Time is on Whose Side? Time-on-the-risk allocation applied over insurer objections.
In Great Am. Lloyds Ins. Co. v. Vines-Herrin Custom Homes, L.L.C., 05-18-00337-CV, 2020 WL 104622 (Tex. App.—Dallas Jan. 9, 2020, no pet. h.), the Dallas Court held indemnity coverage can be allocated among multiple liability insurers based on each carrier’s time on the risk. The decision does not cite and appears to depart from prior decisions that favor targeted tender and allocation according to subrogation and “other insurance” clauses. See, e.g., CNA Lloyds of Texas v. St. Paul Ins. Co., 902 S.W.2d 657, 660 (Tex. App. –Austin 1995, writ dism’d). This case did not involve the typical scenario of the prior cases where a single occurrence extends over multiple policy periods but three separate occurrences to which damage in three separate policy periods was attributable. However, the underlying evidence against the insured apparently did not determine the amount of damages attributable to each policy period.
Vines-Herrin, a builder, was sued by Cerullo for construction defects in his home. 2020 WL 104622 at *1. Cerullo’s underlying claim against Vines-Herrin was arbitrated, resulting in an award of over $2.4 million to Cerullo. Vines-Herrin’s insurers declined to defend Vines-Herrin or to participate in the arbitration and Vines-Herrin then filed declaratory claims for defense and indemnity. Id.
At the arbitration and subsequent coverage trial, it had been established that the damages resulted from three separate occurrences, each of which caused damages in a single policy period. 2020 WL 104622 at *5 (citing Great Am. Lloyds Ins. Co. v. Vines-Herrin Custom Homes, L.L.C., No. 05-15-00230-CV, 2016 WL 4486656, at *5–7 (Tex. App.—Dallas Aug. 25, 2016, pet. denied) (“Vines-Herrin II”)). Two previous appeals in the coverage case then found that both Great American and Mid-Continent owed Vines-Herrin a duty to defend and a duty to indemnify. In the second appeal, however, the appellate court reversed a finding that each insurer was liable for the entire arbitration award, and remanded. Id. at *1 (citing Vines-Herrin II, 2016 WL 4486656, at *7). On remand, the trial court allocated the award on a pro rata basis based on the number of days each insurer’s policy was implicated for the damages incurred, $872,057.32 for Great American and $1,615,450.45 for Mid-Continent. Id.
In this appeal, the insurers contended time-on-the risk allocation was error, but the Dallas Court of Appeals disagreed and affirmed the judgment. Id. at *2. The Court noted that Vines-Herrin offered proof that it suffered damages from occurrences in each of the three policy periods, one period insured by Great American and one by Mid-Continent, and that each carrier must indemnify Vines-Herrin for those damages occurring in its policy period. Id. at 3 (rejecting the argument that “that the Insurers may pay nothing at all if their insured does not establish a specific amount of damages attributable to each policy period”). The two insurers, however, had strategically declined to offer evidence that damage did not occur during their respective policy period because such evidence would have shown the damage occurred in the other insurer’s policy period. Id. at 4. Thus, “the only evidence before the arbitrator and the trial court showed that property damage occurred during each respective policy period” but the lump sum arbitration award did not distinguish damages in one policy period from those in another. The trial court therefore applied a time-on-the-risk allocation to determine what each insurer owed, based pro rata on the number of days each policy was implicated. Id.
The appellate Court affirmed, citing cases from New Hampshire and South Carolina. Id. at *5. The court held that “this case presents a problem similar to that of the time on the risk cases, that is, how to apportion an established total amount of damages among the insurers whose policies were in effect during the time a portion of the loss was suffered by the insured.” Id. “But because the Insurers wrongfully refused to defend Vines-Herrin or participate in the arbitration, they lost their opportunities to require that Cerullo and Vines-Herrin allocate an exact amount of damages to the relevant policy period or to request that the arbitrator do so.” Id. Because neither party to the arbitration was required to allocate damages to any particular policy period, the court held there was legally and factually sufficient evidence to support the trial court allocation. Id.