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EXHIBIT 1

Triggered Policy Period	Total Policy Limits	Percent of Loss
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Total	$2M $2M $2M $3M $3M $3M $4M $4M $4M $27M Total	7.4% 7.4% 7.4% 11.11% 11.11% 11.11% 14.8% 14.8% 14.8%

Under Carter-Wallace, the Owens-Illinois allocation formula is applied as in Exhibit 1, such that a percentage of loss is attributed to each year. Allocation to policies within a given year, however, are from the ground-up. For example, using the Exhibit 1 figures, if in Year 1, the insured was self-insured for $250,000, had first layer excess coverage of $500,000, and second layer excess coverage of $1.25M (totaling $2M in coverage), allocation of $740,000 attributable to Year 1 would be paid within Year 1 as follows: The insured (also referred to as the claimant) would be responsible for $250,000; the first layer excess policy would pay $490,000; and the second layer excess coverage would pay $0 because the entire claim would be addressed by the first two allocations. Hence, layers of coverage are considered only after allocating percentages of the loss to each triggered year based on the above limits of liability calculation.

Self-Insurance

To calculate the available limits of liability in a given year, amounts of self-insurance must be considered. New Jerseys formula allows allocation to the claimant for periods and limits that the claimant chose to self-insure.[6] To determine whether to allocate loss for uninsured periods to a claimant, the New Jersey Supreme Court has ruled that:

When periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable.[7]

Accordingly, an inquiry must be made as to whether the claimant could have purchased insurance for years or layers that may be triggered for payment. If coverage was available, the amount allocated to the claimant should equal the loss attributable in the given year to a maximum of the limits that could have been purchased. The allocation example assumed that the claimant purchased the limits it regarded appropriate for self-insured years but was not purchased. Often, it is further necessary to inquire as to whether environmental insurance was available to replace general liability policies with pollution exclusions.

As pointed out, the allocation of loss requires that the court distinguish between periods when the claimant voluntarily chose to self-insure an environmental exposure and periods when insurance for the risk-giving rise to the loss was not available. In other words, prior to calculating the total limits available in a year for allocation, an evaluation must be made as to whether insurance for a particular environmental risk or site was available in the relevant time period. If environmental insurance was available for the loss, the claimant will be deemed self-insured for the amounts of limits available. If environmental insurance was not available for the loss, no allocation is made to the claimant for the self-insured period.

SUBJECTIVE METHODOLOGY FOR ALLOCATION

The question of whether pollution insurance was available cannot simply be answered by determining that specialty environment underwriters were, in fact, writing environmental insurance in a given time period. Rather, an accurate answer depends on an evaluation of four factors that determines the availability of insurance for a given claim or site. These factors can be considered as four separate lines of inquiry as follows:

1. Was the insurance market writing environmental liability insurance at the time of the claim in the subject case?
2. If the market was writing coverage in the relevant time period, what limits were available?
3. Would the underwriters providing insurance offer coverage to the insured in question for the specific risk that resulted in the loss?
4. Would any policy provisions work to limit or exclude coverage that would otherwise be available in the policy?

These four questions must be explored in detail in order to conclude that environmental risks were voluntarily assumed even though insurance was available, or that coverage was truly unavailable for the particular environmental risk. The first two questions typically can be answered by a review of historical information maintained by brokers placing environmental insurance from 1970 to 1996.

The third and fourth questions must be analyzed in the context of the specific risks involved and the brokers ability to place coverage. The mere fact that an insurance company had the capacity to write environmental insurance in a given policy year does not mean that all risks for prospective insureds would have been insurable. Underwriting decisions were made on a site-by-site basis, and exclusions were added to environmental policies for certain risks. Accordingly, some risks and some sites were uninsurable.

HISTORY OF ENVIRONMENTAL INSURANCE MARKET

Because the pollution exclusions incorporating a sudden and accidental exception were being added to CGL and umbrella and excess policies issued for US industrial risks starting in 1970, the European insurance market began to evaluate what, if any, gradual pollution risks could be covered by insurance. Under the leadership of a London brokerage firm, H. Clarkson (Overseas) Ltd., a program was devised in which significant information was collected concerning environmental conditions, corporate practices and management policies related to pollution exposures.[8] That program led to the first Environmental Impairment Liability (EIL) Policy offered to non-US risks in 1974. There were more than 35 reinsures involved in offering capacity for this worldwide environmental program. The lead reinsurer for this program was Swiss Re. Shortly after the program was expanded to write US risks, Swiss Re declined to continue providing the lead and was replaced by Societe Commercial de Reinsurance (Scor Re) in 1976.[9]

When EIL coverage for gradual pollution risks was first offered in the United States, the available limits were $4,000,00 per claim and $8,000,000 aggregate. These limits were increased to $5,000,000 per claim and $10,000,000 aggregate in the mid to late 1970s. They remained the same until the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) was enacted in 1980. The passage of this strict liability legislation resulted in an increased interest on the part of risk managers of environmental insurance.

