Learn About the Law
Get help with your legal needs
CARRIER CORPORATION and Elliott Company, Plaintiffs, the Travelers Indemnity Company, Nominal Plaintiff, v. ALLSTATE INSURANCE COMPANY, et al., Defendants.
Plaintiffs commenced this action seeking insurance coverage under primary, umbrella and excess liability policies issued by defendant insurers from the 1950s through 1985. Plaintiffs seek coverage for defense costs and past and future indemnity liabilities in connection with over 30,000 underlying personal injury claims against Plaintiffs arising from Plaintiffs' asbestos containing products.
Numerous motions have been filed by all parties. However, since the filing of the motions, all Defendants except for Fireman's Fund Insurance Company (FFIC) have settled with the Plaintiffs. Therefore, the only remaining motions to be addressed by the Court are five motions by the Plaintiffs for partial summary judgment, and two motions by Defendant FFIC for partial summary judgment. The Trial in this matter is scheduled to proceed on January 14, 2019.
I. PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON THE “TRIGGER OF COVERAGE” ISSUE:
Plaintiffs are seeking a ruling as a matter of law that “injury in fact” in an asbestos action occurs from the first date of alleged exposure through death or the filing of suit, thus triggering each policy in effect from the date of first claimed exposure. Such a determination would substantially narrow the issues for trial and potentially expedite settlement. Defendant FFIC opposes Plaintiffs' motion on the ground that when injury in fact occurs is a fact question which cannot be resolved as a matter of law.
In support of their motion, Plaintiffs have provided the Affidavit of John Foley, Esq. Mr. Foley acted as Plaintiffs' counsel in the underlying asbestos cases. Based on his personal knowledge and experience, Mr. Foley states that prior to settling the underlying claims, Plaintiffs and their insurers determined that there was credible evidence establishing the claim and the date on which each claimant could have first claimed inhalation of asbestos in a Carrier or Elliott product based on the testimony of doctors and other medical experts.
Mr. Foley also summarizes in detail six of the underlying asbestos suits against Plaintiffs which he averes are typical of the thousands of suits filed against Plaintiffs and which collectively involve alleged injuries spanning the entirety of the policy periods from 1971-1985. Each of these typical claims were premised on the claimants' contentions and supported by expert evidence that the claimant's inhalation of asbestos caused immediate or almost immediate sub-clinical injury and started an injurious process that continued for years or decades until diagnosis. Each of these six cases were settled before trial. According to Mr. Foley, the allegations and medical and scientific evidence were an important consideration in the settlement of these six cases, and with every settlement by Plaintiffs of an underlying asbestos suit.
While Defendants complain that Mr. Foley's statements and attached exhibits are hearsay and should be rejected by the Court, it is clear that Mr. Foley possesses personal knowledge of the facts contained in his Affidavit based on his familiarity with the claims, his approval of the settlements, and interaction with defense counsel and insurers. His personal knowledge would include the tort claimants' allegations against Plaintiffs, the evidence adduced to support those claims, the factors considered by Plaintiffs in determining whether to settle those claims, and coverage provided by other insurers for asbestos suits. Therefore, his Affidavit containing factual information learned in the course of his employment is admissible in support of this motion. See e.g. State of New York v. Passalacua, 19 AD3d 786 (3d Dept. 2005) (Court accepted Affidavit of geologist employed by State as sufficient to meet plaintiff's initial burden of proof); see also Vasiliades v. Lehrer McGovern & Bovis, 3 AD3d 400 (1st Dept. 2004) (Court accepted Affidavit of Bovis officer with personal knowledge of contract).
Under New York law, asbestos personal injury lawsuits arise from “occurrences” as defined by the policies, and “personal injury” for occurrence-based insurance purposes requires only that an “injury in fact” occur during the policy period. Continental Cas. Co. v. Rapid—Am Corp., 80 NY2d 640 (1993); Am. Home Prods. Corp. v. Liberty Mutual, 748 F.2d 760 (2d Cir. 1984): Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F3d 1178 (2d Cir. 1995). This requirement is satisfied by any bodily injury that occurs during the policy period, including subclinical damage that is unknown, undiagnosed and undiagnosable until years after it occurs. Am. Home Prods., supra. An insured, however, is required to demonstrate actual damage or injury during the policy period. Cont. Cas. v. Rapid-Am, supra.
