South-Western Legal Studies in Business

Full Policy Value in Force for Policy Cancelled after Short Time
Description Appeals court held that the full limit of a policy would apply to damages sustained by a policy holder even though the policy was cancelled after three months. The policy did not state that coverage limits would be prorated, so full coverage was in effect.
Topic Insurance
Key Words Umbrella Policy; Cancellation; Prorated limits
C A S E   S U M M A R Y
Facts Insurer issued a comprehensive general liability (CGL) or umbrella policy to Georgia-Pacific (GP) designed to protect GP from claims by third parties. The policy, issued in 1967, has a $10 million annual aggregate limit of liability as well as a $10 million per occurrence limit. Three months later, GP cancelled the policy in favor of a policy issued by another company. Decades later, GP presented OneBeacon, successor to the company that issued the policy for three months in 1967, with a demand for $10 million for asbestos liability losses dating back to that time. OneBeacon maintained that its liability was capped at $2.5 million since the policy was in effect for only one-quarter of the year. The district court held for GP, holding that the policy did not say benefits would be prorated for part years. OneBeacon appealed.
Decision

Affirmed. The cancellation of the umbrella liability policy before the end of the policy period, and the refund of the premium for the remainder of the year did not permit the insurer to prorate the limits of the policy. The cancellation clause stated that “all other terms and conditions remain unchanged” in the event of cancellation, hence the full annual value of the policy was in effect during the three months the policy was in force.

Citation OneBeacon Insurance Co. v. Georgia-Pacific Corp., 474 F.3d 6 (1st Cir., 2007)

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