dallas-#936861-v1-rbc vertical exhaustion webinar ... exhaustion pp.pdfonebeacon’s indemnity...

VERTICAL EXHAUSTIONVERTICAL EXHAUSTIONR. Brent CooperR. Brent CooperJulie ShehaneJulie Shehane

Robert J. WitmeyerRobert J. WitmeyerCooper & Scully, P.C.Cooper & Scully, P.C.

900 Jackson Street, Suite 100900 Jackson Street, Suite 100Dallas, TX 75202Dallas, TX 75202

Telephone: 214Telephone: 214--712712--95019501Telecopy: 214Telecopy: 214--712712--95409540

©© 2014 This paper and/or presentation provides information on gen2014 This paper and/or presentation provides information on general legal issues. It is not intended to provide advice on anyeral legal issues. It is not intended to provide advice on any specific legal matter or factualspecific legal matter or factualsituation, and should not be construed as defining Cooper and Scsituation, and should not be construed as defining Cooper and Scully, P.C.'s position in a particular situation. Each case mustully, P.C.'s position in a particular situation. Each case must be evaluated on its own facts.be evaluated on its own facts.This information is not intended to create, and receipt of it doThis information is not intended to create, and receipt of it does not constitute, an attorneyes not constitute, an attorney--client relationship. Readers should not act on this informationclient relationship. Readers should not act on this informationwithout receiving professional legal counsel.without receiving professional legal counsel.

APIE v. GARCIAAPIE v. GARCIA

1994 TEXAS SUPREME COURT1994 TEXAS SUPREME COURT

MEDICAL MALPRACTICE CASEMEDICAL MALPRACTICE CASE

FROM 1980 TO 1982 DR. GARCIAFROM 1980 TO 1982 DR. GARCIAPRESCRIBED HALDOL AND NAVANEPRESCRIBED HALDOL AND NAVANE

ALLEGED TO HAVE CAUSED TARDIVEALLEGED TO HAVE CAUSED TARDIVEDYSKINESIADYSKINESIA

1980 ICA $100K OCCURRENCE1980 ICA $100K OCCURRENCEPOLICYPOLICY

19811981--82 ICA $500K OCCURRENCE82 ICA $500K OCCURRENCEPOLICIESPOLICIES

APIE v GARCIAAPIE v GARCIA

1983 APIE $500K CLAIMS MADE1983 APIE $500K CLAIMS MADEPOLICYPOLICY

1983 NOTICE OF CLAIM SENT1983 NOTICE OF CLAIM SENT

JULY 1985 SETTLEMENT DEMANDJULY 1985 SETTLEMENT DEMANDFOR $100K ICA LIMIT AND $500FOR $100K ICA LIMIT AND $500APIE; LATER INCREASED TO $1.1MAPIE; LATER INCREASED TO $1.1MAND $1.6MAND $1.6M

$2.2M JUDGMENT$2.2M JUDGMENT


““THETHE CONSECUTIVECONSECUTIVE POLICIES,POLICIES,COVERING DISTINCT POLICYCOVERING DISTINCT POLICYPERIODS, COULD NOT BEPERIODS, COULD NOT BE‘‘STACKEDSTACKED’’ TO MULTIPLYTO MULTIPLYCOVERAGE FOR ACOVERAGE FOR A SINGLE CLAIMSINGLE CLAIMINVOLVING INDIVISIBLE INJURYINVOLVING INDIVISIBLE INJURY..””


““IF A SINGLE OCCURRENCE TRIGGERSIF A SINGLE OCCURRENCE TRIGGERSMORE THAN ONE POLICY,MORE THAN ONE POLICY, COVERINGCOVERINGDIFFERENT POLICY PERIODSDIFFERENT POLICY PERIODS,, THENTHENDIFFERENT LIMITS MAY HAVE APPLIED ATDIFFERENT LIMITS MAY HAVE APPLIED ATDIFFERENT TIMES. IN SUCH A CASE, THEDIFFERENT TIMES. IN SUCH A CASE, THEINSUREDINSURED’’S INDEMNITY LIMIT SHOULD BES INDEMNITY LIMIT SHOULD BEWHATEVER LIMIT APPLIED AT THEWHATEVER LIMIT APPLIED AT THESINGLE POINTSINGLE POINT IN TIME DURING THEIN TIME DURING THECOVERAGE PERIODS OF THE TRIGGEREDCOVERAGE PERIODS OF THE TRIGGEREDPOLICIES WHEN THE INSUREDPOLICIES WHEN THE INSURED’’S LIMITS LIMITWAS HIGHESTWAS HIGHEST……


……THE INSURED IS GENERALLY INTHE INSURED IS GENERALLY INTHE BEST POSITION TO IDENTIFYTHE BEST POSITION TO IDENTIFYTHE POLICY OR POLICIES THATTHE POLICY OR POLICIES THATWOULD MAXIMIZE COVERAGE.WOULD MAXIMIZE COVERAGE.ONCE THE APPLICABLE LIMIT ISONCE THE APPLICABLE LIMIT ISIDENTIFIED, ALL THE INSURERSIDENTIFIED, ALL THE INSURERSWHOSEWHOSE POLICIESPOLICIES ARE TRIGGEREDARE TRIGGEREDMUST ALLOCATE FUNDING OF THEMUST ALLOCATE FUNDING OF THEINDEMNITY LIMIT AMONGINDEMNITY LIMIT AMONGTHEMSELVES ACCORDING TO THEIRTHEMSELVES ACCORDING TO THEIRSUBROGATION RIGHTS.SUBROGATION RIGHTS.””

