FEBRUARY 2013 BAD FAITH CASES: COURT APPLIES TIME ON THE RISK METHOD OF ALLOCATION, AFFIRMS SUMMARY JUDGMENT TO CARRIER (Philadelphia Commerce Court)
In Anheuser-Busch, Inc. v. Ins. Co. of N. Am., an insured corporation being sued by a former employee for exposure to asbestos sought coverage under an excess liability policy. The Commerce Court granted summary judgment to the carrier and the insured corporation appealed. (See also this blog). The Commerce Court opined on several issues presented for the appeal, including choice of forum, allocation, and the insured’s claims for breach of contract and bad faith.
First, the Court had to determine whether to apply New York or Pennsylvania law. A conflict of law existed because New York applies the time on the risk method of allocation, whereas Pennsylvania does not. Since the place of negotiation was in New York, the court affirmed New York as the applicable law.
As such, under the time on the risk method of allocation, the carrier did not have a duty to indemnify the insured corporation in the underlying asbestos suit and was not in breach of its contract since the insured’s excess coverage was never reached. When damages are allocated over a 30-year period, the insured’s losses could not trigger excess of its liability coverage within a policy that was effective from 1981-82. When allocating the $1,000,000 judgment over 30-years, the excess layer above the insured’s $100,000 self-insured retention was not reached.
With respect to the insured’s bad faith claim, the court found no bad faith because the carrier did not breach its contract, and thus it would be impossible to prove that the carrier lacked a reasonable basis to deny coverage. As such, the court recommended that its decision be affirmed.