Keyspan Gas East Corporation, Appellant,v.Munich Reinsurance America, Inc., Defendant, Century Indemnity Company et al., Respondents.

Brief

N.Y.February 6, 2018

APL-2016-00236 New York County Clerk’s Index No. 604715/97 Court of Appeals of the State of New York   KEYSPAN GAS EAST CORPORATION, Plaintiff-Appellantt, – against – MUNICH REINSURANCE AMERICA, INC., Defendant, – and – NORTHERN ASSURANCE COMPANY OF AMERICA and CENTURY INDEMNITY COMPANY, Defendants-Respondents. BRIEF OF PROPOSED AMICI CURIAE UNITED POLICY HOLDERS DURO DYNE CORPORATION, and ALFA LAVAL, INC. GITA F. ROTHSCHILD ADAM J. BUDESHEIM MCCARTER & ENGLISH LLP Four Gateway Center 100 Mulberry Street Newark, New Jersey 07102 Tel.: (973) 622-4444 Fax: (973) 624-7070 KEVIN T. MERRIMAN DAVID M. KNAPP WARD GREENBERG HELLER & REIDY LLP 1800 Bausch & Lomb Place Rochester, New York Tel.: (585) 454-0700 Fax: (585) 423-5910 PAUL E. BREENE REED SMITH 599 Lexington Avenue, 22nd Floor New York, New York 10022 Tel.: (212) 521-5400 Fax: (212) 521-5450 ROBERT M. HORKOVICH ANDERSON KILL P.C. 1251 Avenue of the Americas New York, New York 10022 Tel.: (212) 278-1000 Fax: (212) 278-1733 AMY BACH UNITED POLICYHOLDERS 381 Bush Street, 8th Floor San Francisco, California 94104 Tel.: (415) 393-9990 Attorneys for Amici Curiae United Policy Holders Duro Dyne Corporation, and Alfa Laval, Inc. i ME1 26258734v.7 CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 500.l(f) of the Rules of Practice for the Court of Appeals of the State of New York, proposed amici curiae make the following disclosure: United Policyholders is a non-profit 50l(c)(3) organization. It has no parents, subsidiaries, or affiliates. Duro Dyne Corporation is a New York corporation with its principal place of business located in Bay Shore, New York. Duro Dyne Corporation hereby states that as of the date of this filing: its parent corporation is Duro Dyne National Corp. and no publicly held company owns any of its stock. Alfa Laval Inc. is a New Jersey corporation with its principal place of business located at 5400 International Trade Drive, Richmond, Virginia. Alfa Laval Inc. hereby states that as of the date of this filing, it is 100% owned by Alfa Laval U.S. Holding Inc., a Delaware corporation having its principal office at 5400 International Trade Drive, Richmond, Virginia. Alfa Laval U.S. Holding Inc. is 100% owned by Alfa Laval USA Inc., a Delaware corporation having its principal office at 5400 International Trade Drive, Richmond, Virginia. Alfa Laval USA Inc. is 100% owned by Alfa Laval Holding BV, a Dutch corporation having its principal office at Baarschot 2, 4817 ZZ Breda, The Netherlands. Alfa Laval Holding BV is 100% owned by Alfa Laval Holding AB, a Swedish corporation having its principal office at Rudeboksvagen 1, S-221 00 Lund, Sweden. Alfa ii ME1 26258734v.7 Laval Holding AB is 100% owned by Alfa Laval AB, a Swedish corporation having its principal office at Rudeboksvagen 1, S-221 00 Lund, Sweden. Alfa Laval AB is publicly held and no single person has a greater than 10% interest. i ME1 26258734v.7 TABLE OF CONTENTS Page(s) TABLE OF AUTHORITIES .................................................................................... ii PRELIMINARY STATEMENT ............................................................................... 1 INTEREST OF AMICUS CURIAE .......................................................................... 3 ARGUMENT ............................................................................................................. 6 I. This Court Should Grant the Motion of United Policyholders, Duro Dyne, and Alfa Laval to Appear as Amicus Curiae. ....................................... 6 II. Insurers Will Attempt to Leverage the Appellate Division’s Decision Beyond the Context of Manufactured Gas Plant Environmental Claims. ............................................................................................................. 8 III. The Appellate Division Broke with Decades of Well-Settled New York Law That Shaped the Expectations of Policyholders and Insurers............................................................................................................. 9 IV. The Standard Policy Language at Issue Here Supported Policyholders’ Reasonable Expectation That They Would Not Be Penalized for Periods of Unavailability. .............................................................................. 12 V. The Unavailability Rule Does Not Require Insurers To Provide “Free Coverage.” ..................................................................................................... 17 VI. The Equities Favor Reversing the Appellate Division and Upholding the Unavailability Rule. ................................................................................. 20 VII. The Financial Impact of the Appellate Division’s Decision Will Harm Both Conscientious Policyholders and Environmental and Mass Tort Claimants. ...................................................................................................... 23 CONCLUSION ........................................................................................................ 28 ii ME1 26258734v.7 TABLE OF AUTHORITIES Page(s) CASES Aetna Health, Inc. v. Davila, 542 U.S. 200 (2004) .............................................................................................. 5 Am. States Ins. Co. v. Koloms, 687 N.E.2d 72 (Ill. 1997) .................................................................................... 25 Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d 210 (3d Cir. 1999) ......................................................................... 21, 22 Consolidated Edison Co. of New York, Inc. v. Allstate Ins. Co., 98 N.Y.2d 208 (N.Y. 2002) ................................................................................ 15 E. I. du Pont de Nemours & Co. v. Admiral Ins. Co., No. 89C-AU-99, 1995 Del. Super. LEXIS 488 (Del. Super. Oct. 27, 1995) ............................................................................................................. 21, 22 Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42 (Tex. 2008)................................................................................... 4 Fulton Boiler Works, Inc. v. American Motorists Insurance Co., 828 F. Supp. 2d 481 (N.D.N.Y. 2011) .......................................................... 10, 11 Goulds Pumps, Inc. v. Travelers Cas. & Sur. Co., B255439, 2016 WL 3564244 (Cal. Ct. App. June 22, 2016) ............................. 11 Hardt v. Reliance Standard Life Insurance Co., 560 U.S. 242 (2010) .............................................................................................. 5 Heimeshoff v. Hartford Life & Accident Insurance Co., 134 S. Ct. 604 (2013) ............................................................................................ 