Federal District Court Predicts That The Iowa Supreme Court Will Apply Pro-rata Allocation To Construction Defect Claims

On Behalf of | Sep 13, 2018 | Firm News

In Pella Corp. v. Liberty Mut. Ins. Co., 244 F.Supp.3d 931 (S.D. Iowa 2017) the District Court held that a CGL policy’s non-cumulation clause did not require an “all sums” allocation approach where the insured could recover its entire indemnity obligation from a single insurer, up to the policy limits. However, the Court also held that while pro-rata allocation applied to indemnity costs, an “all sums” allocation applied to defense costs. The policy did not impose a duty to defend, but only an obligation to reimburse defense costs as an allocated loss adjustment expense. The Court noted that while the duty to defend and the duty to reimburse were similar, general principles applicable to the duty to defend, as well as the policy language, allowed the Court to allocate indemnity and defense differently. The duty to defend was broader than the duty to indemnify. The policy did not limit coverage of defense costs to those incurred during the policy period, nor did the policy suggest any allocation method for defense costs. Therefore, the Court concluded that an all sums allocation of defense costs was reasonable.