Radiator Specialty Co. v. Arrowood Indem. Co.
Date Filed2022-12-16
Docket20PA21
Cited0 times
StatusPublished
Syllabus
Declaratory judgment action by insured to determine extent to which various insurers are responsible for defense costs and indemnification for hundreds of product-liability claims based on the insurance policy provisions. Coverage under the policies is triggered when the claimant is exposed to the defective product, allocation of costs and damages should be pro rata among multiple insurers, and vertical exhaustion applies to coverage under excess policies.
Full Opinion (html_with_citations)
IN THE SUPREME COURT OF NORTH CAROLINA
2022-NCSC-134
No. 20PA21
Filed 16 December 2022
RADIATOR SPECIALITY COMPANY
v.
ARROWOOD INDEMNITY COMPANY (as successor to GUARANTY NATIONAL
INSURANCE COMPANY, ROYAL INDEMNITY COMPANY, and ROYAL
INDEMNITY COMPANY OF AMERICA); COLUMBIA CASUALTY COMPANY;
CONTINENTAL CASUALTY COMPANY; FIREMAN’S FUND INSURANCE
COMPANY; INSURANCE COMPANY OF NORTH AMERICA; LANDMARK
AMERICAN INSURANCE COMPANY; MUNICH REINSURANCE AMERICA,
INC. (as successor to AMERICAN REINSURANCE COMPANY); MUTUAL FIRE,
MARINE AND INLAND INSURANCE COMPANY; NATIONAL UNION FIRE
INSURANCE COMPANY OF PITTSBURGH, PA; PACIFIC EMPLOYERS
INSURANCE COMPANY; ST. PAUL SURPLUS LINES INSURANCE COMPANY;
SIRIUS AMERICA INSURANCE COMPANY (as successor to IMPERIAL
CASUALTY AND INDEMNITY COMPANY); UNITED NATIONAL INSURANCE
COMPANY; WESTCHESTER FIRE INSURANCE COMPANY; ZURICH
AMERICAN INSURANCE COMPANY OF ILLINOIS
On discretionary view pursuant to N.C.G.S. § 7A-31 of a unanimous,
unpublished decision of the Court of Appeals, No. COA19-507, 2020 WL 7039144
(N.C. Ct. App. Dec. 1, 2020), reversing in part and affirming in part a judgment
entered on 27 February 2019 by Judge W. David Lee in Superior Court, Mecklenburg
County. On 10 August 2021, the Supreme Court allowed defendant Fireman’s Fund
Insurance Company’s cross-petition for discretionary review and Landmark
American Insurance Company and National Union Fire Insurance Company of
Pittsburgh, PA’s conditional petition for discretionary review. Heard in the Supreme
Court on 30 August 2022.
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McGuireWoods LLP, by Bradley R. Kutrow; and Perkins Coie LLP, by,
Jonathan G. Hardin and Catherine J. Del Prete, for plaintiff-appellant.
Fox Rothschild LLP, by Matthew Nis Leerberg and Troy D. Shelton; and
Rivkin Radler LLP, by Michael A. Kotula, for defendant-appellant Fireman’s
Fund Insurance Company.
Goldberg Segalla LLP, by David L. Brown and Allegra A. Sinclair; and
Nicolaides Fink Thorpe Michaelides Sullivan LLP, by Matthew J. Fink, pro
hac vice, and Mark J. Sobczak, pro hac vice, for defendant-appellee National
Union Fire Insurance Company of Pittsburgh, PA.
Hedrick Gardner Kincheloe & Garofalo, LLP, by M. Duane Jones and Paul C.
Lawrence; and Musick, Peeler & Garrett LLP, by David A. Tartaglio, Stephen
M. Green, and Steven T. Adams, for defendant-appellee Landmark American
Insurance Company.
Robinson, Bradshaw & Hinson, P.A., by R. Steven DeGeorge, for United
Policyholders, amicus curiae.
Cranfill Sumner LLP, by Jennifer A. Welch; and Crowell & Moring, by Laura
Foggan for Complex Insurance Claims Litigation Association and American
Property Casualty Insurance Association, amici curiae.
EARLS, Justice.
¶1 Radiator Specialty Company (RSC) is a North Carolina-based manufacturer of
automotive, hardware, and plumbing products, including cleaners, degreasers, and
lubricants. Some of the products RSC has manufactured contained benzene. Over the
past twenty years, RSC has been named in hundreds of personal injury lawsuits
seeking damages for bodily injury allegedly caused by repeated exposure to benzene
over time. During that same period, RSC purchased more than one-hundred
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standard-form product liability policies from twenty-five insurers, including the three
insurers remaining in this action: Fireman’s Fund Insurance Company (Fireman’s
Fund), Landmark American Insurance Company (Landmark), and National Union
Fire Insurance Company of Pittsburgh, PA (National Union) [collectively, the
insurers]. RSC now seeks compensation from those insurers for liabilities it has
incurred as a result of its benzene litigation.
¶2 This case presents a challenge that is unique from personal injury cases in
which the injury occurs at a definite time and place. Unlike a car crash, for example,
where the injury takes place on a clearly discernable date, benzene exposure may
take place over the course of several years, spanning multiple insurance-policy
periods and implicating different providers. More complicated still, the consequences
of that exposure may not become apparent for even longer. As a result, as the courts
of New York have stated,
[c]ourts across the country have grappled with so-called
“long-tail” claims—such as those seeking to recover for
personal injuries due to toxic exposure and property
damage resulting from gradual or continuing
environmental contaminations—in the insurance context.
These types of claims present unique complications
because they often involve exposure to an injury-inducing
harm over the course of multiple policy periods, spawning
litigation over which policies are triggered in the first
instance, how liability should be allocated among triggered
policies and the respective insurers, and at what point
insureds may turn to excess insurance for coverage.
In re Viking Pump, Inc., 27 N.Y.3d 244, 255 (2016).
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¶3 This dispute concerns which insurers are obligated to pay which costs arising
from RSC’s benzene liabilities pursuant to the terms of the insurers’ liability
insurance policies. To answer this question, we must decide as a matter of law (1)
when each insurer’s coverage is triggered in these circumstances—that is, whether
coverage is triggered when a claimant is exposed to benzene, or instead, when the
claimant develops observable bodily injury, such as sickness or disease (exposure vs.
injury-in-fact); (2) how defense and indemnification costs are allocated among
insurers when multiple policies in multiple years are triggered by the same claim (all
sums vs. pro rata); and (3) what underlying limits RSC must exhaust before seeking
defense coverage from umbrella or excess policies (vertical vs. horizontal exhaustion).
I. Background
A. Factual Background
¶4 For over forty years, RSC produced and sold benzene-containing products,
including a penetrating oil called Liquid Wrench. In the early 2000s, RSC became the
subject of hundreds of personal injury lawsuits arising from its use of benzene in its
products. Claimants sought damages for consequences they have suffered as a result
of benzene exposure, including cancer and death. Their claims represent what are
known as long-tail claims: allegations of injury spanning over the course of years. In
other words, many of the claimants assert that they were exposed to RSC’s benzene-
containing products for years or decades, eventually developing progressive diseases.
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As a result of this litigation, RSC has faced approximately $45 million in defense and
settlement costs. RSC has sought to have some of those costs covered by a multitude
of insurance policies it purchased over several decades from different providers.
Fireman’s Fund, Landmark, and National Union are the only such insurers that are
parties to this appeal.
¶5 From 1971 to 2014, RSC purchased over one-hundred standard-form product
liability policies from more than a dozen insurers. Most of these policies provided
coverage for one year. In 2013, RSC brought suit against its insurance providers
seeking coverage for the damages it has paid out of pocket related to its benzene
litigation. Though RSC argues that the trial court erroneously “awarded [it] only a
tiny fraction of the insurance for which RSC paid more than $7.1 million in
premiums,” the insurers reject the notion that RSC has not been awarded the amount
it is due under the policies they issued, including because “[RSC] settled with certain
insurers, purchased policies with high per claim self-insured retentions or
deductibles, lost some policies it bought, or bought no applicable coverage at all.” To
cover for those “gaps in its insurance program,” the insurers argue that RSC now
seeks to hold them responsible for liabilities they were never obligated to cover.
B. Procedural History
¶6 On 6 February 2013, RSC filed a declaratory judgment action pursuant to
N.C.G.S. § 1-253 et seq. seeking a declaration of the duties and obligations of fifteen
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different defendant-insurers under policies they sold to RSC between 1971 and 2012.
¶7 An amended complaint filed with leave of the trial court on 5 July 2015 named
nine of the original defendant insurance companies or successors in interest to the
insurance companies that sold RSC primary and excess liability policies for the same
period. The amended complaint raised additional claims for bad faith refusal to settle
or pay and unfair or deceptive trade practices against National Union. Shortly
thereafter, defendants filed both answers and motions for summary judgment on
various issues of insurance contract interpretation.
¶8 On 28 and 29 January 2016, Judge W. David Lee issued orders addressing the
issues raised in the summary judgment motions. In its Order on Trigger of Coverage,
the trial court determined that “the exposure trigger is appropriate in the context of
long tail bodily injury claims,” meaning that “[t]he beginning of the triggered policy
period is the date on which the claimant was first exposed to benzene” and “[t]he end
of the triggered policy period is the date on which the claimant was last exposed to
benzene.”
¶9 In its Order Regarding Allocation, the trial court determined that “pro rata
allocation applies to both defense and indemnity payments based on each insurer’s
‘time on the risk’ over the RSC coverage block,” rejecting the “all sums” approach and
making RSC “responsible for its pro rata share of defense and indemnity costs where
there has been settled, insolvent or lost policies, as well as periods where RSC was
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uninsured, underinsured or self-insured.”
¶ 10 In its Order on Landmark’s Motion for Summary Judgment [Order on
Exhaustion], the trial court determined that vertical exhaustion applies to the duty
to indemnify under Landmark’s umbrella policy but horizontal exhaustion applies to
Landmark’s duty to defend.
¶ 11 After issuing the summary judgment orders, the case proceeded to a bench trial
in June 2018 for determination of the date of exposure for any claimants for whom
the exposure date was disputed.
¶ 12 After a bench trial, the trial court entered an order of final judgment,
determining that the insurers were obligated to defend and indemnify RSC under
their policies “subject to their respective policy limits and the following rulings of this
[c]ourt,” including the “Order Regarding Allocation.” The court incorporated by
reference a Sealed Order for Declaratory Relief entered on 22 February 2019
assigning past defense and indemnity costs to the insurers by applying pro rata
allocation. As a result, the insurers were required to reimburse $1.8 million of RSC’s
past costs.
¶ 13 In an unpublished opinion, a unanimous panel of the Court of Appeals affirmed
the judgment of the trial court and dismissed in part. Radiator Specialty Co. v.
Arrowood Indem. Co., No. COA19-507, 2020 WL 7039144 (N.C. Ct. App. Dec. 1, 2020).
¶ 14 First, the Court of Appeals held that the trial court appropriately applied an
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exposure theory for when coverage was triggered as opposed to an injury-in-fact
theory. Radiator Specialty Co., 2020 WL 7039144, at *3. According to the court, it
was undisputed that
the policies issued by defendants were standard-form
policies with materially identical language on the issue of
when coverage triggers. These policies provided that the
insurer would pay “all sums which the insured shall
become legally obligated to pay as damages because of
bodily injury . . . caused by an occurrence[.]” The policies
generally define “bodily injury” as injury, sickness, or
disease sustained by a person, and “occurrence” as an
accident including exposure.
Id.(alterations in original). The court rejected RSC’s argument that this Court’s decision in Gaston County Dyeing Machine Co. v. Northfield Insurance Co.,351 N.C. 293
(2000), established that an injury-in-fact trigger applied to all standard-form policies. Radiator Specialty Co.,2020 WL 7039144
, at *3. Instead, the court noted that application of an injury-in-fact trigger in Gaston, a case involving property damage caused by a ruptured pressure vessel, “was premised upon the notion that a court could determine that ‘an injury-in-fact occurs on a date certain and all subsequent damages flow from the single event.’ ”Id.
(quoting Gaston,351 N.C. at 304
). By contrast, the court took “judicial notice of the innumerable cases concerning asbestos and benzene exposure and recognize[d] how difficult it is to ascribe a ‘date certain’ or ‘single event’ to such harm.”Id.
Accordingly, the court concluded that
because “[i]njury resulting from benzene or asbestos exposure is neither discrete nor
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so certain . . . [r]eading the contract language and interpreting it by its terms, it seems
clear that a ‘bodily injury’ is something caused by an ‘occurrence,’ which can include
exposure,” and thus that “the trial court did not err in applying an exposure theory
of coverage instead of injury-in-fact.” Radiator Specialty Co., 2020 WL 7039144, at *4
(citing Imperial Cas. & Indem. Co. v. Radiator Specialty Co., 862 F. Supp. 1437
(E.D.N.C. 1994), aff’d, 67 F.3d 534 (4th Cir. 1995)).
