CTQ-2015-0003
Qlourt of J\pprals
STATE OF NEW YORK
••
In the Matter of Viking Pump, Inc. and Warren Pumps LLC, Insurance Appeals.
VIKING PUMP, INC. and WARREN PUMPS LLC,
Appellants,
-against-
TIG INSURANCE COMPANY, et al.,
Respondents.
ON APPEAL FROM THE QUESTIONS CERTIFIED BY
THE SUPREME COURT OF THE STATE OF DELAWARE
(DOCKET NOS. 518, 2014; 523, 2014; 525, 2014; 528, 2014)
BRIEF OF PROPOSED AMICI CURIAE
UNITED POLICYHOLDERS, WRG ASBESTOS PI TRUST,
ASARCO ASBESTOS PERSONAL INJURY TRUST, DURO DYNE
CORPORATION, JOHN CRANE INC. AND ALFA LAVAL INC.
IN SUPPORT OF APPELLANTS VIKING PUMP, INC.
AND WARREN PUMPS LLC
Of Counsel:
AMY BACH, ESQ.
UNITED POLICYHOLDERS
381 Bush Street, 8th Floor
San Francisco, California 94104
Telephone: ( 415) 393-9990
Facsimile: (415) 677-4170
Attorney for Amicus Curiae
United Policyholders
Dated: January 8, 2016
ROBERT M. HORKOVICH, ESQ.
EDWARD J. STEIN, ESQ.
ANDERSON KILL P.C.
1251 Avenue ofthe Americas
New York, New York 10020
Telephone: (212) 278-1000
Facsimile: (212) 278-1733
Attorneys for Amici Curiae
United Policyholders, WRG
Asbestos PI Trust, ASARCO
Asbestos Personal Injury Trust,
Duro Dyne Corporation,
John Crane Inc. and Alfa Laval Inc.
CORPORATE DISCLOSURE STATEMENT
Pursuant to Rule 500.l(t) of the Rules of Practice for the Court of
Appeals of the State of New York, proposed amici curiae make the following
disclosure:
United Policyholders is a non-profit 501(c)(3) organization. It has no
parents, subsidiaries, or affiliates.
WRG Asbestos PI Trust is a Delaware statutory trust. It has no
parents, subsidiaries or affiliates.
ASARCO Asbestos Personal Injury Trust is a Delaware statutory
trust. It has no parents, subsidiaries or affiliates.
Duro Dyne Corporation is a New York corporation with its principal
place ofbusiness located in Bay Shore, New York. Duro Dyne Corporation hereby
states that as of the date of this filing: its parent corporation is Duro Dyne National
Corp. and no publicly held company owns any of its stock.
John Crane Inc. is a wholly owned subsidiary of John Crane Group,
Ltd. (UK), which itself is a wholly owned subsidiary of Smith Groups Inter.
Holdings, Ltd., which is wholly owned by Smiths Group PLC and traded on the
London Stock Exchange.
Alfa Laval Inc. is a New Jersey corporation with its principal place of
business located at 5400 International Trade Drive, Richmond, Virginia. Alfa
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Laval Inc. hereby states that as of the date of this filing, it is 1 00% owned by Alfa
Laval U.S. Holding Inc., a Delaware corporation having its principal office at 5400
International Trade Drive, Richmond, Virginia. Alfa Laval U.S. Holding Inc. is
100% owned by Alfa Laval USA Inc., a Delaware corporation having its principal
office at 5400 International Trade Drive, Richmond, Virginia. Alfa Laval USA
Inc. is 100% owned by Alfa Laval Holding BV, a Dutch corporation having its
principal office at Baarschot 2, 4817 ZZ Breda, The Netherlands. Alfa Laval
Holding BV is 100% owned by Alfa Laval Holding AB, a Swedish corporation
having its principal office at Rudeboksvagen 1, S-221 00 Lund, Sweden. Alfa
Laval Holding AB is 100% owned by Alfa Laval AB, a Swedish corporation
having its principal office at Rudeboksvagen 1, S-221 00 Lund, Sweden. Alfa
Laval AB is publicly held and no single person has a greater than 10% interest.
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TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ............................................................................... 1
STATEMENTS OF INTEREST OF AMICI CURIAE ............................................. 2
STATEMENT OFF ACTS ..................................................................................... 10
I. THIS COURT SHOULD GRANT THE MOTION OF
UNITED POLICYHOLDERS, THE WRG TRUST, THE
ASARCO TRUST, DURO DYNE, JCI AND ALFA LA VAL
TO APPEAR AS AMICI CURIAE . .............................................................. 10
II. "ALL SUMS" IS THE APPROPRIATE ALLOCATION RULE ............... 13
A. Viking Pump Addresses One of the Important Open
Issues in New York Allocation Law After Consolidated
Edison ................................................................................................. 13
B. Viking Pump Is Consistent With The Logic Of"All
Sums" Decisions Nationwide ............................................................. 19
C. The History of the Standard CGL Policy Compels
Application of the "All Sums" Rule ................................................... 21
D. Pro-Rata Allocation Schemes Are Unfair, Unworkable
And Cause Unnecessary Complication And Allocation
Litigation That Could Be A voided Through Enforcing
The "All Sums" Promise .................................................................... 27
1. The Complexities of Pro Rata Allocation .................................... 28
2. The Benefits of"All Sums" Allocation ....................................... 32
III. EXCESS LIABILITY INSURANCE POLICIES ATTACH
UPON "VERTICAL" EXHAUSTION OF LOWER LEVEL
INSURANCE IN THE SAME POLICY PERIODS, WITHOUT
"HORIZONTAL" EXHAUSTION OF POLICIES COVERING
OTHER TIME PERIODS ............................................................................. 35
A. Absent Express Policy Provisions Requiring Horizontal
Exhaustion, It Is At Best An Equitable Doctrine Between
Insurance Companies, Not A Rule That Applies To
Policyholders ...................................................................................... 36
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B. There Is No "Sophisticated Insured" Exception To The
Doctrine Of Contra Proferentum, Which Requires Any
Ambiguous Policy Language To Be Resolved In Favor
Of The Policyholders' Vertical Exhaustion Rule ............................... 40
CONCLUSION ....................................................................................................... 44
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TABLE OF AUTHORITIES
Page(s)
CASES
Aerojet-General Corp. v. Transport Indem. Co.,
948 P. 2d 909 (Cal. 1997) ................................................................ 37
AIU Insurance Co. v. Superior Court of Santa Clara County,
799 P.2d 1253 (Cal. 1990) ................................................................................. 41
Allstate Ins. Co. v. Dana Corp.,
759 N.E.2d 1049 (Ind. 2001) ............................................................................. 19
Am. Home Prods. Corp. v. Liberty Mut. Ins. Co.,
565 F. Supp. 1485 (S.D.N.Y. 1983), aff'd as modified,
748 F.2d 760 (2d Cir. 1984) ............................................................................... 23
Am. Nat 'l Fire Ins. Co. v. B & L Trucking,
951 P.2d 250 (Wash. 1998) ................................................................................ 19
Baker v. Aetna Cas. and Sur. Co., Civ. Action No. 86-4974,
1996 U.S. Dist. LEXIS 11600 (D. N.J. Aug. 5, 1996) ....................................... 38
Boeing Co. v. Aetna Casualty & Surety Co.,
784 P.2d 507 (Wash. 1990) .................................................................... 40, 41,43
Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co.,
817 F. Supp. 1136 (D.N.J. 1993), rev 'don other grounds, 68 F.3d 658
(3d Cir. 1995) ..................................................................................................... 42
Clemco Indus., Inc. v. Commercial Union Ins. Co.,
665 F. Supp. 816 (N.D. Cal. 1987), aff'd, 848 F.2d 1242 (9th Cir. 1988) ........ 42
Colmes v. Fisher,
151 Misc. 222 (N.Y. Sup., Erie Cnty. 1934) ..................................................... 11
Community Redevelopment Agency v. Aetna Casualty & Surety Co.,
57 Cal. Rptr. 2d 755 (Ct. App. 1996) .................................................... 36, 37,38
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Consolidated Edison Co. of NY. v. Allstate Ins. Co.,
98 N.Y.2d 208 (2002) ........................................................................ 16,17,18, 30
Cont'l Cas. Co. v. Rapid-American Corp.,
80 N.Y.2d 640 (1993) ........................................................................................ 29
CPS Chern. Co. v. Continental Ins. Co.,
536 A.2d 311 (N.J. Super. App. Div. 1988) ...................................................... 42
Diamond Shamrock Chern. Co. v. Aetna Cas. & Sur. Co.,
609 A.2d 440 (N.J. Super. App. Div. 1992) ................................................ 42,43
Eljer Mfg., Inc. v. Liberty Mut. Ins. Co.,
972 F.2d 805 (7th Cir. 1992) ............................................................................. 23
Endicott Johnson Corp. v. Liberty Mut. Ins. Co.,
928 F. Supp. 176 (N.D.N.Y. 1996) .................................................................... 27
FMC Corp. v. Plaisted & Cos.,
72 Cal. Rptr. 2d 467 (Ct. App. 1998) ................................................................ 21
Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co.,
769 N.E.2d 835 (Ohio 2002) .............................................................................. 19
Hatco Corp. v. W.R. Grace & Co.,
801 F. Supp. 1334 (D.N.J. 1992) ....................................................................... 42
Hercules, Inc. v. AIU Insurance Co.,
784 A.2d 481 (Del. 2001) .................................................................................. 18
Hoechst Celanese Corp. v. National Union Fire Ins. Co.,
623 A.2d 1128 (Del. Super. Ct. 1992) ............................................................... 23
J.H France Refractories Co. v. Allstate Ins. Co.,
626 A.2d 502 (Pa. 1993) .................................................................................... 19
Joy Technologies v. Liberty Mutual Insurance Co.,
421 S.E.2d 493 (W.Va. 1992) ..................................................................... 24,25
Kaiser Cement & Gypsum Corp. v. Ins. Co. of the State of Pa.,
126 Cal. Rptr. 3d 602 (Ct. App. 2011), superseded, 155 Cal. Rptr. 3d 283
(Ct. App. 2013) ............................................................................................. 36,38
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Kaiser Cement & Gypsum Corp. v. Insurance Co. ofthe State ofPa.,
S210870, 2013 Cal. LEXIS 6033 (Cal. July 17, 2013) ..................................... 36
Miller-Wohl Co. v. Comm 'r of Labor & Indus.,
694 F .2d 203 (9th Cir. 1982) ............................................................................. 11
Montgomery Ward & Co. v. Imperial Cas. &Indem. Co.,
97 Cal. Rptr. 2d 44 (Ct. App. 2000) .................................................................. 39
Montrose Chern. Corp. v. Admiral Ins. Co.,
897P.2d 1 (Cal.l995) ....................................................................................... 23
New Castle County v. Continental Cas Co.,
725 F. Supp. 800 (D. Del. 1989), aff'd in part, rev 'don other grounds,
933 F. 2d 1162 (3d Cir .. 1991) ........................................................................... 38
New Castle County v. Hartford Accident & Indemnity Co.,
933 F.2d 1162 (3d Cir. 1991) ................................................................. 38, 41,42
Olin Corp. v. A,. Home Assur. Co.,
704 F.3d 89 (2d Cir. 2012) ................................................................................. 28
Olin Corp. v. Certain Underwriters at Lloyd's,
468 F.3d 120 (2d Cir. 2006) ............................................................................... 28
Olin Corp. v. Ins. Co. of N Am.,
221 F.3d 307 (2d Cir. 2000) ......................................................................... 28, 29
Olin Corp. v. Ins. Co. of N Am.