DONDON’’S BUILDINGS BUILDING

2008 TEXAS SUPREME COURT2008 TEXAS SUPREME COURT

GL COVERAGE WITH ONEBEACONGL COVERAGE WITH ONEBEACONFROM 1993FROM 1993--9696

SUED FOR DAMAGE FROM EIFSSUED FOR DAMAGE FROM EIFSINSTALLATION ON HOMESINSTALLATION ON HOMES

SUITS CLAIMED PROPERTY DAMAGESUITS CLAIMED PROPERTY DAMAGEBEGANBEGAN ““WITHIN SIX MONTHS TOWITHIN SIX MONTHS TOONE YEAR AFTER APPLICATIONONE YEAR AFTER APPLICATION””


ALL HOMES INVOLVEDALL HOMES INVOLVEDINSTALLATION DURING ONEBEACONINSTALLATION DURING ONEBEACONPOLICIESPOLICIES

ISSUE BEFORE THE COURT WASISSUE BEFORE THE COURT WASWHAT TRIGGER THEORY TOWHAT TRIGGER THEORY TOADOPTADOPT——MANIFESTATION ORMANIFESTATION ORACTUAL INJURYACTUAL INJURY

COURT ADOPTED ACTUAL INJURYCOURT ADOPTED ACTUAL INJURYTRIGGERTRIGGER


COURT LEFT OPEN THE ISSUE OFCOURT LEFT OPEN THE ISSUE OFIMPACT OF CONTINUING INJURYIMPACT OF CONTINUING INJURY

FOOTNOTE 45FOOTNOTE 45 ““BECAUSE AS TO ALLBECAUSE AS TO ALLOF THE UNDERLYING CLAIMS, THEOF THE UNDERLYING CLAIMS, THEEIFS WAS INSTALLED DURING THEEIFS WAS INSTALLED DURING THETHREETHREE--YEAR POLICY PERIOD OF THEYEAR POLICY PERIOD OF THEONEBEACON POLICIES,ONEBEACON POLICIES, SEE SUPRASEE SUPRANOTE 2 AND ACCOMPANYING TEST,NOTE 2 AND ACCOMPANYING TEST,


THIS CASE DOES NOT REQUIRE ANTHIS CASE DOES NOT REQUIRE ANANALYSIS OF COVERAGEANALYSIS OF COVERAGEQUESTIONS IN CIRCUMSTANCESQUESTIONS IN CIRCUMSTANCESWHERE PROPERTY DAMAGEWHERE PROPERTY DAMAGEOCCURRED IN THE COURSE OF AOCCURRED IN THE COURSE OF ACONTINUING PROCESS, BUT BEGANCONTINUING PROCESS, BUT BEGANBEFORE THE INCEPTION OF THEBEFORE THE INCEPTION OF THETERM OF THE POLICY IN ISSUE.TERM OF THE POLICY IN ISSUE.


NOR DO WE UNDERSTAND THE FIFTHNOR DO WE UNDERSTAND THE FIFTHCIRCUIT TO HAVE ASKED HOWCIRCUIT TO HAVE ASKED HOWONEBEACONONEBEACON’’S INDEMNITY OBLIGATIONSS INDEMNITY OBLIGATIONSARE DETERMINED IF THE FACTSARE DETERMINED IF THE FACTSULTIMATELY SHOW THAT THE PROPERTYULTIMATELY SHOW THAT THE PROPERTYDAMAGE BEGAN DURING THEDAMAGE BEGAN DURING THEONEBEACON POLICY PERIOD BUTONEBEACON POLICY PERIOD BUTCONTINUED BEYOND THAT PERIOD,CONTINUED BEYOND THAT PERIOD,PERHAPS INTO PERIODS COVERED BYPERHAPS INTO PERIODS COVERED BYOTHER POLICIES.OTHER POLICIES.


WE EXPRESS NO OPINION ON THESEWE EXPRESS NO OPINION ON THESEQUESTIONS,QUESTIONS, BUT SEEBUT SEE AM.AM.PHYSICIANSPHYSICIANS’’S INS. EXCH. VS INS. EXCH. VGARCIA, 876 S.W.2D 842, 855 (TEX.GARCIA, 876 S.W.2D 842, 855 (TEX.1994)1994)


((““IF A SINGLE OCCURRENCEIF A SINGLE OCCURRENCETRIGGERS MORE THAN ONE POLICYTRIGGERS MORE THAN ONE POLICY. . . ALL INSURERS WHOSE POLICIES. . . ALL INSURERS WHOSE POLICIESARE TRIGGERED MUST ALLOCATEARE TRIGGERED MUST ALLOCATEFUNDING OF THE INDEMNITY LIMITFUNDING OF THE INDEMNITY LIMITAMONG THEMSELVES ACCORDINGAMONG THEMSELVES ACCORDINGTO THEIR SUBROGATION RIGHTS.TO THEIR SUBROGATION RIGHTS.””))