The domestic insurers that were writing pollution liability insurance (primarily for gradual pollution risks) in 1980 included American International Group (AIG) and the Evanston Insurance Company (through Shand Morahan & Co., Inc., a managing general agency). The limits offered by these programs were $10,000,000 each claim and $20,000,000 aggregate. In 1980, the London EIL program also began to offer limits of $10,000,000 each claim and $20,000,000 aggregate for risks in the United States.

Insurers entering the market in 1981 included Pacific Insurance Company (through Swett & Crawford) and Great American Surplus Lines Insurance Company (through Stewart Smith & Co.). Other London brokers also began to offer access to the pool capacity of the EIL program. The available limits for the London program also were increased with the highest limit being $20,000,000 per claim and $20,000,000 aggregate.

In 1982, the Pollution Liability Insurance Association (PLIA) was formed as a pool to write pollution liability insurance for member companies. At its inception, there were 37 insurance companies participating in the premium and losses shared by this group. Maximum limits available through PLIA were $4,000,000 each claim and $4,000,000 aggregate. Several other domestic insurers also began to write EIL policies in 1982. These included the Hartford Insurance Company, Travelers, and Aetna Casualty & Surety Insurance Company. The largest capacity available that year was $20,000,000 per claim and $60,000,000 aggregate. The International Insurance Company (a subsidiary of Crum & Forster) became the fronting company for London EIL program policies issued in the United States in 1982.

In 1983, the Hartford Steam Boiler Inspection and Insurance Company, St. Paul Surplus Lines Insurance Company, and the Home Insurance Company also entered the EIL market.

Beginning in 1984, the market for gradual pollution liability insurance began to constrict, primarily attributable to the number of CERCLA-related claims being asserted under general and excess liability policies and EIL policies. In 1984, many insurers revised their policies to exclude coverage for cleanup costs and third-party claims arising out of Superfund. By the end of 1985, only two insurers continued to write gradual pollution liability insurance polices, AIG and PLIA. The maximum capacity offered that year was $10,000,00 per claim and $10,000,000 aggregate.

Environmental Insurance Available After 1985

The years 1986 through 1990 marked a transition period for environmental insurance following the collapse of the EIL market in 1984 and 1985 and the introduction of the Absolute Pollution Exclusion in the ISO CGL form in January of 1986.[10] Beginning in 1987, Environmental Compliance Services, Inc., which had been a technical support group within AIG, set up its own managing general agency relationship with Reliance National Risk Specialists to offer environmental liability insurance with initial limits of $1,000,000 per occurrence and $2,000,000 aggregate. AIG had expanded its maximum limits of liability to $12,500,000 per occurrence and $12,500,000 aggregate. PLIAs capacity had shrunk due to the departure of member companies to $2,000,000 per occurrence and $2,000,000 aggregate.

By the beginning of 1988, PLIA was no longer offering reinsurance to its member companies for underground storage tank business, but it continued to offer site-specific environmental insurance until the end of the year. AIG offered limits of $15,000,000 per occurrence and $15,000,000 aggregate. ECS/Reliance had maximum limits of $2,000,000 per occurrence and $4,000,000 aggregate during 1988.[11]

The market for pollution liability insurance remained restricted in 1989, but the carriers that were active continued to offer higher limits, broader coverage forms, and a greater variety of insurance policies that were demanded by the public. In that year, AIG increased its limits to $20,000,000 per occurrence and $20,000,000 aggregate. ECS/Reliance also increased its limits to $3,000,000 per occurrence and $6,000,000 aggregate. The secondary market and risk retention group offerings also were expanded as additional capacity became available, but most policies issued by these groups still had limits of $2,000,000 aggregate or less.[12]

By the end of 1990, the market had expanded to include a few new underwriters and additional capacity from those that remained active. AIG continued to offer $20,000,000 per occurrence and $20,000,000 aggregate. ECS/Reliance again increased its limits to $5,000,000 per occurrence and $10,000,000 aggregate. Both St. Paul Insurance Company and New Hampshire Insurance Company provided endorsements to their CGL policies that offered $1,000,000 per occurrence coverage for aboveground pollution claims. The market experienced very little change from 1990 to 1991, with only AIG and ECS/Reliance writing all lines of environmental coverage.