986 F. Supp. 841 (S.D.N.Y. 1997), aff'd,
221 F. 3d 307 (2d Cir. 2000) .............................................................................. 30
Owens-Illinois, Inc. v. United Ins. Co.,
650 A.2d 974 (N.J. 1994) ............................................................................. 27,31
Plastics Eng'g Co. v. Liberty Mut. Ins. Co.,
759 N.W.2d 613 (Wis. 2009) ....................................................................... 17, 19
State of Calif. v. Continental Ins. Co.
88 Cal. Rptr. 3d 288 (Ct. App. 2009), aff'd, 281 P.3d 1000 (Cal. 2012) .......... 38
State of California v. Continental Ins. Co.,
281 P.3d 1000 (Cal. 2012) .......................................................................... passim
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State v. Home Indem. Co.,
66 N.Y.2d 669 (1985) ........................................................................................ 22
Transcontinental Ins. Co. v. Ins. Co. of the State ofPa.,
56 Cal. Rptr. 3d 491 (Ct. App. 2007) ................................................................ 37
Travelers Cas. and Sur. Co. v. Alfa Laval Inc.,
100 A.D.3d 451 (1st Dep't 2012) ...................................................................... 29
US. v. Brennan,
938 F. Supp. 1111 (E.D.N.Y. 1996) .................................................................. 40
Viking Pump, Inc. v. Century Indem. Co.,
2 A.3d 76, 109 (Del. Ch. 2009) .................................................................. passim
STATUTES
11 u.s.c. § 524(g) ..................................................................................................... 6
22 NYCRR 500.23(a)(4) ................................................................................... 10, 11
Or. Rev. Stat. § 465.478 .......................................................................................... 34
Or. Rev. Stat. § 465.480(3)(a) ................................................................................. 34
Or. Rev. Stat.§§ 465.480(3)(b), 465.480(3)(d) ...................................................... 34
OTHER AUTHORITIES
Hearings on the Occupational Disease Comp. Act of 1983 Before the
Subcomm. on Labor Standards of the Comm. on Educ. and Labor, 98th
Cong. at 236-240, 1988 (Memorandum of Meeting of Discussion
Group) ................................................................................................................ 26
Lorelie S. Masters, Jordan S. Stanzler & Eugene R. Anderson, Insurance
Coverage Litigation at§ 4.07, at 4-127-4.130 (Wolters Kluwer Law &
Business, 2000 & Supp. 2015) ..................................................................... 24, 26
Robert L. Stem, et al., Supreme Court Practice 570.71 (1986) ........................ 11, 12
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PRELIMINARY STATEMENT
Proposed amici curiae United Policyholders, WRG Asbestos PI Trust
(the "WRG Trust"), ASARCO Asbestos Personal Injury Trust (the "ASARCO
Trust"), Duro Dyne Corporation ("Duro Dyne"), John Crane Inc. ("JCI") and Alfa
Laval Inc. ("Alfa Laval") respectfully submit this brief in support of the arguments
made by Appellants Viking Pump, Inc. ("Viking") and Warren Pumps LLC
("Warren"). United Policyholders, the WRG Trust, the ASARCO Trust, Duro
Dyne, JCI and Alfa Laval seek to fulfill the role of amici curiae by supplementing
the information the parties are providing the Court in this case on important
insurance principles that will impact New York residents.
The questions certified to the Court in this matter are:
(1) under New York law, is the proper method of
allocation to be used all sums or pro rata when there are
non-cumulation and prior insurance provisions, and
(2) given the Court's answer to question #1, under New
York law and based on the policy language at issue here,
when the underlying primary and umbrella insurance in
the same policy period has been exhausted, does vertical
or horizontal exhaustion apply to determine when a
policyholder may access its excess insurance?
The Court's decision on these questions will have a significant effect on liability
insurance policyholders in New York and on injured parties in New York seeking
damages from such policyholders on "long-tail" claims like the asbestos claims at
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issue here and similar claims involving delayed manifestation disease or
environmental property damage.
Accordingly, and as argued more fully below, the proposed amici
curiae urge the Court to hold that under New York law, (1) as to the allocation
question, comprehensive general liability insurance policies containing non-
cumulation and prior insurance provisions provide coverage in accordance with the
"all sums" allocation method, and (2) as to exhaustion, whatever the Court may
hold regarding allocation, excess liability insurance policies are triggered by
"vertical" exhaustion of directly underlying insurance policies in the same policy
period, and "horizontal" exhaustion oflower-level primary and umbrella policies
in other periods should not be required.
STATEMENTS OF INTEREST OF AMICI CURIAE
United Policyholders
United Policyholders, a non-profit 501(c)(3) organization founded in
1991' serves as an independent information resource and a voice for insurance
consumers in all 50 states. Donations, foundation grants and volunteer labor fuel
the organization. United Policyholders' Board of Directors includes the former
Chief Justice of the Arizona Supreme Court and the former Washington State
Insurance Commissioner.
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United Policyholders divides its work into three program areas:
( 1) the Roadmap to Recovery program provides tools and resources that help
individuals and businesses solve insurance problems that can arise after an
accident, illness, disaster, or other adverse event; (2) the Roadmap to Preparedness
program promotes insurance and financial literacy as well as disaster preparedness;
and (3) the Advocacy and Action program advances policyholders' interests in
courts oflaw, legislative and public policy forums, and in the media.
United Policyholders participates in the proceedings of the National
Association of Insurance Commissioners ("NAIC") as an official consumer
representative. United Policyholders interfaces with the Insurance Division of the
Department of Financial Services when providing disaster recovery and claim help
to New York State residents through a "Roadmap to Recovery" program. United
Policyholders maintains an extensive free library of publications, legal briefs,
sample policies, forms, and articles on commercial and personal lines insurance
products, coverage, and the claims process on its website,
www.unitedpolicyholders.org.
In addition to serving as a resource for individuals and commercial
policyholders, United Policyholders monitors legal and marketplace developments
in the Empire State. United Policyholders has participated in legislative and other
public forums related to home, auto and title insurance rates and claim practices,
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and is currently working in partnership with the Touro Law Center on Long Island
on Super Storm Sandy recovery.
United Policyholders has filed many briefs in the New York Court of
Appeals, 1 as well as amicus curiae briefs in numerous cases before the United
States Supreme Court.2 The U.S. Supreme Court referenced United Policyholders'
amicus curiae brief in its opinion in Humana, Inc. v. Forsyth, 525 U.S. 299 (1999).
United Policyholders has a vital interest in ensuring that insurance
companies fulfill the promises they make to their New York policyholders. While
insurance companies earn profits through risk assumption, businesses and
individuals rely on insurance to protect property and livelihoods. United
Policyholders seeks to prevent insurance companies from shifting risk back to
policyholders through schemes that are not authorized by insurance contracts or
See, Millenium Holdings, LLC, et a!. v. The Glidden Co., n/kla Akzo Nobel Paints LLC et a/.,
No. 2015-00048 (pending); Monarch Consulting, Inc. et al. v. National Union Fire Ins. Co.
of Pittsburgh, PA; No. 2014-00271 (pending); Universal Am. Corp. v. Nat!. Union Fire Ins.
