Keyspan Gas East Corporation, Appellant,v.Munich Reinsurance America, Inc., Defendant, Century Indemnity Company et al., Respondents.BriefN.Y.February 6, 2018May 19,2017 To Be Argued By: ROBERT A. LONG (admitted pro hac vice) Time Requested 30 Mirrutes APL-2016-00236 New York County Clerk's Index No. 604715/97 Olnurt nf J\pp.eals STATE OF NEW YORK .... KEYSPAN GAS EAST CORPORATION, -against- Plaintiff-Appellant, MUNICH REINSURANCE AMERICA, INC., -and- Defendant, NORTHERN ASSURANCE COMPANY OF AMERICA and CENTURY INDEMNITY COMPANY, Defendants-Respondents. REPLY BRIEF FOR PLAINTIFF-APPELLANT ROBERT A. LONG (admitted pro hac vice) WILLIAM F. GREANEY JAY T. SMITH MICHAEL LECHLITER (admitted pro hac vice) DAVID M. ZIONTS (admitted pro hac vice) COVINGTON & BURLING LLP One CityCenter 850 lOth StJ:eet, NW Washington, DC 20001 Telephone: (202) 662-6000 Facsimile: (202) 662-6291 CHRISTOPHER YEUNG COVINGTON & BURLING LLP The New York Times Building 620 Eighth Avenue New York, New York 10018 Telephone: (212) 841-1000 Facsimile: (212) 841-101 0 Attorneys for Plaintiff-Appellant Keyspan Gas East Corporation i TABLE OF CONTENTS Page INTRODUCTION .................................................................................................... 1 ARGUMENT ............................................................................................................ 2 I. When Pro-Rata Allocation Applies, Liability For Long-Term, Indivisible Damage Should Be Allocated Across Periods When Insurance Was Available. ............................................................................... 2 A. Where An Insurer Fails To Adopt An Allocation Formula, The Availability Approach Is The Most Reasonable Means Of Implementing Pro-Rata Allocation. ..................................................... 2 B. The Availability Approach Does Not Require Century To Cover Damage Beyond The Scope Of Its Policies. ............................. 5 C. Public Policy Strongly Favors The Availability Approach. .............. 10 1. Century’s Approach Defies Policyholders’ Reasonable Expectations And Underfunds Environmental Cleanups And Asbestos Victims. ............................................................. 10 2. Century’s Public Policy Arguments Are Unpersuasive........... 12 D. All Prior New York Cases, And A Majority Of Other Jurisdictions, Apply The Availability Approach. .............................. 14 E. The Reasonable Approach Of Allocating Liability Across Periods Of Available Coverage Excludes All Periods Where No Coverage Was Available, Whether Before Or After The Policy Period. ................................................................................................. 16 II. The Policies’ Anti-Stacking Provisions Require “All-Sums” Allocation. .................................................................................................... 21 A. As Century Has Admitted, Its Policies Prohibit Stacking Of Successive Policies. ............................................................................ 21 B. The All-Sums Argument Is Properly Before The Court. ................... 25 ii 1. The Court Has Jurisdiction To Review All Issues Decided By The Appellate Division. ....................................... 25 2. KeySpan Did Not Waive The All-Sums Argument. ............... 27 CONCLUSION ....................................................................................................... 30 iii TABLE OF AUTHORITIES Page(s) Cases Am. Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F. Supp. 1485 (S.D.N.Y. 1983) ..................................................................... 3 Boston Gas Co v. Century Indem. Co., 910 N.E.2d 290 (Mass. 2009) ............................................................................. 24 Consol. Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208 (2002) ..................................................................................passim Cragg v. Allstate Indem. Co., 17 N.Y.3d 118 (2011) ......................................................................................... 10 Foley v. Roche, 447 N.Y.S.2d 528 (2d Dep’t 1982) ..................................................................... 29 Fulton Boiler Works, Inc. v. Am. Motorists Ins. Co., 828 F. Supp. 2d 481 (N.D.N.Y. 2011) ................................................................ 16 Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P., 7 N.Y.3d 96 (2006) .................................................................................... 28 Gen. Elec. Co. v. Lines, 2010 WL 2486721 (Mass. Super. Ct. Mar. 16, 2010) ........................................ 18 Hiraldo ex rel. Hiraldo v. Allstate Insurance Co., 5 N.Y.3d 508 (2005) ..................................................................................... 23, 24 Lefrak Org., Inc. v. Chubb Custom Ins. Co., 942 F. Supp. 949 (S.D.N.Y. 1996) ..................................................................... 13 Liberty Mut. Ins. Co. v. Fairbanks Co., 170 F. Supp. 3d 634, 646 (S.D.N.Y. 2016) ........................................................ 15 Liberty Mut. Ins. Co. v. Fairbanks Co., 2016 WL 4203543 (S.D.N.Y. Aug. 8, 2016) ................................................ 16, 29 Mine Safety Appliances Co. v. Century Indemnity Co., 2008 WL 9484991 (Pa. Com. Pl. June 19, 2008) ................................... 21, 22, 24 iv Olin Corp. v. Ins. Co. of N. Am., 221 F.3d 307 ................................................................................................passim Owens-Illinois v. United Ins. Co., 650 A.2d 974 (N.J. 1994) ..................................................................... 4, 6, 16, 18 Parochial Bus Sys. v. Bd. of Ed. of N.Y., 60 N.Y.2d 539 (1983) ......................................................................................... 27 R.T. Vanderbilt Co. v. Hartford Acc. & Indem. Co., 156 A.3d 539 (Conn. App. Ct. 2017) ..........................................................passim St. Paul Mercury Ins. Co. v. N. States Power Co., 2009 WL 2596074 (Minn. Ct. App. Aug. 25, 2009) .......................................... 18 Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178 (2d Cir. 1996) ............................................................... 6, 14, 15, 16 Sybron Transition Corp. v. Sec. Ins. Co. of Hartford, 258 F.3d 595 (7th Cir. 2001) .............................................................................. 15 Telaro v. Telaro, 25 N.Y.2d 433 (1969) ......................................................................................... 29 Vargas v. Ins. Co. of N. Am., 651 F.2d 838 (2d Cir. 1981) ................................................................................. 