between
the
two
coinsurers
(the
“equal
Under this method, each party would bear
half of Emhart’s $6,317,290.11 defense bill, resulting in
Liberty
Mutual
$250,000
settlement
Liberty Mutual.
owing
Century
that
Century
$3,158,645.06,
has
agreed
to
less
the
discount
(See Century’s Mem. in Supp. of Mot. for
Summ. J. 15, ECF No. 7.)
Century argues that the costs
13
should be divided according to the length of time each coinsurer’s policy overlapped with the period of the risk
(the “time on the risk” method).4
Under this approach,
because Century covered the relevant risk for a total of
approximately
thirteen
months
(two
consecutive
policies,
from February 15, 1969 until January 1, 1970) and Liberty
Mutual for a total of eighty-six months (eight consecutive
policies, from November 1, 1971 until January 1, 1979),
Century
would
$796,635.19,
86.87%
of
absorb
while
costs,
13.13%
Liberty
or
of
the
Mutual
defense
would
$5,270,654.92,
bill,
refund
less
the
it
or
for
$250,000
settlement that Century agreed to discount Liberty Mutual.
Rhode
Island
authorities
offer
limited
guidance
on
choosing a method to allocate equitable contribution where,
as here, two successive coinsurers shared the same duty to
defend an insured for the same risk.
4
The Rhode Island
Century also draws attention to the fact that, in
this situation, courts sometimes apportion costs based on
the time and limits on the risk method, which is a modified
version of the time on the risk method that takes into
account policy limits.
Under this allocation method,
Liberty Mutual would owe Century more than under the time
on the risk method, given that its policies were not only
in effect longer but also had greater limits.
However,
because Century argues that time on the risk is “the most
equitable of the three approaches” (Century’s Mem. in Supp.
of Mot. for Summ. J. 15, ECF No. 7), there is no reason to
consider the time and limits on the risk method.
14
Supreme Court has found it “proper to prorate defense costs
between concurrent insurers, when . . . both insurers have
wrongfully
refused
to
defend
an
insured.”
Peloso
Imperatore, 434 A.2d 274, 279 (R.I. 1981).
issue
in
Peloso
was
allocation
v.
However, the
between
concurrent
coinsurers, so it is not necessarily predictive of how the
Rhode
Island
Supreme
Court
would
between successive coinsurers.
allocate
defense
costs
Moreover, no Rhode Island
court has had occasion to address equitable contribution in
the
context
injury,
of
leaving
a
the
long-term
progressive
Court
uncharted,
in
environmental
but
navigable,
waters.
The
public
policy
considerations
regarding
insuring
progressive injuries provide a good starting point and an
appropriate
commonplace
backdrop
for
the
present
single-occurrence
analysis.
injuries,
such
Unlike
as
car
accidents, long-term environmental “[p]rogressive injuries.
.
.
are
‘indivisible
injuries
attributable
events without a single clear “cause.”’”
Century
Indem.
Co.,
910
N.E.2d
290,
to
ongoing
Boston Gas Co. v.
300
(Mass.
2009)
(quoting Boston Gas Co. v. Century Indem. Co., 529 F.3d 8,
13 (1st Cir. 2008)).
Progressive injuries can therefore
occur over a period of time during which the liable party
15
has coverage under several different insurers with multiple
policies running concurrently and/or successively.
Michael
G. Doherty, Allocating Progressive Injury Liability Among
Successive Insurance Policies, 64 U. Chi. L. Rev. 257, 258
(1997).
Where this occurs, it can be “both scientifically
and administratively impossible to allocate to each policy
the liability for injuries occurring only within its policy
period.”
Id. at 257-58; see also EnergyNorth Natural Gas,
Inc. v. Certain Underwriters at Lloyd's, 934 A.2d 517, 521
(N.H. 2007) (“[I]n long-term environmental pollution cases,
correlating degrees of damage to particular points along
the loss timeline may be virtually impossible, which has
led to substantial uncertainty as to how responsibility for
such
losses
should
be
allocated
where
multiple
insurers
have issued successive policies to the insured over the
period
of
time
quotation
the
marks
and
damage
was
citation
developing.”)
omitted);
15
(internal
Couch
on
Insurance § 220:25.
Given
the
liability
for
coinsurers,
complexities
a
courts
progressive
have
involved
injury
adopted
in
between
various
allocating
successive
approaches
for
allocating indemnity and defense costs between insurers and
insureds
or
between
insurers
16
themselves.
