This week has been a busy week for the Court of Appeals regarding insurance coverage issues. The High Court decided two cases involving complex coverage claims. In the Matter of Viking Pump, the Court of Appeals clarified its position regarding allocation of coverage for asbestos exposure claims over multiple policy years involving multiple insurers, as well as whether "vertical exhaustion" is necessary to trigger next-level excess coverage -- finding that allocation is dependent upon the policy language and only "vertical exhaustion" is necessary to trigger excess coverage. In Millennium Holdings LLC v. The Glidden Company, the Court of Appeals again clarified a position, this time regarding the antisubrogation doctrine -- finding that antisubrogation does not apply when the subject parties were not both insured under the same policy.
In the Matter of Viking Pump, the Court of Appeals was asked to consider whether "all sums" or "pro rata" allocation applied to excess insurance policies that followed form over primary policies with a "non-cumulation" provision or a "non-cumulation and prior insurance" provision, i.e. "anti-stacking" provisions. The provisions at issue provided that "[if] the same occurrence gives rise to personal injury... which occurs partly before and partly within any annual period of this policy, the each occurrence limit and the applicable aggregate limit or limits of this policy shall be reduced by the amount of each payment made by [the insurer] with respect to such occurrence" and "if any loss covered hereunder is also covered in whole or in part under any other excess Policy issued to the [Insured] prior to the inception date hereof [,] the limit of liability hereon... shall be reduced by any amounts due to the [Insured] on account of such loss under such prior insurance." At issue were asbestos exposure claims spanning 13 years of insurance coverage.
The Court initially observed that "Courts across the country have grappled with so-called 'long-tail' claims - - such as those seeking to recover for personal injuries due to toxic exposure and property damage resulting from gradual or continuing environmental contaminations - - in the insurance context." The Court further observed that there are typically two methods for allocating such claims, the "all sums," i.e. joint-and-several approach or "pro rata" allocation. Under the "all sums" approach, the insured can collect its total liability, up to the policy limits, from any one policy in effect during the period that the damage occurred (Roman Catholic Diocese of Brooklyn v National Union Fire Ins. Co. of Pittsburgh, Pa., 21 NY3d at 154, quoting Consolidated Edison, 98 NY2d 208, 222 ; see United States Fid. & Guar. Co. v American Re-Ins. Co., 20 NY3d 407, 426 ). The burden would then shift to that insurer to seek contribution from the remaining insurers who insured the loss. Under the "pro rata" allocation method, the Court of Appeals indicated that "each insurance policy is allocated a 'pro rata' share of the total loss representing the portion of the loss that occurred during the policy period (see Roman Catholic Diocese of Brooklyn, 21 NY3d at 154; Consolidated Edison, 98 NY2d at 223). Generally, '[p]roration of liability among the insurers acknowledges the fact that there is uncertainty as to what actually transpired during any particular policy period' in claims alleging a gradual and continuing harm (Consolidated Edison, 98 NY2d at 224)."
Although the Court of Appeals had previously adopted pro rata allocation in Consolidated Edison, the Court stated that it never adopted a blanket rule that pro rata allocation was always the proper method. Instead, the Court observed in Consolidated Edison that the insurance contract at issue, when enforced as written, permitted such allocation.
Here, however, the Court found that the non-cumulation and prior insurance provisions were specifically "designed to prevent any attempt by policyholders to recover under a subsequent policy - - based on the broader definition of occurrence - - for a loss that had already been covered by the prior 'accident-based' policy." As such, the Court stated, "it 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 -- meaning that no two insurance policies, unless containing overlapping or concurrent policy periods, would indemnify the same loss or occurrence. Pro rata allocation is a legal fiction designed to treat continuous and indivisible injuries as distinct in each policy period as a result of the 'during the policy period' limitation, despite the fact that the injuries may not actually be capable of being confined to specific time periods. The noncumulation clause negates that premise by presupposing that two policies may be called upon to indemnify the insured for the same loss or occurrence."
With respect to "vertical exhaustion," the Court of Appeals examined the policies at issue and found that there was no language that required the horizontal exhaustion of all available primary insurance before any excess insurance could be obligated to contribute. Instead, each next-level excess insurer would be obligated to contribute once the specific policy underlying its coverage was exhausted. Therefore, under the circumstances, only "vertical exhaustion" was required.
In Millennium Holdings LLC v. The Glidden Company, after numerous mergers and buyouts, the parties, Millennium and ANP, ended up insured under different policies. After Millennium settled underlying lead paint litigation for $8.5 million, with $3 million in contribution from ANP, Millennium's insurers sought to subrogate Millennium's indemnification claim against ANP. The Supreme Court, as affirmed by the Appellate Division, held that the insurers' subrogation claim was barred by the antisubrogation doctrine. Although the lower courts recognized that Millennium and ANP were not insured under the same policies, they nevertheless found that, because the risk insured against was the same, antisubrogation applied.
In reversing the lower courts, the Court of Appeals clarified its earlier holding in Jefferson Ins. Co. v. Travelers Indem. Co. (92 NY2d 363, 373 ). In Jefferson, the Court found that antisubrogation applied despite the fact that the party against whom indemnity was sought was not expressly covered under the same policy as the party seeking indemnification. More specifically, indemnification was sought from the permissive user of a vehicle, where that user was not otherwise a named insured or additional insured under the policy. The Court of Appeals observed, however, that the permissive user qualified as an insured pursuant to the terms of the policy.
In sum, the Court stated: "The antisubrogation rule, therefore, requires a showing that the party the insurer is seeking to enforce its right of subrogation against is its insured, an additional insured, or a party who is intended to be covered by the insurance policy in some other way, such as the permissive user in Jefferson." As such, the antisubrogation doctrine did not prohibit Millennium's insurers from pursuing Millennium's indemnity claim against ANP.