An important principal of New York insurance law is to apply the plain language of the contract as written. See In re Viking Pump, Inc., 27 N.Y.3d 244, 257 (2016). With respect to allocation issues, the Court of Appeals has been clear that New York has not adopted either a strict “pro rata” or “all sums” rule but contracts “should be enforced as written.” Id.
To try and limit their coverage obligations, insurance carriers often argue that New York law applies a “pro rata” allocation to long-tail (asbestos and environmental) claims. However, recent decisions such as Viking Pump, Inc. 27 N.Y.3d 244 and Keyspan Gas E. Corp. v. Munich Reinsurance Am. Inc., 31 N.Y.3d 41 (2018), 31 N.Y.3d 41 (2018) establish that “long-tail” liabilities such as environmental or asbestos claims may be allocated on an “all sums” basis.
Looking first to the plain language of the contract, the issue will be whether there is any policy that continues or extends coverage for bodily injury (or property damage) beyond the terms of that particular policy. If so, these cases dictate that an “all sums” allocation methodology must be applied which means that no insurer can prorate or allocate their liability to the policyholder for all years of bodily injury or damage during which the policyholder did not have coverage. Instead, each insurer on the risk during the policy period of bodily injury or damage has a separate and indivisible duty to pay for the entire loss up to policy limits.
The court’s handling of insurance coverage for the asbestos-bodily injury claim in the case of Polar-MohrMaschinevertriebsgesellschaft GMBH Co. KG v. Zurich Am. Insurance Co., 2018 U.S. Dist. LEXIS 42955 (N.D. Cal. Mar. 15, 2018) (“Polar-Mohr”) illustrates how the Viking Pump-Keyspan rule works under New York law. In Polar-Mohr, Zurich’s 1984-85 liability policy required Zurich to “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages” that are a result of “bodily injury . . . . caused by an occurrence.” (Polar-Mohr, at 4.)
Zurich’s policy also defined “bodily injury” as “bodily injury, sickness or disease sustained by any person that occurs during the policy period, including death any time resulting therefrom” (emphasis in original) (Id. at 11). Applying New York law, the Polar-Mohr court held the language it emphasized in the Zurich definition of bodily injury was precisely the type of policy language that is inconsistent with the pro rata method of allocation because it extended insurance coverage up through death (underlying claimant died of mesothelioma in 2014 or 30 years after the inception of the Zurich policy). On this ground alone, the Polar-Mohr court held that the all sums method of allocation applied.
In Dicola v. American S.S. Owners Mut. Protection & Indem. Assoc. (In re Prudential Lines), 158 F.3d 65 (1998), a case on appeal from the United States District Court for the Southern District of New York, the Second Circuit Court of Appeals applied New York law and rejected the P&I Club argument that it could apply a separate deductible for each policy period, and held that each claim arose from a separate occurrence and a single deductible is applicable to each claim. Thus, the policyholder was within its contract rights to designate one policy to pay all of the claim covered by that policy subject to exhaustion of the policy limits.
Prior to the Viking Pump and Keyspan decisions, in Continental Casualty Co. v. Rapid-American corp., 609 N.E.2d 506 (N.Y. 1993), the Court of Appeals had held that defense costs may be allocated to a primary insurer on an all sums basis. See also e.g., Travelers Cas. & Sur. Co. v. Alfa Laval Inc., 100 A.D.3d 451m 452 (N.Y. App. Div. 2012)(holding that the trial court did not err in declining to order sharing among triggered primary policies, given that “[t]he duty to defend is broader than the duty to indemnify requiring each insurer to defend if there is an asserted occurrence covered by its policy” and that the primary insurer ordered to pay defense costs “may later obtain contribution from other insurers on applicable policies”); BP Air Conditioning Corp. v. One Beacon Ins. Grp., 33 A.D.3d 116, 131 (N.Y. App. Div. 2006).
When faced with an asbestos or environmental claim under New York law, the policyholder should look to the policy language and determine if there is language in the policy that continues or extends coverage for bodily injury (or property damage) beyond the terms of that particular policy. If so, then the policyholder has a strong argument that an all sums allocation applies to the claim.