Publications

The New York Court of Appeals ruled that under the applicable policy language, all sums allocation and vertical exhaustion governed excess insurers’ coverage obligations for long-tail asbestos injuries.  Viking Pump, Inc. v. TIG Ins. Co., 2016 WL 1735790 (N.Y. May 3, 2016).

Viking Pump sued excess insurers seeking coverage for asbestos-related injury claims.  In 2009, relying upon “non-cumulation” and “prior insurance” provisions in the policies at issue, the Delaware Court of Chancery ruled that coverage for injuries spanning multiple years should be allocated on an “all sums” basis, under which the policyholder can designate a single policy year to bear the responsibility for a covered loss that spans multiple policy periods.  Viking Pump, Inc. v. Century Indem. Co., 2 A.3d 76 (Del. Ch. 2009) (see December 2009 Alert).  The Chancery Court thereafter transferred the case to the Delaware Superior Court for trial.

In 2013, the Superior Court ruled that, under New York law, horizontal exhaustion applies, such that all policies of a layer of coverage must be exhausted before any policies of a higher layer of coverage are triggered.  In a subsequent decision, the court clarified its ruling, predicting that New York’s highest court would rule that horizontal exhaustion would apply in continuous injury cases only to the primary and umbrella layers, but would not govern payment among excess tiers of coverage.  Viking Pump, Inc. v. Century Indem. Co., 2014 WL 1305003 (Del. Super. Ct. New Castle Cnty. Feb. 28, 2014) (see April 2014 Alert).

In 2015, the Delaware Supreme Court concluded that resolution of these matters depended on “significant and unsettled questions of New York law,” and certified the following questions to the New York Court of Appeals: 

(1) Under New York law, is the proper method of allocation to be used all sums or pro rata when there are non-cumulation and prior insurance provisions?  (2)  Given the Court’s answer to Question #1, under New York law and based on the policy language at issue here, when the underlying primary and umbrella insurance in the same policy period has been exhausted, does vertical or horizontal exhaustion apply to determine when a policyholder may access its excess insurance?

In a unanimous opinion issued this month, the New York Court of Appeals ruled that under the applicable  policy language, all sums allocation and vertical exhaustion governed the excess insurers’ coverage obligations.  The court reasoned that non-cumulation clauses and prior insurance provisions in the excess policies compelled all sums allocation.  The court explained:

[I]t would be inconsistent with the language of the non-cumulation clauses to use pro rata allocation here.  Such policy 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 in whole or in part under any other excess [p]olicy issued to the [Insured] prior to the inception date” of the instant policy.  By contrast, the very essence of pro rata allocation is that the insurance policy language limits indemnification to losses and occurrences during the policy period. . . .

The court distinguished Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208 (2002), which applied pro rata allocation to long-tail environmental contamination claims, based on the policy language.  In Consolidated Edison, the court’s decision turned upon interpretation of the same “all sums” and “during the policy period” language at issue in Viking Pump, but did not address non-cumulation or prior insurance provisions.

The court also concluded that the policy language required vertical exhaustion (under which an insured need only exhaust the primary and umbrella policies immediately underlying an excess policy, rather than all triggered policies in underlying layers).  In so ruling, the court explained that the excess policies at issue “primarily hinge[d] their attachment on the exhaustion of underlying policies that cover the same policy period as the overlying excess policy, and that are identified by either name, policy number or policy limit.”  Finally, the court held that vertical exhaustion was “conceptually consistent” with an all sums allocation, allowing a policyholder to “seek coverage through the layers of insurance available for a specific year.”