Federal court refuses to interpret non-cumulation clause without further discovery regarding the number of occurrences.

A New York District Court, applying New York law, denied an insurer’s motion for summary judgment which sought to limit its liability under successive umbrella policies.  The court found that the applicable non-cumulation clause in the umbrella policies was ambiguous and could not be interpreted until the number of occurrences was established.  The court held that further discovery was necessary to resolve the issue.

Liberty Mutual Insurance Company (“Liberty Mutual”) insured Fairbanks Company (“Fairbanks”) for successive annual periods from January 1, 1974 to January 1, 1982 under comprehensive general liability policies and umbrella excess liability policies, the latter of which included a non-cumulation clause.  Fairbanks faced multiple asbestos personal injury lawsuits.  Due to these lawsuits, a coverage dispute arose between Liberty Mutual and Fairbanks and on March 21, 2016 the United States District Court for the Southern District of New York granted Liberty Mutual’s motion for summary judgment on the issue of the proper allocation method.  The court concluded that Liberty Mutual’s primary and umbrella policies were subject to pro rata allocation such that Liberty Mutual was only liable to indemnify Fairbanks for the years Liberty Mutual was “on the risk.”  Subsequently, on May 3, 2016, the New York Court of Appeals issued an opinion in In re Viking Pump, Inc. ruling that all sums allocation should apply to policies with non-cumulation clauses because non-cumulation clauses “‘plainly contemplate that multiple successive insurance policies can indemnify the insured for the same loss or occurrence’ and non-cumulation was inconsistent with a pro rata approach.”  Based on the ruling in Viking Pump, Fairbank’s moved the District Court to reconsider its March 21, 2016 decision arguing that all sums allocation, not pro rata allocation, should apply to the Liberty Mutual umbrella policies.

In its original motion for summary judgment, Liberty Mutual argued that the non-cumulation clauses found in the policies should limit the ability of Fairbanks to recover under the multiple Liberty Mutual umbrella policies.  Liberty Mutual reasoned that the non-cumulation clause operates so that once the insurer makes payments for a claim under the first year policy, those payments would also reduce the amount available under the subsequent policies.  Liberty Mutual also argued that the occurrence limit and the aggregate limit on the policy precludes “stacking” or recovery under more than one policy.

Upon reconsideration, the District Court held that under Viking Pump, all sums allocation applies to the Liberty Mutual umbrella policies.  Nevertheless, the court held that summary judgment on the meaning of the non-cumulation clause at issue was not appropriate because there is ambiguity as to how the clause operates.  According to Fairbanks, the non-cumulation clause only applies to the “same occurrence,” and therefore does not apply to the asbestos claims because those claims arise from multiple occurrences.  In contrast, Liberty Mutual argued that the non-cumulation clause should be strictly enforced to limit recovery under subsequent annual policies regardless of the number of occurrences at issue.  Each umbrella policy has a $10,000,000 occurrence limit and a $10,000,000 aggregate limit.  Therefore, if the court granted Liberty Mutual’s motion for summary judgment and accepted its interpretation of the non-cumulation clause, Liberty Mutual’s potential total coverage obligation for asbestos claims would be limited to $10,000,000 compared to a potential $70,000,000. 

The non-cumulation clause found in the umbrella policies provides in relevant part:

If the same occurrence gives rise to personal injury which occurs partly within any annual period of this policy, the each occurrence limit and the applicable aggregate limit or limits of this policy shall be reduced by the amount of each payment made by the company with respect to such occurrence, either under a previous policy or policies of which this is as replace, or under this policy with respect to previous annual periods thereof.

The court found that “[t]he plain language of the non-cumulation clause explicitly refers to ‘the same occurrence,’ making it necessary to determine how many occurrences are at issue.”  Consequently, the court held that it could not decide as a matter of law that all of the asbestos claims against Fairbanks arise from the “same occurrence” because further discovery was needed.

The court noted that it was surprised that Liberty Mutual did not take a position as to whether the asbestos claims against Fairbanks resulted from a single occurrence or multiple occurrences.  The court found that ascertaining the number of occurrences or losses is necessary before deciding how the non-cumulation clause operates.  Therefore, upon reconsideration, Liberty Mutual’s motion for summary judgment was denied without prejudice.  Liberty Mutual Ins. Co. v. The Fairbanks Co., No. 13-CV-1141 (S.D.N.Y. Aug. 5, 2016).