Kenneth S. Abraham

Allocation of Settlements in Multi-Insurer Coverage Disputes

PUBLISHER
Federation of Insurance & Corporate Counsel Quarterly
DATE
1998
 

UVA Law Faculty Affiliations

Abstract

Modern insurance litigation often generates legal issues of remarkable complexity. This article analyzes a problem that is simultaneously complex and doctrinally obscure, yet potentially of enormous economic importance: how to treat settlements when a policyholder has settled with some, but not all of the liability insurers against which it has lodged claims.

Suits for coverage of mass tort and environmental cleanup liabilities typically are brought against a large number of primary and excess insurers that covered the policyholder over the years when the personal injury or property damage at issue in the underlying liability actions occurred. Dozens or even hundreds of insurers that issued policies over a period of decades may be defendants in these cases. This kind of coverage litigation emerged in a major way in the early 1980's. At first there was little precedent governing the issues that arise in this litigation. Over time, however, case law has developed, and settlements have become more common than they were at the outset.

But these settlements are not global. Getting all the insurers to settle at once has proved to be impossible in virtually every case. Rather, the policyholder almost always settles with each insurer individually, often reaching a series of separate settlements over time. In negotiating with the remaining, non-settling insurers, once settlement with some insurers has already occurred (and especially at trial against non-settlors) the role that should be played by prior settlements in calculating the non-settlers' proper share of coverage responsibility is likely to arise with increasing frequency. Should these settlements be ignored, or is the non-settling insurer entitled to a setoff? If there is to be a setoff, how should the amount of the setoff be determined? There are few directly applicable precedents; in many respects this is uncharted terrain.

The logic leading to the treatment of settlements depends heavily on the conception of an insurer's liability that has given rise to the issue in the first place. Two different conceptions of insurer liability yield two different approaches to the setoff issue.

Citation

Kenneth S. Abraham, Allocation of Settlements in Multi-Insurer Coverage Disputes, 48 Federation of Insurance & Corporate Counsel Quarterly 427-453 (1998).
 

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