In 1992, AIG increased its limits to $40,000,000 each occurrence and aggregate. ECS/Reliance also increased its limits to $10,000,000 each occurrence and $20,000,000 aggregate. Zurich American launched its environmental underwriting program in 1992 and had initial limits of $30,000,000 per occurrence and aggregate. United Coastal also began to write pollution liability insurance with limits of $6,000,000 per occurrence and $6,000,000 aggregate.[13]

The same four markets continued to offer programs for a broad range of environmental risks from 1993 to 1996. AIG continued to offer the highest limits of $40,000,000 per occurrence and $40,000,000 aggregate. ECS/Reliance offered maximum limits of $15,000,000 per occurrence and $30,000,000 aggregate. Zurich American continued to offer maximum limits of $30,000,000 per occurrence and aggregate. United Coastals limits remained $5,000,000 per occurrence and $10,000,000 aggregate.[14]

Modern Era of Environmental Insurance

Environmental insurance really came of age in the 1990s. The data and knowledge required to successfully underwrite significant environmental risks was developed over time among the insurance companies, the brokers and technical consultants to address a broad variety of complex issues and to provide more meaningful risk transfer options to customers looking for insurance and financing tools. Today, coverage can be provided for nearly any industrial, commercial or institutional risk. There are more than 25 different types of environmental policies that provide insureds with a wide variety of options to insure pollution exposures. Popular products include the use of cost overrun insurance for environmental remediation projects, and secured creditor policies to protect lenders from suffering the financial consequences of involvement in properties where environmental problems are discovered. Although policies are typically written with p to $10 million in limits and for terms up to 10 years, larger limits and longer terms are available. Policies are extensively modified for larger transactions to provide creative and flexible solutions to clients with difficult environmental risks.

SPECIFIC RISKS RESULTING IN LOSS

The fact that the market could write policies with the limits specified previously during the period from 1974 to 1996 is not a guarantee that any account could actually purchase coverage for their risks or exposures at a given site.

Principles and Practices of Underwriting Environmental Risks

The environmental market has, from the outset, written coverage only on a claims-made basis. This means that a policy is triggered only when a claim is made against the insured in the same policy period in which an occurrence-giving rise to the claim took place. The use of claims-made policies by the environmental markets means that only one environmental liability policy will be triggered by a pollution condition or environmental impairment regardless of the number of years during which coverage was purchased. This distinction is important because it allows the inquiry to focus on just one time period the policy period during which a claim was first made.

Unlike general and excess liability policies that provide coverage to all operations of the insured, environmental insurance policies are written on a site-specific basis. Environmental policies incorporate a list of insured locations typically by specifying the sites in the declarations of the policy, or by endorsement, or by specific reference to the attached application. Accordingly, unless a manufacturing facility or disposal site is identified as an insured location, it is not covered by the policy. For a site not owned or controlled by the insured, underwriters would require evidence that the site was being operated in accordance with the regulations applicable to its activities and that the site was not already contaminated by historic operations and releases.[15]

Corporations did not seek coverage for nonowned disposal facilities in the late 1970s or early 1980s. Corporations believed that the responsibility for materials deposited at nonowned disposal facilities rested with the owners and operators of the disposal facilities. The concept of generator liability pursuant to CERCLA was not imagined much less understood until long after the legislation was passed in 1980. Hence, risk managers would not have considered purchasing insurance coverage for third-party disposal facilities until at least the early 1980s.

All insured sites must be identified in an environmental liability policy because each property presents unique risk characteristics that must be evaluated in order for the underwriter to accept the risk. The underwriting process considers: (1) the nature of the operations and activities conducted at the site; (2) the types of materials used and how they are handled, stored and disposed of; (3) the exposure pathways that could carry pollutants to the property of others; and (4) the exposed population (persona and ecosystems) surrounding the site. Each of these factors is clearly unique to the specific site being considered.

Accordingly, disposal sites were not typically considered to be insurable risks for two reasons. First, an environmental underwriter could not have approved a site for coverage that was unknown to the insured at the time the application was completed or at the time of the loss. Second, even if a third-party disposal site was considered for coverage, most disposal sites would have failed an underwriters inspection.[16] An underwriter would also have found it difficult to assess the potential magnitude of any individual companys liability at an off-site disposal location where hundreds or thousands of parties were sending hazardous materials to a single disposal site.

Although recent versions of pollution legal liability policies can afford coverage for on-site conditions, environmental liability policies previously excluded coverage for property damage to the insureds own locations. Environmental liability policies were intended to provide protection against third-party claims rather than for first-party damage.[17]

Prior to 1996, environmental liability policies also excluded claims arising from properties that were sold, leased or abandoned, or where operational control had been relinquished by the insured.[18] Underwriters did not automatically provide coverage when the ownership of a property changed because of the possibility that a change in use would result. There was also a concern that the new owner might not continue to maintain environmental management programs that were employed by the previous owner. For current policies, however, underwriters retain the right to review the proposed future use and the ability of the purchaser to provide an adequate level of management to environmental risks, and customarily extend coverage to new owners of insured properties.