2 In re Viking Pump, 27 N.Y.3d 244 (2016) ..................................................................................passim Statutes Comprehensive Environmental Response, Compensation, and Liability Act, Pub. L. No. 96-510, 94 Stat. 2767 (1980) .................................... 12 CPLR 5713 cmt. ....................................................................................................... 26 Insurance Law § 46(14) ........................................................................................... 19 Resource Conservation and Recovery Act, Pub. L. No. 94-580, 90 Stat. 2795 (1976) ................................................................................................. 12 v Other Authorities 22 A.L.R. 7th Art. 2 (2017) ..................................................................................... 24 Allocation of Losses in Complex Insurance Coverage Claims § 4:3 ...................... 15 Powers of the N.Y. Court of Appeals § 10:7 ............................................................ 26 1 INTRODUCTION Century advocates an extreme, coverage-reducing form of pro-rata allocation that fails to account for key features of its policies. Like other general liability policies based on standard industry forms, Century’s policies do not mandate pro-rata allocation, and provide no formula for such an allocation. In Con Ed, this Court recognized that, in these circumstances, a variety of approaches to pro-rata allocation are possible. Prior to the Appellate Division’s decision in this case, New York courts unanimously held that liability should not be spread beyond periods when insurance was available for purchase. This approach properly construes ambiguous policy language against the insurer and takes account of the dire consequences, for policyholders and toxic tort victims, of adopting Century’s interpretation. Century’s policies also contain language not found in standard-form policies, stating that when Century issues multiple policies to KeySpan, KeySpan may recover only under one. As Century previously recognized, this is an anti- stacking provision applicable to successive policies. Under this Court’s Viking Pump decision, anti-stacking language is incompatible with pro-rata allocation and requires an all-sums approach. Century’s assertion that KeySpan seeks “free insurance” is more slogan than argument, and cannot be reconciled with Century’s failure to write an 2 unambiguous policy. Adopting Century’s narrow construction after the fact would unreasonably reduce the value of policies like Century’s, leading to underfunded environmental cleanups and asbestos bankruptcy trusts and undercompensated tort claimants. ARGUMENT I. When Pro-Rata Allocation Applies, Liability For Long-Term, Indivisible Damage Should Be Allocated Across Periods When Insurance Was Available. A. Where An Insurer Fails To Adopt An Allocation Formula, The Availability Approach Is The Most Reasonable Means Of Implementing Pro-Rata Allocation. As this Court has recognized, there are numerous ways liability for long- term indivisible damage can be allocated pro-rata. Consol. Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 224 (2002). There is no dispute that the Century policies do not “explicitly mandate” pro-rata allocation at all, id., and include no specific formula for its implementation. Century also does not dispute that ambiguous policy language is construed against the insurer that drafted the policy. Century Br. 28; see, e.g., Vargas v. Ins. Co. of N. Am., 651 F.2d 838, 840 (2d Cir. 1981) (N.Y. law) (insurer “bears a heavy burden” to show its construction “is the only construction which may fairly be placed” on policy language (citation omitted)). Because the policies do not mandate that pro-rata allocation be implemented by spreading liability across the longest possible time period, including periods after insurers excluded coverage for an emerging tort or pollution 3 liability, this Court can and should adopt the more reasonable approach followed by other courts: allocate liability among triggered insurance policies, and to the policyholder for periods of voluntary self-insurance, but not to periods where insurance was unavailable in the marketplace. The absence of an allocation formula in the policies is no accident: it reflects a conscious decision by the insurance industry. Opening Br. 27-29. Century quibbles (at 28 n.7) that some (but not all) of the drafting history relates to the 1966 form that postdates some (but not all) of the Century policies at issue. The timing of these specific statements makes no difference, since the insurance industry drafters of the general liability forms on which Century based its policies recognized the difficulties of allocation “from the very outset of [their] labors.” Am. Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F. Supp. 1485, 1501 (S.D.N.Y. 1983) (emphasis added), aff’d as modified, 748 F.2d 760 (2d Cir. 1984). Moreover, no version of the form Century followed included an allocation formula for such long-term exposure. Although Century does not dispute that its policies are silent on an allocation formula, it nevertheless argues that its policies unambiguously require liability to be spread across the longest possible time period. Century treats this conclusion as following inexorably from Con Ed, but that is incorrect. Far from viewing Century’s harsh allocation formula as required by its reasoning, the Court 4 expressly noted that “there are different ways to prorate liability among successive policies.” Id. at 224. The Court also was careful to leave open the proper treatment of “periods where no insurance is available.” Id. at 225. In describing pro-rata allocation, moreover, the Court repeatedly referred to spreading liability “among insurers,” and “among successive policies.” Id. at 224-25 (emphasis added). Calculating shares of liability by dividing the insurer’s time on the risk over the years insurance was actually purchased is thus one method of pro-rata allocation. See id. Calculating shares by dividing the insurer’s time on the risk over the years insurance was available is another. Id. at 225. Because there is no allocation formula in the insurance policy, courts have considered a broader range of arguments to define the time period across which liability for latent injury claims should be prorated. While the most policyholder- friendly approach would be to prorate “among the insurers,” Con Ed, 98 N.Y.2d at 224, courts have concluded that it is “reasonable” to “expect the risk-bearer to share in the allocation” when it made a “decision . . . to assume or retain a risk.” Owens-Illinois v. United Ins. Co., 650 A.2d 974, 995 (N.J. 1994). By allocating liability