To be Argued by:
ROBIN COHEN
(Time Requested: 30 Minutes)
CTQ-2015-00003
Court of Appeals
of the
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 FOR APPELLANT WARREN PUMPS LLC
ROBIN COHEN
KEITH MCKENNA
KASOWITZ BENSON TORRES
& FRIEDMAN LLP
1633 Broadway
New York, New York 10019
Tel.: (212) 506-1700
Fax: (212) 506-1800
Attorneys for Appellant
Warren Pumps LLC
Date Completed: August 21, 2015
2
CORPORATE DISCLOSURE STATEMENT
Plaintiff-Appellant is a single-member limited liability company with IMO
Industries Inc. as its only member. IMO Industries Inc., in turn, is a subsidiary of
the Colfax Corporation, a publicly owned company. Plaintiff-Appellant has no
subsidiaries.
i
TABLE OF CONTENTS
JURISDICTION ......................................................................................................... 1
QUESTIONS PRESENTED FOR REVIEW AND SHORT ANSWERS ................ 1
PRELIMINARY STATEMENT ............................................................................... 2
FACTUAL BACKGROUND .................................................................................... 7
A. The Underlying Asbestos Claims .......................................................... 7
B. The Insurance Coverage At Issue.......................................................... 8
1. Relevant Terms Of The Liberty Umbrella Policies .................... 9
2. Liberty’s “All Sums” Payment Of The Asbestos Claims ......... 11
3. Relevant Terms Of The Excess Policies ................................... 13
C. The Delaware Trial Court’s Allocation Ruling ................................... 15
1. The Parties’ Submissions On The Allocation Issue ................. 15
2. The Delaware Court’s All Sums Allocation Ruling ................. 18
D. Proceedings In The Wake Of The Allocation Decision ...................... 22
ARGUMENT ........................................................................................................... 23
I. THE NON-CUMULATION AND PRIOR INSURANCE PROVISIONS
REQUIRE APPLICATION OF AN ALL SUMS ALLOCATION .............. 23
A. Under New York Law, The Policy Language Controls The Proper
Allocation Method ............................................................................... 23
B. The Non-Cumulation And Prior Insurance Provisions Are
Fundamentally Irreconcilable With Pro-Rata Allocation ................... 26
1. The Plain Language Of The Provisions Makes Clear That
The Insurance Company’s Coverage Obligations Extend
To Injuries Outside The Policy Period ..................................... 26
2. Every Court To Address The Issue Has Held That Non-
Cumulation And Prior Insurance Provisions Are
Inconsistent With The Application Of Pro-Rata Allocation..... 29
ii
C. The Excess Insurers’ Assertion That The Non-Cumulation And
Prior Insurance Provisions Should Simply Go Unenforced In Order
To Allow For Pro-Rata Allocation Is Contrary To New York Law ... 32
D. The Excess Insurers’ New Theories Would Lead To Arbitrary
Results And Are Belied By The Policy Language .............................. 39
II. PRO-RATA ALLOCATION DOES NOT APPLY TO THE PAYMENT
OF DEFENSE COSTS .................................................................................. 44
CONCLUSION ........................................................................................................ 49
iii
TABLE OF AUTHORITIES
Page(s)
Cases
Arco Indus. Corp. v. Am. Motorists Ins. Co.,
594 N.W.2d 61 (Mich. App. 1998) ............................................................ 30, 31
Bahar v. Allstate Ins. Co.,
No. 01 Civ. 8129 (RCC), 2004 U.S. Dist. LEXIS 15612
(S.D.N.Y. Aug. 9, 2004), aff’d, 159 F. App’x 311 (2d Cir. 2005) ............ 34, 35
Boston Gas Co. v. Century Indem. Co.,
910 N.E.2d 290 (Mass. 2009) .......................................................................... 31
Burt Rigid Box Inc. v. Travelers Prop. and Cas. Corp.,
126 F. Supp. 2d 596 (W.D.N.Y. 2001), aff’d in part, rev’d in part on other
grounds, 302 F.3d 83 (2d Cir. 2002) ............................................................... 47
Chicago Bridge & Iron Co. v. Certain Underwriters at Lloyd’s, London,
797 N.E.2d 434 (Mass. App. 2003) ................................................................. 29
Consolidated Edison Co. v. Allstate Ins. Co.,
98 N.Y.2d 208 (2002) ............................................................................... passim
Cont’l Cas. Co. v. Rapid-Am. Corp.,
80 N.Y.2d 640 (1993) ................................................................................ 45, 46
Cragg v. Allstate Indem. Co.,
17 N.Y.3d 118 (2011) ...................................................................................... 32
Dow Corning Corp. v. Cont’l Casualty Co., Inc.,
Nos. 200143-54, 1999 Mich. App. LEXIS 2920
(Mich. App. Oct. 12, 1999) ........................................................................ 30, 31
Emhart Indus., Inc. v. Century Indem. Co.,
559 F.3d 57 (1st Cir. 2009) .............................................................................. 48
FMC Corp. v. Plaisted & Cos.,
72 Cal. Rptr. 2d 467 (Cal. App. 1998)............................................................. 29
Frontier Insulation Contractors, Inc. v. Merchs. Mut. Ins. Co.,
91 N.Y.2d 169 (1991) ...................................................................................... 45
iv
Fulton Boiler Works, Inc. v. Am. Motorists Ins. Co.,
No. 5:06-CV-1117, 2010 U.S. Dist. LEXIS 28756
(N.D.N.Y. Mar. 25, 2010)................................................................................ 46
Fulton Boiler Works, Inc. v. Am. Motorists Ins. Co.,
828 F. Supp. 2d 481 (N.D.N.Y. 2011) ............................................................. 47
Generali-U.S. Branch v. Caribe Realty Corp.,
No. 25499/91, 1994 N.Y. Misc. LEXIS 735
(Sup. Ct. N.Y. Cnty. Dec. 5, 1994) .................................................................. 47
Greene v. Allstate Ins. Co.,
No. 03 Civ. 5974 (NRB), 2004 U.S. Dist. LEXIS 10860
(S.D.N.Y. June 15, 2004)................................................................................. 34
Greenidge v. Allstate Ins. Co.,
312 F. Supp. 2d 430 (S.D.N.Y. 2004), aff’d, 446 F.3d 356
(2d Cir. 2006) ............................................................................................. 34, 35
Hanover Ins. Co. v. Vermont Mut. Ins. Co.,
69 F. Supp. 3d 302 (N.D.N.Y. 2014) ............................................................... 34
Hercules, Inc. v. AIU Ins. Co.,
784 A.2d 481 (Del. 2001) .......................................................................... 25, 44
Hiraldo ex. rel. Hiraldo v. Allstate Ins. Co.,
5 N.Y.3d 508 (2005) ...................................................................... 32, 33, 34, 35
J.P. Morgan Sec. Inc. v. Vigilant Ins. Co.,
21 N.Y.3d 324 (2013) ...................................................................................... 23
Liberty Mut. Ins. Co. v. Those Certain Underwriters at Lloyd’s,
650 F. Supp. 1553 (W.D. Pa. 1987) ................................................................. 29
Liberty Mut. Ins. Co. v. Treesdale, Inc.,
418 F.3d 330 (3d Cir. 2005) ............................................................................ 28
Long Island Lighting Co. v. Allianz Underwriters Ins. Co., et al.,
Index No. 604715/197 (Sup. Ct. N.Y. Cnty. Dec. 20, 2003) .......................... 35
M-B Co. of Wis. v. Parker Hannifin Corp.,
No. 88-1688, 1989 WL 111968 (Wis. App. July 12, 1989) ............................ 29
v
Mt. McKinley Ins. Co. v. Corning Inc.,
No. 602454/2002, 2012 N.Y. Misc. LEXIS 6531
(Sup. Ct. N.Y. Cnty. Sept. 7, 2012) .................................................... 26, 35, 47
Mt. Vernon Fire Ins. Co. v. Creative Hous. Ltd.,
88 N.Y.2d 347 (1996) ...................................................................................... 23
Nesmith v. Allstate Ins. Co.,
24 N.Y.3d 520 (2014) ...................................................................................... 35
Olin Corp. v. Am. Home Assurance Co.,
704 F.3d 89 (2d Cir. 2012) .................................................................. 36, 37, 38
Olin Corp. v. Ins. Co. of N. Am.,
84 Civ. 1968 (TPG) (S.D.N.Y. Apr. 15, 2015) ............................................... 38
Outboard Marine Corp. v. Liberty Mut. Ins. Co.,
670 N.E.2d 740 (Ill. App. 1996) ................................................................ 31, 40
Plastics Eng’g Co. v. Liberty Mut. Ins. Co.,
759 N.W.2d 613 (Wis. 2009) ..................................................................... 28, 30
Ray Indus., Inc v. Liberty Mut. Ins. Co.,
974 F.2d 754 (6th Cir. 1992) ........................................................................... 45
Roman Catholic Diocese of Brooklyn v. Nat’l Union Fire Ins. Co.
of Pittsburgh, Pa., 21 N.Y.3d 139 (2013) ................................................. 25, 26
Spaulding Composites Co. v. Aetna Cas. & Sur. Co.,
819 A.2d 410 (N.J. 2003) .......................................................................... 31, 40
Travelers Cas. & Sur. Co. v. Alfa Laval Inc.,
100 A.D.3d 451 (1st Dep’t 2012) .................................................................... 46
Travelers Indem. Co. v. Fischbach, LLC,
No. 600611/04, 2011 N.Y. Misc. LEXIS 7212
(Sup. Ct. N.Y. Cnty. Apr. 8, 2011) .................................................................. 47
Viking Pump, Inc. v. Century Indem. Co.,
2 A.3d 76, 126 (Del. Ch. 2009) ................................................................ passim
JURISDICTION
This case is before the Court on a certified question from the Supreme Court
of the State of Delaware, pursuant to Rule 500.27 of this Court, 22 N.Y.C.R.R.
§ 500.27
QUESTIONS PRESENTED FOR REVIEW AND SHORT ANSWERS
The Court has accepted the following certified questions from the Supreme
Court of the State of Delaware:
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?
Answer
Under New York law, policies containing such provisions unambiguously
provide coverage in accordance with the all sums allocation method rather than the
contrary pro-rata allocation approach.
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?
Answer
Warren agrees with and adopts the arguments set forth in the brief for
appellant Viking Pump, Inc., and does not further address that question herein.
2
PRELIMINARY STATEMENT
With the advent of so-called “long tail” claims involving injuries that
develop and continue over many years, courts across the country have been faced
with the question of how to allocate responsibility for insurance claims that are
covered under (or “trigger”) more than one insurance policy period. In general,
courts apply one of two allocation methods to such claims. Under an “all sums”
allocation, each triggered policy is obligated to pay the full costs of the
policyholder’s liability, but the relevant insurer may seek contribution from non-
paying insurers whose policies also have been triggered. For example, if the
policyholder suffers a judgment of $500,000 that triggers five years of coverage,
each covered by a $100,000 primary policy and a $1 million excess policy, the
policyholder may seek payment for its full loss from the insurance policies
covering any of the triggered policy years, and leave the insurers to determine how
much each of them ultimately should contribute.
In contrast, a “pro-rata” allocation is based on the theory that the policy was
intended to cover only losses from injury which takes place during the policy
period. Since it is often impossible to determine what quantum of a continuing
injury took place at any one time, a pro-rata allocation artificially assigns portions
of the claim to separate policy periods by some formulaic approach, such as
dividing the claim equally among the triggered periods (known as a “straight pro-
3
rata”), regardless of the actual amount of injury or damage suffered during that
period. Under a pro-rata allocation, no insurer is liable for the portion of the loss
assigned to any other year, and thus may not seek contribution from other carriers.
Thus, in the example above, under a straight pro-rata allocation, $100,000 of the
judgment would be allocated to each of the triggered policy years, on the theory
that there were five distinct $100,000 losses, each from a “separate” injury. The
policyholder cannot recover its full $500,000 loss under any one policy year, but
could recover $100,000 from each of the five triggered policy years.
In Consolidated Edison Co. v. Allstate Insurance Co., 98 N.Y.2d 208
(2002), this Court confirmed that the most basic principle of New York insurance
law – that the policy language controls the scope of coverage – applies as well to
the allocation issues raised by claims triggering multiple policy periods.
Eschewing decisions by certain other states to impose either an all sums or a pro-
rata allocation in all cases as a matter of “public policy,” this Court confirmed that
it is the policy of this State to enforce the policy language.
In light of that policy, the Delaware Supreme Court now asks this Court to
determine whether insurance contract language which specifically contemplates
that a triggered policy must pay for injuries incurred before, during and after the
policy period in connection with a multi-year loss, can be reconciled with pro-rata
allocation, which assumes that the policy covers only that part of a continuing
4
injury that takes place during the policy period. The answer, as every court to
address this question, including the Delaware trial court in this case, has held – and
as, until recently, the Excess Insurers1 themselves conceded – is an unequivocal
“no.”
Each of the insurance policies here, unlike those in Consolidated Edison,
contains either a “Non-Cumulation Provision” or a “Prior Insurance Provision.”
Those Provisions expressly contemplate that, when an injury continues over
multiple policy years, each triggered policy responds not only to injuries during the
policy period, but to injuries beyond the policy period. In exchange, rather than
pro-rating the claims across policy periods, the Non-Cumulation and Prior
Insurance Provisions limit the policyholder’s recovery to the highest single year
policy limit in each layer of coverage: an objective that they accomplish by
reducing the limits that are available for a claim under a triggered policy by any
payments that are made toward that claim under other triggered policies. The
Provisions thus posit that a single policy may pay the full amount of a multi-year
loss and are in direct conflict with the basic premise of a pro-rata allocation – that
each policy responds only to that portion of the loss relating to injuries suffered
during the policy period.