Another consideration for determining availability of environmental insurance is the type of operations. Prior to the mid-1980s, most landfills would not have been approved by underwriters for coverage. Environmental liability policies excluded landfill operations, whether conducted on the premises of the insured or at an off-site location.[19] Once the licensing of landfills became dependent on meeting the technical and operational control requirements of Resource Conservation and Recovery Act (RCRA), certain underwriters became willing to provide coverage for claims arising from the release of the contaminants from a third-party disposal site that met the technical requirements of RCRA. However, underwriters were still not willing to write coverage for the cleanup of the third-party disposal facility or landfill itself. Today, certain insurance products are available for mitigation of risks at landfills.

In the years immediately following the passage of CERCLA, most environmental liability policies included a Superfund Exclusion.[20] The exclusion then became unnecessary because underwriters were able to search a database prior to covering a location, for sites that were: (1) on the CERCLA NPL list; (2) in the CERCLIS data base of sites at which releases of contaminants were suspected; (3) known to have underground storage tanks; (4) known to have had a release of contaminants either from storage tanks or otherwise; (5) known to have been impacted by environmental violations; and (6) the subject of environmental enforcement activities under federal or state law.

Environmental liability policies have always excluded expected cleanup costs and often third-party coverage for pre-existing pollution conditions that were known to the insured. This exclusion is obviously intended to prevent a party that knows of a release of contaminants from purchasing a policy and making a claim for what is a known loss. The requirement for disclosure for known conditions is a part of the application process. The prospective insured must state that they are not aware of any circumstances that are reasonably expected to give rise to a claim under the policy.[21]

In the early 1980s, environmental insurers excluded underground storage tanks from pollution liability policies. The exclusion stated that the policy provided no coverage for underground tanks that were known to the insured unless they were specifically endorsed onto the policy. This was done through a listing of the tanks and the locations at which they were located in the same endorsement. The tanks that were insured had to meet the technical requirements of the RCRA and would require tightness testing on a periodic basis.[22] By evaluating each site and each tank individually, the underwriters were able to avoid paying for cleanups both on and off the insured locations caused by leaking underground storage tanks.[23]

Claims arising out of the presence of asbestos or lead paint in any form are also typically excluded from environmental liability policies. Both of these materials are ubiquitous and insuring claims arising from them could result in frequent losses, including bodily injury and occupational disease claims. The policies also exclude the cost of remediating, abating or encapsulating asbestos containing building materials or lead paint when it is discovered in a location that is otherwise insured for environmental liability.[24]

The fundamental characteristics of claims-made insurance should be considered as a part of the analysis as to whether an underwriter would have provided coverage for a loss arising from an insureds locations or operations. It was common for environmental liability policies to have been issued with a retroactive date that was the same as the inception date, which would not have provided coverage for prior acts. With a claims-made insurance policy, the triggering event is the presentation of the claim to the insured. The claims-made policy gives the underwriter the opportunity to reconsider its willingness to continue to provide coverage at the time of renewal. An underwriter may have made an inspection of the insured location during the policy term and determined that the insured was not using safe practices to dispose of hazardous wastes generated in the course of its manufacturing operations. At renewal, the underwriter likely would have excluded losses arising from the handling of hazardous wastes, or refused to insure the location in its entirety.

To further assure that only one claims-made environmental liability policy is triggered by a claim, Deemer Clauses were added to policies written in the early 1990s.[25] Deemer Clauses have worked effectively to make certain that: (1) only one policy is triggered as a result of all claims arising out of a pollution condition; (2) only one limit is available regardless of the number of claims that are made as a result of the same, related, repeated or continuous conditions; and (3) the policy that is deemed to have been triggered is the one in effect when the first claim arising out of that condition is made.

CONCLUSION

To credibly determine whether environmental insurance was available to a claimant for purposes of allocation, the nature of the risk that gave rise to the claim must be evaluated as well as the ability of the market to provide pollution coverage. A factual inquiry into the circumstances surrounding a claim requires the qualified expert to have comprehensive knowledge of: (1) policy language of environmental insurance coverage forms; (2) exclusions normally incorporated into the policies and flexibility in deleting or modifying them; (3) underwriting practices of the insurance companies active in the environment market; and (4) how all of these factors changed over time. There are not a large number of experts with the knowledge required to develop a supportable opinion regarding the available environmental insurance in the typical allocation case. Because the proper resolution of this allocation question can represent a substantial difference in the amount recovered from general and excess liability insurers, the identification and employment of the appropriate expert is an essential part of the litigation.

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