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Another State Appellate Court Adopted "All-Sums" Approach And Vertical Exhaustion For Long-Tail Disputes



A Missouri appellate panel recently upheld in lower court's ruling in favor of the "all-sums" allocation would apply to determining exhaustion of the insured's liability insurance coverage and, in a holding, rejected the pro-rata, proportional allocation sought by the insurers. The appellate panel further states that coverage could be exhausted vertically.

Since 1990, the insured in Nooter Corp. v. Allianz Underwriters Ins. Co., et al., no. ED 103835 (Mo. Ct. App. Filed Oct. 3, 2017), had faced approximately 20,000 claims by the alleged injury from exposure to asbestos in pressure vessels that were insured to refineries and chemical plants for over a century. Insured sued eight of its general liability excess insurers under policies dating back to 1

949, alleging breach of contract for the insurers' refunds to pay defense costs incurred in the underlying asbestos lawsuits. The jury found the insured, after concluding that one of its insurers had improperly refused to pay its share of the defense. Based on that finding, the court used an all-sums allocation and vertical exhaustion, decisions that allowed the protection of the excess coverages purchased.

On appeal, the appellate panel affirmed the lower court's holding based on the insurers' promises to pay "all sums" contained in the excess policies. The court constructed the plain language to require the insurers to pay all sums that were insured became payable in the underlying asbestos injury cases. The panel further found that nothing in the definition of an "occurrence" constrained the duty of the excess insurers on the risk to pay vertically within a single policy period, as policies became exhausted "up the stack." Likewise, the panel found vertical exhaustion to be "conceptually consistent" with an all-sums allocation.

While this decision is in line with a growing number of court opinions and the proposed final draft of the Restatement of Law, Liability Insurance insurers have long-argued that horizontal exhaustion – exhaustion of all triggered policies at the primary or same layer of excess coverage – would apply to long-tail liabilities. It is therefore important that insureds anticipate these arguments and understands whether their policies contain the appropriate language to support application of all-sums and vertical exhaustion approaches.


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