Multiple New York Courts have determined, under New York's “injury in fact” standard, that personal injury within the meaning of the policies begins when each underlying claimant is first exposed to asbestos and continues until either assertion of a claim for damages or death. Am. Home, supra; Stonewall, supra; Pac. Empl. Ins. Co. v. Troy Belting & Supply Co., 2015 WL 5708360 (NDNY 2015) (court did not require expert evidence of pathogenesis of disease in finding that injury in fact begins at exposure and continues thereafter); Fulton Boilerworks, Inc. v. American Motorists Ins. Co., 828 F.Supp.2d 481 (NDNY 2011) (where there is a progressive disease such as asbestosis, with injury in fact recurring throughout the disease process, all policies in effect at any time during that process are triggered). In US Fidelity v. Treadwell, 58 F.Supp.2d 77 (S.D.NB.Y. 1999), the parties stipulated that Plaintiffs were injured at all points in time from initial exposure through the claim or death.
In the case of In re Viking Pump, Inc., 148 A.3d 633 (Del. 2016), which applied New York law, the Court held that asbestos personal injury occurs, for insurance policy purposes, upon cellular/molecular damage caused by asbestos inhalation and such damage occurs within each and every period of an asbestos claimant's significant exposure to asbestos and continues thereafter.
Many of these determinations were made following the presentation of medical evidence. See Stonewall, supra. In Borel v. Fibreboard Paper, 493 F.2d 1076 (5th Cir. 1973), the Court noted that the claimant had produced at trial medical testimony indicating that inhalation of asbestos commences a tissue reaction that is slowly progressive and apparently irreversible. In Fulton Boiler Works, supra, the Court granted summary judgment without hearing or requiring expert medical evidence.
Defendant FFIC argues, however, that none of these Courts have made that determination as a matter of law, but rather address the issue as a matter of fact, and that this Court should require the presentation of the same medical evidence establishing a continuing injury to the jury at the Trial of the instant case.
In light of the number of cases which have found that the injury continues from first exposure through assertion of claim or death, and the lack of any cases finding to the contrary, and the medical and scientific evidence submitted by the Plaintiffs in support of the instant motion, the Court accepts as a matter of law that “injury in fact” in an asbestos action occurs from the first date of alleged exposure through death or the filing of suit, thus triggering each policy in effect from the date of first claimed exposure. See e.g. Pac. Empl's Ins. Co. v. Troy Belting, supra; Fulton Boiler Works, supra.
The Court does not agree with Defendant FFIC's position that the case of Continental Cas. v. Wausau (Keasbey), 60 AD3d 128 (1st Dept. 2008) sets a precedent that each trial court must address the question of when injury occurs as a fact question. Keasbey, supra, involved operations coverage, a non-product claim, and thus the Court required a more stringent proof of injury in fact than is necessary here, in a products case.
Nor do the Affidavits of Drs. Weill and Weitzman create any issue of disputed fact, especially in light of the evidence submitted by Plaintiffs which exhibits conflicting statements and testimony by those experts. See also Trial Court Decision dated August 22, 2017 in Cannon Electric, Inc. v. ACE Prop. & Cas. Co. (Cal. Super. Ct. 8/22/2017).
This Court's determination that Plaintiffs have met their initial burden of establishing entitlement to partial summary judgment on the question that “injury in fact” in an asbestos case occurs from the first date of alleged exposure through death or the filing of suit, will avoid an expensive and lengthy presentation of medical and scientific evidence on the issue of when personal injury occurs under the policy language. This determination also comports with the prior ruling in this matter by Supreme Court Justice Karalunas that Defendants may not relitigate the veracity or accuracy of the claimants' theory of injury nor challenge Plaintiffs' settlement and defense decisions related to the underlying asbestos claims, and avoids a series of mini-trials which would otherwise be necessary to determine when each underlying claimant's personal injury occurred.
Based on the foregoing, the Court GRANTS Plaintiffs' motion for partial summary judgment declaring as a matter of law that “injury in fact” in an asbestos action occurs from the first date of alleged exposure through death or the filing of suit; and that each policy in effect from the date of first claimed exposure is therefore triggered.
II. PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON INSURANCE COVERAGE FOR CLAIMS AGAINST ELLIOTT:
Plaintiffs seek a ruling that Carrier provided Elliott, as part of a transfer and sale of Elliott in the 1980s, the right to obtain insurance coverage for Elliott's pre-transfer/sale liabilities. In support of this, Plaintiffs submit the 2016 deposition testimony of Ronald Turner, comptroller at Elliott Division prior to January 1, 1982 and CFE and CEO of Elliott Turbo thereafter. His testimony is submitted as an individual with personal, first hand knowledge of and principal responsibility for implementation of the 1981 Agreement and Plan of Reorganization and Corporation Separation entered into by UTC, Carrier and Elliott. Plaintiffs also submit the Affidavit of John D. Niles, Esq., attaching numerous exhibits in support of the motion.
The issue before the Court is whether Plaintiffs have established, or can establish as a matter of law, whether Carrier transferred insurance rights to Elliott. The issue arises because the 1981 Agreement was supposed to include an Ex. A setting forth the assets being transferred to Elliott and an Ex. B setting forth the liabilities. It appears clear that these exhibits have been missing since the initiation of this litigation, and may have never existed at all.1
Plaintiffs, in the instant motion, have submitted evidence which they contend establishes the transfer of insurance rights to Elliott in the absence of Exs. A and B.
Defendant FFIC insists that Plaintiffs are collaterally estopped on the issue of the transfer of insurance rights to Elliott based on decisions issued in this case and in the case of Elliott Co. v. Liberty Mutual, 2007 U.S. Dist. LEXIS 81561 (N. Dist. Ohio 2007), which determined that whether the insurance rights transferred to Elliott under the Separation Agreement was an issue of fact for the jury.
With regard to the decisions issued by a previous Justice in the instant case in 2009 and 2010, those decisions were not final or determinative, and, in fact, noted that discovery was ongoing and that the facts as developed in the record to that point were inconclusive. A summary judgment denial due to a fact dispute is merely a recognition that, on the facts then before the Court, judgment is not required by law, and such a denial is not an adjudication on the merits. Giardina v. Lippes, 77 AD3d 1290 (4th Dept. 2010); see also Neighborhood Partnership Hous. Dev. Fund v. Blakel Constr. Corp., 34 AD3d 303 (1st Dept. 2006). The Court in Elliott v. Liberty Mut., supra, similarly found that fact issues at the time of the decision precluded summary judgment as to whether Elliott received rights to historical insurance policies under the 1981 Agreement.
Collateral estoppel is only appropriate if an issue has been adjudicated on the merits and determined by a valid and final judgment. See Paramount Pictures Corp. v. Alliance Risk Transfer AG, 31 NY3d 64 (2018); In re State of New York, 149 AD3d 1317 (3d Dept. 2017). Here, none of the three prior decisions relied on by FFIC involved an adjudication on the merits or resulted in final judgment. Therefore, Plaintiffs are not collaterally estopped from seeking the relief sought in this motion.
Not only are Plaintiffs not subject to collateral estoppel based on the previous court rulings, but this Court now has before it the results of extensive discovery conducted by the parties in the eight plus years since the prior motions. Such discovery appears to this Court to now have resolved the fact issues identified by the prior decisions. Plaintiffs have provided, inter alia, the 2015 videotaped deposition of William Leikin, Esq. Mr. Leikin was the head of Elliott Turbo's legal department from 1984-1987 and testified that the parties' intent, and the manner in which everyone operated, was for all assets of Elliott Division, including the insurance rights, to transfer to Elliott Turbo under the Agreement.
Furthermore, the evidence included the 2016 deposition testimony of Ronald Turner, in his capacity heretofore described, also, in part, serves to resolve this issue. Mr. Turner was the comptroller at Elliott Division prior to January 1, 1982 and was the CFO and CEO of Elliott Turbo thereafter. Turner was the principal person at Elliott with responsibility of implementing the 1981 Reorganization. Turner testified that Elliott Division used insurance rights under pre-1982 policies prior to January 1, 1982 and those insurance rights were an asset of the company. Turner took steps to ensure that Elliott Turbo received the right to access such insurance.