¶ 15 Second, the Court of Appeals held that the trial court “erred in applying pro
rata allocation of liability instead of an ‘all sums’ allocation” in its intermediate Order
Regarding Allocation but concluded that “this error was rendered moot by the entry
of the final judgment.” Id. According to the court,
[t]he policies, by their language, are clear—any claims
covered by a particular policy must be defended and
indemnified by the insurer under that policy. By prorating
plaintiff’s costs and damages based upon “time on the risk,”
the trial court reallocated those damages, potentially
imposing more costs on one party, and removing them from
another, who might be differently obligated. We recognize
that these policies represent multiple years of coverage,
but judicial expediency is no excuse. We hold that it was
indeed error to prorate these costs where the contracts
explicitly imposed those obligations otherwise.
Id. The court concluded, however, that the trial court’s error was corrected by the
trial court’s final judgment which “assigned costs—both in terms of defense and
indemnification—to specific parties based upon their contractual obligations.”
Radiator Specialty Co., 2020 WL 7039144, at *5. In the court’s view, by entering a
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judgment requiring each insurer to “defend and indemnify plaintiff on the . . . claims
. . . ‘subject to its respective policy limits,’ ” the trial court “specifie[d] that the
allocation is not pro rata, but is instead subject to the contractual limitations
established in the policies,” which the court interpreted to require all sums allocation.
Id. Therefore, although the court “recognize[d] the error in the intermediate order,”
it held that the error “was rendered moot by entry of the final judgment.” Id.
¶ 16 Third, the Court of Appeals held that the trial court did not err in applying
horizontal exhaustion to Landmark’s duty to defend. Id. According to the court,
Landmark’s insurance policy “stated that it had the duty to defend suits when (1) the
applicable limits of underlying insurance were used up in the payment of judgments
or settlements, or (2) no other valid and collectible insurance was available.” Id.
Because the policy specifically used the phrase “other insurance,” the court agreed
with Landmark that “this language suggests that the policy was only triggered when
any other policies held by plaintiff were exhausted.” Id. Therefore, the court held that
“a proper interpretation of the contract reveals that Landmark offered an excess
policy, to be available when all other policies were exhausted.” Id.
¶ 17 Finally, the Court of Appeals dismissed as moot RSC’s challenge to the trial
court’s intermediate order concluding that the defendant-insurers “were not estopped
from denying coverage of claims” because the trial court in its final judgment held
that the defendant-insurers “owed both a duty to defend and a duty to indemnify”
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and dismissed one defendant-insurer’s challenge to a summary judgment motion
addressing cessation of coverage under its own policy. Radiator Specialty Co., 2020
WL 7039144, at *5–6.1
¶ 18 On 10 August 2021, this Court allowed RSC’s petition for discretionary review,
Fireman’s Fund’s cross-petition for discretionary review, and Landmark and
National Union’s conditional petition for discretionary review.
C. Policies in Dispute
¶ 19 National Union issued six annual policies to RSC that were effective from 27
November 1987 through 1 May 1992. Five of the policies provide primary liability
coverage, and the sixth policy provides excess coverage over the primary policy in
effect from 1 May 1991 through 1 May 1992. The primary policies in effect from 27
November 1987 to 1 May 1990 state the following:
a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of “bodily
injury” . . . included within the “products-completed
operations hazard” to which this insurance applies. No
other obligation or liability to pay sums or perform acts or
services is covered unless explicitly provided for under
SUPPLEMENTARY PAYMENTS. This insurance applies
only to bodily injury . . . which occurs during the policy
period. The “bodily injury” must be caused by an
“occurrence.” The “occurrence” must take place in the
“coverage territory”. We will have the right and duty to
1 After the Court of Appeals issued its decision, RSC moved for rehearing on the
determination that the allocation issue had been rendered moot by the trial court’s final
judgment. The Court of Appeals denied the motion.
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defend any “suit” seeking those damages . . . .
¶ 20 The primary policies in effect from 1 May 1990 to 1 May 1992 state the
following:
a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of “bodily
injury” . . . to which this insurance applies. We will have
the right and duty to defend any “suit” seeking those
damages . . . .
* * *
No other obligation or liability to pay sums or perform acts
or services is covered unless explicitly provided for under
SUPPLEMENTARY PAYMENTS.
b. This insurance applies to “bodily injury” . . . only if:
(1) The “bodily injury” is caused by an “occurrence”
that takes place in the “coverage territory,” and
(2) The “bodily injury” . . . occurs during the policy
period.
The sixth policy provides excess coverage and incorporates and adopts the terms of
the primary policy from the period of 1 May 1991 to 1 May 1992. All six policies define
“bodily injury” as “bodily injury, sickness, or disease sustained by a person, including
death resulting from any of these at any time.” The policies define the term
“occurrence” as “an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.”
¶ 21 Fireman’s Fund issued three excess liability insurance policies to RSC that
were effective during three periods of time: from 10 December 1976 to 17 October
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1977; from 17 October 1977 to 17 October 1978; and from 1 May 1979 to 1 May 1980.
Each excess policy incorporated language from certain underlying policies providing
primary liability insurance.
Agreement #1:
I. COVERAGE —
Underwriters hereby agree, subject to the
limitations, terms and conditions hereinafter mentioned, to
indemnify the Assured for all sums which the Assured
shall be obligated to pay by reason of liability:
(a) Imposed upon the Assured by law, or
(b) assumed under contract or agreement by the Named
Assured and/or any officer, director, stockholder,
partner or employee of the Named Assured, while
acting in his capacity as such,
for damages on account of —
(i) Personal Injuries
(ii) Property Damage
....
caused by or arising out of each occurrence happening
anywhere in the world,
....
THIS POLICY IS SUBJECT TO THE FOLLOWING
DEFINITIONS:
....
2. PERSONAL INJURIES —
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The term “Personal Injuries” wherever used herein
means bodily injury (including death at any time resulting
therefrom), . . . sickness, disease, disability, . . . .
....
5. OCURRENCE —
The term “Occurrence” wherever used herein shall
mean an accident or a happening or event or a continuous
or repeated exposure to conditions which unexpectedly and
unintentionally results in personal injury, [or] property
damage . . . during the policy period. All such exposure to
substantially the same general conditions existing at or
emanating from one premises location shall be deemed one
occurrence.
Agreement #2:
INSURING AGREEMENTS:
I. Coverage. To pay on behalf of the insured the ultimate
net loss in excess of the applicable underlying (or retained)
limit hereinafter stated, which the insured shall become
obligated to pay by reason of the liability imposed upon the
insured by law or assumed by the insured under contract:
(a) PERSONAL INJURY LIABILITY. For damages,
including damages for care and loss of services, because
of personal injury, including death at any time resulting
therefrom, sustained by any person or persons,
(b) PROPERTY DAMAGE LIABILITY. For damages
because of injury to or destruction of tangible property
including consequential loss resulting therefrom[.]
. . . caused by an occurrence.
....
IV. Other Definitions. When used in this policy . . . .
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(a) “Personal Injury” means (1) bodily injury, sickness,
disease, disability . . . .
(e) “Occurrence.” With respect to Coverage 1(a) and 1(b)
occurrence shall mean an accident, including injurious
exposure to conditions, which results, during the policy
period, in personal injury or property damage neither
expected nor intended from the standpoint of the
insured. . . .
V. Policy Period, Territory. This policy applies only to
personal injury, [or] property damage . . . occurrences
which happen anywhere during the policy period.
Agreement #3:
I. COVERAGE
To indemnify the INSURED for ULTIMATE NET
LOSS, as defined hereinafter, in excess of RETAINED
LIMIT, as herein stated, all sums which the INSURED
shall be obligated to pay by reason of liability imposed upon
the INSURED by law or liability assumed by the
INSURED under contract or agreement for damages and
expenses, because of:
A. PERSONAL INJURY, as hereinafter defined;
B. PROPERTY DAMAGE, as hereinafter defined;
....
to which this policy applies, caused by an OCCURRENCE,
as hereinafter defined, happening anywhere in the world.
....
DEFINITIONS
....
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H. OCCURRENCE:
With respect to Coverage 1(A) and 1(B) “OCCURRENCE”
shall mean an accident or event including continuous
repeated exposure to conditions, which results, during the
policy period, in PERSONAL INJURY or PROPERTY
DAMAGE neither expected nor intended from the
standpoint of the INSURED. For the purpose of
determining the limit of the Company’s liability, all
personal injury and property damage arising out of
continuous or repeated exposure to substantially the same
general conditions shall be considered as arising out of one
OCCURRENCE.
....
I. PERSONAL INJURY:
The term PERSONAL INJURY wherever used herein
means:
(1) bodily injury, sickness, disease, disability or shock,
including death at any time resulting therefrom . . . .
which occurs during the policy period.
¶ 22 Finally, Landmark issued umbrella/excess liability policies to RSC, which were
effective from 8 October 2003 to 1 May 2014. Each policy contains the same
provisions, including:
A. Coverage For “Bodily Injury” Liability
The policies afford coverage for “bodily injury” liability:
I. INSURING AGREEMENT
1. We will pay on behalf of the insured those sums
in excess of the “retained limit” which the insured
becomes legally obligated to pay as damages to
which this insurance applies because of “bodily
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injury” . . . .
3. This insurance applies to “bodily injury” [ ] only
if:
a. The “bodily injury” [ ] is caused by an
occurrence;
b. The “bodily injury” [ ] occurs during the policy
period . . . .
II. Standard of Review
¶ 23 Summary judgment is reviewed de novo. In re Will of Jones, 362 N.C. 569, 573
(2008). Summary judgment is appropriate where there is no genuine issue of material
fact and the movant is entitled to judgment as a matter of law. N.C.G.S. § 1A-1, Rule
56(c) (2021); Meadows v. Cigar Supply Co., 91 N.C. App. 404, 406 (1988). Insurance
contract interpretation is a question of law. Wachovia Bank & Tr. Co. v. Westchester
Fire Ins. Co., 276 N.C. 348, 354 (1970).
III. Analysis
A. Trigger of Coverage – Exposure vs. Injury-in-Fact
¶ 24 The parties dispute at what point each insurer’s coverage was triggered. All of
the relevant policies provide coverage for “bodily injur[ies]” caused by an
“occurrence.” The policies tend to define “bodily injury” or “personal injury” as injury,
sickness, or disease sustained by a person, and “occurrence” as an accident including
exposure. The issue this Court must decide, then, is the point at which the various
benzene claimants experienced bodily injury such that RSC’s coverage under the
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policies was activated. Put differently, we must decide which policies apply to which
claims by determining the relevant event that activates an insurer’s coverage.
¶ 25 Landmark and National Union argue that this activating or triggering event
is a claimant’s actual exposure to benzene. Fireman’s Fund and RSC contend that the
policies do not provide coverage until there is a cognizable injury. As discussed below,
we agree with the trial court and the Court of Appeals that a claimant’s period of
exposure to benzene is the appropriate reference point in determining which policies
provide coverage for a given benzene-related injury.
1. Injury-in-fact Trigger Theory
¶ 26 Fireman’s Fund’s primary argument in support of an injury-in-fact trigger is
that the terms of the policies it offered RSC “provide coverage for ‘Personal Injuries’
. . . which they define as ‘bodily injury,’ ‘sickness’ and ‘disease,’ which results ‘during
the policy period.’ ” According to Fireman’s Fund, these terms require an injury-in-
fact trigger because the policies only “afford[ ] coverage for actual injury which occurs
during the policy period.” Fireman’s Fund claims that the policies it offered RSC
cannot be triggered by benzene exposure alone because benzene exposure is not itself
an injury-causing occurrence.2
¶ 27 Next, Fireman’s Fund argues that case law supports an injury-in-fact trigger.
2Medical and scientific evidence presented at the trial was filed under seal. This
opinion therefore discusses sealed information only in general terms.
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Fireman’s Fund points to this Court’s decision in Gaston County Dyeing Machine Co.
v. Northfield Insurance Co., which held that coverage for property damage was
triggered by an “injury-in-fact.” 351 N.C. 293, 302–03 (2000). Gaston concerned the
point at which insurance coverage for property damage caused by a ruptured pressure
vessel was triggered. Id. at 295. We explained that when “the accident that causes an
injury-in-fact occurs on a date certain and all subsequent damages flow from the
single event, there is but a single occurrence; and only the policies on the risk on the
date of the injury-causing event are triggered.” Id. at 304.
¶ 28 According to Fireman’s Fund, the same logic applies here. Fireman’s Fund
argues that, even though benzene exposure is the cause of the claimants’ injuries, it
is the actual injury—the resulting cancers or other physical ailments—that allows
claimants to “present claims and file suits against [RSC] in the underlying benzene
actions . . . Stated differently, the benzene claimants each allege that [RSC] is liable
to them for their cancers—not for the exposure itself.” Although Fireman’s Fund
acknowledges that “unlike the property damage in Gaston, the ‘bodily injury’ here is
not a single state confined to a narrow period of time,” Fireman’s Fund contends that
“the key question is the same. Whatever acts prompted the accident in Gaston, it was
not until the pressure vessel ruptured that damage occurred. If it hadn’t ruptured,
there would not have been any property damage.” Likewise, with respect to benzene
exposure, Fireman’s Fund argues that “[w]hatever exposures prompted the various
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mutations, it was not until a malignancy developed that injury occurred.”