4 Keyspan Gas East Corp. v. Munich Reinsurance America, Inc., 37 N.Y.S.3d 85 (N.Y. App. Div. 2016) ................................................ 1, 8, 10, 13 Mayor & City Council of Baltimore v. Utica Mut. Ins. Co., 802 A.2d 1070 (Md. Ct. Spec. App. 2002) ................................................... 21, 22 iii ME1 26258734v.7 Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008) .............................................................................................. 5 Nomet Management Corp. v. Virginia Surety Co., Inc., No. 600612/2008, 2012 WL 10007753 (N.Y. Sup. Ct. 2012) .......................................................... 11 Olin Corp. v. Insurance Company of North America, 221 F.3d 307 (2d Cir. 2000) ............................................................................... 10 Olin Corp. v. OneBeacon Am. Ins. Co., 864 F.3d 130 (2d Cir. 2017) ............................................................................... 20 Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994) ................................................................................... 10 Pneumo Abex Corp. v. Md. Cas. Co., No 82-2098 (JGP), 2001 WL 37111434 (D.D.C. Oct. 9, 2001) ............ 11, 21, 22 R.T. Vanderbilt Co., Inc. v. Hartford Accident & Indem., Co., 171 Conn. App. 61, 128, 140 (Conn. App. Ct. 2017) .............................................. 20, 21, 28 Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002) .............................................................................................. 5 In Re Salem Suede, Inc., 221 B.R. 586 (D. Mass. 1998) .............................................................................. 4 Security Ins. Co.of Hartford v. Lumbermens Mut. Cas. Co., 826 A.2d 107 (Conn. 2003) .......................................................................... 11, 20 Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127 (Utah 1997) ................................................................................... 20 Spaulding Composites Co., Inc. v. Aetna Cas. & Sur. Co., 176 N.J. 25 (N.J. 2003) ....................................................................................... 20 Stonewall Ins. Co. v. Asbestos Claims Management Corp., 73 F.3d 1178 (2d Cir. 1995) ........................................................................passim TRB Investments, Inc. v. Fireman’s Fund Insurance Co., 145 P.3d 472 (Cal. 2006) ...................................................................................... 4 iv ME1 26258734v.7 Uniroyal Inc. v. Am. Reinsurance Co., L-8172-94, 2005 WL 4934215 (N.J. Super. Ct. App. Div. Sept. 13, 2005) ...... 11 US Airways, Inc. v. McCutchen, 569 U.S. 88 (2013) ................................................................................................ 4 Vandenberg v. Superior Court, 982 P.2d 229 (Cal. 1999) ...................................................................................... 4 In re Viking Pump, 27 N.Y.3d 244 (N.Y. 2016) .............................................................. 12, 13, 14, 20 Wooddale Builders, Inc. v. Md. Cas. Co., 722 N.W.2d 283 (Minn. 2006) ........................................................................... 19 REGULATIONS N.Y. Comp. Codes R. & Regs. Title 22, § 500.23(a)(4) ........................................... 6 OTHER AUTHORITIES 15 Appleman on Insurance Law & Practice § 111.1 ............................................... 17 Charles Berryman & Richard Ingegnesi, Memorandum of Meeting of Discussion Group—Asbestosis 1 (May 20, 1977) ................................................................................................................... 16 https://www.crowell.com/files/List-of-Asbestos-Bankruptcy-Cases- Chronological-Order.pdf..................................................................................... 27 Lorelie S. Masters, Jordan S. Stanzler & Eugene R. Anderson, Insurance Coverage Litigation § 4.01[A][1], at 4-7 (2d ed. 1999) ..................................... 13 Lorelie S. Masters, Jordan S. Stanzler & Eugene R. Anderson, Insurance Coverage Litigation § 4.07[A], at 4-123 (2d. ed 1999) ...................................... 14 ME1 26258734v.7 United Policyholders, Duro Dyne Corporation (“Duro Dyne”), and Alfa Laval Inc. (“Alfa Laval”) submit this brief as amici curiae in support of the appeal of Plaintiff-Appellant Keyspan Gas East Corporation. PRELIMINARY STATEMENT Proposed amici curiae United Policyholders, Duro Dyne, and Alfa Laval respectfully submit this brief in support of the arguments made by Plaintiff- Appellant Keyspan Gas East Corporation. United Policyholders, Duro Dyne, and Alfa Laval seek to fulfill the role of amici curiae by supplementing the submissions the parties are providing the Court in this case on important insurance principles that will impact New York residents and policyholders. Proposed amici curiae move for leave to file this amicus curiae brief because of the serious adverse consequences for policyholders stemming from the Appellate Division, First Department’s ruling in Keyspan Gas East Corp. v. Munich Reinsurance America, Inc., 37 N.Y.S.3d 85 (N.Y. App. Div. 2016). That ruling misapplies the plain language of the policies and upends two decades of well-settled New York law and practice on insurance allocation of liabilities arising out of injury or damage that may take place over more than one policy year (“long-tail” losses). Since the Second Circuit’s 1995 decision in Stonewall Ins. Co. v. Asbestos Claims Management Corp., 73 F.3d 1178 (2d Cir. 1995), New York law has been 2 ME1 26258734v.7 widely recognized as allocating long-tail losses only to periods for which insurance for such losses was generally available in the marketplace. The Appellate Division’s decision rejects that aspect of Stonewall, drastically reducing coverage for policyholders for environmental claims. Moreover, the Appellate Division’s decision potentially implicates a wide variety of other kinds of losses – not just environmental – thus exposing policyholders to significant financial liability previously covered by insurance. If the decision were followed and applied, the impact on many New York policyholders would be devastating. Proposed amici curiae agree with the textual and policy analyses set forth in the brief of Plaintiff-Appellant which demonstrates that the Appellate Division’s ruling was not mandated by the language of the policies and violated the policyholder’s reasonable expectations of coverage. Proposed amici curiae do not intend to repeat these well-reasoned arguments, but rather ask this Court to consider the actual impact of the Appellate Division’s decision on policyholders of all stripes who face liabilities that extend over multiple years and have insurance policies subject to New York law. As discussed below, the impact on many such policyholders will be severe and risks driving individuals and companies – including small mom-and-pop companies – into bankruptcy, thereby depriving claimants recompense for their alleged injuries. 