With long-tail liability claims — where bodily injury or property damage can be assigned to many different insurance policies across many years — disputes may arise among insurers that provide coverage for the same loss. With as many as dozens of eligible insurers providing coverage in some cases, and certain jurisdictions that assign the full loss to one year of insurance, how can responding insurers share the costs with other triggered insurers? The answer is the idea of contribution – multiple insurers equitably sharing a loss.

For contribution to be relevant, a few things must be true:

• Two or more insurers must be triggered for the same loss
• One or more insurers pay a loss for an amount greater than their “equitable share”
• One or more insurers do not pay or pay an amount less than their “equitable share”

Under these conditions, the insurer(s) who paid more than their equitable share can file a contribution claim against the insurer(s) who did not. Their goal is to recover an amount equal to the difference between what they paid and what their calculated equitable share of the payment should have been.

So, how is an insurer’s equitable share of the total loss calculated? Usually, one of two main methods is used:

• Contribution by Limits – Each insurer’s equitable share of the total loss is that insurer’s share of the total applicable policy limits.
• Contribution by Equal Shares – The total loss is divided evenly amongst all insurers that are triggered by the claim.

Consider the following example:

A company pays $100,000 to settle a personal injury claim. Under a continuous trigger, there are three insurers that are eligible to reimburse the company for these damages: all have a one-year policy while Insurer A has limits of $500,000, Insurer B has limits of $300,000, and Insurer C has limits of $200,000. Collectively, the total limits of the three policies are $1,000,000.

• Under a Contribution by Limits methodology:
  • Insurer A would pay $50,000 ($500,000/$1,000,000 or 50% of the total limits)
  • Insurer B would pay $30,000 ($300,000/$1,000,000 or 30% of the total limits)
  • Insurer C would pay $20,000 ($200,000/$1,000,000 or 20% of the total limits).
• Under a Contribution by Equal Shares methodology, each insurer would pay one third of the settlement since there are 3 policies, or $33,333.

The method used to calculate the equitable share can depend on the state and jurisdiction of the claim but more than anything else, it depends on the specific policy language. 

An example of policy language that would support a Contribution by Limits approach is:

• “The Company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declarations bears to the total applicable limit of liability of all valid and collectible insurance against such loss.”

An example of policy language that would support a Contribution by Equal Shares approach is:

• “The Company shall not be liable for a greater proportion of such loss than would be payable if each insurer contributes an equal share until the share of each insurer equals the lowest applicable limit of liability under any one policy, or the full amount of loss is paid.”

A key consideration when modeling contribution claims is ascertaining which policies and insurers are available to contribute. As always, the jurisdiction and its prior rulings matter greatly; some factors that may eliminate the right of contribution are exhaustion of limits by other claims, settled and/or released coverage, and insolvency, to name a few. Calculating potential contribution claims can be challenging given that there is no easy answer when working with mass tort losses across many insurance towers.

Contribution claims highlight the complex relationship among insurers who find themselves covering the same liability. The terms of the equitable split of costs require an understanding of policy language, jurisdictional precedent, and the circumstances of the payments. Ultimately, the concept of contribution promotes early involvement by all insurers, encourages settlement among insurers and policyholders, and helps lead to fair outcomes for all parties involved.