¶ 29 Fireman’s Fund further argues that the injury-in-fact approach is “widely
accepted” and recognizes that “multiple policy periods can be triggered in connection
with progressive disease claims.” In support of this assertion, Fireman’s Fund cites
numerous cases applying an injury-in-fact trigger of coverage while still allowing for
the “application of a multiple trigger[3] in the context of bodily injury coverage for the
progressive disease claims at issue.” See, e.g., Dow Chem. Co. v. Associated Indem.
Corp., 724 F. Supp. 474, as supplemented,727 F. Supp. 1524
(E.D. Mich. 1989); Am.
Home Prods. Corp. v. Lib. Mut. Ins. Co., 565 F. Supp. 1485 (S.D.N.Y. 1983), as
modified, 748 F.2d 760 (2d Cir. 1984); Stonewall Ins. Co. v. Asbestos Claims Mgmt.
Corp., 73 F.3d 1178 (2d Cir. 1995). Relying on these cases, Fireman’s Fund argues
that the appropriate question in applying the injury-in-fact framework is “at which
points in time are there identifiable or actual ‘personal injuries’ . . . proven to have
occurred to a reasonable degree of medical certainty?”
¶ 30 Finally, Fireman’s Fund argues that benzene exposure causes identifiable
injuries-in-fact at various points in time from malignancy until diagnosis or death.
3 The multiple trigger approach recognizes that multiple events may trigger an
insurer’s coverage such that an insurer may be held liable from the date of the injury-causing
occurrence until manifestation of the injury. See J.H. France Refractories Co. v. Allstate Ins.
Co., 534 Pa. 29 (1993). Courts that have adopted this approach in the asbestos context, for
example, have recognized that “exposure to asbestos or silica, progression of the pathology,
or manifestation of the disease” may all trigger an insurer’s liability if the insurer was on the
risk at the time of any one of these relevant events. Id. at 37.
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Quoting Wilder v. Amatex Corp., 314 N.C. 550, 560 (1985), Fireman’s Fund argues
that this Court has already established that “[e]xposure to disease-causing agents is
not itself an injury” and that “in the context of disease claims,” the point in time when
“the immune system fails and disease occurs . . . constitutes the first injury.” Though
recognizing that benzene is a cancer-causing agent, Fireman’s Fund argues that
exposure does not necessarily have such consequences, and “[t]hus, to describe a
mutation or series of mutations that has not developed into a malignancy as ‘bodily
injury’ is not reasonable.” In Fireman’s Fund’s view, a cognizable injury only arises
when a malignancy develops into “an ‘evolving cancer,’ and actual impairment,
injuries, sickness, and disease” result, thereby triggering coverage.
¶ 31 RSC similarly argues that a policy’s coverage is triggered if and when a
claimant suffers bodily injury, sickness, disease, or death during the policy period.
According to RSC, both the trial court and the Court of Appeals “erred in holding that
coverage is triggered only if a claimant experienced exposure to benzene during the
policy period.” Rather, RSC argues that both Gaston and the plain language of the
policies at issue compel application of the injury-in-fact approach. However, RSC
contends that “there is a factual dispute among the parties about how an injury-in-
fact trigger applies to the facts of this case.” Specifically, because an injury-in-fact
trigger has not yet been applied in this litigation, RSC urges that this Court should
not be the first to determine “during which policy periods . . . each benzene claimant’s
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alleged injuries in fact occur[ed].” RSC contends that there is “[c]onflicting medical
expert testimony” creating factual and evidentiary disputes that the trial court did
not resolve, and which this Court cannot resolve. Accordingly, RSC asks this Court
to remand the case to the trial court to allow it “to apply an injury-in-fact trigger of
coverage in the first instance.”
2. The Exposure Trigger
¶ 32 By contrast, Landmark and National Union ask this Court to hold that the
policies providing coverage for benzene exposure were triggered during the exposure
period. As National Union puts it, the lower courts “correctly held that coverage is
triggered under those policies in effect during a given claimant’s exposure to
Benzene.” This means that “coverage is triggered if, and only if, the underlying
claimant was exposed to benzene during that policy’s effective dates because a
claimant only experiences ‘bodily injury’ during exposure to benzene.” Landmark and
National Union agree that both North Carolina law and medical evidence require this
conclusion.
¶ 33 Central to their position is the argument that “a claimant only experiences
‘bodily injury’ during exposure to benzene.” According to National Union, Fireman’s
Fund’s argument “requiring malignancy and/or diagnosable illness” as opposed to
DNA damage “functionally reads the term ‘bodily injury’ out of the definition of ‘bodily
injury’ by equating it with ‘sickness’ or ‘disease.’ ” In addition to medical evidence
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presented at trial, both Landmark and National Union rely on the United States
District Court for the Eastern District of North Carolina’s decision in Imperial Cas.
& Indem. Co. v. Radiator Specialty Co., 862 F. Supp. 1437 (E.D.N.C. 1994), in support
of their position.
¶ 34 In that case, the court expressly rejected the manifestation trigger theory for
progressive bodily injury and applied the exposure trigger theory based on the “view
that exposure to the dangerous substance at issue during the policy period caused
immediate, albeit undetectable, physical harm which ultimately led to disease or
physical impairment after the expiration of the policy period.”4 Id. at 1442. (quoting
Cont’l Ins. Cos. v. Ne. Pharm. & Chem. Co., 811 F.2d 1180, 1190 (8th Cir. 1987)). Both
National Union and Landmark argue that this holding is consistent with evidence
that the actual bodily injuries caused by benzene exposure happen in the days
following exposure, whereas the consequences of the injury may take much longer to
become detectable.
¶ 35 Despite its relevance, Fireman’s Fund contends that Gaston’s adoption of an
injury-in-fact trigger renders Imperial Casualty irrelevant because, although the
federal court in that case predicted that this Court would adopt an exposure theory,
4 Citing Imperial Casualty, National Union points out that “the majority of federal
cases on this issue [progressive diseases] have found coverage by adopting the ‘exposure’ or
the ‘continuous exposure,’ theory of when injury occurs.” 862 F. Supp. at 1442 (citing Cont’l
Ins. Companies v. Ne. Pharm. And Chem. Co., 811 F.2d 1180, 1190 (8th Cir. 1987).
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this Court opted for the injury-in-fact approach in Gaston. Landmark and National
Union reject this assertion. For example, National Union responds that Gaston
“differs from [Imperial Casualty and] this case because it assessed trigger of coverage
for property damage occurring on a date certain, not claims for bodily injury caused
by long-term benzene exposure.” According to National Union, Gaston actually
confirms that courts must “look[ ] to the evidence to determine when the damage took
place and not when the consequences of the damage became evident.” Likewise,
Landmark takes the position that Gaston did not adopt an injury-in-fact trigger in
the bodily-injury context, noting that Gaston considered property damage occurring
on a date certain, rather than progressive bodily injury resulting from exposure to a
harmful substance.
¶ 36 Finally, National Union argues that this Court should not adopt Fireman’s
Fund’s “continuous trigger” theory that would allow coverage from “all policies in
effect from the time a claimant is exposed to benzene until diagnosis or death.”
Though National Union acknowledges that other courts have applied a continuous
trigger theory in the context of asbestos claims, National Union argues that “benzene
is different than asbestos” because “[u]nlike benzene, asbestos stays in the body
permanently and may continue to cause new injuries after exposure.” By contrast,
benzene “causes injury only during the time periods in which a claimant is exposed
to it and then is flushed from the body within hours or days.” National Union notes
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that other jurisdictions have rejected the continuous trigger theory in cases involving
exposure to “substances that cease causing injury once exposure stops” and cause
illnesses that do not manifest until years later. See, e.g., In re Silicone Implant Ins.
Coverage Litig., 667 N.W.2d 405 (Minn. 2003); Hancock Lab’ys, Inc. v. Admiral Ins.
Co., 777 F.2d 520 (9th Cir. 1985).
3. Analysis
¶ 37 The unambiguous language of each of the relevant policies requires the
insurers to indemnify RSC for claims raised by claimants who suffered some form of
personal or bodily injury caused by an occurrence and specifies that either the
occurrence or the resulting injury must take place during the effective period of the
insurer’s policy. But, as Landmark and National Union argue, the policies do not
define personal or bodily injury to require some diagnosable sickness or disease for
coverage to be triggered. For example, the term “personal injury” as used in Fireman’s
Fund’s policies includes a “bodily injury,” such as that caused by “exposure.”
¶ 38 As Landmark and National Union argue, benzene causes bodily injury upon
exposure. Fireman’s Fund’s and RSC’s attempt to redefine “injury-in-fact” as death,
disease, or some other physical manifestation of the harm confuses the injury with
its consequences. Assuming there is no intervening cause, cancer is a manifestation
of the injury that occurs upon benzene exposure that creates a compensable claim. It
is not the injury itself. Even though we hold that exposure to benzene is synonymous
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with the coverage-triggering injury, that injury is only compensable if it results in
damages. In other words, if a person is exposed to benzene but suffers no
consequences as a result, the individual has sustained no compensable harm.
¶ 39 We are persuaded by the reasoning of Imperial Casualty. Quoting the Sixth
Circuit’s decision in a similar asbestos exposure case, the United States District
Court for the Eastern District of North Carolina noted that “[c]umulative disease
cases are different from the ordinary accident or disease situation” in part because, if
the injury-in-fact theory were adopted, “the manufacturer’s coverage becomes illusory
since the manufacturer will likely be unable to secure any insurance coverage in later
years when the disease manifests itself.” Imperial Casualty, 862 F. Supp. at 1443
(quoting Ins. Co. of North Am. v. Forty-Eight Insulations, 633 F.2d 1212, 1219 (6th
Cir. 1980)). This makes good sense: If coverage is triggered only upon disease
manifestation, then a company that obtained coverage during a period that it
manufactured products with benzene could not invoke its coverage if the individuals
who were exposed to benzene during the coverage period did not develop a disease or
die until after the policy expired. That would make the availability of coverage to RSC
predicated on its maintenance of coverage in perpetuity, even if RSC had stopped
manufacturing benzene-containing products.
¶ 40 Gaston does not overrule or otherwise displace Imperial Casualty. In Gaston,
this Court was selecting between “an ‘injury-in-fact’ or a ‘date-of-discovery’ trigger of
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coverage . . . where the date of property damage [was] known and undisputed.”
Gaston, 351 N.C. at 299. The Court of Appeals is correct that, in dealing with coverage
for property damage, Gaston involved distinct factual circumstances. But at their
core, the factual distinctions between this case and Gaston relate to how to properly
define the injury, which in turn controls when coverage is triggered under the
relevant policies.
¶ 41 Gaston explicitly rejected the notion that coverage-triggering damage “occurs
‘for insurance purposes’ at the time of manifestation or on the date of discovery.” Id.
at 303(overruling W. Am. Ins. Co. v. Tufco Flooring E.,104 N.C. App. 312
(1991)).
Instead, “the accident that causes an injury-in-fact occurs on a date certain and all
subsequent damages flow from the single event, there is but a single occurrence; and
only policies on the risk on the date of the injury-causing event are triggered.” Id. at
304. Nothing in Gaston suggests either that exposure to a substance causing
alterations to a person’s DNA is not an “injury-in-fact” or that an insurer offering
coverage when a claimant is exposed to benzene is not liable for all the damages
arising from that injury.
¶ 42 Finally, Fireman’s Fund argues that, if we apply the exposure theory to this
case, we “should also hold that . . . policies in place throughout the development of a
claimant’s malignancy and the ‘evolving cancer,’ and the resulting bodily injury,
sickness, and disease should be triggered too.” According to Fireman’s Fund, “it would
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be anomalous to hold that coverage is triggered by exposure alone, when the claimant
is healthy, but that there is no coverage triggered during the times when a claimant”
is ill. This application of a continuous trigger would be at odds with our holding that,
in benzene cases, the injury that triggers coverage occurs at the time of exposure.
¶ 43 Consistent with other courts that have decided the issue, National Union and
Landmark have established that an injury occurs at the time of benzene exposure. To
apply a continuous trigger approach in this context would be to adopt Fireman’s
Fund’s and RSC’s mischaracterization of the relevant injury: In order for the policies
to provide coverage, we would be required to label the injury’s consequences (e.g.,
cancer) as the bodily injury itself. Thus, under these circumstances, a continuous
trigger is necessarily inconsistent with an exposure trigger.5
B. Allocation
¶ 44 Next, the parties ask this Court to determine how to properly allocate RSC’s
benzene liabilities among the providers. As discussed, while some injuries occur at a
definite time and place, other injuries, such as those resulting from benzene exposure,
are not so definite and could have resulted from any one exposure over a period of
5 Whether the multiple-trigger theory should apply in a given case requires a fact-
intensive analysis regarding the nature of the injury in question. In the context of benzene
exposure where DNA mutations occur upon exposure, benzene is expelled from the body
within a matter of days, and the injury ceases shortly after exposure ceases, the cancer that
may later result is not itself a new injury that would trigger additional policies. But where
the injury-inducing condition persists over time, such as in the context of asbestos exposure
or environmental contamination, or later results in new, distinct injuries, the multiple-
trigger theory may be appropriate.
