Liberty Mut. Fire Ins. Co. v. J&S Supply Corp., No. 13-CV-4784, 2017 WL 4351523 (S.D.N.Y. September 29, 2017)

As previously reported, Mound Cotton won summary judgment on behalf of Liberty Mutual in this third-party coverage action. The court held, over J&S’s objection, that under New York law, the special multiperil policy at issue, in effect from March 1987 to March 1988 (the SMP policy), unambiguously provided for pro rata allocation of indemnity based on Liberty Mutual’s time on the risk for a progressive asbestos injury whose precise date of origin was unknown. Relying on Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178 (2d Cir. 1995), Olin Corp. v. Ins. Co. of N. Am., 221 F.3d 307 (2d Cir. 2000),  Consol. Edison Co. v. Allstate Ins. Co., 98 N.Y.2d 208 (2002), and Roman Catholic Diocese of Brooklyn v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 21 N.Y.3d 139 (2013), Judge Broderick granted Liberty Mutual’s motion seeking a declaration that: (1) it is only obligated to pay its pro rata share of indemnity under the SMP policy, including in connection with the underlying asbestos personal injury settlement; (2) it is not obligated to indemnify J&S for uninsured years or the periods insured by other carriers; and (3) it is entitled to equitable contribution from J&S for the amount Liberty Mutual paid under the SMP policy in excess of its pro rata share of indemnity with respect to the settlement.  According to the court, “J&S is obligated to contribute its pro rata share of indemnity for whatever period . . . it did not have insurance, and [Liberty] is not obligated to indemnify J&S for any periods insured by other carriers or any periods without insurance . . . .” 

In granting summary judgment to Liberty Mutual, Judge Broderick rejected J&S’s argument that the existence of non-cumulation provisions in J&S’s umbrella excess policies – including those in effect at the same time as the SMP policy – would make pro rata allocation unfair and provide Liberty Mutual with a windfall.  The judge agreed with Liberty Mutual that since the non-cumulation provision only existed in the umbrella excess policies and was not present in the SMP policy, there was no basis to upset the application of pro rata allocation to the SMP policy. Importantly, Judge Broderick observed that even though both layers of coverage were part of one program sold to the insured, there would be nothing improper or illogical in applying “two different methods of allocation under two different contracts if the terms of those contracts actually provided for different methods of allocation.”

At the time of the summary judgment order, the issue of whether the existence of a non-cumulation provision in a policy mandated all sums allocation had not been addressed by the New York Court of Appeals.  However, soon after the New York Court of Appeals’ seminal decision in In re Viking Pump, 33 N.Y.S. 3d 118 (2016), J&S moved for reconsideration of the order based on what it considered an intervening change in law. J&S later submitted supplemental authority noting the Second Circuit’s decision in Olin Corp. v. OneBeacon Am. Ins., 864 F.3d 130 (2d Cir. 2017), which applied all sums allocation and vertical exhaustion based on Viking Pump.  Based on these cases, which involved policies that contained non-cumulation provisions that the courts found supported “all sums” allocation rather than pro rata allocation, J&S argued that all sums allocation should apply to Liberty Mutual’s coverage.  Under an all sums allocation, the triggered insurance policies would essentially be responsible for the entire settlement and none of the loss would be allocated to the insured.

Judge Broderick accepted Liberty Mutual’s arguments and found that Viking Pump is not an intervening change in law warranting reconsideration of the summary judgement order. The judge specifically noted, in pertinent part, that:  Viking Pump (1) reaffirmed that under New York law the contract language of the applicable insurance policy controls the question of whether “all sums” or “pro rata” allocation applies; and (2) only certified the question as to applicable allocation when the insurance policies at issue contain a non-cumulation provision.  Because no such non-cumulation provision exists in the SMP policy, the judge denied J&S’s request for reconsideration.  Significantly, Judge Broderick found J&S’s citation to Olin unavailing, noting that “the decision confirmed that ‘courts are to use ordinary tools of contractual interpretation to resolve’ whether an all sums or pro rata approach is appropriate.”  In doing so, the judge agreed with Liberty Mutual that Olin is distinguishable from the instant situation based on, inter alia, the unique provisions in the primary policy in Olin (e.g., the “loss payable” clause), and the fact that the excess policy there was in play for the loss (i.e., it “attached”) because the primary policy beneath it had exhausted its coverage limits.  Because Liberty Mutual’s SMP policy had not exhausted, there was not basis to tap the excess policies, even though they would be subject to all sums allocation and vertical exhaustion as determined in Viking Pump.

For inquiries about this decision, please contact partners Lloyd Gura or Mark Weber.

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