Could the Viking Pump Decision by the New York Court of Appeals Signal a Broader Trend Nationwide on Long Tail Coverage Issues?

Transcription

1 1 Could the Viking Pump Decision by the New York Court of Appeals Signal a Broader Trend Nationwide on Long Tail Coverage Issues? Presented by: Lisa Campisi, Esq. Andrew Nadolna, Esq. Heather Simpson, Esq. March 4, 2017

2 Overview 2 Viking Pump in Review Status of Allocation Law in Other States Questions and Challenges Faced by New York Courts Positions Asserted By Insurers and Policyholders in the Wake of Viking Pump Questions and Answers

3 Viking Pump in Review 3 Coverage lawsuit in DE state court by two pump manufacturers (Viking Pump and Warren Pumps) against numerous Excess Insurers in shared coverage program DE court concludes, under NY law, that all sums allocation applies based on non-cumulation and prior insurance clauses in policies (among other rulings) After trial, WP/VP and Excess Insurers file appeals on various issues, including allocation and exhaustion DE Supreme Court certifies two questions to NY Court of Appeals

4 Viking Pump in Review 4 Certified Questions Under NY law, is the proper method of allocation to be used all sums or pro rata when there are non-cumulation and prior insurance provisions? Given the Court s answer to Question #1, under NY law and based on the policy language at issue here, when the underlying primary and umbrella insurance in the same policy period has been exhausted, does vertical or horizontal exhaustion apply to determine when a policyholder may access its excess insurance?

5 Viking Pump in Review 5 Non-Cumulation Clause: Version 1 (no continuation provision) If the same occurrence gives rise to personal injury, property damage or advertising injury or damage which occurs partly before and partly within any annual period of this policy, the each occurrence limit and the applicable aggregate limit or limits of this policy shall be reduced by the amount of each payment made by [the insurer] with respect to such occurrence, either under a previous policy or policies of which this is a replacement, or under this policy with respect to previous annual periods thereof.

6 Viking Pump in Review 6 Non-Cumulation Clause: Version 2 (continuation provision) It is agreed that if any loss covered hereunder is also covered in whole or in part under any other excess Policy issued to the [insured] prior to the inception date hereof, the limit of liability hereon as stated in Items 5 and 6 of Declarations shall be reduced by any amounts due to the [insured] on account of such loss under such prior insurance. Subject to the foregoing paragraph and to all the other terms and conditions of this Policy in the event that personal injury or property damage arising out of an occurrence covered hereunder is continuing at the time of termination of this Policy the Company will continue to protect the Insured for liability in respect of such personal injury or property damage without payment of additional premium.

7 Viking Pump in Review 7 Policyholders Arguments NY courts enforce policy language as written Non-cumulation clauses are irreconcilable with pro rata Policy language expressly provides coverage for injury outside the policy period (the continuing coverage provision) Primary/umbrella insurer paid on all sums basis for more than 20 years Excess Insurers application of pro rata and non-cumulation clauses results in windfall (double credit) to them Equities (insuring full coverage for loss) favor application of all sums Policy language supports vertical exhaustion

8 Viking Pump in Review 8 Warren Pumps All Sums Example

9 Viking Pump in Review 9 Warren Pumps Pro Rata Example

10 Viking Pump in Review 10 Warren Pumps Example of Insurers Allocation Model

11 Viking Pump in Review 11 Insurers Arguments: NY applies pro rata under Court of Appeals decision in Con-Ed Policy language ( during the policy period ) requires pro rata allocation Non-cumulation clauses do not provide a basis to abandon binding NY law Liberty s allocation practices (paying on an all sums basis when another carrier exhausted rather than seeking a share from the insured) are not controlling on Excess Insurers If all sums allocation applies, horizontal exhaustion of primary and umbrella policies is required

12 Viking Pump in Review 12 Amici Submissons: ITT (All Sums) New York State Electric & Gas Corporation (All Sums) United Policyholders (All Sums) Complex Insurance Claims Litigation Association (Pro Rata) Olin Corporation (Pro Rata)

13 Viking Pump in Review 13 Court of Appeals Held: Con-Ed did not adopt a blanket rule of pro rata under all circumstances Contract language controls the issue of allocation We did not adopt a strict rule mandating either pro rata or all sums allocation because insurance contracts, like other agreements, should be enforced as written, and parties to an insurance arrangement may generally contract as they wish and the courts will enforce their agreements without passing on the substance of them. However, in the absence of language weighing in favor of a different conclusion, pro rata allocation was the preferable method of allocation in long-tail claims Policies at issue substantively distinguishable from Con-Ed Policies plainly contemplate that multiple successive insurance policies can indemnify the insured for the same loss or occurrence [W]e hold that all sums allocation is appropriate in policies containing such provisions