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years. In these circumstances, the injury may implicate numerous insurance policies
provided by different insurers over the course of the period during which the damage
could have occurred. In such cases, it is necessary to determine how to apportion costs
arising during the various policy years to the appropriate insurers.
¶ 45 The period during which a particular policy’s coverage is triggered is referred
to as “time on the risk.” Under a pro rata, or time-on-the-risk, allocation approach,
“each triggered policy bears a share of the total damages proportionate to the number
of years it was on the risk, relative to the total number of years of triggered coverage.”
Thomas M. Jones & Jon D. Hurwitz, An Introduction to Insurance Allocation Issues
in Multiple-Trigger Cases, 10 Vill. Envtl. L.J. 25, 42 (1999). As Fireman’s Fund
explains, “costs are allocated among the policies according to their respective time on
the risk.” By contrast, all sums, or joint and several, liability “allows recovery in full
under any triggered policy of the policyholders’ choosing and leaves the selected
insurer to pursue cross-claims against other carriers whose policies were also
available.” Id. at 37. This means that “any policy on the risk for any portion of the
period in which the insured sustained property damage or bodily injury is jointly and
severally obligated to respond in full, up to its policy limits, for the loss.” Id. at 37–
38.
¶ 46 All three insurers argue that pro rata allocation is appropriate based on the
terms of their policies, whereas RSC advocates for adopting an all sums approach.
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The trial court applied the pro rata method, but the Court of Appeals held that all
sums allocation was warranted.
1. Mootness
¶ 47 Although the Court of Appeals held that the trial court erroneously applied pro
rata allocation in its intermediate order, it further held that this error was rendered
moot because the trial court entered a final judgment “specif[ing] that the allocation
is not pro rata, but is instead subject to the contractual limitations established in the
policies,” which the Court of Appeals interpreted to require all sums allocation.
Radiator Specialty Co., 2020 WL 7039144, at *5.
¶ 48 RSC contends that the Court of Appeals reached the correct ultimate
substantive conclusion—that the standard-form policy language compels an all sums
rather than pro rata allocation of costs—but “muddled its correct legal ruling by
mistakenly failing to apply it to the trial court’s Final Judgment.”
¶ 49 RSC argues that the trial court’s final judgment incorporated the intermediate
Order Regarding Allocation, which interpreted the disputed policy language to
compel pro rata allocation. When the trial court’s final judgment ordered the insurers
to defend and indemnify RSC “subject to their respective policy limits,” it meant
“subject to their respective policy limits” as interpreted by the trial court (e.g., subject
to their respective policy limits under a pro rata allocation method). RSC asks this
Court to correct the Court of Appeals’ error and ensure that it is paid in accordance
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with the all sums allocation method the Court of Appeals held to be required by the
insurance policies.
¶ 50 The insurers do not appear to contest RSC’s assertion that the Court of Appeals
erred in holding that the trial court’s final judgment order rendered its intermediate
order moot. Instead, they ask that “[i]f this Court reverses the Court of Appeals’
mootness determination, it should also reverse the Court of Appeals’ unsupported
endorsement of all-sums allocation because all-sums allocation is incompatible with
the terms of the National Union policies, inequitable, and bad public policy.”
¶ 51 Though RSC is correct that the Court of Appeals misconstrued the trial court’s
final judgment as calling for all sums allocation, our resolution of the substantive
question—that pro rata allocation is appropriate—overrules the Court of Appeals’
suggestion to the contrary. For the sake of clarity, the trial court’s final judgment
should be read to require costs to be assigned pro rata.
2. Pro Rata versus All Sums Allocation
a. The insurers’ pro rata allocation position.
¶ 52 The insurers’ central argument is that the express language of the contracts
contemplates pro rata rather than all sums allocation. For example, as National
Union explains, its policies with RSC contain one of two substantively identical
insuring provisions stating, in effect, that National Union “will pay those sums that
[RSC] becomes legally obligated to pay as damages because of ‘bodily injury’ . . . . This
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insurance applies only to bodily injury . . . which occurs during the policy period.”
According to National Union, this “express and plain language require[s] pro-rata
allocation, and the Court of Appeals erred in stating otherwise.” National Union
argues that all sums allocation is only appropriate when an insurance policy
specifically contemplates paying “all sums” arising from relevant injuries. “The
thinking goes that the promise to pay ‘all sums’ renders the insurer responsible for
the entirety of the insured’s liability, even if only a portion of that liability stems from
damage during the policy period.” Thus, National Union emphasizes that its policies
intentionally use the term “those sums” in describing which of RSC’s liabilities
National Union will become obligated to pay from the policy periods.
¶ 53 In support of this argument, National Union notes that multiple
jurisdictions—including jurisdictions that generally apply an all sums allocation
approach—have recognized that the phrase “those sums” has a distinct meaning
when included in an insurance agreement. See, e.g., Thomson Inc. v. Ins. Co. of N.
Am., 11 N.E.3d 982 (Ind. Ct. App. 2014); Crossmann Cmtys. Of N.C., Inc. v.
Harleysville Mut. Ins. Co., 395 S.C. 40 (2011).
¶ 54 Even aside from the “all sums” versus “those sums” distinction, National Union
contends that pro rata allocation is appropriate because it “is the only allocation
method that gives effect to the National Union Policies’ ‘during the policy period’
language.” Relying on many cases that have adopted this interpretation, National
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Union argues that this term “unambiguously limits coverage to damages for injuries
taking place during the policy’s annual term.” National Union argues that, “[i]n
contrast, the all-sums method ignores the ‘during the policy period’ language and
reads it out of the contract, because it makes an insurer liable for damages
attributable to bodily injury happening outside the bargained-for policy period.”
National Union asserts this would “conflict[ ] with fundamental North Carolina law
that unambiguous terms in a contract must be enforced as written.”
¶ 55 Similarly, Fireman’s Fund argues that “[p]ro rata allocation is required by the
language of the policies before this Court, which limits coverage for personal injury
to those that result ‘during the policy period.’ ” According to Fireman’s Fund, pro rata
allocation is consistent with the design of “ ‘[o]ccurrence-based’ insurance policies . .
. [which] provide coverage for a discrete and finite policy period: insurers assume
risks only for injuries that occur ‘during the policy period.’ ” By design, occurrence-
based provisions “serve[ ] to limit the risks for which insurers accept responsibility.”
¶ 56 In effect, the insurers argue that, pursuant to the policies’ language, they
assumed the risk of certain RSC liabilities “during the policy period.” In this way,
“the ‘policy period’ of an insurance policy acts as a substantive limitation on the
coverage afforded.” In Fireman’s Fund’s view, pro rata allocation gives effect to these
contractual choices because the insurance agreements “afford coverage for personal
injury to which the policies apply, which is injury that occurs during their respective
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policy periods.” By contrast, an all sums approach effectively puts one insurer on the
hook for injuries occurring in policy periods that its policies do not cover.
¶ 57 According to Fireman’s Fund, the modern trend has decisively moved towards
pro rata allocation over the all sums approach.6 In Fireman’s Fund’s telling, these
cases accord with the language of insurance contracts limiting coverage to injuries
occurring during the years the coverage is active, giving effect to the bargained-for
choices of RSC and the insurers to limit coverage “for all sums attributable to injury
occurring during the policy period—not all injury occurring at any time (including
injury occurring outside the policy period).”
¶ 58 Fireman’s Fund also asserts that “principles of equity and commonsense
support pro rata allocation.” According to Fireman’s Fund, “[i]mposing liability on an
all sums basis would create a windfall for policyholders” because “[u]nder an all sums
approach, policyholders who bought insurance for a single year may obtain exactly
the same coverage for loss as those who bought insurance continuously for decades.”
Fireman’s Fund contends that the insured’s choices should dictate the level of risk
the insured is susceptible to: An insured who chooses to purchase broad coverage from
a financially-secure insurer every year over a ten-year period should not be treated
6 See, e.g., Pa. Nat’l Mut. Cas. Ins. Co. v. Roberts, 668 F.3d 106 (4th Cir. 2012);
Arceneaux v. Amstar Corp., 200 So.3d 277 (La. 2016); S. Silica of La., Inc. v. La. Ins. Guar.
Ass’n, 979 So.2d 460(La. 2008); Rossello v. Zurich Am. Ins. Co.,468 Md. 92
(2020); Bos. Gas
Co. v. Century Indem. Co., 454 Mass. 337(2009); Dutton-Lainson Co. v. Cont’l Ins. Co.,279 Neb. 365
(2010); Crossmann Cmtys. of N.C. v. Harleysville Mut. Ins. Co.,395 S.C. 40
(2011).
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the same as an insured who chooses to purchase narrow coverage for a single year
from a risky provider. 7
¶ 59 Landmark “joins in Fireman’s Fund’s Appellant Brief concerning the allocation
issue” and notes that “the arguments in Fireman’s Fund’s Appellant Brief concerning
why its policy language requires pro-rata allocation instead of all sums allocation
apply equally to the Landmark policies.” In addition, Landmark notes that its policies
“do not contain ‘all sums’ language,” and instead require Landmark only to pay “those
sums in excess of the ‘retained limit’ which the insured becomes legally obligated to
pay.” Thus, Landmark also joins the section of National Union’s brief “addressing
why ‘those sums’ policy language further requires pro-rata allocation, instead of all
sums allocation, for defense expenses and indemnity sums related to any benzene
bodily injury lawsuit that triggers a Landmark policy.”
b. RSC’s all sums allocation position.
¶ 60 In response, RSC argues that the plain language of the policies “require[s] a
triggered Insurer to indemnify RSC for ‘all sums’ or ‘those sums’ it becomes legally
obligated to pay—not a lesser, prorated sum.” According to RSC, cases from other
7 National Union also makes a similar public policy argument as Fireman’s Fund,
explaining that “[a]n all-sums approach unfairly foists upon insurers the cost for periods in
which a policyholder chose not to obtain” adequate insurance. Meanwhile, pro rata allocation
“forces companies to internalize part of the costs of long-tail liability and creates incentives
for companies to minimize environmental carelessness by not permitting a policyholder who
chooses not to be insured . . . to recover as if the policyholder had been fully covered”
EnergyNorth Nat. Gas, Inc. v. Certain Underwriters at Lloyd’s, 156 N.H. 333, 344 (2007)
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jurisdictions demonstrate that “the phrase ‘all sums’ or ‘those sums’ means . . . a
triggered insurer is obligated to pay all the sums the insured becomes legally
obligated to pay as damages.” See, e.g., Keene Corp. v. Ins. Co. of N. Am., 667 F.2d
1034(D.C. Cir. 1981); J.H. France Refractories Co.,534 Pa. 29
(1993); California v.
Cont’l Ins. Co., 55 Cal. 4th. 186, as modified (Sept. 19, 2012).
¶ 61 RSC contends that language in the relevant policies defining occurrence as
“continuous or repeated exposure” and requiring the insurers to pay all “ ‘damages
because of’ bodily injury” indicates that the insurers knew they would be responsible
for paying “compensation for ongoing harm suffered after the policy period.”
Similarly, RSC argues that there is language in the policies that is “antithetical to
pro rata allocation, including continuing coverage, non-cumulation, and prior-
insurance provisions,” which all presuppose that (1) multiple policies may be called
upon to indemnify RSC for a single loss or occurrence, and (2) insurers may be
required to indemnify the insured for losses arising outside of the policy period. For
example, RSC notes that all three of the insurers’ policies “extend coverage beyond
the policy period to liability for ‘death resulting at any time from the bodily injury,”
provisions which other courts “have found incompatible with pro rata allocation.” At
the same time, RSC emphasizes “the glaring absence of any express pro rata
limitation[,]” an omission that is “particularly notable given that the Insurers have
been aware of the hotly contested issue of ‘all sums’ vs. pro rata allocation for
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decades.”
¶ 62 RSC contends that the various arguments raised by the insurers in support of
pro rata allocation are meritless. First, RSC argues that the phrase “ ‘during the
policy period’ . . . does not limit the extent of coverage; it merely specifies the trigger
of coverage.” Second RSC argues that the use of the phrase “those sums” rather than
“all sums” does not “clearly and unambiguously require[ ] pro rata allocation” because
there is “no substantive difference between the promise to pay ‘all,’ ‘those,’ or ‘the’
sums—each phrase promises indemnification for the full amount RSC becomes
legally obligated to pay.” Third, RSC argues that the insurers have mischaracterized
the state of the law on this issue and ignored “older, well-established cases” applying
an all sums allocation method, as well as a recent North Carolina trial court decision,
Duke Energy Carolinas, LLC v. AG Insurance SA/NV, No. 17 CVS 5594, 2020 WL
3042168 (N.C. Super. Ct. June 5, 2020). And fourth, RSC argues that the insurers’
appeals to equity are misplaced, both because “[e]quitable considerations cannot
trump contractual language” and because regardless, “[e]quity strongly favors RSC.”