3 ME1 26258734v.7 INTEREST OF AMICUS CURIAE United Policyholders United Policyholders is a non-profit organization founded in 1991 and dedicated to educating the public on insurance issues and consumer rights. United Policyholders serves as an information resource and a voice for a diverse range of insurance consumers across the United States, from low income homeowners to international businesses. Donations, foundation grants and volunteer labor support the organization’s work, which is divided into three program areas: Roadmap to Recovery (helping disaster victims navigate the insurance claim process and recover fair settlements), Roadmap to Preparedness (promoting disaster preparedness and insurance literacy for homeowners and businesses), and Advocacy and Action (advancing the interests of insurance consumers in courts and before regulators). United Policyholders serves an important purpose by representing the interests of policyholders. Most consumers can scarcely afford legal counsel to pursue their rights under their insurance policies, whereas insurance companies have extensive resources to retain lawyers at major law firms to oppose providing coverage to their policyholders. In coverage disputes, insurers also enjoy a significant advantage because their policies are written on standardized forms with which insurers are intimately familiar; by contrast, individual policyholders have 4 ME1 26258734v.7 far less experience interpreting the policy language and have no power to revise it. United Policyholders seeks to level the playing field by offering similar resources and comparable counsel to represent otherwise vulnerable policyholders in cases raising important insurance coverage issues. United Policyholders educates and advocates on behalf of a diverse range of commercial and individual policyholders in a variety of forums throughout the United States. United Policyholders’ Executive Director has been appointed for eight consecutive terms as an official consumer representative to the National Association of Insurance Commissioners, and works closely with the New York Department of Financial Services and Superintendent Vullo on issues affecting insurance consumers. United Policyholders’ Executive Director is also an Advisor to the American Law Institute’s Restatement of the Law of the Liability Insurance Project. Media and academics also regularly seek United Policyholders’ input on insurance consumer issues. Since 1991, United Policyholders has filed amicus curiae briefs in over 415 cases in numerous federal and state courts, including New York.1 1 United Policyholders’ arguments were adopted by the Texas Supreme Court in Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42 (Tex. 2008), as well as by the California Supreme Court in Vandenberg v. Superior Court, 982 P.2d 229 (Cal. 1999), and numerous other proceedings including TRB Investments, Inc. v. Fireman’s Fund Insurance Co., 145 P.3d 472 (Cal. 2006), and In Re Salem Suede, Inc., 221 B.R. 586 (D. Mass. 1998). United Policyholders has also been granted leave to file briefs as an amicus curiae in numerous U.S. Supreme Court cases, including the following: Heimeshoff v. Hartford Life & Accident Insurance Co., 134 S. Ct. 604 (2013); US Airways, Inc. v. McCutchen, 5 ME1 26258734v.7 Duro Dyne Corporation Duro Dyne is a leading manufacturer of sheet metal accessories and equipment for the heating, ventilating, and air conditioning industry. Duro Dyne was established in 1952 and, over the span of the last sixty-four years, has expanded its plant locations and now employs over 200 people. Plaintiffs have filed thousands of asbestos claims against Duro Dyne and related entities. These claims arise nationwide, but a significant number arise in New York. Duro Dyne has an interest in New York law on allocation because New York law applies to insurance policies that Duro Dyne purchased from various insurance companies that cover its asbestos liabilities. Duro Dyne is a New York corporation that was headquartered in New York at the time the policies were purchased, and Duro Dyne’s insurance brokers were located in New York as well.2 569 U.S. 88 (2013); Hardt v. Reliance Standard Life Insurance Co., 560 U.S. 242 (2010); Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008); Aetna Health, Inc. v. Davila, 542 U.S. 200 (2004); and Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002). 2 Each of Duro Dyne’s insurance policies is subject to its own wording, which differs in certain respects from the insurance policies at issue in this particular case. Duro Dyne reserves all rights and makes no admissions regarding rights under its own insurance policies. 6 ME1 26258734v.7 Alfa Laval Inc. Alfa Laval is a world leader within the key technology areas of heat transfer, separation and fluid handling. Alfa Laval’s worldwide organization helps customers in nearly 100 countries to optimize their processes. The company has over 18,000 employees, the majority of whom are located in Sweden, Denmark, India, China, the United States, and France. Plaintiffs have filed thousands of asbestos claims against Alfa Laval. These claims arise nationwide, but a significant number arise in New York. Alfa Laval has an interest in New York law on allocation because New York law has been applied to the insurance policies that Alfa Laval purchased from various insurance companies covering asbestos liabilities. ARGUMENT I. This Court Should Grant the Motion of United Policyholders, Duro Dyne, and Alfa Laval to Appear as Amicus Curiae. Leave to appear as amicus curiae should be granted here because the proposed amici curiae will “identify law or arguments that might otherwise escape the Court’s consideration.” N.Y. COMP. CODES R. & REGS. tit. 22, § 500.23(a)(4). As a non-profit consumer advocacy organization with no financial stake in the outcome of this litigation, United Policyholders’ perspective on the issues in the case clearly differs from those of the parties. United Policyholders also shares a genuine and unique concern about the impact of an adverse decision on New York 7 ME1 26258734v.7 policyholders. As a voice and information resource for insurance consumers, United Policyholders plainly possesses the expertise required to provide a meaningful contribution to the briefing on the questions before the Court. (See Statement of Interest, supra.) Both Duro Dyne and Alfa Laval have an interest in New York law on allocation because New York law applies to insurance policies that each purchased from various insurance companies that cover their asbestos losses. This appeal raises an issue of first impression for this Court, and it will have a significant impact on policyholders with long-tail and other multi-year claims implicating insurance coverage governed by New York law. The Appellate Division here declined to follow long-standing federal predictions of New York law on this issue. Instead, the Appellate Division’s decision represents a sharp break with two decades of interpretation of New York law that has guided policyholders and insurers alike since the 1990s. The issue is of great public importance, and its consequences extend well beyond the parties to this case. Accordingly, proposed amici curiae respectfully request that this Court grant their motion to appear as amicus curiae in this appeal and accept this brief in support of policyholders. 