See,
e.g.,
EnergyNorth, 934 A.2d at 521 (“By contrast, in long-term
environmental
pollution
cases,
‘correlating
degrees
of
damage to particular points along the loss timeline may be
virtually
impossible[,]
[which]
has
led
to
substantial
uncertainty as to how responsibility for such losses should
be allocated where multiple insurers have issued successive
policies to the insured over the period of time the damage
was developing.” (quoting Pub. Serv. Co. v. Wallis & Cos.,
986 P.2d 924, 935 (Colo. 1999)) (brackets in original));
see also Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034,
1050
(D.C.
liability
Cir.
1981)
method);
Ins.
(adopting
Co.
of
the
N.
joint
Am.
v.
and
several
Forty-Eight
Insulations, Inc., 633 F.2d 1212, 1213-14 (6th Cir. 1980)
(adopting the time on the risk method); Uniroyal, Inc. v.
Home Ins. Co., 707 F. Supp. 1368, 1392 (E.D.N.Y. 1988)
(adopting the stacking coverage or horizontal exhaustion
method); Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d
974, 995 (N.J. 1994) (adopting a method that is “related to
both the time on the risk and the degree of risk assumed”);
J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d
502, 509 (Pa. 1993) (adopting the other insurance clause
method).
17
This
lack
progressive
bonanza
injury
for
DeYoung,
of
consensus
as
has
liability
lawyers.”
Allocation
to
led
William
of
how
R.
to
to
a
“litigation
Hickman
Environmental
allocate
&
Cleanup
Mary
R.
Liability
Between Successive Insurers, 17 N. Ky. L. Rev. 291, 294 n.6
(1990).
Insurers
have
an
incentive
to
renounce
indemnification and defense duties in the hope that courts
will
adopt
fractured
a
more
state
incentives,5
favorable
of
which
the
means
law
allocation
also
more
transaction costs for everyone.
is
that
underwriters
calculating
risk
and
face
method.
decreases
litigation
and
The
settlement
increased
The net effect of all this
substantial
exposure
for
uncertainty
progressive
in
injuries.
This, no doubt, works its way back to consumers, who must
pay higher premiums for general liability coverage.
See
Boston Gas, 910 N.E.2d at 314 (holding in the context of
indemnification
allocation:
“We
are
persuaded
that
the
time-on-the-risk method of allocating losses is appropriate
where
the
evidence
will
not
5
permit
a
more
accurate
“[U]ncertainty as to outcome is the key to the
settlement rate . . . . This uncertainty leads each party
to overestimate its chance of prevailing.” Cybor Corp. v.
FAS Techs., Inc., 138 F.3d 1448, 1475 n.3 (Fed. Cir. 1998)
(quoting Richard A. Posner, The Federal Courts: Challenge
and Reform 89-94 (1996) (internal citation omitted)).
18
allocation
inherent
of
losses
simplicity
incentives
to
during
each
promotes
litigate,
and
policy
period.
predictability,
ultimately
reduces
reduces
rates.’” (quoting Doherty, supra at 281)).
‘[I]ts
premium
With an eye on
these public policy considerations, the Court will turn to
the
two
competing
allocation
methods
advocated
by
the
parties.
1.
Other Insurance Clauses
Liberty Mutual argues that allocation based on equal
shares is supported by the terms of the parties’ respective
policies.
clauses
Specifically,
identically
policies
“provide[]
“apply
for
to
the
state
the
parties
that
loss
contribution
where
on
by
“other
the
equal
insurance”
other
insurers’
same
basis”
and
shares,”
then
such
coinsurers “shall not be liable for a greater proportion of
such loss than would be payable if each insurer contributes
an equal share . . . .”
(Liberty Mut.’s Statement of
Undisputed Facts ¶ 26, ECF No. 38-5 [SEALED].)
In other
words, where two policies cover the same loss and provide
for equal shares allocation, then loss shall be allocated
on
that
basis.
Although
these
clauses
pertain
to
indemnification, Liberty Mutual argues that the parties’
other insurance clauses should be taken into consideration
19
in
choosing
costs.
F.2d
an
equitable
allocation
method
for
defense
See Fed. Ins. Co. v. Cablevision Sys. Dev. Co., 836
54,
57
(2d
Cir.
1987)
(affirming
district
court’s
finding that “the ‘other insurance’ clauses demonstrated an
intent
to
apportion
indemnity
loss
equally,”
and
that
“while an intent by coinsurers to apportion indemnity loss
equally does not control the division of defense costs as a
matter
of
law,
that
intent
is
an
important
factor
of
reference with respect to such division”).
