By: Gregory Capps
On March 15, 2018, a California federal court (for the Northern District) ruled that under either California or New York law an “all sums” allocation applies to claims for coverage for an underlying mesothelioma wrongful death action. The case is Polar-Mohr Maschinenvertriebsgesellschaft GMBH Co. KG v. Zurich American Insurance Company, No. 17-cv-01804-WHO (N.D. Cal. Mar. 15, 2018).
The claim involved alleged asbestos exposures from 1964 to 1999, diagnosis/death in 2013-14 and a single primary policy effective 1984-85. The policy at issue defines “bodily injury” as “bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom.”
First, the court addressed whether New York or California law applies. Relying on Con Ed v. Allstate, 98 N.Y.2d 208 (2002), the insurer argued that there was a conflict and that Con Ed establishes that a pro-rata allocation applies in “long tail” asbestos bodily injury cases. The court disagreed based on Matter of Viking Pump, Inc., 27 N.Y.3d 244 (2016):
“[Viking Pump] emphasizes that Consolidated Edison should not be read as New York ‘adopt[ing] a strict rule mandating either pro rata or all sums allocation because insurance contracts, like other agreements, should “be enforced as written.'”
Since both states require that “courts must apply the laws of contract interpretation to give effect to the language of the insurance policy,” the court concluded that there was no conflict regarding allocation.
Second, in determining the method of allocation, the court did not, as in Viking Pump, identify any prior insurance and/or non-cumulation clauses to support an “all sums” allocation. Instead, the court adopted “all sums” based on the policy’s definition of “bodily injury” which includes typical “death at any time resulting therefrom” language. That phraseology, the court said, was “precisely the type of language that the court in Viking Pump found inconsistent with the pro-rata method of allocation” because it “contemplates and promises indemnification to damages that arise outside of the policy period.”
Third, the opinion also addressed certain defense and other issues. Among other things, the court concluded that (1) where an insurer breaches the duty to defend, defense costs are presumptively reasonable and necessary and it is the insurer’s burden to prove otherwise; and (2) the duty to defend is triggered when the insured shows that the underlying claim may fall within the policy coverage (the court disagreed that the insurer was not obligated to defend until it was provided sufficient evidence that an insured under the policy was the distributor of the asbestos product at issue).
Note that the decision is not binding precedent and may be modified or appealed. Since the phrase “including death at any time resulting therefrom” is commonly used in GL policies, this issue may surface again in the “all sums” vs. “pro-rata” debate. At least as respects New York, based on Viking Pump, the focus of the allocation debate has been on whether policies contain prior insurance and/or non-cumulation provisions. This decision potentially broadens the scope of the argument to include the definition of “bodily injury.”