8 ME1 26258734v.7 II. Insurers Will Attempt to Leverage the Appellate Division’s Decision Beyond the Context of Manufactured Gas Plant Environmental Claims. Insurers surely will attempt to stretch the Appellate Division’s allocation decision well beyond businesses involved in environmental contamination matters. Despite Century’s assurances to this Court that it need consider only “the context of environmental contamination,” Century Br. at 35, in the experience of proposed amici curiae and their counsel, insurers will press vigorously for the application of the decision in this case in all manner of disputes regarding insurance coverage for long-tail claims, including asbestos, silica, and other mass torts. Indeed, insurers have already begun using the Keyspan decision to dispute the scope of their coverage obligations in product liability mass tort cases, such as asbestos. Even the largest of companies may be significantly impacted, or even bankrupted, by arguments that liabilities arising from asbestos or other claims must be allocated to decades when no insurance coverage was available because of industry-wide inclusion of asbestos or other applicable exclusions. If the Appellate Division’s ruling is affirmed here (which it should not be), extension of the unavailability ruling beyond the environmental context by insurers and potentially courts will magnify its impact on allocation law, as mass torts represent a very significant portion of the civil docket in New York. The broader the range of underlying cases to which the Appellate Division’s decision applies, the more extensive will be the harm it visits upon policyholders, large and small alike. 9 ME1 26258734v.7 The impact of the Appellate Division’s decision on policyholders is not confined to businesses. For example, the Appellate Division’s allocation ruling may significantly harm homeowners who responsibly purchased third party liability insurance over decades, and in 2018 first learn – perhaps when they prepare to sell their homes – that there is a concealed oil tank on their property that leaked many years ago, contaminating the groundwater and adjacent properties. These homeowners would have been unable to purchase liability insurance to cover potential environmental losses after insurers began inserting absolute pollution exclusions in their policies in the 1980s and 1990s. It is the rare homeowner who has the means to pay the costs of remediating environmental damage absent insurance coverage. Allocating costs of remediating contamination, that began years ago when insurance coverage for such damage was available in the marketplace, to the responsible homeowner for the years beyond the date when insurance coverage was available may lead to financial ruin, and likely bankruptcy, for many. III. The Appellate Division Broke with Decades of Well-Settled New York Law That Shaped the Expectations of Policyholders and Insurers. The issue before this Court – “proper allocation . . . of risk of loss attributable to a continuous harm occurring, in part, during periods when liability 10 ME1 26258734v.7 insurance was unavailable in the marketplace,”3 – is an issue of first impression for this Court. The question, however, is not entirely new. For decades, policyholders and insurers alike have accepted the unavailability rule as part of New York law. In 1995, the Second Circuit’s Stonewall decision predicting New York law adopted the unavailability ruling first articulated by the New Jersey Supreme Court the year before in Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974, 995 (N.J. 1994). Owens-Illinois held that policyholders could be allocated losses for periods when they elected not to purchase available insurance, but not for any periods for which insurance was unavailable. Stonewall, 73 F.3d at 1204. Several years later, the Second Circuit extended its allocation ruling to environmental claims in Olin Corp. v. Insurance Company of North America, 221 F.3d 307, 326-27 (2d Cir. 2000). The Stonewall ruling, including the unavailability ruling, has been generally accepted as settled law in New York, both by the federal district courts and by state trial courts. In fact, even insurers litigating coverage matters in New York generally have not questioned the applicability of Stonewall’s unavailability ruling. For example, in Fulton Boiler Works, Inc. v. American Motorists Insurance Co., 828 F. Supp. 2d 481 (N.D.N.Y. 2011), an insurance coverage action regarding asbestos bodily injury claims, the court noted specifically that the insurers did not challenge the assumption that the asbestos losses would not be allocated to periods 3 Keyspan, 37 N.Y.S.3d at 87. 11 ME1 26258734v.7 for which insurance was unavailable. Id. at 494. The only challenge came from one of the insurers that alleged insurance was available (an allegation rejected by the court as factually unsubstantiated). Id. Similarly, in Nomet Management Corp. v. Virginia Surety Co., Inc., No. 600612/2008, 2012 WL 10007753 (N.Y. Sup. Ct. 2012), the court noted that “[i]n determining allocation, the court must also inquire whether during periods of no insurance, there was appropriate insurance available in the marketplace.” Id. at *4. The only challenge to this principle noted by the court came from an insurer alleging that insurance coverage for lead exposure was available during periods in which the policyholder was uninsured. Fulton and Nomet are not the only cases reflecting the general acceptance of Stonewall. Multiple courts outside New York have treated the unavailability ruling as settled New York law. See, e.g., Uniroyal Inc. v. Am. Reinsurance Co., L-8172- 94, 2005 WL 4934215, at *22 n.5 (N.J. Super. Ct. App. Div. Sept. 13, 2005); Security Ins. Co. of Hartford, 826 A.2d 107, 114 n.13 (Conn. 2003); Goulds Pumps, Inc. v. Travelers Cas. & Sur. Co., B255439, 2016 WL 3564244, *9 (Cal. Ct. App. June 22, 2016); Pneumo Abex Corp. v. Md. Cas. Co., No 82-2098 (JGP), 2001 WL 37111434, *10 (D.D.C. Oct. 9, 2001). As a result policyholders and insurers alike have treated the unavailability rule as settled law in New York, and have