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New York High Court Rules on “Unavailability Exception” to Pro Rata Allocation in Long-Tail Environmental Coverage Case

The New York Court of Appeals ruled last week that if an insurance policy provides for pro rata allocation to determine the insurance coverage responsibility for environmental contamination spanning multiple policy periods, the policyholder bears the risk of loss for periods where pollution coverage was unavailable for purchase. Keyspan Gas East Corp. v. Munich Reinsurance America, Inc., No. 20 (Slip Op. Mar. 27, 2018).

In Keyspan, the policyholder had operated manufactured gas plants for decades beginning in the late 1800s and early 1900s.  The policyholder purchased insurance for many years, including several from Century Indemnity Company between 1953 and 1969.  However, there were a number of periods without coverage: years before insurance was available in the marketplace, after it became unavailable due to the pollution exclusion, and during which coverage could have been purchased but the policyholder chose to self-insure.

Because environmental contamination occurred continuously and gradually over the course of the operations, the court examined the specific language of the policy to determine how coverage would be allocated and determined that a pro rata allocation formula was appropriate. In the pro rata context, the court assesses how to allocate each insurance company’s proportionate share based on the policy limits and how long each insurer provided coverage to the policyholder (i.e., its “time on the risk”).  (This is in contrast to “all sums” allocation, in which a single insurer can be liable for an entire loss up to its policy limits).

In an issue of first impression for the New York Court of Appeals, the court considered who in a pro rata allocation should be allocated the risk of years in which coverage was unavailable for purchase: the policyholder or the insurer. Several jurisdictions have adopted the “unavailability rule” (or “unavailability exception”), which allocates the risk of unavailable insurance to the insurers rather than the policyholder.  However, the New York Court of Appeals declined to adopt the rule, reasoning that it would be inconsistent with the policy language at issue, concluding that the insurer had limited its liability to a particular policy period and accepted premiums with that level of risk in mind.

Although a disappointing result for policyholders, they can take heart that the decision was based on the particular language of the policies at issue, and different policy language may lead to a more favorable outcome. That was true in a New York Court of Appeals ruling in 2016, where the court held that the “all sums” allocation method typically favored by policyholders, and not pro rata allocation, was appropriate because of specific language in the policies. In the Matter of Viking Pump, Inc., 27 N.Y.3d 244 (2016).

© 2020 Beveridge & Diamond PC National Law Review, Volume VIII, Number 93


About this Author

Nicole B. Weinstein Insurance Recovery & Environmental Litigation Attorney Beveridge & Diamond New York, NY

Nicole B. Weinstein helps clients minimize and eliminate liability for contaminated sites in litigation, and to recover insurance proceeds across industries.

Nicole's practice focuses on insurance recovery and environmental litigation. She excels at identifying avenues of defense and coverage, and in distilling complicated issues into understandable terms.

Nicole has been interested in environmental matters for as long as she can remember, and has always enjoyed thinking through complex challenges. She planned to become an environmental lawyer as a student, and after...

John H. Kazanjian Insurance Coverage Attorney Beveridge & Diamond New York, NY
Office Managing Principal

John is one of the top-rated insurance coverage lawyers in New York, with over forty years of experience in complex civil and commercial litigation.

He helps business clients recover the insurance dollars they purchased to protect themselves from critical loss exposure when their insurance companies resist paying. John applies his mastery of insurance coverage law and a range of disciplines for each underlying matter, including environmental law, toxic tort law, and securities law, to maximize recovery.

John advises policyholders in assessing the scope of their insurance coverage and negotiating policy language. He counsels clients in preparing insurance claims and in determining whether to pursue the settlement or litigation of disputed coverage claims.

He has vast experience in evaluating and negotiating settlements with insurance companies, including claims resolutions through mediation or arbitration, no matter the coverage or policy type—from comprehensive general liability, first-party property and business interruption, to errors and omissions, directors and officers, fiduciary liability, employment practices, crime, fidelity, Bermuda form, and environmental, cyber, and other specialty coverages.

Policyholder Clients

John represents corporate and governmental policyholders seeking insurance recovery for bodily injury, property damage, financial loss, and other alleged liabilities and possesses broad industry experience. His clients include chemical, energy, coatings, tire, building products, pulp and paper, mining, recycling, electronics, technology, beverage, pharmaceutical, and medical device manufacturers, as well as hotel operators, franchisors, home builders, property developers and owners, financial services companies, transportation and logistics companies, universities, and municipalities.

His experience also includes specialty policies designed to cover pollution cleanup and liability, such as environmental cost-cap and site liability policies, as well as cyber liability policies. He has represented clients seeking insurance recoveries for domestic and international liabilities and has substantial experience in insurance issues relating to mergers and acquisitions.


John has served as lead counsel for policyholders in significant litigation involving insurance coverage for environmental, product, toxic tort, employment, securities, fiduciary, construction defect, and class action liabilities and for punitive damages. He has developed strategies to manage these cases cost-effectively and bring about their earliest possible settlement or resolution, including trial, if necessary, through appeal.

He has argued vital coverage issues before the highest courts of several states and has represented numerous industry and policyholder groups as amici curiae in federal and state appellate courts.

A collaborative problem solver, John is also called upon for his general litigation and dispute resolution skills, including mediation and arbitration.

In addition to insurance coverage disputes, he represents manufacturers in product liability, toxic tort, and mass liability cases. Other matters John has handled over his distinguished career include antitrust, trade regulation, intellectual property, banking, business torts, securities, commodities, contracts, construction, defamation, international, real estate, admiralty, and maritime disputes.