New Jersey Supreme Court Holds that Non-Cumulation Clauses Cannot Apply to the Allocation of Long-Tail Claims

In Spaulding Composites Co., Inc. v. Aetna Cas. & Sur. Co., Docket No. A-88-01 (N.J. April 10, 2003), a policyholder sought coverage for environmental defense and remediation costs under its comprehensive general liability insurance policies. The primary insurer argued that its liability, under nine primary policies, was reduced by each policy's non-cumulation clause. A non-cumulation clause provides that where a single occurrence spans several years and triggers multiple policies, each policy's liability limits are reduced by payments made, for that occurrence, under previous policies. The Spaulding insurer, therefore, argued the clause allowed its policyholder to recover under only one of its nine triggered policies.

The Supreme Court disagreed, holding that under New Jersey's trigger/allocation principles, progressive indivisible injury or damage constitutes "an occurrence within each policy year," not a "single occurrence." The non-cumulation clause, therefore, cannot limit coverage for such injury or damage because the clause explicitly applies only to loss arising from a single occurrence. Slip Op. at 24-27. The Court further held that even if such injury or damage falls within the clause's literal terms, the clause violates New Jersey's pro-rata allocation modality under Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437 (1994) and Carter Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312 (1998). See Spaulding Slip. Op., at 27-28.

McCarter & English LLP successfully represented Spaulding amici curiae GAF Materials Corporation, R&F Alloy Wire and N.J.C Holdings, Inc. If you have any questions about Spaulding or any other insurance issue, please do not hesitate to contact any of the below listed attorneys in the Insurance Coverage Group at McCarter & English, LPP: