Connecticut Supreme Court adopts the “unavailability rule” for allocating long-tail claims
Claims involving multi-year losses under occurrence-based policies can raise questions as to whether an insured must participate in allocation for periods in which the insured was without coverage because insurance for the type of loss at issue was unavailable in the marketplace. In April 2019, we wrote about several decisions that recently addressed this “unavailability rule,” and highlighted that the Connecticut Supreme Court was due to weigh in on this issue shortly.
This month, the Connecticut Supreme Court issued its decision in R.T. Vanderbilt Co., Inc. v. Hartford Accident & Indem. Co., 2019 Conn. LEXIS 266, in which it adopted the lower court’s application of the unavailability rule, establishing a new rule of law for the state.
The Vanderbilt decision concerned a dispute between Vanderbilt, a talc and silica mining and distribution company, and its insurers regarding thousands of asbestos-related bodily injury claims for which Vanderbilt sought coverage under policies in effect between 1948 and 2008 (when Vanderbilt ceased production). The Appellate Court, as a matter of first impression, applied the unavailability rule. In so doing, it reasoned that any method of allocation creates certain inequities, but that those produced by the unavailability rule did not unfairly impact insurers and served the public interest (in maximizing recovery for injured parties and in incentivizing insurers to investigate previously unknown risks in a line of business) as well as the reasonable expectations of an insured.
The Supreme Court adopted the Appellate Court’s decision on this point in full, relieving Vanderbilt of any obligations for the period between 1986 - when insurance for asbestos-related risks became unavailable in the marketplace – and 2008.
This decision, much like the 2018 decision of the New Jersey Supreme Court in Continental Insurance Co. v. Honeywell International, Inc., 234 N.J. 23 (2018), demonstrates that the “unavailability of insurance” exception, while a minority rule, continues to be an important consideration in coverage determinations involving long-tail claims. That said, the Connecticut Supreme Court, much like the New Jersey Supreme Court, did not examine in detail what it means for insurance to be “unavailable” with respect to particular liabilities.
The Vanderbilt decision also settled a number of other major coverage issues that were before the state’s highest Court for the first time. Most significantly, in a matter of national first impression, the Court affirmed the appellate panel’s construction of the “occupational disease” exclusions to “bar coverage for occupational disease claims brought not only by employees of Vanderbilt but also by individuals who contracted an occupational disease in the course of their work for other employers.” The Court found that neither contemporaneous sources nor the policy exclusions themselves limited the “occupational disease” exclusions to claims brought by Vanderbilt’s employees alone. Notably, other exclusions in the same policies contained explicit limiting language to that effect. The Court held that to add “otherwise nonexistent language” into the policies’ “occupational disease” exceptions would affront both the intent of the parties, and general principles of judicial contract interpretation.
Also as an issue of first impression under state law, the Court affirmed the Appellate Court’s application of the “continuous trigger” theory for asbestos bodily injury claims (joining a majority of states to do so). Under that theory, every policy in effect from the date of a claimant’s first exposure to asbestos until the date the asbestos-related disease “manifested” would be called upon to respond.
Finally, the Court affirmed the lower court’s ruling – again as a matter of first impression - limiting application of standard pollution exclusions to traditional environmental pollution, such as where “dumping of waste materials containing asbestos causes asbestos fibers to migrate onto neighboring properties or into the natural environment.”