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Applying New York Law, Delaware Court Holds Horizontal Exhaustion Applies to Primary and Umbrella Policies, but Not Excess Policies

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Applying New York law, a Delaware Superior Court predicted that New York’s Court of Appeals would not require policyholders to horizontally exhaust excess policies in long-tail coverage cases. Viking Pump, Inc. v. Century Indemnity Co., C.A. No. 10C-06-141 FSS CCLD, 2014 WL 1305003 (Del. Super. Feb. 28, 2014).

Plaintiffs Viking Pump, Inc. and Warren Pumps, LLC (“Plaintiffs”) sought coverage from primary, umbrella, and excess insurers for asbestos claims filed against them. After eight years of litigation and a three-week trial, the Delaware court held that, under New York law, “all sums” allocation applied, but the principle of horizontal exhaustion was required. The excess insurers filed a motion, arguing that horizontal exhaustion

applies to all layers of coverage, such that all first-layer excess policies must be exhausted before any second-layer policy is triggered. Plaintiffs, on the other hand, argued that horizontal exhaustion applies to primary and umbrella policies only and, thus, once those have been exhausted, all excess policies are triggered.

The Court agreed with Plaintiffs, finding that New York’s high court would hold that horizontal exhaustion applies to primary and umbrella policies, but not excess policies. In reaching this conclusion, the Court noted that “New York emphasizes the policies’ purposes as evidenced by their language, premium amounts, and other indicators. New York has also unequivocally held that only policies insuring the same risk should respond simultaneously and that ‘other insurance’ clauses are not relevant in allocating damages to policies over different periods.” 

This matter is currently on appeal.