NY Court of Appeals Construes Policy Language To Find All Sums Allocation By Excess Insurers for Asbestos Losses, With Vertical Exhaustion
Viking Pump, Inc. v. TIG Ins. Co., No. 59 (N.Y.C. of App. May 3, 2016). Answering certified questions from the Delaware Supreme Court, the New York Court of Appeals held that the policy language in the excess policies at issue required the application of the “all sums” allocation method to certain asbestos losses. Under this method, excess insurers are liable on the basis of joint and several liabilities, which permits the insured to collect its total liability under any policy in effect during the periods that the damage occurred, up to policy limits. (This is in contrast to a pro-rata allocation, which apportions liability overall triggered years.) This decision differs from the Court’s earlier decision in Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 201 (2002), which applied a pro-rata allocation method under the different policy language. The Viking Pump Court also held that the policies would be triggered on the basis of vertical exhaustion.
The underlying policies contained Non-Cumulation / Anti-Stacking provisions, and the excess policies either followed form or contained comparable Prior Insurance and Non-Cumulation of Liability provisions. In general, these provided that if the same occurrence gives rise to a loss under policies issued by the same insurer in more than one policy period, the policy limits shall be reduced by payments made in prior periods. The Court found that such provisions were inconsistent with pro-rata allocation because they “plainly contemplate that multiple successive insurance policies can indemnify the insured for the same loss or occurrence.” Slip Op. at 18. Yet “the very essence of pro-rata allocation is that the insurance policy language limits indemnification of losses and occurrences during the policy period — meaning that no two insurance policies unless containing overlapping or concurrent policy periods, would indemnify the same loss or occurrence.” Id. The Court stated that if allocation were made on a pro-rata basis, the non-cumulation clauses would be rendered surplusage. The Court took pains to distinguish the language of these policies from the policies in Consolidated Edison. It emphasized that there is no blanket rule, but rather that specific policy language would control the outcome of a given case.
As to exhaustion, the Court described vertical exhaustion as a method which allows access to each excess policy once the immediately underlying policies are depleted, even if other underlying policies in other periods are not exhausted. In contrast, horizontal exhaustion requires all triggered primary and lower umbrella excess layers to be exhausted before any of the additional excess policies are triggered. The Court observed that the excess policies at issue “hinge their attachment on the exhaustion of underlying policies that cover the same policy period as the overlaying excess policy, and that are specifically identified.” Slip Op. at 25. It held that this approach is more consistent with vertical exhaustion. It also rejected the contention that “Other Insurance” provisions compelled pro-rata allocation because those provisions only apply to coverage in force during the same period, not successive periods.