... Is "Time on the Risk" a Defensible Way to Allocate Insurance Coverage?
"The principle underlying our decision is a straightforward one: an insurance company cannot be held liable for periods of risk it never contracted to cover."
In Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, 668 F.3d 106 (4th Cir. 2012), Download Pennsylvania Natl Mut. Cas. Ins. Co. v. Roberts (4th Cir., Opinion Filed Feb. 3, 2012) PUBLIC ACCESS, the Court readily applied Maryland law to allocate Insurance Coverage. Under Maryland law, "in lead paint or 'continuous trigger' cases such as this, Maryland courts determine an insurer's liability through a 'pro-rata allocation by "time on the risk."'" Id. at 111.
The Roberts case involved an infant who ingested lead and was poisoned by it. She was born on January 17, 1991. Twenty (20) months later, she was diagnosed with lead poisoning. Id. at 109. Using a cutoff of "August 1995" when the child apparently stopped "exhibit[ing] elevated blood levels," id., the District Court concluded that the period during which damages occurred was "55 full months," id. at 111, a finding accepted by the Federal Appellate Court in this case.
The underlying liability case went to a jury verdict in Maryland State Court, which reduced the verdict amount to a Judgment of $850,000.00 "following an application of Maryland's noneconomic damages cap." Id. at 110.
"It is undisputed that [the Policyholder and another Tortfeasor Defendant] are jointly and severally liable for this amount." Id. [Emphasis added.] The fact that the Damages award could not be allocated -- which is evident because there could not be joint and several liability, if the damages could be allocated -- seemed to be inconsequential to the Insurance Coverage allocation made by the Federal Appellate Court in this case.
The Fourth Circuit panel's opinion, written by Judge J. Harvie Wilkinson, III, first applied Maryland law, which was directly on point of course, and held that "time on the risk" allocation of indemnity required allocation of Penn National's policy limits pro rated by time on the risk, of course. Penn National's time on the risk was only 22 months, in an apparent finding of fact by the Appellate panel, and so Penn National was held liable by the Appellate Court to pay only 22/55 months' worth of the $850,000.00 Judgment here. See id. at 113.
But the opinion contained more words than that, in this case.
The panel also ruled that even if Maryland law did not require this result, then the Federal panel's interpretation of contract law would also require this result. Like most Policies in its class, the Penn National Bodily Injury/Property Policy -- which was never described as such, but looks from the opinion an awful lot like standard CGL or Commercial General Liability Policy or Landlord's Liability Policy language -- provided Coverage for Bodily Injury or Property Damage which "'occurs during the policy period.'" Id. at 110, 112.
The panel's opinion never once addressed the language of the insurance contract itself, namely that it provided Coverage for damages occurring during the policy period and not simply Coverage for some abstract period of time unconnected with the determination of the Policyholder's liability to pay Damages.
As a third reason for its decision, the Federal Appellate panel also wrote that a result other than 'pro rata allocation by time on the risk' would be "disruptive for insurance markets as well." Id. at 114. There is so much that could be said in direct contradiction of this dictum. That is enough to say about it here.
The concluding observations of the panel in the Roberts case are quickly summarized: Stuff happens. See id. at 115 ("It is a dispiriting but inescapable fact that sometimes really bad things happen ....).
That concluded the panel's handling of the Roberts direct appeal. Penn National Mutual Casualty Insurance Company cross-appealed, as well. Penn National complained on appeal that although the District Judge was correct in applying Maryland's law of allocating Penn National's liability to pay the underlying Damages Judgment by pro rating Penn National's 'time on the risk,' still the District Court erred in the eyes of Penn National by allocating to it two (2) months too many on the risk.
The Federal Appellate panel in this case agreed with Penn National on this point also. Penn National's time on the risk was reduced by two (2) months on appeal. Id. at 118-19. As the opinion put it: "Roberts' misfortune cannot be laid at Penn National's feet .... To place the entire judgment on the insurer would be chaotic ...." Id.
If the little girl's lawyers argued that her life after lead poisoning was "chaotic," or if the Policyholder's lawyers argued that joint and several liability for the entire Damages was "chaotic," none of the Courts involved including this Federal Appellate panel appeared to be moved.
Insurance Coverage under an Insurance Contract should never be determined by the extent of the damages which the claimant alleges in its claim against a Policyholder. That is or should be true in all United States jurisdictions. However, that is not nearly the same thing as deciding that a contract which provides Insurance Coverage for Damages, is somehow the same as a contract which provides Insurance Coverage based not on the Damages which occurred during the policy period, but based instead on the Insurance Company's 'time on the risk' regardless of what is written in the contract.
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