(Article from Insurance Law Alert, April 2018)
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New York’s highest court rejected an “unavailability” exception to pro rata allocation, holding that policyholders, not insurers, are responsible for damages that occurred during periods in which applicable insurance coverage was unavailable in the marketplace. Keyspan Gas East Corp. v. Munich Reinsurance America, Inc., 2018 WL 1472635 (N.Y. Mar. 27, 2018).
The coverage dispute arose out of environmental contamination that took place over several decades. Keyspan sought a declaration that it was not responsible for damage that occurred during policy periods in which it was uninsured due to the unavailability of insurance in the marketplace. A New York trial court ruled that Keyspan was liable for years in which it elected to self-insure, but not for periods in which relevant coverage was unavailable. An intermediate appellate court reversed in part, holding that Continental was not obligated to indemnify Keyspan for losses attributable to periods in which insurance was unavailable. See Sept. 2016 Alert. Answering a certified question, the New York Court of Appeals affirmed, rejecting application of an unavailability exception.
The Court of Appeals reasoned that policy language limiting the insurer’s liability to losses “during the policy period” was inconsistent with an unavailability exception, stating that “it would be incongruous to include harm attributable to years of non-coverage within the policy periods.” Additionally, the court explained that the unavailability exception “would effectively provide insurance coverage to policyholders for years in which no premiums were paid and in which insurers made the calculated choice not to assume or accept premiums for the risk in question.”
As the court noted, some jurisdictions have adopted an unavailability exception based largely on public policy concerns, whereas others have deemed such an exception inconsistent with policy language. Two cases that implicate the unavailability exception are currently pending in the supreme courts of New Jersey and Connecticut. See Continental Ins. Co. v. Honeywell Internat’l Inc., 2016 WL 7665452 (N.J. Dec. 12, 2016); R.T. Vanderbilt Co., Inc. v. Hartford Acc. & Indem. Co., 156 A.3d 538 (Conn. App. Ct. 2017), cert. granted, 171 A.3d 63 (Conn. 2017). We will keep you posted on any developments in those matters.