Court of Appeals Supports Renewal of Annual Aggregate Limits Under Excess Policies

In Union Carbide Corp. v. Affiliated FM Ins. Co., Union Carbide had purchased primary and excess insurance involving multiple layers of coverage spread across multiple insurers up to at least $100 million in coverage. The primary policy covered UCC up to $5 million, with the policy aggregate limit being applicable to a 12 month policy period despite the fact that the policy was written for a three year period. UCC, an asbestos producer, was compelled to pay over $1.5 billion in defense, settlement and judgment costs for claims asserted over the applicable policy period.

At issue on this appeal was the fifth layer of excess, between $70 and $100 million, which was insured by six carriers at $5 million each. The fifth layer excess carriers insured UCC on a "follow-the-form" basis subject to the Declarations of the primary policy. In holding that the annual aggregate for each insurer, $5 million, renewed annually as did the primary insurer's aggregate limit, the Court found that the "follow-the-form" clause "serve[s] the important purpose of allowing an insured, like UCC, that deals with many insurers for the same risk to obtain uniform coverage, and to know, without a minute policy-by-policy analysis, the nature and extent of that coverage."

The Court declined to find as a matter of law, however, that, with respect to one of the excess carriers, a two-month extension of its policy period exposed the carrier to a fourth annual aggregate, thus leaving the issue open to be decided on motion or at trial.