Insurance: “All Sums” Claims Another Victory, This Time In New York
In Viking Pump, Inc., et al. v. TIG Insurance Co., et al., 2016 N.Y. LEXIS 1018 (N.Y. May 3, 2016), policyholders scored a victory when New York’s highest court applied “all sums” allocation and vertical exhaustion. The court rejected the insurers’ request to apply pro rata allocation in light of the policies’ non-cumulation clauses and held that vertical exhaustion is more consistent with all sums allocation.
Courts typically use two methods of allocation for long-tail asbestos claims: “all sums” and “pro rata.” In jurisdictions following the “all sums” approach, a policyholder is entitled to select one of its triggered policies to collect the full amount of its loss from the selected policy. In “pro rata” jurisdictions, a policyholder’s loss is allocated across all triggered policies. With Viking Pump, New York’s highest court sided with “all sums” jurisdictions.
Noting that “[c]ourts across the county have grappled with so-called ‘long–tail’ claims – such as those seeking to recover for personal injuries due to toxic exposure and property damage resulting from gradual or continuing environmental contaminations – in the insurance context,” the Viking Pump court was tasked with answering two certified questions: (1) under New York law, is the proper method of allocation to be used all sums or pro rata when there are non-cumulation and prior insurance provisions; and (2) given the answer to question #1, does vertical or horizontal exhaustion apply? The court answered that all sums is the proper allocation method, and vertical exhaustion (permitting a policyholder to reach excess policies once the immediately underlying policy’s limits are exhausted) is more consistent with all sums.
Although the court noted that it previously applied the pro rata method to claims involving environmental contamination, (see Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 774 N.E.2d 687 (2002)), the court did not adopt a “blanket rule.” Rather, the court noted that it simply relied on the contract language at issue. In Viking Pump, the inclusion of the non-cumulation clauses (which generally prevent a policyholder from adding together the maximum limits of all consecutive policies to form a one uber-policy) rendered the pro rata method of allocation incompatible because such provisions contemplate that multiple, successive policies can provide coverage for the same loss. Under the pro rata allocation method, continuous and indivisible injuries are treated as distinct injuries in each policy period such that no two policies, unless overlapping or concurrent, would cover the same loss or occurrence. Under pro rata allocation, the non-cumulation clause would be rendered surplusage.
The court then addressed another issue that courts across the country have grappled with – whether to apply horizontal or vertical exhaustion. In other words, does a policyholder have to exhaust all triggered underlying policies before tapping into its excess layers, or can a policyholder reach an excess layer by exhausting only the immediately underlying policies’ limits? In the court’s view, “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.” The court rejected the excess insurers’ reliance on “other insurance” clauses because such clauses have nothing to do with coverage under successive policies.
The Viking Pump ruling is another blow to insurers’ attempts to diminish the “all sums” doctrine.