In the recent decision of Viking Pump, Inc., et al. v. TIG Insurance Co., et al., 2016 N.Y. LEXIS 1018 (N.Y. May 3, 2016), the New York Court of Appeals (New York’s highest court), on questions certified by the Delaware Supreme Court, held that “all sums” joint and several liability and vertical exhaustion applied to the specific policy language set forth in excess insurance policies at issue in the asbestos bodily injury coverage case pending in Delaware.
At issue in Viking Pump were two questions from the Delaware Supreme Court certified to the New York Court of Appeals:
(1) whether "all sums" or "pro rata" allocation applies where the excess insurance policies at issue either follow form to a non-cumulation provision or contain a non-cumulation and prior insurance provision; and
(2) whether, in light of the answer to certified question #1, horizontal or vertical exhaustion is required before certain upper level excess policies attach.
The umbrella and excess policies at issue required the insurers to pay “all sums in excess of the retained limit” because of personal injury resulting from an occurrence, a term defined, in part, as personal or bodily injury occurring during each relevant policy period. Notably, the policies contained language stating that "[f]or the purpose of determining the limits of [the Insured's liability]: (1) all personal injury . . . arising out of continuous or repeated exposure to substantially the same general conditions . . . shall be considered as the result of one and the same occurrence."
More significantly, majority of policies at issue were subject to a "non-cumulation" of liability or "anti-stacking" provision stating in relevant part that:
[i]f the same occurrence gives rise to personal injury ... which occurs partly before and partly within any annual period of this policy, the each occurrence limit and the applicable aggregate limit or limits of this policy shall be reduced by the amount of each payment made by [Liberty Mutual] with respect to such occurrence, either under a previous policy or policies of which this is a replacement, or under this policy with respect to previous annual periods thereof.
While certain of the policies at issue did not follow form to this particular provision, they contained similar non-cumulation provision.
In beginning its analysis, the New York Court of Appeals made clear that its ruling was limited to questions of allocation and exhaustion. The Court then revisited its prior pro-rata allocation holding in Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 NY2d 208 (N.Y. 2002), emphasizing it did:
... not reach its conclusion by adopting a blanket rule, based on policy concerns, that pro rata allocation was always the appropriate method of dividing indemnity among successive insurance policies. Rather, we relied on our general principles of contract interpretation, and made clear that the contract language controls the question of allocation.” The Court went on to stress that in Consolidated Edison it was made clear that, “different policy language might compel all sums allocation.”
The Court observed that the language of the policies issued to Viking Pump was, in fact, different than those at issue in Consolidated Edison, and thus presented a novel question under New York law. The Court ultimately concluded that it was unable to reconcile the non-cumulation/prior insurance clauses with a pro rata allocation scheme, since the clauses:
... clearly contemplate that multiple successive insurance policies can indemnify an insured for the same loss or occurrence by acknowledging that a covered loss or occurrence may ‘also [be] covered in whole or in part under any other excess [p]olicy issued to the [Insured] prior to the inception date’ of the instant policy.
In contrast, the Court of Appeals stated that the essence of pro rata allocation is that the insurance policy language limits indemnification to losses and occurrences during the policy period and therefore, no two insurance policies, unless containing overlapping or concurrent policy periods, would indemnify the same loss or occurrence. According to the Court, the non-cumulation clause negates the pro rata premise by “presupposing that two policies may be called on to indemnify the insured for the same loss or occurrence.” Importantly, the Court stressed that in a pro rata allocation, the non-cumulation clauses would be rendered surplusage, which is an impermissible result under the New York principles of contract interpretation.
Importantly, the Court also found that the so-called “continuing coverage” language within certain of the non-cumulation and prior insurance provisions, reinforced its holding that all sums, not pro rata allocation was intended by such policies.
Having concluded that the presence of the non-cumulation clauses required an “all sums” rather than a pro rata methodology of allocation, the Court then turned to the second certified question, which the Court framed as whether the insureds were required under the terms of the excess policies to "horizontally" exhaust all triggered primary and umbrella excess layers before accessing any of the additional excess insurance policies, or whether the insureds need only "vertically" exhaust the primary and umbrella policies. In holding that “vertical attachment” applied, the Court found it significant that all of the excess policies “hinge their attachment on the exhaustion of underlying policies that cover the same policy period as the overlying excess policy, and that are specifically identified by either name, policy number, or policy limit.” Further, the Court stated that “vertical exhaustion is conceptually consistent with an all sums allocation, permitting the Insured to seek coverage through the layers of insurance available for a specific year.”
Finally, the Court considered but dismissed the insurers’ contention that attachment language contained or incorporated into the excess policies required horizontal exhaustion. The language in question provided that the insurer will pay “all sums in excess of the retained limit”, defined as the relevant limit of liability of underlying policies, “plus all amounts payable under other insurance, if any.” The insurers argued that the “other insurance” available to the insureds necessarily included coverage provided by policies issued in successive years. While characterizing the insurers argument as “not completely baseless,” the Court, citing to Consolidated Edison, held that these “other insurance clauses” were not implicated and do not apply in situations involving successive - - as opposed to concurrent - - policies. Accordingly, the Court held that in absence of any policy language suggesting a contrary intent, the excess policies “are triggered by vertical exhaustion of underlying available coverage within the same policy period.”