LENNAR v MARKELLENNAR v MARKEL

HOMEOWNERSHOMEOWNERS’’ SUITS BASED ONSUITS BASED ONAPPLICATION OF EIFSAPPLICATION OF EIFS

ALL INSURERS DENIED COVERAGEALL INSURERS DENIED COVERAGE

LENNAR REPLACED EIFS ON SOMELENNAR REPLACED EIFS ON SOME465 HOMES THAT SUSTAINED465 HOMES THAT SUSTAINEDWATER DAMAGEWATER DAMAGE

ALL INSURERS SETTLED EXCEPTALL INSURERS SETTLED EXCEPTMARKELMARKEL


JURY FOUND FOR LENNARJURY FOUND FOR LENNAR

$2,965,114.16$2,965,114.16 ACTUAL DAMAGESACTUAL DAMAGES

$425,000.00$425,000.00 CREDIT FOR SETTLEMENTCREDIT FOR SETTLEMENTWITH OTHER INSURERSWITH OTHER INSURERS

$2,421,825.89$2,421,825.89 ATTORNEYS FEESATTORNEYS FEES

$1,227,476.03$1,227,476.03 PREJUDGMENT INTERESTPREJUDGMENT INTEREST


COURT OF APPEALS REVERSED ONCOURT OF APPEALS REVERSED ONTWO GROUNDS:TWO GROUNDS:

•• NO CONSENT TO SETTLE BY MARKELNO CONSENT TO SETTLE BY MARKEL

•• NO SEGREGATION OF DAMAGES TONO SEGREGATION OF DAMAGES TOSHOW COSTS OF REPAIR AS OPPOSEDSHOW COSTS OF REPAIR AS OPPOSEDTO COSTS TO REMOVE EIFS TO SEE IFTO COSTS TO REMOVE EIFS TO SEE IFPROPERTY DAMAGE EXISTEDPROPERTY DAMAGE EXISTED


ISSUES BEFORE SUPREME COURT:ISSUES BEFORE SUPREME COURT:

•• 1) NOT HAVING CONSENTED TO THE1) NOT HAVING CONSENTED TO THEHOMEBUILDERHOMEBUILDER’’S REMEDIATIONS REMEDIATIONPROGRAM, IS THE INSURERPROGRAM, IS THE INSURERNEVERTHELESS RESPONSIBLE FOR THENEVERTHELESS RESPONSIBLE FOR THECOSTS IF IT SUFFERED NO PREJUDICECOSTS IF IT SUFFERED NO PREJUDICEAS A RESULT?AS A RESULT?


•• 2) IS THE INSURER RESPONSIBLE FOR2) IS THE INSURER RESPONSIBLE FOR(i) COSTS INCURRED TO DETERMINE(i) COSTS INCURRED TO DETERMINEPROPERTY DAMAGE AS WELL AS TOPROPERTY DAMAGE AS WELL AS TOREPAIR IT, AND (ii) COSTS TOREPAIR IT, AND (ii) COSTS TOREMEDIATE DAMAGE THAT BEGANREMEDIATE DAMAGE THAT BEGANBEFORE AND CONTINUED AFTER THEBEFORE AND CONTINUED AFTER THEPOLICY PERIOD?POLICY PERIOD?

SETTLEMENTSETTLEMENT

CONSENT TO SETTLECONSENT TO SETTLE--

BREACH MUST BE MATERIALBREACH MUST BE MATERIAL

MATERIALITY MUST SHOWMATERIALITY MUST SHOWPREJUDICEPREJUDICE

JURY FOUND THAT MARKEL NOTJURY FOUND THAT MARKEL NOTPREJUDICED BY SETTLEMENTSPREJUDICED BY SETTLEMENTS

CONCURRENCE BY BOYDCONCURRENCE BY BOYD

QUESTIONQUESTION--WAS REAL PREJUDICEWAS REAL PREJUDICESETTLEMENT WITH OTHER INSURERSETTLEMENT WITH OTHER INSURER

PROPERTY DAMAGEPROPERTY DAMAGE

PROPERTY DAMAGE?PROPERTY DAMAGE?

•• ““AS WE HAVE EXPLAINED, WATERAS WE HAVE EXPLAINED, WATERDAMAGE FROM EIFS OCCURS WITHINDAMAGE FROM EIFS OCCURS WITHINTHE WALLS OF HOMES TO WHICH IT ISTHE WALLS OF HOMES TO WHICH IT ISAPPLIED AND THUS IS OFTEN HIDDENAPPLIED AND THUS IS OFTEN HIDDENFROM SIGHT. LENNARFROM SIGHT. LENNAR’’S EVIDENCE ATS EVIDENCE ATTRIAL WAS THAT THE EXTENT OFTRIAL WAS THAT THE EXTENT OFDAMAGE TO A HOME CANNOT BEDAMAGE TO A HOME CANNOT BEDETERMINED WITHOUT REMOVING ALLDETERMINED WITHOUT REMOVING ALLTHE EIFS.THE EIFS.


ACCORDINGLY, THE ONLY COSTACCORDINGLY, THE ONLY COSTEVIDENCE LENNAR PRESENTED WASEVIDENCE LENNAR PRESENTED WASFOR REMOVING ALL THE EIFS FROMFOR REMOVING ALL THE EIFS FROMDAMAGED HOUSES, REPAIRING THEDAMAGED HOUSES, REPAIRING THEDAMAGE, AND RECOVERING THEDAMAGE, AND RECOVERING THEHOUSE WITH CONVENTIONALHOUSE WITH CONVENTIONALSTUCCOSTUCCO……


WE HAVE NOTED THAT THE PHRASE,WE HAVE NOTED THAT THE PHRASE,““BECAUSE OFBECAUSE OF””, USED IN, USED INDETERMINING A COVERED LOSSDETERMINING A COVERED LOSSUNDER A COMMERCIAL GENERALUNDER A COMMERCIAL GENERALLIABILITY POLICY,LIABILITY POLICY, ““IS SUSCEPTIBLEIS SUSCEPTIBLETO A BROAD DEFINITION.TO A BROAD DEFINITION.”” BUT ITBUT ITNEED NOT BE READ BROADLY TONEED NOT BE READ BROADLY TOREACH ALL OF LENNARREACH ALL OF LENNAR’’SSREMEDIATION COSTS.REMEDIATION COSTS.