Specifically, RSC emphasizes that under an all sums allocation method, “[n]one of
the Insurers are being asked to pay more than its policy limit; no primary insurer is
being asked to respond until RSC satisfies the deductible or retention; . . . no excess
insurer is being asked to respond until the full amount of the directly underlying
policy’s limit has been exhausted,” and RSC will still be responsible for its decisions
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not to obtain adequate insurance for a given year. RSC notes that any insurer who
bears the costs based on RSC’s selection of a triggered policy may seek contribution
from other insurers who were “on the risk” at the time an injury occurred.
c. Analysis
¶ 63 It is a “well-settled principle that an insurance policy is a contract[,] and its
provisions govern the rights and duties of the parties thereto.” Fid. Bankers Life Ins.
Co. v. Dortch, 318 N.C. 378, 380 (1986). “As with all contracts, the object of construing
an insurance policy ‘is to arrive at the insurance coverage intended by the parties
when the policy is issued.’ ” Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield L.L.C.,
364 N.C. 1, 9 (2010) (quoting Wachovia Bank & Tr. Co. v. Westchester Fire Ins. Co.,
276 N.C. 348, 354 (1970)). That principle is true here. Key to determining whether
all sums allocation is appropriate is whether the policy language provides for such an
approach.
¶ 64 Language indicating that an insurer will cover “all sums” must be present in
the policy to warrant application of all sums allocation.8 See, e.g., Rossello v. Zurich
Am. Ins. Co., 468 Md. 92, 119 (2020); Goodyear Tire & Rubber Co. v. Aetna Cas. &
8 The dissent argues that this statement “erroneously suggests that cases from other
jurisdictions . . . require an insurance policy to contain the terminology ‘all sums’ for an
insurer to have complete indemnity obligations.” Though the dissent claims this statement
is a mischaracterization, in fact, the dispositive language meriting all sums allocation in
these cases was the presence of the term ‘all sums’ (or its equivalent) in the policies. The
dissent fails to point to any case in which a court has applied all sums allocation in the
absence of “all sums” language or similar terminology.
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Sur. Co., 95 Ohio St. 3d 512, 516 (2002); Keene Corp., 667 F.2d at 1047–50; see also
Thomas M. Jones & Jon D. Hurwitz, An Introduction to Insurance Allocation Issues
in Multiple-Trigger Cases, 10 Vill. Envtl. L.J. 25, 37 (1999) (explaining that, when
implementing the “all sums” approach, courts “usually focus on a policy’s ‘all sums’
language, which commonly states: ‘[t]he Company will pay on behalf of all the insured
all sums which the insured shall become legally obligated to pay’ ” (alteration in
original)).
¶ 65 Though the insurers’ policies contain language agreeing to pay “all sums”
arising from certain liabilities (or what RSC contends is equivalent language),
Fireman’s Fund, Landmark, and National Union each point to other language in their
policies with RSC that, in their view, expressly limits the policies to bodily injury
sustained “during the [respective] policy period[s].” Specifically, Fireman’s Fund’s
agreements generally provide coverage for personal injuries caused by an
“occurrence,” which is defined as “an accident or a happening or event . . . which
unexpectedly and unintentionally results in personal injury . . . during the policy
period.”9 Landmark’s policies provide coverage for “bodily injury” but “only if” the
injury “occurs during the policy period.” Likewise, National Union’s primary policies
from 1987 to 1990 “appl[y] only to bodily injury . . . which occurs during the policy
9 Though there are slight variations in language between Fireman’s Fund’s various
policies, all three of the policies state that the occurrences for which coverage is provided are
events that happen “during the policy period.”
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period.” Its primary policies from 1990 to 1992 state that it will cover “those sums
that the insured becomes legally obligated to pay as damages because of ‘bodily
injury[,]’ ” but “only if . . . [t]he ‘bodily injury’ . . . occurs during the policy period.”10
¶ 66 As the insurers argue, the modern trend is to apply pro rata allocation when
limiting language like “during the policy period” exists, even when the policy contains
a reference to paying “all sums” arising out of certain liabilities. See, e.g., Rossello,
468 Md. at 119 (holding that, where “during the policy period” language was present,
“the pro rata approach [was] unmistakably consistent with the language of standard
. . . policies”); Crossmann Cmtys. of N.C., 395 S.C. at 62 (applying pro rata allocation
where “during the policy period” limiting language was present and explaining that
this interpretation “give[s] effect to each part of the insuring agreement (rather than
focusing solely on the terms ‘all sums’ or ‘those sums’), [and] . . . is consistent with
the objectively reasonable expectations of the contracting parties”). For example, in
Rossello, an insurance policy stated that the insurer would “pay on behalf of the
Insured all sums which the Insured shall become legally obligated to pay.” 468 Md.
at 118. The Court of Appeals of Maryland, the state’s highest court, held that even in
the face of this provision, pro rata allocation was appropriate. Id. at 119. The court
explained that reading the policy to require all sums allocation would be “inconsistent
10National Union’s sixth policy providing excess coverage incorporates and adopts the
terms of the primary policy from 1991 to 1992 and therefore uses the same language.
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with the remainder of the agreement because each policy provides coverage only for
‘bodily injury . . . which occurs during the policy period.’ ” Id. at 118. The reasoning
in Rossello similarly applies to the policies at issue here.
¶ 67 This case does involve a slight distinction in that the policy in Rosello defined
bodily injury as injuries that occur during the policy period. Here, Fireman’s Fund’s
policies provide coverage for bodily or personal injuries that result from occurrences
that happen during the policy period. This distinction is inapposite. As discussed
above, exposure to benzene constitutes an “occurrence” that may trigger coverage if
the exposure leads to “bodily injury.” Because there is very little daylight between
exposure and injury in the context of benzene exposure, there is virtually no practical
purpose in distinguishing between a clause limiting coverage to injuries that occur
during the policy period and those limiting coverage to occurrences during this period.
Pursuant to the limiting language of Fireman’s Fund’s policies then, Fireman’s Fund
will only indemnify RSC for the costs of such occurrences that take place “during the
policy period.” See, e.g., Bos. Gas Co. v. Century Indem. Co., 454 Mass. 337, 360,910 N.E.2d 290
, 307–08 (2009). Thus, even if a policy contains language promising to pay
for “all sums” that RSC “shall be obligated to pay . . . because of” personal or bodily
injury, contractual language that limits this phrase to either bodily injuries that occur
during the policy period or occurrences that take place during the policy period makes
clear that the insurer’s obligation is not without limits.
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¶ 68 Rather, using Fireman’s Fund’s policies as an example, the insurer agreed to
pay for all of the sums (1) arising from bodily injuries; (2) resulting from occurrences;
and (3) that took place during the policy periods. The language “during the policy
period” therefore cabins the phrase “all sums” to a finite period of time. It follows that
the insurers did not agree to cover all sums arising out of benzene exposure without
regard to the policy periods during which incidents of exposure took place.11 Instead,
“[c]onsistent with the policy language limiting coverage to that which occurs ‘during
the policy period,’ the timing of the [occurrence/injury] dictates . . . the portion of
damages for which each policy is responsible.” See Rossello, 468 Md. at 119.12
¶ 69 RSC points to a North Carolina Business Court decision that applied all sums
allocation based on the appearance of that phrase in an insurance policy. See Duke
Energy Carolinas, LLC v. AG Ins. SA/NV, No. 17 CVS 5594, 2020 WL 3042168, at *7
(N.C. Super. Ct. June 5, 2020). The business court’s application of all sums allocation
11 Because we hold that language limiting the insurers’ liability to occurrences that
happened “during the policy period,” we do not decide whether National Union’s and
Landmark’s use of the term “those sums” in their policies rather than “all sums” provides an
additional ground for protection.
12 To be sure, some courts have applied the all sums approach, even where the limiting
language of “during the policy period” appears. See, e.g., California v. Cont’l Ins., 55 Cal. 4th
186, 199–200 (Sept. 19, 2012); Goodyear Tire & Rubber Co., 95 Ohio St. 3d at 515–16; J.H.
France Refractories Co., 534 Pa. 29, 41–42 (1993); Keene Corp. v. Ins. Co. of N. Am.,667 F.2d 1034
, 1044–49 (D.C. Cir. 1981). These cases, however, tend to represent an outdated view of
the proper interpretation of “pro rata” language. See Rossello, 468 Md. at 117. The truncated
contractual interpretation they apply fails to full consider the limiting effect of the phrase
“during the policy period.”
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was based on the presence of non-cumulation provisions in the policy at issue, which
“recognize[d] that damage may extend beyond the policy period in which the
triggering property damage first occurs and reflect the parties’ agreement that such
damage shall be treated as if all damage occurred in a single premium period, subject
to a single policy limit.” Duke Energy, 2020 WL 3042168, at *8. Indeed, the business
court “conclude[d] that the non-cumulation provisions make plain that the parties’
Insuring Agreement in the Policies . . . obligates the insurer to pay all sums which
Duke becomes legally obligated to pay because of ‘property damage.’ ” Id.
¶ 70 The Business Court’s decision in Duke Energy is consistent with cases from
some jurisdictions that have similarly used the “all sums” approach when non-
cumulation or continuing coverage provisions were present in a policy, even when
“during the policy period” limiting language was also present. In In re Viking Pump,
for example, the New York Court of Appeals recently held that “all sums” allocation
applied where an insurer’s excess policies contained non-cumulation policies with
continuing coverage provisions. In re Viking Pump, 27 N.Y.3d 244, 264 (2016). There,
the court distinguished one of its earlier cases applying pro rata allocation because
that case did not consider the effect of non-cumulation provisions on policy language.
Id. at 259. In short, the court reasoned that, in some contracts, “it would be
inconsistent with the language of the non-cumulation clauses to use pro rata
allocation” because “[s]uch policy provisions plainly contemplate that multiple
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successive insurance policies can indemnify the insured for the same loss or
occurrence.” Id. at 261. It is important to note that both Duke Energy and In re Viking
Pump are distinguishable from this case because, unlike asbestos exposure, for
instance, which was at issue in In re Viking Pump, we have explained that benzene
exposure causes injury at the time of exposure, rather than a continuous injury. See
id. at 251. Further, its interpretation and application of the non-cumulation
provisions do not apply in this case.
¶ 71 National Union’s policies do not contain any such provisions, and the reasoning
from In re Viking Pump and Duke Energy is therefore inapplicable.13 However, RSC
characterizes provisions in Fireman’s Fund’s and Landmark’s policies as non-
cumulation and continuing coverage provisions. After reviewing the language of these
agreements, however, we are not convinced that Fireman’s Fund or Landmark
contemplated the possibility that they would be liable for “all sums” arising from
liabilities that occurred during any policy period.
¶ 72 With respect to Fireman’s Fund, RSC argues that Fireman’s Fund’s umbrella
policies “follow form” to the underlying policies, thereby incorporating the underlying
13 RSC argues that all three insurer’s policies contain continuing coverage provisions
stating that the policies “extend coverage beyond the policy period to liability for ‘death
resulting at any time from the bodily injury.’ ” In the context of benzene exposure, this
provision does not suggest an insurer contemplated all sums allocation. Because the injury
occurs at the time of exposure whereas the consequences of that injury, such as death, occur
long after, it is not just logical, but necessary, that the insurers would remain liable for the
injuries’ consequences, but not for injuries that occur outside of their respective policy
periods.
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policies’ terms. These underlying policies, in turn, contain non-cumulation provisions.
Thus, RSC contends that the non-cumulation provisions are included within the
umbrella policies.14 RSC recognizes that “non-cumulation and prior insurance
provisions have a well-recognized purpose: to limit an insurer’s liability to a single
policy limit when an occurrence triggers multiple policies issued by that insurer.” But
Fireman’s Fund’s excess policies at issue “expressly do not incorporate underlying
provisions that relate to the amount and limits of liability” like the non-cumulation
provisions. See, e.g., Deere & Co. v. Allstate Ins. Co., 32 Cal. App. 5th 499, 517 (2019),
as modified on denial of reh'g (Mar. 26, 2019) (recognizing that follow form provisions
in excess insurance policies excluded underlying terms related to “the amounts and
limits of liability,” and holding that the excess policies’ follow form clauses
incorporated “the scope (i.e. products-liability coverage) of the first-layer policies but
not the monetary caps on liability”); Int’l. Paper Co. v. Affiliated FM Ins. Co., No. 974
14RSC points to two non-cumulation provisions that it believes have been incorporated
into Fireman’s Fund’s excess policies:
It is agreed that if any loss covered hereunder is also covered in
whole or in part under any other excess policy issued to the
Assured prior to the inception date hereof the limit of liability
. . . shall be reduced by any amounts due to the Assured on
account of such loss under such prior insurance.
If collectible insurance under any other policy(ies) of the
COMPANY is available to the INSURED, covering a loss also
covered hereunder . . . the COMPANY’S total liability shall in no
event exceed the greater or greatest limit of liability applicable
to such loss under this or any other such policy(ies).
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350, 2005 WL 7872235, at *5-6 (Cal. Super. Mar. 17, 2005) (concluding that umbrella
policy followed form to underlying policy, except with respect to non-cumulation
provision based on umbrella policy’s exception excluding incorporation of underlying
policy terms pertaining to “the amount and limits of liability”). Thus, the non-
cumulation provisions are not incorporated into the umbrella policies in the first
instance.