not only to insurers but also to policyholders that voluntarily self-insure, courts have ensured that policyholders have an incentive to purchase insurance when it is available. This logic ends, however, at the point where no risk was voluntarily assumed. Opening Br. 33. Proration across available periods of 5 insurance thus supplies the best response to the policies’ silence: not giving the insurer the benefit of an unwritten formula to minimize coverage, and not giving the policyholder the benefit of coverage it could have purchased but did not. Century’s argument is flawed because it treats as self-evident the assertion that the denominator in a pro-rata calculation must be all years in which damage occurred. Faced with the problem of indivisible damage that cannot be apportioned to specific time periods, the policies do not say what time horizon to select. Century could have imposed its coverage-limiting formula or another specific formula in its policies. But it did not, leaving the choice of denominator in the allocation calculation as one of several gray areas in which there are “different ways to prorate liability.” Con Ed, 98 N.Y.2d at 224. Under established interpretive principles that Century does not dispute, this ambiguity should be resolved in favor of the reasonable allocation formula that New York courts have followed for many years. B. The Availability Approach Does Not Require Century To Cover Damage Beyond The Scope Of Its Policies. Unable to identify an allocation formula in its policies, Century hinges its entire argument on four words in the definition of “occurrence”: “during the policy period.” Century asserts (at 24) that unless liability is spread across every year of damage, with shares assigned to KeySpan for every year in which there was no coverage, pro rata allocation will “extend[] coverage into periods the insurer never 6 agreed . . . to cover.” Century misreads the policy language and misunderstands pro-rata allocation. 1. Century asserts (at 20) that it cannot be held liable for “damage that occurs outside the policy period,” but that is not what its policies say. The language Century focuses on—“during the policy period”—is part of the definition of an “occurrence” that triggers coverage. An “occurrence” includes “a continuous or repeated exposure to conditions which unexpectedly and unintentionally causes injury to or destruction of property during the policy period.” E.g., A-307. The policy thus is triggered when an occurrence, which may start before and continue after the policy period, causes some damage during the policy period. Id. Century did not limit the scope of its coverage to the specific damage that triggered the policy—an impossibility for indivisible damage. Rather, Century agreed to indemnify KeySpan for all liability “caused by a[ covered] occurrence.” E.g., A- 303. The policy may be triggered by damage during the policy period, but once it is triggered, coverage extends to all liability for damage caused by the occurrence. Century’s contrary argument is inconsistent with the basic nature of an occurrence policy, “ignor[ing] [its] obligation to indemnify for subsequent damages attributable to an injury occurring during the relevant policy period.” Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178, 1203 (2d Cir. 1995); Owens-Illinois, 650 A.2d at 988-89 (same). 7 Century objects (at 17-18) that its policy language is “indistinguishable” from the language at issue in Con Ed. As an initial matter, Century is wrong. The Century and Con Ed policies differ in the way they treat continuing exposure to conditions. The Con Ed policies provided that continuing exposure to conditions “during the policy period shall be deemed one occurrence.” 98 N.Y.2d at 222 (emphasis in original). But Century declined to limit the covered “occurrence” to the continuing exposure that happens “during the policy period.” Instead, Century’s policies generally provide that “[a]ll damages arising out of such exposure to substantially the same general conditions shall be considered as arising out of one occurrence.” A-252, A-280, A-307 (emphasis added); see also A-319, A-337. Century’s policies expressly provide coverage for a single occurrence stretching over long periods of time—before, during, and after the policy period. “All damages” are deemed to be caused by that single occurrence, so all of the resulting liability is within the scope of coverage.1 Indeed, in contrast to the policy language in Con Ed, the Century policies typically do not require that any damage take place during the policy period. So long as an accident takes place, in whole or in part, during the policy period, any 1 Century brushes aside this language as limiting the number of occurrences only “‘for purposes of determining the limit of Century’s liability.’” Century Br. 18 (quoting Boston Gas Co v. Century Indem. Co., 910 N.E.2d 290, 308 (Mass. 2009)). But as this Court has recognized, language written for a coverage-limiting purpose may have coverage-broadening implications in the allocation context. See Viking Pump, 27 N.Y.3d at 259-61. 8 resulting damage to property is covered without regard to whether any such damage takes place during the policy period. See A-239; see also A-15 (relying on this fact as a further reason to adopt the availability approach). To illustrate, in this case there is a single occurrence at Rockaway Park that a jury concluded began in 1905 and continued roughly through the present. A-642. The single occurrence caused damage during each policy period at issue, so each Century policy was triggered. By operation of Century’s policy language, “all damages” from 1905 to the present are deemed to be caused by the single covered occurrence at Rockaway Park. Even if the policy language were exactly the same as in Con Ed, Century still would not be entitled to its draconian allocation formula. As Century acknowledges, the “during the policy period” language in Con Ed “did not ‘explicitly mandate’ a particular method for allocating liability for long-tail harms such as gradual environmental contamination.” Century Br. 15. When a policy does not specifically adopt pro-rata allocation, much less provide a specific allocation formula, it cannot be read to create an impenetrable barrier against allocating liability across periods when coverage was available. Opening Br. 24- 25; supra pp. 2-3. Century’s policy language reflects a recognition of the very problem faced in this case: occurrences that extend across policy periods, resulting in property 9 damage and liability that is indivisible. Century’s solution was not to artificially divide that liability, but to encompass it within a single “occurrence,” subject to the policy’s limits and deductibles and an anti-stacking clause. Even if Century had omitted the anti-stacking clause, pro-rata allocation would permit Century to share liability for the single occurrence with other insurers, and with KeySpan for periods in which KeySpan elected not to purchase available coverage. But having written policies that cover “all” damages from a single occurrence, Century cannot show that a particular allocation formula would “extend[] coverage into periods the insurer never agreed . . . to cover.” Century Br. 24. 