Liberty
Mutual’s
plaint
falls
short.
The
other
insurance clauses function to prevent double recovery where
two or more insurers concurrently cover the same risk; they
are inapposite to the issue of how to allocate defense
costs
between
successive
coinsurers.
See
Pacitti
v.
Nationwide Mut. Ins. Co., C.A. No. 89-1999, 1991 WL 789894,
at *4 (R.I. Super. Oct. 4, 1991), aff’d 626 A.2d 1284 (R.I.
1993)
(“‘Other
insurance’
clauses
evolved
primarily
to
protect insurers against situations where an insured would
be entitled to receive double insurance benefits covering a
single loss.”); see also Taco Bell Corp. v. Cont’l Cas.
Co., 388 F.3d 1069, 1078-79 (7th Cir. 2004) (criticizing
district
court's
reliance
on
other
insurance
clauses
to
apportion defense costs equally where the parties’ policies
20
were
successive);
Vigilant
Ins.
St.
Co.,
Paul
919
Fire
F.2d
&
235,
Marine
241
Ins.
(4th
Co.
Cir.
v.
1990)
(stating that other insurance clauses “apply only when the
coverage is concurrent.
periods
did
not
applicable”);
Where, as here, the policies[’]
overlap
Boston
at
Gas
all,
such
clauses
are
not
910
N.E.2d
at
308
Co.,
(“[P]olicies' ‘other insurance’ clauses do not reflect an
intention to cover losses from damage outside the policy
period.
reflect
Rather,
a
the
recognition
‘other
insurance’
of
many
the
clauses
situations
in
simply
which
concurrent, not successive, coverage would exist for the
same loss.”); Consol. Edison Co. of N. Y. v. Allstate Ins.
Co., 774 N.E.2d 687, 694 (N.Y. 2002) (“Such clauses apply
when two or more policies provide coverage during the same
period, and they serve to prevent multiple recoveries from
such
policies.”)
(internal
citations
omitted);
Allan
D.
Windt, Insurance Claims and Disputes § 4:45 (5th Ed. 2011)
(“[C]ourts should not look to the ‘other insurance’ clauses
in policies that afford consecutive coverage in allocating
defense
(or,
for
that
matter,
indemnity)
costs.
Such
clauses are relevant only as when there is an identity of
risk
among
the
insurers.”).
21
The
authorities
speak
for
themselves.
The other insurance clauses are not relevant
here.
2.
Equal Shares v. Time on the Risk
Turning first to the equal shares allocation method,
the courts that have adopted it have usually relied on the
reasoning that an insurer’s “duty to defend is broader than
the duty to indemnify.”
Mellow v. Med. Malpractice Joint
Underwriting Ass'n of R.I., 567 A.2d 367, 368 (R.I. 1989);
see also Global NAPs, Inc. v. Fed. Ins. Co., 336 F.3d 59,
62 (1st Cir. 2003) (quoting Bos. Symphony Orchestra, Inc.
v. Commercial Union Ins. Co., 545 N.E.2d 1156, 1158 (Mass.
1989)).
The Minnesota Supreme Court succinctly explained
the rationale underlying this principle as follows: “(1)
the duty to defend extends to every claim that ‘arguably’
falls within the scope of coverage; (2) the duty to defend
one claim creates a duty to defend all claims; and (3) the
duty
to
defend
exists
underlying claims.”
regardless
of
the
merits
of
the
Wooddale Builders, Inc. v. Maryland
Cas. Co., 722 N.W.2d 283, 302 (Minn. 2006); see also 14
L.R. Russ & T.F. Segalla, Couch on Insurance § 200:3 (3d
ed. 2005) (“The duty to defend is likewise broader than the
duty to indemnify.
Accordingly, the insurer has a duty to
defend an insured against a lawsuit based merely on the
22
potential of liability under a policy, despite the fact
that the insurer could eventually be determined to have no
duty to indemnify the insured.”).
costs
apportionment,
because
coinsurers’
these
As applied to defense
courts
duties
to
have
defend
reasoned
their
that,
insured
are
coextensive, each coinsurer should bear the same share of
the cost of defending the insured. See Fed. Ins., 836 F.2d
at 58 (“Under New York law, the duty of each of the three
insurers
to
defend
Cablevision
is
separate
and
equal.
