New York’s Court of Appeals Holds that Anti-Stacking Provision Justifies “All Sums” Allocation to Continuous Injury ClaimsMay 3rd, 2016
By Timothy D. Kevane, Sedgwick New York
In a landmark decision, the New York Court of Appeals broke with its prior precedent adopting a “pro rata” allocation among general liability policies for continuous injury claims, and held that where the policy contains an anti-stacking or similar provision, an “all sums” approach will apply. Viking Pump, Inc. v. TIG Insurance Co., — N.Y.3d –, 2016 WL 1735790 (N.Y. May 3, 2016).
The case involved claims arising from longterm exposure to asbestos from the insured’s pump manufacturing business. The question was how to allocate the indemnity obligation among successive policies, which obligated the insurers to pay “all sums” because of bodily injury occurring during the policy period. Pursuant to the Court’s prior opinion in Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208 (2002), the pro rata method of allocation was applied to claims involving environmental contamination over a number of years and policy periods based on two key provisions in the policy: (i) the agreement to indemnify the insured for “all sums” for which the insured was liable arising out of an occurrence; and (ii) indemnification applied to liability incurred as a result of an occurrence “during the policy period” only. The all sums method of allocation permits the insured to recover its total liability under any policy in effect when the damage occurred, whereas the pro rata approach adopted by the Court in Consolidated Edison limits the insurer’s liability to sums incurred by the insured during the policy period.
The Court held that the pro rata allocation it endorsed in Consolidated Edison did not apply here since the policies contained non-cumulation (anti-stacking) or similar “prior insurance” provisions. These provisions adjust the policy’s limit if the insurer made any payment for the same injury under a prior policy concerning the same incident, thus preventing the insured from “stacking” the limits of consecutive policies. According to the Court, these provisions made the policies at issue “substantively distinguishable” from those in Consolidated Edison, which contemplated that different policy wording might compel an all sums allocation (some of the policies in Consolidated Edison in fact did contain anti-stacking provisions, but the decision made no reference to them). The Court found that these provisions undermined the very premise upon which pro rata allocation is based. If the intent had always been to allocate damages based on policy periods, the anti-stacking provisions would be rendered superfluous. Since contractual interpretation principles would prohibit such a result, the only reconciliation was to adopt an all sums approach to the insuring clause. In reaching its decision, the Court suggested that the Second Circuit’s recent application of a pro rata approach for policies containing anti-stacking provisions in Olin Corp. v. Amer. Home Assur. Co., 704 F.3d 89 (2nd Cir. 2012) may have relied on an unduly narrow interpretation of Consolidated Edison. Given that the weight of authority has favored pro rata allocation over all sums, and that other courts have followed New York’s lead, it remains to be seen how these pro rata jurisdictions respond to Viking Pump.
Finally, the Court held that the insured would only be required to vertically exhaust its coverage, thus allowing it to access each excess policy once the immediately underlying policies’ limits are exhausted – even if other underlying policies during different policy periods are not exhausted. The Court found this approach more consistent given the language tying attachment of the excess policies to policies that cover the same policy period and the adoption of the all sums approach.