2. Pro-rata allocation, as this Court recently noted, is a “legal fiction.” In re Viking Pump, 27 N.Y.3d 244, 261 (2016). When liability is apportioned pro-rata, it does not reflect a judgment that an insurer can be held responsible only for damage that can be definitively assigned to its policy periods. The very nature of latent, indivisible damage makes that impossible. In the absence of clear guidance from the insurance policy on how to handle such indivisible damage, courts have resorted to the legal fiction of pro-rata allocation. “But,” as a carefully-reasoned opinion recently explained, “this legal convention does not mean that the policy terms are somehow violated or coverage impermissibly broadened if the allocation rules are structured to (1) encourage policyholders to obtain the broadest possible insurance pool to respond to long-tail claims but (2) not punish those policyholders 10 who, through no fault of their own, are unable to maintain a continuous chain of coverage.” R.T. Vanderbilt Co. v. Hartford Acc. & Indem. Co., 156 A.3d 539, 578 (Conn. App. Ct. 2017). When courts apply the availability framework, they do not assign Century a pro-rata share for years in which it did not issue a policy. Rather, they simply exclude those periods from the formula. Liability is spread “among the insurers,” Con Ed, 8 N.Y.2d at 224, for the years they issued coverage, and to the policyholder for periods in which it voluntarily self-insured. The resulting time horizon over which liability is spread is a fair and reasonable solution to the problem of indivisible damage that cannot be apportioned to particular time periods. C. Public Policy Strongly Favors The Availability Approach. 1. Century’s Approach Defies Policyholders’ Reasonable Expectations And Underfunds Environmental Cleanups And Asbestos Victims. Century’s allocation formula permits insurers to make insurance a dwindling asset by withdrawing coverage from the marketplace and reducing the value of preexisting occurrence policies with every passing year. Opening Br. 34-35. Such arbitrary reductions of coverage are not “consistent with the reasonable expectations of the average insured.” Cragg v. Allstate Indem. Co., 17 N.Y.3d 118, 122 (2011). 11 Century’s approach would severely reduce funding for environmental cleanup efforts, as well as for asbestos and other emerging tort victims, thereby creating a major financial burden for taxpayers and (as in this case) utility rate- payers. Opening Br. 39-41. As the Vanderbilt court recently explained, by “holding the insurers on the risk collectively responsible for the full injury,” the availability approach “has the desirable effect of maximizing the resources available to respond to the multitude of claims facing [the policyholder].” 156 A.3d at 581. “By contrast, a contrary rule that transfers liabilities to the policyholder as soon as insurance becomes unavailable” would not only limit funds for existing policyholders but “incentivize the insurance industry to stop offering coverage prematurely when novel risks emerge.” Id. Century’s non-response to the consequences of its approach for asbestos victims is revealing. Century does not deny those consequences. It just suggests (at 34) that the Court can ignore them, because “[t]his is not an asbestos case.” But the standard-form policy language on which Century relies is the same language at issue in asbestos cases. If the Court adopts Century’s position, its decision will apply to victims of asbestos-related diseases and other tort injuries. Century is unwilling to defend this result, but it follows inexorably from Century’s logic. 12 2. Century’s Public Policy Arguments Are Unpersuasive. Century’s public policy arguments against the availability approach do not withstand scrutiny. First, Century argues (at 33-35) that the availability approach reduces incentives for policyholders to discover and remediate environmental contamination. That is incorrect. The goal of deterring pollution has no application to companies like KeySpan that are subject to retroactive liability for historical waste disposal activities that fully complied with applicable standards when they were carried out. Deterrence works prospectively, not retrospectively. Century’s assertion (at 35) that environmental contamination can be discovered “essentially any time” is untrue. Scientific knowledge of low-level environmental contamination has expanded dramatically over time, particularly after statutes such as the Resource Conservation and Recovery Act, Pub. L. No. 94- 580, 90 Stat. 2795 (1976) and the Comprehensive Environmental Response, Compensation, and Liability Act, Pub. L. No. 96-510, 94 Stat. 2767 (1980). For instance, substances like methyl tertiary butyl ether were not recognized to be contaminants until many years after their widespread use. See generally U.S. E.P.A., Methyl Tertiary Butyl Ether (MTBE), https://archive.epa.gov/mtbe/web/ html/faq.html (last updated Feb. 20, 2016). 13 Second, Century argues (at 35-37) that the availability rule transfers risk inefficiently. But insurers are in the business of selling a safety net for liability risks, and they—not policyholders—are best positioned to price those risks. See Opening Br. 38-39. As Vanderbilt noted, “the policyholder, unlike the insurer, has little if any ability to manage its exposure to dormant liabilities with respect to an emerging long-tail risk.” 156 A.3d at 582. It is only by “[h]olding insurers responsible when unforeseen risks arise, and not permitting them simply to drop coverage and cut their losses,” that “insurers as well as policyholders” will have the incentive “continuously to identify and investigate previously unknown risks.” Id. at 581. Putting the onus of an unclear policy on policyholders, by contrast, will encourage similarly unclear policy drafting in the future. That is one reason why ambiguous policy language is construed against the insurer-drafter. See, e.g., Lefrak Org., Inc. v. Chubb Custom Ins. Co., 942 F. Supp. 949, 952 (S.D.N.Y. 1996) (contra proferentem imposes “cost of a failure to clarify . . . on the drafting party, to encourage that party