New York’s Highest Court Holds All Sums Allocation And Vertical Exhaustion Applied To Excess Insurance Coverage For Asbestos Claims
On May 3, 2016, the Court of Appeals of New York issued its opinion in In re Viking Pump, No. 59, 2016 WL 1735790, and found that “all sums” allocation and vertical exhaustion applied to the insureds’ claims to excess coverage for the asbestos exposure claims filed against them. This decision was based on the specific language of the policies before the Court.
On the allocation question, the Court noted its prior holding in Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208 (2012), which applied pro rata allocation to claims involving environmental contamination over a number of years and policy periods. The Court noted that Consolidated Edison did not adopt a strict rule mandating application of pro rata allocation but merely enforced the policy language before the Court. The Court found that the Viking Pump policies were substantively distinguishable because the Viking Pump policies included non-cumulation clauses or non-cumulation and prior insurance provisions. According to the Court, it would be inconsistent with such provisions to use pro rata allocation since these provisions “plainly contemplate” that multiple successive insurance policies can indemnify the insured for the same loss or occurrence by acknowledging that a covered loss or occurrence may also be covered under any other excess policy issued to the insured prior to the inception date of the policy. The Court noted that, by contrast, pro rata allocation is premised on the limitation in policy language that indemnification is only for losses and occurrences during the policy period, meaning that no two policies indemnify the same loss or occurrence. The Court concluded that the non-cumulation clause negates that premise by presupposing that two policies may be called upon to indemnify the insured for the same loss or occurrence. Pro rata allocation, according to the Court, renders a non-cumulation clause surplusage, which is contrary to New York rules of contract construction. The Court additionally noted that the excess insurers cited “no authorities satisfactorily reconciling non-cumulation clauses with pro rata allocation.”
On the issue of exhaustion, the Court noted that nearly all of the excess policies at issue tie their attachment on the exhaustion of the underlying policies that cover the same policy period as the overlying excess policy, and that are specifically identified by either name, policy number, or policy limit. The Court concluded that vertical exhaustion is more consistent with this language. Additionally, vertical exhaustion is more “conceptually consistent” with all sums allocation, permitting the insured to seek coverage through the layers of insurance available for a specific year. Also, the excess insurers asserted that the “other insurance” provisions in certain policies supported horizontal exhaustion. In this regard, certain policies stated that the insurer would pay sums in excess of a retained limit plus amounts payable under “other insurance,” and some of the excess policies stated that such policies were excess to other insurance, which the excess insurers argued included coverage provided by successive insurance policies. The Court rejected this argument finding that “other insurance” clauses were not implicated in situations involving successive—as opposed to concurrent—insurance policies and the insureds were not seeking multiple recoveries from different insurers under concurrent policies for the same loss. The Court held that, in light of language in the excess policies tying their attachment point only to specific underlying policies in effect during the same policy period as the applicable excess policy, and the absence of any policy language to the contrary, the excess policies are triggered by vertical exhaustion of the underlying available coverage within the same policy period. A copy of the Court’s opinion can be found here.