Allocation of lead paint poisoning liability under Maryland law

In Pennsylvania Nat. Mut. Cas. Ins. Co. v. Roberts, No. 10-1987 (4th Cir. Feb. 3, 2012), the Court considered an insurer's allocation of liability, under Maryland law, for a $850,000 judgment arising from lead paint poisoning, where the insurer's time on the risk was only a fraction of the plaintiff's exposure to lead paint poisoning. The insurer had sought a declaratory judgment that its allocation was no more than 40{ae673c0578537ac673c9bacf7e54c8adb105b1f3845655c2906dcf184a4e074c}, because it had covered its insured for no more than 40{ae673c0578537ac673c9bacf7e54c8adb105b1f3845655c2906dcf184a4e074c} of the time in which the plaintiff was exposed to lead poisoning.

The district court held that the insurer was only responsible for a portion of the judgment, notwithstanding that its insured was held jointly and severally liable for the entire judgment in the state proceeding. The district court reasoned that in lead paint or "continuous trigger" cases like this, Maryland courts determine an insurer's liability through a "pro-rata allocation by "time on the risk." The 4th Circuit affirmed in part and reversed in part.

On appeal, the plaintiff argued that the insurer was responsible for paying the entire $850,000 judgment in light of the joint and several liability of its insured. The plaintiff argued that the insurer contracted to cover the risk of any judgment for bodily injury by promising to "pay those sums that [the insured] becomes legally obligated to pay as damages because of 'bodily injury.'"

The 4th Circuit rejected this argument, because under the policy, the insurer contracted only "to pay those sums that [the insured] becomes legally obligated to pay as damages because of 'bodily injury' . . . To which this insurance applies." By its own terms, the contract does not cover damages that the insured because legally obligated to pay for injuries that occurred outside of the policy period. Not only was the insurer's coverage restricted to the policy period, it was also limited to premises that the insured owned, rented, or occupied. Thus, the insurer could not be liable for injuries that occurred after the insured sold the property.

The 4th Circuit concluded:

In seeking to impose the entire judgment on . . . [the insurer], [the plaintiff] would have us turn a blind eye to these terms and hold an insurance company liable for risks for which it never contracted and for which it never received premiums. We decline to do so.

The 4th Circuit also relied on Maryland precedent which holds that in lead paint or continuous trigger cases like this, Maryland courts engage in a pro rata time-on-the-risk allocation of liability." Under this method of allocation, each insurer is liable for that period of time in was on the risk compared to the entire period during which damages occurred, and losses will be prorated to the insured for period during which it was uninsured.

The Court emphasized that this rule does not reduce the tort defendant's own joint and several liability for the judgment. Rather, the question here was whether the insurer is liable for the entire judgment, and that question could be answered only be reference to the insurance contract and the application of contract law.

The 4th Circuit ultimately ruled that the insure was only liable for 22months/55 months of time-on-the-risk, or 40{ae673c0578537ac673c9bacf7e54c8adb105b1f3845655c2906dcf184a4e074c} of the $850,000 judgment.

Impact: By providing more certainty concerning the allocation of judgments to the tortfeasors' insurance policies, this opinion should permit disputes concerning such allocation to be resolved more easily.