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Exposure Triggers and Allocation Methods: Learning Lessons From Prior Court Rulings

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  • Charles R. McGuire
  • Kathleen A. McCullough
  • George B. Flanigan

Abstract

This study provides a review of some of the major court rulings that have shaped and continue to shape the commercial general liability (CGL) market. The evolution of the concepts of “triggers” and allocations systems is examined to gain a perspective on the way in which courts reinterpret contract language to apply to new and emerging exposures. A review of the issues impacting the CGL provides valuable insights into the way court rulings can create a significant impact in the insurance market. A stream of court decisions provides the backdrop for today's challenges, including the reemergence of asbestos claims. The study also fills a gap in the literature related to the crisis in the CGL marketplace and changes in the pricing, regulation, and solvency of insurers operating in those lines. As old risks continue to evolve and new risks emerge, courts have begun to reinterpret liability contracts in much the same way as they reinterpreted contracts with regard to pollution and products in the 1970s and 1980s. Recent rulings related to asbestos and environmental liability underscore the importance of these issues in today's marketplace. By reviewing these events related to the CGL policy, insurers, insureds, and regulators may gain a new perspective on the importance of developing a clear standard wording that will be consistently interpreted in light of new exposures.

Suggested Citation

  • Charles R. McGuire & Kathleen A. McCullough & George B. Flanigan, 2004. "Exposure Triggers and Allocation Methods: Learning Lessons From Prior Court Rulings," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 7(1), pages 73-87, March.
    • Handle: RePEc:bla:rmgtin:v:7:y:2004:i:1:p:73-87
    DOI: j.1098-1616.2004.00037.x
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    References listed on IDEAS

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    1. Cummins, J. David & Danzon, Patricia M., 1997. "Price, Financial Quality, and Capital Flows in Insurance Markets," Journal of Financial Intermediation, Elsevier, vol. 6(1), pages 3-38, January.
    2. Harrington, Scott E & Danzon, Patricia M, 1994. "Price Cutting in Liability Insurance Markets," The Journal of Business, University of Chicago Press, vol. 67(4), pages 511-538, October.
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    Cited by:

    1. Taillard, Jerome Ph. A., 2008. "Thriving in the Midst of Financial Distress? An Analysis of Firms Exposed to Abestos Litigation," Working Paper Series 2008-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics.

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