Between the Lines

A Discussion of Case Law and Statutory Law Affecting Commercial Lines of Insurance


Does New York’s Viking Pump Decision Help Massachusetts Policyholders Argue for Expanded Insurance Coverage for Some Long-Tail Environmental Liabilities?

NY case gives MA insureds a potential weapon in long-tail cases.

The New York Court of Appeals’ recent Viking Pump opinion may help policyholders who seek to argue that — notwithstanding the Massachusetts Supreme Judicial Court’s application of pro rata allocation in Boston Gas Co. v. Century Indem. Co., 454 Mass. 337 (2009) — joint and several allocation should apply under Massachusetts law to policies that contain non-cumulation clauses.

Joint and several allocation can be favorable to policyholders because it permits them to choose one triggered policy to respond up to its limits, while pro rata allocation limits each insurer’s liability to its proportionate share.

Viking Pump: Non-Cumulation Clauses Call for Joint and Several Allocation

Viking Pump acquired pump manufacturing businesses from Houdaille Industries in the 1980s.  Unbeknowst to Viking Pump at the time, it also acquired Houdaille’s significant asbestos bodily injury liability.  Fortunately for Viking Pump, the purchase also transferred rights under Houdaille’s liability insurance policies for the period from 1972 to 1985.

When it came time to decide which of those policies apply to the asbestos liability under New York law, the Delaware Supreme Court deferred to the New York Court of Appeals, certifying two questions: (1) would joint and several allocation or pro rata allocation apply to policies with non-cumulation clauses? and (2) would horizontal or vertical exhaustion be required before excess policies attach?

The New York Court of Appeals’ answers: joint and several allocation and vertical exhaustion. How the court got there may provide a road map for policyholder counsel seeking to make the same argument under Massachusetts law.

Viking Pump Distinguishes Consolidated Edison: Pro Rata Allocation Is Preferable In Absence of A Non-Cumulation Clause

The New York court stated that, by applying pro rata allocation in Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 NY2d 208, 224-225 (2002), it did not adopt a blanket rule, but interpreted the language of the policies in question. (However, the court acknowledged, it had also suggested that pro rata allocation was generally preferable for long-tail claims spanning multiple policy periods.)

Unlike the policies in Consolidated Edison, the policies in Viking Pump contained non-cumulation provisions, stating that for an occurrence partly before and partly within the policy period, the policy limits would be reduced by amounts due under a previous policy.

Massachusetts Parallels to the New York Cases

In Viking Pump, the New York court cited the Massachusetts Appeals Court’s decision in Chicago Bridge & Iron Co. v. Certain Underwriters at Lloyd’s, London, 59 Mass. App Ct. 646, 656 (2003) (interpreting Illinois law) as an example of a court that concluded that non-cumulation clauses cannot be reconciled with pro rata allocation.  The New York court agreed and concluded that, given the policies’ non-cumulation and prior insurance provisions, joint and several allocation was appropriate.

Viking Pump went on to hold that vertical exhaustion applied. Under vertical exhaustion, only the underlying policies for the policy period in question must be exhausted in order to reach the excess coverage for that period, but not other lower-level policies for different policy periods, which would be the case under horizontal exhaustion.

Like the New York court in Consolidated Edison, the SJC in Boston Gas limited its application of pro rata allocation to the policies at issue. (Although, also like the New York court, the SJC stated that pro rata allocation was generally the more equitable method.)  The SJC distinguished Chicago Bridge in part on the basis that the policies in that case, unlike those in Boston Gas, contained non-cumulation clauses.

Might the SJC be convinced that joint and several allocation should be applied to policies with non-cumulation clauses?  Perhaps, although Boston Gas contains a more extensive discussion of the public policy reasons supporting pro rata allocation than Consolidated Edison.  Also, the New York court was more explicit in leaving the door open, stating in Consolidated Edison that it clearly was “not the last word on proration.”

Nevertheless, the holding in Boston Gas is expressly limited to the policies at issue in that case.  Further, Viking Pump’s observation that applying pro rata allocation to a policy with a non-cumulation clause would render the clause surplusage may be persuasive to a Massachusetts court. (Both New York and Massachusetts courts disfavor an interpretation that would read a provision out of the policy).

Photo credit: amy



About the Author

Harvey Nosowitz – Counsel

Harvey helps clients with commercial litigation, in particular insurance coverage, personal injury and products liability cases.

Please contact him with any questions:
(617) 621-6555.

Posted In: Environmental and Toxic Torts

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