The Scope of Continuous Trigger in Pennsylvania

The continuous trigger rule is well-known to those in the insurance industry. However, the scope of its application continues to evolve as new risks emerge. While the concept of continuous trigger generally came about to address long-tail environmental pollution and asbestos bodily injury claims, the courts that first implemented and adopted the rule were not facing claims based on sexual molestation, sports-related concussions, wrongful incarceration, large-scale construction defects, complex food recalls, etc.

Pennsylvania has long been a first manifestation state, meaning that only the policy on the risk when underlying bodily injury or property damage is first known or reasonably ascertainable must respond to a loss. The Pennsylvania Supreme Court adopted the continuous trigger rule in J.H. France, which involved coverage for asbestos bodily injury claims. J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502 (Pa. 1993). The continuous trigger rule, over time, has also been applied to pollution cases.

For that reason, the industry took great interest in the St. John case, decided at the end of 2014, in which the Pennsylvania Supreme Court rejected efforts by an insured to trigger four years of consecutive policies in connection with an underlying lawsuit alleging that the insured’s defective installation of a new plumbing system caused damage to a dairy farm. Pennsylvania Nat. Mut. Cas. Ins. Co. v. St. John, 106 A.3d 1 (Pa. 2014). Specifically, the insured installed the new plumbing system in 2003, the dairy farm’s cows suffered health problems and produced less milk starting in 2004, and the dairy farm owners discovered the cause – contaminated drinking water due to defects in the plumbing system – in 2006. The court ruled that the 2004 policy was the only triggered policy, but it made a few comments that raised eyebrows. The court noted that Pennsylvania follows the first manifestation rule, “with the lone exception of asbestos injury claims” and that “[o]ur holding in J.H. France remains an exception to the general rule under Pennsylvania jurisprudence that the first manifestation rule governs a trigger of coverage analysis for policies containing standard CGL language.”

The Pennsylvania Supreme Court’s strict application of the manifestation trigger, and its characterization of the exception being limited to asbestos claims, caused a ripple effect in non-asbestos related coverage actions such as pollution cases involving damage that occurs across multiple policy periods. While experience thus far has shown that trial courts are hesitant to apply St. John to limit coverage for pollution claims to a single policy year, the issue is still lingering in many cases. St. John most recently surfaced in the Penn State coverage action related to underlying claims brought against the school by victims of convicted child molester Jerry Sandusky. There, a Philadelphia trial court judge ruled that a victim’s continued sexual abuse over time does not justify application of the continuous trigger rule, and that Penn State could only access the policy during which the bodily injury to a particular victim first manifested. Pa. State Univ. v. Pa. Manufacturers’ Ass’n Ins. Co., 2016 Phila. Ct. Com. Pl. LEXIS 158 (May 4, 2016). Interestingly, the court stated that sexual abuse was different from “environmental pollution or asbestos coverage,” meaning that perhaps the court did not read St. John so literally.

Whether the court intended it or not, the sound bites in the St. John decision still have insurers and insureds paying close attention to the scope of the continuous trigger rule.

Policyholders on the Hook for Insolvent Insurers’ Allocated Share in New Jersey

On January 12, 2016, the New Jersey Superior Court, Appellate Division, issued a non-precedential opinion in Ward Sand & Materials Co. v. Transamerica Ins. Co., et al. The long–anticipated ruling found that, in long-tail claims, insureds are responsible for the share of liability allocated to insurers that became insolvent prior to December 22, 2004.