Daniel Herrick, Esq. was general counsel for Elliott Division prior to 1982 and general counsel for Elliott Turbo thereafter. He testified in 2015 and confirmed that insurance rights under pre-1982 policies were an asset used by Elliott Division and that the intent of the parties was that there would be no change in day to day operation after the transfer. After the 1981 Agreement, the parties conducted business on the basis that Elliott Turbo had received insurance rights, and the process for submitting insurance claims and requests for coverage did not change.
Finally, Plaintiffs provide the 2016 deposition testimony of Helen Houley, Esq., counsel for UTC prior to January 1, 1982, that UTC intended for “all the assets, all the liabilities of Elliott Division to transfer to Elliott Turbo.” Houley identified a September 1981 memorandum stating that all assets and liabilities of Elliott would be transferred by Carrier to the new corporation. She also identified a December 16, 1981 memorandum confirming that all assets and liabilities of the old Elliott division of Carrier would be possessed by Elliott Turbo. Notably, Attorney Houley also testified that Exs. A and B to the 1981 Agreement, if they existed, were redundant, and may have come from a form that was used.
Plaintiffs' evidence erases any inconclusivity regarding whether Elliott Turbo received insurance rights under the 1981 Agreement. Defendants have raised no genuine dispute of material fact that the assets conveyed to Elliott Turbo as part of the 1981 Agreement included rights to insurance coverage for liabilities arising out of Elliott Division's pre-conveyance activities. Zuckerman v. City of New York, 49 NY2d 557 (1980). Defendants cannot satisfy their burden by simply relying on prior court decisions issued 8, 9 and 11 years ago respectively, when those decisions were based on a lack of discovery, which discovery has proceeded in the time since the prior decisions and has produced conclusive evidence of the transfer of coverage rights.
Based on the foregoing, Plaintiff's motion for partial summary judgment on the issue of insurance rights for claims against Elliott is GRANTED.
III. PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON THE “EXHAUSTION OF POLICIES” ISSUE:
Plaintiffs have also sought a declaration relative to exhaustion of certain primary policies. To the extent that Plaintiffs have moved relative to policies issued by Liberty Insurance from 1980 to 1985, that relief is now moot as Plaintiffs have reached a settlement with those subject insurers. With regard to the remaining Defendant, FFIC, Plaintiffs are seeking a declaration that the two primary policies issued by Travelers from 11/1/1977 to 11/1/1978 and from 11/1/1978 to 11/1/1979 have been exhausted.
FFIC issued only two policies at issue in this litigation. The first was in effect from 11/1/1977 to 11/1/1978 and the second in effect from 11/1/1978 to 11/1/1979. Both are excess of primary policies issued by Travelers. Each primary policy issued by Travelers from 1977 to 1979 has an applicable aggregate limit of $ 5 million for indemnity. Plaintiffs have submitted evidence that Travelers has paid more than $ 5 million in indemnity under each of the primary policies, and FFIC does not dispute that. There is no dispute that Travelers has paid more than the applicable limit of each relevant primary policy.
While FFIC seeks to challenge the reasonableness of certain amounts paid by Travelers, such a challenge is prohibited under the law. An excess insurer may not challenge the propriety of a primary insurer's payment or allocation decisions absent collusion to defraud the excess insurer. See In re E. 51st St. Crane Collapse Litiga., 103 AD3d 401 (1st Dept. 2013). FFIC has made no allegations of fraud or collusion between Carrier and Elliott and Travelers, and thus its complaints about Traveler's payments must be rejected.
In any event, the Court finds that FFIC fails to raise any valid issue relative to the reasonableness of the payments and allocation of payments made by Travelers. See Zuckerman, supra.
Based on the foregoing, the Court GRANTS Plaintiffs' motion for partial summary judgment on exhaustion of the Traveler's primary policies in this matter.
IV. PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON SCOPE OF COVERAGE:
Plaintiffs seek an Order declaring that the “all sums” allocation and “vertical” exhaustion rules apply in this case. Under the “all sums” allocation rule, Plaintiffs may select any triggered policy to provide complete coverage for each underlying asbestos-related personal injury claim. Pursuant to the “vertical” exhaustion rule, Plaintiffs may access an excess policy issued by a Defendant by showing that their total liability meets or exceeds the attachment point of each policy.
