On certified questions from the United States District Court for the District of New Hampshire, the New Hampshire Supreme Court has decided that New Hampshire will allocate liability for long-tail environmental claims pro rata by years and limits among triggered policies. See EnergyNorth Natural Gas, Inc. v. Certain Underwriters at Lloyd’s, No. 2006-745 (N.H. Oct. 18, 2007).
EnergyNorth Natural Gas, Inc. (“EnergyNorth”) is the successor to a company that operated a manufactured gas plant in Manchester from 1852 to 1952. In 2000, New Hampshire environmental officials determined that plant operations had polluted the surrounding soil and groundwater, and ordered EnergyNorth to perform site remediation. Seeking insurance coverage for its costs, EnergyNorth filed a declaratory judgment action in federal court against its liability carriers from 1939 to 1986. As the federal litigation progressed, all of the insurers except American Reinsurance Company (“American Re”) settled with EnergyNorth.
American Re provided third-level excess coverage to one of EnergyNorth’s predecessors from January 1, 1972 to January 1, 1973. As it explained in its brief, American Re declined to settle because “[EnergyNorth] has never contended that even its highest estimate of damages at the site would be remotely sufficient to exhaust the underlying limits if allocated pursuant to any form of pro rata allocation.” Id. at *12. In an earlier case addressing EnergyNorth’s site cleanup responsibilities, the New Hampshire Supreme Court endorsed a continuous trigger for long-tail environmental claims, but the Court had not yet taken a position on joint and several liability versus pro rata allocation among triggered policies. See EnergyNorth Natural Gas v. Underwriters at Lloyd’s, 150 N.H. 828, 835-36 (2004). With no state law to guide a determination of whether the pro rata allocation advocated by American Re was appropriate, the federal court certified four questions to the New Hampshire Supreme Court, including:
1. When an insurance policy is triggered by the continuous migration of toxic waste that began before coverage commenced and continued after coverage ended, and the evidence will not permit a determination as to when specific property damage occurred, is the insurer jointly and severally liable for all of the resulting property damage up to the limits of the policy?
2. If the answer to question one is no, how should the insurer’s share of any liability be determined?
The New Hampshire Supreme Court Decision
The New Hampshire Supreme Court surveyed the decisions from other courts faced with similar questions, and found that joint and several liability, where “any policy on the risk for any portion of the period in which the insured sustained property damage or bodily injury is jointly and severally obligated to respond in full, up to its policy limits, for the loss,” has become the minority position. EnergyNorth Natural Gas, Inc. v. Certain Underwriters at Lloyd’s, No. 2006-745, at *6. Instead, most recent decisions have endorsed some form of pro rata allocation, which “focuses on the definitions of ‘occurrence,’ ‘bodily injury’ and ‘property damage,’ when read in conjunction with the ‘Insuring Agreement,’ to require the allocation of loss to a particular policy be proportionate to the damage suffered during that policy’s term.” Id. at *7.
The Court went on to describe the two primary means of apportioning liability on a pro rata basis: pro-ration by years and pro-ration by years and limits. Under pro-ration by years, “a court calculates a fraction — with the number of years during which the injury occurred as the denominator and the number of years of coverage provided by an insurance policy period as the numerator. Based on this fraction, each policy period would then be assigned its fractional share of the total liability.” Id. at *7-8; see also Ins. Co. North America v. Forty-Eight Insulations, 633 F.2d 1212,1225 (6th Cir. 1980). Under pro ration by years and limits, “an insurer’s proportionate share is established by dividing its aggregate policy limits for all the years it was on the risk for the single, continuing occurrence by the aggregate policy limits of all the available policies and then multiplying that percentage by the amount of indemnity costs.” Id. at *8; see also Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974, 993-94 (N.J. 1994).
After surveying the law, the New Hampshire Supreme Court announced that it was “persuaded by the reasoning of the New Jersey Supreme Court [in Owens-Illinois, supra] and therefore adopt[ed] a pro rata approach to allocating liability among multiple insurers in the instant case.” Id. at *11. The Court explained that it found pro rata allocation superior to joint and several allocation because it is more consistent with the continuous trigger it had adopted previously for long-tail environmental claims. Furthermore, the Court found that public policy favors pro rata allocation because it “forces companies to internalize 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.” Id. Finally, the Court rejected joint and several liability as “improvident” because it “merely postpones” allocation until the inevitable contribution suit between insurers. Id. at *12.
Thus, although the dispute between EnergyNorth and American Re was resolved by any method of pro rata allocation, the Court went on to note in dicta that “in future cases, trial courts should, where practicable, apply the pro-ration by years and limits method described in Owens-Illinois . . . If pro rating liability by years and limits is not feasible, trial courts should pro rate by years.” Id. at *13; see also, Owens-Illinois, supra; Carter-Wallace v. Admiral Ins., 712 A.2d 1116 (N.J. 1998).
New Hampshire’s well-reasoned endorsement of pro rata allocation among insurers is a significant development for insurers, and further establishes that joint and several allocation is rapidly becoming the minority position. The jurisdictions still favoring joint and several allocation are: the District of Columbia, Delaware, Illinois, Massachusetts, Ohio, Texas and Washington. See Keene Corp. v. Ins. Co. of North America, 667 F.2d 1034, 1050 (D.C. Cir. 1981), Hercules, Inc. v. AIU Ins. Co., 784 A.2d 481, 489-91 (Del. 2001), Benoy Motor Sales, Inc. v. Universal, 679 N.E.2d 414, 418 (Ill. App. Ct.), appeal denied, 686 N.E.2d 1148 (Ill. 1997), Rubenstein v. Royal Ins. Co. of America, 694 N.E.2d 381, 388 (Mass. App. Ct. 1998), aff’d in part on other grounds, 708 N.E.2d 639 (Mass. 1999), Goodyear Tire & Rubber v. Aetna Cas. & Sur., 769 N.E.2d 835, 840-41 (Ohio 2002), American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 855 (Tex. 1994), Am. Nat’l v. B & L Trucking, 951 P.2d 250, 256-57 (Wash. 1998).