First Circuit Asks Massachusetts SJC To Resolve Allocation Dispute

Posted on June 20, 2008 by Mike Aylward
Last winter, I posted on an oral argument in the First Circuit that presented significant implications for the future of long tail coverage disputes in Massachusetts. Well, be careful what you ask for. In a momentous new opinion, the First Circuit declared that last week that intermediate state appellate opinions were not a clear indicator of what Massachusetts law is on “allocation” and has therefore certified the issue to the state’s Supreme Judicial Court.


At issue in Boston Gas Co. v. Century Indemnity Co., No. 07-1452 (1st Cir. June 10, 2008) was a jury’s award of $6 million to a gas utility for the cost of cleaning up a former production facility in Everett, Massachusetts. Despite the fact that the site was operated from 1908 to 1969, the District Court instructed the jury that Boston Gas could assign its entire loss to an individual policy issued by Century Indemnity’s predecessor and need only pay a single $100,000 SIR.. Additionally, Judge Zobel issued a declaration that Century was liable for all future cleanup costs.

On appeal, the First Circuit expressed perplexity with respect to whether Massachussets law allows such “all sums” recoveries or would require some sort of allocation. The court was not persuaded that the Appeals Court’s 1998 opinion in Rubenstein, which the District Court had relied on, was particularly persuasive, describing the Appeals Court’s analysis as “cursory.”
As a result, the First Circuit has certified three allocation questions to the Supreme Judicial Court:

1. Should long tail losses be pro rated in some manner among all insurers “on the risk” so that the sued carrier is only liable for its fractional share?

2. If some sort of pro rata liability is called for in such circumstances, what allocation method or formula should be sued?

3. If a single insurer in such circumstances is subject to liability under more than one policy and each policy has a separate deductible or self-insured retention, how many self-insured retentions must be applied?

It will be interesting to see how these issues are briefed to the SJC and, in particular, whether the court will be asked to hold that allocation should be done on a “pure time on the risk” basis (back to 1908) or merely, as the First Circuit suggests, among the period of available insurance policies. The distinction may not matter much to Century Indemnity, given the fact that, as in Con Ed many years ago, the insured had SIRs in all of the applicable policies, but it will surely have major implications in other cases in the future.

Tags: , , , , , ,