1 “Excess Insurers” are those defendants who appealed from the Final Judgment in this case.
5
Recognizing that such provisions are irreconcilably incompatible with pro-
rata allocation, the Excess Insurers asked the Delaware Chancery Court to hold that
the Non-Cumulation and Prior Insurance Provisions are “not applicable” to the
thousands of asbestos claims pending against Warren Pumps LLC (“Warren”) and
its co-plaintiff Viking Pump, Inc. (“Viking”) in order to justify the application of a
pro-rata allocation to those claims. Adhering firmly to this Court’s mandate that
the plain policy language controls, and that all portions of the policy must be given
force and effect, then-Vice Chancellor Leo E. Strine (now Chief Justice of the
Delaware Supreme Court), squarely rejected the Excess Insurers’ request. As he
correctly held in the 88-page decision from which the Excess Insurers appeal:
The Excess Insurers would have me interpret the Houdaille
Policies as embracing the pro rata method of allocation by having
me jettison explicitly bargained-for provisions of those Policies
that benefit them, and therefore reconciling the evident conflict
between explicit provisions of the Policies and the pro rata method
the Excess Insurers say is implicitly called for by the Policies. In
other words, the Excess Insurers would have me elevate their self-
interested policy preference over the only method of allocation that
permits the sensible operation of all of the Houdaille Policies’
material terms.
Viking Pump, Inc. v. Century Indem. Co., 2 A.3d 76, 126 (Del. Ch. 2009) (italics in
original). That holding not only is in accord with every case throughout the
country that has directly addressed the issue, it is mandated by this Court’s contract
language focus in Consolidated Edison and the New York decisions enforcing non-
cumulation provisions despite the inherent conflict with pro-rata allocation.
6
Apparently recognizing this fatal flaw in their initial position, on appeal, the
Excess Insurers reversed course, and advanced a different allocation theory for
which no legal support exists in this State or, indeed, in any other State. The
Excess Insurers argued that the Non-Cumulation and Prior Insurance Provisions
should be applied with a pro-rata allocation to provide a double reduction in the
coverage available to Warren and Viking. That new theory is wholly inconsistent
with both the policy language and the interpretation of that language that all but
one of the Excess Insurers asserted for years in the trial court. It also would
irrationally eviscerate the coverage under the policies. For example, in the
scenario discussed above, if policies in all five policy years have non-cumulation
provisions, the policyholder would recover in total only $100,000 of the loss, that
is, only a fraction of the $500,000 that would be recovered under either an all sums
allocation or a pro-rata allocation. The policyholder’s recovery first would be
confined to a pro-rated $100,000 limit in each triggered year, and the non-
cumulation provisions would then operate to confine the policyholder’s recovery to
the primary limit available in only one of those policy years, i.e., $100,000.
Moreover, if the policyholder sought to recover the balance from the excess
insurers in the “non-paying” years, those insurers would surely object to paying
anything, because no payment would have been made under the relevant
7
underlying primary policies. As the trial court correctly found, New York law
does not authorize, let alone mandate, such a “bizarre and inequitable” result.
Finally, even apart from the impact of the Non-Cumulation and Prior
Insurance Provisions, the Court should hold that each insurer is independently
liable for the full costs of defending against claims that trigger its policy. The
controlling policy language expressly requires the insurer to defend “any suit”
seeking potentially covered damages and to pay “all expenses” incurred in such a
suit, not merely to defend a “part” of the suit or pay a “portion” of the expenses.
This Court has long recognized that an insurer’s broad duty to defend requires that
an insurer pay the costs of defending a suit, even where some allegations are not
covered by the policy, as long as one allegation is even potentially covered. In the
wake of that holding, this Court and other New York courts to address the issue
have refused to pro-rate defense costs, as it necessarily follows that an insurer may
not avoid or reduce its defense obligation on the ground that a portion of the
damage resulting in a potentially covered occurrence fell outside the policy period.
FACTUAL BACKGROUND
A. The Underlying Asbestos Claims
Warren owns a pump manufacturing business that has been in continuous
operation since 1897. A4-5. Houdaille Industries, Inc. (“Houdaille”), a since-
dissolved corporation long headquartered in New York, owned the “Warren
8
Pumps” business from 1972 until it sold that business to Warren in 1985. Id.;
Viking, 2 A.3d at 83.
The plaintiffs in the underlying asbestos-related bodily injury actions against
Warren (“Asbestos Claims”) allege that they were exposed to asbestos contained in
Warren pumps either before or during the 1972-1985 period. A122 ¶ 3; A396-397
¶ 40. They further allege that the exposure resulted in progressive bodily injuries
that developed over the following decades until they ultimately manifested as
asbestos-related diseases. See, e.g., A122 ¶ 3; A399 ¶ 45. Thus, the Asbestos
Claims involve injuries that are alleged to have occurred continuously over the
periods of the Excess Insurers’ policies covering the “Warren Pumps” business
(“Excess Policies”). See, e.g., id.; A122 ¶ 3.2
B. The Insurance Coverage At Issue
Houdaille purchased the Excess Policies as part of “a seamless, layered
plan” and a “comprehensive multi-year insurance program” insuring Houdaille and
its related companies, including Warren and Viking. A1729; Viking, 2 A.3d at 122
n.165. No party disputes that the Excess Policies, for which Houdaille paid
substantial premiums, were designed to cover claims for asbestos-related bodily
injuries.
2 Co-plaintiff Viking also is a defendant in numerous asbestos-related bodily injury actions.
9
From 1972 through 1985, Houdaille’s comprehensive multi-year program
consisted of (i) primary and umbrella policies sold by Liberty Mutual Insurance
Company (“Liberty”), collectively providing $59.5 million in indemnity limits, and
defense cost coverage in addition to policy limits (the “Liberty Primary Policies”
and “Liberty Umbrella Policies”; collectively, the “Liberty Policies”); and
(ii) excess policies, including the 34 Excess Policies, purchased from numerous
insurance companies, providing various layers of additional excess coverage above
the Liberty Umbrella Policies. A1729; A1788-1789; A1843; Viking, 2 A.3d at 84.
The Excess Policies collectively provide more than $400,000,000 in insurance
limits. A1729; A1843.
To foster uniformity of coverage, the Excess Policies “follow form” to the
Liberty Umbrella Policies. A1756; Viking, 2 A.3d at 108-09, 121, 129. Thus,
unless an Excess Policy specifically provides otherwise, it adopts the terms and
conditions of the underlying Liberty Umbrella Policy. See, e.g., A1785-1794.
1. Relevant Terms Of The Liberty Umbrella Policies
All of the Liberty Umbrella Policies require the insurer to pay on behalf of
the insured “all sums” that the insured shall become legally obligated to pay, as
damages, because of “personal injury” caused by an “occurrence.” See, e.g.,
A517.3 “Personal injury” is defined as “bodily injury which occurs during the
3 All Liberty Umbrella Policies contain materially identical insuring clause language.
10
policy period sustained by a natural person,” while an “occurrence” is defined in
relevant part as “injurious exposure to conditions, which results in personal
injury.” A519.4 Thus, coverage under a Liberty Umbrella Policy is triggered by
any injury that takes place during the policy period, regardless of when the
occurrence that caused the injury took place. See id. A continuing injury, such as
the asbestos bodily injuries at issue in the Asbestos Claims, will, accordingly,
trigger multiple Liberty Policy periods.
As the Chancery Court noted, none of the Liberty Policies contains any
provision stating that losses triggering more than one policy period will be pro-
rated among those triggered periods. Viking, 2 A.3d at 129. To the contrary, each
Liberty Policy contains a “Non-Cumulation of Liability-Same Occurrence”
provision drafted by Liberty (the “Non-Cumulation Provision”) that expressly
provides that a triggered policy covers injuries occurring beyond the policy period
– but limits the insurance recovery to a single policy period’s limits:
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 the company with respect to such occurrence, either
under a previous policy or policies of which this is a replacement,
_______________________
4 The Liberty Umbrella Policies further provide that “all personal injury…arising out of
continuous or repeated exposure to substantially the same general conditions…shall be
considered as the result of one and the same occurrence.” A518.
11
or under this policy with respect to previous annual periods
thereof.
See, e.g., A518 (emphasis added). Thus, under the express terms of this provision,
the policy covers injury or damage “before” and “within” the policy period, and its
payment obligation is reduced only by the “credit” given for amounts paid for the
same occurrence in another policy period. See id.
Finally, the Liberty Policies require the insurer to (1) defend “any suit”
against the insured that seeks damages on account of covered personal injury,
even if such suit is “groundless, false or fraudulent,” and (2) “pay all expenses
incurred by the company” and “all costs taxed against the insured in any suit
defended by the company.” A517 (emphasis added).
2. Liberty’s “All Sums” Payment Of The Asbestos Claims
From 1987, when the first Asbestos Claim was made against Warren, until
the last Liberty Umbrella Policy exhausted in 2010, Liberty paid more than
$180,000,000 to defend and indemnify Warren and Viking against the Asbestos
Claims. A1579:23-A1582:10; A1594:15-A1595:12; A1597:12-A1599:7. During a
portion of that period, Liberty shared the responsibility for Warren Asbestos
Claims with Travelers Indemnity Company (“Travelers Indemnity”), which had
insured Warren for a period before the first Liberty Policy. A122-123 ¶¶ 4-9.
However, the Travelers Indemnity policies had lower aggregate limits and
exhausted before the Liberty Policies. A123 ¶ 9; Viking, 2 A.3d at 128. When
12
they did, Liberty assumed responsibility for 100% of Warren’s costs of defense
and indemnification for Asbestos Claims involving injury during a Liberty Policy
period, even if those claims also involved injuries outside of Liberty’s coverage
period. Viking, 2 A.3d at 128-29; A123 ¶¶ 9-10.
As the Delaware Chancery Court noted, “[t]hat point is important because,
under a pro-rata scheme, Liberty Mutual would not have been liable for any injury
that could have been allocated to the Travelers period for which [] Warren no
longer had insurance.” Viking, 2 A.3d at 128-29. In addition, although the
underlying claimants alleged injuries that extended as far back as the 1940’s,
decades before the Liberty Policy periods, Liberty never reduced its payments for
an Asbestos Claim on the ground that some portion of the claimant’s injuries fell
outside the 1972-1985 Liberty coverage period. A122-123 ¶¶ 3, 8-10. In short, the
only evidence of the parties’ intent on the allocation issue is that Liberty
interpreted its own policies – to which the Excess Policies follow form – to require
full payment for all triggering claims, including payment for injuries outside of its
policy periods, despite the fact that it “had an incentive to push for a pro rata
method of allocation.” Viking, 2 A.3d at 129. As the Delaware Chancery Court
noted, “the only evidence in the record indicates that an all sums approach was
utilized.” Id.
13
3. Relevant Terms Of The Excess Policies
It is undisputed that all 34 Excess Policies either incorporate the Non-
Cumulation Provisions by virtue of the fact that they follow form to underlying
Liberty Umbrella Policies or, alternatively, provide coverage subject to materially
similar “Prior Insurance and Non-Cumulation of Liability” provisions (“Prior
Insurance Provisions”). See A1925-1926. Like the Non-Cumulation Provisions,
the Prior Insurance Provisions contemplate that the policy applies to injuries that
take place outside, as well as within, the policy period.
One of the two paragraphs of the Prior Insurance Provisions expressly
obligates the insurer to cover damage or injury that continues after the policy
period:
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 Assured for liability in
respect of such personal injury [or] property damage without
payment of additional premium.
A1176 (emphasis added); see also A923, A1092, A1125, A1145, A1166, A1273.
The other paragraph deals with the insurer’s liability for a continuous injury
that began before the policy period. Like the Non-Cumulation Provisions, it makes
clear that the policy containing the Prior Insurance Provision will contribute a full
14
limit toward the occurrence, subject only to the insurer receiving a credit for any
payment made toward the same claim by another triggered insurer:
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
Assured prior to the inception date hereof the limit of liability
hereon stated in Items 5 and 6 of the Declarations shall be reduced
by any amounts due to the Assured on account of such loss
under such prior insurance.
A1176 (emphasis added); see also A923, A1092, A1125, A1145, A1166,
A1273.
As the Delaware Chancery Court explained, the practical effect of the Non-
Cumulation and Prior Insurance Provisions is to allow a policyholder to collect all
loss for a multi-year injury from any triggered policy containing such a provision,
but, in exchange, to limit the policyholder’s recovery for that continuous loss to the
highest available single-year limit in any given coverage layer:
The effect of these clauses is to keep an insured from “stacking”
coverage so as to exceed the limits of individual policies. That is
to say, they prevent an insured from submitting claims under
several different policies so that it can evade the per
occurrence limits in its insurance policies. For example, under
an all sums scheme in which an insured had a $500,000 per
occurrence limit but has been found liable for $1 million arising
out of an occurrence over two, one-year policy periods, these types
of provisions keep an insured from claiming $500,000 on each
policy period and thus being able to recover twice its normal per
occurrence limit. In so doing, the Houdaille Policies make the
logical, although not required, arrangement that, when an
insured seeks to recover from different policies covering the
same injury, the insured cannot recover in total above the
highest per occurrence and aggregate caps in any of the
15
triggered policies. That is, to a large extent, these provisions
address the same concerns that generally recommend application
of the pro rata approach.
Viking, 2 A.3d at 122 (emphasis added).
C. The Delaware Trial Court’s Allocation Ruling
1. The Parties’ Submissions On The Allocation Issue
Viking commenced this action in the Delaware Court of Chancery in 2005,
and the Excess Insurers were added as defendants two years later. In 2009, all
parties moved for summary judgment to determine the appropriate method for
allocating Warren’s and Viking’s asbestos-related defense and indemnity payments
among triggered Excess Policies. A68-120; A1346-1393; A1394-1429; A1430-
1464. The Excess Insurers focused on just four words in the Liberty Policies – the
definition of a personal injury as bodily injury which occurs “during the policy
period” – to argue that the policies pay only that portion of the bodily injury that
takes place during the policy period. They argued that New York therefore
automatically applies a pro-rata allocation to all policies containing that language,
regardless of any other provision the policies may contain. See, e.g., A1365-1369;
A1437-1441.
