Insurers Have An “All Sums” Duty to Defend Long-Tail Claims.

A New York Federal Magistrate Judge, applying New York law, issued a Report and Recommendation finding that insurers with a duty to defend a policyholder against asbestos bodily injury claims have an “all sums” duty to pay all defense costs up front.  In other words, a pro rata allocation of defense costs only potentially applies to reimbursement claims against the policyholder after the underlying action is resolved.

Columbus McKinnon Corporation (“McKinnon”) sought a declaration that its insurers, Travelers Indemnity Company and Liberty Mutual Insurance Company (together “Insurers”), breached their duty to defend and indemnify McKinnon in connection with asbestos bodily injury claims asserted against McKinnon across the United States.

McKinnon filed a motion for partial summary judgment in its favor on the issue of whether the Insurers have a duty to provide McKinnon with a complete defense in the underlying actions.  The Insurers’ policies generally require them to pay on behalf of McKinnon all sums which McKinnon shall become legally obligated to pay as damages and that the Insurers have the right and duty to defend any suit against McKinnon.

The Court agreed with McKinnon that the Insurers had a complete duty to defend, as compared to a duty to pay only a pro rata share of defense costs:  “On this issue, the New York Court of Appeals has held that “the duty to defend is broader than the duty to pay, requiring each insurer to defend if there is an asserted occurrence covered by its policy. . . [T]he insured should not be denied initial recourse to a carrier merely because another carrier [or the insured itself] may also be responsible. That is the ‘litigation insurance’ the insured has purchased.”  Thus, the Court held that McKinnon “should not be required, during the defense stage, to contribute to the cost of defense of those claims.  Rather, [the Insurers] should be obligated to provide [McKinnon] with a complete (i.e., 100 percent) defense of those claims.”

However, the Court noted that whether the Insurers can recover some of the defense costs they paid through reimbursement after the claim is a separate question not before the Court:  “Nothing herein is intended to suggest that, at the conclusion of any of the Underlying Asbestos Claims (whether by settlement, judgment, or otherwise), [McKinnon] would have no obligation to contribute, retroactively, to defense costs, based on the period of self-insurance relevant to the resolved claims…Whether [McKinnon] should bear a pro rata share of defense costs at such time, however, is not the question currently posed by [McKinnon’s] motion or [the Insurers’] cross-motions.”  Columbus McKinnon Corp. v. Travelers Indem. Co., 2018 U.S. Dist. LEXIS 136642 (S.D. N.Y. Aug. 10, 2018).