Co., 25 N.Y.3d 675 (2015); US. Fid.& Guar. Co. v. Am. Re-Insurance Co., 21 N.Y.3d 923
(2013); Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. ofNY, 10 N.Y.3d 187 (2008); US.
Underwriters Ins. Co. v. City Club Hotel, LLC, 3 N.Y.3d 592 (2004); Belt Painting Corp. v.
TIG Ins. Co., 100 N.Y.2d 377 (2003); Consol. Edison Co. v. Allstate Ins. Co., 98 N.Y.2d 208
(2002); Travelers Cas. and Sur. Co. v. Certain Underwriters at Lloyd's of London, 96
N.Y.2d 583 (2001); A-One Oil, Inc. v. Mass. Bay Ins. Co., 92 N.Y.2d 814 (1998); Am. Home
Assurance Co. v. Int'l Ins. Co., 90 N.Y.2d 433 (1997); Town of Harrison v. Nat'/ Union Fire
Ins. Co., 89 N.Y.2d 308 (1996).
2 See, e.g., Fuller-Austin Insulation Co., v. Highlands Ins. Co., 549 U.S. 946 (2006); Philip
Morris USA v. Mayo/a Williams, 547 U.S. 1162 (2006); Aetna Health, Inc. v. Davila, 542
U.S. 200 (2004); State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003); Rush
Prudential HMO, Inc. v. Moran, 533 U.S. 948 (2001), aff'd, 536 U.S. 355 (2002); Humana
Inc. v. Forsyth, 525 U.S. 299 (1999).
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public policy. The organization works to counter-balance the able representation
of insurance companies through its advocates and lobbyists by advocating for large
and small policyholders throughout the country.
In this case, United Policyholders seeks to appear as amicus curiae to
address certified questions before the Court concerning New York law regarding
allocation and exhaustion of comprehensive general liability insurance policies in
the context of "long-tail" asbestos claims. These questions will affect
policyholders throughout the state of New York. Unpaid volunteer counsel
performed all of the legal research and writing in this brief, and no party to this
appeal funded this work.
WRG Asbestos PI Trust
The WRG Trust is a Delaware statutory trust formed on or around
February 3, 2014, the effective date of the Plan of Reorganization confirmed by the
Memorandum Opinion of January 30,2012 (by the Honorable Ronald L.
Buckwalter) of the United States District Court for the District of Delaware in the
United States Bankruptcy Court for the District of Delaware in the matter of In re
WR. Grace & Co., et al., Case No. 01-1139 (JKF). The WRG Trust is the sole
entity responsible for the resolution of thousands of claims alleging asbestos
personal injury liabilities against W. R. Grace Co. ("Grace"), a major chemical and
materials company, pursuant to the judicially-approved plan of reorganization.
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Grace faced thousands of claims for, among other things, liquidated
damages imposed upon it because of bodily injuries allegedly incurred by
thousands of individuals from exposures to asbestos. These claims arise
nationwide, but a significant number arise in New York State, where W.R. Grace
was headquartered from 1865 to 1999. The WRG Trust has identified 289
approved sites in New York where asbestos exposure occurred for purposes of
submitting injury claims.
As a result of these asbestos claims, Grace sought protection under the
Bankruptcy Code in order to consolidate its liability for present and future asbestos
personal injury claims in a trust established pursuant to 11 U.S.C. § 524(g) of the
Bankruptcy Code. The objective of 11 U.S.C. § 524(g) is to discharge the debtor
from liability for present asbestos claims and channel liability for future asbestos
claims to a trust which would assume those liabilities.
In accordance with the approved reorganization plan, the asbestos
personal injury liabilities of the debtor Grace are channeled into the WRG Trust
and funded by specified assets of Grace, including the right to recover under
certain insurance policies purchased by Grace. 3 The WRG Trust operates
exclusively for the benefit of asbestos personal injury claimants, and all insurance
3 Each of the WRG Trust's insurance policies is subject to its own wording, which differs in
certain respects from the Viking/Warren insurance policies in this particular case. The WRG
Trust reserves all rights and makes no admissions regarding rights under its own insurance
policies.
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recoveries are for the benefit of those claimants. The WRG Trust now is the sole
entity responsible for the resolution of Grace's asbestos personal injury liabilities.
ASARCO Asbestos Personal Injury Trust
The ASARCO Trust was created in 2009 as a result of the
confirmation of the Chapter 11 Joint Plan of Reorganization of ASARCO, LLC.
("ASARCO"), a multinational company engaged primarily in the business of
mining, smelting and refining. Prior to reorganization, plaintiffs had filed
hundreds of thousands of asbestos claims against ASARCO and related entities.
The ASARCO Trust now processes, liquidates, and pays valid asbestos personal
injury claims in accordance with trust distribution procedures that aim to provide
fair, equitable, and substantially similar treatment for all personal injury claims that
may presently exist or may arise in the future.
The ASARCO Trust has an interest in New York law on allocation
because the New York Liquidation Bureau is applying New York law to the
insurance policies that ASARCO purchased from Midland Insurance Company for
the 1974-1976 time period. ASARCO's national headquarters were located in
New York at the time the policies were purchased and ASARCO's insurance
brokers were located in New York as well.4
4 Each of the ASARCO Trust's insurance policies is subject to its own wording, which differs
in certain respects from the Viking/Warren insurance policies in this particular case. The
7
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Duro Dyne Corporation
Duro Dyne is a leading manufacturer of sheet metal accessories and
equipment for the heating, ventilating, and air conditioning industry. Duro Dyne
was established in 195 2 and, over the span of the last sixty-four years, Duro Dyne
has expanded its plant locations and now employs over 200 people. Plaintiffs have
filed thousands of asbestos claims against Duro Dyne and related entities. These
claims arise nationwide, but a significant number arise in New York.
Duro Dyne has an interest in New York law on allocation because
New York law applies to the insurance policies that Duro Dyne purchased from
various insurance companies between at least 1968 and 1991. The basis for this
approach is that Duro Dyne is a New York corporation that was headquartered in
New York at the time the policies were purchased, and Duro Dyne's insurance
brokers were located in New York as wel1.5
John Crane Inc.
JCI is one of the world's leading providers of engineered technology.
JCI supplies and services the products used by its customers in energy services and
5
ASARCO Trust reserves all rights and makes no admissions regarding rights under its own
insurance policies.
Each of Duro Dyne's insurance policies is subject to its own wording, which differs in
certain respects from the Viking/Warren insurance policies in this particular case. Duro
Dyne reserves all rights and makes no admissions regarding rights under its own insurance
policies.
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other process industries for their mission-critical operations. JCI's outstanding
reputation for designing and engineering high-quality, durable, customized
solutions is globally recognized. And JCI's solutions- ranging from seals,
filtration systems and bearings to couplings - are backed by the largest global
service network in the industry.
JCI has been at the forefront of innovation throughout its 95-year
history. Headquartered in Chicago, JCI helps its customers safely supply energy to
communities around the world. Plaintiffs have filed thousands of asbestos claims
against JCI. Although these claims arise nationwide, JCI has an interest in New
York law on allocation because a significant number of the asbestos claims that
have been brought against JCI arise in New York.6
Alfa Laval Inc.
Alfa Laval is today a world leader within the key technology areas of
heat transfer, separation and fluid handling. Alfa Laval's worldwide organization
helps customers in nearly 1 00 countries to optimize their processes. The company
has over 18,000 employees, the majority ofwhom are located in Sweden,
Denmark, India, China, the United States, and France.
6 Each of JCI's insurance policies is subject to its own wording, which differs in certain
respects from the Viking/Warren insurance policies in this particular case. JCI reserves all
rights and makes no admissions regarding rights under its own insurance policies.
9
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Plaintiffs have filed thousands of asbestos claims against Alfa Laval.
These claims arise nationwide, but a significant number arise in New York. Alfa
Laval has an interest in New York law on allocation because New York law has
been applied to the insurance policies that Alfa Laval purchased from various
insurance companies covering asbestos liabilities.7
STATEMENT OF FACTS
The proposed amici curiae adopt the Factual Background Statement
and Statements of the Case submitted by Appellants Viking and Warren. See Brief
for Appellant Warren Pumps LLC dated August 21, 2015 ("Warren App. Br."), at
pp. 7-23; Brief for Appellant Viking Pump, Inc., dated August 21, 2015 ("Viking
App. Br."), at pp. 4-12.
ARGUMENT
I. THIS COURT SHOULD GRANT THE MOTION OF
UNITED POLICYHOLDERS, THE WRG TRUST,
THE ASARCO TRUST, DURO DYNE, JCI AND
ALFA LAVAL TO APPEAR AS AMICI CURIAE.
Under Rule 500.23(a)(4) of the Rules of the New York Court of
Appeals (22 NYCRR), "a motion for amicus curiae relief shall demonstrate that:
( 1) the parties are not capable of a full and adequate presentation and that movants
could remedy this deficiency; (ii) the amicus could identify law or arguments that
7 Each of Alfa Laval's insurance policies is subject to its own wording, which differs in certain
respects from the Viking/Warren insurance policies in this particular case. Alfa Laval
reserves all rights and makes no admissions regarding rights under its own insurance policies.