to clarify its language in the future”). Third, Century contends (at 37-39) that the availability approach would unduly complicate litigation. That contention is based on mere speculation. The jury in this case encountered no great difficulties, and there is no evidence such difficulties arose in the numerous other cases that have applied the availability 14 approach. The objective issues that determine insurance availability, such as whether there is an industry-wide pollution or asbestos exclusion precluding coverage for such risks, are largely undisputed. To the extent there may be disputed issues under the availability approach, they are appropriate for expert testimony, and are no more complicated than other issues that inevitably arise from long-tail insurance claims. There is no reason to believe those issues would be more difficult than the factual disputes Century’s approach would generate, by making substantial amounts of coverage turn on whether damage that commenced long ago started in 1880 or 1905. D. All Prior New York Cases, And A Majority Of Other Jurisdictions, Apply The Availability Approach. Century does not dispute that every New York court to address the availability issue prior to the Appellate Division in this case has adopted the availability approach, including the Second Circuit in two extensive and well- reasoned opinions. See Olin Corp. v. Ins. Co. of N. Am., 221 F.3d 307, 326 (2d Cir. 2000); Stonewall, 73 F.3d at 1203; Opening Br. 41-42 (citing additional cases). Moreover, as a comprehensive opinion recently concluded, a majority of jurisdictions that apply pro-rata allocation have adopted the availability approach. Vanderbilt, 156 A.3d at 577 & n.29; see also Opening Br. 43-44 (citing numerous cases). And “[i]f one includes those jurisdictions that follow the all sums approach, the vast majority of . . . states do not hold an insured accountable for a 15 pro rata share of long-tail losses that occur during periods when insurance is not available.” Vanderbilt, 156 A.3d at 577. Ignoring Vanderbilt’s survey of relevant case law, Century asserts (at 22, 32) that the “vast majority” of courts have rejected the availability rule. But Century does not cite the cases comprising this “vast majority.” Instead, it cites (at 23 & n.6) a Seventh Circuit decision at odds with the decisions of New York courts,2 and a handful of cases applying other states’ laws. The treatise by insurance industry lawyers that Century quotes for its “vast majority” claim cites the same handful of cases, without collecting the cases applying the availability approach. Allocation of Losses in Complex Insurance Coverage Claims § 4:3. Century’s attempt (at 30-31 & n.9) to discredit KeySpan’s authorities is unfounded. Contrary to Century’s view, Con Ed did not render Stonewall and Olin irrelevant—it relied on those cases for other points of law and expressly reserved judgment on the availability question. See Con Ed, 98 N.Y.2d at 219-25. No court has ever held that Con Ed overruled Stonewall and Olin, and New York courts continue to follow those decisions. See, e.g., Liberty Mut. Ins. Co. v. Fairbanks 2 The Seventh Circuit reasoned that, “even after a risk has come to pass and the obligation to pay is certain,” insurers should be willing to make available “claims administration pools” for a “premium exceed[ing] the expected amount of the outlay.” Sybron Transition Corp. v. Sec. Ins. Co. of Hartford, 258 F.3d 595, 599-600 (7th Cir. 2001). But that has not happened and, in any event, it is not insurance. “[T]he claims administration pools that [Sybron] describes are a fundamentally different creature, insofar as they do not advance . . . the fundamental purpose of insurance, namely, to protect against the risk of loss.” Vanderbilt, 156 A.3d at 584. 16 Co., 170 F. Supp. 3d 634, 646 (S.D.N.Y. 2016), on reconsideration, 2016 WL 4203543 (S.D.N.Y. Aug. 8, 2016); Fulton Boiler Works, Inc. v. Am. Motorists Ins. Co., 828 F. Supp. 2d 481, 494 (N.D.N.Y. 2011). Moreover, Stonewall and Olin did not fail to analyze the policy language, as Century suggests. Instead, they correctly concluded that the policy language did “not squarely resolve the allocation issue.” Stonewall, 73 F.3d at 1203; see also Olin, 221 F.3d at 323-24 (pro-rata allocation “consistent” with policy language). Century’s dismissal (at 31 n.8) of cases following Stonewall and Owens-Illinois fails for the same reason. This Court should not depart from all prior New York courts and a majority of other courts across the country, in favor of an extreme allocation approach followed only in a distinct minority of jurisdictions. A policyholder’s coverage is not reduced based on periods of unavailable coverage in New Jersey and Connecticut. There is no reason that a policyholder in New York should be significantly worse off. E. The Reasonable Approach Of Allocating Liability Across Periods Of Available Coverage Excludes All Periods Where No Coverage Was Available, Whether Before Or After The Policy Period. Century argues that if the Court adheres to the majority rule and allocates liability only across periods where coverage was available, it should create a novel exception: differentiate between pre- and post-coverage periods of unavailability, 17 allocate liability only to the former, and assign that liability to the policyholder. Nothing in the text of the policies or the logic of the availability approach supports this exception. As explained above, the availability approach is consistent with the policies’ text and provides a fair and reasonable solution to the gap Century left in its policies. As the Second Circuit explained, in the absence of an allocation formula adopted by the policy, “‘a fair method of allocation . . . is related both to time on the risk and the degree of risk assumed.’” Olin, 221 F.3d at 325 (quoting Stonewall, 73 F.3d at 1223) (emphasis added). Only “[w]hen periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available,” is it reasonable “to expect the risk-bearer to share in the allocation.” Id. (quoting Stonewall, 73 F.3d at 1223). This “fair method of allocation” excludes from the allocation all periods in which coverage was unavailable, whether they occurred before or after the insurer’s policy periods. As with later periods when coverage has been withdrawn, earlier periods when coverage was not available are periods when the policyholder did not, and could not, decide to retain a risk. The language of the policies provides no support for carving out pre- coverage years as an exception to the availability rule. As explained above, Century’s policies generally cover “all damages” caused by an occurrence that can 18 span many years. This case, for example, concerns coverage for a single occurrence at Rockaway Park, spanning from 1905 to the present. Under the terms of the policies, Century can be held responsible for “all damages” caused by that occurrence, whether those damages occurred today (after Century’s policy periods) or in 1905 (before Century’s policy periods). As the New Jersey Supreme Court recognized in Owens-Illinois, it is in the “nature” of occurrence policies to “provide coverage for pre-policy occurrences.” 