(Article from Insurance Law Alert, April 2018)
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A Virginia federal district court ruled that a policyholder’s asbestos-related liabilities under certain excess policies were subject to “all sums” allocation and vertical exhaustion under New York law. Hopeman Bros., Inc. v. Continental Cas. Co., 2018 WL 1726272 (E.D. Va. Apr. 2, 2018).
Hopeman, a manufacturer of asbestos-containing materials, was sued in thousands of personal injury suits. During the relevant time frame, Hopeman maintained multi-layer insurance coverage provided by numerous primary and excess insurers. Hopeman received payments from or otherwise resolved coverage disputes with all insurers covering the 1971-77 time period, except Continental and Lexington, both of which participated in a quota-share excess layer of coverage. In the present matter, the parties disputed, among other things, the appropriate method of allocation and exhaustion.
The court ruled that “all sums” (rather than pro rata) allocation was mandated by In re Viking Pump, Inc., 27 N.Y.3d 244 (2016) (discussed in our May 2016 Alert). There, the New York Court of Appeals held that all sums allocation applies to excess policies containing non-cumulation clauses. Because the policies at issue included non-cumulation clauses identical to those at issue in Viking Pump, or followed form to policies that included such clauses, the court deemed the decision binding precedent. In addition, the court rejected the insurers’ contention that Hopeman was bound by pro rata allocation based on its previous participation in pro rata allocation settlements. The court also rejected the argument that Hopeman must allege a single loss or occurrence to obtain all sums allocation under its excess policies, noting that no such requirement exists under the policy language or New York law.
The court further ruled that the policies required vertical exhaustion of directly underlying insurance, rather than horizontal exhaustion by layers, rejecting the insurers’ assertion that triggered policy periods must be exhausted in chronological order.
The court also addressed whether Hopeman could exhaust underlying policies issued by an insolvent insurer by “filling the gap” with its own payments. With respect to a Lexington policy, the court held that applicable language (“only after the Underlying Umbrella Insurers have paid or have been held liable to pay”) required either actual payment by or liability attributable to the insurer and did not permit exhaustion via payments by the insured. Because material issues of fact existed as to whether the insolvent insurer was “held liable” to pay its policy limit, the court declined to grant summary judgment on this issue. With respect to a Continental policy, the court ruled that policy language indicating that Continental will “indemnify the insured for the amount of loss which is in excess of the applicable limits of liability of the underlying insurance” allowed for exhaustion by payment by the insured.