Massachusetts Court Considers Fate of Allocation Disputes
The fate of dozens of major Massachusetts environmental and other long-tail insurance coverage disputes now hangs in the balance as the Supreme Judicial Court takes up the issue of whether insurers are only responsible for an allocated share of these multi-year losses.
On January 8, the SJC heard oral argument in the matter of Boston Gas Co. v. Century Indemnity. At trial, a federal district court jury in Boston had found that Century Indemnity was required to indemnify Boston Gas for $6.2 million in clean up costs under its 1966-69 policy despite the fact that the pollution had occurred on a continuous basis since the opening of the site in 1908. Following certification by the U.S. Court of Appeals for the First Circuit, the case was taken up by the Supreme Judicial Court on the issue of allocation.
The Boston Gas case has attracted considerable amicus attention, not least because this is the first time that the SJC has addressed allocation issues, having expressly declined to rule on the issue in several earlier pollution and asbestos cases.
While there is considerable risk in predicting the outcome of an appeal based on the questions asked by the justices during oral argument, it must be observed that the overall tone of the argument seemed to favor the insurer’s arguments for pro rata allocation. In particular, the SJC appears to be viewing these issues on a clean slate and is giving little weight to the two intermediate appellate rulings (Rubenstein and Chicago Bridge) that policyholders have relied on over the past decade in persuading trial courts to impose coverage on a “joint and several” or “all sums” basis.
At the outset of oral argument, Justice Margot Botsford asked counsel for Century Indemnity (Guy Cellucci) where in the record there was any evidence that the pollution had commenced in 1908. She noted that the instruction to the jury and the jury’s finding had only concerned pollution during the Century Indemnity policy period (1951 and 1969). Cellucci responded that there was expert testimony for both parties that pollution had begun contemporaneously with the operation of the site.
Justice Botsford, who took an unusually active role in the argument, inquired whether the policy language that the Appeals Court had considered in Chicago Bridge had involved a different form (London Market) and different policy wordings. Cellucci agreed and stated that, in fact, the wording in the INA policies at issue here correspondence to the line of Illinois insurance cases where courts had applied allocation as opposed to the Chicago Bridge-type wordings that had found for “all sums.”
Indeed, Cellucci noted that the words “all sums” did not appear in the INA policy. Justice Robert Cordy archly observed that he hoped that the insurer’s argument did not hinge solely on that consideration. Cellucci responded that it was only a “minor point” but that it did bear observing that a policyholder could hardly have a reasonable expectation of coverage in the absence of policy wordings to support such an expectation.
Cellucci contended that Massachusetts jurisprudence requires that policy wordings be read together as a whole and not to the exclusion of one term or another. In this case, he argued that the “during the policy period” language clearly limited any insurer’s obligations to those damages attributable to loss during the stated policy period. Judge Botsford observed, on the other hand, that the policy wording was not necessarily all that clear.
Chief Justice Margaret Marshall inquired whether, given the $17 million limit in its 1966-69 policy, only Century Indemnity was on the hook for the insurance cleanup costs. Cellucci stated that this was the case and that the effect of this was to require Century Indemnity to sue other insurers for contribution. Botsford observed that in this event, the other insurers would surely argue that the claims against them were barred in light of settlements.
Justice Spina spoke up for the first time at that point noting that because “all sums” was based in part on the theory of joint and several liability, such claims might be barred by the Massachusetts statute governing claims against tortfeasors. Cellucci appeared to be confused on this point indicating that the issue was not tort law but the meaning of the insurance policies. Spina observed however that, “Any such construction of ‘all sums’ would become ‘muddied up’ by the introduction of joint tortfeasor concepts.”
Returning to his theme, Cellucci argued that the SJC should follow the approach of Massachusetts’ sister states in adopting pro rata allocation. He also emphasized that the issue had not been fully developed in Rubenstein or Chicago Bridge and, indeed, had barely been addressed by the trial court in Rubenstein (at this point, Justice Botsford, who was the trial judge of Rubenstein, appeared to nod her head vigorously).
Justice Spina asked what effect pro rata allocation would have on periods where there was no insurance. Cellucci responded that the policyholder would bear responsibility for periods of self-insurance as it had chosen not to buy insurance.