10
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might otherwise escape the Court's consideration; or (iii) the proposed amicus
curiae brief otherwise would be of assistance to the Court." Generally, leave to
appear as amicus curiae is liberally granted, especially "[i]n cases involving
questions of important public interest," though the ultimate determination is left in
the sound discretion of the court. Colmes v. Fisher, 151 Misc. 222, 223 (N.Y.
Sup., Erie Cnty. 1934).
Such leave should be granted here because proposed amici curiae will
"identify law or arguments that might otherwise escape the Court's consideration."
22 NYCCR at 500.23(a)(4), supra. Indeed, proposed amici curiae seek to fulfill
the "classic role of amicus curiae in a case of general public interest,
supplementing the efforts of counsel, and drawing the court's attention to law that
escaped consideration." Miller-Wohl Co. v. Comm 'r of Labor & Indus., 694 F.2d
203, 204 (9th Cir. 1982). Legal scholars and commentators have noted that this is
an appropriate role for amicus curiae. An amicus curiae is often in a superior
position to "focus the court's attention on the broad implications of various
possible rulings." Robert L. Stem, et al., Supreme Court Practice§ 570.71 (1986)
(quoting Bruce J. Ennis, Effective Amicus Briefs, 33 Cath. U.L. Rev. 603, 608
(1984)).
As a non-profit consumer advocacy organization with no financial
stake in the outcome of this litigation, United Policyholders' perspective on the
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issues in the case clearly differs from those of the parties. United Policyholders
also shares a genuine and unique concern about the impact of an adverse decision
on New York policyholders. As a voice and information resource for insurance
consumers, United Policyholders plainly possesses the expertise required to
provide a meaningful contribution to the briefing on the certified questions before
the Court. (See Statement of Interest, supra.)
The WRG Trust is the sole entity responsible for the resolution of
thousands of claims that have been brought against W.R. Grace for alleged
asbestos-related personal injuries. These claims arise nationwide but a significant
number arise in New York State, where W.R. Grace was headquartered for over a
century and where the WRG Trust has identified 289 approved sites for asbestos
claims. (See id.)
The ASARCO Trust has an interest in New York law on allocation
because the New York Liquidation Bureau is applying New York law to the
insurance policies that ASARCO purchased from Midland Insurance Company for
the 1974-1976 time period. ASARCO's national headquarters were located in
New York at the time the policies were purchased and ASARCO's insurance
brokers were located in New York as well.
Duro Dyne has an interest in New York law on allocation because
New York law applies to the insurance policies that Duro Dyne purchased from
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various insurance companies between at least 1968 and 1991. The basis for this
approach is that Duro Dyne is a New York corporation that was headquartered in
New York at the time the policies were purchased, and Duro Dyne's insurance
brokers were located in New York as well.
Both JCI and Alfa Laval have an interest in New York law on
allocation because a significant number of asbestos claims against them arise in
New York. Alfa Laval also has an interest in New York law on allocation because
New York law has been applied to the insurance policies that Alfa Laval purchased
from various insurance companies covering asbestos liabilities.
Accordingly, the proposed amici curiae respectfully request that this
Court grant their motion to appear as amici curiae in this appeal and accept this
memorandum of law.
II. "ALL SUMS" IS THE APPROPRIATE
ALLOCATION RULE
A. Viking Pump Addresses One of the Important
Open Issues in New York Allocation Law After
Consolidated Edison
The policies at issue here (the "Policies"), like most standard form
comprehensive general liability ("COL") insurance policies, promise to "pay on
behalf of the insured all sums ... which the insured shall become legally obligated
to pay ... as damages, direct or consequential, because of: (a) personal injury ...
with respect to which this policy applies and caused by an occurrence." Viking
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Pump, Inc. v. Century Indem. Co., 2 A.3d 76, 109 (Del. Ch. 2009) (emphasis in
original) ("Viking Pump"). The proposed amici curiae believe that this promise
requires an insurance company to pay "all sums" of the policyholder's damages, if
a policy is triggered by an "occurrence." The insurance industry did not write their
policies so as to pay "a portion of the sums" or "some sums." They promised "all
sums." That should settle the allocation argument.
However, insurance companies continue to dispute that requirement
for the transparent purpose of paying less for claims than they promised decades
ago to cover. Their argument for pro rata allocation is based on the Policies'
promise to pay "all sums" if there is an "occurrence." The "occurrence" definition
refers to "personal injury," which is defined in tum as "personal injury or bodily
injury during the policy period." !d. (emphasis in original).
The Policies at issue here also contain "Non Cumulation Provisions"
and "Prior Insurance Provisions" that apply where injury or damage occurs over
multiple insurance periods. This Court has never addressed the effect of these
Provisions on allocation among insurers in this context.
The Delaware Court of Chancery in Viking Pump correctly concluded
that provisions in the Policies other than the "all sums" promise, in particular the
"Non-Cumulation" and the "Prior Insurance Provisions," mandate application of
the all sums allocation rule, because those provisions cannot be reconciled with pro
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rata allocation. See generally id. at 107-130. In general, and as explained more
fully in Warren's briefs herein, the Viking Pump court found that the Policies'
Non-Cumulation8 and Prior Insurance Provisions9 expressly contemplate that a
policy could be triggered by an indivisible continuing injury and "operate to ensure
that the insured does not get to stack multiple policies together," which could
otherwise result because "an insurer must pay for injuries caused by that
occurrence that continues into other periods." !d. at 121.
Examining these "anti-stacking" provisions, the Viking Pump court
explained:
8 The Non-Cumulation Provision states:
If the same occurrence gives rise to personal injury, property damage or advertising
injury or damage 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 [Liberty Mutual] with
respect to such occurrence, either under a previous policy or policies of which this is a
replacement, or under this policy with respect to previous annual periods thereof.
Viking Pump, 2 A.3d at 121.
9 The Prior Insurance Provision states:
It is agreed that 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 stated in the Items 5 and 6 of the Declarations shall be reduced by any
amounts due to the Insured on account of such loss under such prior insurance.
Subject to the foregoing paragraph and to all the other terms and conditions of this Policy
in the event that personal injury or property damage arising out of an occurrence covered
hereunder is continuing at the time of termination of this Policy the Company will
continue to protect the Insured for liability in respect of such personal injury or property
damage without payment of additional premium.
Viking Pump, 2 A.3d at 121-122.
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In other words, the Non-Cumulation and Prior Insurance
Provisions are designed for a situation in which different
policies are responding to the same injury. By their very
presence, they suggest that the words "during the policy
period," do not have the drastic effect the Excess Insurers
contend for. Rather, the words "during the policy period"
simply require that the insured's liability for the claim in
question be attributable to an occurrence during the
policy period; that is, that the tort plaintiff have suffered
an injury in fact during the policy period that has resulted
in the insured's liability.
Of paramount importance in deciding this case is the fact
that the Non-Cumulation and Prior Insurance Provisions
cannot be reconciled with the pro rata method of
allocation. Applying those Provisions makes no sense
once proration occurs.
!d. at 122-123.
While this Court's decision in Consolidated Edison Co. of N.Y. v.
Allstate Insurance Co., 98 N.Y.2d 208 (2002) ("Consolidated Edison"), applied
pro rata allocation in another continuing injury case, the Viking Pump court
nevertheless applied "all sums" allocation under the Policies at issue,
distinguishing Consolidated Edison because the Non-Cumulation and Prior
Insurance Provisions here are inconsistent with pro rata allocation. Viking Pump at
122. In other words, Viking Pump "first look[ ed] to the language of the policy" in
order to "afford[] a fair meaning to all of the language employed by the parties ...
and leave[] no provision without force and effect." Consolidated Edison at 220.
Thus, the all sums holding in Viking Pump is consistent with this Court's
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acknowledgment that Consolidated Edison "[ c ]I early ... is not the last word on
proration." Consolidated Edison at 225.
The pending certified questions provide an occasion for the Court to
provide "another word" on proration, and there may well be other occasions in
future cases. Respectfully, moreover, Consolidated Edison has resulted in
uncertainty and increased litigation costs, and the Court may wish to restrict or
revisit it for a number of reasons (even if such a restriction or revisitation is not
needed to rule that the Viking Pump trial court correctly held that the application of
"all sums" allocation is consistent with Consolidated Edison in this particular
case).
The Consolidated Edison Court expressly recognized that pro rata
allocation was "not explicitly mandated by the policies," id. at 224, and such a
departure from express policy language is not consistent with ordinary rules of
insurance policy interpretation. Cf Plastics Eng'g Co. v. Liberty Mut. Ins. Co., 7 59
N.W.2d 613, 626 (Wis. 2009) ("[W]e are again driven by the policy language.
Liberty Mutual's policy contains no language that limits its obligation to a pro rata
share.")
Notably, even in the wake of Consolidated Edison, many other courts
have concluded that all sums allocation is particularly appropriate where the
underlying bodily injuries or property damage are "indivisible" in nature. See, e.g.,
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State ofCalifornia v. Continental Ins. Co., 281 P.3d 1000, 1005 (Cal. 2012)
(applying all sums allocation to third-party claim arising from a "series of
indivisible injuries attributable to continuing events without a single unambiguous
'cause"').
