In re Viking Pumps, Inc: Sowing Confusion for Insurers and Policyholders Alike. In May 2016, the New York Court of Appeals issued its decision addressing a question of first impression: how “anti- stacking” or “non-cumulation” clauses found in many insurance policies are to be applied when allocating a loss that spans multiple insurance policies. In re Viking Pump, Inc. & Warren Pumps, LLC, 2016 N.Y. Slip Op. 03413, 2016 WL 1735790 (May 3, 2016). The question came to the New York Court of Appeals on certified questions from the Delaware Supreme Court in a long-running coverage dispute that involved claims arising from long-term exposure to asbestos causing personal injury over the course of several years and even, in some cases, decades.
Courts have long grappled with the question of how liability for injury caused over time is allocated to successive insurance policies. This issue is important not only in cases involving asbestos, but also in cases involving long-term exposure to other toxic substances as well as claims for environmental damage. Certain jurisdictions allow policyholders to use an “all sums” method to allocate all liability to a single policy up to its limits. Other jurisdictions mandate a “pro rata” approach, allocating the liability to each applicable policy.
Until Viking, New York law required pro rata allocation of liability for long-term injuries under the New York Court of Appeals decisions in Consolidated Edison Co. v. Allstate Insurance Co., 98 N.Y.2d 208 (2002) and Roman Catholic Archdiocese v. National Union Fire Ins. Co., 21 N.Y.3d 139 (2013). Those cases cited policy language requiring the insurer to pay “all sums” for occurrences causing damage “during the policy period” and concluded that pro rata allocation was appropriate.
The Viking court distinguished that precedent and ruled that where a policy contains “non- cumulation” and “prior insurance” clauses, the policy is “substantively distinguishable” from the policies at issue in Con. Ed. Specifically, non-cumulation clauses generally provide that, if the “same occurrence” gives rise to injuries “partly before and partly within” one policy’s annual period, the “occurrence limit and the applicable aggregate limit” of that policy must be “reduced by the amount of each payment made by” the insurer “with respect to such occurrence” under a “previous policy” or under “previous annual periods” of that policy. The court concluded that the policy language contemplates injury outside of the policy period, making it distinguishable from policies accounting for liability only “during the policy period.” Given this, the court ruled that the policyholder was permitted to select a single policy period to pay “all sums” that otherwise would have been allocated pro-rata to multiple policy periods. The court reasoned that otherwise “the non-cumulation clauses would . . . be rendered surplusage—a construction that cannot be countenanced under our principles of contract interpretation.”
Viking, however, is also important and equally clear in holding that non-cumulation clauses are unambiguous and must be enforced under New York law “in accordance with their plain language.” The Court of Appeals explained that non-cumulation clauses have a definite meaning and purpose, namely, to prevent stacking—“the situation in which ‘an insured who has suffered a long term or continuous loss which has triggered coverage across more than one policy period . . . wishes to add together the maximum limits of all consecutive policies that have been in place during the period of loss.’” Viking, Slip Op. at 15; (citing 12 Couch on Ins. § 169:5 (3d ed)). The Court acknowledged that its ruling requiring the enforcement of non-cumulation clauses will have a “limiting impact … on an insured’s recovery (and, by extension, that of an injured plaintiff).”
Notwithstanding the court’s prediction of a limiting impact on Plaintiffs’ recoveries from its decision, policyholders had claimed victory because they generally favor the “all sums” approach, which allows them to collect insurance from a single policy period for losses that span multiple years, even decades in certain cases. Recently, however, the Appellate Division scaled back the holding of Viking, in Keyspan Gas East Corp. v. Munich Reinsurance America, Inc., 37 N.Y.S.3d 85 (2016). There, the Appellate Division found that the Court of Appeals’ limitation on “pro rata” recovery was limited to anti-stacking and anti- cumulation provisions. Absent those provisions, the “pro rata” approach articulated in Con. Ed. still applies.
Insurers are now able to obtain pro rata allocation under the ruling in Keyspan. In addition, in cases with non-cumulation provisions, the insurer will be citing Viking to enforce the plain terms of the non- cumulation clauses, which limit the policyholder’s recovery to a single limit of insurance, where a loss or “occurrence” spans multiple policy periods covered by the same insurer. This will have the effect of reducing the policyholder’s recovery in many cases.
Finally, it remains undecided how to allocate liability to multiple policies when only some of the policies contain the language at issue in Viking, while others do not contain those clauses. It is unclear how a court will blend both concepts and apply the rationale for policies with non-cumulation clauses, while also applying the “during the policy period” language requiring a pro rata allocation under the earlier New York Court of Appeals decisions in Con. Ed. and Roman Catholic Archdiocese.