The Burden of Allocation

The Burden of Allocation

By Adam Kominsky, Partner, Silverman Sclar Shin & Byrne

This Emerging Issues Analysis examines recent court decisions and adduces guidelines as to whether the insured or the insurer has the burden of proof as to allocating which portions of a loss and the costs associated with the loss are covered and which are not covered by the insurance policy at issue.

“Allocation between covered and non-covered causes of action is an issue that often goes unnoticed until the conclusion of a claim. Yet, it is one of the most significant issues facing claims adjusters and counsel. The purpose of this commentary is to provide some insight as to the importance of knowing the allocation rules and the importance of resolving allocation issues before a claim is concluded,” writes Adam Kominsky. “A successful resolution of allocation issues frequently depends on knowing, in advance, the particular nuances of state law and taking a proactive approach with the insured to avoid complications at the eleventh hour. These steps may avoid last-minute scrambling and compromises in an attempt to sort out which particular portions of a loss and the costs associated with the loss are covered.”

Insurers are almost universally required to defend all of the claims in a complaint where at least some of the claims are covered by a particular insurance policy (the so called ‘mixed action claim),” explains the author. See New Appleman on Insurance Law Library Edition § 17.01(3)(a); see also Buss v. Superior Ct., 16 Cal. 4th 35, 53, 65 Cal. Rptr. 2d 366, 378, 939 P.2d 766, 778 (1997); Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487 (Tex. 2008).

“Several courts have noted the disparity in the treatment of allocation for covered and non-covered claims across different jurisdictions and in the courts' disparate approaches as to which party bears the burden of allocating between non-covered and covered claims.” See, e.g., Santa's Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 351 (7th Cir. 2010). “Recognizing which state law applies in a particular case and which party has the burden of proof with respect to allocation under the applicable law thus becomes crucial when concluding a claim,” points out Kominsky.

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Adam Kominsky is a partner in the New York office of Silverman Sclar Shin & Byrne. He plays an integral role within the firm's insurance coverage group. His focus is on handling and litigating coverage disputes in federal and state courts, including professional liability, environmental, construction, directors and officers, reinsurance, general liability, maritime and bad faith claims. He provides counsel to insurers and reinsurers on regulatory matters, litigation management and claims handling throughout the United States.

Mikhail Ratner an associate with Silverman Sclar Shin & Byrne PLLC assisted in the preparation of this article.

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The free, unenhanced versions of the decisions in Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487 (Tex. 2008) and Santa's Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 351 (7th Cir. 2010) can be found on Free Case Law at lexisONE.com.

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