FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
Insurance Recovery for Manufactured Gas Plant Liabilities
Therefore, the likelihood of winning or losing on each potential coverage issue must be assessed. The first step is to identify the key defenses that insurers can raise, such as:
• Was timely notice given?
• Who owns the property?
• Was the damage intended or expected?
• Was the release intended or expected?
• Are cleanup costs damages?
• Was the damage sudden and accidental?
• Is there a suit or claim?
Once these defense issues are identified, attorneys experienced in insurance law must evaluate these defenses in light of site facts to determine the likelihood that each issue will be resolved in favor of the insured. This assessment takes place for each site and for each policy that could be triggered. If the utility has a choice of where to file suit, then it should evaluate the coverage likelihoods for every potential forum in light of the past rulings in each. A hypothetical example can illustrate this process (see exhibit 2).
Assessing the Expected Value of Litigation
In the final step, information concerning policy characteristics, site facts, site costs, and coverage likelihoods is integrated to develop an estimate of the expected value of recovery through litigation. A key element of the litigation strategy is to determine which trigger and allocation theories will maximize expected coverage. The policies that are triggered and the ways in which costs are allocated to policies generally vary according to three factors:
• Date of Injury. Is this determined by the dates of site operation, the dates of shipment or disposal, the date of a particular contamination event, the date of discovery of the problem, or the date of a suit or claim?
• Occurrences. Is there one discrete occurrence or are there multiple or continuous occurrences?
• Cost Allocation. Can costs be allocated to a single policy year or must they be prorated across policy years?
Expected recovery typically varies greatly with the trigger and allocation theory. A date-of-discovery trigger will tend to access policies in more recent years that have high coverage limits, but unfavorable pollution exclusion language. A multiple occurrence theory can often trigger policies that predate sudden and accidental language or the absolute pollution exclusion. These policies provide a greater likelihood of
coverage but typically have lower per-occurrence and aggregate coverage limits. Furthermore, if costs must be prorated across all policies triggered by a multiple occurrence theory, then an accumulation of deductibles may diminish potential coverage.
The estimate of expected recovery from a multi-site suit under each possible trigger and allocation theory starts with an analysis at the individual site level. The expected recovery is estimated for each policy that may provide coverage. The results are then summed across all sites, taking into account the impact of aggregate policy limits, to derive the total expected insurance recovery from litigation.
Optimizing Recovery Strategy
The detailed information developed in valuing an insurance recovery case as described above offers insights into ways to optimize recovery and manage risk. %n4%n Through this analysis, utilities can identify the forum, trigger theory and allocation theory that maximize expected coverage. For example, the detailed analysis may reveal