UNDER NO REASONABLEUNDER NO REASONABLECONSTRUCTION OF THE PHRASECONSTRUCTION OF THE PHRASECAN THE COST OF FINDING EIFSCAN THE COST OF FINDING EIFSPROPERTY DAMAGE IN ORDER TOPROPERTY DAMAGE IN ORDER TOREPAIR IT NOT BE CONSIDERED TOREPAIR IT NOT BE CONSIDERED TOBEBE ““BECAUSE OFBECAUSE OF”” THE DAMAGE. WETHE DAMAGE. WEARE NOT CONFRONTED WITH AARE NOT CONFRONTED WITH ASITUATION IN WHICH THESITUATION IN WHICH THEEXISTENCE OF DAMAGE WASEXISTENCE OF DAMAGE WASDOUBTFUL.DOUBTFUL.


MARKEL CONCEDES THAT EACH OFMARKEL CONCEDES THAT EACH OFTHE 465 HOMES FOR WHICHTHE 465 HOMES FOR WHICHLENNAR SOUGHT TO RECOVERLENNAR SOUGHT TO RECOVERREMEDIATION COSTS WASREMEDIATION COSTS WASACTUALLY DAMAGED.ACTUALLY DAMAGED.

SEGREGATIONSEGREGATION

SEGREGATION BY POLICY PERIODSEGREGATION BY POLICY PERIOD--

““ACCORDING TO THE EVIDENCE ATACCORDING TO THE EVIDENCE ATTRIAL, WATER DAMAGE FROM EIFSTRIAL, WATER DAMAGE FROM EIFSBEGINS WITHIN SIX TO TWELVE MONTHSBEGINS WITHIN SIX TO TWELVE MONTHSAFTER HOME CONSTRUCTION ISAFTER HOME CONSTRUCTION ISCOMPLETED AND CONTINUES UNTIL IT ISCOMPLETED AND CONTINUES UNTIL IT ISREPAIRED. LENNAR STOPPED USING EIFSREPAIRED. LENNAR STOPPED USING EIFSIN 1998. MARKELIN 1998. MARKEL’’S POLICY WAS INS POLICY WAS INEFFECT THROUGHOUT 1999 AND UNTILEFFECT THROUGHOUT 1999 AND UNTILOCTOBER 2000.OCTOBER 2000.


A FAIR INFERENCE FROM THE RECORD ISA FAIR INFERENCE FROM THE RECORD ISTHAT MOST OF THE DAMAGE TO THETHAT MOST OF THE DAMAGE TO THEHOMES BEGAN BEFORE OR DURINGHOMES BEGAN BEFORE OR DURINGMARKELMARKEL’’S POLICY PERIOD ANDS POLICY PERIOD ANDCONTINUED AFTERWARD. MARKELCONTINUED AFTERWARD. MARKELAGREES THAT ALL THE HOMES FORAGREES THAT ALL THE HOMES FORWHICH LENNAR CLAIMS REMEDIATIONWHICH LENNAR CLAIMS REMEDIATIONCOSTS SUSTAINED SOME DAMAGECOSTS SUSTAINED SOME DAMAGEDURING THE POLICY PERIOD, BUTDURING THE POLICY PERIOD, BUTINSISTS THAT ONLY THE COSTS FORINSISTS THAT ONLY THE COSTS FOR


REMEDIATING THE DAMAGE INREMEDIATING THE DAMAGE INEXISTENCE DURING THE POLICY PERIODEXISTENCE DURING THE POLICY PERIODARE COVERED LOSSES. LENNARARE COVERED LOSSES. LENNARCONCEDES THAT IT DID NOT ATTEMPT TOCONCEDES THAT IT DID NOT ATTEMPT TOPROVE THE SPECIFIC AMOUNT OFPROVE THE SPECIFIC AMOUNT OFDAMAGE TO EACH HOUSE DURING THEDAMAGE TO EACH HOUSE DURING THEPOLICY PERIOD BUT CONTENDS THE ITPOLICY PERIOD BUT CONTENDS THE ITWOULD BE PRACTICALLY IMPOSSIBLE TOWOULD BE PRACTICALLY IMPOSSIBLE TODO SO AND THAT THE POLICY DOES NOTDO SO AND THAT THE POLICY DOES NOTREQUIRE IT.REQUIRE IT.””


““COVERAGE UNDER MARKELCOVERAGE UNDER MARKEL’’SSPOLICY IS LIMITED TO PROPERTYPOLICY IS LIMITED TO PROPERTYDAMAGE THAT OCCURS DURING THEDAMAGE THAT OCCURS DURING THEPOLICY PERIOD BUT EXPRESSLYPOLICY PERIOD BUT EXPRESSLYINCLUDES DAMAGE FROM AINCLUDES DAMAGE FROM ACONTINUOUS EXPOSURE TO THECONTINUOUS EXPOSURE TO THESAME HARMFUL CONDITIONS.SAME HARMFUL CONDITIONS.

