SC Ruling Reinforces All Sums Coverage Trend

Law360

PUBLISHED ON: March 27, 2024

In 2016, the New York Court of Appeals delivered a long-awaited victory for policyholders facing long-tail asbestos and environmental claims spanning multiple years of liability coverage. In re: Viking Pump Inc., the Court of Appeals rejected the insurance companies' argument that pro rata allocation applies, and instead adopted the all sums rule based on policy language.[1]

For years, insurance companies have sought to reduce their coverage obligations for long-tail claims by arguing for pro rata allocation — namely, for the loss to be artificially divided into even amounts over all the years that may be at issue.

The insurance industry's intent is to make each annual amount so small as to negate any coverage from any policy year at all. By contrast, policyholders have advocated for an all sums method, which recognizes that any occurrence-based insurance policy on the risk at the time that injury or damage occurred should pay for the entire loss up to policy limits.

In rejecting pro rata allocation, Viking Pump relied on the "non-cumulation" and "non-cumulation and prior insurance" provisions in the policies. Viking Pump held that pro rata allocation was inconsistent with these provisions because they expressly state that a loss may also be covered by a policy in a prior year. Pro rata allocation, by contrast, holds that no two policies can cover the same loss.

Following Viking Pump, many attorneys and commentators focused on Viking Pump's holding that noncumulation provisions mandated all sums. The larger point, however, is that Viking Pump requires all sums coverage whenever a loss could be covered under a policy in any other year, including in policies containing "continuing coverage" language that "expressly extends a policy's protections beyond the policy period for continuing injuries."[2]

Recognizing this larger point, since Viking Pump, courts across the country have held that all sums allocation is required when a policy's definition of "bodily injury" contains such continuing coverage language.

Decided by the South Carolina Court of Common Pleas on March 1, Covil Corp. v. Pennsylvania National Mutual Casualty Insurance Co. is the most recent of at least three decisions since Viking Pump affirming the principle that general liability insurance policies containing language that extends coverage beyond the policy period require all sums allocation.[3]

These decisions are not only important for long-tail environmental and asbestos liabilities, but also have become increasingly relevant in recent years for policyholders facing lawsuits alleging sex abuse after reforms of the relevant statutes of limitations in many states.

Because sex abuse lawsuits often allege continuing abuse and injuries over the course of many years, policyholders can expect the insurance industry to impose pro rata allocation in an effort to avoid their coverage obligations.

Viking Pump

In Viking Pump, the New York Court of Appeals accepted certified questions from the Delaware Supreme Court regarding whether all sums or pro rata was the proper allocation method for long-tail claims — that is, claims that allege injury or damage due to extended exposure to toxic conditions or gradual environmental contamination.[4] These claims typically trigger coverage under multiple insurance policy periods.

In Viking Pump, some of the policies at issue contained a "non-cumulation" clause, stating:

It is agreed that if any loss covered hereunder is also covered in whole or in part under any other excess Policy issued to the Insured prior to the inception date hereof[,] the limit of liability hereon ... shall be reduced by any amounts due to the Insured on account of such loss under such prior insurance.[5]

Other policies in Viking Pump contained "non-cumulation and prior insurance" language to similar effect.

Viking Pump found that these clauses were inconsistent with pro rata allocation because they "plainly contemplate that multiple successive insurance policies can indemnify the insured for the same loss or occurrence by acknowledging that a covered loss or occurrence may 'also [be] covered in whole or in part'" under prior policies.[6]

By contrast, pro rata allocation is allegedly a legal fiction that artificially divides and limits coverage among multiple policies so that no two insurance policies will ever cover the same portion of loss.[7] Thus, Viking Pump held that pro rata allocation could not apply to policies that recognize that the same loss can be covered by prior policies.[8]

Importantly, Viking Pump found further support for this holding in the "continuing coverage" language found within some of the noncumulation provisions at issue in that case. The provision stated that:

[I]n the event that personal injury or property damage arising out of an occurrence covered hereunder is continuing at the time of termination of this Policy the Company will continue to protect the Insured for liability … without payment of additional premium.[9]

This language, Viking Pump noted, "expressly extends a policy's protections beyond the policy period for continuing injuries."[10]

Viking Pump held that this language reinforced its holding that all sums applied. Under a pro rata scheme, "no policy covers a loss that began during a particular policy period and continued after termination of that period" since "that subsequent loss would be apportioned to the next policy period as its pro rata share."[11]

Thus, Viking Pump noted that the existence of "continuing coverage" language in some of the policies at issue further required all sums allocation.

Following Viking Pump's Lead Regarding "Continuing Coverage" Language
Following Viking Pump, many attorneys and commentators focused only on whether insurance policies contained the language in Viking Pump "acknowledging that a covered loss or occurrence may 'also [be] covered in whole or in part'" under prior policies.[12]

While Viking Pump left no doubt that all sums is required in that circumstance, that focus misses the larger point that all sums allocation is required in many other circumstances as well.