650 A.2d at 993. Treating pre- and post-coverage years the same is especially warranted under the policy language and facts here, where there is a single occurrence at each site, rather than separate occurrences that can truly be called “pre-” or “post-” policy period. Century faults KeySpan (at 45) for citing only one case—General Electric Co. v. Lines, 2010 WL 2486721 (Mass. Super. Ct. Mar. 16, 2010) (N.Y. law)— holding that the availability approach applies to damages occurring both pre- and post-policy period. But Century is wrong to suggest that Lines is the only case so holding. See St. Paul Mercury Ins. Co. v. N. States Power Co., 2009 WL 2596074, at *7-8 (Minn. Ct. App. Aug. 25, 2009) (holding that liability would not be allocated to years when insurance was unavailable, including before policy period, but finding no issue of fact as to unavailability). Notably, Century does not cite a single case—and KeySpan is aware of none—holding that the availability approach applies only to post-policy periods of 19 unavailability. Century hardly benefits from the fact that the cases are few when they uniformly reject Century’s position. The small number of cases indicates that insurers have not thought enough of this argument to raise it. Indeed, in Con Ed itself, the relevant plant operations took place from 1873-1933, and ended before Con Ed’s policies began in 1936. Con Ed, 98 N.Y. 2d at 215. Drawing another contrived distinction between periods of unavailability, Century asks (at 43-45) for the years before 1922 to be treated as a special case. Century argues that those years should be allocated to KeySpan because New York “prohibited” property damage liability insurance in the pre-1922 period. But Century cites no authority to support that interpretation. In fact, property liability insurance simply was not recognized in the insurance code until 1922. The commentary on the code makes clear this was merely an “omission” for which there was no “good reason”—not a purposeful prohibition. See Governor’s Bill Jacket, 1922 c. 287, Dkt. No. 993 at 10, 12 (Index No. 604715/1997). Accordingly, there is no basis for Century’s attempt to equate the pre-1922 period to the period between 1971 and 1982, which the trial court allocated to KeySpan. In the 1971-82 period, the New York legislature made an affirmative decision to nullify pollution coverage and require the responsible party to bear the full cost of that pollution (a decision that was reversed when the statute was repealed in 1982). See Insurance Law § 46(14). The legal regime prior to 1922 20 thus was quite different from the 1971-82 regime. There was no statutory prohibition of insurance for damage caused by pollution, and there was no public policy against risk spreading for property damage generally or pollution in particular.3 Century also addresses (at 44-45) the years between 1933 and 1953, when property damage coverage was available in the marketplace, but KeySpan did not purchase it. That period is irrelevant, because KeySpan agrees that it should bear the cost for those years under the availability approach. Century argues that the fact that KeySpan did not purchase insurance in those years suggests it would not have purchased insurance earlier, when insurance was not available. That KeySpan declined to purchase coverage in one period does not imply that it would have made the same decision decades earlier. Moreover, the availability inquiry does not “analyze whether [the policyholder] subjectively elected to forego insurance and self-insure.” Olin, 221 F.3d at 326. The “touchstone of [the] analysis [i]s availability, not election.” Id. Ultimately, Century’s effort to draw ever-finer distinctions—from periods of unavailability pre- and post-coverage, to periods where insurance was allegedly 3 The Court need not decide whether the trial court correctly allocated liability to KeySpan for the 1971-1982 period, because that issue is not presented in this appeal. But if the Court concludes that the pre-1922 and the 1971-1982 must be treated the same, the correct result would be to exclude both periods when allocating liability. 21 “prohibited”—obscures the question before the Court. That question is simply how courts should allocate liability pro-rata in light of an insurer’s decision not to address that question in its policies. Allocating liability across all periods when insurance was available, and no periods when it was not, is consistent with the policy language, fair, and reasonable. There is no unambiguous policy language that satisfies Century’s burden of establishing a coverage-limiting construction in its favor. II. The Policies’ Anti-Stacking Provisions Require “All-Sums” Allocation. In Viking Pump, this Court held that pro-rata allocation is inconsistent with policy language that prevents a policyholder from recovering damages under successive policies in effect during a multi-year occurrence. 27 N.Y.3d at 259-61. When a policy contains such an anti-stacking provision, all-sums allocation applies. Id. As Century successfully argued in a prior case, its policies unambiguously prevent stacking of limits among successive Century policies triggered by a multi-year occurrence. Mine Safety Appliances Co. v. Century Indemnity Co., 2008 WL 9484991, at *4 (Pa. Com. Pl. June 19, 2008); RA-11. That concession requires all-sums allocation in this case. A. As Century Has Admitted, Its Policies Prohibit Stacking Of Successive Policies. Century contends (at 56) that its anti-stacking provisions do not require all- sums allocation because they prevent stacking only among concurrent policies. 