By: Paul Briganti
On August 18, 2018, the New York Supreme Court, New York County, confirmed a referee’s finding that “all sums” allocation was required under excess policies issued by Midland Insurance Company because they included a non-cumulation provision. See Matter of Liquidation of Midland Ins. Co., Index No. 041294/1986 (N.Y. Sup. Ct. Aug. 18, 2018).
Midland was a multi-line carrier that wrote a substantial amount of excess coverage for Fortune 500 companies. In the 1980s, Midland faced significant exposure for environmental, asbestos and product liability claims. In 1986, it was placed in liquidation and the New York State Superintendent of Insurance (the Liquidator) was appointed as its receiver. Since then, the New York Supreme Court has presided over the liquidation proceedings.
The court’s August 18, 2018 decision dealt with four Midland excess policies issued to American Smelting and Refining Company (ASARCO). The Midland policies, which had total aggregate limits of $55 million, incorporated the terms of certain underlying umbrella policies, including a non-cumulation provision that stated:
[I]f any loss is also covered in whole or in part under any other excess policy issued to the Insured prior to the inception date hereof, the Company’s limit of liability shall be reduced by any amounts due the Insured on account of any such loss under such prior insurance.
The ASARCO Asbestos Personal Injury Settlement Trust, which was established through ASARCO’s Chapter 11 proceedings and assumed the rights to coverage under the Midland policies, argued that the non-cumulation provision required “all sums” allocation based on the New York Court of Appeals’ decision in Matter of Viking Pump, Inc., 27 N.Y.3d 244 (2016). In November 2016, a court-appointed referee issued a report agreeing that “all sums” allocation applied and vacated a prior (pre-Viking Pump) report in which the referee had found that pro-rata allocation applied under the Court of Appeals’ decision in Con Ed v. Allstate, 98 N.Y.2d 208 (2002). The Liquidator moved the court to reject the referee’s November 2016 report and adopt the prior report.
For three main reasons, the court denied the Liquidator’s motion. First, the court was unpersuaded by the Liquidator’s attempts to distinguish the Midland policies from the policies at issue in Viking Pump. According to the Liquidator, the Midland policies were materially different because they lacked the “continuing coverage” clause that was present in certain policies addressed in Viking Pump. This clause stated:
[I]n the event that personal injury . . . arising out of an occurrence covered hereunder is continuing at the time of termination of this Policy, the Company will continue to protect the Insured for liability in respect of such personal injury . . .
The Midland court found this difference immaterial because, in Viking Pump, the Court of Appeals found that the existence of the “continuing coverage” clause merely “reinforced” its conclusion that “all sums” allocation applied. Thus, the absence of a “continuing coverage” clause in the Midland policies did not make pro-rata allocation applicable.
Second, the court disagreed with the Liquidator’s assertion that pro-rata allocation applied because, similar to the policies at issue in Con Ed, the Midland policies expressly limited coverage to accidents or occurrences happening during the policy period. The Midland court reasoned that, although the Con Ed court found this type of language inconsistent with “all sums” allocation, the Con Ed court did not consider the effect of non-cumulation provisions. The Court of Appeals considered such provisions in Viking Pump and found that they mandated “all sums” allocation, notwithstanding policy language that otherwise limited coverage to injury or damage (or accidents or occurrences) taking place during the policy period.
Third, the court rejected the Liquidator’s argument that pro-rata allocation applied because the Midland policies provided coverage on an “ultimate net loss” basis and not on an “all sums” basis, like the policies addressed in Viking Pump. The court agreed with the referee that the meaning of the terms “ultimate net loss” and “all sums” was “essentially the same . . . because the insurer is obligated to indemnify the full extent of the policyholder’s liability for claims covered under the policy.” The court also concluded that the Liquidator had failed to offer support for her argument that the obligation to indemnify for “ultimate net loss” was “very different” from an obligation to indemnify for “all sums.”
Midland joins the trend of decisions that has examined policy language closely to determine whether it is materially different from the policy language that the Viking Pump court held required “all sums” allocation under New York law.