At the time of Plaintiffs' initial submission of this motion there were still fourteen excess policies in effect from 1977 to 1985 involved in this litigation. Since then, the Plaintiffs have settled with all but Fireman's Fund (FFIC). FFIC issued two excess policies relevant to this motion, each covering a one year term from 1977 to 1979. Both of the policies contain a “non-cumulation clause”.
In In Re Viking Pump, Inc., 27 NY3d 244 (2016), the Court of Appeals addressed both issues under policies materially identical to those in the instant case and held that “all sums allocation is appropriate in policies containing “non-cumulation clauses.” The Court of Appeals further held that “vertical” as opposed to “horizontal” exhaustion applies to such policies. Viking Pump, supra; see also Olin Corp. v. OneBeacon, 864 F.3d 130 (2d Cir. 2017). In Olin Corp., supra, the Second Circuit held that, through the non-cumulation clauses, the policies entitled the non-settling insurer to offset its indemnification obligations by amounts already paid to cover the loss by another insurer in the same coverage tier.
Defendant acknowledges the Court of Appeals decision in In re Viking Pump, supra, but contends that “vertical exhaustion” and “all sums” allocation do not apply here because Plaintiffs are seeking coverage from concurrent, rather than successive, excess policies for the same loss. Defendant, however, has not identified any claim where this occurred, and there can be no assumption that Plaintiffs are seeking coverage for the same loss. In any event, as the Court held, a policyholder's settlement with underling insurers does not destroy that policyholder's all sums and vertical exhaustion rights against a non-settled, higher level insurer. None of the out of state cases cited by Defendant hold otherwise.
Based on the foregoing, therefore, the Court GRANTS Plaintiffs' motion for partial summary judgment as to scope of coverage and finds that the “all sums” allocation and “vertical exhaustion” rules apply in this case.
V. PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON DEFENDANTS' LIMIT REDUCTION DEFENSE:
Plaintiffs seek partial summary judgment declaring that the non-cumulation clauses in the FFIC excess policies permit a reduction to the applicable limit of FFIC's policies only when 1) Carrier or Elliott seeks indemnity coverage for a particular claim that has already been paid, in whole or part, under a prior insurance policy, and 2) such prior policy has the same attachment point and limit of liability as the FFIC policy. According to the Plaintiffs, such circumstances do not apply to the asbestos claims at issue in the instant case, and no reduction is available.
Plaintiffs also seek an Order declaring that FFIC bears the burden to prove they are entitled to a limit reduction for any particular claim.
The FFIC excess policies contain a non-cumulation clause providing that if a “loss covered hereunder” is also covered in whole or in part under a prior excess policy, then the applicable limit of liability of the Defendant's policy shall be “reduced” by “amounts due” on account of such “loss” under the prior policy.
Plaintiffs contend that their request is supported by the language of the subject policies, case law from New York State and other states, and insurance industry custom and practice.
Defendant's contention that the non-cumulation clauses in the FFIC policies are not identical to the non-cumulation clauses at issue in Viking Pump, supra and Olin Corp., supra is without merit. In Viking Pump, supra, the Court of Appeals analyzed two different non-cumulation clauses -one that used the term “loss” and the other that used the term “occurrence” - and concluded there was no functional difference between the two. Moreover, the language of the pertinent policies and provisions at issue in Olin is the same language used in the relevant FFIC policies.
Nor, as claimed by Defendant, is the Olin v. OneBeacon, supra case irrelevant because it involved environmental, rather than asbestos, liabilities. There is no material difference between those liabilities, both of which involve injury or damage that occurred continuously over a long period of time and triggered multiple successive policies.
Defendant further contends that Plaintiffs' motion is not justiciable and premature as the umbrella policy underlying the FFIC excess policies is not exhausted and is currently paying asbestos liabilities.
This Court will adopt the rulings contained in the Olin Corp. v. Lamorak Ins. Co., (SDNY, 4/17/2018), which heard and determined on remand from the Second Circuit the question of whether, and, if so, to what extent, the non-settling insurer is entitled to a “settlement credit” or “limit reduction due to the fact that the policyholder had entered into global” settlements with certain other excess insurers. See also Olin Corp. v. OneBeacon Am. Ins. Co., 864 F.3d 130 (2d Cir. 2017).