22 That contention is not supported by the policy language, which states that it prevents stacking with “any other policy(ies)” Century issued. A-309 (emphasis added). The phrase “any other policy” unambiguously includes all other Century policies, regardless of whether they cover the same policy period. Century has previously made precisely this argument. RA-14-16. As Century explained: No language in this clause limits its application only to other policies written by INA [Century’s predecessor] in the same policy period—the clause refers to “any” INA policy covering the same loss, not “any” INA policy covering the same time period. Thus, the provision unambiguously applies where a loss exists for which other insurance issued by INA is available, regardless of the policy periods of the other responding INA policies. RA-15 (emphasis added); accord RA-16. Century now argues (at 56-59) for a different interpretation. It focuses on the phrase “covering a loss also covered hereunder,” and notes that the same phrase appears in “other insurance” clauses addressing policies issued by other insurers that have been interpreted to apply only to concurrent policies. Id. Century suggests (at 58-59) that its prior argument is wrong because it “constru[es] identical language to mean different things.” Century had it right the first time, and its original argument does not construe identical language to mean different things. The phrase “covering a loss also covered hereunder” requires two policies to cover the same loss, but says 23 nothing about whether the policies must be concurrent or successive. Other language in the provisions resolves that issue. The anti-stacking provisions apply to successive policies because they include “any other policy(ies)” issued by Century. In contrast, the first “other insurance” clause addresses policies issued by other insurers and states that Century’s coverage “shall be in excess of, and not contribute with, such other insurance.” E.g., A-309. That language addresses the relationship between policies issued by different insurers, providing different layers of coverage, and thus is reasonably interpreted as applying only to policies covering the same period. See Con Ed, 98 N.Y.2d at 223.4 Although the Century policies do not use the “prior to the inception date” or “continuing coverage” language found in the Viking Pump anti-stacking clause, the Court did not hold that this language was necessary. See 27 N.Y.3d 261. In Hiraldo ex rel. Hiraldo v. Allstate Insurance Co., 5 N.Y.3d 508, 512-13 (2005), moreover, the Court held that a non-cumulation clause applied to successive policies without any reference to “prior policy periods” or “continuing coverage.”5 4 Century contends (at 56) that its “other insurance” clauses “do not differ in any material respect” from those in Viking Pump. But the “other insurance” provisions in Viking Pump addressed only the situation where different insurers provided coverage for the same loss. Century’s policies seek to prevent stacking of multiple policies issued by the same insurer. Opening Br. 50-51. 5 Hiraldo’s non-cumulation clause stated: “Regardless of the number of . . . policies involved, our total liability under Business Liability Protection coverage for damages resulting from one loss will not exceed the limit of liability for Coverage X . . . .” 5 N.Y.3d at 512 (emphasis omitted). 24 Century has no response to Hiraldo. Century suggests hypothetical scenarios in which a policyholder could have two policies from the same insurer covering the same loss at the same level during the same period. Century Br. 57. Century offers no evidence that these implausible scenarios actually occur.6 But even if they did, that would show only that Century’s interpretation does not render the provision meaningless. That is not a valid reason to depart from the plain language of the provision, which prevents stacking of one Century policy with “any other” Century policy. A-309 (emphasis added).7 Century cannot square its current position with its position in Mine Safety. Although Century argued that “the anti-stacking provisions are unambiguous,” RA-14 (capitalization altered), it now contends (at 59-60) that it really meant that the meaning of the provisions varies from state to state depending on whether the state has adopted all-sums or pro-rata allocation. That makes no sense. An 6 Century’s policies define the “named insured” to include “any subsidiary . . . of the named insured,” so purchasing separate insurance for parents and subsidiaries would be redundant. A- 303. And general liability policies exclude risks covered by automobile and professional liability policies. A-304 (excluding automobile coverage); 22 A.L.R. 7th Art. 2 (2017) (professional services exclusions have “virtually become standard”). 7 Century notes (at 57) that Boston Gas, 910 N.E.2d 290, interpreted a similar anti-stacking provision to apply only to concurrent policies. But Boston Gas did not attempt to reconcile this interpretation with the language of the anti-stacking provision, which is not limited to concurrent policies, but instead applies to “any other policy(ies).” 25 “unambiguous” provision is not susceptible to multiple interpretations from one case to another to serve Century’s coverage-minimizing objectives. RA-14.8 In sum, Century’s policies prevent stacking of policy limits across successive periods, and Century has successfully advanced exactly that interpretation in prior litigation. Accordingly, all-sums allocation applies. B. The All-Sums Argument Is Properly Before The Court. The Appellate Division concluded, without the benefit of briefing, that “[n]one of [Century’s] policies contain the anti-stacking provisions that were at issue in Viking Pump.” A-654. That conclusion is incorrect. See supra Part II.A. Century contends that this Court lacks jurisdiction to consider the issue, and that KeySpan has waived it. Both arguments fail. 1. The Court Has Jurisdiction To Review All Issues Decided By The Appellate Division. Century contends that the Court lacks jurisdiction over the all-sums issue for three reasons. None has merit. First, Century argues (at 47) that jurisdiction is lacking because the Appellate Division did not decide the all-sums issue, and therefore it is not within the question certified for review. Century points to the Appellate Division’s statement that the trial court’s holding that pro-rata allocation applies “is not 8 In any event, Viking Pump held that New York is not a pro-rata jurisdiction. Instead, New York courts first look to the policy language, and if an anti-stacking clause is present, pro-rata allocation is not applied. 