relied on it to resolve numerous 12 ME1 26258734v.7 coverage claims. The Appellate Division’s decision breaks with New York law as understood by New York policyholders and insurers, New York courts, and the courts of other jurisdictions, and its impact on policyholders, and potentially claimants against those policyholders, will be significant. IV. The Standard Policy Language at Issue Here Supported Policyholders’ Reasonable Expectation That They Would Not Be Penalized for Periods of Unavailability. Policyholders’ reasonable reliance on the unavailability rule also derives from standard policy language. But the Appellate Division’s decision drags New York insurance law away from widely-adopted policy language and from the insurance industry’s understanding of the coverage provided. Century contends that the unavailability rule “cannot be reconciled with the plain-policy-language approach applied in [ConEd and Viking Pump],” and that recognizing the rule would “rewrite the terms of a policy for equitable reasons.” Century’s argument rests on the faulty premise that pro rata allocation itself is required by policy wording. Both ConEd and Viking Pump, however, recognized that where the policy language does not expressly mandate a particular allocation, pro rata allocation is applied as a matter of judicial convenience, not strict 13 ME1 26258734v.7 contractual interpretation. In other words, pro rata is a “legal fiction.” In re Viking Pump, 27 N.Y.3d 244, 261 (N.Y. 2016).4 The policy language that formed the basis of the Appellate Division’s unavailability ruling is the “during the policy period” language utilized by the policies at issue on this appeal. Keyspan, 37 N.Y.S.3d at 92. This language appears in many policies issued by many insurers, to many policyholders. The Appellate Division, however, did not consider the placement of that language in the policies. Glossing over such nuances increases the risk that the Appellate Division’s decision will have wide-ranging effects unsupported by policy wording. For example, in policies containing pre-1973 standard-form language, the “during the policy period” language appears in the definition of an “occurrence.” Lorelie S. Masters, Jordan S. Stanzler & Eugene R. Anderson, Insurance Coverage Litigation § 4.01[A][1], at 4-7 (2d ed. 1999). Damage or injury during the policy period is merely one of the conditions for an accident or event to meet the definition of occurrence. In other words, having some damage during the policy period is necessary to trigger coverage, but the policy does not also limit its coverage only to damages during the policy period. It is beyond dispute that an occurrence can result in property damage or bodily injury for years after the occurrence takes place. Yet, as the Court 4 Amici continue to believe that the correct approach to allocation is “all sums” rather than pro rata. 14 ME1 26258734v.7 recognized in Viking Pump, nothing in this standard language restricts the policy’s coverage to that part of continuing property damage that takes place during the policy period. Once there is damage during the policy period, all liability from that occurrence, no matter when the injuries actually take place, is covered. If the insurance industry had intended to exclude from coverage liabilities for that part of damage or injury taking place outside the policy period, it could have done that explicitly. It did not, and the courts should not insert the necessary language to do so. To read such a limitation into the policy and thereby cut off insurance coverage for damages outside the policy period, even though they are caused by a covered occurrence, would be to write for the insurers a better, and much more restrictive, contract than the one they themselves drafted. Such a limitation also would conflict with the dictate in many standard liability insurance policies that the insurer provide insurance coverage for “all sums” the policyholder becomes legally obligated to pay because of property damage or bodily injury caused by an occurrence. This language in 1955, 1966, and 1973 standard policy forms obligated the insurer to “pay on behalf of the insured all sums which the Insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies caused by an occurrence.” Lorelie S. Masters, Jordan S. Stanzler & Eugene R. Anderson, Insurance Coverage Litigation § 4.07[A], at 4-123 n.524 (2d. 15 ME1 26258734v.7 ed 1999) (citing 1 Jack P. Gibson, et al., Commercial General Liability at IV.T.1, IV.T.11, and IV.T.19 (2005)); see also Consolidated Edison Co. of New York, Inc. v. Allstate Ins. Co., 98 N.Y.2d 208, 222 (N.Y. 2002).5 Absent a temporal limitation on damages, these policies should cover “all sums” owed for damages flowing from an occurrence during the policy period, regardless of whether those damages occur during a period when insurance was unavailable. Limiting coverage to just those liabilities for damage or bodily injury occurring during the policy period would read the phrase “all sums” out of the policies and would read into the policies new terms and conditions, never contemplated by the insurers, limiting the insurance company’s obligation only to that part of a policyholder’s liability for an occurrence that could be traced to damage during the policy periods, a concept does not exist in the policies at issue and is contrary to the plain meaning of those policies. Interpreting the policy language to allow coverage for damage outside the policy period is consistent with the contemporaneous understanding of the insurance industry. In the 1970s, in discussing liability insurance coverage for asbestos claims, the majority of insurers concluded that a triggered policy was 5 The Keyspan policies apparently contain “ultimate net loss” provisions, which courts have treated interchangeably with “all sums” language. Keyspan Br. at 18 n. 8. 