Since the insurers cannot defend ‘part’ of the antitrust
claims
against
Cablevision
in
the
underlying
Nishimura
action, it is logical that the insurers bear the costs of
defense equally.”); see also Emons Indus., Inc. v. Liberty
Mut. Fire Ins. Co., 481 F. Supp. 1022, 1026 (S.D.N.Y. 1979)
(rejecting time on the risk allocation in favor of equal
shares because, “the disparate number of years of coverage
notwithstanding, both insurance companies stand on equal
footing
with
respect
to
potential
concomitant duty to defend”).
its
simplicity:
equal
liability
and
their
This rule is attractive in
defense
burdens
require
equal
contributions to defense costs.
The
time
on
the
risk
method,
alternatively,
was
specifically “developed as a solution for the problem of
23
toxic
torts
and
liability--may
industrial
be
found
diseases,
to
policies of insurance.”
span
where
the
term
damage--and
of
several
Taco Bell Corp. v. Cont’l Cas.
Co., No. 01 C 0438, 2003 WL 1475035, at *14 (N.D. Ill. Mar.
17, 2003) (quoting 15 Couch on Insurance § 217:9).
reasoned
that,
unlike
a
single-occurrence
Courts
injury,
the
protracted nature of a progressive injury lends itself to
“a reasonable means” proration based on the number of years
of exposure.
Sec. Ins. Co. of Hartford v. Lumbermens Mut.
Cas. Ins., 826 A.2d 107, 123 (Conn. 2003); see also FortyEight Insulations, 633 F.2d at 1225.
the
allocation
method
“applied
courts allocating liability.”
by
Time on the risk is
the
vast
majority
of
U.S. Fid. & Guar. Co. v.
Treadwell Corp., 58 F. Supp. 2d 77, 105 (S.D.N.Y. 1999)
(adding that “the method is ‘predictable, administrable,
fundamentally fair, and provides potential insureds with
incentives
to
purchase
insurance
or
rationally
self-
insure’” (quoting Doherty, supra, at 260)).
In
Forty-Eight
Insulations,
the
Sixth
Circuit
held
that, as “indemnity costs can be allocated by the number of
years [of exposure][,]” then “[t]here is no reason why this
same theory should not apply to defense costs.”
at 1225.
633 F.2d
Courts have since frequently allocated defense
24
costs
based
on
time
on
the
risk,
finding
it
equitable
because it tends to limit coinsurers’ responsibility for
defense costs arising out of occurrences falling outside of
their respective policy periods.
See Towns v. N. Sec. Ins.
Co., 964 A.2d 1150, 1167 (Vt. 2008) (citing Gulf Chem. &
Metallurgical Corp. v. Assoc. Metals & Minerals Corp., 1
F.3d 365, 371-72 (5th Cir. 1993) (reasoning that “[t]he
insurer
has
not
contracted
to
pay
defense
costs
for
occurrences which took place outside the policy period” and
therefore applying Texas law to reject joint and several
liability
and
instead
apportion
defense
costs
among
multiple insurers on a pro rata basis)); Commercial Union
Ins. Co. v. Sepco Corp., 918 F.2d 920, 924 (11th Cir. 1990)
(declining to hold insurer responsible “to provide defense
for exposure unquestionably outside of its coverage” and
therefore upholding trial court's pro rata apportionment of
defense costs); see also USF Ins. Co. v. Clarendon Am. Ins.
Co., 452 F. Supp. 2d 972, 1004 (C.D. Cal. 2006); Sec. Ins.,
826 A.2d at 123; Deutsche Bank Trust Co. Ams. v. Royal
Surplus Lines Ins. Co., No. 06C–09–261 JAP, 2011 WL 765552,
at *26 (Del. Super. Feb. 25, 2011); Owners Ins. Co v. Ill.
Union Ins. Co., No. 1 CA-CV 07-0115, 2007 WL 5471953, at *1
(Ariz. App. Div. 1 Dec. 24, 2007); Centennial Ins. Co. v.
25
U.S. Fire Ins. Co., 88 Cal. App. 4th 105, 113-14 (Cal. Ct.
App. 2001).
By corresponding insurers’ defense cost obligations to
their policy periods, courts have found that time on the
risk serves to align insurers’ defense cost expectations
with the proportion of risk that they assume based on the
duration of their policy.
