Asbestos / NY Ct. App.shoke2013
Policyholder responsible for periods when insurance unavailable
The New York Court of Appeals, applying New York law, held that costs relating to the remediation of gradual, indivisible property contamination must be spread pro rata over the entire period of property damage irrespective of whether or not insurance coverage was available, with the policyholder responsible for any periods during which insurance was unavailable for purchase.
KeySpan Gas East Corporation (“KeySpan”) incurred liability resulting from environmental contamination caused by manufactured gas plants owned and operated by KeySpan’s predecessor. Gas production at the sites began by the early 1900s. Environmental authorities determined that there had been long-term, gradual environmental contamination at the sites and directed KeySpan to undertake costly remediation efforts.
Between 1953 and 1969, Century Indemnity Company (“Century”) issued eight liability policies to KeySpan’s predecessor covering property damage. There was no dispute that gradual, indivisible property damage occurred before, during, and after the Century policies.
Century filed a summary judgment motion seeking a declaration that (1) costs must be pro rated over the entire period of property damage and (2) Century is only responsible for the pro rata portion of costs allocated to its policy periods. Century’s argument was premised on “during the policy period” language in the policies, which Century submits only requires it to pay for damages that occur “during the policy period” – not before or after the policy period.
In response, KeySpan argued that the costs should be spread pro rata, but only over the time period during which insurance was available for purchase to cover the property damage (“Availability Rule”). KeySpan’s argument was based on decisions from around the country that have rejected the “during the policy period” argument and held that CGL policies do not contain language regarding how to allocate costs where multiple successive policies are implicated. In the absence of clear contract language, based on equity and public policy, those courts allocate long-tail claims on a pro rata basis across the period of harm during which insurance was available to cover the loss. The trial court agreed with KeySpan; the Appellate Division sided with Century.
The Court of Appeals ultimately also sided with Century. The court first observed that New York has not adopted a strict pro rata or all sums allocation rule. Instead, New York looks to the particular language of the relevant insurance policy. Specifically, in Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., the court held that “during the policy period” language requires a pro rata allocation. In contrast, in Matter of Viking Pump, Inc., the court held that the presence of noncumulation of prior insurance provisions plainly overrides the “during the policy period” language and requires an all sums allocation (whereby any triggered policy chosen by the insured must pay the entire claim, subject to policy limits).
The Century policies contained both “during the policy period” language and noncumulation provisions. However, the Court of Appeals determined that the issue of the impact of the noncumulation provisions was not before the court and a ruling on that issue was deferred. Thus, the main issue before the Court of Appeals was whether or not the Availability Rule applied where it is determined that insurance policies otherwise require a pro rata allocation due to the presence of “during the policy period” language.
The Court of Appeal held that the Availability Rule did not apply under New York law. “[T]his Court held in Consolidated Edison that pro rata allocation – rather than all sums allocation – was more consistent with such policy language because ‘the policies provide indemnification for liability incurred as a result of an accident or occurrence during the policy period, not outside the policy period….’” “It follows from our holding in Consolidated Edison that the availability rule is inconsistent with the contract language that provides the foundation for the pro rata approach – namely, the “during the policy period” limitation – and that to allocate risk to the insurer for years outside the policy period would be to ignore the very premise underlying pro rata allocation … In the context of continuous harms, where the contamination attributable to each policy period cannot be proven and we draw from the contract language to distribute the harm pro rata across the policy periods, it would be incongruous to include harm attributable to years of noncoverage within the policy periods.” KeySpan Gas East Corp. v. Munich Reinsurance Am., Inc., No. 20 (N.Y. Ct. App. Mar. 27, 2018).