Finally, while the Consolidated Edison decision dismissed the
policyholders' reliance on the recent trend in other courts toward adopting all sums
allocation, it discussed and distinguished only one case, the Delaware Supreme
Court's decision in Hercules, Inc. v. AIU Insurance Co., 784 A.2d 481 (Del. 2001),
based on a difference in policy language. As more fully briefed by Warren, that
policy language difference- the existence of a non-cumulation provision-
requires application of the "all sums" rule in the present case. See, e.g., Warren
App. Br. at 24-25. As the California Supreme Court recognized more recently:
[T]he "during the policy period" language that the
insurers rely on to limit coverage does not appear in the
"Insuring Agreement" section of the policy and therefore
is neither "logically [n]or grammatically related to the
'all sums' language in the insuring agreement." The
insurers' claim that their indemnity responsibility is
limited to damage occurring "during the policy period"
would unduly restrict their agreement to pay "all sums"
the insured is obligated to pay for damages due to "injury
to or destruction of property." The CGL policy language
does not contemplate such a limited result once there is a
property damage occurrence that triggers the insurers'
indemnity responsibilities for the entirety of the loss, and
a growing number of states have similarly adopted this
interpretation of the all sums language
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State of California, 281 P .3d at 1007-1008 (emphasis added). The "growing
number" of decisions cited by California's highest court include not only decisions
involving Non-Cumulation and Prior Insurance Provisions like the Viking Pump
matter now before this Court, but also others which rejected pro rata allocation
based on standard form CGL language. See id. at 1008 n.5 (citing Hercules,
supra); Allstate Ins. Co. v. Dana Corp. 759 N.E.2d 1049, 1058 (Ind. 2001);
Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 769 N.E.2d 835 (Ohio
2002); J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502 (Pa. 1993);
Am. Nat'/ Fire Ins. Co. v. B & L Trucking, 951 P.2d 250 (Wash. 1998); Plastics
Eng'g Co. v. Liberty Mut. Ins. Co. 759 N.W.2d 613 (Wise. 2009)).
B. Viking Pump Is Consistent With The Logic Of
"All Sums" Decisions Nationwide
Appellant Warren has briefed numerous authorities supporting all
sums allocation in light of the anti-stacking provisions found in the Policy
language at issue here. See Warren App. Br. at 29-31; Reply Brief for Appellant
Warren Pumps LLC, dated October 22, 2015 ("Warren Reply Br.") at 17-21. The
Delaware court in Viking Pump also grounded its decision on an analysis of
decisions from other jurisdictions which have adopted the all sums rule, see Viking
Pump, 2 A.3d at 107 n.99; 113 n.124, and which similarly concluded that Non-
Cumulation and Prior Insurance Provisions are inconsistent with pro rata
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allocation. !d. at 125-126. The proposed amici curiae adopt Warren's arguments
and concur with the Delaware court's analysis in Viking Pump.
Along with those authorities, State of California, supra, confirms that
anti-stacking provisions like the Non-Cumulation and Prior Insurance Provisions at
issue here are wholly consistent only with "all sums" allocation. State of
California involved common "occurrence" -based comprehensive general liability
insurance provisions, in which the insurance companies promised to pay "all sums
which the insured shall become obligated to pay ... for damages ... because of
injury to or destruction of property ... ," with "occurrence" defined to require
"damage to property during the policy period." 281 P.3d at 1003. The California
court held that: "the policies at issue obligate the insurers to pay all sums for
property damage attributable to the [underlying environmental property damage],
up to their policy limits, if applicable, as long as some of the continuous property
damage occurred while each policy was 'on the loss."' !d. at 1008. The court also
observed that "a growing number of states have similarly adopted this
interpretation of the "all sums" language," while acknowledging that others have
taken the pro-rata position. !d.
State of California next turned to the so-called "stacking" issue.
Because its liabilities exceeded the "occurrence" limits available during a single
policy period, the policyholder in that case sought to collect from more than a
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single period's insurance. The court disapproved a lower court decision, FMC
Corp. v. Plaisted & Companies, 72 Cal. Rptr. 2d 467 (Ct. App. 1998), which
resorted to "judicial intervention" to prohibit stacking and found that policies
"which do not contain antistacking language, allow for its application." State of
California, 281 P.3d at 1009. Notably, the State of California court observed
"[t]he most significant caveat to all-sums-with-stacking indemnity allocation is
that it contemplates that an insurer may avoid stacking by specifically including an
'antistacking' provision in its policy." ld. (emphasis added).
That is exactly what Respondents have done. Respondents clearly
foresaw, and sought to limit, their exposure to paying multiple policy limits toward
liabilities arising from property damage or personal injury that continues over
successive policy periods. Had they had intended for a pro rata allocation method
to apply, Respondents would have included language stating such an intention, and
they would not have included anti-stacking provisions which the California court
correctly concluded were only consistent with "all sums" allocation.
C. The History of the Standard CGL Policy
Compels Application of the "All Sums" Rule
Among other things, the Chancery Court in Viking Pump noted that
the extrinsic evidence, in the form of the parties' later course of conduct
manifesting intent, further resolved any ambiguity resulting from the parties'
competing interpretations of the policies' "all sums" insuring agreement, Non-
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Cumulation and Prior Insurance Provisions. Viking Pump at 127-129. If there are
competing reasonable interpretations of the Policies, it remains appropriate to
consider this extrinsic evidence. See State v. Home Indem. Co., 66 N.Y.2d 669,
671 (1985) (if"language in the insurance contract is ambiguous and susceptible of
two reasonable interpretations, the parties may submit extrinsic evidence as an aid
in construction"). Thus, Appellants are correct to urge this Court to consider that
Appellants' asbestos claims here were paid on an "all sums" basis for more than
twenty years before Respondents contended the pro rata rule should apply. See
Warren App. Br. at 11-12.
The Court also should consider that the conduct of the particular
parties in this case arose in the context of an historical record which clearly shows
that Liberty Mutual and the insurance industry always have understood that
standard-form general liability insurance policies obligate insurance companies to
pay in full - "all sums" - for a continuing injury. Statements and analyses by
the insurance industry at the time the standard policy language was written -
sometimes called "drafting history" - emphasize the intentional omission of any
allocation provision, pro rata or otherwise, from standard CGL policies. Allowing
the insurance industry to benefit now, as claims arise, from positions inconsistent
with the industry's own understanding at the time of underwriting would
undermine basic fairness and the consistency crucial to proper working of the
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liability and insurance systems. It also would diminish the benefit of the insurance
that policyholders -large and small -purchased with hard-earned premium
dollars.
Indeed, the drafters of the standard general liability insurance forms 10
clearly understood that the promise to indemnify "all sums" required insurance
companies to pay the whole of a policyholder's liability, even if some injury took
place outside the policy period. Richard A. Schmalz, one of the primary drafters of
the standard 1966 form CGL insurance policy and Assistant Counsel of Liberty
Mutual Insurance Company (which sold the underlying primary and umbrella
insurance policies to which the Policies at issue herein followed form), told an
insurance industry conference in 1965 that more than one policy period could be
10 In the 1960s, domestic insurance companies, acting through industry trade associations,
including the National Bureau of Casualty Underwriters, the Insurance Rating Board, and the
Mutual Insurance Rating Board (all predecessors of the Insurance Services Office, Inc.
("ISO"), formed by merger in 1971), established several committees which engaged in the
process of revising the standard-form general liability insurance policy. These committees,
which consisted of the insurance industry's most respected experts and legal counsel,
developed a revised standard-form general liability insurance policy, substituting the concept
of "occurrence" for the "accident" trigger used in the prior, 1955 standard-form policy. See
Eljer Mfg., Inc. v. Liberty Mut. Ins. Co., 972 F.2d 805, 810-12 (7th Cir. 1992); Am. Home
Prods. Corp. v. Liberty Mut. Ins. Co., 565 F. Supp. 1485, 1500-03 (S.D.N.Y. 1983), aff'd as
modified, 748 F.2d 760 (2d Cir. 1984); Montrose Chern. Corp. v. Admiral Ins. Co., 897 P.2d
1, 14 (Cal. 1995) ("Most courts and commentators have recognized that the presence of
standardized industry provisions and the availability of interpretive literature are of
considerable assistance in determining coverage issues."); Hoechst Celanese Corp. v.
National Union Fire Ins. Co., 623 A.2d 1128, 1129 n.1 (Del. Super. Ct. 1992) (noting "most
if not all insurers use ISO standard-form language in their policies" and "most insurers do in
fact use ISO language nearly or completely verbatim"). The result was the 1966 standard-
form general liability policy, the insuring agreement of which remained unaltered in the
subsequent 1973 standard-form general liability insurance policy.
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held liable under the 1966 form to pay for a policyholder's liability "where the
injury actually occurs over two or more policy periods." Richard A. Schmalz,
New Comprehensive General Liability and Automobile Program, Mutual
Insurance Technical Conference (Nov. 15-18, 1965) (quoted in Lorelie S. Masters,
Jordan S. Stanzler & Eugene R. Anderson, Insurance Coverage Litigation at§
4.07, at 4-128-4.129 (Wolters Kluwer Law & Business, 2000 & Supp. 2015)
(hereafter "Masters, Stanzler & Anderson")). He also acknowledged that "[t]here
is no pro-ration formula in the policy, as it seemed impossible to develope [sic} a
formula which would handle every possible situation with complete equity." !d.