See Forty-Eight Insulations, 633
F.2d at 1224-25 (“An insurer contracts to pay the entire
cost
of
policy
defending
period.
a
The
claim
which
insurer
has
not
has
arisen
within
contracted
to
the
pay
defense costs for occurrences which took place outside the
policy period.”); Security Ins., 826 A.2d at 123 (“Neither
the insurers nor the insured could reasonably have expected
that the insurers would be liable for losses occurring in
periods
outside
periods.”).
wholly
their
respective
policy
coverage
Equal shares allocation, on the other hand,
aligns
proportion
of
of
insurer
other
expectations
coinsurers
to
that
the
arbitrary
the
insured
might
happen to have during the relevant period of risk.
Thus, by providing insurers with a measure of future
risk, time on the risk reduces underwriting uncertainty.
As
one
commentator
has
explained
indemnification):
26
(in
the
context
of
In addition to decreasing the amount of
litigation,
[the
time-on-the-risk]
method
provides a way for insurance companies to
estimate
more
accurately
total
expected
liability; as a result, premiums should decline.
Premiums reflect the uncertainty that exists in
the insurance market and the possibility that
courts will use a coverage maximization rule to
allocate coverage.
Uncertainty about which
allocation method will be used and how that
method will be applied increases the costs of
insurance.
Consistent use of the time-on-therisk method will eliminate the concern about
uncertainty. Because this method . . . does not
rely on a case-by-case determination of how much
coverage was purchased, it also obviates the
concern about inconsistent application.
Doherty, supra, at 282-83.
It would be too far a stretch
to say that consistent use of the time on the risk method
would completely eliminate uncertainty at the underwriting
stage.
the
Of course, even time on the risk is dependent upon
number
of
other
policyholder’s risk.
coinsurers
covering
the
relevant
However, where policies are issued on
an annual basis, as here, it is more predictable in the
sense that underwriters know that longer general liability
policy
coverage
burdens.
periods
will
always
mean
larger
defense
This result does not follow from equal shares
allocation or allocation methods that take policy limits
into account.
Unlike equal shares, time on the risk does
not require underwriters to calculate premiums by relying
exclusively
on
guesswork
as
27
to
the
number
of
other
coinsurers who could potentially cover the insured over the
life
of
a
long-term
injury
(or
speculate
as
to
their
respective policy limits--as an allocation based on limits
would require).6
Thus, time on the risk more equitably
limits
for
liability
defense
costs
to
the
slice
of
progressive injury that providers choose to insure, which,
in
turn,
advances
underwriting
the
public
uncertainty
policy
and
goals
lowering
of
reducing
premiums
for
consumers.
Moreover,
the
Court
cannot
ignore
the
disparity
between the duration of the parties’ coverage.
Ins.,
452
F.
contribution
Supp.
2d
at
1004
allocation
in
favor
(rejecting
of
time
See USF
equal
on
shares
the
risk
because one coinsurer covered insured for only three months
while
two
others
provided
coverage
6
for
twelve
months);
Addressing transaction costs, Liberty Mutual relies
on Wooddale Builders, Inc. v. Maryland Casualty Co., in
which the Minnesota Supreme Court adopted the equal shares
method, reasoning that “[i]f insurers know from the
beginning that defense costs will be apportioned equally
among
insurers
whose
policies
are
triggered,
the
possibilities for delay will be minimized because no
insurer will benefit from delaying or refusing to undertake
a defense.”
722 N.W.2d 283, 303-304 (Minn. 2006).
The
case is inapposite, however, because under Minnesota law,
“an insurer that undertakes the defense of its insured may
not seek recovery of defense costs from the insured's other
insurers who also owed a duty to defend but failed to
provide a defense.” Id. at 302.
28
Owners
Ins.,
shares
in
2007
favor
WL
of
5471953,
time
on
at
*3-4
the
(rejecting
risk
where
equal
plaintiff
coinsurer provided approximately 93.3% of total length of
insured’s
coverage
whereas
approximately 6.7%).
the
same
issue
that
defendant
coinsurer
provided
In a factually similar case involving
is
before
this
Court--equal
shares
versus time on the risk--a California court disposed of the
question as follows:
On
the
facts
before
us,
we
have
no
difficulty concluding that in this particular
case, the time on the risk method was more
equitable than the equal shares approach.
U.S.
Fire was responsible for insuring Lincoln for a
period of less than six months between January
19, 1982, through July 1, 1982, only a small
fraction of the total insurance coverage period
of four and one-half years provided to Lincoln by
Centennial, Travelers and U.S. Fire together. In
order to adopt the equal shares method of
allocation advanced by Centennial, the trial
court would have been required simply to ignore
the relative length of time each of the several
insurers was actually responsible for insuring
the acts of Lincoln and was receiving insurance
premiums for bearing that risk.