In Ward Sand, the insured – which accepted a township’s municipal waste in the 1970s and was later sued for contribution towards site cleanup – sought to have a prior allocation ruling revised based on the New Jersey Supreme Court’s decision in Farmers Mutual, which held that the 2004 amendment to the New Jersey Property-Liability Insurance Guaranty Association Act (“PLIGA Act”), N.J.S.A. 17:30A-1 et. seq. required solvent insurers to pay within their policy limits for the share of any long-tail claim otherwise covered by an insolvent insurer. Farmers Mut. v. N.J. Prop.-Liab. Ins. Guar. Ass’n., 215 N.J. 522, 544 (2013) (previously discussed here). Five of Ward Sand’s insurers on the risk had, by then, become insolvent. It was undisputed that these insurers were declared insolvent prior to the effective date of the 2004 amendment to the PLIGA Act. The insured argued that (1) the 2004 amendment to the PLIGA Act, understood in light of Farmers Mutual, was intended to be corrective and curative and, therefore, had retroactive effect and (2) even if the 2004 amendment was not retroactive, the reasoning of the Farmers Mutual Court clarified principles that predate the amendment such that all coverage available from a solvent carrier must be exhausted prior to the policyholders’ obligation to pay the insolvent insurer’s share.

The trial court disagreed, and the Appellate Division affirmed, finding that the 2004 amendment to the PLIGA Act could only be given prospective effect, and did not control allocation issues for insurers that became insolvent prior to its enactment. Relying on Farmers Mutual, the Appellate Division held that for the years in which PLIGA is standing in the place of an insolvent carrier in a long-tail environmental contamination case, the insured – not the solvent insurer – is compelled to make payments under the Owens-Illinois allocation scheme before accessing statutory benefits under the PLIGA Act.

The decision is non-precedential and Ward Sand will almost certainly seek review by the Supreme Court of New Jersey. Nevertheless, Ward Sand represents an important victory for solvent insurers, which never contracted to cover the insolvent policy periods or layers.

Indiana Supreme Court Refuses to Hear Insured’s Challenge to Pro Rata Allocation Ruling

Indiana has traditionally been thought of as an “all sums” jurisdiction. Allstate Ins. Co. v. Dana Corp., 759 N.E.2d 1049, 1060 (Ind. 2001) (“whether or not the damaging effects of an occurrence continue beyond the end of the policy period, if coverage is triggered by an occurrence, it is triggered for ‘all sums’ related to that occurrence.”) However, the Indiana Supreme Court – over the strident dissent of its Chief Justice and one other Justice of the five Justice court – recently refused to hear an appeal from an intermediate appellate court decision which applied pro rata allocation in an insurance coverage action involving long-tail toxic exposure claims asserted by former employees against the insured. Thomson Inc. v. Ins. Co. of N. Am., 2015 Ind. LEXIS 397 (Ind. May 15, 2015).

In Thomson, the insured was sued by former Taiwanese employees who were allegedly exposed to industrial solvents from 1970 through 1992. These employees claimed that this exposure caused cancer, or increased their risk of developing cancer in the future.  The insured sought defense and indemnity under commercial general liability policies issued to it between 1991 and 2007. The insured contended that an all sums allocation method applied under the Indiana Supreme Court’s holding in Dana. The trial court agreed and issued an “all sums” ruling.

The appellate court reversed the trial court’s allocation holding. The appellate court distinguished Dana based on differences in the applicable policy language. Specifically, the insuring agreements at issue in Dana required the insured to “indemnify the insured for all sums. . .” the insured became obligated to pay because of an occurrence. Id. at n. 3-4. In contrast, the insuring agreements in the Thomson policies required the insured to “pay those sums. . .” the insured became obligated to pay “during the policy period.” Id. at 1003. The Thomson court held that this different, “limiting” policy language merited a departure from Dana: “the plain meaning of the limiting phrases ‘those sums’ and ‘during the policy period’ and does not render any of the remaining language meaningless.” Id. at 1020. In other words, the Thomson insurers only were required to cover damages occurring during the policy period and not all damages resulting from any occurrence during the policy period.

However, the Thomson court did not provide any guidance to the trial court as to the proper pro rata allocation method: it did not indicate whether “time on the risk,” “years and limits,” or some other method was advisable. Rather, the court remanded the allocation issue to the trial court:

The trial court will be best situated to select (and customize, if necessary) the fairest method of apportioning liability among the insurers in light of the factual complexities of the case at the appropriate time. And for that reason, we believe that the trial court should be afforded broad discretion in selecting and applying an apportionment method.