¶ 73 Further, RSC “misconstrues” Fireman’s Fund’s non-cumulation provisions. See
Cont’l Cas. Co. v. Hennessy Indus., Inc., No. 1-18-0209, 2019 Ill. App. Unpub. LEXIS
218, at *44 (Ill. Ct. App. Feb. 13, 2019). Importantly, “the language of the clauses
provides for their application where more than one policy is required to indemnify for
the same loss, not where the policy is required to indemnify for a loss that occurred
outside its policy period.” Id. In other words, the policies simply impose coverage
limits on the amount RSC may claim if other policies provide coverage for a single
injury.
¶ 74 RSC similarly misinterprets the “continuing coverage” provisions it points to
in Landmark’s policies.15 The language RSC emphasizes describes Landmark’s
obligations for a continuous injury. Even assuming the health effects of benzene
15 RSC points to a provision in Landmark’s policies which states the following: “ ‘Bodily
injury’ . . . which occurs during the policy period and was not, prior to the policy period, known
to have occurred by any insured . . . includes any continuation, change or resumption of that
‘bodily injury’ . . . after the end of the policy period.”
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exposure can be described in this manner, which Landmark disputes, the provision
does not suggest that Landmark agrees to assume responsibility for all liabilities
from any policy period. This language “simply sets forth the unremarkable
proposition . . . [that] the policy in place when the injury occurs will cover all
consequential damages, even those taking place after the policy period.” New
England Insulation Co. v. Liberty Mut. Ins. Co., 83 Mass. App. Ct. 631, 637 (2013).
As such, the non-cumulation and continuing coverage provisions that RSC points to
do not counsel against pro rata allocation in the context of this case.16
C. Exhaustion
¶ 75 Finally, we must decide whether horizontal or vertical exhaustion applies to
Landmark’s duty to defend RSC under the umbrella policies Landmark issued. While
an insurer’s duty to indemnify an insured arises from policy language agreeing to pay
“all sums” or “those sums” arising from certain liabilities that the insured becomes
legally obligated to pay, some policies also contain the duty to defend lawsuits, claims,
proceedings, etc. related to various forms of injury. RSC contends that its policies
with both Landmark and National Union contain such a duty. It is Landmark’s duty
to defend that is at issue in this appeal, as the trial court found, and the Court of
Appeals affirmed, that only horizontal exhaustion of all other available policies
16 Because our holding is specific to the nature of benzene-related injury, it does not
conflict with the holdings of Duke Energy and In re Viking Pump.
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triggers its duty. See Radiator Specialty Co., 2020 WL 7039144, at *5.
¶ 76 Vertical exhaustion allows a policyholder to obtain coverage from an excess
policy once the primary policies beneath it within the same policy period are
exhausted. See Cmty. Redevelopment Agency v. Aetna Cas. & Sur. Co., 50 Cal. App.
4th 329, 339–40 (1996). Horizontal exhaustion, on the other hand, requires a
policyholder to exhaust all primary policies from other policy periods in order to
access excess coverage. See Kajima Constr. Serv., Inc. v. St. Paul Fire & Marine Ins.
Co., 227 Ill.2d 102, 105 (2007). The trial court adopted a mixed approach, applying
horizontal exhaustion to Landmark’s duty to defend but vertical exhaustion to its
duty to indemnify. In other words, with respect to Landmark’s duty to defend, the
trial court held that the duty only exists when all other policies have been exhausted.
The Court of Appeals affirmed, holding that Landmark’s duty to defend was triggered
by horizontal exhaustion.
1. RSC’s and Landmark’s Competing Contractual Interpretations
¶ 77 The provision relevant to this dispute states:
2. [Landmark] will have the right and duty to defend any
“suit” seeking those [i.e., covered] damages when:
a. The applicable limits of insurance of the “underlying
insurance” and other insurance have been used up in the
payment of judgments or settlements; or
b. No other valid and collectible insurance is available to
the insured for damages covered by this policy.
¶ 78 According to Landmark, Sections 2(a) and 2(b) are properly read in conjunction
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to mean that “a duty to defend may arise under a Landmark policy for a given
Benzene Action seeking covered damages when all of RSC’s . . . primary policies are
exhausted, and there is no other valid, solvent policy available to cover the Benzene
Action.” Landmark policies define the phrase “underlying insurance” in the first
prong as “the policies [ ] listed in the Schedule of Underlying Insurance.” While this
term is specifically defined, the term “other insurance” in Section 2(a) is not. Thus,
Landmark argues that “other insurance” must be given a separate, ordinary
meaning. Because the phrase “underlying insurance” encompasses exactly what it
suggests—the underlying, primary policies in a given policy period—Landmark
argues that “other insurance” necessarily encompasses “any other policies held by
[RSC]” that were unexhausted, including those outside of the policy year. This
reading exemplifies horizontal exhaustion. Landmark then reads the second prong
as “simply meaning a valid policy issued by a solvent insurer.” According to
Landmark, absent the second prong, “the existence of an unexhausted primary policy,
which is invalid or issued by an insolvent insurer, would preclude a duty to defend
because of the first prong.”
¶ 79 Applying its vertical exhaustion approach, RSC interprets the provision
differently and believes that Section 2(b) is properly read in isolation—a reading
which would make Landmark’s policies “the only available insurance for Benzene
Claims during the Landmark Policy Periods” and trigger Landmark’s duty to defend
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under Section 2(b).
¶ 80 Based on this interpretation, RSC argues that the trial court correctly applied
vertical exhaustion to the duty to indemnify under Landmark’s umbrella policies but
erred in applying horizontal exhaustion to the duty to defend under those same
policies. According to RSC, “[n]early all jurisdictions have rejected horizontal
exhaustion altogether, and no court has ever adopted the trial court’s mixed approach
of horizontal exhaustion for defense but vertical exhaustion for indemnity.”
¶ 81 RSC further argues that horizontal exhaustion is inapplicable “because
Landmark is functioning as a primary insurer.” According to RSC, the “directly
underlying primary policies”—i.e., the primary policies issued during the same years
Landmark’s umbrella policies applied—included “pre-existing damages exclusions”
that expressly precluded the primary insurer from paying benzene-related claims.
RSC’s argument that horizontal exhaustion does not apply is based on the idea that
“Landmark’s umbrella policies ‘drop down’ and provide primary (i.e., first-dollar)
coverage because there is no benzene coverage ‘underlying’ Landmark’s policies.”
¶ 82 RSC also contends that horizontal exhaustion “contradicts North Carolina
Law.” According to RSC, Landmark’s contention that the phrase “any other
insurance” appearing in its policies “requires exhausting primary policies in previous
and subsequent policy years before any excess policy must respond” is in conflict with
North Carolina cases that “consistently interpret ‘other insurance’ language as
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referencing only concurrent coverage available within the same policy period.” RSC
argues that the cases Landmark relies upon—including Gaston—“are inapposite
because they involved concurrent policies in effect during the same policy year—i.e.,
vertical exhaustion scenarios.” In addition, RSC notes that a leading insurance
treatise defines “other insurance” as referring to “only to two or more concurrent
policies, which insure the same risk and the same interest, for the benefit of the same
person, during the same period.”
¶ 83 Finally, RSC argues that requiring horizontal exhaustion would (1) “effectively
increase the operative attachment point” (e.g., the point at which umbrella coverage
becomes available) “for each excess insurance policy many times over,” (2) be difficult
to apply, and (3) impose a significant burden on insureds to prove eligibility for
coverage.
¶ 84 Landmark, on the other hand, argues that the lower courts “correctly ruled
that the Landmark policies require ‘horizontal exhaustion’ before Landmark’s duty
to defend may arise.” As explained previously, Landmark first argues that RSC’s
position that vertical exhaustion applies ignores and contradicts the language of the
relevant policy agreement.
¶ 85 Next, Landmark argues that application of a horizontal exhaustion
requirement is consistent with prior cases that “have given effect to umbrella policy
provisions requiring exhaustion of unscheduled primary policies.” In particular,
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Landmark points to Reliance Insurance. Co. v. Lexington Insurance Co., 87 N.C. App.
428 (1987), a case in which Landmark contends the Court of Appeals “did not require
the [umbrella insurer] to pay upon exhaustion of the scheduled underlying [primary
insurance policy],” but instead required the umbrella insurer to pay only once the
“unscheduled primary insurance” was also exhausted. Similarly, Landmark points to
Harleysville Mutual Insurance Co. v. Zurich-American Insurance Co., 157 N.C. App.
317, disc. rev. denied,357 N.C. 250
(2003), another case where Landmark contends
that “[b]ecause there was an unexhausted, unscheduled primary policy, [the] court
held [the] umbrella policy did not apply.” Although Landmark acknowledges that
Reliance and Harleysville “involved unscheduled primary policies effective during the
same period as the umbrella/excess policy,” Landmark contends that these decisions
are “instructive because they required exhaustion of all scheduled and unscheduled
primary policies before the umbrella/excess policy responded.”
¶ 86 Landmark disputes RSC’s argument that Landmark’s umbrella policy was
operating as a primary policy because the underlying policy excluded benzene claims
from coverage. According to Landmark, this argument “is not really an argument at
all” because it ignores “the policy language to the contrary” contained in the insurance
agreement. Landmark contends that the fact that “the scheduled underlying policies
may exclude coverage [for benzene claims] does not change [the] result, because both
scheduled and unscheduled primary policies must be exhausted and unavailable
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before Landmark’s attachment point is reached.”
2. Analysis
¶ 87 We agree that the most logical reading of the agreement between Landmark
and RSC requires vertical exhaustion. Landmark’s interpretation ignores basic terms
within the agreement, contrary to its insistence that contractual language be given
“its ordinary meaning.”
¶ 88 Most fundamentally, Landmark’s interpretation fails to acknowledge the
agreement’s use of the disjunctive “or.” “Where a [contract] contains two clauses
which prescribe its applicability, and the clauses are connected by a disjunctive (e.g.
‘or’), the application of the [contract] is not limited to cases falling within both clauses,
but will apply to cases falling within either of them.” Davis v. N.C. Granite Corp., 259
N.C. 672, 675 (1963) (cleaned up); see also 73 Am. Jur. 2d, Statutes § 147 (2022) (“In
its elementary sense the word ‘or’ . . . is a disjunctive particle indicating that the
various members of the sentence are to be taken separately.”). This word, though
simple, gives a contractual provision a very different meaning than a contractual
provision with otherwise identical language but instead using a conjunctive phrase,
as the latter provision requires the connecting sentences to be read in tandem. See
Wells Fargo Ins. Servs. USA v. Link, 372 N.C. 260, 272–73 (2019). Landmark’s
reading of Section 2 would have us ignore this basic principle of contractual
interpretation.
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¶ 89 From Landmark’s perspective, its duty to defend RSC does not arise unless (1)
all other scheduled and nonscheduled policies have been exhausted; and (2) no other
valid and collectible policy is available to cover this action. This interpretation
disregards that the agreement’s use of the term “or” requires us to read these
circumstances as alternative options that trigger Landmark’s duty to defend. Thus,
taking Section 2(b) on its own, Landmark’s duty to defend was triggered so long as
“[n]o other valid and collectible insurance [was] available to [RSC] for damages
covered by th[e] policy.” According to RSC, its underlying insurance policies covering
the same periods as its Landmark policies do not provide coverage for benzene
actions, whereas the Landmark policies do. There was therefore no other “valid and
collectible insurance” for damages from the benzene actions other than the Landmark
policies themselves.
¶ 90 Moreover, as the New York Court of Appeals recently explained, “ ‘other
insurance’ clauses ‘apply when two or more policies provide coverage during the same
period, and they serve to prevent multiple recoveries from such policies.’ ” In re Viking
Pump, 27 N.Y.3d at 266(quoting Consol. Edison Co. v Allstate Ins. Co.,98 N.Y.2d 208, 223
(2002)). Contrary to Landmark’s assertion that “other insurance” implicates
policies from other periods, “such clauses ‘have nothing to do’ with ‘whether any
coverage potentially exist[s] at all among certain high-level policies that were in force
during successive years.’ ” Id. (alteration in original) (quoting Consol. Edison, 98
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N.Y.2d at 223). This interpretation of “other insurance” is consistent with decisions
from North Carolina’s courts. See, e.g., St. Paul Fire & Marine Ins. Co. v. Vigilant Ins.
Co., 919 F.2d 235, 241 (4th Cir. 1990) (explaining that “other insurance” clauses
“apply only when the coverage is concurrent[, and] [w]here . . . the polic[y] periods did
not overlap at all, such clauses are not applicable”); City of Greensboro v. Rsrv. Ins.
Co., 70 N.C. App. 651, 660 (1984) (explaining that “other insurance” language is
implicated only where “policies provide overlapping or concurrent coverage”); see also
Plastics Eng’g Co. v. Liberty Mut. Ins. Co., 315 Wis.2d 556, 580 (2009) (“The accepted
meaning of ‘other insurance’ provisions does not include application to successive
insurance policies.”).
¶ 91 Because RSC is not “seeking multiple recoveries from different insurers under
concurrent policies for the same loss, and the other insurance clause does not apply
to successive insurance policies,” Section 2(a) does not indicate Landmark intended
that its duty to indemnify be subject to horizonal exhaustion. See In re Viking Pump,
27 N.Y.3d at 266. We therefore conclude that Landmark’s excess policies are triggered
when vertical exhaustion has been achieved, such that there is no other “valid and
collectible” policy available to cover a benzene action during a concurrent policy
period.
