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Missouri Awards “All-Sums” for Nooter’s Long-Tail Liability
Posted in Environmental

In late 2017, in a move favoring policyholders, the Missouri Court of Appeals for the Eastern District applied the “all-sums” approach to allocating and exhausting insurance coverage for a continuous asbestos harm in Nooter Corp. v. Allianz Underwriters Ins. Co., 536 S.W.3d 251 (Mo. App. 2017). Although Nooter has sparked significant chatter in the insurance world, Lathrop Gage is dedicated to educating its clients on what Nooter means to you.

In Nooter, plaintiff Nooter Corporation was in the business of designing, installing, and distributing pressure vessels for refiners and chemical plants. Some of Nooter’s sites had become contaminated with asbestos over the course of many years, and Nooter began receiving claims for asbestos-related bodily injuries in the late 1990s. Nooter sued eight of its excess insurers for coverage spanning from 1949 to 1985 to cover the defense costs and liabilities associated with defending these claims. One of the many battles taken up by the parties at the trial court was, assuming the policies were triggered, whether the court should allocate the losses among the insurance companies using the “all sums” approach or the “pro-rata” approach, the two leading methods of allocation in American courts. The trial court applied the “all sums” approach, and the excess insurers appealed. The Missouri Court of Appeals affirmed the trial court on this issue and the Missouri Supreme Court subsequently denied the insurers’ appeal.

So what is the “all sums” approach to allocation and exhaustion and why does it matter?

Many companies, just like Nooter, are facing claims or allegations of different types of “long-tail” liabilities, i.e. allegedly continuous or escalating damage over a range of time and implicating several policies and insurance companies. Examples of long-tail liabilities include asbestos claims (like in Nooter), mass products litigation, or toxic tort. Because the damage cannot be traced to a single incident or event, it can be difficult to identify which policies are implicated, and even more difficult, how the losses will be allocated among the insurers.

Many insurers, like the insurers in Nooter, advocate for a “pro-rata” approach to allocation of losses. Under this theory, losses are allocated proportionally across all triggered policies for each year of damage or exposure, and accordingly, policies are exhausted “horizontally” across each layer of coverage. However, the policyholder would be responsible for any losses that are apportioned to an uninsured or under-insured year of exposure.

In contrast, the “all-sums” approach essentially makes the insurers’ liability to the policyholder joint and several. The result is that the policyholder is entitled to select a triggered policy, exhaust the policy completely, and move onto the next, regardless of whether the losses actually occurred during that policy period. The insurers are then left to allocate the losses between themselves by seeking contributions from each other. This is consistent with the theory of “vertical exhaustion,” i.e. policies are exhausted up the stack of coverage.

Nooter is part of a growing trend of courts applying the “all sums” theory of allocation and exhaustion. The approach has received significant consideration since the New York Court of Appeals’s 2016 decision in Viking Pump[1], and the trend does not appear to be slowing down.[2] In addition, early last month a federal judge sitting in the Eastern District of Missouri held that Nooter required application of the “all sums” theory to long-tail liabilities in Missouri. Zurich American Insurance Co. v. Ins. Co. of N. America, No. 4:14 CV 1112 CDP, 2018 U.S. Dist. LEXIS 77061 (E.D. Mo. May, 8, 2018). While the court had previously predicted that the Missouri Supreme Court would apply the “pro rata” approach, it reversed its prior ruling because post-Nooter it was clear that “the Missouri Supreme court would apply an ‘all sums’ method to allocate the [] loss.” Id. at *14.

While application of the “all sums” doctrine is no guaranty, the Nooter decision shows Missouri’s willingness to apply the “all sums” doctrine in appropriate scenarios. The Lathrop Gage insurance recovery team is willing and able to assist you as you navigate the intricacies of your post-Nooter, insurance recovery needs.

[1] In the Matter of Viking Pump, Inc. and Warren Pumps, LLC Insurance Appeals, 52 N.E.3d 1144 (N.Y. 2016)

[2] See ALI’s Proposed Final Draft of the Restatement of Law, Liability Insurance, § 41 cmt. d, and recognizing a “split of authority regarding the allocation rule.”

 

The information contained in this document is provided to alert you to legal developments and should not be considered legal advice. It is not intended to and does not create an attorney-client relationship. Specific questions about how this information affects your particular situation should be addressed to one of the individuals listed. No representations or warranties are made with respect to this information, including, without limitation, as to its completeness, timeliness, or accuracy, and Lathrop Gage shall not be liable for any decision made in connection with the information. The choice of a lawyer is an important decision and should not be based solely on advertisements.

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  • Taryn A. Nash
    Associate

    Taryn Nash focuses her practice on business litigation, serving clients in a variety of areas including complex commercial litigation, First Amendment, Open Records/Sunshine Law, nuisance claims, insurance recovery and more ...

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Lathrop GPM is one of the largest law firms in the United States representing policyholders, providing policyholders with the necessary guidance and legal counsel to handle everything from negotiating coverage and managing risk to litigating insurance disputes and recovery. The Road to Insurance Recovery blog is dedicated to helping readers better understand and manage the complexities of the modern business insurance policy.
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