Id. at 1022-23.

There is no “one-size-fits-all” approach to allocation in Indiana in light of Thomson. Rather, as the Supreme Court dissenters recognized, courts applying Indiana law must engage in careful scrutiny of policy language to determine proper allocation in long-tail exposure cases. See Thomson Inc. v. Ins. Co. of N. Am., 2015 Ind. LEXIS 397, *2 (Ind. May 15, 2015) (Rush, C.J., dissenting) (“We should not burden trial courts with that task [of determining allocation] based on policy language that is ambiguous at best.”)

Asbestos Suits Against Employers Present New Risk for Employer’s Liability Insurers

Two asbestos hotbed jurisdictions, Pennsylvania and Illinois, have recently opened the door to long-tail occupational disease claims against employers in the tort system.  These decisions held that the exclusivity provisions of the applicable state workers’ compensation acts do not prohibit employees diagnosed with occupational diseases long after their retirement from suing their former employers in the tort system alongside the traditional panoply of asbestos defendants.  Employers and their employer’s liability insurers should be aware of this new risk and the issues it may present going forward.

In Pennsylvania – as in almost any other state – the Workers’ Compensation Act is and has been the exclusive means for an employee to recover from his or her employer for workplace-related injuries.  Certain enumerated “occupational diseases,” such as asbestosis, are included within the act’s ambit provided that they occur “within three hundred weeks after the last date of employment . . .” 77 P.S. § 411(2).  This 300-week provision had been interpreted as a statute of limitations and/or repose, closing the door on claimants’ recovery from employers when a latent disease manifests after 300 weeks.  Therefore, employees could not sue their employers in the tort system because of the workers’ compensation exclusivity provision, nor could they pursue workers’ compensation benefits because of the statute of repose.

say Images: Robert Biedermann/

Images: Robert Biedermann/

The Supreme Court of Pennsylvania abrogated this long-standing interpretation in Tooey v. AK Steel Corp., 81 A.3d 85 (Pa. 2013).  The court held that because the occupational disease claims manifesting outside the 300-week period are not covered by the act, the act’s exclusivity provision does not apply, and employees are free to sue their former employers in tort.  Similarly, in Illinois, the Workers’ Compensation Act and Workers’ Occupational Diseases Act contain exclusivity provisions that bar employees’ direct tort actions against employers for workplace injuries.  Under those statutes, an employee must file claims within three and 25 years, respectively.

In Folta v. Ferro Engineering, (Ill. App. Ct. 1st Dist. June 27, 2014), an Illinois intermediate appellate court held that the Foltas could maintain a tort claim against James Folta’s former employer because he first discovered his asbestos-related injury outside of the acts’ statutes of repose.  Unlike Pennsylvania, where a legislative amendment to the workers’ compensation statute appears to be the only “fix,” there remains a possibility that Folta is reversed on appeal or that the Illinois Supreme Court overrules Folta in another case.  The defendant in Folta filed a petition for leave to appeal, which remains pending.

While the traditional asbestos products and premises defendants seek coverage from their historical general liability insurers, commercial general liability policies are unlikely to provide coverage to employer defendants because of the policies’ employer’s liability exclusions.  Instead, employers may look to their workers’ compensation/employer’s liability policies.  Employer’s liability coverage exists “to ‘fill the gaps’ between workers’ compensation coverage and an employers’ general liability policy… to protect the insure[d] from tort liability for injuries to employees who do not come under the exclusive remedy provisions of workers’ compensation.”  See Erie Ins. Prop. & Cas. Co. v. Stage Show Pizza, JTS, Inc., 210 W. Va. 63, 68, 553 S.E.2d 257, 262 (2001).  Tooey and Folta have created a new “gap,” and that gap may widen into a chasm, as Philadelphia’s The Legal Intelligencer reported on June 3 that courts are “universally” accepting plaintiffs’ attempts to join employers in pending mesothelioma cases, and that virtually every new filing names employers as defendants.

