New York District Court Attempts to Apply “Non-Cumulation” Clause Under New “All Sums” Allocation
In May, we issued an Alert concerning the New York Court of Appeals’ decision in Matter of Viking Pump, Inc., 27 N.Y.3d 244 (2016), where the Court held, for the first time, that New York will follow an “all sums” approach when allocating a loss that occurs over successive policy periods. Under an “all sums” allocation, an insured is entitled to coverage for its total liability under any policy in effect when the underlying injuries occurred, even if some of the injuries occurred outside of the applicable policy period.
In the wake of the Court of Appeals’ decision in Viking Pump, courts in New York are starting to address additional issues that arise when applying an “all sums” allocation. Recently, a federal district court in New York, considered whether a non-cumulation clause in an umbrella policy was enforceable with respect to asbestos claims that occurred over several years. See Liberty Mut. Ins. Co. v. Fairbanks Co., 2016 U.S. Dist. LEXIS 104250 (S.D.N.Y. Aug. 8, 2016).
In Fairbanks, the District Court originally found that a pro-rata, not an “all sums,” allocation should apply to the claims. However, following the Court of Appeals’ decision in Viking Pump, the insured moved for reargument, contending that the law in New York had changed and that the Court should have found that an “all sums” allocation was appropriate. The insurer did not dispute that an “all sums” allocation was now warranted. However, the insurer contended that, even under an “all sums” approach, the insurer was still entitled to rely upon the following non-cumulation clause that would effectively limit its exposure to a single policy limit, even though the insurer issued six successive umbrella policies:
If the same occurrence gives rise to personal injury . . . which occurs . . . 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 company 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.
Liberty Mutual contended that, pursuant to this clause and under an “all sums” allocation, if Liberty Mutual makes payments under the first-year policy issued to the insured (the 1974 policy), those payments would reduce the amount available under the subsequent Liberty umbrella policies (1975-1981).
The District Court denied the insurer’s motion – not because it disagreed with the insurer’s interpretation – but because the Court concluded that the non-cumulation clause would only reduce subsequent policy limits for the same occurrence and it had not yet been determined whether the asbestos claims constituted a single or multiple occurrences. 2016 U.S. Dist. LEXIS at *11. The District Court noted that the insurer had not yet even taken a position as to whether the multiple underlying asbestos injury actions constituted a single occurrence or multiple occurrences, which was a condition before the non-cumulation clause could be applied.
Significantly, although it denied the insurer’s motion as premature, the District Court noted on several occasions in its decision that non-cumulation clauses, like those found in the Liberty Mutual policies, are generally enforceable, even under an “all sums” allocation. By the plain terms of the clause, however, the policy limits will only be reduced for “the same occurrence.” This decision is important because it seems to reaffirm that, even under New York’s new “all sums” approach, non-cumulation clauses will continue to be enforced so long as the express terms of the clause have been satisfied.
Should you have questions regarding the information presented in this alert, please contact Anthony J. Piazza, Chair of the firm’s Insurance Coverage & Regulation Practice Area, at (585) 295-4420 or email@example.com or the Chair of the Mass & Toxic Torts Practice Area, Carol G. Snider, at (716) 858-3782 or firstname.lastname@example.org.