Enforce: The Insurance Policy Enforcement Journal vol 12 | issue 1 Enforce vol 12 | issue 1 | Page 24

RISK RADAR Continued contract or agreement.” Instead, the policyholder’s promise to perform its work in a good and workmanlike manner simply tracked its general obligation to exercise reasonable care under the doctrine of negligence. In other words, if the scope of liability under the contract is coterminous (or less than) the scope of liability under a negligence theory, the contractual liability exclusion should not apply, as there has been no “assumption of liability.” In Lennar, Texas policyholders scored a major victory last August when the Texas Supreme Court confirmed that Texas follows the “all sums” rule for long-tail property damage claims. The Lennar case involved damages to several homes occurring over several years caused by the use of an exterior insulation and finish system rather than conventional stucco. It was undisputed that damage to the homes occurred before, during and after the policy period. The policyholder in Lennar sought the full amount of the loss up to the policy limits in accordance with the policy’s obligation to pay the total amount of the loss (all sums). The insurance company sought to pay only the damage that occurred during the policy period, or, alternatively, a “pro rata” amount of the loss based on its proportionate time on the risk. The all sums rule comes into play in situations like Lennar: When a policyholder may be liable for continuing damage occurring over several successive policy periods. If a triggered insurance policy promises to pay all sums for which the insured is liable, then that insurance company must cover the entire amount of the policyholder’s loss (up to the policy limits) even if the damage occurred prior to, or after, that policy period. On the other hand, insurance companies often urge courts to apply the pro rata approach, which would permit an insurance company to a pro rata reduction based on the insurance company’s respective time on the risk or liability limit. Despite the fact that this approach contradicts the all sums language in the insurance policy, some states have been persuaded by the insurance industry in adopting the pro rata approach. By confirming the applicability of the all sums rule, Lennar represents a significant victory for policyholders. Insurance policies subject to Texas law rightly obligate the insurance company to pay the full extent of the insured’s liability, “leaving up to insurance companies who share responsibility for a loss to allocate it among themselves according to their subrogation rights.” The all sums rule provided for in Lennar allows the policyholder to “get its money and get out,” leaving the insurance companies to deal with the expensive and timeconsuming process of allocating the total amount amongst themselves. s Michael J. Stoner is an attorney in Anderson Kill’s Ventura, CA, office. Mr. Stoner’s practice focuses on insurance recovery, exclusively on behalf of policyholders, corporate and commercial litigation, and environmental law. [phone] [email protected] 1251 Avenue of the Americas New York, NY 10020 [phone] JP Morgan International Plaza III 14241 Dallas Parkway, Suite 650 Dallas, TX 75254 [phone] One Gateway Center, Suite 1510 Newark, NJ 07102 [phone] 864 East Santa Clara Street Ventura, CA 93001 [phone] 1717 Pennsylvania Avenue, NW, Suite 200 Washington, DC 20006 [phone] 1600 Market Street, Suite 2500 Philadelphia, PA 19103 [phone] WWW.ANDERSONKILL.COM Connect with AndersonKillLaw online Follow us on Twitter @AndersonKillLaw