CONTINUING INJURYCONTINUING INJURY

““THIS READING OF THE POLICY ISTHIS READING OF THE POLICY ISCONFIRMED BY OUR DECISION INCONFIRMED BY OUR DECISION INAMERICAN PHYSICIANS INSURANCEAMERICAN PHYSICIANS INSURANCEEXCHANGE V. GARCIA. . . .EXCHANGE V. GARCIA. . . . WEWEREJECTED THE PLAINTIFFREJECTED THE PLAINTIFF’’SSSTACKING ARGUMENT, EXPLAININGSTACKING ARGUMENT, EXPLAININGINSTEAD:INSTEAD: ‘‘IF A SINGLEIF A SINGLEOCCURRENCE TRIGGERS MOREOCCURRENCE TRIGGERS MORETHAN ONE POLICY, COVERINGTHAN ONE POLICY, COVERINGDIFFERENT POLICY PERIODS,DIFFERENT POLICY PERIODS,


THEN DIFFERENT LIMITS MAY HAVETHEN DIFFERENT LIMITS MAY HAVEAPPLIED AT SUCH DIFFERENTAPPLIED AT SUCH DIFFERENTTIMES. IN SUCH A CASE, THETIMES. IN SUCH A CASE, THEINSUREDINSURED’’S INDEMNITY LIMITSS INDEMNITY LIMITSSHOULD BE WHATEVER LIMITSHOULD BE WHATEVER LIMITAPPLIED AT THE SINGLE POINT INAPPLIED AT THE SINGLE POINT INTIME DURING THE COVERAGETIME DURING THE COVERAGEPERIODS OF TRIGGERED POLICIESPERIODS OF TRIGGERED POLICIESWHEN THE INSUREDWHEN THE INSURED’’S LIMIT WASS LIMIT WASTHE HIGHEST.THE HIGHEST.


THE INSURED IS GENERALLY IN THETHE INSURED IS GENERALLY IN THEBEST POSITION TO IDENTIFY THEBEST POSITION TO IDENTIFY THEPOLICY OR POLICIESPOLICY OR POLICIES THAT WOULDMAXIMIZE COVERAGE. ONCE THEAPPLICABLE LIMIT IS IDENTIFIED,ALL INSURERS WHOSE POLICIESARE TRIGGERED MUST ALLOCATEFUNDING OF THE INDEMNITY LIMIT


AMONG THEMSELVES ACCORDINGAMONG THEMSELVES ACCORDINGTO THEIR SUBROGATION RIGHTS.TO THEIR SUBROGATION RIGHTS.’’MARKEL DISMISSES THIS AS DICTA,MARKEL DISMISSES THIS AS DICTA,BUT HAVING SAID WHAT THEBUT HAVING SAID WHAT THEPOLICY LIMITS WERE NOT, IT WASPOLICY LIMITS WERE NOT, IT WASIMPORTANT FOR US TO SAY WHATIMPORTANT FOR US TO SAY WHATTHEY WERE AND WHYTHEY WERE AND WHY””


““MARKEL ARGUES ALTERNATIVELYMARKEL ARGUES ALTERNATIVELYTHAT IT SHOULD BE RESPONSIBLETHAT IT SHOULD BE RESPONSIBLEALONG WITH LENNARALONG WITH LENNAR’’S OTHERS OTHERINSURERS ONLY FOR ITS PRO RATAINSURERS ONLY FOR ITS PRO RATASHARE OF THE TOTAL REMEDIATIONSHARE OF THE TOTAL REMEDIATIONEXPENSES.EXPENSES. GARCIAGARCIA REJECTS THISREJECTS THISAPPROACH, LEAVING UP TOAPPROACH, LEAVING UP TOINSURERS TO ALLOCATE IT AMONGINSURERS TO ALLOCATE IT AMONGTHEMSELVES ACCORDING TO THEIRTHEMSELVES ACCORDING TO THEIRSUBROGATION RIGHTS.SUBROGATION RIGHTS.””

INTERPRETATIONSINTERPRETATIONS

MIDMID--CONTINENT CAS. CO. v.CONTINENT CAS. CO. v.ACADEMY DEVELOPMENTACADEMY DEVELOPMENT –– ““MIDMID--CONTINENT CONTENDS DEFENSECONTINENT CONTENDS DEFENSECOSTS SHOULD BE APPORTIONEDCOSTS SHOULD BE APPORTIONEDPRO RATAPRO RATA ACROSS ALL FIVE OF THEACROSS ALL FIVE OF THEPOLICIES. DEFENDANTS COUNTERPOLICIES. DEFENDANTS COUNTERTHEY ARE ENTITLED INSTEAD TOTHEY ARE ENTITLED INSTEAD TOCHOOSE ANY ONE OF THE POLICIESCHOOSE ANY ONE OF THE POLICIESUNDER WHICH MIDUNDER WHICH MID--CONTINENTCONTINENT


IS TO PROVIDE A COMPLETE DEFENSE.IS TO PROVIDE A COMPLETE DEFENSE.AS STATED, THE POLICIES FOR THE LASTAS STATED, THE POLICIES FOR THE LASTTHREE YEARS CONTAINED HIGHERTHREE YEARS CONTAINED HIGHERDEDUCTIBLE AMOUNTS, AND THEDEDUCTIBLE AMOUNTS, AND THEDEDUCTIBLE ALSO APPLIED TO DEFENSEDEDUCTIBLE ALSO APPLIED TO DEFENSECOSTSCOSTS……ACCORDINGLY THE COURT DIDACCORDINGLY THE COURT DIDNOT ERR BY PERMITTING DEFENDANTSNOT ERR BY PERMITTING DEFENDANTSTO SELECT ANY ONE OF THE TRIGGEREDTO SELECT ANY ONE OF THE TRIGGEREDPOLICIES FOR THEIR DEFENSE.POLICIES FOR THEIR DEFENSE.””


LSG TECHNOLOGIES v U.S.FIRELSG TECHNOLOGIES v U.S.FIREINS.CO.INS.CO. -- ““HORIZONTALHORIZONTALEXHAUSTION CANNOT BEEXHAUSTION CANNOT BERECONCILED WITH THE HOLDING INRECONCILED WITH THE HOLDING INGARCIA.GARCIA. UNDERUNDER GARCIAGARCIA EVENEVENWHEN A SINGLE OCCURRENCEWHEN A SINGLE OCCURRENCETRIGGERS SEVERAL POLICIES,TRIGGERS SEVERAL POLICIES,CONSECUTIVECONSECUTIVE, NON, NON--OVELAPPINGOVELAPPINGPOLICIES CANNOT BE COMBINEDPOLICIES CANNOT BE COMBINED----


OR STACKEDOR STACKED——TO CREATE A POLICYTO CREATE A POLICYLIMIT THAT EQUALS THELIMIT THAT EQUALS THEAGGREGATE OF THE INDIVIDUALAGGREGATE OF THE INDIVIDUALPOLICIESPOLICIES’’ LIMITS. IT WOULD,LIMITS. IT WOULD,THEREFORE, BE INCONSISTENTTHEREFORE, BE INCONSISTENTWITH SUCH A RULE TO REQUIREWITH SUCH A RULE TO REQUIRETHAT THE LIMITS OFTHAT THE LIMITS OF CONSECUTIVECONSECUTIVE,,NONNON--OVERLAPPING BE EXHAUSTEDOVERLAPPING BE EXHAUSTEDBEFORE THE EXCESS INSURERBEFORE THE EXCESS INSURER’’SS


OBLIGATIONS ARE TRIGGEREDOBLIGATIONS ARE TRIGGERED……HORIZONTAL EXHAUSTION WOULDHORIZONTAL EXHAUSTION WOULDSERVE TO RAISE THE CAPSERVE TO RAISE THE CAPESTABLISHED IN AN INDIVIDUALESTABLISHED IN AN INDIVIDUALPOLICY IN CONTRAVENTION OFPOLICY IN CONTRAVENTION OFGARCIA.GARCIA. ADMITTEDLY, THEADMITTEDLY, THE GARCIAGARCIACASE DID NOT INCLUDE AN EXCESSCASE DID NOT INCLUDE AN EXCESSINSURER; HOWEVER, THEINSURER; HOWEVER, THE GARCIAGARCIACOURT CONTEMPLATED THATCOURT CONTEMPLATED THAT‘‘MULTIPLE POLICIES MAY PROVIDEMULTIPLE POLICIES MAY PROVIDE


AN AGGREGATE LIMIT UNDER CERTAINAN AGGREGATE LIMIT UNDER CERTAINCIRCUMSTANCES,CIRCUMSTANCES, SUCH AS IF THESUCH AS IF THEINSURED PURCHASEDINSURED PURCHASED CONCURRENTCONCURRENTEXCESS LIABILITY INSURANCEEXCESS LIABILITY INSURANCE..’…’…THETHEAGGREGATION OF CONCURRENTAGGREGATION OF CONCURRENTPOLICIES, SUCH AS A PRIMARY POLICYPOLICIES, SUCH AS A PRIMARY POLICYCOUPLED WITH AN EXCESS POLICY,COUPLED WITH AN EXCESS POLICY,COMPORTS WITH VERTICAL EXHAUSTIONCOMPORTS WITH VERTICAL EXHAUSTIONAND NOT WITH HORIZONTALAND NOT WITH HORIZONTALEXHAUSTION.EXHAUSTION.””


THE BURLINGTON INSUR. CO. v.THE BURLINGTON INSUR. CO. v.RANGER SPECIALIZED GLASSRANGER SPECIALIZED GLASS--””HOWEVER, AS THE FIFTH CIRCUITHOWEVER, AS THE FIFTH CIRCUITHAS OBSERVED,HAS OBSERVED, ““TEXAS COURTSTEXAS COURTSHAVE REJECTED THE PRO RATAHAVE REJECTED THE PRO RATAMETHOD FOR CALCULATING ANMETHOD FOR CALCULATING ANINSURERINSURER’’S DUTY TO DEFEND WHENS DUTY TO DEFEND WHENMORE THAN ONE POLICY ISMORE THAN ONE POLICY IS


TRIGGERED BY A CLAIM.TRIGGERED BY A CLAIM.”” MIDMID--CONTINENT CAS. CO. v ACAD. DEV.CONTINENT CAS. CO. v ACAD. DEV.INC. 476 F.APPINC. 476 F.APP’’X 316, 321X 316, 321--2222(FIFTH CIR. 2012)(FIFTH CIR. 2012)


