A New York State trial court has ruled that insurance coverage for asbestos bodily injury claims is to be allocated pro rata among insurers based on each insurer’s time on the risk.  Mt. McKinley Insurance Company v. Corning Inc., No. 602454/02 (N.Y. Supreme Court Sup. Ct., County of New York Sept. 7, 2012).  The court rejected the policyholder’s “joint and several” allocation method, which would have allowed the policyholder to recover its full loss from one or a few insurers and forced those insurers to bear responsibility for coverage owed by insolvent insurers. 

The policyholder, Corning, sought defense and indemnity under general liability insurance policies for numerous claims alleging injuries due to exposure to asbestos-containing products.  The general liability insurance policies were issued during the time period from 1962 through 1985.  At least one of Corning’s insurers during this time period was insolvent.

Corning and the insurers moved for summary judgment regarding the proper method of allocation of coverage among the insurers.  Corning argued for “joint and several” liability allocation, and the insurers argued for “pro rata” allocation.  Under joint and several allocation, also known as “all sums” allocation, each insurer potentially owes coverage for the full amount of the loss, up to its limits of liability, even if part or most of the loss took place outside the insurer’s policy period.  The policyholder picks the insurer that pays the loss, and after paying the loss, this insurer may seek contribution from the other insurers for that portion of the loss that took place outside its policy period.  In contrast, under pro rata allocation, each insurer owes coverage only for that portion of the loss that took place during its policy period.

In rejecting joint and several allocation, the court observed that joint and several allocation is inconsistent with policy language that grants coverage for “all sums” of liability that resulted from an accident or occurrence “during the policy period.”  The court also reasoned that pro rata allocation properly places the burden of an insolvent insurer on the policyholder, because the policyholder, not the other insurers, chose to purchase insurance from the insurer who later went insolvent.

Corning relied upon Viking Pump v. Century Indemnity Co., 2 A.3d 76 (Del. Ch. 2009), in which the Delaware Chancery Court, applying New York law, adopted joint and several allocation.  The court rejected the Viking Pump decision as inconsistent with New York law.  According to the court, “Viking Pump ignores established New York precedent, is not controlling on this court and is limited to the facts and policy language of that case itself.”

The court further disagreed with Corning’s reliance on “non-cumulation” and “non-stacking” policy provisions for its joint and several arguments.  The court determined that those policy provisions do not mandate joint and several allocation; instead, those provisions “function as a bar to multiple recoveries for same injury during the same time period.”

The New York court similarly ruled that responsibility for Corning’s defense costs should be allocated pro rata among the primary insurers.  The court determined that “joint and several allocation does not comport with fairness to be found in the benefit of the bargain to which Corning agreed with its respective primary insurers,” and therefore, “‘time on the risk’ pro rata allocation is proper for defense costs for which the primary insurers are to bear.”