On remand, the district court in Olin, supra determined that, under an “all sums” allocation without any “settlement credit” or “limit reduction”, the non-settling insurer there would have been liable to Olin in the amount of $ 57.5 million for the five sites at issue. Further, based on the application of the non-cumulation clauses, the district court found that the insurer was “entitled to a pro tanto set-off of $ 2,664,486.26”, resulting in an obligation to provide $ 55 million in coverage to Olin.
As noted by the Olin Court, the pro tanto approach is favored by a majority of courts, is consistent with the “all sums” allocation methodology mandated by the non-cumulation clauses, and should also encourage settlements. Therefore, the pro tanto approach will be adopted by this Court in addressing the issue of limit reduction in the instant case.
The Olin, supra Court also confirmed a narrow definition of “loss”; whereby the terms refers to each underlying claim, not to the cumulative amount of the policyholder's liability for all claims of a similar type. The term “loss” does not mean, as urged by FFIC, all liability incurred by the policyholder for all claims of a similar type (which would implicate tens of thousands of asbestos-related injury lawsuits).
Finally, the Court agrees with the Olin, supra court, and with the Plaintiffs, that FFIC, and not the Plaintiffs, has the burden of proving the amount that the insured recovered on the particular claim at issue.
Based on the foregoing, Plaintiffs' motion for partial summary judgment on the issue of Defendant's limit reduction defense is GRANTED to the extent that the Court will adopt a pro tanto approach to applying settlement credits, if any, and that the burden is on the Defendant to establish the amount recovered on the particular claim at issue.
VI. DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON DEFENSE COSTS:
Defendant FFIC contends that it has no obligation under the Fireman's Fund excess policies to defend Plaintiffs or to pay or reimburse Plaintiffs for defense costs in connection with the underlying claims.
In the excess policies, FFIC agreed to indemnify “ultimate net loss” in excess of coverage afforded by underlying insurance. Ultimate net loss is defined in the policies as “all sums actually paid, or which the insured is legally obligated to pay, as damages in settlement or satisfaction of claims or suits for which insurance is afforded by this policy, after deduction of all recoveries or salvage.” This definition does not include “defense costs” or “legal expenses”. The “Notice of Occurrence” provision explicitly states that FFIC shall not be called upon to assume charge of the defense of any claims brought against the insured, see Conditions (2) Notice of Occurrence.
The “Payment of Expenses” provision at (4) states that “Loss expenses and legal expenses, including court costs and interests, if any, which may be incurred by the insured with the consent of the company in the adjustment or defense of claims, suits or proceedings shall be borne by the Company and the Insured in the proportion that each party's share of loss bears to the total amount of said loss.” (Emphasis added). Based on this language, FFIC takes the position that it has no obligation to pay or reimburse any defense costs unless FFIC explicitly consents to do so. Plaintiffs concede that there is no evidence that FFIC has consented to pay or reimburse these cost here.
Plaintiffs oppose this motion and contend that FFIC is required to reimburse Plaintiffs for defense costs, in addition to the policy limits. According to the Plaintiffs, the requirement that FFIC reimburse defense costs is contained in the underlying policies, to which the FFIC policies follow form. It is clear to the Court, however, that under the “Maintenance of Primary Insurance” provision, the FFIC policies shall not follow form to the terms of any underlying insurance with respect to the obligation to defend.
Based on the foregoing, and the Court's reasoning in AstenJohnson v. Columbia Cas. Co., 483 F.Supp.2d 425 (E.D.Pa. 2007), aff'd in party, rev'd in part by AstenJohnson, Inc. v. Columbia Cas. Co., 562 F.3d 213 (3rd Cir. Pa. 2009), where the Court examined the same policy language and found that it did not obligate the excess carrier to pay or reimburse defense costs, the Court agrees with FFIC that the policies do not require FFIC to provide a defense or pay or reimburse any defense costs without FFIC consent, which has not been sought or given. See also Stonewall Ins. v. Nat. Gypsum, Lexis citation, SDNY, aff'd 73 F3d 1178 (1995). Therefore, Defendant's motion for partial summary judgement on defense costs is GRANTED.