Warren and Viking, on the other hand, argued that New York law bases
allocation on the specific language of the insurance policies at issue, read as a
whole to harmonize and give effect to all provisions. A113-118; A1413-1416. By
focusing exclusively on the words “during the policy period,” the Excess Insurers
16
failed to adhere to that standard in two material ways. First, they ignored the Non-
Cumulation and Prior Insurance Provisions, which are directly at odds with the
Excess Insurers’ interpretation because they contemplate that the policy will pay
for injuries that take place both within and outside the policy period. A99-107;
A1410-1414. Second, the Excess Insurers’ interpretation leaves those Provisions
with no effect, because a pro-rata allocation holds the insurer liable only for that
portion of a loss relating to injury during the policy period. As a result, the “event”
triggering the need for the Non Cumulation and Prior Insurance Provisions – an
insurer being held liable for injury both within and outside the policy period –
never happens, and those Provisions have no function or purpose. See id.; A103.
In contrast, an all sums allocation provides both “during the policy period”
and the Non-Cumulation and Prior Insurance Provisions with purpose and effect in
determining the existence and scope of the available coverage. A98-99. Under an
all sums allocation, the “during the policy period” language determines which
policy periods must respond to the loss, by requiring that some injury occur during
the period to trigger coverage. See id. Once the policy is triggered, the “during the
policy period” language has served its purpose, and the Non-Cumulation and Prior
Insurance Provisions “kick in” to determine how much of the multi-year loss each
triggered policy period must pay. Id.; A99-107. In other words, the “during the
policy period” language provides the trigger of coverage, while the Non-
17
Cumulation and Prior Insurance Provisions provide the extent of a triggered
policy’s payment obligation. Id.
After reviewing the parties’ initial submissions on the allocation issue and
hearing oral argument, the court directed the parties to provide supplemental
submissions explaining how the Excess Policies would respond to a specified
hypothetical Asbestos Claim. A168-171; A173-179; A274-278. That direction
was designed to “flesh out” how the parties’ allocation positions would operate in
practice. See A168-171.
In their supplemental submissions, all but one of the Excess Insurers agreed
that the Non-Cumulation and Prior Insurance Provisions cannot sensibly be applied
in a pro-rata allocation scenario.5 A1480; A1496. In fact, they castigated Warren
and Viking for suggesting that the Excess Insurers would advocate applying the
Non-Cumulation and Prior Insurance Provisions in a pro-rata allocation:
5 The one exception was Travelers Casualty and Surety Company (“Travelers”), which agreed
with the other Excess Insurers that the Prior Insurance Provisions would not apply in a pro-rata
allocation (A282-83), but suggested that the Non-Cumulation Provisions might be applied in that
scenario. A1483-1486. According to Travelers, if an occurrence caused injury during multiple
periods covered by policies with Non-Cumulation Provisions, a single policy limit would be
spread among the triggered years. Id. That interpretation cannot be reconciled with the language
of the Non-Cumulation Provisions, which do not provide for the reduction of each triggered
policy’s limit. Rather, those Provisions require payment of the full limit of one policy while
providing the insurer with a “credit” for that payment under other policies. See, e.g., A518.
Moreover, while Travelers suggested that amounts allocated to each year in excess of the
“reduced” limit would be payable under the excess policies in that period (A1486), it never
accounted in any way for the fact that the Excess Insurers in that period would likely argue that
their policy obligations would not be triggered until the full underlying limits were exhausted.
Notably, none of the other Excess Insurers adopted Travelers’s argument.
18
Warren’s and Viking’s anticipatory accusation could not be further
from the truth. The Excess Insurers do not contend that the Non-
Cumulation or Prior Insurance provisions are applicable to the
numerous asbestos bodily injury products claims against Warren
and Viking.
A1480 (emphasis in original); see also A1496 (“the Excess Insurers are not
seeking to apply Non-Cumulation or Prior Insurance provisions to the multiple
asbestos product claims at issue in this case”) (emphasis in original).
Nonetheless, the Excess Insurers argued for a pro-rata allocation, despite its
admitted incompatibility with the express language of the Non-Cumulation
Provisions and Prior Insurance Provisions. Toward that end, they asked the court
simply to deem the Non-Cumulation and Prior Insurance Provisions “not
applicable” to the Asbestos Claims. A1480. The Excess Insurers offered no
justification or support for their request that the court rewrite the contract by
simply refusing to enforce plain policy language as written.
2. The Delaware Court’s All Sums Allocation Ruling
On October 14, 2009, the Delaware Chancery Court issued an 88-page
decision holding, among other things, that the Non-Cumulation and Prior
Insurance Provisions mandated application of an all sums allocation. Viking, 2
A.3d at 130. After holding that New York law applied to the policies, id. at 87-90,
the court expressly recognized that it was required to adhere to New York
principles of insurance policy interpretation: “I give great weight to the teachings
19
of New York’s state courts, particularly its Court of Appeals, which consistently
express a respect for contractual freedom in the insurance context.” Id. at 108
(footnotes omitted). The court further noted that, under longstanding New York
law, it was required to read the insurance policy as a whole and to give meaning
and effect to every provision, using the doctrine of contra proferentum to “break
ties” that could not be resolved by extrinsic evidence. Id. at 108, 114-15.
Adhering to that principle, the court rejected the Excess Insurers’ assertion
that New York adopted a “bright line” standard imposing pro-rata allocation
“regardless of what the relevant insurance policies said.” Id. at 107, 113. Rather,
it held that “in a case governed by New York law, the question of which of the
basic [allocation] methods applies depends on which is the most faithful to the
bargain struck by the parties to the insurance contracts at issue.” Id. at 113-14. As
further evidence of that policy-language focus, the Chancery Court noted that
Consolidated Edison expressly distinguished cases applying all sums allocation on
the ground that the policy language at issue in those cases was different from that
in the Consolidated Edison policies, i.e., they contained non-cumulation
provisions. Id. at 117 n.150; see also Consolidated Edison, 98 N.Y.2d at 223.
Echoing the Excess Insurers’ own admissions, the Chancery Court held that
the Non-Cumulation and Prior Insurance Provisions “cannot sensibly be applied
within a pro rata allocation scheme,” and that “[a]s a result, the use of a pro-rata
20
approach would require the court to nullify these clauses and rewrite the parties’
agreement.” Viking, 2 A.3d at 121.
[T]he parties to the Houdaille Policies were, unlike what appears to
have been the case in Consolidated Edison, explicitly aware of the
possibility that a tort plaintiff could suffer compensable damages
on account of Multi-Period Exposure to asbestos, and crafted
specific contractual provisions designed to address those
circumstances.
Id. at 119 (emphasis added).
Thus, noting its agreement with every court that has addressed the issue, the
court held that the Provisions are irreconcilable with the operation of a pro-rata
allocation:
After proration, the very premise upon which the Non-Cumulation
and Prior Insurance Provisions are based is absent, because there is
no common injury. Rather, by proration of some kind, the asbestos
plaintiff is deemed to have suffered a bunch of divisible injuries. . .
Thus, the Non-Cumulation Provision is only effective if the
injury is conceived as indivisible. Pro rata allocation conflicts
with this presumption because, by spreading costs so that each
policy only pays for injuries that are assumed to have occurred
during that policy’s period, it treats the injury as divisible. This
makes the Non-Cumulation Provision non-sensical because the
clause, by its terms, cannot be applied to separate injuries.
Id. at 123 (footnotes omitted) (emphasis added). In contrast, the court held that an
all sums allocation, which presupposes that a multi-year loss is a single continuous
loss triggering multiple policies, would allow all provisions of the policy to be
harmonized and applied, by recognizing that the policy is triggered by injury or
damage “during the policy period” after which the Non-Cumulation and Prior
21
Insurance Provisions operate to set the amount the insurer will pay toward the
multi-year claim. Id. at 121-23.
The court also addressed the “arguably bizarre and inequitable” results that
would follow from the application of the Non-Cumulation and Prior Insurance
Provisions in a pro-rata context. Id. at 124. As the court noted, applying both a
pro-rata allocation and the Provisions “would unreasonably reduce coverage and
grant the insurer a windfall” by spreading the loss among multiple policy periods
and then reducing coverage again by applying the policy limitation caps of the
Non-Cumulation and Prior Insurance Provisions. Id.
Finally, while the court concluded that the policy language alone supported
an all sums allocation, it also identified two additional independent bases for its
ruling. First, the “only extrinsic evidence offered,” which the Excess Insurers did
not dispute in their appeal to the Delaware Supreme Court, showed that Liberty,
the drafter of the Non-Cumulation Provision, had paid the Asbestos Claims on an
all sums basis, evidencing a contractual understanding that the policies would
respond to claims involving multi-year injuries pursuant to that allocation model.
Id. at 127-29. The court also held that the presence of the Non-Cumulation and
Prior Insurance Provisions in the policies alongside the “during the policy period”
language rendered the policies, at least, ambiguous and therefore compelled the
interpretation that favored Warren. Id. at 129.
22
D. Proceedings In The Wake Of The Allocation Decision
In 2010, the case was transferred from the Chancery Court to the Delaware
Superior Court based on the Chancery Court’s conclusion that all equitable issues
in the case had been resolved. A377-82. In the fall of 2012, the Superior Court
conducted a trial, during which the Excess Insurers called George Priest, a Yale
Law School professor, as an expert on the scope and application of non-cumulation
provisions.6 A1756; A1760-61. As the Superior Court later noted in its opinion on
the parties’ post-trial motions, Professor Priest “agreed” with the Chancery Court’s
conclusion (as did the Superior Court) that “a pro-rata approach is inconsistent
with the policies’ non-cumulation and prior-insurance clauses.” A1771; see also
A1760. Professor Priest testified as follows:
The Chancery Court wanted to enforce the non-cumulation
clauses, and it thought that to adopt a pro rata distribution of loss
would be inconsistent with the non-cumulation clauses because it
would put losses into each yearly stack regardless of whether they
had been affected by earlier stacks. So I agreed with it. That pro
rata is inconsistent with the non-cumulation clause.
11/09 Tr. (Trans. ID 55049811) at 91:9-16; see also id. at 77:12-78:1; 82:14-83:3.
6 Warren had objected to the Excess Insurers’ demand that they be allowed to submit the
question of the scope and operation of the Non-Cumulation and Prior Insurance Provisions to the
jury on the ground that those issues had already been resolved by the Chancery Court’s decision.
Transcript of November 9, 2012 Trial Proceedings (“11/09 Tr.”) (Trans. ID 55049811) at 65:22-
100:7. The point became moot when the jury found for plaintiffs on all issues relating to the
Non-Cumulation and Prior Insurance Provisions, and the trial court’s post-trial rulings confirmed
those findings. A424-25 ¶¶ 13-14; A1770-72.
23
The Excess Insurers appealed the Chancery Court’s all sums allocation
ruling to the Delaware Supreme Court, arguing, as they have throughout the
litigation, that New York is a “pro-rata jurisdiction.” A2012, A2013; see also
A1931-35. However, in a sharp reversal of the position they unsuccessfully
advanced in the Chancery and Superior Courts, the Excess Insurers argued that the
Non-Cumulation and Prior Insurance Provisions can be enforced in a pro-rata
context. See, e.g., A1936-39; A2017-19 & n.21. Thus, the Excess Insurers
abandoned their claim that the Non-Cumulation and Prior Insurance Provisions
should be deemed “not applicable” in that context and instead argued that the
Provisions “adjust total limits” available after the claim is pro-rated. A1938.
ARGUMENT
I. THE NON-CUMULATION AND PRIOR INSURANCE PROVISIONS
REQUIRE APPLICATION OF AN ALL SUMS ALLOCATION
A. Under New York Law, The Policy Language Controls The Proper
Allocation Method
The most fundamental principle of New York insurance law is that the
policy language controls the rights and obligations of the parties and courts should
enforce the contractual language to which the parties have agreed. See, e.g., Mt.
Vernon Fire Ins. Co. v. Creative Hous. Ltd., 88 N.Y.2d 347, 352 (1996); J.P.
Morgan Sec. Inc. v. Vigilant Ins. Co., 21 N.Y.3d 324, 334 (2013). As the
Chancery Court correctly held, “New York is a state that focuses on giving effect
24
to the parties’ bargain; contractual freedom is the key public policy consideration.”
2 A.3d at 119.
Consolidated Edison confirmed that these fundamental tenets apply equally
to the allocation of responsibility for claims involving multi-year injuries:
In determining a dispute over insurance coverage, we first look to
the language of the policy. . . . We construe the policy in a way
that “affords a fair meaning to all of the language employed by the
parties in the contract and leaves no provision without force and
effect.”
98 N.Y.2d at 221-22 (quoting Hooper Assocs. v. AGS Computers, Inc., 74 N.Y.2d
487, 493 (1989)) (emphasis added).
In keeping with that bedrock principle, and contrary to the Excess Insurers’
arguments, Consolidated Edison did not hold that pro-rata allocation applies to all
claims involving multi-year injuries regardless of policy language. Rather, the
Court held that, although pro-rata allocation was not “explicitly mandated” by the
“during the policy period” language, it was “consistent” with that language –
particularly in the absence of a provision indicating that the insurer’s obligations
would include losses relating to injuries outside the policy period. 98 N.Y.2d at
224.
Under this standard, the Court held that different policy language could lead
to a different allocation result. Id. at 223. It therefore distinguished the “all sums”
authorities cited by the policyholder, including the Delaware Supreme Court’s
25
decision in Hercules, Inc. v. AIU Insurance Co., 784 A.2d 481 (Del. 2001),
because those authorities contained different policy language. 98 N.Y.2d at 223.