26 challenged on appeal.” A-644. The relevant question is not whether the issue was “challenged” on appeal, but whether the Appellate Division decided it. The court foreclosed the possibility of all-sums allocation by stating that Century’s policies do not “contain the anti-stacking provisions that were at issue in Viking Pump.” A- 654.9 KeySpan expressly raised the anti-stacking issue in seeking leave to appeal, and the Appellate Division certified the broad question of whether its decision was “properly made.” A-636. An order framed in these terms permits this Court to consider all issues bearing on the correctness of the decision below. See CPLR 5713 cmt. (order framed “in broad terms, such as, ‘Was the order of this court correctly made?’” “permit[s] a broader range of court of appeals review”); Powers of the N.Y. Court of Appeals § 10:7 (question of whether order was properly made encompasses any “issue or issues of law in the case”). Second, Century contends (at 48) that jurisdiction is lacking because KeySpan did not appeal within 30 days of the notice of entry of the trial court’s 2003 ruling that pro-rata allocation applies. But KeySpan does not seek review of 9 Century dismisses (at 51-52) this portion of the Appellate Division’s ruling by noting that it appeared in the discussion of the availability rule. But an unqualified statement that “[n]one of [Century’s] policies contain . . . anti-stacking provisions,” A-654, can hardly be ignored based on its location in the opinion. 27 that order; it seeks review of the Appellate Division’s order on this appeal. Century timely sought and received leave to appeal that order. A-636. Third, Century contends (at 48) that jurisdiction is lacking because KeySpan did not file a cross-appeal from the trial court’s allocation order. But the trial court decided the issue of whether all-sums allocation would apply in 2003. KeySpan was not aggrieved by the trial court’s subsequent ruling, that among pro-rata allocation methodologies, the availability approach would apply. See Parochial Bus Sys. v. Bd. of Ed. of N.Y., 60 N.Y.2d 539, 544 (1983) (prevailing party is prohibited from appealing favorable decision). KeySpan did, however, become aggrieved when the Appellate Division ruled that the policies contain no anti- stacking provisions. 2. KeySpan Did Not Waive The All-Sums Argument. Century also contends (at 50) that KeySpan has waived the all-sums argument. That is incorrect. KeySpan argued for all-sums allocation earlier in the case, lost the argument, and preserved the issue for appellate review following entry of final judgment. Opening Br. 55. The trial court’s ruling became law of the case, and the issue in subsequent motion practice was limited to the form of pro-rata allocation to apply. Century contends (at 50) that in the trial court and the Appellate Division KeySpan waived any argument for all-sums allocation. Of course, “waiver should 28 not be lightly presumed and must be based on a clear manifestation of intent to relinquish a contractual protection.” Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P., 7 N.Y.3d 96, 104 (2006) (internal quotation marks omitted). Far from clearly manifesting an intent to forever abandon all-sums allocation, the statements that Century selectively quotes show only that KeySpan accepted, as law of the case, the trial court’s ruling that Con Ed mandated pro-rata allocation here. A-233-34. When KeySpan noted (at 49) that it was not “arguing that we seek joint-and-several [allocation],” it was responding to Justice Scarpulla’s impression that KeySpan was presently arguing for all-sums. A-37 (Justice Scarpulla: “I didn’t realize that you were saying that [all-sums applies]. That was rejected by the Court of Appeals.”). It would be remarkable to infer waiver from a remark referencing an issue that had already been decided against KeySpan in the course of colloquy directed at clarifying what arguments were presently being made. Nor is there merit to Century’s suggestion (at 52-53) that KeySpan waived the all-sums argument by not relitigating it. Century plucks out of context (at 49) Justice Scarpulla’s statement that she did not consider herself bound by the law of the case. But Justice Scarpulla was responding to a suggestion that she defer to Justice Gammerman’s views on the availability rule. She was not inviting re- argument of any and all prior trial court rulings. A-43-44. Indeed, prior to Viking 29 Pump, it would have been improper for KeySpan to relitigate the all-sums issue whenever a new judge took on this long-running case. See Foley v. Roche, 447 N.Y.S.2d 528, 529 (2d Dep’t 1982) (law-of-the-case doctrine may be “ignored” only in “extraordinary circumstances . . . such as a change in the law”); Telaro v. Telaro, 25 N.Y.2d 433, 437 (1969) (“inappropriate . . . to reargue” law of the case); see also Liberty Mut. Ins. Co. v. Fairbanks Co., 2016 WL 4203543, at *2 (S.D.N.Y. Aug. 8, 2016) (recognizing Viking Pump as an “intervening change in the law”).10 Century contends (at 49) that, after Viking Pump, KeySpan could have argued the all-sums issue in the Appellate Division. But Viking Pump was decided after briefing and argument were concluded, which is why KeySpan’s brief to the Appellate Division was limited to answering Century’s arguments concerning the availability approach. Century cites no authority to suggest that KeySpan was obligated to raise a separate issue at that time or forever waive it.11 The all-sums issue became part of this appeal only when the Appellate Division ruled on the question. 10 It is irrelevant that policyholders in other cases argued for all-sums allocation before Viking Pump. Century Br. 53. KeySpan also argued for all-sums earlier. See A-232-33. But once it lost on the issue, KeySpan appropriately treated it as law of the case. 11 Century asserts (at 49) that KeySpan filed a “detailed letter-brief” in the Appellate Division addressing Viking Pump, but that document is actually a one-page letter responding to Century’s letter addressing the relevance of Viking Pump to the pro-rata allocation issues then under consideration. See RA-47-48. 30 The all-sums issue was properly raised and preserved earlier in this case, and the Appellate Division ruled on that issue. Accordingly, this Court can and should address the policies in their entirety, and decide whether all-sums allocation applies. CONCLUSION The judgment of the Appellate Division should be reversed. Christopher Yeung COVINGTON & BURLING LLP The New York Times Building 620 Eighth Avenue New York, New York 10018-1405 (212) 841-1000 Dated: May 19,2017 Respectfully submitted, ,-.-)--- Ro ert A. Long (pro hac vice) William F. Greaney Jay T. Smith Michael Lechliter (pro hac vice) David M. Zionts (pro hac vice) COVINGTON & BURLING LLP One CityCenter 850 lOth Street, NW Washington, DC 20001 (202) 662-6000 jsmith@cov .com Counsel for Plaintiff-Appellant KeyS pan Gas East Corporation CERTIFICATION I certify pursuant to 22 N.Y.C.R.R. § 500.13(c)(l) that the total word count for all printed text in the body of the brief, exclusive of the table of contents and the table of cases and authorities required by subsection (a) of this section, is 6988 words. Dated: May 19, 2017 Respectfully submitted, One CityCenter 850 lOth Street, NW Washington, DC 20001 (202) 662-5614 j smith@cov .com