Rejecting policyholder arguments that losses during periods where pollution liability insurance was commercially unavailable should be allocated to insurers of other periods, the New York Court of Appeals recently confirmed that New York remains a pure pro rata/time on the risk allocation state. In Keyspan Gas East Corporation v. Munich Reinsurance America, Inc., the policyholder, Keyspan Gas East Corporation (Keyspan), sought coverage to clean up environmental contamination at a site that began in the 1890s and continued for decades. Century Indemnity Company (Century) issued eight excess insurance policies between 1953 and 1969, and the trial court found that environmental liability insurance was unavailable prior to 1925 and after 1970.
The Court of Appeals previously adopted the pro rata approach to allocating responsibility for coverage for progressive injury claims spanning across multiple policy periods in Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208 (2002). Keyspan, however, argued that an equitable exception should be created for periods where insurance was commercially unavailable, and that liability for such periods should be allocated to insurers of other time periods. Rejecting this so-called “unavailability rule,” the Court found Keyspan’s arguments irreconcilable with the unambiguous language of Century’s policies, which like nearly all general liability policies, limits the insurer’s liability to property damage that occurs “during the policy period.” Losses sustained outside that period – such as years insurance was unavailable – are not within the scope of coverage.
Importantly, the Court took pains to emphasize that its recent decision in Matter of Viking Pump, Inc., 27 NY3d 244 (2016), that “all sums” allocation is appropriately applied to policies containing “anti-stacking” or “noncumulation” clauses that collapse coverage across multiple policy periods into a single period, did not presage a retreat from the Court’s prior adoption of pro rata allocation. Instead, the Court emphasized that its fundamental rule is that policies must be enforced according to their contractual language and that so-called “public policy” or “equity” concerns cannot serve to permit New York’s Courts to rewrite the bargain between an insurer and its insured.
The Court’s holding is a significant win for insurers in New York involved in “long-tail” insurance claims, particularly those stretching across several decades. The holding reaffirms strict compliance with the pro-rata approach to allocation, and holds insurer’s liable only for their time on the risk. Emphasizing the importance of permitting insurers to select for themselves the risks they choose to underwrite, the Court rejected Keyspan’s bid to rewrite the policy for “public policy” reasons, and refused to find coverage that was never underwritten and never contemplated by the parties. While this case involved environmental contamination, it also can be expected to have important repercussions for long-tail personal injury claims such as asbestos, where coverage for asbestos claims has been commercially unavailable to most commercial insureds since the mid-1980s.