The Court’s rejection of Hercules on this ground is particularly significant,
because the key policy language difference between Hercules and Consolidated
Edison was that the Hercules policies contained Prior Insurance Provisions
virtually identical to those here, which the Delaware Supreme Court found
“undercut[] the rationale for pro-rata allocation.” 784 A.2d at 493-94 (emphasis
added); see also Viking, 2 A.3d at 117 n.150.
Similarly, in Roman Catholic Diocese of Brooklyn v. National Union Fire
Insurance Co. of Pittsburgh, Pa., 21 N.Y.3d 139 (2013) (“Diocese”), this Court
applied a policy-language approach to the allocation issue. While the Court in
Diocese again upheld the application of a pro-rata method, it did so not because
Consolidated Edison had declared New York to be a “pro-rata jurisdiction” –
because Consolidated Edison did not do so. Rather, the Diocese Court found that
pro-rata allocation best honored the policy language at issue: “There is no
indication that the parties intended that the [policyholder’s] total liability… would
be assumed by a single insurer.” Id. at 154. As discussed below, in this case the
Non-Cumulation and Prior Insurance Provisions, not present in Diocese, provide
just such an “indication;” indeed, that is their very purpose.
26
In short, under Consolidated Edison, New York remains not a “pro-rata”
state, but a “policy language” state. Where the policy language shows an
“indication that the parties intended” for a multi-year claim to be assigned to a
single policy period, Diocese, 21 N.Y.3d at 154, that indication must be given
effect. As set forth below, the Non-Cumulation and Prior Insurance Provisions
present in the insurance policies at issue here – but not present in the insurance
policies in Consolidated Edison or Diocese7 – show just such an intent, and fully
support application of an all sums allocation.
B. The Non-Cumulation And Prior Insurance Provisions Are
Fundamentally Irreconcilable With Pro-Rata Allocation
1. The Plain Language Of The Provisions Makes Clear That
The Insurance Company’s Coverage Obligations Extend To
Injuries Outside The Policy Period
As Consolidated Edison and Diocese both make clear, the basic premise of a
pro-rata allocation is the assumption that each policy triggered by a claim
involving multi-year injuries is intended to pay only for that portion of the claim
relating to injuries that take place during the policy period. See, e.g., Excess
7 Those provisions also were not at issue in the unreported trial court decision in Mt. McKinley
Insurance Co. v. Corning Inc., No. 602454/2002, 2012 N.Y. Misc. LEXIS 6531 (Sup. Ct. N.Y.
Cnty. Sept. 7, 2012) (“Corning”), on which the Excess Insurers have relied. Indeed, while
criticizing then-Vice-Chancellor Strine’s decision in Viking as supposedly being dismissive or
disrespectful to this Court’s decision in Consolidated Edison – which it is not – the court in
Corning agreed with the Delaware court that non-cumulation clauses cannot be reconciled with
pro-rata allocation. See id. at *16 (stating that non-cumulation provisions “are designed such
that an insured may not obtain coverage for the same injury under multiple policies”) (emphasis
added). The court went on to apply a pro-rata allocation to the policies before it only after
determining that the provisions in Corning differed materially from the provisions in this case.
See id. at *16-20.
27
Insurers’ Opening Brief Filed with Delaware Supreme Court (“EI Opening Br.”)
(A1919) (arguing that the Excess Policies “limit coverage to injury occurring
‘during the policy period’”). The Non-Cumulation and Prior Insurance Provisions,
on the other hand, not only contemplate, but require, that the policy pay for
injuries that take place outside, as well as inside, the policy period. They are thus
fundamentally irreconcilable with the basic premise of a pro-rata allocation.
The Non-Cumulation Provisions, for example, define how the policy applies
when an occurrence “gives rise to personal injury … which occurs partly before
and partly within” the policy period.8 See discussion supra at 10-11. Similarly,
the first paragraph of the Prior Insurance Provisions addresses the insurer’s
obligations under a particular policy where the same “loss” is “covered in whole or
in part” both under that policy and other policies covering other time periods. See
discussion supra at 13. Such a scenario cannot exist under a pro-rata allocation,
where, by definition, each policy covers only injuries sustained during its
individual policy period. In addition, the second paragraph of the Prior Insurance
Provisions requires the insurer to provide coverage, without payment of additional
8 Moreover, and as noted above, the Liberty Umbrella Policies attribute “all personal injury” that
arises from “continuous or repeated exposure to substantially the same general conditions” to
“one and the same occurrence.” See A518; discussion at 10 n.4 supra. If there were any merit to
the Excess Insurers’ position that the definition of “personal injury” exclusively refers to that
portion of bodily injury that takes place during the policy period, then this language would
require treating injuries in different policy periods as separate occurrences. But such an
interpretation would render the Non-Cumulation Provisions meaningless, as those provisions
apply by their terms only where the insurer has made payments toward the “same occurrence”
under policies covering different time periods.
28
premium, for injury or damage that “is continuing at the time of termination of this
Policy” (see id. at 14) – again, expressly negating any suggestion that the policy
was intended to respond only to injury during the policy period.
But the Non-Cumulation and Prior Insurance Provisions are not merely
irreconcilable with pro-rata allocation. In addition, they compel an all-sums
allocation. Like the Provisions, an all sums allocation presupposes that, once the
policies are triggered by actual or alleged injury “during the policy period,” the
policy must respond up to its policy limits for the full amount of the loss. See, e.g.,
Plastics Eng’g Co. v. Liberty Mut. Ins. Co., 759 N.W.2d 613, 616-17, 625-27 (Wis.
2009) (“PLENCO”) (Non-Cumulation Provision entitled policyholder to full policy
limit for each individual asbestos claim, even though the claims involved injuries
only partially within the policy’s coverage period); Liberty Mut. Ins. Co. v.
Treesdale, Inc., 418 F.3d 330, 339-45 (3d Cir. 2005). Moreover, the Provisions
respond specifically to a “problem” that can only exist under an all sums allocation
– the policyholder’s ability to “stack” the full limits of multiple policies triggered
by the same continuing injury. Absent the application of an all sums allocation,
the policyholder has no ability to stack limits in other policy periods for the same
injury, because no policy under a pro-rata allocation is responsible for injury
outside its own policy period. Absent the ability to stack limits, there is no need
for the Non-Cumulation and Prior Insurance Provisions to exist and their inclusion
29
in the policies would be unnecessary. Indeed, as the Chancery Court noted, “the
use of the all sums approach with faithful application of the Non-Cumulation and
Prior Insurance Provisions accomplishes many of the same policy purposes as the
pro rata method.” See Viking, 2 A.3d at 126.
2. Every Court To Address The Issue Has Held That Non-
Cumulation And Prior Insurance Provisions Are
Inconsistent With The Application Of Pro-Rata Allocation
In light of the plain language, it is not surprising that, without exception,
every court that has directly addressed the issue has held that Non-Cumulation and
Prior Insurance Provisions are wholly incompatible with pro-rata allocation and
can only be given effect in the context of an all sums allocation. Indeed, even
courts in jurisdictions that adhere to a pro-rata allocation methodology regardless
of policy language have reached that conclusion. See Viking, 2 A.3d at 125 (“the
other courts that have explicitly addressed this issue have found non-cumulation
and prior insurance provisions to be evidence that the parties did not intend to use
the pro rata method of allocation”).9
9 See, e.g., Chicago Bridge & Iron Co. v. Certain Underwriters at Lloyd’s, London, 797 N.E.2d
434, 441 (Mass. App. 2003) (Prior Insurance Provisions contradicted insurers’ argument for pro-
rata allocation and would be rendered “superfluous had the drafter intended that damages would
be allocated among insurers based on their respective time on the risk”); FMC Corp. v. Plaisted
& Cos., 72 Cal. Rptr. 2d 467, 499 (Cal. App. 1998) (citing Prior Insurance Provisions as support
for the court’s conclusion that “once coverage has attached – i.e., once it has been triggered – it
will extend to all of the insured’s liability for damages attributable to the same occurrence in and
after the policy period”); M-B Co. of Wis. v. Parker Hannifin Corp., No. 88-1688, 1989 WL
111968, at *2 (Wis. App. July 12, 1989) (affirming trial court ruling that Prior Insurance
Provision “extended [the insurer’s] liability” to property damage that took place following the
policy period); Liberty Mut. Ins. Co. v. Those Certain Underwriters at Lloyd’s, 650 F. Supp.
30
In PLENCO, for example, the Wisconsin Supreme Court cited the Non-
Cumulation Provisions as support for applying an all sums allocation to the
policies before it. 759 N.W.2d at 618-19, 625. The PLENCO Court held that the
Non-Cumulation Provisions showed that each triggered policy applied to “injury
that occurs ‘partly before and partly within the policy period,’” and thus extended
coverage beyond the portion of the underlying injuries suffered during the policy
period. Id. at 626 (emphasis added).
Similarly, in Dow Corning Corp. v. Continental Casualty Co., Inc., Nos.
200143-54, 1999 Mich. App. LEXIS 2920 (Mich. App. Oct. 12, 1999), the
Michigan Court of Appeals held that the Prior Insurance Provision required
adoption of an all sums allocation, even though that court had followed a pro-rata
approach in a case decided just one year earlier. See id. at *21 (citing Arco Indus.
Corp. v. Am. Motorists Ins. Co., 594 N.W.2d 61 (Mich. App. 1998)). The Dow
Corning court held that the Prior Insurance Provision “expressly addresses injuries
that extend outside the policy period” and used this fact to distinguish the pro-rata
allocation ruling in Arco, which “presumably” did not involve such provisions:
_______________________
1553, 1559 (W.D. Pa. 1987) (rejecting insurers’ position that policies containing Prior Insurance
Provisions only covered damage occurring solely during the policy period; “these policies were
intended to provide coverage for all damages regardless of when they occurred”) (emphasis in
original).
31
“While ‘time-on-the-risk’10 allocation may have been a ‘logical corollary’ to the
language at issue in Arco, it would be an illogical corollary here.” Id. at *23-24.11
Indeed, even courts which mandate pro-rata allocation of claims involving
multi-year injuries in all circumstances regardless of the policy language – which
this Court has not done – have recognized that non-cumulation provisions are
incompatible with pro-rata allocation. See, e.g., Spaulding Composites Co. v.
Aetna Cas. & Sur. Co., 819 A.2d 410, 422 (N.J. 2003) (refusing to enforce Non-
Cumulation Provisions in the context of a court-mandated pro-rata allocation
scheme because to do so “would give the insurers a double credit and would
deprive the insured of the full value of its premium”) (quotations and citation
omitted); Outboard Marine Corp. v. Liberty Mut. Ins. Co., 670 N.E.2d 740, 750
(Ill. App. 1996) (reversing trial court’s enforcement of Prior Insurance Provision in
context of a pro-rata allocation on the ground that such enforcement would be
“illogical” and “inequitable”).
10 Pro-rata allocation is sometimes referred to as “time on the risk” allocation, as it limits the
policy’s share of the claim to account for the fact that the policy was in place during only a
portion of the time when the injury took place.
11 See also Boston Gas Co. v. Century Indem. Co., 910 N.E.2d 290, 309 (Mass. 2009) (noting
that the court would have applied an all sums allocation if the policies before it had contained
Prior Insurance Provisions, which “expressly provide for continuing coverage beyond the policy
period”).
32
C. The Excess Insurers’ Assertion That The Non-Cumulation And
Prior Insurance Provisions Should Simply Go Unenforced In
Order To Allow For Pro-Rata Allocation Is Contrary To New
York Law
Faced with the plain policy language and this uniform law, the Excess
Insurers’ initial “solution” was simply to urge the Chancery Court to ignore the
Non-Cumulation and Prior Insurance Provisions, and apply a pro-rata allocation.
As the court noted, that request violated the most basic tenets of New York
insurance policy interpretation, which require that a court give effect to the parties’
contractual choices by enforcing all of the policy provisions. 2 A.3d at 126; see
also, e.g., Cragg v. Allstate Indem. Co., 17 N.Y.3d 118, 122 (2011) (a court must
give “full force and effect to the policy language” and avoid any interpretation that
renders a “provision meaningless”).
New York courts consistently have enforced non-cumulation clauses –
regardless of whether that enforcement was sought by the policyholder or the
insurer – even though such enforcement necessarily is inconsistent with pro-rata
allocation. In Hiraldo ex. rel. Hiraldo v. Allstate Insurance Co., 5 N.Y.3d 508
(2005), for example, the policyholder suffered a loss involving injuries spanning
three policy periods, each covered by a policy stating that it applied only “to losses
which occur during the policy period.” Id. at 512. Each policy also contained a
non-cumulation provision stating that all loss arising from the continuing or
repeated exposure to the same conditions would constitute one “loss.” Id. at 513.
33
The plaintiffs argued that, because each policy applied only “to losses which
occurred during the policy period,” there was not one continuing “loss,” but three
separate “losses,” one in each year – the classic pro-rata paradigm. In contrast,
Allstate Insurance Company maintained that under the terms of the non-
cumulation provisions, the policyholder had suffered only one continuous loss,
authorizing Allstate to assign the multi-year claim to a single policy and thus
requiring that the policy respond to injuries that occurred outside, as well as
within, its policy period. Indeed, Allstate argued that “[t]he analysis in this case
starts and ends with the non-cumulation provision” and that Consolidated Edison
and the other New York “pro-rata” cases were “inapposite . . . because none of
them involved a non-cumulation clause.” Brief for Defendant-Respondent Allstate
Insurance Company (“Allstate Br.”) at 12, 16.12
This Court agreed with Allstate, holding that, even though injuries took
place during three successive policy periods, the non-cumulation provisions
required that the underlying claimant’s injuries be treated as a single continuous
12 See also Allstate Br. at 20-21 (“Therefore, Allstate’s financial exposure for claims against its
insured for injuries resulting from continuous or repeated exposure to lead paint within insured
premises is limited to one policy period regardless of whether the Company has issued one or
more policies.”); Allstate’s Answer at 2, Hiraldo ex rel. Hiraldo v. Allstate Ins. Co., No. 3386/01
(N.Y. Sup. Ct. Mar. 26, 2001) (Record on Appeal at 233) (raising as an affirmative defense the
claim that “[t]he damages awarded to the infant-plaintiffs in the underlying action arose out of a
single occurrence covered under one Allstate policy period only”).
