What Is Long-Tail Liability?

Long-tail liability involves situations when there is a significant gap between the event that created the general liability and when liability was reported and recognized. For example, an employee can work for years around asbestos and not know they are suffering exposure to hazardous materials. Years later, the worker files a personal injury claim related to toxic exposure.

For a number of different reasons, long-tail insurance claims can cause a considerable amount of confusion. Long-tail liability claims and insurance coverage lawsuits can depend on state law. To understand your legal options with a long-tail liability claim, talk to a local insurance lawyer.

Long-Tail Liability: Understanding the Basics

Simply put, a long-tail risk is one in which the manifestation of loss will occur far later than the behavior that led to the loss. In practice, long-tail liability claims can come in a wide range of different forms. The insurance industry refers to long-tail liability claims as incurred but not reported (IBNR) claims. Some of the most common examples of long-tail liability risks include:

• Environmental lawsuits, including air and water pollution cases
• Defective product liability and defective drug tort claims
• Medical malpractice lawsuits
• Employment discrimination claims
• Cyber-liability cases

As far as insurance law is concerned, the primary issues concern what percentage of the underlying loss each party bears and how exactly to determine that percentage of liability.

Under both state and federal law, there is increasing uncertainty and confusion regarding handling long-tail risk/liability. Different states use different types of systems to apportion long-tail liability.

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Insurance Law and Long-Tail Risks

One of the primary challenges of handling a long-tail liability claim is that multiple parties are often liable. As such, multiple liability insurance policies are typically triggered when these types of claims are brought in state or federal courts. Multiple insurance companies end up negotiating the allocation of liability.

For example, a group of construction workers files a claim related to asbestos exposure that occurred decades ago. It is likely that multiple companies will bear at least some of the liability for their damages. Different companies provide liability insurance or workers’ compensation over different policy periods. The longer the gap between the triggering event and the assignment of liability, the more complicated the case is likely to get.

Different states use different allocation methods to manage long-tail liability claims. Some states have changed long-tail liability laws to adopt so-called “pro rata by limits” systems. These laws make insurance companies with higher liability policies responsible for a higher percentage of the losses.

Other jurisdictions use a joint and several liability system in long-tail claims. The policyholder can go after one or multiple insurers to collect on their total losses. Then, it is up to the insurance companies to re-allocate the damages between themselves, leaving the policyholder out of continuing litigation.

Find Legal Help

Long-tail liability is a complicated issue. Businesses and insurance companies need legal representation. Contact an insurance attorney to ask questions about risk management and your rights as a policyholder.

If you have specific questions about getting protection from long-tail risks or about long-tail liability, contact a local insurance law attorney with experience dealing with the insurance industry and these types of claims.