On April 16, the Missouri Court of Appeals for the Eastern District reinstated a jury verdict against Certain Underwriters at Lloyd’s of London for $62.5 million under various excess liability policies issued to Doe Run Resources Corporation (“Doe Run”), a lead mining and smelting company operating in St. Francois County, Missouri, related to environmental remediation efforts by the company. The decision is noteworthy as it represents a new statement of Missouri law on “all sums” versus “pro rata” allocation of multiple policy years’ coverage, and a reversal of this court’s prior position on the issue.
Prior to trial, the court granted summary judgment in favor of Lloyd’s on its argument that there was no coverage for three of the six mining sites, which were not in operation during the policy periods implicated by Doe Run’s claims. Notwithstanding this ruling, the jury was provided a verdict form to assess damages for all six mining sites, and did find in Doe Run’s favor on all six. The jury also returned a verdict for vexatious refusal to pay on each of the sites. The court reduced the jury’s verdict based upon its prior rulings, to $5 million. Both sides appealed. The Eastern District Court of Appeals reversed the trial court’s rulings in favor of Lloyd’s, and reinstated the $62.5 million jury verdict against the underwriters.
ALL SUMS VERSUS PRO RATA COVERAGE
The “all sums” dispute arises in the context of liabilities for which there is a long latency period, typically toxic tort or environmental clean-up cases, in which liability-provoking events occurred in multiple policy periods. It is not unusual for insurance policies, particularly historic ones, to provide coverage for “all sums which the insured shall become legally obligated to pay as damages” resulting from a covered occurrence within the policy period.
The policyholder’s argument for “all sums” coverage is that the policyholder should be able to choose any policy period in which there was a covered occurrence or covered wrongful act, and exhaust all coverage available under policies applying to that time frame, without regard to other policies that might provide coverage. The theory is that the entirety of the damages are part of the “all sums” covered by the selected policies, and that the insured’s “reasonable expectation” is that any given policy will provide coverage, up to its limits, for “all sums” resulting from the covered occurrence or acts. Under “all sums” treatment of claims, “when multiple policies are triggered to cover the same loss, each policy provides indemnity for the insured’s entire liability, and each insurer is jointly and severally liable for the entire claim.” Rubenstein v. Royal Ins. Co., 694 N.E.2d 381, 388 (Mass. App. Ct. 1998). While “all sums” is deemed to be the majority rule, fewer than a dozen states have specifically applied this doctrine.
“Pro rata” coverage is the alternate approach to coverage. Most courts that employ the “pro rata” approach allocate an insurer’s indemnity obligations on a pro rata basis by the insurer’s time on the risk. For example, if an insurer has a six-year period of coverage and the exposure period is thirty years, the insurer would be responsible for one-fifth of the damages, up to the limits of its policies. Alternately, some courts apply pro rata based upon each insurer’s respective percentage of the total available limits. See Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994).
With respect to our local jurisdictions, Kansas has rejected “all sums” and adopted a pro rata approach based on time on the risk. Atchison, Topeka & Santa Fe Ry. Co. v. Stonewall Ins. Co., 71 P.3d 1097 (Kan. 2003). Illinois accepts the “all sums” approach (Zurich Ins. Co. v. Raymark Indus. Inc., 514 N.E.2d 150 (Ill. 1987)), but there is a split amongst the intermediate appellate courts as to whether there should be pro rata allocation before reaching excess policies where there are time periods in which the claimant was uninsured or self-insured. Cf. Outboard Marine Corp. v. Liberty Mut. Ins. Co., 283 Ill.App.3d 630, 642, 670 N.E.2d 740 (Ill. App. 2d Dist. 1996) (pro rata required) and Caterpillar, Inc. v. Century Indem. Co., 2011 WL 488935 (Ill. App. 3d Dist. Feb. 1, 2011) (all sums required).
CHOICE OF LAW
Lloyd’s sold excess insurance policies to Doe Run covering policy years 1952-61. During this time frame, Doe Run was headquartered in New York City and had mining operations in several states. Lloyd’s Reply Brief, 2013 WL 1614613, *1. Doe Run’s broker was located in New York. Id. The trial court found that New York law governed. Choice of law was critical to this case, because New York does not accept the “all sums” approach, instead applying pro rata allocation. See Mt. McKinley Ins. Co. v. Corning, Inc., No. 602454/02 (N.Y. Supreme Ct. Sept. 7, 2012).
The Court of Appeals reversed on this issue, finding that the six mining sites at issue were located in Missouri, and that this being the “location of the risk,” Missouri law should apply. This appears to be a strained interpretation of choice of law rules. At the time the policies were issued, in New York, they covered Doe Run’s world-wide risks, including mining operations located in New York, Pennsylvania, Texas, Montana, Louisiana, Missouri, and foreign countries including Canada, Algeria, Morocco, Argentina, and Peru. Lloyd’s Reply Brief, 2013 WL 1614613, *1, *25. Lloyd’s attempted to distinguish these policies from those discussed in Crown Center Redevelopment Corp. v. Occidental Fire & Cas. Co., 716 S.W.2d 348 (Mo. App. W.D. 1986), in which each insured risk site was specifically identified in the policy, because the Doe Run policies did not specifically identify any particular Missouri sites of operations, just Doe Run’s general corporate operations world-wide. Lloyd’s Reply Brief, 2013 WL 1614613, *25. We tend to agree with Lloyd’s that the Court’s finding that Missouri had the “most significant relationship” with the policies is strained.
DOE RUN REVERSES EASTERN DISTRICT COURT OF APPEALS’ PRIOR HOLDING ON PRO RATA ALLOCATION
The Doe Run case is notable because it marks the first Missouri case to apply “all sums with stacking,” a doctrine being pioneered in California, as well as being a reversal of this very court’s prior application of pro rata allocation. See Continental Cas. Co. v. Med. Protective Co., 859 S.W.2d 789, 792 (Mo. App. E.D. 1993) (“Where the loss is caused not by a single event but by a series of cumulative acts or omissions, we believe the fair method of apportioning the loss among consecutive insurers is by application of the ‘exposure theory’ utilized in cases of progressive disease such as asbestosis. . . . Recognizing that words such as ‘bodily injury’ and ‘occurrence’ as used in typical insurance policies covering an accident or common disease, become inherently ambiguous when applied to a cumulative, progressive disease, the court held that proration of the loss among consecutive insurers should be based upon the period each was exposed to potential liability”). The Doe Run opinion does not reference this decision or explain its departure from the court’s earlier approach.
As the Missouri Supreme Court has not yet ruled on “all sums” versus “pro rata” allocation, the only case law on “all sums” versus pro rata allocation is two conflicting opinions from the same intermediate court of appeals. There are additional interesting issues presented by Lloyd’s appeal, including the arguments regarding vexatious refusal to pay, particularly in light of the unsettled state of Missouri law on “all sums” versus pro rata and this very court’s prior ruling in support of pro rata allocation. We expect that Lloyd’s will pursue transfer to the Supreme Court, and will update with any news on that front.