Warren’s counsel obtained copies of the referenced Allstate Brief and Answer from this Court’s
docket in the Hiraldo appeal and will provide the Court with a copy of those documents should it
so request.
34
occurrence for which only one limit was available. 5 N.Y.3d at 512-13.13 In short,
under Hiraldo, a court plainly cannot “solve” the conflict between pro-rata
allocation and non-cumulation provisions by declining to enforce those provisions.
Following Hiraldo, New York cases uniformly have enforced non-
cumulation provisions to permit or require the policyholder to aggregate into a
single policy period all losses arising from continuous injury spanning multiple
policy years. For example, the court in Hanover Insurance Co. v. Vermont Mutual
Insurance Co., 69 F. Supp. 3d 302 (N.D.N.Y. 2014), expressly rejected an excess
insurer’s argument that a claim triggering three policy years should be pro-rated,
which would have resulted in the claim not exceeding the primary policy limit in
any year. Instead, the court held that the non-cumulation clauses in the primary
policies required that the full amount of the judgment be paid under a single policy
period, exhausting that period’s primary limit and leaving the balance to be paid by
the excess insurer. Id. at 307-09.
A similar result was reached in Bahar II, where the United States Court of
Appeals for the Second Circuit affirmed the district court’s conclusion that the
13 The Court also noted its agreement with three federal district court decisions holding that the
non-cumulation provisions in the policies at issue required the insurer to pay the full amount of a
single policy limit for claims triggering multiple policy periods, not a pro-rated portion of the
total loss. 5 N.Y.3d at 513 (citing Bahar v. Allstate Ins. Co., No. 01 Civ. 8129 (RCC), 2004 U.S.
Dist. LEXIS 15612 (S.D.N.Y. Aug. 9, 2004) (“Bahar”), aff’d, 159 F. App’x 311 (2d Cir. 2005)
(“Bahar II”); Greene v. Allstate Ins. Co., No. 03 Civ. 5974 (NRB), 2004 U.S. Dist. LEXIS 10860
(S.D.N.Y. June 15, 2004); Greenidge v. Allstate Ins. Co., 312 F. Supp. 2d 430 (S.D.N.Y. 2004)
(“Greenidge”), aff’d, 446 F.3d 356 (2d Cir. 2006)).
35
non-cumulation provisions in the policies at issue unambiguously supported
payment of a claim for injuries that continued into 1996 under a policy that
covered the 1994 policy year. “Hiraldo shows that New York courts would read
[the] non-cumulation clause strongly.” 159 F. App’x at 312; see also Greenidge,
312 F. Supp. 2d at 434, 440 (upholding as “reasonable” and “correct” opinion of
insurer’s coverage counsel that Hiraldo-type non-cumulation provisions provided
for allocation of multi-year claim “to a single policy, notwithstanding that the lead
poisoning injury may continue into a second policy period”).14
In the face of this unanimous New York case law, the Excess Insurers have
argued for a pro-rata allocation relying almost exclusively on cases involving
policies without non-cumulation provisions, which are irrelevant to the issues
raised by the Liberty and Excess Policies.15 The only exception is the Excess
14 This Court also recently enforced non-cumulation provisions in Nesmith v. Allstate Insurance
Co., 24 N.Y.3d 520 (2014). Separate third-party claimants in that case sustained injuries during
different time periods that triggered different Allstate policies. Nonetheless, this Court upheld
Allstate’s position that both lawsuits involved the same “accidental loss” and that the Allstate
policy non-cumulation provisions thus applied to cap Allstate’s liability for both lawsuits at a
single policy limit of $500,000. See id. at 525-26.
15 In their appellate brief submitted to the Delaware Supreme Court, the Excess Insurers also
cited the unpublished trial court decision in Long Island Lighting Co. v. Allianz Underwriters
Ins. Co., et al., Index No. 604715/197 (Sup. Ct. N.Y. Cnty. Dec. 20, 2003) (“LILCO”)
(Addendum, Ex. 1), as supposedly dealing with the application of pro-rata allocation even where
the policies contain non-cumulation provisions. The LILCO court, however, recognized that the
policies before it did not contain such provisions. See slip op. at 7 (stating that policyholder
relied for its all sums argument on “other insurance clauses or misdenominated non-cumulation
provisions”) (emphasis added); see also Corning, 2012 N.Y. Misc. LEXIS 6531, at *17-18
(holding that a provision that was materially identical to the provision in LILCO was not a non-
36
Insurers’ reliance on the decision in Olin Corp. v. American Home Assurance Co.,
704 F.3d 89 (2d Cir. 2012), which dealt with the effect of a Prior Insurance
Provision on the allocation of a multi-period loss. In fact, however, Olin
establishes that non-cumulation provisions fundamentally alter the allocation
analysis in favor of all sums allocation.
The policyholder in Olin sought coverage under two consecutive excess
policies for more than $70 million in estimated liabilities arising from continuous
environmental property damage that took place from 1957 to 1987. A pro-rata
allocation would have assigned only $3.3 million to each policy period, an amount
insufficient to trigger the excess policies, each of which provided coverage in
excess of $30.3 million in underlying coverage. Relying on two prior Olin
decisions applying a pro-rata allocation, the excess insurer argued that the pro-
rated losses could never reach its policy layer, warranting dismissal. The
policyholder, on the other hand, argued that the two prior Olin decisions did not
involve policies containing non-cumulation provisions – specifically, Prior
Insurance Provisions contained in the policies now before this Court – and that
those provisions mandated a different allocation result.
_______________________
cumulation provision but an “other insurance” provision that only applied to concurrent policies
covering the same time period); EI Opening Br. (A1938 n.5) (quoting LILCO provision).
37
The Second Circuit agreed with the policyholder and rejected the excess
carrier’s request for a pro-rata allocation. The court held that “New York law does
not preclude parties from contracting to indemnify the insured for damage
allocated to years after the termination of the policy,” id. at 102, and that the Prior
Insurance Provisions reflected just such an agreement. See id. at 102-04. The
court thus held that the policyholder could aggregate liabilities relating to thirty
years of damage into a single policy period. Id. at 104.
The Excess Insurers erroneously rely on dicta in the Olin opinion stating that
the “continuing coverage” portion of the Prior Insurance Provision “is not enough
to impose joint and several liability and reject pro-rata allocation.” Id. at 103.
However, that dicta not only is not binding on this Court, it also is plainly wrong.
Because the policyholder in Olin had not purchased any applicable prior insurance,
id. at 104, it never focused on that portion of the Provision dealing with the
payment of losses for continuing injuries which began before, as opposed to after,
the applicable policy period. That omission apparently led the Second Circuit to
the erroneous belief that the Provision as a whole applied “only to damages
continuing after the termination of the policy and is silent regarding damages
occurring before the policy period.” Id. at 103 (emphasis in original). In fact, the
full language of the Provision plainly contemplates that the policy responds to
injuries suffered before, during and after the policy period, and is thus wholly
38
incompatible with pro-rata allocation – as every court to consider the issue has
recognized.16
In contrast, nothing about the actual holding in Olin is consistent with the
Excess Insurers’ suggestion that the Non-Cumulation and Prior Insurance
Provisions should be read out of the policies to allow for the application of pro-rata
allocation. To the contrary, it recognizes that non-cumulation clauses reflect a
different bargain for limiting coverage for multi-year claims, one that foregoes
proration in exchange for limiting the policyholder to recovery of the highest limit
available in a single coverage layer. As the Delaware court held, there is nothing
inappropriate, much less unfair, in requiring the Excess Insurers to abide by the
bargain they struck, which has clear advantages to them in some circumstances,
simply because they do not like the result in other circumstances:
The Excess Insurers bargained for an all sums method of allocation
greatly tempered by exposure-reducing Non-Cumulation and Prior
Insurance Provisions. They cannot now prospect for more by
16 After the Second Circuit issued its opinion in Olin, the federal district court in that case began
applying a hybrid pro-rata/all sums allocation methodology to other policies that contained Prior
Insurance Provisions in connection with other environmental sites at issue. See, e.g., Opinion
and Order, Olin Corp. v. Ins. Co. of N. Am., 84 Civ. 1968 (TPG) (S.D.N.Y. Apr. 15, 2015)
(Addendum, Ex. 2). Pursuant to that method, losses attributable to damage that occurs after the
policy period are aggregated into the policy that contains a Prior Insurance Provision, but losses
that arise from pre-policy period damage are allocated on a pro-rata basis. These later Olin
decisions – which simply implement the erroneous dictum in the Second Circuit’s opinion –
cannot be reconciled with the express language of the Prior Insurance Provision. Nor can the
Prior Insurance Provision reasonably be read to provide coverage on both an all sums and a pro-
rata basis to a single claim under a single state’s law. Once a policy is acknowledged to cover
injury outside the policy period, the rationale for pro-rata allocation – that each policy only
covers injury during its policy period – no longer exists.
39
having a court substitute a different allocation method for that
which best fits with all of the terms of the relevant Policies.
Viking, 2 A.3d at 127.
D. The Excess Insurers’ New Theories Would Lead To Arbitrary
Results And Are Belied By The Policy Language
Belatedly acknowledging that New York law will not allow them to, in the
words of the Chancery Court, “jettison explicitly bargained-for provisions of the
Policies,” 2 A.3d at 126, the Excess Insurers advanced a new allocation theory in
their appeal to the Delaware Supreme Court. Under that new theory, which is
directly contrary to the position they took in the Chancery and Superior Courts,
and for which no legal support exists in any jurisdiction, the Excess Insurers now
claim that both pro-rata allocation and the Non-Cumulation and Prior Insurance
Provisions should be applied to the Asbestos Claims. See discussion supra at 23.
In other words, the Excess Insurers ask the Court to grant them the benefit of the
single-limit cap provided by the Non-Cumulation and Prior Insurance Provisions,
while sparing them the Provisions’ language providing for a full limit for the
policyholder’s loss, not a pro-rated share of that limit. That new argument fails,
for several reasons.
First, it is contrary to the plain policy language. The Non-Cumulation and
Prior Insurance Provisions provide the Excess Insurers with the protection of a
single-limit cap on their liability because they expressly contemplate that, without
that cap, each triggered policy would be obligated to pay a full limit toward the
40
loss suffered by the policyholder, regardless of “how much” of the underlying
injury took place during the policy period. That plain language does not permit
divorcing the protective cap from the very reason for its existence. Put another
way, the Non-Cumulation and Prior Insurance Provisions expressly call for the
reduction of a full policy limit, not a pro-rated share of the limit.
Second, as numerous courts have recognized, allowing an insurer to limit its
liability by both paying only a pro-rata share and applying the limits imposed by a
non-cumulation provision would provide a windfall in the form of a “double
credit” which would irrationally eviscerate much of the coverage for which the
policyholder paid substantial premiums. See, e.g., Viking, 2 A.3d at 124 & n.170;
Outboard Marine, 670 N.E.2d at 750; Spaulding, 819 A.2d at 422.
That is seen most clearly by applying the various allocation methods to the
hypothetical set forth in the opening above, which assumes that the policyholder
suffered a $500,000 loss triggering five years of coverage. See discussion supra at
6-7. Each policy period is covered by a $100,000 primary policy and a $1,000,000
excess policy, all with non-cumulation provisions that effectively limit the
policyholder’s recovery to a single year’s policy limits for claims relating to a
multi-year injury by reducing each policy’s limits by amounts paid under other
policies.
41
Under an all sums allocation enforcing the Non-Cumulation and Prior
Insurance Provisions, the policyholder will recover the full $500,000 loss under
one of the policy years, $100,000 from the primary policy in that year and
$400,000 from the excess policy in that year. Under a pro-rata allocation which
does not enforce the Non-Cumulation and Prior Insurance Provisions, the loss will
be allocated evenly among the triggered years, $100,000 to each year. Again, the
policyholder collects its full claim by recovering $100,000 from each of the
triggered primary policies.
But if both pro-rata allocation and the Non-Cumulation and Prior Insurance
Provisions are applied, the two limitations combine to sharply reduce the
bargained-for coverage. First, the loss is allocated among the triggered policy
years, $100,000 to each year.17 Then, however, the policyholder is limited by
virtue of the non-cumulation provisions to a $100,000 recovery under the first
year’s policy. Recovery under all other primary policies is barred because the
amounts paid under the earlier-issued primary policy “count” to reduce the amount
recoverable under the later-issued policies. Moreover, the excess insurers in the
“non-paying” years will object to the policyholder’s attempt to seek payment from
17 There does not appear to be a logical way to apply a Non-Cumulation or Prior Insurance
Provision “first” and then pro-rate the resulting payable loss, since the effect of the Non-
Cumulation or Prior Insurance Provision can only be determined once one knows how much will
be allocated to, and thus paid by, the paying insurer. Indeed, that ambiguity only serves to
highlight that the Non-Cumulation and Prior Insurance Provisions are not meant to, and cannot,
operate in the context of a pro-rata allocation.
42
them on the ground that the “per occurrence” limits of the underlying insurance
have not been exhausted because those insurance policies would not have paid
anything toward the occurrence. Having paid premiums for five years in exchange
for $5.5 million in otherwise applicable insurance coverage, the policyholder will
nonetheless recover only one-fifth of what it would have recovered under either an
all sums or pro-rata allocation.
