Radiator Specialty Company v. Arrowood Indemnity Co., 850 S.E.2d 624, 2020 WL 7039144 (Dec. 1, 2020) (Unpublished)
The North Carolina Supreme Court released a decision on December 1, 2020, in the case of Radiator Specialty Company v. Arrowood Indemnity Company that has implications for the trigger of coverage and allocation of liability among insurance policies in North Carolina. As such, the decision is important for businesses and counsel alike.
Radiator Specialty Company manufactured products containing benzene and asbestos, which resulted in numerous legal claims against it. Between 1971 and 2012 Radiator Specialty purchased insurance products from numerous different insurance companies, including Zurich, National Union, Landmark, and Fireman’s Fund. When faced with the legal claims arising from its manufacture of products containing benzene and asbestos, Radiator Specialty provided notice of the claims to the insurers. The insurers refused to provide a defense or to indemnify Radiator Specialty. Radiator Specialty then filed a declaratory judgment action seeking a determination of the insurers’ duties to pay for defense and indemnity for claims relating to benzene and asbestos exposure.
B. Trigger of Coverage
The question of trigger of coverage determines which of several insurance policies apply to which particular claims. “Trigger” in this context means what must happen under the terms of a policy for that policy to potentially provide coverage for the claims. For CGL policies such as those at issue in Radiator Specialty, that means there must be “bodily injury” or “property damage” caused by an “occurrence” within the policy period.
Before Radiator Specialty, the primary authority on and trigger of coverage in North Carolina was Gaston County Dying Machine Co. v. Northfield Insurance Co., 351 N.C. 293, 524 S.E.2d 588 (2000). In Gaston, the plaintiff was a manufacturer of a pressure vessel that ruptured, causing damage to other property. In an issue of first impression, the North Carolina Supreme Court concluded that “Where the date of the injury in fact can be known with certainty, the insurance policy or policies on the risk on that date are triggered.” 524 S.E.2d at 564. In Gaston County, the date of injury in fact could be known with certainty - - a pressure vessel ruptured on a date certain, and all the damage flowed from that one event. This is called the “injury in fact” trigger.
In Radiator Specialty, by contrast, the injury alleged in the underlying lawsuits were a result of exposure to asbestos and benzene over a period of years. The Court took judicial notice of numerous cases concerning asbestos and benzene exposure, recognizing how difficult it was to ascribe a “date certain” or “single event” to such harm, given that injuries resulting from benzene and asbestos exposure (progressive disease) may be late to show, or long and lingering.
Relying on a decision from the U.S. District Court for the Eastern District of North Carolina, the Court held that “exposure” trigger was the proper test here. Under the exposure trigger, courts look to when the claimant was exposed to the injury-causing substance. Often that is over a period of many years, rather than on a single date. The result of the exposure trigger is that any insurance policy that was on the risk during the multi-year period in which a claimant was exposed to the harmful substance is triggered. In progressive injury cases, that means that multiple policies that covered the insured over a period of years will be triggered. That holding brings up the next issue, allocation.
“Allocation” in this context means the determination of allocating losses/payments among multiple insurance policies. The trial court in the Radiator Specialty case held that “pro rata” allocation applied to both defense and indemnity obligations based on each insurer’s time on the risk. Under this allocation method, each policy is responsible for a portion of the loss. The plaintiff contended that was error, and that the proper method of allocation was the “all sums” approach, under which any claims covered by a particular policy must be defended and indemnified up to the limits of that policy. The North Carolina Supreme Court agreed. The policy language was clear: any claims covered by a particular policy must be defended and indemnified by the insurer under that policy. By prorating the plaintiff’s costs and damages based upon time on the risk, the trial court reallocated the damages, potentially imposing more costs on one party, and removing them from another, who might be differently obligated.
Trigger of coverage and allocation are important in determining which of multiple insurers and policies will be required to defend and indemnify an insured. Different states have different rules, and the rules within a state may vary depending on the type of claim, making consultation with counsel a must.