IV. Conclusion
¶ 92 We affirm in part and reverse in part the Court of Appeals’ decision below. We
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affirm its holding that the trial court correctly applied an exposure-based approach
in determining at what point the insurers’ coverage was triggered. However, we
reverse its holding that the trial court’s final judgment rendered the trial court’s
decision regarding allocation moot, and we further hold that the trial court properly
applied pro rata allocation based on the policies at issue. Finally, we reverse the Court
of Appeals’ decision to uphold the trial court’s finding that horizontal exhaustion
applies to Landmark’s duty to defend, and we hold that this duty is instead triggered
by vertical exhaustion. Accordingly, we remand this case to the trial court to apply
vertical exhaustion and to conduct other proceedings consistent with this opinion.
AFFIRMED IN PART AND REVERSED IN PART; REMANDED.
Justice BERGER did not participate in the consideration or decision of this
case.
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Barringer, J., concurring in part and dissenting in part
Justice BARRINGER concurring in part and dissenting in part.
¶ 93 While I agree with the majority on several points, the majority neglects to
follow this Court’s well-established rules of construction for insurance policies.
A contract of insurance should be given that
construction which a reasonable person in the position of
the insured would have understood it to mean and, if the
language is reasonably susceptible of different
constructions, it must be given the construction most
favorable to the insured. Indeed, we have stated that
probably the most important general rule guiding the
courts in the construction of insurance policies is that all
doubt or uncertainty, as to the meaning of the contract,
shall be resolved in favor of the insured.
Register v. White, 358 N.C. 691, 699–700 (2004) (cleaned up); see, e.g., Harleysville
Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C., 364 N.C. 1, 9–10 (2010); Grant v.
Emmco Ins. Co., 295 N.C. 39, 43 (1978). These rules of construction apply to all types
of insurance and to all insureds, whether an individual or an entity.
¶ 94 Nevertheless, the majority reads into the policies limiting language that is not
there. Specifically, none of the policies before us require (a) the occurrence to occur in
the policy period or (b) the damages to occur in the policy period. Rather, the limiting
language of “during the policy period” only modifies the defined term “Bodily injury”
(or “Personal injury”). While it may be tempting for this Court to rule without
analyzing the policy language, shirking our duty for a simple solution should concern
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all. Any business or individual who has purchased insurance could be in a similar
situation to the plaintiff before us now. Radiator Specialty Company (Radiator) has
for almost a decade had to litigate against their insurers to compel them to provide
them the coverage they purchased. Therefore, I respectfully concur in part and
dissent in part.
I. Background and Policies
¶ 95 In the course of its business, Radiator purchased standard-form product
liability policies from various insurers, including defendants Fireman’s Fund
Insurance Company (Fireman), Landmark American Insurance Company
(Landmark), and National Union Fire Insurance Company of Pittsburgh, PA
(National). In 1994, claimants nationwide began filing lawsuits, alleging that
exposure to Radiator’s products caused them to develop cancer.
¶ 96 In 2013, Radiator filed this action seeking a declaration of the duties and
obligations of the defendant insurers regarding fifty-five policies. Radiator alleged
that it had incurred and paid defense and indemnity amounts for products liability
claims related to alleged benzene in its products and that the defendant insurers had
not indemnified Radiator for defense costs or liabilities for these claims.
¶ 97 In 2015, the parties moved for summary judgment on various issues of
insurance contract interpretation, which are addressed herein as pertinent to the
appeal before us. In 2018, the case proceeded to a bench trial. The trial court
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addressed the following factual question: “For purposes of triggering the duty to
indemnify, what is the date the claimant was first exposed and last exposed to any
[Radiator] benzene-containing product with respect to each settled Benzene Claim?”
The trial court then entered a final judgment. Some of the parties appealed the
summary judgment orders.
¶ 98 The policies issued by Landmark to Radiator state:
I. INSURING AGREEMENT
1. We will pay on behalf of the insured those sums in
excess of the “retained limit” which the insured
becomes legally obligated to pay as damages to
which this insurance applies because of “bodily
injury”, “property damage” or “personal and
advertising injury”.
....
3. This insurance applies to “bodily injury” and “property
damage” only if:
a. The “bodily injury” or “property damage” is
caused by an occurrence;
b. The “bodily injury” or “property damage” occurs
during the policy period; . . .
....
V. DEFINITIONS
....
3. “Bodily injury” means bodily injury, sickness, disease,
disability, shock, mental anguish, mental injury and
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humiliation of a person, including death resulting from any
of these at any time.
....
14. “Occurrence” means an accident, including continuous or
repeated exposure to substantially the same general
harmful conditions.
(Italic emphases added.)
¶ 99 The policies issued by National to Radiator state:
1. Insuring Agreement.
a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of
“bodily injury” or “property damage” included within
the “products-completed operations hazard” to
which this insurance applies. No other obligation or
liability to pay sums or perform acts or services is
covered unless explicitly provided for under
SUPPLEMENTARY PAYMENTS. This insurance
applies only to “bodily injury” and “property
damage” which occurs during the policy period. The
“bodily injury” and “property damage” must be
caused by an “occurrence.” The “occurrence” must
take place in the “coverage territory”. . . .
....
b. Damages because of “bodily injury” include damages
claimed by any person or organization for care, loss
of services or death resulting at any time from the
“bodily injury.”
....
SECTION V - DEFINITIONS
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....
2. “Bodily injury” means bodily injury, sickness or disease
sustained by a person, including death resulting from
any of these at any time.
....
8. “Occurrence” means an accident including continuous
or repeated exposure to substantially the same general
harmful conditions.
(Italic emphases added.)
¶ 100 The first policy issued by Fireman follows form1 to the underlying insurance
with the following policy language:
INSURING AGREEMENTS
I. COVERAGE –
Underwriters hereby agree, subject to the limitations,
terms and conditions hereinafter mentioned, to indemnify
the Assured for all sums which the Assured shall be
obligated to pay by reason of liability
(a) Imposed upon the Assured by law,
....
1 Excess policies are often described as either a “stand-alone policy” or a “follow form”
policy. New Appleman on Insurance Law Library Edition, Essentials of Insurance Law
§ 1.06[7], at 1-61 (Jeffrey E. Thomas & Francis J. Mootz III eds., 2010). “An ‘excess policy’
provides coverage above the underlying limit of primary insurance . . . .” Id. An excess policy,
thus, “expands the dollar amount of coverage available to compensate for a loss.” Id. A stand-
alone policy “relies on its own insuring agreement, conditions, terms, and definitions to
describe the coverage.” Id. A follow form policy “incorporates by reference the terms,
conditions, exclusions, etc. of the primary policy.” Id.
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for damages on account of: –
(i) Personal Injuries
(ii) Property Damage
(iii) Advertising liability,
caused by or arising out of each occurrence happening
anywhere in the world.
....
THIS POLICY IS SUBJECT TO THE FOLLOWING
DEFINITIONS:
....
2. PERSONAL INJURIES –
The term “Personal Injuries” wherever used herein
means bodily injury (including death at any time resulting
therefrom), mental injury, mental anguish, shock,
sickness, disease, disability, false arrest, false
imprisonment, wrongful eviction, detention, malicious
prosecution, discrimination, humiliation; also libel, slander
or defamation of character or invasion of rights of privacy,
except that which arises out of any Advertising activities.
....
5. OCCURRENCE –
The term “Occurrence” wherever used herein shall
mean an accident or a happening or event or a continuous
or repeated exposure to conditions which unexpectedly and
unintentionally results in personal injury, property
damage or advertising liability during the policy period. All
such exposure to substantially the same general conditions
existing at or emanating from one premises location shall
be deemed one occurrence.
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6. DAMAGES –
The term “Damages” includes damages for death
and for care and loss of services resulting from personal
injury.
(Italic emphases added.)
¶ 101 The second policy issued by Fireman follows form to the underlying insurance
with the following policy language:
INSURING AGREEMENTS
I Coverage. To pay on behalf of the insured the
ultimate net loss in excess of the applicable underlying (or
retained) limit hereinafter stated, which the insured shall
become obligated to pay by reason of the liability imposed
upon the insured by law or assumed by the insured under
contract:
(a) PERSONAL INJURY LIABILITY. For damages,
including damages for care and loss of services,
because of personal injury, including death at any
time resulting therefrom, sustained by any person or
persons,
....
to which this insurance applies under Coverages
I(a) . . . above, caused by an occurrence.
....
IV Other Definitions. When used in this policy
(including endorsements forming a part hereof):
(a) “Personal injury” means (1) bodily injury,
sickness, disease, disability, shock, fright, mental anguish
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and mental injury; (2) false arrest, false imprisonment,
wrongful eviction, wrongful detention, malicious
prosecution or humiliation; (3) libel, slander, defamation of
character or invasion of right of privacy, unless arising out
of any advertising activities; and (4) assault and battery
not committed by or at the direction of the insured, unless
committed for the purpose of preventing or eliminating
danger in the operation of aircraft or for the purpose of
protecting the property of the insured or the person or
property of others;
....
(e) “Occurrence.” With respect to Coverage
I(a) . . . occurrence shall mean an accident, including
injurious exposure to conditions, which results, during the
policy period, in personal injury or property damage
neither expected nor intended from the standpoint of the
insured. For the purpose of determining the limit of the
company’s liability, all personal injury and property
damage arising out of continuous or repeated exposure to
substantially the same general conditions shall be
considered as arising out of one occurrence.
....
V Policy Period, Territory. This policy applies only
to personal injury, property damage or advertising
occurrences which happen anywhere during the policy
period.
(Italic emphases added.)
¶ 102 The third policy issued by Fireman follows form to the underlying insurance
with the following policy language:
INSURING AGREEMENTS
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I. COVERAGE
To indemnify the INSURED for ULTIMATE NET
LOSS, as defined hereinafter, in excess of RETAINED
LIMIT, as herein stated, all sums which the INSURED
shall be obligated to pay by reason of the liability imposed
upon the INSURED by law . . . because of:
A. PERSONAL INJURY, as hereinafter defined;
....
to which this policy applies, caused by an OCCURRENCE,
as hereinafter defined, happening anywhere in the world.
....
DEFINITIONS
....
H. OCCURRENCE:
With respect to Coverage I(A) and I(B)
“OCCURRENCE” shall mean an accident or event
including continuous repeated exposure to conditions,
which results, during the policy period, in PERSONAL
INJURY or PROPERTY DAMAGE neither expected
nor intended from the standpoint of the INSURED. For
the purpose of determining the limit of the Company’s
liability, all personal injury and property damage
arising out of continuous or repeated exposure to
substantially the same general conditions shall be
considered as arising out of one OCCURRENCE.
I. PERSONAL INJURY:
The term PERSONAL INJURY wherever used herein
means:
(1) bodily injury, sickness, disease, disability or shock,
including death at any time resulting therefrom,
mental anguish and mental injury,
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(2) false arrest, false imprisonment, wrongful eviction,
wrongful entry, wrongful detention or malicious
prosecution,
(3) Libel, slander, defamation of character, humiliation
or invasion of the rights of privacy, unless arising
out of advertising activities,
which occurs during the policy period.
(Italic emphases added.)
II. Analysis
A. Trigger for Coverage
¶ 103 As to the first issue, the trigger for coverage, the majority correctly holds that
there is no material question of fact that benzene exposure caused “bodily injury” in
the form of alterations2 to DNA at the time of exposure. On the record before this
Court, the evidence indisputably supports that a “bodily injury” in fact occurred upon
exposure to benzene for the individuals that later developed benzene related diseases
and sued Radiator.
¶ 104 However, the term “Bodily injury” (or “Personal injury” as used in Fireman’s
policies) is defined to include not only “bodily injury” but also “sickness or disease
sustained by a person, including death resulting from any of these at any time.”
Hence, in accordance with the policy language, a “Bodily injury” (or “Personal injury”)
will also occur upon a person sustaining sickness or disease from an occurrence.
2 Experts also used the terminology of DNA damage and mutation.
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¶ 105 Here, that occurrence is benzene exposure. While a few of the policies do
contain other limiting language, such as “all personal injury . . . arising out of
continuous or repeated exposure to substantially the same general conditions shall
be considered as arising out of one occurrence,” which could prevent the stacking of
policy limits for continuous and repeated exposures, there is no language in any policy
before this Court limiting or precluding the triggering of the policy upon sickness or
disease because a bodily injury previously occurred. Thus, Radiator could establish
that multiple policies are triggered for the same occurrence, here, exposure to
benzene. See Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178, 1195
(2d Cir. 1995) (“[T]here can be triggering at more than one point in time when a
claimant asserts injury-in-fact due to . . . cancer.”), opinion modified on denial of reh’g,
85 F.3d 49 (2d Cir. 1996). Even if the policy language was ambiguous, “[t]his Court
resolves any ambiguity in the words of an insurance policy against the insurance
company.” Harleysville, 364 N.C. at 9.