The artificial reduction of the policyholder’s recovery is not the only
fundamental flaw in the Excess Insurers’ unprecedented proposal. The Excess
Insurers’ new argument also ignores that the “loss” under a pro-rata allocation is
fundamentally different from the “loss” which triggers application of the Non-
Cumulation and Prior Insurance Provisions. As noted above, pro-rata allocation
does not simply divide a single claim into year-sized pieces. It assumes that there
is a separate injury in each policy period. As the Delaware Chancery Court held,
in such a scenario, the prerequisite to application of the Non-Cumulation and Prior
Insurance Provisions – a single multi-year injury – no longer exists. See Viking,
2 A.3d at 121-23. The Non-Cumulation and Prior Insurance Provisions thus no
longer act to prevent the policyholder from “stacking” multiple limits to apply to a
single continuing injury – they allow a policy to evade liability for a loss covered
only under that policy because another policy has paid a completely separate loss
under that completely separate policy. The simultaneous application of pro-rata
43
allocation and the Non-Cumulation and Prior Insurance Provisions ensures that an
insurance policy will not even pay for that portion of the loss relating to injury
during its policy period – the one amount the Excess Insurers have consistently
admitted they must pay. In short, the Excess Insurers’ new theory renders the
coverage purchased in four of the five policy years illusory.
As a final gambit to suggest that there is, in fact, no conflict between the
Non-Cumulation and Prior Insurance Provisions and the application of pro-rata
allocation, the Excess Insurers suggest that the Provisions have nothing to do with
allocation at all. According to the Excess Insurers, these provisions “simply adjust
total limits under a pro rata allocation approach” by providing the policyholder
with a single limit for any claim that results in continuous injury spanning more
than one period. See EI Opening Br. (A1938). Once again, the Excess Insurers’
revisionist interpretation is belied by the policy language.
By their express and plain language, the Non-Cumulation and Prior
Insurance Provisions do more than simply provide the policyholder with one limit
for a multi-year claim. They provide that each triggered policy must pay for injury
inside and outside the policy period, up to that limit. See discussion supra at 10-
11, 13-14, 27-29. It is that language that led Liberty, the author of the Non-
Cumulation Provision, to pay $180 million toward the Asbestos Claims, pursuant
to an all sums allocation, even though a pro-rata allocation would have reduced its
44
obligations significantly. See discussion supra at 11-13. It is that language that
led both the Excess Insurers and their own expert to concede that the Non-
Cumulation and Prior Insurance Provisions were inconsistent with a pro-rata
allocation. See discussion supra at 22-23. It is that language that led the Chancery
Court to reject a pro-rata allocation and hold that the Non-Cumulation and Prior
Insurance Provisions unambiguously require an all sums allocation. See discussion
supra at 19-21. And, most importantly, it was the absence of that language that led
this Court to distinguish the all sums allocation applied by the Delaware Supreme
Court in Hercules from the pro-rata allocation applied in Consolidated Edison. See
98 N.Y.2d at 223. The Excess Insurers’ belated “epiphany” that Non-Cumulation
and Prior Insurance Provisions are unrelated to the allocation issue should be
rejected for the insupportable rationalization that it is.
II. PRO-RATA ALLOCATION DOES NOT APPLY TO THE PAYMENT
OF DEFENSE COSTS
Even apart from the Non-Cumulation and Prior Insurance Provisions, each
Excess Insurer must pay all costs of defending each Asbestos Claim that
potentially involves its Excess Policy, for several reasons.18 First, the defense
costs provisions are tied not to injury during the policy period, but to the existence
of a “suit”; thus, the insurer is required to “defend any suit against the insured
18 Warren raised this argument in the opening brief that it submitted to the Delaware Court of
Chancery and again in the brief that it filed on the Excess Insurers’ appeal form the Chancery
Court’s ruling. See A114 n.45; A2048-50; see also A2177-78 (Excess Insurers’ response to
Warren’s argument).
45
seeking damages on account of personal injury, even if such suit is groundless,
false or fraudulent,” and to pay “all” costs associated with the defense of that
“suit.” See, e.g., A517 (emphasis added). Nothing in the relevant defense
provisions states that the insurer is required to defend only a portion or a “pro-rata
share” of a “suit.” Indeed, the use of the term “suit,” rather than “claim,” requires
the defense of the whole, not the parts, of the action against the policyholder.19 In
fact, the Excess Insurers themselves recognize this fact, as none of them appealed
from the Superior Court’s holding that any Excess Insurer with a defense
obligation must fund Warren’s entire defense of a suit unless the complaint
forecloses the possibility of a potentially covered judgment or settlement. A431-
433 ¶¶ 8, 9.
Moreover, this Court has long recognized that an insurer’s duty to defend is
“exceedingly broad,” and may require an insurer to pay for the defense of an entire
lawsuit – including “non-covered” claims – as long as the suit involves potentially
covered damages. Cont’l Cas. Co. v. Rapid-Am. Corp., 80 N.Y.2d 640, 648, 655
(1993) (“Rapid American”) (requiring one insurer to defend fully asbestos claims
potentially implicating other policy years); Frontier Insulation Contractors, Inc. v.
Merchs. Mut. Ins. Co., 91 N.Y.2d 169, 175 (1991) (“If any of the claims against
19 See Ray Indus., Inc v. Liberty Mut. Ins. Co., 974 F.2d 754, 756, 770 (6th Cir. 1992) (insurer’s
argument that its policies covered only a prorated share of the costs of defending multi-year
claim violated the policies’ “plain language,” which required the insurer to “defend any suit …
seeking damages” that could be covered under those policies).
46
the insured arguably arise from covered events, the insurer is required to defend
the entire action.”) (citing Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 310-
11 (1984)).
Thus, as the Court explained in Rapid-American, even where a pro-rata
allocation of damages may be appropriate, there is “no error or unfairness in
declining to order such sharing” of defense costs so long as an insurer may later
seek contribution from other insurers whose policies also are triggered by a claim.
80 N.Y.2d at 655-56.20 Since Rapid-American, numerous other courts have held
that an insurer must pay all costs of defending an action that potentially involves
injury during its policy period, irrespective of whether the lawsuit also involves
injuries taking place in other time periods. See Travelers Cas. & Sur. Co. v. Alfa
Laval Inc., 100 A.D.3d 451, 452 (1st Dep’t 2012) (insurer was obligated to provide
a complete defense to all asbestos claims, subject only to its right to “later obtain
contribution from other insurers on applicable policies”); Fulton Boiler Works, Inc.
v. Am. Motorists Ins. Co., No. 5:06-CV-1117 (GTS/DEP), 2010 U.S. Dist. LEXIS
28756, at *17, 21-23 (N.D.N.Y. Mar. 25, 2010) (insurers must pay 100% of the
policyholder’s costs of defending the underlying asbestos claims because an
20 In Rapid-American, the Court deferred the separate issue of whether contribution could be
obtained from the policyholder because the policyholder “went bare” or purposefully did not
purchase available insurance for certain time periods implicated by the asbestos claims. 80
N.Y.2d at 655. That is not an issue here, because there is no evidence in the record that Warren
purposefully chose not to purchase available insurance in any time period.
47
“insurer is required to defend the entire action” so long as “any of the claims
against the insured arguably arise from covered events”) (quoting Frontier
Insulation, 91 N.Y.2d at 175);21 Burt Rigid Box Inc. v. Travelers Prop. and Cas.
Corp., 126 F. Supp. 2d 596, 635 (W.D.N.Y. 2001) (insurer owed an undivided
duty to pay the costs of defending property damage claims until it could show there
was no possibility that the insurer would “be required to indemnify the insured” for
a particular action), aff’d in part, rev’d in part on other grounds, 302 F.3d 83 (2d
Cir. 2002).22
Finally, the apportionment of defense costs based on “time on the risk” or
other criteria is inappropriate for the further reason that defense cost expenditures
bear no relationship to the timing of underlying claimants’ injuries. Whether the
injury occurred in a day or developed over decades, the actual costs of defending
21 Significantly, the Fulton Boiler court later reaffirmed its ruling on the insurers’ undivided
responsibility to pay the policyholder’s defense costs, even as it ruled that the policyholder’s
liabilities for individual lawsuits should be prorated on a “time-on-the-risk” basis, with the
policyholder bearing the payment responsibility for uninsured periods. 828 F. Supp. 2d 481, 488
(N.D.N.Y. 2011).
22 Three unpublished New York trial court decisions have upheld insurer arguments for applying
a pro-rata allocation standard to policyholders’ defense costs. See Corning, 2012 N.Y. Misc.
LEXIS 6531 at *53-61; Travelers Indem. Co. v. Fischbach, LLC, No. 600611/04, 2011 N.Y.
Misc. LEXIS 7212, at *12-13 (Sup. Ct. N.Y. Cnty. Apr. 8, 2011) (“Fischbach”); Generali-U.S.
Branch v. Caribe Realty Corp., No. 25499/91, 1994 N.Y. Misc. LEXIS 735, at *5-6 (Sup. Ct.
N.Y. Cnty. Dec. 5, 1994) (“Caribe”). Neither Fischbach nor Caribe even references the
standards that govern insurers’ defense payment obligations under New York law, while the
Corning court, after stating those standards, erroneously based that ruling on its own view of
“equity” and “fairness” rather than the breadth of the duty to defend. 2012 N.Y. Misc. LEXIS
6531 at *59-60.
48
the claim will depend on the merits and legal and factual complexity of the case,
the severity of the claimant’s injuries, and a host of other factors – none of which
provides any basis for attributing particular defense expenditures to particular time
periods. See, e.g., Emhart Indus., Inc. v. Century Indem. Co., 559 F.3d 57, 72 (1st
Cir. 2009) (citing the absence of any “connection between limiting coverage by the
policy period and the amount of defense costs” as a factor “which weighs strongly
against” imposing a pro-rata allocation standard on insurers’ defense payment
obligations for multi-year claims) (emphasis omitted from original).
In short, even if the policies did not contain Non-Cumulation and Prior
Insurance Provisions, the very nature of the defense duty requires that the Excess
Insurers must pay the full costs of Warren’s defense, without proration. The
Excess Insurers cannot, consistent with New York law, apportion their defense
payment obligations to Warren under the circumstances presented by this case.
CONCLUSION
For the foregoing reasons, the Court should hold that the presence of Non-
Cumulation and Prior Insurance Provisions in the relevant policies mandates
application of an all sums allocation methodology in this case.
By:
Dated: August 21, 2015
49
Robin L Cohen
Keith McKenna
KASOWITZ, BENSON,
TORRES & FRIEDMAN LLP
1633 Broadway
New York, NY 10019
Telephone: (212) 506-1700
Fax: (212) 506-1800
Attorneys for Plaintiff
Below/Appellant Warren Pumps LLC
,
.
ADDENDUM 1
SUPREME COURT, STATE OF NEW YORK
COUNTY OF NEW YORK
LONG ISLAND LIGHTING
COMPANY and
MARKETS PAN CORPORATION,
d/b/a KEYS PAN ENERGY
Plaintiffs,
vs.
ALLIANZ UNDERWRITERS
INSURANCE COMPANY, et al.,
Defendants.
INDEX NO. 97-604715
PART 27, CALENDAR NO. 13459
JUSTICE IRA GAMMERMAN
ALLIANZ UNDERWRITERS INSURANCE COMPANY'S NOTICE OF ENTRY
OF ORDER ON MOTION NUMBERED 018
PLEASE TAKE NOTICE that the annexed is a true copy of the
Order entered on the date shown, in the office of the Clerk of New
York County, on the motions of certain defendants for summary
judgment,· motion number 018 in the Court's motion sequence.
Dated: January 7, 2004.
Respectfully submitted,
~z=-~
ANTONIO D. FAVETTA
Garrity, Graham, Favetta & Flinn
One Lackawanna Plaza
Montclair, NJ 07042
(973) 509-7500
ATTORNEYS FOR DEFENDANT,
ALLIANZ UNDERWRITERS INSURANCE COMPANY
Jan-OB-Q£{ 12:45 Fro;n-FISCHBEIN B}"ILLO LONG iSlANDO PC
.. >, I ( '. "3, q { 0'-1:-1 ( . . .
"~_:_: SUPREME COURT OF THE Wi~ f~RK-
6jl6942100 T-309 P.02/12 HD4
• 1 ••
' ..
NEW YORK COUNTY
·PART·''c~1.· .
:.~ ,- .: .:. " , .... ' .. "': >"-':'': ,.:.' ,:, ,Justice" • , ' .~ .. ,',. J '::'
'Jan~06-n4 12:46 FroVl-FfSCI£EIH P"'LLO LONG ISlAIiDO PC 5316942100
~l '
. ?:;q 1 ;'Y'{ ( J
SUPREME COlJRT OF THE STA'rn OF NEW YORK
COUNTY OFN8WYORK: lAS PART 27
LONG ISLAND UGR11NG COMPANY and
MARKETSP Al'l CORPORATION d/bla
KEYSP.AN EN:8RGY.
-against- .
ALLIANZ UNr)'ERWRITERS INSURANCE
COMP ANY. A:,~fEJUCAN RE-INSURANCE COMPANY,
ASSOCIATED ELECTRIC & GAS INSURANCE
SERVICE LiMJ~rED. CENTURY lNDEMNITY COMPANY,
CERTAIN UNI}BRWRITERS OF ILOYD'S AND
LONDON MARKET INSt:JRANCE COMPANIES,
CONTINENTAL CASUALTY COMPANY,
DAIRYLAND 11';rSURANCE COMPANY,
FIRST STATE :O'iSURANCE COMPANY. GAN
NATIONALIN~URANCE COMPANY, GENERAL
REmsURANC£: CORPORATION. HIGHLANDS
lNSDRANCE CDMP ANY, HOME INSURANCE
COMPANY. LEXINGTON lNSURANCE COMPANY.
