In a matter of first impression, the New Hampshire Supreme Court recently held that a pro rata allocation method, as opposed to a joint and several approach, should be applied in an environmental coverage action for purposes of allocating long-term pollution damage among multiple triggered insurance policies. EnergyNorth Natural Gas, Inc. v. Certain Underwriters at Lloyd's, No. 2006-745 (N.H. Oct. 18, 2007).
EnergyNorth brought a declaratory judgment and breach of contract action against various insurance companies to recover costs in connection with environmental damage caused by the operations of a natural gas plant in New Hampshire. The various policies implicated by EnergyNorth's lawsuit covered the period of 1939-1986. EnergyNorth ultimately settled the dispute with every insurance carrier except one, an insurer that provided EnergyNorth with excess coverage for the period of 1/1/72-1/1/73. While the parties agreed that a covered loss had occurred during that insurer’s policy period, they disagreed as to the manner in which such losses should be allocated among the various policies in effect during the relevant period.
EnergyNorth argued that the language of the policy at issue required that the court employ a joint and several liability method to allocate its coverage and indemnity obligations. Under that method, any policy on the risk for any portion of the period in which EnergyNorth sustained damages would be jointly and severally obligated to respond to the loss up to its full policy limits. The insurer, as well as several other insurers filing amicus briefs, contended that the policy language mandated a pro rata allocation approach. Under this method, a certain portion of the loss sustained by EnergyNorth would be allocated to each triggered insurance policy based on the damage suffered to the insured during each policy period.
Relying on the New Jersey Supreme Court's seminal decision in Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974, 993-94 (N.J. 1994), the court adopted a pro rata allocation methodology for the EnergyNorth loss. The court found this methodology superior to joint and several liability, as the pro rata approach guarantees "that all of the carriers on the risk during [the] long-tail environmental exposure injury respond to it” and "internalize[s] part of the costs of long-tail liability and creates incentives for companies to minimize environmental carelessness by not permitting a policyholder who chooses not to be insured for part of the long-tail injury period to recover as if the policyholder had been fully covered for that period."
Notably, the court did not consider whether it should pro-rate the insurer’s liability based upon years on the risk only, or by years and limits, since EnergyNorth's claims for coverage under the relevant policy were defeated under either formula. However, the court did note that New Hampshire courts should apply the latter approach to future decisions on this issue, if possible, adopting the formula set forth in Owens-Illinois.