(emphasis added).
Liberty Mutual's Assistant Secretary, Gilbert Bean, agreed:
[I]f the injury or damage from waste disposal should continue
after the waste disposal ceased, as it usually does, it could
produce losses on each side of a renewal date, and in fact over a
period of years, with a separate policy applying each year.
The policy limits are renewed every year, so the underwriter of
a manufacturing risk may have his limits pyramid [i.e., "stack"]
under this new contract. 11
Other courts have noted and relied upon Liberty Mutual's historical
understanding that each CGL insurance policy in effect during a continuing loss
provides coverage. In Joy Technologies v. Liberty Mutual Insurance Co., 421
S.E.2d 493 (W. Va. 1992), the court observed:
11 Masters, Stanzler & Anderson at§ 4.07[A], at 4-127.
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The record shows at the time Liberty Mutual adopted this
standard form for the commercial general liability policy,
a memorandum entitled "Summary of Broadened
Coverage Under New GL Policies With Necessary
Limitations to Make This Broadening Possible," was
circulated internally within the company. That
memorandum indicated that the policies covered
liabilities including: "Coverage for gradual BI [bodily
injury] or gradual PD [property damage] resulting over a
period of time from exposure to the insured's waste
disposal. Examples would be gradual adverse effect of
smoke, fumes, air or stream pollution, contamination of
water supply or vegetation. We are all aware of cases
such as contamination of oyster beds, lint in the water
intake of down stream industrial sites, the Donora Pa.
atmospheric contamination, and the like."
!d. at 498. The Joy Technologies court therefore concluded that "[t]he 1966
commercial general liability insurance policies, as originally issued, covered
gradual bodily injury and property damage resulting over a period of time from
exposure to the insured's waste disposal," as Mr. Bean had suggested when the
insurance policies were drafted. !d. at 499.
Confirming the statements of Messrs. Schmalz and Bean, at an April
21, 1977 insurance industry meeting devoted to discussing the industry's response
to claims for coverage for asbestos-related claims, a classic type of multiple policy
period liability claim, the "majority" of the insurance company representatives
present contended that, for continuing injuries, "each carrier on risk during any
part of that period" could be "fully responsible" for the entire loss:
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The majority view [held by the insurance industry
representatives] was that coverage existed for each carrier
throughout the period of time the asbestosis condition
developed, i.e., from the first exposure through the discovery
and diagnosis. The majority also contended that each carrier
on risk during any part of that period could be fully responsible
for the cost of defense and loss.
Memorandum of Meeting of Discussion Group, Asbestosis, held under the
auspices of the American Mutual Insurance Alliance and American Insurance
Association (April 21, 1977), quoted in Masters, Stanzler & Anderson at
§ 4.07[A], at pp. 4-129 to 4-130) (emphasis added); see also Hearings on the
Occupational Disease Comp. Act of 1983 Before the Subcomm. on Labor
Standards of the Comm. on Educ. and Labor, 98th Cong. at 236-240, 1988
(Memorandum ofMeeting ofDiscussion Group).
Thus, the drafting history is consistent with "all sums" allocation, not
the pro rata allocation that the industry now advocates simply to cut losses after
collecting premiums for policies that it knew for decades provided much broader
coverage. Moreover, there can be no doubt that Liberty introduced the Non-
Cumulation Provision precisely because Liberty understood that its policies
provided coverage on an all sums basis and that the potential therefore existed for
policyholders to "stack" the full limits of successive Liberty policies to maximize
coverage for their long-tail liabilities. Notably, Liberty began including those
provisions in its policies at or around the time that Messrs. Schmalz and Bean were
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expressing their concerns over the 1966 "occurrence" -based general liability policy
form discussed above. See, e.g., Endicott Johnson Corp. v. Liberty Mut. Ins. Co.,
928 F. Supp. 176, 178-80 (N.D.N.Y. 1996) (noting that policyholder was insured
under consecutive Liberty policies covering the years from 1944 to 1981 but that
Non-Cumulation Provisions appeared only in the policies that covered years after
1966).
D. Pro-Rata Allocation Schemes Are Unfair,
Unworkable And Cause Unnecessary
Complication And Allocation Litigation That
Could Be A voided Through Enforcing The "All
Sums" Promise.
Respondents' contention that pro rata allocation is "fair and efficient,"
see Brief for Respondents dated October 8, 2015 ("Respondents Br.") at pp. 36-
38, is belied by experience and common sense, and considers "fairness" solely
from the insurance industry's perspective, ignoring not only policyholders'
interests but also the insurance policy language which the insurance industry
drafted and to which all parties agreed. Even courts which have adopted "pro-rata"
allocation have recognized that this methodology may prove burdensome, if not
impossible, to implement. See Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d
974, 995 (N.J. 1994) (adopting "pro-rata allocation" under New Jersey law, but
stating that "[ w ]e realize that many complexities encumber the solution that we
suggest," and that, "[i]f, after experience, we are convinced that our solution is
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inefficient or unrealistic, we will not hesitate to revisit the issue"). Experience has
shown that these concerns are well-founded. In an effort to minimize or eliminate
their liability for losses stemming from claims of gradual injury, insurance
companies commonly exploit the complexities inherent in pro-rata allocation,
leading to years of litigation over which losses are "allocable" to particular policies
or time periods.
For example, in the long-running Olin coverage litigation, the Second
Circuit has been called upon to address the allocation of liabilities on not just one
but three separate occasions. See Olin Corp. v. Ins. Co. ofN Am., 221 F.3d 307
(2d Cir. 2000); Olin Corp. v. Certain Underwriters at Lloyd's, 468 F.3d 120 (2d
Cir. 2006); Olin Corp. v. A,. Home Assur. Co., 704 F.3d 89 (2d Cir. 2012).
1. The Complexities of Pro Rata Allocation
As an initial matter, any attempt to prorate defense costs, such as the
costs of defending the asbestos claims that have been brought against Warren and
Viking (see Warren App. Br. at 44-48, and Warren Reply Br. at 39-44), fails to
consider the obvious. It makes no conceptual sense to allocate defense costs to
triggered time periods, because no relationship exists between the amount and
nature of a policyholder's defense expenditures, on the one hand, and the duration
or timing of the third-party claimant's injuries, on the other. For that reason
among many others, it is settled New York law that a liability insurance company
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must provide a complete defense to a lawsuit that involves a potentially covered
claim, notwithstanding that the third-party claimant's injuries may have occurred
during other policy periods. Cont'l Cas. Co. v. Rapid-American Corp., 80 N.Y.2d
640 (1993); Travelers Cas. and Sur. Co. v. Alfa Laval Inc., 100 A.D.3d 451 (1st
Dep't 2012).
There are many other complications with applying a "pro-rata"
allocation scheme. Potential problems to consider- not all present here but likely
to arise in future cases - include:
• Insolvency. Insurance companies argue that policyholders
are responsible for time periods for which the policyholders
purchased insurance from insurance companies that later
became insolvent. See, e.g., Olin, 221 F.3d at 323. Thus,
the policyholder is penalized in having to pay both the
original premium and the pro rata share assigned to the
period covered by the insolvent insurance company, despite
the remaining solvent insurance companies' promises to pay
"all sums" toward third-party claims that implicate their
policies. The solvency of insurance companies is supposed
to be within the purview of state insurance regulators. It
would be unfair to punish policyholders because a regulated
company became insolvent. It would be even more
anomalous to reduce the obligations of a solvent insurance
company that promised to pay "all sums" because some
other regulated insurance company that collected premiums
from the same policyholder became insolvent.
• Availability: Insurance companies argue that pro rata
allocation to "uninsured" or "underinsured" policy periods,
forcing the policyholder to bear the costs of those allocated
amounts, "fairly" represents the policyholder's "choice" to
go "bare" during those policy periods. That rationale does
not, however, account for the fact that, at certain times, the
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insurance industry as a whole has excluded entire categories
of claims from coverage, such as through the "total"
pollution or asbestos exclusions that have appeared in
virtually all general liability insurance policies since the
mid-1980s. Application of a pro rata allocation to such
periods thus not only divorces the rationale for doing so
from reality, but complicates the insurance dispute, by
requiring consideration and determination of the often
complex factual issue of what coverage the policyholder
realistically could have purchased. See, e.g., Olin Corp. v.
Ins. Co. ofN Am. 986 F. Supp. 841,844 (S.D.N.Y. 1997)
(discussing the "enormous amount of evidence" submitted
by the parties as to what the policyholder "did or did not do
to try to obtain" insurance after 1985 for its environmental
liabilities, what insurance the policyholder conceivably
could have obtained, and whether any insurer would have
sold that coverage to the policyholder in light of its "loss
record"), aff'd, 221 F.3d 307, 325-27 (2d Cir. 2000).
• Pre-Acquisition Coverage: Insurance companies also argue
that, even where the relevant damage or injury was caused
by the prior conduct of an acquired company, the resulting
losses should be allocated to the earlier years in which some
damage or injury took place, even though the policyholder
may not have existed during that time period (and, thus,
could not have purchased insurance for that time period).