TRAMMEL CROW RESIDENTIAL V.TRAMMEL CROW RESIDENTIAL V.ST. PAUL FIRE & MARINE INS.CO.ST. PAUL FIRE & MARINE INS.CO.(N.D.TEX. 2014)(N.D.TEX. 2014)

SUIT FOR DEFECTIVESUIT FOR DEFECTIVECONSTRUCTION CAUSING WATERCONSTRUCTION CAUSING WATERINTRUSION AND DAMAGE TO THEINTRUSION AND DAMAGE TO THEPREMISESPREMISES

HELD VERTICAL EXHAUSTIONHELD VERTICAL EXHAUSTION

INTREPRETATIONSINTREPRETATIONS

--HELD ONLY ONE OCCURRENCEHELD ONLY ONE OCCURRENCE(MULTIPLE LEAKS, MULTIPLE UNITS,(MULTIPLE LEAKS, MULTIPLE UNITS,MULTIPLE DEFECTSMULTIPLE DEFECTS--EVENT GIVINGEVENT GIVINGRISE TO LIABILITY WAS SALE OFRISE TO LIABILITY WAS SALE OFPROPERTY)PROPERTY)

INSURED ONLY REQUIRED TOINSURED ONLY REQUIRED TOEXHAUST ONE PRIMARY BEFOREEXHAUST ONE PRIMARY BEFOREGOING TO EXCESSGOING TO EXCESS

RULES WE KNOWRULES WE KNOW

1) IN A CONTINUING INJURY CASE,1) IN A CONTINUING INJURY CASE,THERE IS NO STACKING OFTHERE IS NO STACKING OFCONSECUTIVECONSECUTIVE POLICIESPOLICIES--””CONSECUTIVE POLICIES,CONSECUTIVE POLICIES,COVERING DISTINCT POLICYCOVERING DISTINCT POLICYPERIODS, COULD NOT BEPERIODS, COULD NOT BE““STACKEDSTACKED”” TO MULTIPLY COVERAGETO MULTIPLY COVERAGEFOR A SINGLE CLAIM INVOLVINGFOR A SINGLE CLAIM INVOLVINGINDIVISIBLE INJURY.INDIVISIBLE INJURY.”” APIEAPIE

2) STACKING IS ALLOWED FOR2) STACKING IS ALLOWED FORCONCURRENT COVERAGECONCURRENT COVERAGE--””MULTIPLEMULTIPLEPOLICIES MAY PROVIDE ANPOLICIES MAY PROVIDE ANAGGREGATE LIMIT UNDER CERTAINAGGREGATE LIMIT UNDER CERTAINCIRCUMSTANCES, SUCH AS IF THECIRCUMSTANCES, SUCH AS IF THEINSURED PURCHASED CONCURRENTINSURED PURCHASED CONCURRENTEXCESS LIABILITY COVERAGE.EXCESS LIABILITY COVERAGE.”” APIEAPIE


3) THE INSURED IS ALLOWED TO3) THE INSURED IS ALLOWED TOPICK THEPICK THE POLICY PERIODPOLICY PERIOD THATTHATPROVIDES THE GREATESTPROVIDES THE GREATESTRECOVERYRECOVERY--””THE INSURED ISTHE INSURED ISGENERALLY IN THE BEST POSITIONGENERALLY IN THE BEST POSITIONTO IDENTIFY THE POLICY ORTO IDENTIFY THE POLICY ORPOLICIES THAT WOULD MAXIMIZEPOLICIES THAT WOULD MAXIMIZECOVERAGE.COVERAGE.”” APIEAPIE


4) THE INSURER(S) SELECTED ARE4) THE INSURER(S) SELECTED ARELIABLE FOR THE LOSS UP TO THEIRLIABLE FOR THE LOSS UP TO THEIRPOLICY LIMITSPOLICY LIMITS--””IN SUCH A CASE,IN SUCH A CASE,THE INSUREDTHE INSURED’’S INDEMNITY LIMITS INDEMNITY LIMITSHOULD BE WHATEVER LIMITSHOULD BE WHATEVER LIMITAPPLIED AT THE SINGLE POINT INAPPLIED AT THE SINGLE POINT INTIME DURING THE COVERAGETIME DURING THE COVERAGEPERIODS OF TRIGGERED POLICIESPERIODS OF TRIGGERED POLICIESWHEN THE INSUREDWHEN THE INSURED’’S LIMIT WASS LIMIT WASTHE HIGHEST.THE HIGHEST.”” APIEAPIE


5) THE EXHAUSTION FOR THE5) THE EXHAUSTION FOR THEPOLICY PERIOD THAT IS SELECTEDPOLICY PERIOD THAT IS SELECTEDIS VERTICAL RATHER THANIS VERTICAL RATHER THANHORIZONTALHORIZONTAL--””MULTIPLE POLICIESMULTIPLE POLICIESMAY PROVIDE AN AGGREGATE LIMITMAY PROVIDE AN AGGREGATE LIMITUNDER CERTAIN CIRCUMSTANCES,UNDER CERTAIN CIRCUMSTANCES,SUCH AS IF THE INSUREDSUCH AS IF THE INSUREDPURCHASED CONCURRENT EXCESSPURCHASED CONCURRENT EXCESSLIABILITY INSURANCE.LIABILITY INSURANCE.”” APIEAPIE