VII. DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT DECLARING THE LACK OF EXHAUSTION OF UNDERLYING INSURANCE:
Defendant FFIC seeks an Order that the policies underlying the FFIC excess liability insurance policies issued to Carrier Corporation are not exhausted, and thus FFIC has no current obligation to indemnify Plaintiffs.
FFIC issued two policies to Carrier that are at issue, which were in effect for consecutive annual periods from 11/1/1977 to 11/1/1978, and from 11/1/1978 to 11/1/1979. Each policy provides $ 7.5 million in aggregate limits. These policies are excess policies. FFIC's obligations under each policy attach upon exhaustion of a specified amount of underlying limits - here, $ 30 million in limits provided by underlying excess policies and $ 5 million in limits provided by an underlying primary policy.
In order for the FFIC policies to attach, Plaintiffs must establish that the respective underlying policies were properly exhausted “solely as a result of payment of claims” arising out of occurrences during the policy period. FFIC contends that it is entitled to summary judgment declaring that its excess policies have not attached, that Plaintiffs have not demonstrated the exhaustion of all underlying insurance, and that the FFIC policies will not attach until all underlying insurance below it has been properly exhausted by the payment of claims.
As the Court has previously determined, when a policy contains a non-cumulation clause, that policy is governed by the “all sums” and “vertical exhaustion” rules. In re Viking Pump, Inc., 27 NY3d 244 (2016); Olin Corp. v. OneBeacon Am. Ins. Co., 864 F.3d 130 (2d Cir. 2017). The “all sums” rule provides that the policyholder may “collect its total liability ․ under any policy in effect during the period that the damage occurred”. The policyholder may select any policy in effect during any portion of that period to provide full indemnity, “irrespective of whether the insurer's policy was issued at the beginning, in the middle, or towards the end of the continuing occurrence. Olin Corp., supra.
The “vertical exhaustion rule” found to be applicable by the Court of Appeals, determines when an excess policy “attaches”, or becomes obligated to respond. Under that rule, the policyholder may access an “excess policy once the immediately underlying policies' limits are depleted, even if other lower-level policies during different policy periods remain unexhausted.” Viking Pump, supra. An underlying policy's limits are ‘depleted’ if the policyholder's total liabilities - when “apportioned to a single policy year” - exceed the underlying limits. Olin, supra.
The law is clear in New York that when a policyholder enters into a compromise Settlement Agreement with an underlying insurer for less than its full coverage rights, an excess carrier is obligated to provide coverage so long as the policyholder absorbs the gap between the underlying insurer's payment and the attachment point of the excess policy. See e.g. OlinCorp. v. OneBeacon, supra, where the Second Circuit held that an excess policy attaches when the policyholder's total payments reach that policy's attachment point, regardless of whether underlying insurers or the policyholder made those payments, and allowing the policyholder to “fill” any gap between the amount paid by the underlying insurers and the attachment point of the excess policy. See also Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (2d Cir. 1928); Lexington Ins. Co. v. Tokio Marine & Nichido Fire Ins. Co., 2012 WL 1278005 (SDNY 2012) (so long as the total loss exceeds the attachment point of the excess policy, exhaustion does not require actual payment of the primary insurance policy to trigger the excess insurer's obligations); E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 853 F.Supp. 98 (SDNY 1994) (holding that insurer must pay amounts due the insured which are unpaid for any reason, including a compromise reached by the first-tier carrier through an arms' length settlement).
An exception to this rule exists where an excess policy contains language which clearly requires that exhaustion occur solely as a result of actual payments. See Olin, supra. Here, the FFIC policies follow form to a “loss payable” condition in the 1977-79 London Umbrella Policy stating that “liability under this policy with respect to any occurrence shall not attach unless and until the Assured, or the Assured's underlying insurers, shall have paid the amount of the underlying limits on account of such occurrence.” Thus, each policy explicitly attaches when the Assured (or Assured's underlying insurers) pay an amount equal to the underlying limits, and the policies expressly adopt the “fill the gap” rule.
The FFIC policies also contain an “insuring agreement” which states that FFIC shall be liable in the excess of the limit or limits of liability of the applicable underlying insurance. The policy does not say “excess of payments” by underlying insurers.