Images: Robert Biedermann/

Images: Robert Biedermann/

Employer’s liability coverage is fundamentally different and much more limited than general liability coverage.  Because this coverage was offered to fill the narrow “gap” between general liability and workers’ compensation coverage, it was offered inexpensively.  As a result, employer’s liability coverage often includes high deductibles (or loss reimbursement provisions) and low aggregate limits.  Some employer’s liability coverage forms include time limitations, limiting coverage to claims filed against the employer within three or five years of the policy’s expiration date.  Further, most employer’s liability coverage contains specific trigger language, limiting coverage to those policies in effect only on the last date of the worker’s exposure to hazardous conditions at the workplace.  Therefore, the “continuous trigger” applicable to general liability policies is unlikely to apply to employer’s liability insurers.  Employers risk only being able to access a single policy year that is subject to a high deductible and low aggregate limit (with no excess coverage available).

It remains to be seen whether the decisions in Pennsylvania and Illinois represent an emerging risk that may spread to other jurisdictions, or if the legislatures of both states will react swiftly to amend their respective states’ laws.  For now, however, employers and their employer’s liability insurers should be prepared to address these potential newfound liabilities.

New Jersey Supreme Court Rewrites Carter-Wallace Allocation Rules in Cases Involving State Guaranty Association

In a critical insurance decision, the New Jersey Supreme Court ruled on Sept. 24 that liability insurers covering a long-tail loss cannot seek contribution from the New Jersey Property-Liability Insurance Guaranty Association for the Carter-Wallace shares of insolvent insurers. More importantly, while perhaps not a true holding, the court rebuffed an argument that the insured would have to bear the burden of the insolvent insurer’s Carter-Wallace allocation to the extent the Guaranty Association was not required to pay.

INS BLOG_courthouseIn Farmers Mut. Fire Ins. Co. v. New Jersey Property-Liability Ins. Guar. Assoc., Farmers Mutual sued the Guaranty Association to recover a portion of environmental remediation costs that were allocable to Newark Insurance Company, which was declared insolvent in 2007.  The Guaranty Association argued that the New Jersey Property-Liability Insurance Guaranty Association Act (PLIGA Act) required exhaustion of all available solvent coverage before it had any payment obligation. The PLIGA Act’s exhaustion provision “requires the exhaustion of all insurance benefits from solvent insurers on the risk before [the Guaranty Association], standing in the shoes of an insolvent insurer, must pay statutory benefits.” (N.J.S.A. 17:30A-5).  The PLIGA Act was amended in 2004 to further define exhaustion: “[I]n any case in which continuous indivisible injury or property damage occurs over a period of years as a result of exposure to injurious conditions, exhaustion shall be deemed to have occurred only after a credit for the maximum limits under all other coverages, primary and excess, if applicable, issued in all other years has been applied[.]”  (N.J.S.A. 17:30A-5)

The New Jersey Supreme Court affirmed the Appellate Division’s ruling in favor of the Guaranty Association, holding that “when one of several insurance carriers on the risk is insolvent in a continuous-trigger case, then the limits of the policies issued by solvent insurers ‘in all other years’ must first be exhausted before the Guaranty Association is obligated to pay statutory benefits.”  Because the Farmers policies were not fully exhausted, it could not tap the Guaranty Association for Newark’s Carter-Wallace share of remediation costs.

The court also rejected an argument made by another insurer, appearing amicus curiae, that the insured should bear responsibility for insolvent insurers and then seek reimbursement from the Guaranty Association.  The court, noting that, in its view, the insurers’ interpretation “would turn the PLIGA Act on its head,” stated that the aim of the PLIGA Act “would be defeated by making the insured bear the loss for the carrier’s insolvency before the insured received any statutory benefits from the Guaranty Association.”

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