Had the trial
court applied an equal shares allocation, U.S.
Fire would have had exactly the same liability
for defense costs as Centennial and Travelers,
even though the latter two insurers had covered
Lincoln for nearly 90 percent of the duration of
the combined policy period and had also collected
premiums for that longer period of coverage
accordingly.
Such a result would have been
patently arbitrary and inequitable.
Centennial Ins., 88 Cal. App. 4th at 113-14.
29
Here, Century was on the risk for approximately 13% of
the total length of coverage provided by the two parties.
Where neither party undertook a duty to defend Emhart, the
Court cannot agree that equity should require Century to
shoulder
50%
considering
of
Emhart’s
that
substantially
Liberty
higher
defense
Mutual
policy
burden--especially
insured
limits
and
Emhart
for
collected
more
premiums than Century.
Finally, the Court is satisfied that time on the risk
allocation is compatible with Rhode Island Supreme Court
precedent.
In Peloso v. Imperatore, the insured brought
suit for reimbursement of defense costs from two coinsurers
who covered the same risk for the same amount of time.
The
Court allocated defense costs pro rata by policy limits,
reasoning that a failure to prorate would advance a rule in
which an insurer who abdicates its “duty to defend would be
awarded
a
bonus
for
having
done
company bear the entire cost.”
so,
by
having
another
434 A.2d at 279 (quoting
Marwell Constr., Inc. v. Underwriters at Lloyd's, London,
465 P.2d 298, 313 (Alaska 1970)).
because
the
coinsurers
better
case
of
support
involved
the
the
same
Century points out that,
allocation
risk,
position
30
“[n]o
that
between
set
equal
of
concurrent
facts
sharing
could
is
the
fairest” allocation method.
(Century’s Reply Mem. in Supp.
of Mot. for Summ. J. 10, ECF No. 46-2 [SEALED].)
does not disagree.
The Court
If the Rhode Island Supreme Court views
proration by policy limits as the equitable approach to
allocating
defense
cost
contribution
between
coinsurers
covering the same risk for the same duration, this Court
can think of no principled reason why it would not do the
same where coinsurers covered the same risk for differing
durations.
At a minimum, this Court is satisfied that it
would not apportion defense costs by equal shares in the
case of successive coinsurers.
III. Conclusion
For all of these reasons, Century’s motion for summary
judgment is GRANTED and Liberty Mutual’s cross-motion for
summary
judgment
is
DENIED.
The
Court
will
allocate
equitable contribution for Emhart’s defense costs based on
the parties’ respective time on the risk, as computed by
Century,
and
Century
shall
recover
from
Liberty
Mutual
86.87% of the $6,067,290.117 judgment (or $5,270,654.92) it
7
This is the amount that was provided to the Court by
Century in its Statement of Undisputed Facts, and it
includes both pre- and post-judgment interest.
31
paid
in
satisfaction
of
this
Court’s
November
16,
2007
order, less the $250,000 settlement amount.8
IT IS SO ORDERED.
/s/ William E. Smith
William E. Smith
United States District Judge
Date: September 6, 2011
8
Century bases its calculation on the assumption that
the parties collectively insured Emhart for ninety-nine
months, Century for thirteen months and Liberty Mutual for
eighty-six
months,
and
by
computing
each
insurer’s
proportionate share as a direct ratio of the sum of their
combined policy limits. (See Century’s Mem. in Support of
Mot. for Summ. J. 15-16; see also Century’s Statement of
Undisputed Facts ¶¶ 8, 16, 17, ECF No. 6.)
The Court notes, however, that Liberty Mutual’s
undisputed fact ¶ 25, which Century indeed does not
dispute, suggests that Liberty Mutual provided coverage to
Emhart for ninety-six (rather than eighty-six) months.
(See Liberty Mut.’s Statement of Undisputed Facts ¶ 25, ECF
No.
38-5
[SEALED]
(“Liberty
Mutual
issued
certain
comprehensive primary and excess general liability policies
to Emhart’s corporate predecessor, United Shoe Machinery
Corporation, from November 1, 1971 through November 1,
1979.”); see also Century’s Statement of Disputed Facts ¶
25, ECF No. 46-3 [SEALED].)
The Court will not secondguess Century’s calculation as it appears to be the most
conservative and favors the non-prevailing party; however,
Century is granted leave to file a motion to amend the
judgment if its computations resulted from a clerical
error.
32
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