Defendant's focus on the “payment of loss” provision is misplaced as that provision merely requires that the underlying insurance be exhausted, not how such exhaustion must occur.
FFIC further contends that because the underlying insurers are paying for certain underlying asbestos claims under a negotiated settlement agreement, those policies have not been exhausted and the FFIC policies have not yet attached. The basis for the FFIC contention is a 2016 settlement agreement reached between the Plaintiffs and several underlying insurers, collectively referred to here as the London Market. FFIC contends that the first level of London Market policies are currently paying indemnity and defense costs and that the London Market excess policies (above the umbrella policies) have not even begun paying under the Settlement Agreement.
In this Court's opinion, it is immaterial whether the underlying insurers have to date made payments on claims totaling their policy limits under the “fill the gap” rule in New York, as Plaintiffs have established that they have paid hundreds of millions of dollars in defense costs and indemnity on the underlying asbestos claims. It is also irrelevant that Plaintiffs settled their claims with other insurers, including the London Market insurers, on an allocation basis which differs from the “all sums” and vertical exhaustion” rules mandated by New York law.
For this Court to find otherwise would undermine the 2016 Settlement Agreement and violate New York's strong public policy favoring the resolution of disputes through settlement. Such a ruling would also act as a disincentive for a policyholder to enter into compromise settlements with underlying insurers for less than the full limits of the policy as the policyholders would then forfeit an otherwise clear right to access higher level excess policies using an all sums/vertical exhaustion approach. This is the purpose of the “fill the gap” rule articulated by Zeig, supra and Olin Corp. v. OneBeacon, supra. None of the cases cited by the Defendant hold otherwise.
The application of the “fill the gap” rule to this litigation is not unfair to Defendant. FFIC does not pay under its excess policies until its attachment point has been reached, and will pay only that which it contractually agreed to pay. There is no risk of double recovery. Under the facts of this case, even if FFIC paid its full limits on both excess policies, the Plaintiffs would not be made whole.
This Court further acknowledges and adopts the district court's decision in Olin Corp. v. Lamorak Ins. Co., 4/27/2018, which rejected the excess insurer's attempt to rely on a provision contained in a settlement agreement between the policyholder and other insurers. Neither the excess insurer in Olin, supra, nor the Defendant FFIC in the instant case, possess standing to enforce the provision because they are not parties to, nor beneficiaries of, the settlement agreement on which they seek to rely.
Based on the foregoing, the Court DENIES Defendant's motion for partial summary judgment on exhaustion of underlying insurance limits, and pursuant to a ruling made previously on the scope of coverage in this matter, declares that the FFIC excess policies attach when amounts paid by Carrier, Elliott and the underlying insurers exceed Defendant's attachment points.
To recapitulate, based on the record before the Court 2 and for the reasons hereinabove stated, the Court has ruled as follows on the motions pending in this matter:
I. Plaintiffs' Motion for Partial Summary Judgment on the “Trigger of Coverage” Issue is GRANTED;
II. Plaintiffs' Motion for Partial Summary Judgment on Insurance Coverage for Claims against Elliott is GRANTED;
III. Plaintiffs' Motion for Partial Summary Judgment on the Exhaustion of Policies Issue is GRANTED;
IV. Plaintiffs' Motion for Partial Summary Judgment on Scope of Coverage is GRANTED;
V. Plaintiffs' Motion for Partial Summary Judgment on Defendants' Limit Reduction Defense is GRANTED;
VI. Defendant's Motion for Partial Summary Judgment on Defense Costs is GRANTED; and
VII. Defendant's Motion for Partial Summary Judgment Declaring the Lack of Exhaustion of Underlying Insurance is DENIED.
This constitutes the Decision and Order of the Court.
1. Plaintiffs acknowledge that Exs. A and B have not been located, despite a diligent search. There is some indication that the exhibits were never created and did not exist.
2. The record includes all documents filed and e-filed under the relevant motions.
Anthony J. Paris, J.
Response sent, thank you
Docket No: 2005-EF-7032
Decided: November 21, 2018
Court: Supreme Court, Onondaga County, New York.
Search our directory by legal issue
Enter information in one or both fields (Required)
FindLaw for Legal Professionals
Search our directory by legal issue
Enter information in one or both fields (Required)