New York Insurance Coverage Law Update

N.Y. Court Of Appeals Finds That “All Sums” Allocation And “Vertical” Exhaustion Apply In Asbestos Coverage Case Based On Policies’ Language

Viking Pumps, Inc. faced significant potential liability in connection with asbestos claims. As its primary and umbrella coverage neared exhaustion, litigation arose regarding whether Viking was entitled to coverage under excess policies issued to Viking by various insurers from 1972 to 1985 and, if so, how indemnity should be allocated across the triggered policy periods. New York’s highest court, the Court of Appeals, interpreting the various policies’ language, determined that an “all sums” or “joint and several” allocation applied where the excess insurance policies either followed form to a non-cumulation provision or contained a non-cumulation and prior insurance provision (so-called “Condition C”).  The Court stated that such an approach permits the insured to collect “its total liability… under any policy in effect during the periods that the damage occurred up to the policy limits.”  The Court opined that the non-cumulation clauses at issue could not be reconciled with the pro rata allocation approach used by the Court in Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208 (2002). Under a pro rata approach, “each insurance policy is allocated a ‘pro rata’ share of the total loss representing the portion of the loss that occurred during the policy period.” The Court concluded that vertical exhaustion was “conceptually consistent with an all sums allocation,” permitting the insured to “seek coverage through the layers of insurance available for a specific year.” [Matter of Viking Pump, Inc., No. 59 (N.Y. May 3, 2016).]

No Coverage For Repair Of Code Violations Discovered During Inspection Necessitated By Covered Event, Court Rules

Certain apartments on the upper floors of a cooperative apartment building in Brooklyn were damaged in a flood. While performing repairs, the building owner discovered that concrete slabs under the floors had deteriorated, although not as a result of the flooding. The deteriorated concrete slabs violated New York City’s building code and the building owner sought coverage for the cost of repairing them under the “Blanket Ordinance or Law Coverage Endorsement” of the building’s property insurance policy. The Appellate Division, First Department, ruled that the endorsement was not triggered under the circumstances “where it is fortuitously discovered in the course of performing remediation of covered property, that structural repairs or modifications are needed to bring the building into compliance with applicable codes.” If the rule were otherwise, the appellate court concluded, the insurance company would be liable for the necessary replacement of “shoddy original construction” any time the problem happened to be uncovered in the course of remediating covered property. [St. George Tower v. Ins. Co. of Greater N.Y., 2016 N.Y. Slip Op. 03100 (1st Dep’t April 21, 2016).]

Court Strikes Down Amendment to Workers Compensation Law

In 2013, New York’s legislature amended the workers compensation law to remove liability from the state’s “reopened case fund” for the payment of workers compensation benefits to certain employees whose cases were closed and later reopened and to impose that liability, instead, on workers compensation insurers.  The insurers challenged the law, and the Appellate Division, First Department, struck it down as unconstitutional because the law impermissibly imposed on the insurers “significant additional” retroactive liability. [American Economy Ins. Co. v. State of New York, 2016 N.Y. Slip Op. 02924 (1st Dep’t April 14, 2016).]

Policy’s One-Year Limitation Period Barred Coverage Suit, Appellate Court Rules

The insured property owner sued its insurer in New York in June 2013, alleging that its property had been damaged over a period of time ending in December 2010. The trial court dismissed the action as time-barred, and the insured appealed. The Appellate Division, Second Department, affirmed, ruling that the lawsuit had been filed after the expiration of the one-year limitation period in the policy. The appellate court rejected the insured’s contention that the insurer should be prohibited from asserting the policy’s limitations period as a defense because it had engaged in a course of conduct that had lulled the insured into inactivity based on a belief that its claim ultimately would be paid. The appellate court explained that negotiations between an insured and its insurer either before or after expiration of a limitations period contained in a policy was not sufficient to prove waiver or estoppel. [Botach Mgt. Group v. Gurash, 2016 N.Y. Slip Op. 02771 (2d Dep’t April 13, 2016).]