Wisconsin Senate Committee Kills “All Sums” Bill

A Wisconsin Senate Committee has killed the “all sums” bill, a measure vehemently opposed by the insurance industry.

A.B. 222 (Senate Bill 137), was defeated in the Senate Committee on Agriculture and Insurance by a vote of 6-1 on Sept. 2. Paper companies found to be “potentially responsible parties” state and U.S. officials for cleanup of decades of PCB (polychlorinated biphenyls) pollution along the Fox River south of Green Bay strongly supported the bill.

“The folks in the Senate understood that you had one industry asking the legislature to rewrite contracts in their favor, instead of doing what people do when a contract is disputed–that is, going to court,” said Donald Cleasby, vice president, regional manager and counsel for the Property and Casualty Insurers Association of America, which actively opposed the bill.

The Senate’s decision follows an Aug. 30 public hearing at which opponents presented eight hours of testimony against the bill, said Steve Schneider, vice president, Midwest region of the American Insurance Association, which opposed the bill.

“The Senate is to be commended for taking a sound, principled stance against a very bad bill–one that would have rewrote decades-old contracts and incorrectly placed the legislature in the role of the judiciary,” Schneider said. “The interested parties can now continue to move forward sorting out liability, settling claims and keeping the cleanup on schedule without the threat of onerous legislative interference.”

The bill, introduced in March, would have removed the judiciary from its traditional role in deciding the allocation of damages among insurance companies, instead allowing the policyholder to select one insurer and require that insurer to pay “all sums” up to the policy limits. The cleanup, which has already started, has been estimated at approximately $500 million and is expected to take at least a decade.

In most states, environmental insurance claims are handled using a “pro rata” allocation method as defined by the courts using established rules of contract law. Under this allocation, damages like pollution that took place over a long period of time basically are divided among all insurance policies in effect over that time, based on the number of years of each contract.

Under the “all sums” proposal–similar to plans already rejected by courts in Minnesota, Michigan and Illinois–a potentially responsible party could arbitrarily pick any one insurance company with which it had a policy at any time to pay the full amount of a pollution claim, up to the policy limits, regardless of when the damage occurred. This insurer would be held responsible for damage done long before, or long after, its policy actually was in effect, a system that seriously undermines effective risk management principles.

The only state to have legislatively adopted a similar system is Oregon, and in the several years since, there has been no speed-up in pollution mitigation, Cleasby noted.

While insurers are pleased with the recent rejection of the “all sums” concept, some believe the issue is by no means dead. “Other states have adopted all sums systems through case law, and this could still happen in Wisconsin,” Cleasby said. New legislation isn’t out of the question either, especially since the paper industry seems to have more clout in the Assembly, he said. “The paper companies have put a lot of effort into this fight and it’s not likely they’ll throw in the towel so easily,” he said. “So while we’re glad we’ve won the battle, we realize we haven’t won the war.”