NORTH STAR REINSURANCE CORPORATION,
NORTHERN AS SURANCE COM:PANY OF AMERICA,
PROTECTIVE :~fATIONAL INSURANCE COMPANY
OF OM.A.HA; REPUBUC INSURANCE COMPANY,
and UNITED STATES FIRE mSURANCE
COMPANY,
Defendants.
___ ~ ____ M _______ X
IRA GAM:MER~,1AN) J.:
T-309 P.03/IZ F-504
Q ~ ~fE nu fE ~
In JAN 6 2004
, FBWH
Index No. 604715197
Part Calendar 13459
Defenda)H Lexington fusurance Company moves. pursuant to CPLR 3212, for summary
judgment disnll£dng this declaratory judgment action as non-justiciable. Defendant claims mat
aU of its excess p::>liciea issued to the insureds will not be reached if the projected damages are
" /
."
- Jan-OIl-O.4 12:46 From-FISCHBEIN sr-I.LO LONG !SLANDO PC
I
6316942100 T-309 P.04/12 F-504
allocated amon.gt;t the various policies on pro-rata time on the: risk basis, in accordance with the
decision in Con~olidated Edison Co. of New York v Allstate lns. Co., 98 NY2d 208 (2002).
Defendants Allianz Underwriters Insurance Company (Allianz), American Re-Insurance
Company (AmeJ:ican Re), Cen1u:ty Indemnity Company (Century), Continental Casualty
Company (Cominental), Dairyland rnsUrance Company (Dairyland). GAN National Insurance
Company (GAN), and Northern Assurance Company of America (Northem) cross-move for
similar relief.
In this 3J~tion, plaintiffs MarketSpan Corporation d/b/a KeySpau Energy (ESeYSpan) and
Long Island Ligl:.ting Company (LlLCO) seek a declaratOlY judgment against 16 insurance
carriers who alk.~edly issued ULCO exoess comprehensive generalliabilitypolioies from 1953
to 1986. PlaintiffKeySpan seeks a declaration that, under the respective policnes l the insurers
have a duty to defend and iuderunifY plaintiffs for environmental damage arising from
contamination caused by the operation of seven manufactured gas plants (MGPs), and for
.
environmental c;:tltlage caused. by LILCO's dumpmg at the Syosset Landfill Sup~d site, and . . .
LILCO seeks It !,imilar declaration as to environmental dariiage at the Metal Bank Superfund
Site. I
The MGE' sites wem; located in Bay Shore, Hempstead, Glen Cove, Patchogue, Rockaway
Park, Sag HarbN' and Halesite. During the time that the MGP plants were operational, they
utilized either C().~ carbonization, carburetted water gas, or oil gasification at various times to
1 OrigimJty LJLCO alone brought this action. Then it assigned its liability for MGP
operations and the Syosset Superfund Site to KeySpan, but retained rigb.ts to the Metal Bank
claim. KeySpar. was given tho right to pursue this litigation, and was then added as a new party
plaintiff.
2
;.
· Jan-06-C4 12:46 From-FISCHBEIN r~'LLO LONG tSLANOO PC 6316B4,100 ( T-309 P.05/12 F-504
manufucture and produce gas for light and heat. The processes undertaken produced solid and
liquid residues in addition to gas and other mar&:etable by-produots .. Over time the residues have
dispersed and cOlltaminated plant properties, and the gradual discharge has spread pollutants to
adjoining properlies and waterways.
These pIlluts became operational between 1859 for Sag Harbor and 1904 for Glen Cove.
They were deconunissioned, beginning with Glen Cove in 1917. AlI of the plants were closed
by the late 1950~, when gas became available through cross-{;ountly pipelines, except for the Bay
Shore plant. WWdl continued intermittently to produce gas ll:!1til1973) when. it, too, was closed.
Plaintiff (lifers no specific information about particular leaks, drips, spills, or discharges
at the seven MG"~) sites, but. rather. maintains that, willIe the plants were operational) there were
IeaIa:~ spilUs, drips, or discharges on the grounds of the various sites, which over time migrated to
the groundwater ;md nearby waterways. contaminating these areas. KeySpan couteuds that the
camers are liable fur the fuitial PQllutio~ as well as the dispersion of pollutants over-time, and
fuat this is one cc·ntinuous process that implicates all Il?illed policies coverin the period from
1953 to 1986. ldter the plants closed. no further ~isch.a:cges, spills, leaks. or drlps" occurred, and,
ip. fact, during"laxer yeats, the volume of poIlution at each plant had reached its maximum level
prior to the unde~wrlting of the instant polic~es.
With regard to the two Superfund sites, the Syosset Landfill (Syosett) and Metal Bank of
America (Metal Hank), action has been taken to remove pollutants IDld have these sites cleaned
up. The Syosset !iite was owned by the Town of Oyster Bay, and LILCO, like many conunercial
:firms on Long ll.Hand, deposited waste materials at this site. A claim under CERC:LA wns made
that tIte waste materials deposited by LILCO contained hazardous substances, which
3
'Jan-06-04 12:47 FroBl-FISCHSEIH Sr--' LO LOHa ISLANDO PC 6316942100 1-309 P.OS/12 F-504
.-
cont.aminated the ground and then leached into the groundwater. giving rise to the need for
remediation.
Metal B.wk is located in Philadelphia, Pennsylvania.. and for many years served as a
repository for ekcincal equipment and ttansfonners.2 ULCO sent these items to Metal Bank
where they wem dismantled and disposed of all-site, oil from the equipment was placed in a
storage tank that leaked and eventually- ruptured. resulting in the release of PCBs. Here, too, the
property was in need of remediation to eliminate the problem of PCB contamination.
Defendants contend. for the purposes of this motion only, that the pollution damage was
continuous and r..ot attributable to one specifio period. and that the evidence indicates that the
pollution had reached it peak volume prior to the inception ofllie policies :in issue; Blld that it
would be inequitable to pennitplaintiffto select a year or group of years, and compel those
policies to aJJ..SVY'~:r for the whole liability at any particular site. They argue that allocation of the
damages equally amongst the subject policies will distribute.the risk in a more even fashion, an~
.
would stream1ir.f. l the trial by eliminating the high-end excesg policies, 'Yhich are Uulikelyto be
reached,. even if'lhe plaintiff has the benefit of a scenario which pennits the largest allocation to
one year.
The mO\~ng defendants allege that the damage figureS provided by plainti.ffS in discovery
reflect the most probable estimate and the highest possible estimate for each of the MGP sites3 as
2While the complaint alleges a shorter time frame of 16 years for this damage, the damage
estimate for Metal Bank is small enough that the resulting division would yield a substantially
lower figure than $1.8 cut-Dff sought by defendants.
3 These figures are the discounted net present value, which format was utilized in the
Consolidated E(!:son case.
4
Jan-06-04 12:47 From-FISCHBEIN s"r-- 'to LONG ISLANOO PC 6316114210(l
follows:
~Me Most probable Highest Possible
Bay Shore $3:5,214.000 $47,415,000
GlenCov~ $8.186,000 $16,074,000
Halesite $6,345,000 $11,308,000
Hempstead $18,564,000 $60.544~OOO
Jl:itchogue $5,132,000 $11,917~OOO
J tockaway Park $37,563,000 $56,967,000
S'lgHarbor $9,998,000 $17,667,000
With r~pectto Metal'Bank and Syosset, the damage figureQ provided by plaintiffs in
discovery are $],637.000 and $3,417,000 respectively. For the purposes of this motion only.
defendants adop1 aU these estimates to work from in calculating pm :rata time on the risk
allocation. Following the methodology set forth in the Consolidated Edison case, I will take the
highest cost sce:CJario at the most expensive site, Hempstead at $60,544,000, and spread this sum
out over the 33 :years, the 1953, to 1986 time period named in the complaint. The resulting pro
rata allocation w,:uld be $l s834,66? per:Year. The moving defendants all have issued policies
that come into' p lay at higher levels~ and seek dismissal of claims against said policies as nou-
justiciable.
Plaintiff;, argue that the pro rata time on the risk allocation, as done in Consolidated
Edison is not ap~ropriate> because the policy proVisions of the insurers in this case are not
comparable to th:: policy provisions before the Court in ~on801idated Edison. Plaintiffs cite the
"'all sums" language of the defendants' polic'ies and non-cumulation clauses and other insurance
. ,
F rO[l-F! SCHBE iN ~ - "'.LO LONG I SLAtiOO PC: 63 j S942HlO T~30e P.G8/12 F-504
provisions. Fill"lher, in their supplemental brief. plaintiffs contend that there are new damage
estima.tcs that m"Ji: greatly increased from prior figures. that would change the calculations
dnunaticaHyand implicate more policies. Plainti..:ffi also argLle that the period from 1971 to 1982,
when plaintiffs were unable to purchase i.runmmce covering environmental damage, should be_
excluded from th e calculation. thereby reducing the number of years to 22, and increasing the per
year amount acwrdingly. Plaintiffs also request the court to take into consideration and allocate
plaint:i:ffS' self-ulsured retentions (SlR) as part ofllie over-all allocation of responsibility, and a
ruling that the o~urt not allocate to the periods prior to 1953 and after 1986.
Defendants mamtain that their policy provisions are comparable to the provisions
discussed. in the {:~onsolidated Edison case1. and that: the Court of Appeals in that case rejected
similar arguments to those made by plai:t;lti..ffs herein. Defendants argue that KeySpan admitted
that the policies ~tre similar to policies in that case, in its application to submit amicus curiae
briefto the COUl:i of Appeals on the applicati~:)fi for leave to appeal, and that plaintiffs should .u~t
now be heard to argue the contrary.
In their fy[)plication to appear as amicus curiae, plaintiffs' counsel Jo1m E. Reilly, in bis
affirmation, stat~d as fullows:
Eit!cause the issues that Can Edison's Motion For Leave raises
ar;, pivotal to the KeySpan and Brooklyn Union actions, which
in valve similar policies, insurance companies and claims, .
K'~ySpan requests that this Court grant KeySpan's motion
fi>r leave to appear as amicus curiae. and grant Con Edison's
Motion. For ~ave To Appeal.
Thls stat~01ent constitutes an infonnaljudicial admission which is binding upon
plaintiffs, and phintiffs should not be heard to take the opposite position in this action, In the
6
Jal1-D6~D4 12 :&7 F rOIil-F! seNSE m Br" LQ LONG ! SlA1WO PC 63!6942HW 1-309 P.09/12 F-5D4
Matter of tho U;juidation of Union Indcro, Ius.Co. of New York v American centennial Ins. Co.,
89 NY2d 94 (lS~l6). Morever, ~ examination of the policies in issue reflect that operative
language is mde e:d similar, As in the Consolidated Edison case. the insurance policies contain
both "all sums" ~.nd "during the policy period" provisions. Where this is the case, the Court of . .
Appeals has held that 'Joint and several allocation is not consistent with the language of the
polioies providilJg indemnification for 'all SUIIlS' of liability that resulted from an accident or
occurre1lce 'during the policy perio~ m and that "[P]oo rata. allocation, while not explicitly
mandated by thti policies:is consistent with the language of1he policies," Consolidated Edison
Co. of New YorI::, y Allstate Ins. Co., 98 NY2d at 224. The Court of Appeals went on to 'state
that <'[m]ost fundamentally, the policies provide indemnification for liability incurred as a result
of an accident or occurrence during the policy period, not outside that period," and that plaintiffs'
"sing~ar fo.cus an 'all sums' would read this important qualification out of the policies,u.while
"(p Jroration of )).:lbility among the insurers acknowledges the fact that there is uncertainty as to
what actually tl'll:lSpired during any particular policy period," id.
Further~ the Court of Appeals also rejected plaintiffs arguments regarding the:
applicability of other insurance clauses or misdenominated non-cunlUlation provisions. which
plaintiffs here alBO seek to invoke. So, these arguments also must faiL
Plaintiff> contend that the court should not count the period from 1971 to 1982, when
anvironmental ctwerage was not available to insureds in New York, becarue of then Insurance
Law Section 46(l4). Defendants respond that the unavailability of the insurance was the result of
legislative enactment, the purpose of which was to require "corporate polluters to bear the full
burden of their ;idiolli! spoiling the environment," see Consolidated Edison Co. of New York v
7
Jan-06~04 12:48 From-FISCHBEIN r ',LO LONG ISlAHDO PC S3161142\00 T-309 P-l0/12 F-504
.......
Allstate Ins. Co_~ (Sup Ct NY County May 30. 2000, Gammerman. 1., Index No. 600142198),
citing the Govemor's Memo approving L1911, ch 765, 1971 Legislative Annual at 585.
Defe.ndants argt!~l that eliminating these years from the calculation would result in shifting the
bm:den to defen,fants~ which would violate the expressed public policy of the statute. Since the
unavailability OJ: insurance during the period.was not within the control of defendants, but was
rather a matter (If public policy, that period may not be dropped from the allocation.. The fuen-
existing public ~.olicy allocated this expense to plaintiffs, and I will not shift the burden.
Moreover, such ~.pproacb. is cOIJ.Sistent with the manner of allocation approved by the Court of
Appeals in the ~~;m§lolidated Edison.
PlaintIff, maintain that the court -should pro rate the SIRs , because the result of pro rata
allocation is ilia-: the policy limits available to plaintiff in any year are reduced. Defendants
counter that it is :10t the pollcy limits that are being pr M -7048~0002;M -7048-000;3, M -7048-0004, and M -0085-234 are
severed and dis::.nissed. and the claims as to all sites except for Hempste~ and Rockaway Park
under poUcyM -3280 are severed and dismissed; and it is further
. ORDERJ~D that the Cler~ is directed to enter judgment acco~ruhglY. ~ .