Justice Cordy wondered how allocation would spread loss and, in particular, whether the insured would be forced to pay a full retention for each triggered year. This led to a discussion of what the “occurrence” was. Justice Spina expressed the view that the reasonable expectation of the parties probably required payment of a separate retention per year. Cordy suggested that there might be other ways of assigning risk so that the insured only paid one full SIR.
Cordy commented that at some level there was a “fictional element” in all of the proposals and the only question was “how much fiction and which fiction we elect to adopt.”
Arguing for Boston Gas, David Elkind urged the Court to simply apply the wording of the policies. Justice Marshall archly responded that he could get at least six votes for this proposition but that the problem was somewhat more complicated than this simple statement. Elkind argued that Century Indemnity was conflating the concepts of “trigger” and “scope” and that the question with respect to “during the policy period” was not whether the policy responded but how much would be paid.
Botsford asked Elkind how he dealt with the “to which this policy applies” language in the policy. Elkind responded that this language dealt with other aspects of the policy and took note of the fact that the Century Indemnity policy contained provisions allocating defense costs but not indemnity. He also argued that since these were liability policies, coverage should track the nature of the insured’s liability.
Justice Cordy inquired whether the language in question was similar to the Century Indemnity policy that the New Hampshire Supreme Court had examined in its pro-insurer analysis in EnergyNorth v. Century Indemnity. Elkind was forced to concede this but suggested that most other states that had considered similar language had adopted an “all sums” approach. Justice Cordy took issue with him on this point and appeared to reject any suggestion that decisions such as Consolidated Edison involved principles of law differing from those applying to Massachusetts.
Justice Marshall took note of the fact that the policies in question were issued in the 1950s and 1960s and pre-dated the long-tail liabilities that have since emerged as the result of asbestos litigation and the adoption of statutes such as CERCLA. She wondered whether, outside of the long-tail claim situation, any business would have expected to obtain coverage in the manner proposed by Boston Gas.
A colloquy ensued with respect to the effect of “occurrence” language. Botsford asked whether the occurrence could take place during the policy period. Elkind responded that the “occurrence” was the causative event and not necessarily the continuing property damage. Botsford wondered whether separate wells that leaked on the site might still be one “occurrence.” Elkind agreed, noting the “conditions” language in the policy.
Botsford next raised a question with respect to the scope of the contra proferentum doctrine and asked whether the policies were manuscripted. Elkind responded that although these were not standard wordings there was no evidence of joint negotiation and it appeared that any manuscripted wording had solely been presented by INA.
Justice Spina broke in wondering “what the point” was since any resolution on the terms proposed by Boston Gas would merely necessitate a second round of complex and lengthy litigation between its insurers to resolve the issues of allocation. Elkind responded that it was not appropriate for the Court to worry about the equities of the situation and that it should solely interpret the wording of the policy.
Botsford also wondered what remedy was available to Century Indemnity. Elkind responded that it had substantial reinsurance for the amounts that it paid that might well entirely take care of its loss and that otherwise it was entitled to pursue claims for contribution and would in any event receive a set-off for settlements with the other insurers. Justice Cowin, who had been entirely silent up to that point, wondered whether Century Indemnity agreed that it had these rights. Justice Botsford noted that there would in any event be a fight about allocation in any subsequent ensuing contribution proceedings.
Wrapping up, Elkind argued that pro rata allocation should not be adopted and that in any event the extreme version proposed by Century Indemnity had only to date been followed by one state (Minnesota) and need not be followed here. Additionally, he argued that at most Boston Gas should be responsible for a single self-insured retention for the entire period of coverage.
Justice Ireland asked no questions throughout the argument. Justice Gants did not participate in the oral argument as his nomination to the SJC has not been approved by the Governor’s Council. He may yet participate in the decision, however, if his nomination is approved in January, as expected.
Based on the justices' questioning, the court does not seem satisfied with the insured's theories of "all sums" or "joint and several" liability. On the other hand, they also do not feel that the policy wordings at issue are necessarily clear as applied to such claims. It remains to be seen whether the SJC will follow the lead of the New Jersey Supreme Court in developing extra-contractual rules for allocating long-tail losses or will find ambiguity due to the lack of clear policy wordings. It is also unclear whether the court will adopt a broad standard for resolving future disputes or will simply deal with the crucial threshold question of whether allocation should be permitted to uninsured periods, leaving issues such as "collapsing bathtubs" and the like for future cases.
A decision is expected by April or May.