16 ME1 26258734v.7 responsible for all liability caused by the occurrence regardless of when the damage took place: The majority view was that coverage existed for each carrier throughout the period of time the asbestosis condition developed—i.e., from the first exposure through the discovery and diagnosis. The majority also contended that each carrier on [the] risk during any part of that period could be fully responsible for the cost of defense and loss. Masters, supra, at 4-130 (quoting Charles Berryman & Richard Ingegnesi, Memorandum of Meeting of Discussion Group—Asbestosis 1 (May 20, 1977)). Thus, the insurers’ own contemporaneous understanding of the policies accords with policyholders’ reasonable expectation that damage or injury need not take place solely during the policy period in order to be covered. The policy language cited by the Appellate Division, and the policy language contained in standard form policies issued to policyholders over many years, does not explicitly limit coverage to liabilities for damage occurring during the policy period. Given this failure, the Court should not adopt the restriction read into the policies by the Appellate Division and should instead apply the policy language as written. At the very least, the conspicuous failure of the insurers to place a temporal restriction on covered damages (as opposed to the “occurrence” definition), renders the “during the policy period” language ambiguous – as evidenced by the difference of opinion among the drafters, with the “majority” 17 ME1 26258734v.7 agreeing with Keyspan that any triggered policy could be liable for an entire loss – even if some of the property damage took place outside the policy period. Under the basic principles of contra proferentem, the ambiguity should be resolved in favor of the policyholder and coverage. In this case, that means not arbitrarily limiting an insurer’s coverage obligations for periods when the policyholder was unable to purchase insurance. V. The Unavailability Rule Does Not Require Insurers To Provide “Free Coverage.” Contrary to Century’s argument, the “unavailability rule” requires insurers to provide coverage for the risks they agreed to insure and does not result in “free coverage.” The nature of insurance is transferring risk from the policyholder to the insurer. See 15 Appleman on Insurance Law & Practice § 111.1 (key characteristic of insurance is “risk transference”). Century’s argument begs the question: who more appropriately bears the risk of loss – an insurer that was paid premiums to insure the hazard, or the policyholder who paid the premiums for that coverage during periods when coverage was available? Standard general liability policies cover the risk that the work, operations, or products of the policyholder will result in liability for an occurrence that causes bodily injury or property damage to a third party. Policyholders reasonably expect that their insurance will cover them for liability arising out of their work, 18 ME1 26258734v.7 operations, or products during the policy period. That the harm suffered by a third party may continue beyond the policy period does not change the risk insured. Century’s mischaracterization of coverage for the injuries arising from a covered occurrence as “free insurance” distorts the nature of these claims. For example, most manufacturers or distributors of asbestos-containing products ceased producing or handling asbestos-containing products by the mid-1980s. Thus, they had ceased the allegedly harmful activities before the universal adoption of asbestos exclusions in insurance policies around 1985. See Stonewall, 73 F.3d at 1193. Moreover, most of the claimants allege they were exposed to asbestos before the mid-1980s, but that the injury continued long after and did not manifest for decades. Thus, even if the injury continued and manifested after asbestos exclusions made insurance unavailable, the work, operations, or products, and at least some of the injury that allegedly gave rise to the occurrence for which the policyholder is liable occurred during the period in which insurance for asbestos was available. The unavailability rule requires only that the insurers cover the injuries arising from that earlier, covered work, operations, or products. In contrast, the unavailability rule does not require insurers to cover claimants who were exposed solely after coverage became unavailable. A claimant alleging exposure only after 1985 typically would not be covered under any insurance policy, even under an unavailability rule since some injury is 19 ME1 26258734v.7 required during the policy period in order for there to be an occurrence triggering coverage. The unavailability rule only requires coverage for claimants who allege they were exposed before 1985, when coverage was still available for asbestos, but who continued to suffer bodily injury after that date. Similarly, a policyholder that begins polluting after such coverage became unavailable typically would not have coverage for its pollution liabilities. Rather than providing “free coverage” for policyholders, where pro rata allocation is to be applied, the unavailability rule strikes an appropriate balance by preventing a windfall to insurers resulting from imprecise policy drafting, while also preventing what insurers have argued is a windfall to policyholders for those periods when they deliberately chose to go without insurance. Wooddale Builders, Inc. v. Md. Cas. Co., 722 N.W.2d 283, 297-98 (Minn. 2006) (“Allocating damages to the insured for periods during which it elected to be self-insured, but not allocating damages for periods during which . . . coverage was not available to the insured, results in holding the insured responsible for only those risks that it elected to assume. At the same time, this approach eliminates any windfall to the insured that would result if the insured received a benefit of insurance coverage that it had deliberately declined to purchase.”); see also Keyspan Br. at 43-44 (citing cases from other states reaching similar conclusions). 20 ME1 26258734v.7 VI. The Equities Favor Reversing the Appellate Division and Upholding the Unavailability Rule. As a judicially-created fiction,6 pro rata allocation should not be applied in a manner that would be inequitable or unjust.7 Indeed, Century implicitly concedes, by strenuously arguing the equities in its brief, that the issue of how to treat periods when insurance is unavailable in the marketplace is a matter of public policy and equity, not simply policy wording. Century contends that recognizing the unavailability rule would: (1) reduce the incentives for policyholders to discover and remediate environmental contamination; (2) inefficiently transfer risk and raise the cost of insurance; and (3) generate “complicated and costly” litigation. None of these contentions has merit; to the contrary, as discussed in Keyspan’s brief, the equities overwhelmingly favor application of the unavailability rule when a pro rata allocation is applied by courts. 6 Viking Pump, 27 N.Y.3d at 261. 7 Other courts likewise have recognized that pro rata allocation is a legal fiction based not on policy wording, but on equity and public policy considerations. See, e.g., Security Ins. Co.of Hartford v. Lumbermens Mut. Cas. Co., 826 A.2d 107, 126-27 (Conn. 2003) (recognizing the “equitable principles underlying the pro rata method”); R.T. Vanderbilt Co., Inc. v. Hartford Accident & Indem., Co., 171 Conn. App. 61, 128, 140 (Conn. App. Ct. 2017) (finding pro rata allocation is an equitable legal fiction); Olin Corp. v. OneBeacon Am. Ins. Co., 864 F.3d 130, 144 (2d Cir. 2017) (stating that equitable allocation of damage is a legal fiction); Spaulding Composites Co., Inc. v. Aetna Cas. & Sur. Co., 176 N.J. 25, 44 (N.J. 2003) (“The pro-rata sharing methodology has, at its core, a public policy that favors maximizing, in a fair and just manner, insurance coverage for cleanup of environmental disasters.”); Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 140 (Utah 1997) (“In general, when apportioning defense costs among insurers, courts ‘apply equitable principles . . . unless express policy language decrees the method of apportionment.”). 