Jan. 29, 2009 – An insurance company must cover 100 percent of the loss for an injury that occurred during only part of the time a policy was in effect, the Wisconsin Supreme Court held on Jan. 29.

In Plastics Engineering Co. v. Liberty Mutual Ins Co., 2009 WI 13, a federal appeals court asked the supreme court to interpret Wisconsin law regarding three issues that arose during an asbestos liability suit. Plastics Engineering (Plenco) is a defendant in hundreds of suits alleging individuals’ exposure to asbestos-containing products it manufactured from 1950 to 1983. Liberty Mutual Insurance Co. provided primary general liability policies to Plenco from 1968 to 1989 and, except for two years in the mid-1980s, umbrella excess coverage policies from 1970 to 1988.

One of the certified questions before the supreme court was whether Wisconsin courts would adopt an “all sums” or pro rata allocation approach to liability for injuries spanning successive policy periods.

Under an “all sums” approach, the insurer is required to pay all amounts that result from injury that has triggered a policy. An insurer under a pro rata approach is responsible for only a share of the damages based upon the years that it provided coverage relative to years when no coverage was purchased.

The court opted for the “all sums” approach because Wisconsin follows “the continuous trigger theory” in cases involving an ongoing exposure to a harmful substance like asbestos with harm occurring over several policy periods. A policy is triggered when injury occurs during the policy period and, under a “continuous trigger theory,” all policies are triggered from exposure to manifestation.

Justice Michael J. Gableman dissented, arguing that the court majority’s “all sums” approach to losses only partially covered by a policy gave Plenco an undeserved windfall. “This court should decline to grant coverage for periods in which none was bargained for by applying a time-on-the-risk pro rata allocation of a loss between successive insurers and the insured when an occurrence takes place partly outside policy periods,” he wrote.

Within this question, the court extended “all sums” to the insurer’s obligation to defend a claim. “Under Wisconsin law, if coverage exists, an insurer must defend the entire suit even though some of the allegations fall outside the scope of coverage,” the majority held.

Gableman agreed that the insurance company should fully defend its insured. But, he said, if a pro rata allocation were employed, the insurer could seek at the end of the suit a setoff from the insured to account for the time there was no policy in place.

The other two certified questions

Justices found greater agreement on the other two questions posed. They unanimously agreed that Liberty Mutual had properly used a non-cumulation clause to restrict coverage to the dollar limit of the policy in effect at the time of the loss. Under this clause, an insured cannot stack the limits of successive policies to obtain a greater coverage amount.

Plenco alleged this non-cumulation clause violated Wis. Stat. § 631.43. But the court said that statute only prohibits two or more insurers who have concurrently promised to cover a single loss from using “other insurance” clauses to reduce the aggregate protection below the total indemnification amount promised.

The justices also agreed on the meaning of “occurrence” -- the event giving rise to an insurable loss -- in Liberty Mutual’s policies.

Plenco argued that each individual’s exposure that results in an injury is an “occurrence.” Liberty Mutual urged the court to view Plenco’s manufacture and sale of asbestos-containing products without warning as one occurrence regardless of the number of people injured.

Following Wisconsin law, the court interpreted the policy language according to “cause theory,” which holds “where a single, uninterrupted cause results in all of the injuries and damage, there is but one ‘accident’ or ‘occurrence.’”

“Each individual claimant’s injuries stem from the continued and repeated exposure to asbestos-containing products,” the court reasoned. “Thus, under the policy language and the cause theory, each claimant’s repeated exposure is one occurrence.”