But even if the policyholder did exist and did purchase
insurance for the relevant time period, the insurance
companies argue that the policyholder cannot use that
insurance to cover entities that it did not own during that
time period.
• Method for Pro-Rating Liabilities: In Consolidated Edison,
this Court recognized that nuinerous alternative means exist
for prorating losses across triggered time periods and stated
that "this is not the last word on proration." 98 N.Y.2d at
225. Some courts -like the trial court in Consolidated
Edison - have applied a "time on the risk" methodology-
which this Court merely noted was "not error" in the
circumstances of that case. See id. at 224-25. Other courts,
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however, require consideration of factors such as the
liability limits that a particular insurer sold to cover losses
that are deemed to be "allocable" to a triggered time period.
See, e.g., Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d
974 (N.J. 1994).
These complexities - and others that insurance industry lawyers have
devised - ensure that the application of pro rata allocation methods is anything but
"simple" and "efficient," as Respondents contend. Indeed, these complications
arise in the first place because general liability insurance policies do not contain
any provision detailing how a court is to construct its primary-first allocation
scheme. The drafting history cited above demonstrates that is not the means of
allocation the drafters intended. Rather, and as the insurance industry has
admitted, it proved "impossible to develop[] a formula which would handle every
possible situation with complete equity." See Section II.C, supra. Instead, the
policies promise broadly that they will pay "all sums" that the policyholder
becomes obligated to pay. Further, the end result of these complications would be
to deprive New York policyholders of coverage they would have under the
majority rule of other states, enforcing the promise to pay all sums, and burden the
courts with additional, time-consuming litigation between policyholders and their
insurance companies.
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2. The Benefits of" All Sums" Allocation
Respondents' assertion that all sums allocation "promotes inefficiency
and unnecessarily multiplies litigation costs" (Respondents Br. at 37) is as wrong
as their assertion that proration promotes "simplicity" and 'fairness." Tellingly-
and even though numerous states follow the "all sums" approach - Respondents
point to no case from any jurisdiction where application of the "all sums" method
actually proved "inefficient" or led to litigation that could have been avoided under
a pro rata approach.
That omission should surprise no one because Respondents' judicial
efficiency argument rests on a wholly erroneous premise. Respondents simply
assume that, under an "all sums" rule, a policyholder will bring suit against only
one insurance company, which will then pursue contribution from other insurance
companies in a later, separate action. Nothing in the all sums rule, however, limits
a policyholder's suit to a single insurance company. Rather, and as a practical
matter, policyholders almost invariably bring suit under every potentially
applicable insurance policy to recover losses arising from claims for continuous
injury or damage. That only is logical. Where multiple insurance companies are
involved, policyholders have every reason to obtain a comprehensive adjudication
of all implicated insurance companies' obligations for the underlying claims- and
that is so irrespective of which allocation method is applied.
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Further, even if an insured sued only a single insurance company,
nothing would prevent that insurance company from bringing other insurance
companies into the same action via a cross-complaint for equitable contribution,
which could just as efficiently resolve all related issues in a single action. Finally,
when a smaller loss would be fully covered by any single policy, it is inefficient to
require the insured to sue all of its insurance companies merely to recover what
could be paid under a single policy.
It is equally clear that an insurance company has no legally
recognized interest in forcing the policyholder itself to seek contribution from
other triggered policies issued by other insurance companies. Granted, if the
policyholder purchases insurance covering other time periods, then the insurance
company might collect contribution from other insurance companies and thus
benefit from the premiums that the policyholder paid to those insurance
companies. But that is purely a windfall. Respondents have introduced no
evidence that the premiums they charged were based on the availability of
insurance coverage in other policy periods. Moreover, because any given
"occurrence" could have taken place years or decades before policy issuance, there
would be no accurate way to do so prior to policy issuance. To the contrary,
Respondents' policies show that they only mandated that the policyholder maintain
a set amount of directly underlying policy limits. See Brief for Appellant Viking
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Pump, Inc. at 9 (describing and categorizing Excess Policy "underlying limits"
provisions). Thus, an insurance company's obligations under a particular policy to
its policyholder do not tum on whether its policyholder did, or did not, (i) purchase
insurance covering other periods, (ii) retain copies of all policies that it purchased,
(iii) purchase coverage from one or more insurance companies that later became
insolvent despite state regulatory supervision, or (iv) provide timely notice to other
insurance companies of third-party claims against it. COL policies contain no
requirement that the policyholder take, or refrain from taking, any action to relieve
the relevant insurance company of part or all of its contractual promise to pay "all
sums."
In short, there is nothing unfair or unworkable about enforcing the "all
sums" promise as written. As the State of California court observed:
An all-sums-with-stacking rule has numerous
advantages. It resolves the question of insurance
coverage as equitably as possible, given the
immeasurable aspects of a long-tail injury. It also
comports with the parties' reasonable expectations, in that
the insurer reasonably expects to pay for property
damage occurring during a long-tail loss it covered, but
only up to its policy limits, while the insured reasonably
expects indemnification for the time periods in which it
purchased insurance coverage. All-sums-with-stacking
coverage allocation ascertains each insurer's liability with
a comparatively uncomplicated calculation that looks at
the long-tail injury as a whole rather than artificially
breaking it into distinct periods of injury. If an
occurrence is continuous across two or more policy
periods, the insured has paid two or more premiums and
34
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can recover up to the combined total of the policy limits.
There is nothing unfair or unexpected in allowing
stacking in a continuous long-tail loss.
State ofCalifornia, 55 281 P.3d at 1009.
As State of California recognizes, it works no unfairness on insurance
companies to enforce contractual language as written. Insurance companies that
contracted to pay "all sums" should be held to that promise, just as insurance
companies hold policyholders to anti-stacking provisions set forth in their policies.
III. EXCESS LIABILITY INSURANCE
POLICIES ATTACH UPON "VERTICAL"
EXHAUSTION OF LOWER LEVEL
INSURANCE IN THE SAME POLICY
PERIODS, WITHOUT "HORIZONTAL"
EXHAUSTION OF POLICIES COVERING
OTHER TIME PERIODS
Like most excess liability insurance policies, the Policies at issue here
state that specific underlying policies in the same periods in which they were
issued must be exhausted before the excess coverage obligations attach. As shown
in Viking's Brief and its Reply Brief, the Policies' plain language allows for
vertical exhaustion, there is no New York law to the contrary, and the "other
insurance" provision in excess policies do not require horizontal exhaustion.
The proposed amici curiae respectfully request that the Court consider
two additional points in support ofViking and Warren's position.
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A. Absent Express Policy Provisions Requiring
Horizontal Exhaustion, It Is At Best An
Equitable Doctrine Between Insurance
Companies, Not A Rule That Applies To
Policyholders.
Respondents' horizontal exhaustion argument relies in part on
California law, citing Kaiser Cement & Gypsum Corp. v. Ins. Co. of the State of
Pa., 126 Cal. Rptr. 3d 602 (Ct. App. 2011), superseded, 155 Cal. Rptr. 3d 283 (Ct.
App. 2013). See Respondents' Br. at 4, 49. That superseded decision has been
depublished, see Kaiser Cement & Gypsum Corp. v. Insurance Co. of the State of
Pa., S210870, 2013 Cal. LEXIS 6033 (Cal. July 17, 2013), but what remains of
interest are the cases and concepts it discusses, including in particular Community
Redevelopment Agency v. Aetna Casualty & Surety Co., 57 Cal. Rptr. 2d 755 (Ct.
App. 1996) ("CRA"). That decision shows that, absent express policy language
requiring horizontal exhaustion between a policyholder and an excess insurance
company, the doctrine applies, if at all, only as an equitable claim or defense
between or among the implicated insurance companies.
In CRA, a primary insurance company sought equitable contribution
from an excess insurance company for the costs of defending an action involving
long-term damage occurring over multiple policy periods. The court concluded
that "a horizontal exhaustion rule should be applied in continuous loss cases"
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under which "all of the primary policies in force during the period of continuous
loss will be deemed primary policies to each of the excess policies covering the
same period. Under the principle of horizontal exhaustion, all of the primary
policies must exhaust before any excess will have coverage exposure." !d. at 761
(italics in original). Although the coverage litigation initially involved multiple
policyholders and insurance companies, the only claim remaining on appeal was a
declaratory relief and equitable contribution dispute between two insurance
companies. !d. at 756 n.l. Thus CRA is consistent with cases recognizing that
horizontal exhaustion is an equitable contribution doctrine, designed to equitably
apportion losses among multiple insurance companies, not to eliminate coverage
available to a policyholder. Transcontinental Ins. Co. v. Ins. Co. of the State of
Pa., 56 Cal. Rptr. 3d 491, 497 n.4, (Ct. App. 2007) ("we need not address !SOP's
extensive discussion of the horizontal exhaustion rule as those cases invoke the
doctrine of equitable contribution, which is not controlling in this case").
However, horizontal exhaustion should not determine a policyholder's
direct contractual rights against an insurance company from whom it purchased an
insurance policy. Aerojet-General Corp. v. Transport Indem. Co., 948 P.2d 909,
930 (Cal. 1997) ("Although insurers may be required to make an equitable
contribution ... among themselves, that is all: An insured is not required to make
such a contribution together with insurers. Equitable contribution applies only
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between insurers ... It therefore has no place between insurer and insured, which
have contracted the one with the other") (italics in original; citations omitted). As
a later case observed, "the horizontal exhaustion rule only governs the relationship
between the primary and excess insurers." State of Calif. v. Continental ins. Co.