21 ME1 26258734v.7 Century’s first contention – that recognizing an unavailability rule would reduce the incentive to policyholders to discover and limit property damage – is purely speculative and counterintuitive. The unavailability rule for pro rata allocation has been the law in New York for over two decades, and Century has offered no evidence to demonstrate that its application has adversely affected or delayed policyholders’ efforts to identify and remediate pollution.8 In fact, recognition of an unavailability rule actually incentivizes policyholders and insurers to identify and investigate potential risks. See R.T. Vanderbilt Co., Inc. v. Hartford Accident & Indem., Co., 171 Conn. App. 61, 137 (Conn. App. Ct. 2017). In addition to the dictates of normal business interests, the unavailability rule would not relieve policyholders from liability for – and the attendant incentives to mitigate – pollution damages not covered by insurance, such as punitive damages, damages in excess of policy limits, damages for periods when the policyholder intentionally assumed the risk of loss, and for periods covered by insolvent insurers. Century also argues that recognition of the unavailability rule would “make insurance more expensive.” Century has offered no explanation or support for this 8 See, e.g., Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178 (2d Cir. 1995); E. I. du Pont de Nemours & Co. v. Admiral Ins. Co., No. 89C-AU-99, 1995 Del. Super. LEXIS 488 (Del. Super. Oct. 27, 1995); Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d 210 (3d Cir. 1999); Pneumo Abex Corp. v. Md. Cas. Co., No 82-2098 (JGP), 2001 WL 37111434 (D.D.C. Oct. 9, 2001); Mayor & City Council of Baltimore v. Utica Mut. Ins. Co., 802 A.2d 1070 (Md. Ct. Spec. App. 2002). 22 ME1 26258734v.7 contention. Indeed, the liabilities at issue here – long tail environmental losses – accrued decades ago. The premiums for policies that would cover such claims have long since been paid to insurers, who have benefitted from those payments. Finally, Century asserts that recognizing the unavailability rule would “generate complicated and costly litigation.” Again, this is speculative and unsupported. The unavailability rule has been the law in New York for over two decades and is applied in numerous other jurisdictions as well. See, e.g., Stonewall Ins. Co., 73 F.3d 1178; E. I. du Pont de Nemours & Co., 1995 Del. Super. LEXIS 488; Chemical Leaman Tank Lines, Inc., 177 F.3d 210; Pneumo Abex Corp., 2001 WL 37111434; Mayor & City Council of Baltimore, 802 A.2d 1070. Despite this extensive history, Century has not been able to point to a single example where the unavailability rule produced an unreasonably complex or costly result. If anything, the rule sought by Century will complicate trials be requiring evidence about how long and when contamination occurred. Century also speculates that juries somehow would not be able to understand the issue of whether insurance coverage was available or not, but offers no explanation how the question of availability is different from any other issue that New York juries deal with every day. Thus, contrary to Century’s arguments, the equities favor recognizing the unavailability rule. As this Court has applied pro rata allocation as a “legal fiction” created for convenience where policies do not otherwise provide for 23 ME1 26258734v.7 apportionment of losses, it should be applied equitably, with an aim toward achieving fairness. That means recognizing the unavailability rule. VII. The Financial Impact of the Appellate Division’s Decision Will Harm Both Conscientious Policyholders and Environmental and Mass Tort Claimants. Extending the allocation for long-tail losses to include periods in which insurance was unavailable will have profound practical effects. The Appellate Division’s ruling would retroactively slash the value of policyholders’ insurance assets. By increasing the allocation period by decades, the Appellate Division’s rejection of Stonewall’s unavailability rule could shift massive financial obligations from insurers to policyholders and, in turn, to individual environmental or mass tort claimants. Before the Appellate Division’s decision, the allocation period for long-tail claims would typically end (for most common asbestos or environmental liabilities) in the mid-1980s when insurance coverage for asbestos became generally unavailable and insurance companies added absolute pollution exclusions to their general liability policies; or at such time as the insurance industry adopted other exclusions for other exposures, such as silica. Under the Appellate Division’s decision, insurers will argue that the allocation period should stretch to the date the underlying claim was asserted, adding anywhere from 30 to 45 years (and growing) of uninsured allocation to the policyholder for years when 24 ME1 26258734v.7 insurance coverage was not available in the marketplace,9 and diluting to an inconsequential level the contribution made by insurance companies for the years of coverage the policyholder purchased. For example, suppose a policyholder with asbestos liabilities had dutifully purchased insurance from 1956 through the present but, beginning in 1986, the policyholder was unable to purchase general liability insurance without an enforceable asbestos exclusion. Suppose further that the policyholder ceased its asbestos-related activities decades ago in the early 1980s or before. Under the Stonewall allocation method, the claim of an individual alleging first exposure to asbestos in 1956 would be fully covered by the policyholder’s insurance, with each policy on the risk from 1956 to 1985 contributing a pro rata share to any settlement or judgment. Under the Appellate Division’s decision, insurers will argue to allocate indemnity payments from 1956 to the present, with roughly half the loss being allocated to the 1986 to 2016 period. Under this approach, fully half the loss could fall directly on the policyholder, effectively punishing its diligent purchase of liability insurance when it was available; its continued purchase of such insurance (albeit with an asbestos exclusion); and its ultimate cessation of allegedly harmful activities. Regardless, the passage of time would inexorably 9 The Appellate Division’s decision does not resolve the issue of the trigger period for such cases. Indeed, the decision may kindle new litigation over that issue. 