Dated: P.j2'-r(fJj· / .(
10
.o$; ~
ENTER: Co C' d ~ b
(l4>y~~ 0 .?(J6.> '
) h q,~O (J ~~~/r
________ ~ ___ o~~
J.S.C.
,/'.
ADDENDUM 2
Case 1:84-cv-01968-TPG Document 1820 Filed 04/15/15 Page 1 of 8
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------x
OLIN CORPORATION,
Plaintiff,
v.
INSURANCE COMPANY OF NORTH
AMERICA, et al.,
Defendants.
-------------------------------------------x
84 Civ. 1968 (TPG)
OPINION AND ORDER
In the latest chapter of this decades-long litigation, plaintiff 0 lin Corporation
("Olin") seeks indemnification from defendant OneBeacon ("OneBeacon"), which issued
a 1970 excess insurance policy to Olin. Olin seeks costs for environmental damage that
occurred at five sites: (1) Mcintosh, (2) Augusta, (3) Fields Brook, (4) Rochester, and (5)
the Bridgeport Rental Oil & Service ("BROS") Site.
On April 1, 2015, the court entered a Rule 54(b) judgment in favor of Olin for
damages at the first four sites. (Dkt. No. 1815.) The Rule 54(b) judgment excluded any
damages relating to the BROS Site, which is the subject of this opinion. The court
entered an amended Rule 54(b) judgment on April 6, 2015, which also excluded damages
relating to the BROS Site. (Dkt. No. 1819.)
OneBeacon initially disputed liability on all five sites. On October 9, 2013,just
prior to the beginning of trial, the court granted summary judgment to Olin regarding the
BROS Site. (Dkt. No. 1733, 10/9/13 Tr. at 25:21-26: 1.) The remaining four sites went to
1
___________________________________________ x
I
I
1 l.
Case 1:84-cv-01968-TPG Document 1820 Filed 04/15/15 Page 2 of 8
trial. In November 2013, a jury returned a verdict in favor of Olin concerning Mcintosh,
Augusta, Fields Brook, and Rochester.
OneBeacon now argues that, as a result of the court's grant of Olin's pretrial
motion for summary judgment as to the BROS Site, there have been no factual
determinations upon which the court may enter a monetary judgment for the BROS site.
OneBeacon requests a second jury trial to make such factual determinations, and to
determine the amount of damage that may be allocated to the 1970 OneBeacon policy
period for the BROS Site. On March 27, 2015, the parties submitted supplemental
briefing regarding OneBeacon' s request for a jury trial.
The court has reviewed the parties' supplemental submissions. For the reasons
that follow, OneBeacon's request is denied.
BACKGROUND
Olin leased and used storage tanks at the BROS Site for the treatment and storage
of hazardous waste, including spent sulfuric acid. The New Jersey Department of
Environmental Protection ("NJDEP") brought a claim against Olin for property damage
occurring from 1968-1974 at the BROS Site as a result of Olin's use of storage tanks.
Olin's potential liability on this claim exceeded $200 million.
In 1996, Olin entered into a settlement agreement with regulators, rendering Olin
liable for $3 .3 million of the environmental contamination costs. The parties here
stipulated to a total cost of $3.3 million incurred for BROS Site damage as of December
31, 2013, but disputed whether OneBeacon was liable to Olin for part or all of this
amount.
2
I
nn
.
,
Case 1:84-cv-01968-TPG Document 1820 Filed 04/15/15 Page 3 of 8
In the months leading up to trial, the parties engaged in extensive discovery
regarding the BROS Site. Olin's expert, Dr. Billy Hall, opined that the relevant property
damage occurred from 1968-1974-the time during which Olin stored its tanks at the
BROS Site. Because the "Condition C" language in the policy means that damage in the
years 1971-1974 must be swept back retroactively into the year of the relevant insurance
policy (1970), Dr. Hall claimed that the BROS Site damages should be allocated to each
year on a pro rata basis of 14.29% year. Dr. Hall opined that pro rata allocation is
appropriate because there is insufficient evidence to support a different method of
allocation for the BROS Site. Dr. Hall was deposed by OneBeacon before trial regarding
his pro rata allocation, but was not cross-examined at trial on this point, as the BROS Site
was no longer before the jury.
OneBeacon also retained experts-Dr. Peter Shanahan and Mary Sitton-to opine
on the allocation of damages in the case. These experts claimed that that no property
damage occurred at the BROS Site during the OneBeacon policy period. (Klinger
Declaration~~ 6-9; Ex. C at pp. 15-17 ("There is no environmental damage at the BROS
Superfund Site attributable to Olin.").) In fact, counsel for OneBeacon admitted that its
experts had done no specific allocation of damages at the BROS Site prior to trial,
because it believed that no such damage had occurred within the policy period. (Dkt. No.
1733, 10/9/13 Tr. at 27-28.)
Olin moved for pretrial summary judgment on its BROS Site claim. The motion
was extensively briefed. Just before trial, on October 9, 2013, the court granted Olin's
motion, holding that OneBeacon owed coverage because Olin's settlement of the BROS
Site claim with the NJDEP sufficiently triggered OneBeacon's indemnification
3
t
ecl tion ~
Case 1:84-cv-01968-TPG Document 1820 Filed 04/15/15 Page 4 of 8
obligation. The court stated: "I think the meaning of the Second Circuit cases inevitably
is that if there is a claim against an insured which would come within ... the policy
definition of liability, but the insured denies liability and settles, then under the Second
Circuit case the insured doesn't have to come back and prove against the insurance
company that which it reasonably denied." (Id. at 25:12-20.) The court further stated:
"[l]f a claim is made against Olin for liability for contamination damage to property,
environmental damage, and if there is a claim that that occurred during the policy
coverage period, and if Olin settles that claim, then the insurance company is liable."
(Id. at 25:21-26:1.)
Trial proceeded on the four remaining sites. The jury found for Olin, and returned
a verdict allocating the amount of third-party property damage that Olin's operation
caused at each of the four relevant sites during the years covered by the OneBeacon
excess policy. The jury did not make any such determination related to the BROS Site.
OneBeacon claims that the court's summary judgment ruling was in error, and
preserves its appellate rights. OneBeacon also claims that, as a consequence of the
Court's grant of Olin's summary judgment motion, there has been no finding of fact "as
to whether Olin's use of storage tanks at the BROS [Site] caused third-party property
damage to soil and/or groundwater and, if so, when." (Dkt. No. 1816, OneBeacon Br. at
2.) OneBeacon further argues that "there has been no finding of fact as to the amount of
damages that occurred in any particular year or years - or what percentage of those
damages impact the 1970 OneBeacon policy period." (Id.) OneBeacon claims that its
experts could convince a jury that that no property damage was caused at the BROS Site
4
I
t
Case 1:84-cv-01968-TPG Document 1820 Filed 04/15/15 Page 5 of 8
during the relevant policy period, or alternately that only some-but not all-of the
alleged damage occurred during the policy period.
Olin counters that a second jury trial is unnecessary, given the court's ruling on
summary judgment, and that there is no real factual dispute or relevant evidence to
present to a jury regarding allocation. Olin argues that the court should use the opinion
offered by Olin's expert, Dr. Hall, regarding allocation of damages on the BROS Site,
which would yield a judgment of approximately $2 million in 0 lin' s favor.
DISCUSSION
Throughout the long course of the Olin litigation, the Second Circuit has issued a
number of opinions clarifying the appropriate method for allocating damages, and
holding that damages should be allocated on a pro rata basis unless the record support a
different type of allocation. Most recently, in 2012, the Second Circuit held: "Equally
allocating damage pro rata is a default rule; if the evidence allows for more specific
assignment of liability to particular years, then responsibility should be determined in that
way." Olin v. American Home Assurance Co., 704 F.3d 89, 97 (2d Cir. 2012). This
holding reaffirmed two similar opinions from the Second Circuit in this case using the
"pro rata allocation" method. See Olin v. Insurance Company of North America, 221
F.3d 307, 325 (2d Cir. 2000) (damages should be allocated pro rata when "the record
does not disclose any other factor upon which to rely in making the allocation"); Olin v.
Certain Underwriters at Lloyd's London, 468 F.3d 120, 127 (2d Cir. 2006) (pro rata
allocation may be used unless "it could be determined exactly how much property
damage occurred in each year").
5
fth
,
,
Case 1:84-cv-01968-TPG Document 1820 Filed 04/15/15 Page 6 of 8
OneBeacon argues that a new jury trial regarding the BROS Site damages would
allow for a more specific assignment of liability to particular years, as opposed to the
default pro rata allocation. OneBeacon asks the court to allow a jury to hear expert
testimony that no damage caused by Olin at the BROS Site occurred during the policy
period, or that some amount occurred smaller than the number agreed to by Olin in its
settlement with regulators. But OneBeacon has not actually cited admissible evidence in
support of this argument to raise a genuine issue of fact justifying a new trial. In fact, as
noted above, OneBeacon' s experts have already opined that there was no damage
whatsoever at the BROS Site during the relevant policy period-and thus cannot offer
useful testimony to a jury regarding the allocation of damages to a particular year inside
or outside of the policy period. Moreover, the court's holding at summary judgment
renders irrelevant such testimony regarding the scope of OneBeacon's underlying
liability. The court has already held that, in light of Olin's reasonable settlement of the
NJDEP's claims for covered losses during the policy period, Olin is not required to prove
the truth of the NJDEP's allegations.
In arguing for a jury trial on when the damage at the BROS Site occurred,
OneBeacon is effectively asking the court to reconsider its own summary judgment
ruling, and is attempting to re-litigate the issue ofliability in the guise of a trial on
damages. OneBeacon argues-as it did at summary judgment-that under Servidone
Const. Corp. v. Security Ins. Co. of Hartford, 64 N.Y.2d 419 (1985), it is entitled to
litigate Olin's liability at the BROS Site even after Olin's settlement with regulators.
OneBeacon argues that its position was affirmed by a recent opinion issued by the New
York State Court of Appeals, which noted, in the context of an insurer's alleged breach of
6
ifY
a
a a/
Case 1:84-cv-01968-TPG Document 1820 Filed 04/15/15 Page 7 of 8
its duty to defend, that a "liability insurer's duty to indemnify its insured does not depend
on whether the insured settles or loses the case." (OneBeacon Br. at 6 (quoting K2 Inv.
Group LLC v. American Guarantee & Liability Ins. Co., 22 N.YJd 578, 585 (2014).)
The court disagrees, and believes the caselaw supports the ruling already made at
summary judgment.1 As the K2 court wrote, the "issue in Servidone, as here, is whether
the insurer that had breached its duty to defend may rely on policy exclusions that do not
depend on facts established in the underlying litigation." K2 Inv. Group LLC, 22 N.Y.3d
at 585. By contrast, OneBeacon is not claiming a policy exclusion, but rather seeking to
show a jury-despite this court's prior ruling to the contrary-that the damages
underlying Olin's settlement with the NJDEP simply did not occur during the policy
period. To the extent OneBeacon believes that the court's summary judgment ruling
"was in error" under Servidone or K2 Investment, see OneBeacon Br. at 3, OneBeacon is
of course free to pursue its rights on appeal. But a jury trial is not the forum to re-litigate
summary judgment liability on the BROS Site.
Given the Second Circuit's repeated holding in the Olin cases that a pro rata
allocation is appropriate, such a trial is also unnecessary. Here, the record evidence does
not allow for a more specific allocation other than the default pro rata rule. As Dr. Hall
previously opined: "The data is not available to do a precise allocation of damages to any
specific year between 1968 and 1974." (Hall Expert Report at 12.) OneBeacon has not
1 See, e.g,, Luria Brothers & Co., Inc. v. Alliance Assurance Co., Ltd., 780 F.2d 1082, 1091 (2d Cir. 1986)
("[T]he insured need not establish actual liability to the party with whom it has settled so long as a potential
liability on the facts known to the [insured is] shown to exist, culminating in a settlement in an amount
reasonable in view of the size of possible recovery and degree of probability of claimant's success against
the [insured]"); see also Societe Generale Energie Corp. v. New York Marine & Gen. Ins. Co., 368 F. Supp.
2d 296, 301 (S.D.N.Y. 2005) (quoting same).
7
I y'
I "
,
Case 1:84-cv-01968-TPG Document 1820 Filed 04/15/15 Page 8 of 8
provided evidence to the contrary. On this record, the court finds that the default pro rata
allocation method applies, and that a jury trial on this discrete issue is unnecessary.
CONCLUSION
For the reasons discussed above, the court denies OneBeacon's request for a jury
trial regarding allocation of damages at the BROS Site.
The court finds that a pro rata allocation is appropriate for BROS Site damages
from 1968-1974. Under Condition C, OneBeacon is responsible for all amounts allocated
pro rata to the 1970-1974 years, less the $300,000 attachment point in the excess policy.
Consequently, the court rules that OneBeacon is liable to Olin for $2,057,850 in past
costs associated with the BROS Site, plus 71.45% of any future recoverable costs.
Pursuant to C.P.L.R. § 500l(a), the court also finds that OneBeacon is liable for
prejudgment interest. The court orders the parties to confer, and to submit a proposed
judgment relating to the BROS Site no later than April 30, 2015. The proposed judgment
shall include prejudgment interest, computed from the dates that Olin incurred damages
on the BROS Site, through April 1, 2015.
This opinion resolves the briefing in support of OneBeacon's request for a jury
trial. (Dkt. Nos. 1816 and 1817.) The Clerk of Court is also directed to terminate
OneBeacon's motion for partial summary judgment regarding prejudgment interest, listed
as item 1798 on the docket.
SO ORDERED.
Dated: New York, New York
April 15, 2015
USDCSDNY
DOCUMENT
ELECTRONICALLY FILED ·
DOC#:
DATE FILED: i/1 s-~ s 8
1Le~
Thomas P. Griesa
U.S.D.J.
1
U
,
B f ·
D C#: __
I, S"
.