88 Cal. Rptr. 3d 288, 306 (Ct. App. 2009), aff'd, State of California, supra.
Respondents' "other insurance" argument also fails, because it is well
established that "other insurance" provisions only apply to allocation disputes
between or among insurers. See, e.g., New Castle County v. Continental Cas Co.,
725 F. Supp. 800, 817 (D. Del. 1989) ("[O]nly rights among carriers are implicated
by the 'other insurance' clause."), aff'd in part, rev 'don other grounds, 933 F. 2d
1162 (3d Cir. 1991); Baker v. Aetna Cas. and Sur. Co., Civ. Action No. 86-4974,
1996 U.S. Dist. LEXJS 11600, at *31 (D. N.J. Aug. 5, 1996). They are not
intended to be used to limit coverage available to policyholders. See id.
In any event, CRA and the Kaiser decision which followed it are not
absolute, but like any insurance coverage case merely turned on their particular
policy language. Any "horizontal exhaustion" rule is subject to standard rules of
insurance policy interpretation and must be based on the policy language:
The significant point is that these cases, like all other
insurance cases, look first to the terms of the policy ....
CRA does not stand for the proposition all primary
coverage must be exhausted before excess policies may
be reached without regard to the express terms of the
excess policies. Indeed, the CRA court said "if an excess
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policy states that it is excess over a specifically described
policy and will cover a claim when that specific primary
policy is exhausted, such language is sufficiently clear to
overcome the usual presumption that all primary
coverage must be exhausted." [Citation omitted.] Here,
the Insurers' policies state they are excess over a
specifically described SIR and will cover a claim when
that SIR is exhausted. Accordingly, CRA provides no
comfort to Insurers on this point.
Montgomery Ward & Co. v. Imperial Cas. & Indem. Co., 97 Cal. Rptr. 2d 44, 52
(Ct. App. 2000) (emphasis added). Similarly, here, Respondents' Policies state
they are excess over specifically described underlying insurance and will cover a
claim once that underlying insurance is exhausted.
In short, the horizontal exhaustion rule is an equitable contribution
doctrine affecting the allocation of coverage among multiple insurance companies,
none of whom owes any contractual duty to the other. It should not affect
Respondents' direct contractual duties to policyholders- all the more so, where, as
here, the relevant insurance contracts condition the excess insurance company's
coverage obligations solely upon the exhaustion of specified underlying insurance
policies.
39
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B. There Is No "Sophisticated Insured" Exception
To The Doctrine Of Contra Proferentum, Which
Requires Any Ambiguous Policy Language To
Be Resolved In Favor Of The Policyholders'
Vertical Exhaustion Rule.
There is no merit whatsoever to Respondents' suggestion in support of
their horizontal exhaustion argument that there is an "unresolved question"
whether the rule of contra proferentum applies in cases involving a "large,
sophisticated business." See Respondents Br. at 55. Viking's Reply Brief
discusses New York authorities rejecting such arguments unless an insurance
company can show that the supposedly "sophisticated" policyholder actually
negotiated the ambiguous provision in dispute. See id. (citing Morgan Stanley
Grp., Inc. v. New Eng. Ins. Co., 225 F.3d 270 (2d Cir. 2000), and Ogden Corp. v.
Travelers Indem. Co., 681 F. Supp. 169, 174 (S.D.N.Y. 1988)); see also U.S. v.
Brennan, 938 F. Supp. 1111, 1121 (E.D.N.Y. 1996) ("Even were it appropriate to
apply the 'sophisticated commercial entity' analysis to the insurer/insured
relationship, ... [t]he particular sophisticated commercial entities involved in this
case were in different businesses. USAir and Ogden-Allied may have been
knowledgeable about their own businesses, aviation, and security, respectively, but
not necessarily insurance.").
Many other courts have rejected Respondents' argument that
commercial policyholders are not entitled to standard rules of construction and
40
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interpretation because standard-form policy provisions -like the exhaustion
provisions at issue here- are drafted by the insurance company. For example, in
Boeing Co. v. Aetna Casualty & Surety Co., 784 P.2d 507 (Wash. 1990), the
Washington Supreme Court recognized that the policyholder was a corporate giant
but rejected the insurance company's argument that the usual rules of policy
interpretation would not apply. The Boeing court emphasized that the same
standard-form language was sold to large and small policyholders alike, and that
the same insurance policy language cannot mean one thing for one policyholder
and a different thing for another. The Boeing court also recognized that its
construction of a standard-form insurance policy provision thereafter would apply
to policyholders of all sizes, large and small:
The specific language in question was not negotiated,
therefore, it is irrelevant that some corporations have
company counsel. Additionally, this standard form policy
has been issued to big and small businesses throughout
the state. Therefore it would be incongruous for the court
to apply different rules of construction based on the
policyholder because once the court construes the
standard form coverage clause as a matter of law, the
court's construction will bind policyholders throughout
the state, regardless of the size of their business.
Boeing, 784 P.2d at 514 (emphasis added).
Similarly, in AIU Insurance Co. v. Superior Court of Santa Clara
County, 799 P.2d 1253 (Cal. 1990). the California Supreme Court recognized that
a large corporate policyholder possessed "both legal sophistication and substantial
41
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bargaining power" in purchasing its insurance policies. However, because
standard-form insurance policy language was at issue, the court declined to depart
from the ambiguity rule. In New Castle County v. Hartford Accident & Indemnity
Co., 933 F.2d 1162 (3d Cir. 1991), the U.S. Court of Appeals for the Third Circuit
could "conceive of no compelling reason why even a sophisticated insured should
not be entitled to a pro-coverage interpretation of a standardized ... policy drafted by
the insurance industry." !d. at 1189. See also Chemical Leaman Tank Lines, Inc. v.
Aetna Cas. & Sur. Co., 817 F. Supp. 1136, 1156 (D.N.J. 1993), rev'd on other
grounds, 68 F.3d 658 (3d Cir. 1995) ("This Court .. .is convinced that the size or
sophistication of the insured is irrelevant under New Jersey law to the application
of the rule of contra proferentum when the policy in dispute has been drafted solely
by the carrier."); Hatco Corp. v. WR. Grace & Co., 801 F. Supp. 1334, 1349
(D.N.J. 1992); Clemco Indus., Inc. v. Commercial Union Ins. Co., 665 F. Supp.
816, 819 (N.D. Cal. 1987), aff'd, 848 F.2d 1242 (9th Cir. 1988); CPS Chern. Co. v.
Continental Ins. Co., 536 A.2d 311,318 (N.J. Super. App. Div. 1988) (holding that
"principles [of interpretation] are no less applicable merely because the insured is
itself a corporate giant. The critical fact remains that the ambiguity was caused by
language selected by the insurer.").
Thus, when standardized insurance policy terms are at issue, such as
Respondents' exhaustion and "other insurance" clauses, courts across the country
42
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rightly recognize that a "sophisticated policyholder" exception should not apply.
Faced with an insurance company's sophisticated policyholder argument, one New
Jersey court observed that "the benefits of standardization would be lost if standard
form [insurance policy] language were given different meanings for different
insureds based upon individual degrees of sophistication and bargaining power."
Diamond Shamrock Chern. Co. v. Aetna Cas. & Sur. Co., 609 A.2d 440,461 (N.J.
Super. App. Div. 1992). The Diamond Shamrock court explained that a
"sophisticated policyholder exception" to the contra proferentum doctrine would
result in irregularities such as a "highly sophisticated" policyholder being found to
have less insurance protection than its less sophisticated counterpart despite
identical language in each policyholder's insurance policy. Id.
Of course, what the Diamond Shamrock court left unstated is the
reality that "less sophisticated" policyholders might have no protection in the end,
because they lack the resources to pursue coverage litigation. Lengthy and
complex coverage litigation, particularly when allocation is involved, requires the
resources of a "sophisticated" policyholder, but as the Boeing court observed, the
resulting precedents benefit individuals and smaller enterprises alike.
43
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CONCLUSION
Proposed amici curiae respectfully request that this Court grant them
permission to appear as amici curiae in this proceeding and, on the merits hold that
the all sums allocation rule and vertical exhaustion apply under New York law.
Dated: January r:2o16
New York, New York
OF COUNSEL:
Amy Bach, Esq.
Executive Director
United Policyholders
381 Bush St., 8th Fl.
San Francisco, CA 94104
Tel: (415) 393-9990
Fax: (415) 677-4170
Attorney for Amicus Curiae
United Policyholders
nydocs 1-1 058604.7
Respectfully submitted,
ANDERSON KILL P.C. " \ --~
By~ ....v<.·~
Robert M. Horkovich, Esq.
Edward J. Stein, Esq.
1251 A venue of the Americas
New York, New York 10020
Tel: (212) 278-1000
Fax: (212) 278-1733
Attorneys for Amici Curiae
United Policyholders, WRG PI
Asbestos Trust, ASARCO Asbestos
Personal Injury Trust, Duro Dyne
Corporation, John Crane Inc., and
Alfa Laval Inc.
44
