Category: Claims handling · Reviewed by Simon Temme, Account Executive · Last reviewed 2026-06-11
Allocation across policy years is the process of apportioning a loss that touches multiple policy years (and therefore multiple sets of insurers, limits and exclusions) to the policies actually responsible for it.
Long-tail liability losses — abuse, mesothelioma, environmental contamination, latent professional negligence, cladding-related defects — frequently develop over years. The underlying acts may have occurred across multiple insurance years, with different insurers, different limits and sometimes uninsured gaps. Allocation determines which policies pay and in what proportions.
Allocation has both contractual and tortious dimensions. Contractually, each policy responds within its own terms; the allocation question is how the loss is apportioned between policies that each respond. Tortious, the insured may be jointly and severally liable to the claimant, with allocation between defendants (and so between their insurers) following the contribution principles in the Civil Liability (Contribution) Act 1978.
There is no single statutory rule for allocation in English insurance law. The framework is built up case by case, by reference to:
Key authorities include:
For solicitors PI, the SRA Minimum Terms allocate claims to the year of first notification with the firm’s mandatory cover, simplifying the inter-year apportionment question.
For environmental claims, the wording typically provides an allocation rule (most often time-on-risk pro rata) and the insured’s historic cover database is reconstructed from records (a non-trivial exercise where records pre-date the 1990s).
Allocation is approached in a defined sequence. First, the handler identifies all policies in force across the relevant period — the period during which the alleged acts, exposures or events occurred. For very long-tail losses this may mean tracing thirty or forty years of cover. The Employers’ Liability Tracing Office (ELTO) supports EL cover tracing.
Second, the wording of each policy is examined. Some wordings expressly address allocation — for example, the modern environmental impairment liability wording typically allocates by year of exposure on a time-on-risk basis. Others are silent, requiring reliance on default principles.
Third, the operative trigger for each policy is identified. Occurrence cover responds to events in its period; claims-made cover responds to claims first made in its period. The allocation question is different under each.
Fourth, the apportionment formula is applied. Common formulas include:
The choice between formulas drives substantially different outcomes for the insurers involved. Many large long-tail losses have been resolved by negotiated allocation protocols (the London Market mesothelioma protocol being the best-known) that avoid formal allocation litigation.
Once allocated, each policy responds within its own limit. If the share allocated to a particular year exceeds that year’s limit, the excess is uncovered or falls to the insured’s excess tower for that year.
“Vertical exhaustion” requires the limits of each year’s primary policy to be exhausted before the excess layers of that year are called on. “Horizontal exhaustion” requires the primary limits of all responding years to be exhausted before any excess layer is engaged. The choice (typically dictated by the excess policy wording) materially affects allocation across both years and layers.
“Stacking” refers to the policyholder’s argument that multiple years of cover should be combined to provide a single aggregate limit equal to the sum of the per-year limits. Stacking is generally not permitted under English law absent express wording supporting it.
“All-sums” allocation is more common in US law and rare in English law. Phillips v Syndicate 992 Gunner expressly rejected all-sums allocation in favour of time-on-risk in the solicitors’ PI context.
“Bornhuetter-Ferguson allocation” is a methodology used in run-off and commutation contexts to spread an aggregate loss across years using actuarial development factors.
A historic abuse compensation claim relates to events between 1972 and 1985 at an institution insured by three successive EL insurers (insurer A 1970-77, insurer B 1977-83, insurer C 1983-88) with no gaps. The aggregate claim is settled for £350,000. Time-on-risk allocation:
The insurers settle inter-se by the time-on-risk formula and the claimant is paid the full £350,000 by whichever insurer leads (typically the most recent on risk, recovering against the others). Each insurer’s contribution falls within the relevant year’s PL limit; there is no need for excess layer engagement.
By Matt Bartlett, Director, on 2026-06-11. Next review: 2026-12-11.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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