(Article from Insurance Law Alert, September 2023)
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Holding
In a pair of decisions, a North Carolina trial court ruled that underlying nuisance claims stemming from hog farm operations arose out of a single accident for insurance coverage purposes and that pro rata allocation was the appropriate method for determining each insurer’s liability. Murphy-Brown, LLC v. ACE American Ins. Co., 2023 NCBC LEXIS 93 (N.C. Super. Ct. Aug. 7, 2023); Murphy-Brown, LLC v. ACE American Ins. Co., 2023 NCBC LEXIS 94 (N.C. Superior Ct. Aug. 7, 2023).
Background
Property owners sued a hog farm operator, alleging physical invasion and loss of use and enjoyment of property due to odor, dust, noise, pests and traffic stemming from the hog farm operations at multiple sites. According to the underlying complaint, the property owners suffered repeated exposure to conditions over an extended period of time, during which multiple insurance policies were in place. In two summary judgment motions, the court was asked to determine whether the claims in the underlying suits arose out of one accident or multiple accidents under business automobile policies, and whether allocation among various liability insurers should be based on pro rata time on the risk or an “all sums” method.
Decision
The hog farm operator and a primary automobile insurer argued that there was only one “accident” under the operative policies because the alleged damages arose from the “centralized policies and procedures regarding the operation” of the farms, including their trucking operations. Conversely, excess insurers asserted that the underlying claims arose from 89 accidents, based on the operation of 89 separate farms and the accompanying trucks serving those farms. The operative language provided coverage for injuries or damage caused by an “accident” resulting from the ownership, maintenance or use of a covered automobile, and further stated that “[a]ll ‘bodily injury,’ ‘property damage,’ and ‘covered pollution cost or expense’ resulting from continuous or repeated exposure to substantially the same conditions will be considered as resulting from one ‘accident.’”
Applying a proximate cause-based test, the court concluded that the alleged injuries and damages stemmed from a single accident. In so ruling, the court emphasized that the injuries did not differ materially among the various farm sites and that conditions were “essentially the same in all material respects.” More specifically, the court noted the existence of a centralized trucking operation, as outlined in a standard manual utilized by the hog farm operator.
With respect to allocation of indemnity costs, the court concluded that policy language indicated that liability among multiple insurers that issued policies during the period of alleged damage should be based on a pro rata time on the risk methodology. In particular, the policies limited recovery to bodily injury or property damage (or in the case of auto policies, accidents) that occurred “during the policy period.”
The hog farm operator argued that “all sums” allocation should apply, under which it may recover the entirety of any loss from any single insurer that provided coverage during the ongoing period of damages. The hog farm operator relied on a “Continuing Coverage” provision included in certain policies, which stated that bodily injury or property damage that occurs during the policy period “includes any continuation, change or resumption of that bodily injury or property damage after the policy period.” Rejecting this assertion, the court reasoned that the Continuing Coverage provision did not establish an obligation on the part of the insurer to be liable for “all sums” arising from liability during any policy period. Rather, the court held that the provision sets forth the “unremarkable” principle that a policy in effect when the damage occurs will cover all consequential damages, even those occurring after the policy period.
Comments
The court’s allocation ruling is notable in several respects. First, the court rejected the notion that a policy’s inclusion of both “all sums” and “during the policy period” language creates ambiguity that should be construed in the policyholder’s favor. Second, the court emphasized the “modern trend” of courts across jurisdictions in applying pro rata allocation, noting that “all sums” allocation represented an “outdated view” of relevant policy language. Finally, the court’s refusal to construe the Continuing Coverage provision as a mandate for “all sums” allocation is a significant ruling for insurers in this context, as it draws a clear line between that type of policy clause and a non-cumulation clause, which has been a basis for applying “all sums” allocation in other cases, such as In re Viking Pump, 27 N.Y.3d 244 (2016), which the court expressly distinguished.