“All Sums” Applied Rejecting “During the Policy Period” Approach; Vertical Exhaustion Finding “Other Insurance” Clauses Ambiguous

A Missouri appellate court, applying Missouri law, upheld the lower court’s ruling which provided for “all sums” allocation and vertical exhaustion based on the policy language at issue.  The appellate court found that the policies included the requisite “all sums” language that did not limit occurrences to a particular policy year.  The court also found that the policies’ “other insurance” clauses were ambiguous.

The case involved a coverage dispute between Nooter Corporation (“Nooter”) and eight different excess insurance companies that provided insurance coverage to Nooter from 1949 through 1985.  Nooter is in the business of designing, installing, and distributing pressure vessels for refineries and chemical plants for over 100 years.  Some of Nooter’s sites allegedly contained asbestos.  Nooter has been sued by more than 20,000 individuals for bodily injury resulting from exposure to asbestos.  Nooter sought coverage for the asbestos claims first from its primary insurance policies and then, as individual primary policies were exhausted due to the payment of the claims, it sought coverage from the excess insurers.   When Nooter’s excess insurers refused to provide coverage, Nooter filed a lawsuit for vexatious refusal to pay, breach of contract and declaratory judgment.  The lower court entered judgment based on motions for summary judgment that declared certain rights of the parties and a jury verdict.  The parties appealed.

The appellate court focused on the language in the excess insurers’ policies to determine the proper method to apply to allocate the losses among the excess policies.  The appellate court found that “all sums” allocation was the proper method to be applied in this case.  According to the appellate court, two categories of policy language play the most prominent roles in addressing the allocation issue: (1) some type of “all sums” language and (2) language limiting losses or occurrences to a particular policy period.  The appellate court found, in accordance with Missouri law, that the “all sums” language found in the excess polices was not limited by the “during the policy” language.  In making this determination, the appellate court rejected the excess insurers’ argument that Nooter’s coverage must be prorated among all of the triggered policies.  Instead, the appellate court ruled that Nooter could select any triggered insurance policy and hold that policy fully liable for the asbestos injury claims up to the policy limits.

After determining that “all sums” allocation applied, the appellate court addressed the issue of what constitutes exhaustion, the condition precedent to the excess insurers’ coverage liabilities. The appellate court examined the “other insurance” clauses of the excess policies.  The excess insurers argued that horizontal exhaustion should apply because the “other insurance” clauses required Nooter to exhaust all “other valid and collectible insurance” before the excess policy attached, as the policy is “in excess of” such other insurance.  Nooter argued that, according to Missouri law, “other insurance” clauses address concurrent, not successive coverage.  Nooter also argued that “other insurance” clauses do not limit the insurer’s obligation to the policyholder, but rather such clauses refer to rights among multiple insurers.  According to Nooter, once the lower-level policies in a specific year were exhausted, the excess policy in that year was trigged.   The appellate court found both interpretations of the “other insurance” clauses were reasonable, and thus, the clauses were ambiguous.  The appellate court interpreted the clauses in favor of the insured and held that vertical exhaustion applied. Nooter Corp. v. Allianz Underwriters Ins. Co., No. ED 103835 (E.D. Mo. Oct. 3, 2017).