Defending Against The Unavailability Rule

On continuous environmental-injury cases, commercial liability insurers are being sued to pay hundreds of millions of dollars more than their proportionate share, and insurer bad faith is not the basis for the disproportionate liability in these cases.

It is instead due to the adoption of the ‘unavailability of insurance’ rule, through which some courts adjudicating toxic-tort and environmental-damage claims on general liability policies are reallocating proportionate loss away from policyholders and to their insurers based upon uninsured periods of loss.

‘Time on the risk’ is the predominant method of pro-rating cost allocation among insurers facing continuous-injury claims.

But the ‘unavailability of insurance’ rule is an emerging alternative allocation vehicle that threatens to skew the traditional method and transfer loss from policyholders back to insurers for periods when policyholders were uninsured.

There are defenses to this rule where it may apply—particularly documentation of the emerging, and now established, environmental insurance market. It may very well be that policyholders that did not participate in this market will be deemed to have voluntarily self-insured their environmental loss exposure, and hence pay their pro-rate allocation of their environmental loss claims.