Adopts Pro Rata Allocation with Unavailability Rule for Asbestos Bodily Injury Claims

The Court of Appeals of Maryland, the state’s highest court, granted a writ of certiorari directly after a circuit court decision and upheld that court’s decision to allocate an insurer’s liability for a judgement against its insured via “pro rata” time on the risk allocation across the years in which asbestos insurance was available to respond to the claims at issue. “Pro rata” allocation allocates the insurer’s liability for a policyholder’s losses proportionally across all triggered policies, rather than using “all sums” or “joint and several” allocation method, which allows recovery of the full judgement from any one of the implicated policies in an injury spanning multiple policies.

The plaintiff in the underlying action, Patrick Rossello, sued, among others, Lloyd E. Mitchell, Inc. (“Mitchell”), a mechanical contractor whose installation of asbestos-containing drywall at Rossello’s place of employment in 1974 allegedly caused Rossello to inhale asbestos fibers causing mesothelioma. A jury returned a verdict for $2.7 million against Mitchell. From 1974 through 1977, Mitchell was covered by commercial general liability insurance policies issued by Maryland Casualty Company, which had subsequently merged into Zurich American Insurance Company (“Zurich”).

After the judgement, Rossello sued Zurich for garnishment to recover the full amount of the judgement from Zurich.  Zurich argued that it should only be liable for one-fortieth of the judgement per each of the four relevant policies, since the injury triggered forty years of potential coverage, from 1974 to Rossello’s diagnosis in 2013. Zurich argued in the alternative that each policy should only cover one-twelfth of the judgement, since there were twelve years from the date of the injury to the last year that asbestos risk insurance was available in the marketplace (1985). The Circuit Court held that “Rossello’s damages must be allocated on a pro-rata, time-on-the risk basis across all insured and insurable periods triggered by Mr. Rossello’s injuries—i.e., 1974 to 1985.”

In its decision, the Court of Appeals of Maryland analyzed how courts in long-tail cases have determined which insurance policies are triggered and how to allocate the judgement among the implicated policies. With regard to trigger, the Court of Appeals found that Maryland’s appellate courts have made it clear that in extended exposure cases, “continuous or progressive damage will constitute an ‘occurrence’ within the policy period that the asbestos remains [present].” “In other words, a policy period is triggered when actual injury occurs, and progressive injury can therefore trigger multiple policy periods.” The Court of Appeals cautioned, however, that “[t]he nomenclature and reference of specific trigger models ‘can be deceiving,’ because a court must apply policy language to the factual context before it.”

Regarding allocation, Maryland had already indicated that it would likely follow the pro rata approach. In a previous case, involving property losses due to asbestos, the Court had used pro rata allocation. In this case, Rossello tried to distinguish property damage from personal injury, but the Court of Appeals was not convinced.

In addition, Rossello argued that the “all sums” language from the policies at issue required the application of all sums allocation because under the language, once the occurrence of a bodily injury triggered each policy, each policy became obligated by its terms to pay “all sums” the insured owed as a result of the injury. The Court of Appeals disagreed, however, and found that Rossello’s reading of the policy language was inconsistent with the remainder of the policy. “[E]ach policy provides coverage only for ‘bodily injury … which occurs during the policy period.’” The Court of Appeals also found it important that the policies require the insurer to pay on behalf of Mitchell “all sums which the insured shall become legally obligated to pay as damages because of … bodily injury … to which this insurance applies, caused by an occurrence.” The Court of Appeals also rejected Rossello’s argument’s related to the definition of “occurrence”: “But reading that definition as support for the joint and several approach confuses ‘bodily injury’ with ‘occurrence’ as they are defined in the Policies.” Thus, the Court of Appeals held that “the pro rata approach is unmistakably consistent with the language of standard CGL policies.”

Lastly, the Court of Appeals of Maryland rejected public policy arguments against the application of pro rata allocation, finding that “[t]he pro rata allocation method promotes judicial efficiency, engenders stability and predictability in the insurance market, provides incentive for responsible commercial behavior, and produces an equitable result.”

The Court of Appeals upheld the pro-rata approach used by the circuit court and determined that the triggered period was the twelve years – from the date of the Rossello’s exposure (1974) to the last year that asbestos risk insurance was generally available in the market (1985) – to determine the relevant time period. “Consistent with the policy language limiting coverage to that which occurs ‘during the policy period,’ the timing of the injury dictates both the manner in which the policies are triggered and the portion of damages for which each policy is responsible.”

The determination between “all sums” versus “pro rata” allocation becomes especially relevant to a policyholder when, as in the instant case, the policyholder was uninsured for a portion of the triggered period. Because Mitchell stopped doing business in 1976 and its last insurance policy expired in July 1977, only a portion (approximately one third) of the relevant injury period was covered by any insurance. Under the all-sums approach, Rossello could have recovered the full judgment from Zurich. However, because the Court of Appeals held that pro rata allocation applied, the loss was spread evenly across all triggered years, and Rossello was only able to recover about one third of the judgement from the insurer.

With this opinion, Maryland joins “a majority of other jurisdictions” in following the pro rata allocation method for asbestos liabilities. Rossello v. Zurich American Insurance Co., Case Number 24-2019 (Md. Apr. 3, 2020).