25 ME1 26258734v.7 water down the coverage for which the policyholder had paid by increasing the share of the loss borne by the policyholder. This example is neither isolated nor unrealistic. Insurance coverage for certain long-tail liabilities has been unavailable for decades. Silica and other exclusions eliminating coverage for specific toxic torts have become permanent in general liability policies. Asbestos exclusions achieved near-universal adoption in the mid-1980s. See Stonewall, 73 F.3d at 1204. Pollution exclusions were added to insurance policies beginning in the 1970s, and the “absolute” pollution exclusion was introduced in 1985 and became widely adopted shortly thereafter. See Am. States Ins. Co. v. Koloms, 687 N.E.2d 72, 80-81 (Ill. 1997). Given these exclusions, most policyholders facing long-tail claims whose policies are governed by New York law – through no fault of their own – have had long periods in which the purchase of insurance coverage for long-tail liabilities was impossible. Imposing losses on the policyholder for the joint decision of the insurance industry – permitted because of the industry’s antitrust exemption – not to offer coverage would penalize policyholders by reducing or refusing to enforce the insurance coverage they bought, on the grounds that the insurance industry later stopped selling that coverage. It would do nothing to further the original purpose of pro rating to the policyholder: “to oblige a [policyholder] to accept a 26 ME1 26258734v.7 proportionate share of a risk that it elected to assume.” Stonewall, 73 F.3d at 1204 (emphasis added). The effect would be especially punitive for the many policyholders that never produced products containing allegedly injurious materials, but currently find themselves defending asbestos or other long-tail claims. Some of these policyholders face liability based on the activities of companies they acquired – including insurance assets – in some cases long before any lawsuits were filed. They reasonably expected that the policies they acquired would cover any liabilities that arose before the acquisition. Other policyholders, many of them small companies, made products that did not even contain injurious materials but which were put to downstream uses involving such materials. Similarly, policyholders of all sizes face potential environmental liability simply by being a landowner, even if the alleged contamination took place years before they purchased the land. Allocating the losses of these policyholders solely to years in which insurance was available does not provide them with an “inequitable windfall,” or incentivize “overly risky behavior,” as Century would have the Court believe. Century Br. 36. Shifting long-tail liabilities directly onto the policyholder during periods of unavailability will wreak financial havoc for many policyholders. It could dramatically reduce (even nearly eliminate) the obligations of the insurers. In the 27 ME1 26258734v.7 area of asbestos alone, more than 100 asbestos defendants have been forced into bankruptcy by asbestos claims, see https://www.crowell.com/files/List-of- Asbestos-Bankruptcy-Cases-Chronological-Order.pdf, and the Appellate Division’s decision may force even more into insolvency by diluting the value and availability of their insurance coverage. Nor is the issue limited to asbestos or environmental claims; it also arises with respect to other long-tail products claims like silica, medical devices, pharmaceuticals, toxic torts, and other claims. Moreover, because the rule on unavailability had been settled and unchallenged for over 20 years, policyholders, claimants, and insurers alike have relied on prevailing law in organizing their affairs. The Stonewall rule on unavailability has informed calculations of reserves, by both policyholders and insurers who have incorporated those assumptions into their litigation budgets and settlement strategies. Some policyholders depend on the comprehensiveness of coverage simply to remain in business and continue to pay long-tail claims. Finally, the harm caused to policyholders by the Appellate Division’s decision will harm mass tort and environmental claimants. Under the unavailability rule, even if a tort or environmental defendant is unable to satisfy a judgment, claimants can remain assured of receiving compensation if the defendant’s insurers remain solvent and responsible to pay the claims. Allocating part of the claimants’ losses to periods for which there is no insurance greatly 28 ME1 26258734v.7 increases the risk that the asbestos or other defendants will be forced into bankruptcy, after which the claimant may receive only a fraction of the compensation it previously would have received under Stonewall, because the bankrupt policyholder will not be available to pay the share attributed to years of unavailability. Recognizing the unavailability rule increases the funds available to pay for pollution clean-up and mass tort liabilities, whereas the allocation Century argues for would have the opposite effect. R.T. Vanderbilt Co., Inc. v. Hartford Accident & Indem., Co., 171 Conn. App. 61, 137 (Conn. App. Ct. 2017) (“Applying an unavailability rule also may encourage insurers who already are on the risk for long-tail injuries to continue to accept premiums—which presumably will go up as the risk becomes more apparent—and to make insurance available for a longer period of time, thereby spreading the risk among additional policies and generating additional resources to compensate victims of injury.”). CONCLUSION The Appellate Division’s decision upends decades of New York insurance coverage law and works substantial harm on policyholders facing long-tail liability claims. This Court should reverse. Respectfully submitted, Gita F. Rothschild, Esq. Adam J. Budesheim, Esq. McCarter & English, LLP Four Gateway Center 100 Mulberry Street Newark, NJ 07102-4056 Paul E. Breene, Esq. ReedSmith LLP 599 Lexington Avenue New York, NY 10022 Kevin T. Merriman, Esq. David M. Knapp, Esq. Ward Greenberg Heller & Reidy LLP 1800 Bausch & Lomb Place Rochester, NY 14604 Amy Bach United Policyholders 381 Bush Street, 8th Floor San Francisco, CA 94104 Attorneys for Amicus Curiae United Policyholders Robert M. Horkovich, Esq. Anderson Kill 1251 Avenue of the Americas New York, NY 10020 Attorneys for Amici Curiae United Policyholders, Duro Dyne Corporation,and Alfa Laval, Inc. December 28, 2017 29 MEl 26258734V.7 ME1 26258734v.7 PRINTING SPECIFICATION STATEMENT This computer generated brief was prepared using a proportionally spaced typeface. Name of Typeface: Times New Roman Point Size: 14 Line Spacing: Double The total number of words in the brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of authorities, proof of service, certification of compliance, or any authorized addendum is 6,426.