6) THE VERTICAL EXHAUSTION6) THE VERTICAL EXHAUSTIONMUST BE FOR THE SAME POLICYMUST BE FOR THE SAME POLICYPERIODPERIOD--””IN SUCH A CASE, THEIN SUCH A CASE, THEINSUREDINSURED’’S INDEMNITY LIMITS INDEMNITY LIMITSHOULD BE WHATEVER LIMITSHOULD BE WHATEVER LIMITAPPLIED AT THEAPPLIED AT THE SINGLE POINTSINGLE POINT ININTIME DURING THE COVERAGETIME DURING THE COVERAGEPERIODS WHEN THE INSUREDPERIODS WHEN THE INSURED’’SSLIMIT WAS THE HIGHEST.LIMIT WAS THE HIGHEST.”” APIEAPIE


7) THE INSURER(S) MAY THEN SEEK7) THE INSURER(S) MAY THEN SEEKSUBROGATION FROM OTHERSUBROGATION FROM OTHERINSURERS IN THEIR LAYERSINSURERS IN THEIR LAYERS--””ONCEONCETHE APPLICABLE LIMIT ISTHE APPLICABLE LIMIT ISIDENTIFIED, ALL INSURERS WHOSEIDENTIFIED, ALL INSURERS WHOSEPOLICIES ARE TRIGGERED MUSTPOLICIES ARE TRIGGERED MUSTALLOCATE FUNDING OF THEALLOCATE FUNDING OF THEINDEMNITY LIMIT AMONGINDEMNITY LIMIT AMONGTHEMSELVES ACCORDING TO THEIRTHEMSELVES ACCORDING TO THEIRSUBROGATIONS RIGHTS.SUBROGATIONS RIGHTS.”” APIEAPIE


8) THE INSURED MUST SELECT THE8) THE INSURED MUST SELECT THESAME POLICY PERIOD FOR BOTHSAME POLICY PERIOD FOR BOTHDEFENSE AND INDEMNITYDEFENSE AND INDEMNITY


9) IF THE INSURED SELECTS AN9) IF THE INSURED SELECTS ANINSURER WHO DEFENDS, THEINSURER WHO DEFENDS, THEINSURED HAS NO FURTHER RIGHTSINSURED HAS NO FURTHER RIGHTSAGAINST ANY OTHER CONSECUTIVEAGAINST ANY OTHER CONSECUTIVEINSURER IN THE SAME LAYERINSURER IN THE SAME LAYER


10) IF THE INSURED SELECTS AN10) IF THE INSURED SELECTS ANINSURER WHO PAYS ITS POLICYINSURER WHO PAYS ITS POLICYLIMITS, THE INSURED HAS NOLIMITS, THE INSURED HAS NOFURTHER RIGHTS AGAINST ANYFURTHER RIGHTS AGAINST ANYOTHER CONSECUTIVE INSURER INOTHER CONSECUTIVE INSURER INTHE SAME LAYER.THE SAME LAYER.

WHAT WE DONWHAT WE DON’’T KNOWT KNOW

HOW ARE UNINSURED PERIODSHOW ARE UNINSURED PERIODSTREATED?TREATED?

HOW ARE PERIODS WITHHOW ARE PERIODS WITHCOVERAGE EXCLUSIONS TREATED?COVERAGE EXCLUSIONS TREATED?

HOW DO WE TREAT LARGE SIRHOW DO WE TREAT LARGE SIR’’S?S?

WHO HAS THE BURDEN OFWHO HAS THE BURDEN OFIDENTIFYING THE POLICY PERIODSIDENTIFYING THE POLICY PERIODSTRIGGERED?TRIGGERED?


WHAT HAPPENS IF THE INSUREDWHAT HAPPENS IF THE INSUREDREFUSES TO SELECT AN INSURER?REFUSES TO SELECT AN INSURER?

CAN OTHER INSURERS ASSERT A NOCAN OTHER INSURERS ASSERT A NOSETTLEMENT CLAUSE?SETTLEMENT CLAUSE?

CAN OTHER INSURERS CHALLENGECAN OTHER INSURERS CHALLENGETHE REASONABLENESS OF THETHE REASONABLENESS OF THESETTLEMENT?SETTLEMENT?


HOW DOES SUBROGATION WORK?HOW DOES SUBROGATION WORK?•• What is the appropriate allocation formula?What is the appropriate allocation formula?

•• Other insurance?Other insurance?

•• What is the burden of proof on targeted carrier?What is the burden of proof on targeted carrier?

WHAT IF THE INSURED DOES NOT SELECT?WHAT IF THE INSURED DOES NOT SELECT?•• What act constitutesWhat act constitutes selection?selection?

CAN THE INSURED CHANGE ITS MIND?CAN THE INSURED CHANGE ITS MIND?•• What if later in the case other parties are added thatWhat if later in the case other parties are added that

ultimately increases amount available to insured in aultimately increases amount available to insured in asingle year (i.e. becomes the highest point).single year (i.e. becomes the highest point).

APPLICATIONAPPLICATION01-02 02-03 03-04 04-05 05-06

InsurerNo. 1

InsurerNo. 1

InsurerNo. 2

InsurerNo. 2

InsurerNo. 3

$1M $1M $1M $1M $1M

InsurerNo. 4

InsurerNo. 4

InsurerNo. 4

InsurerNo. 4

InsurerNo. 5

$5M $5M $5M $5M $5M

dallas-#936861-v1-rbc vertical exhaustion webinar ... exhaustion pp.pdfonebeacon’s indemnity...

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