¶ 106 In contrast, the majority, without analyzing the policies or citations, merely
concludes that an “application of a continuous trigger would be at odds with our
holding that, in benzene cases, the injury that triggers coverage occurs at the time of
exposure.” (Emphasis added.) However, we should not and cannot ignore the policy
language in this case. The policy language dictates the triggers for indemnity as
bodily injury during the policy period, with bodily injury meaning bodily injury,
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sickness, or disease (among other things in some policies) without additional limiting
language. Thus, the policy language clearly contemplates and provides for the
possibility of multiple triggers.
¶ 107 Further, this Court is reviewing a summary judgment order. This Court
reviews a summary judgment order de novo to assess the policy language and the
evidence to determine if there is a genuine issue as to any material fact and whether
any party is entitled to judgment as a matter of law. See N.C.G.S. § 1A-1, Rule 56(c)
(2021); N.C. Farm Bureau Mut. Ins. Co., Inc. v. Martin, 376 N.C. 280, 285–86 (2020).
In this case, there is no material question of fact that a bodily injury in fact occurs
upon exposure to benzene. However, in future cases, the policy language and expert
testimony may vary.
B. Indemnity Obligation
¶ 108 As to the second issue concerning the insurers’ indemnity obligation, the
majority inverts the rules of construction for insurance policies by creating a
rebuttable presumption in favor of an insurer. The majority also erroneously suggests
that cases from other jurisdictions require an insurance policy to contain the
terminology “all sums” for an insurer to have complete indemnity obligations.
¶ 109 To the contrary, the cases cited by the majority that apply all sums allocation
recognize the absence of language limiting the insurer’s liability once triggered. Keene
Corp. v. Ins. Co. of N. Am., 667 F.2d 1034, 1048 (D.C. Cir. 1981) (“Once triggered,
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each policy covers [the insured]’s liability. There is nothing in the policies that
provides for a reduction of the insurer’s liability if an injury occurs only in part during
a policy period.”); Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 95 Ohio St.
3d 512,2002-Ohio-2842
,769 N.E.2d 835
, at ¶ 9 (“There is no language in the
triggered policies that would serve to reduce an insurer’s liability if an injury occurs
only in part during a given policy period. The policies covered [the insured] for ‘all
sums’ incurred as damages for an injury to property occurring during the policy
period. The plain language of this provision is inclusive of all damages resulting from
a qualifying occurrence. Therefore, we find that the ‘all sums’ allocation approach is
the correct method to apply here.”). Other courts have also stated, “The majority of
courts have held that without a pro rata clause in the policies, the insurance
companies cannot limit their obligations to a pro rata share or portion of [the
insured]’s liabilities.” Monsanto Co. v. C.E. Heath Comp. & Liab. Ins. Co., 652 A.2d
30, 35 (Del. 1994).
¶ 110 But regardless, this Court’s binding precedent directs us to the policy language
and requires us to consider what the reasonable insured would understand the policy
to mean. See Register, 358 N.C. at 699–700. Moreover,
[i]n the construction of contracts, even more than in the
construction of statutes, words which are used in common,
daily, nontechnical speech, should, in the absence of
evidence of a contrary intent, be given the meaning which
they have for laymen in such daily usage, rather than a
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restrictive meaning which they may have acquired in legal
usage.
Jamestown Mut. Ins. Co. v. Nationwide Mut. Ins. Co., 266 N.C. 430, 438 (1966).
¶ 111 As reflected in previous quotes of the policy language, each policy essentially
states:
We will pay on behalf of the insured those sums in excess
of the “retained limit” which the insured becomes legally
obligated to pay as damages to which this insurance
applies because of “bodily injury”, “property damage” or
“personal and advertising injury”
¶ 112 Stripped down to the relevant portion, it says: We will pay those sums which
the insured becomes legally obligated to pay as damages to which this insurance
applies. In other words, if Radiator becomes legally obligated to pay damages for an
occurrence to which a policy issued by Landmark applies, Landmark will pay those
sums. Those sums are the damages Radiator becomes legally obligated to pay as
damages for an occurrence resulting in bodily injury during the policy period.
¶ 113 As correctly recognized by the Court of Appeals, nothing in the policy language
drafted by the insurers (Landmark, National, or Fireman) modifies the insurer’s
indemnity obligation to be proportional to their policies’ “time on the risk” when
damages arise from multiple occurrences and multiple bodily injuries, thus triggering
multiple policies. Radiator Specialty Co. v. Arrowood Indem. Co., No. COA19-507,
2020 WL 7039144, at *4 (N.C. Ct. App. Dec. 1, 2020) (Bryant, J. with Chief Judge
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McGee concurring and Judge Berger concurring in result only); see generally Plastics
Eng’g Co. v. Liberty Mut. Ins. Co., 2009 WI 13, ¶ 55,315 Wis. 2d 556
,759 N.W.2d 613
(“[The insurer’s] policy contains no language that limits its obligation to a pro rata
share.”); Allstate Ins. Co. v. Dana Corp., 759 N.E.2d 1049, 1058 (Ind. 2001) (“[T]here
is no language in the coverage grant, including the definitions of ‘property damage,’
‘personal injury,’ or ‘occurrence,’ that limits [the insurer’s] responsibility to
indemnification for liability derived solely for that portion of damages taking place
within the policy period.”).
[T]he very essence of pro rata allocation is that the
insurance policy language limits indemnification to losses
and occurrences during the policy period—meaning that no
two insurance policies, unless containing overlapping or
concurrent policy periods, would indemnify the same loss
or occurrence. Pro rata allocation is a legal fiction designed
to treat continuous and indivisible injuries as distinct in
each policy period as a result of the “during the policy
period” limitation, despite the fact that the injuries may
not actually be capable of being confined to specific time
periods.
In re Viking Pump, Inc., 52 N.E.3d 1144, 1153–54 (N.Y. 2016), opinion after certified
question answered, 148 A.3d 633 (Del. 2016).
¶ 114 In these policies, the language “during the policy period,” as previously
discussed only modifies the defined term “bodily injury.” In other words,
indemnification is not limited to damages during the policy period or occurrences
during the policy period. Thus, “[t]he average person purchasing insurance would
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construe the policy language to provide indemnity for an injury once the policy was
triggered.” Am. Nat’l Fire Ins. Co. v. B & L Trucking & Constr. Co., 951 P.2d 250, 256
(Wash. 1998). “[B]odily injury during the policy period is what triggers the policy; the
definition of ‘bodily injury’ is not a limitation of liability clause.” Plastics Eng’g, ¶ 57.
There is no exclusion of damages occurring outside the policy period. See generally
Mazza v. Med. Mut. Ins. Co. of N.C., 311 N.C. 621, 630 (1984) (“We place great
emphasis on the fact that there is no specific exclusion in the insurance contract for
punitive damages. If the insurance carrier to this insurance contract intended to
eliminate coverage for punitive damages it could and should have inserted a single
provision stating ‘this policy does not include recovery for punitive damages.’ ”).
¶ 115 Further, each of the policies used the plural noun “sums.” “Sum” is defined as
“[a]n amount obtained as a result of adding numbers,” “[t]he whole amount, quantity,
or number; an aggregate,” and “[a]n amount of money.” Sum, The American Heritage
Dictionary (5th ed. 2018); see also Sum, New Oxford American Dictionary (3rd ed.
2010) (defining “sum” as “a particular amount of money,” “the total amount resulting
from the addition of two or more numbers, amounts, or items,” “the total amount of
something that exists,” and “an arithmetical problem, esp. at an elementary level”).
Given these definitions, the plain meaning of the term “sum” or “sums” alone does
not contemplate a fractional or proportional share. Simply put, “sums” may entail
addition—but not addition followed by division. The adjectives qualifying “sums,”
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“all” and “those,” also confirm a meaning antithetical to fractional or proportional.
See, e.g., All, The American Heritage Dictionary (5th ed. 2018) (defining the adjective
“all” as “[b]eing or representing the entire or total number, amount, or quantity”
among other definitions); That, The American Heritage Dictionary (5th ed. 2018)
(defining the adjective “that,” which in the plural is “those,” as “[b]eing the one singled
out, implied, or understood”). Thus, applying pro-rata allocation to the policies before
us requires the Court to ignore the plain language of the term “sums.”
¶ 116 While insurers could draft a proportional limitation, Radiator purchased
policies with the language previously quoted, and the policy language does not
contain such a limitation. See Nat’l Indem. Co. v. State, 2021 MT 300, ¶ 78,406 Mont. 288
,499 P.3d 516
(“Pro rata allocation is a significant limitation on coverage, but is
not expressly provided in the Policy, though it clearly could have been.”). Given the
policy language, if the insurers were “obligated to pay only a pro-rata share of
[Radiator]’s liability, . . . [Radiator’s] reasonable expectations would be violated.” See
Keene, 667 F.2d at 1047–48.
¶ 117 Additionally, all of the policies at issue extend coverage to “death resulting at
any time.” Such a provision reflects that the insurer agreed to and knew that it
indemnified the insured’s liability for death even if death did not occur during the
policy period. This agreement is contrary to pro rata allocation, which spreads out
liability for an insured’s damages among multiple policies based on “time on the risk.”
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¶ 118 Nevertheless, the majority dismisses this as irrelevant because of the Court’s
holding that benzene exposure causes injury at the time of exposure, rather than a
continuous injury. Yet, this Court’s erroneous holding in this case as to the first issue
should not necessitate an outcome on the second issue.
¶ 119 This Court should construe the policy language in accordance with the rules of
contract interpretation and not read into the policies a pro rata allocation of coverage
to which the parties did not agree contractually. To do so results in this Court
redistributing the risk, taking from the insured for the benefit of the insurer and
taking from some insurers for the benefit of other insurers. After all, insurers have
the national and international re-insurance markets available to them to restructure
their risks dynamics and cost-benefit analysis.
C. Landmark’s Duty to Defend
¶ 120 The final issue only involves Landmark’s policies, which in pertinent part
state:
2. We will have the right and duty to defend any “suit”
seeking those damages when:
a. The applicable limits of insurance of the “underlying
insurance” and other insurance have been used up
in the payment of judgments or settlements; or
b. No other valid and collectible insurance is available
to the insured for damages covered by this policy.
¶ 121 “Underlying insurance” is a defined term, meaning “the policies or self[-
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]insurance listed in the Schedule of Underlying Insurance.” It is undisputed that the
“underlying insurance” for Landmark’s policies do not cover liability for the benzene
claims. Thus, the applicable limits for the underlying insurance have not been used
up in the payment of judgments or settlements. Since subparagraph (a) requires
limits of underlying insurance to be used up to trigger the duty to defend, Landmark
does not have a duty to defend pursuant to subparagraph (a).
¶ 122 Therefore, subparagraph (b) must be considered. To determine what
encompasses “[n]o other valid and collectible insurance” as used in subparagraph (b),
the meaning of “other insurance” as used in subparagraph (a) must be discerned. It
is not a defined term. “Other insurance” could be interpreted to be insurance policies
in effect for that policy year other than the “underlying insurance” or insurance
policies for damages covered by Landmark’s policy other than the “underlying
insurance.” Because the phrase “other insurance” in subparagraph (a) is not modified
by the phrase “for damages covered by this policy” (unlike subparagraph (b)), “other
insurance” is limited to policies in effect for that policy year.
¶ 123 “No other valid and collectible insurance” in subparagraph (b) must therefore
refer to policies other than those in effect for that policy year.3 Thus, subparagraph
3 “The clause ‘valid and collectible insurance’ has widespread use in the insurance
industry of the United States and has a well[-]established meaning. Generally, the clause
refers to insurance which is legally valid and is underwritten by a solvent carrier.” Hellman
v. Great Am. Ins. Co., 136 Cal. Rptr. 24, 27 (Cal. Ct. App. 1977).
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(b) requires exhaustion of all policies covering damages also covered by Landmark’s
policy, but exhaustion is only required if such policy is valid and collectible. See AAA
Disposal Sys., Inc. v. Aetna Cas. & Sur. Co., 821 N.E.2d 1278, 1288–89 (Ill. App. Ct.
2005) (recognizing that a clause required horizontal exhaustion when any other valid
and collectible insurance lacked language limiting it to certain policy periods). Thus,
subparagraph (b) could apply even if the applicable limit of the “underlying
insurance” or “other insurance” was not used up in the payment of judgments or
settlements. Because the trial court did not determine whether “[n]o other valid and
collectible insurance is available to the insured for damages covered by this policy,”
this Court should remand to the trial court.
III. Conclusion
¶ 124 “[B]ecause the insurance company is the party that selected the words used [in
the policy],” “[t]his Court resolves any ambiguity in the words of an insurance policy
against the insurance company.” Harleysville, 364 N.C. at 9. It is not inequitable to
hold an insurer to the words it selected; the words—the promise of indemnity—is
what an insured purchased. The majority in this matter, for unclear reasons,
construes language in the policy in favor of the insurers, regardless of the policy
language. The holding in this case will deter entities and individuals who can self-
insure from purchasing insurance (thus reducing the pool of insurance) and
apparently requires the insured to sue and litigate with all their insurance providers
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to receive the indemnity they purchased (or until forced to declare bankruptcy).
Therefore, I respectfully concur in part and dissent in part.
Justice HUDSON joins in this concurring in part and dissenting in part
opinion.