Cases involving continuous exposure present unique challenges.  Determining when the alleged injury occurred is critical in evaluating causation, damages, and statute of limitations defenses.  The date and nature of the alleged occurrence is also often determinative of coverage.  And as a recent decision from the Northern District of New York reminds us, the question is not only whether there is coverage in the first instance, but also which carrier has to pay.

The dispute at issue in Hanover Insurance Company v. Vermont Mutual Insurance Company, No. 1:13-cv-860 (N.D.N.Y. Nov. 14, 2014), concerned insurers’ responsibility for contributing to a judgment entered against their insured property owners for exposing a child to lead paint over a period spanning three successive policy periods.  Neither the primary carrier, Vermont Mutual Insurance (“Vermont”), nor the excess carrier, Hanover Insurance Company (“Hanover”), disputed coverage for the $809,181.81 settlement that was reached following a jury verdict.  Rather, the two insurers disagreed about the amount of coverage Vermont was required to provide and whether Hanover’s excess coverage could be invoked.

The three Vermont policies implicated by the underlying suit each had a $300,000 limit, and Hanover argued that those policies should be stacked, which would provide $900,000 in coverage and eliminate any need for Hanover’s excess policy to respond.  Not surprisingly, Vermont took a contrary view, contending that the policies’ unambiguous terms made injury from asbestos exposure a single occurrence that would confine coverage to a single policy limit of $300,000.

Hanover argued that although the primary policy contained a clause limiting liability to the policy limits, “regardless of the number of ‘insureds,’ claims made or persons injured[,]” the limitation failed to address other insurance policies.  Hanover contended that where no clause in the insurance contract prohibits it, the stacking of successive policy limits is proper.  Citing Hiraldo v. Allstate Insurance Company, 563 N.E.2d 563 (N.Y. 2005), the excess insurer asserted that the absence of language clearly limiting liability to the policy limits “regardless of the number of . . .  policies involved,” which had been present in Hiraldo, was fatal to the primary carrier’s efforts to avoid the stacking of successive policy limits.  In essence, Hanover contended that non-cumulation language disregarding the number of “policies involved” was determinative to the Hiraldo court’s decision to prohibit the stacking of consecutively issued policies.  In the absence of such express language, the stacking of policies limits could apply.

The district court noted that other courts – both in New York and elsewhere – had found that “successive policy limits may be cumulatively applied to a single loss, where the policies do not clearly provide otherwise.”  Thus, the court determined that “the language of the policies in question determines whether policies that cover injuries caused by continual exposure to dangerous conditions such as lead or asbestos can be stacked for the entire period that the injured person is exposed to that dangerous condition.”  Although the Vermont policies did not specifically contain language disregarding the number of policies involved, as was the case inHiraldo, the district court rejected Hanover’s argument that the omission of that specific language was determinative.  Rather, the court concluded that the policy at issue “clearly limits liability to the policy limits for any one occurrence, and limits the definition of occurrence to include ‘continuous or repeated exposure to substantially the same general conditions[.]’”  The district court determined that these definitions were “clear and unambiguous” and “define[d] exactly the situation that occurred in this case.”  Accordingly, the court held that the continuous exposure constituted a single ‘occurrence’ under the plain language of the insurance contract, and that the coverage available to the claimant was limited by the policy language to the coverage available in that policy.  The successive policies could not be stacked.

The Hanover decision makes sense given both the language of the policy and the way the law typically treats injuries resulting from continuous exposure.  Nevertheless, to avoid “stacking” arguments in continuous exposure cases – both from claimants and from other carriers –  prudence dictates including language specifically disregarding the number of policies involved in non-cumulation clauses.  An ounce of prevention might just avoid a pound of legal fees incurred in coverage litigation.