Today I was reading about a Summary Judgment Motion filed by Liberty Mutual in the case of Liberty Mutual Insurance Company v. The Fairbanks Company, in the Southern District of New York.1 The motion seeks to limit Fairbanks’ ability to recoup under their policy for asbestos claims spanning years. This limitation is based on language in the policy called a non-cumulation clause.
Fairbanks is a company engaged in valve-making during the 1980s, and has faced several lawsuits by individuals for exposure to asbestos. Liberty Mutual had issued a series of successive and umbrella policies to Fairbanks from 1974-1981, each for $10 million dollars. Liberty is seeking reimbursement of payments made in excess of policy limits based on the non-cumulation clause contained in each of the policies.
In March of 2016, U.S. District Judge John G. Koeltl held that a pro-rata approach applied in allocating liability under New York law, however in May, the New York Court of Appeals held that existence of non-cumulation and prior insurance provisions in excess insurance policies mandated use of the all sums allocation method, and insureds were required to vertically exhaust all triggered primary and umbrella excess layers before tapping into any additional excess polices.2 Based on the Court of Appeals holding in Viking Pump, Liberty Mutual filed for summary judgment.
Generally, a policy of insurance is occurrence-based, where coverage is triggered based on damage or injury which manifests during the policy period, contrary to accident-based, where the damage or injury is covered only if the accident occurred during the policy period. Around 1960, when policies changed from accident-based to occurrence-based, insurance companies drafted the non-cumulation clause to avoid the situation where a claimant could recover twice for the same damage or injury, once during the tenure of the accident/incident policy, and again during the occurrence policy. Typical language in a non-cumulation clause states that any loss covered under the policy, if it is also covered in whole or in part under any other excess policy issued to the insured prior to the inception date, the recovery will be reduced by any amounts due to the insured on account of such loss under the prior insurance.
Pro Rata Allocation method allocates a ‘pro rata’ share of the total loss to each insurance policy period representing the portion of loss that occurred during that period. All Sums method allows an insured to collect its total liability under any policy period triggered by the alleged damage.
How does this affect policy holders? As always, review your policy of insurance and look for specific policy language for a non-cumulation clause, as well as language that assesses potential allocations available under the policy. If your policy contains a non-cumulation clause and an all-sums allocation, then your policy may be subject to vertical exhaustion of all excess and umbrella policies before gaining access to any additional excess policies.
1 Liberty Mutual Insurance Co. v. The Fairbanks Co., Case No. 1:13-cv-03755 and 1:15-cv-01141 (S.D.N.Y.).
2 In the Matter of Viking Pump, Inc. and Warren Pumps, LLC., 2016 NY Slip Op 3413, 2016 WL 1735790 (May 3, 2016).