14 Viking Pump in Review 14 Court of Appeals Held: With respect to the exhaustion issue, the Court noted that all of the excess policies hinge their attachment on the exhaustion of underlying policies that cover the same policy period as the overlying excess policy Thus, in the Court s view vertical exhaustion is more consistent than horizontal exhaustion with this language tying attachment of the excess policies specifically to identified policies that span the same policy period In addition, 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

15 Status of Allocation Law in Other States 15 Pro Rata Jurisdictions Colorado Connecticut Kansas Kentucky Louisiana Massachusetts Minnesota Nebraska South Carolina

16 Status of Allocation Law in Other States 16 All Sums Jurisdictions California Illinois (asbestos BI) Indiana Ohio Pennsylvania Washington Texas*

17 Status of Allocation Law in Other States 17 Pro Rata By Time and Limits Jurisdictions New Jersey New Hampshire Utah

18 Status of Allocation Law in Other States 18 Interplay Between Allocation & Non-Cumulation Hercules Inc. v. AIU Ins. Co. Del (All Sums) Chicago Bridge & Iron Co. v. Certain Unders. Mass. App (All Sums) Plastics Eng g Co. v. Liberty Mutual Wisc (All Sums) Spaulding Composites Co. v. Aetna N.J (Pro Rata) Outboard Marine Corp. v. Liberty Mutual Ill App (Pro Rata)

19 Vulnerability/Opportunity Algorithm 19 Highest level appellate decision is pro rata That decision is significantly based on the view that during the policy period is a temporal limitation on coverage Either there is no mention of non-cumulation clauses or there is language suggesting that the court might rule differently on subsequent cases if there is different language at play Little or no emphasis on judicial administration/public policy reasons for adopting pro rata Heavy reliance on Con Ed or other cases suggesting an opening for different language (i.e. Boston Gas)

20 Questions & Challenges Faced By NY Courts 20 What allocation model applies when some, but not all, of the policies at issue in a multi-year coverage block contain non-cumulation clauses? What allocation model applies when the primary policies do not contain noncumulation clauses but the umbrella/excess policies do? How do non-cumulation clauses interact with number of occurrences issues? Under all sums allocation, how do non-cumulation clauses work in practice? Do non-cumulation clauses serve to reduce limits by amounts due under any prior insurer s policies or exclusively policies issued by the same insurer? Is there a difference between amounts due and amounts paid? Do non-cumulation provisions reduce both per occurrence and aggregate limits? Does all sums (based on non-cumulation clauses) apply to defense costs?

21 Positions Asserted in the Wake of Viking Pump 21 Cases Considering Allocation & Non-Cumulation Since Viking Pump Liberty Mutual Insurance Co. v. The Fairbanks Co. (S.D.N.Y. Aug. 5, 2016) Olin Corp. v. OneBeacon Insurance Co. (2d Cir. Appeal Pending) New England Reinsurance Corp. v. Ferguson Enterprises Inc. (D. Conn. 2016) Columbus McKinnon Corp. v. Travelers Indem. Co. (S.D.N.Y. Dec. 21, 2016)

22 Positions Asserted in the Wake of Viking Pump 22 Policyholder Positions Existence of non-cumulation and prior insurance provisions mandates all sums allocation under New York law Non-cumulation clauses apply only to the same occurrence Non-cumulation clauses reduce limits only with respect to same occurrence but not for future occurrences Non-cumulation clauses do not reduce aggregate limits Non-cumulation clauses apply only to payments made under prior policies issued by the same insurer, not any insurer

23 Positions Asserted in the Wake of Viking Pump 23 Insurer Positions Courts must consider policy language and factual circumstances presented by each case Non-cumulation clauses reduce per occurrence and aggregate limits; can reduce policy limits to zero by payment under earlier-in-time policy(ies) Depending on the language, reduction of limits may apply on a loss basis rather than same occurrence basis Depending on the language, reduction of limits may encompass payments due from any prior insurer, not just the same insurer Viking Pump does not address defense costs

24 What Does the Future Hold Post-Viking Pump? 24 Influence on Other States Will other states apply all sums based on the existence of non-cumulation clauses? Will other states answer some of the open questions before New York courts? Will the impact of Viking Pump evolve over time as the open questions get answered? Impact on Litigation and Settlement Strategy Policyholder Interests Insurer Interests Impact on Contribution Lawsuits Will the application of all sums allocation lead to increased litigation among carriers?

25 25 Questions?