Pro-Rata Allocation Adopted in a Lead Paint Exposure Case
April, 2003
The Second Department recently applied a pro-rata or “time on the risk” methodology to allocate coverage among successive insurers with respect to an underlying claim for bodily injury due to a child’s exposure to lead paint over time. Serio v. Public Service Mut. Ins. Co., 759 N.Y.S.2d 110 (2nd Dep’t 2003). While New York courts and the Second Circuit Court of Appeals have previously applied such an approach in the context of asbestos and environmental contamination cases, the court’s decision in Serio is the first lead paint case in New York to employ a pro-rata analysis.
Facts
The genesis of the Serio case was a loss that occurred in a residential apartment building owned by Graham Court Owners Corporation (“Graham”). An infant plaintiff was allegedly exposed to peeling lead paint in the building starting in September of 1993 and continuing over a three year period of time. Public Service Mutual Insurance Company (“PSM”) provided liability coverage to Graham for the time period from June 1, 1993 to June 1, 1995. Thereafter, First Central Insurance Company (“First Central”) provided identical coverage to Graham for the period from June 29, 1995 to June 29, 1996.
The parties to the underlying personal injury action reached a stipulated settlement; however, Graham’s insurers reserved their respective rights to seek a judicial determination as to their proportionate contribution obligations. First Central (through the Superintendent of Insurance) ultimately filed suit, arguing it should only be responsible for one-third of the underlying settlement and PSM should bear two-thirds responsibility, based upon the fact that First Central only insured Graham for one year of the three year time period in which the underlying plaintiff was exposed to lead paint. Based upon the “other insurance” provisions of the policies, PSM argued the settlement should be divided equally between the two carriers. The Supreme Court found in favor of PSM and divided the settlement equally, following the approach taken in American Empire Ins. Co. v. PSM Ins. Co., 687 N.Y.S.2d 32 (1st Dep’t) and rejecting prior Second Circuit decisions which had employed a time on the risk methodology in asbestos cases. First Central appealed.
During the pendency of the appeal, the New York Court of Appeals adopted a pro-rata allocation in a case involving ongoing environmental contamination in Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 746 N.Y.S.2d 622 (2002). In light of the Consolidated case, the Appellate Division reversed the lower court’s decision and found in favor of First Central.
Analysis
While Consolidated Edison dealt with soil and ground water contamination and not lead-paint exposure, the court found these factual distinctions to be “distinctions without a difference.” In both instances, the losses arose as a result of exposure to harmful substances over extended periods of time and during which successive insurers issued policies covering the losses. The court found that, in the absence of any policy provisions to the contrary, and with no ability to pinpoint when the insured event occurred, the most equitable means of apportioning the liability for the losses is in direct proportion to each insurer’s time on the risk. In this case, since the loss occurred over three years and PSM was “on the risk” for two of the three years, PSM was found to owe two-thirds of the liability for the underlying settlement. The court ultimately stated as follows:
Each insurer undertook to insure against, inter alia, lead paint injuries during a particular policy period. Each insurer should thus be responsible for paying its share of the loss that arose during their respective policy periods. This is a simple and just solution to this straight-forward controversy. Accordingly, we hold that each insurer shall bear pro-rata responsibility for funding the settlement, in direct proportion to each insurer’s time on the risk.
The court noted in its opinion that Consolidated Edison implicitly overruled American Empire; however, it went on to note that the American Empire case did not squarely address the allocation issue at hand and was instead concerned with an analysis of when separate policies were triggered.
The court’s opinion also included a discussion of case law addressing allocation in other lead paint cases, as well as analogous situations from other states.
Learning Point:
Where a loss involves continuous harm over time, courts from around the country are split as to whether each policy covering the loss is liable for the entire loss, or only a portion of the loss. The Second Circuit previously predicted that New York would employ a time on the risk approach under such circumstances and, in Consolidated Edison, the Court of Appeals confirmed such an approach in an environmental case. With Serio, insurers now have additional precedent in New York for pro-rata allocation in progressive bodily injury cases, particularly cases involving lead paint exposure. Given that there is a paucity of case law employing a time on the risk analysis in lead paint cases, the Serio case will also be an important citation outside of New York. •
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