Viking Pump's observation regarding language that "expressly extends a policy's protections beyond the policy period for continuing injuries" is one example of another provision that is inconsistent with pro rata allocation.

At least three courts — the California Superior Court, the U.S. District Court for the Northern District of California and the South Carolina Court of Common Pleas — have since applied this principle and held that a general liability insurance policy's definition of "bodily injury" — defined as "bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom" — requires an all sums allocation.[13]

These decisions are significant because the insurance policies in those cases did not include the specific "non-cumulation" and "non-cumulation and prior insurance" provisions at issue in Viking Pump.

Nonetheless, they all recognized the definition of bodily injury can include "continuing coverage" language inconsistent with pro rata allocation, thus requiring all sums.

Cannon Electric
In 2017, the California Superior Court was the first following Viking Pump to recognize that an all sums allocation applies where the definition of bodily injury contains language demonstrating that the insurance policy may cover damages that arise after the policy period.

In Cannon Electric Inc. v. Ace Property & Casualty Co., the court held that the phrase "including death at any time resulting therefrom" in the definition of "bodily injury" contemplates coverage for injuries after the policy period has expired, thus entitling the policyholder to an all sums allocation.[14]

The court found that the bodily injury definition "expressly provide[d] a transfer of the liability risk from the insured to the insurer for all consequential harms — past, present and future — flowing from that injury."[15] Accordingly, the court held that pro rata allocation would disregard and render the bodily injury definition surplusage.[16]

Polar-Mohr
The following year, in Polar-Mohr Maschinenvertriebsgesellschaft GMBH Co. KG v. Zurich American Insurance Co., the U.S. District Court for the Northern District of California held that although the applicable policy did not include the noncumulation clauses in Viking Pump, an all sums allocation applied because of the policy's definition of "bodily injury," which also included the language "including death at any time resulting therefrom."[17]

The court held that this language is "precisely the type of language that the court in Viking Pump found inconsistent with the pro rata method of allocation" because it "contemplates and promises indemnification to damages that arise outside of the policy period."[18]

Covil Corp.
This month, in Covil Corp., the South Carolina Court of Common Pleas also held that the phrase "including death at any time resulting therefrom" in the policy's definition of bodily injury required an all sums allocation for asbestos liabilities.

As noted above, the court explained that this definition precludes confining bodily injury coverage to a limited time period. Rather, the policy language creates an open-ended commitment to cover the legal liability stemming from the covered bodily injury, whenever that liability emerges as long as some portion of the bodily injury occurs during the policy period.

The court expressly rejected the insurance company's attempt to impose a pro rata allocation based on its argument that the inclusion of the phrase "during the policy period" in the definition of "bodily injury" imposed a temporal limit on coverage.[19]

The court explained that this reading would violate the well-settled principle of insurance policy interpretation that an insurance policy must be read to give meaning to all of its terms.

Applying that principle, the court noted that the insurance company's interpretation put the phrase "during the policy period" in direct conflict with the phrase "at any time."[20]

The court therefore held that the proper reading of the policy is that the phrase "during the policy period" establishes a trigger of coverage — "that is, through the use of the phrase 'during the policy period,' the definition of 'bodily injury' requires that some of part of the bodily injury must occur during the policy period to trigger the policy."[21]

Then, "[o]nce a policy is triggered, the 'bodily injury' encompassed by the policy includes the injury and consequences flowing from the injury up to and including death 'at any time.'"[22]

Importantly, the court recognized that an all sums allocation not only enforces the terms of the policy, but also held that it is consistent with the very purpose of general liability insurance coverage, which is to insure.[23]

The court aptly noted that businesses purchasing general liability insurance reasonably expect that their insurance companies will do what they promised — insure them — and not try to slice and dice liability into small annual amounts over the duration of many years to avoid their coverage obligations. The court stated:

The protection afforded by the policies is not limited to an injury occurring during a limited period of time. Rather, the policies insure against "consequential risk," which flows from the policyholder's tort liability for damage to persons or property. Consequential damages in tort, particularly for asbestos-related injury, compensate a victim for both the damages they have suffered and for the damages they will suffer up to and including death. A business with CGL coverage has taken steps to ensure that it is able to pay a claimant for the full scope of this liability.[24]

Conclusion
Cannon Electric, Polar-Mohr and Covil all affirm the overriding principle that general liability insurance policies containing language that "expressly extends a policy's protections beyond the policy period" provide policyholders with another significant avenue for obtaining all sums coverage and potentially larger insurance recoveries for long-tail environmental and asbestos claims and even the increasing number of sex abuse lawsuits following the reforms of statutes of limitations in many states.

Policyholders should review their policies for any such "continuing coverage" language, with an eye toward maximizing insurance recovery and rejecting insurance company attempts to apply pro rata allocation.

 

 

 

 

Disclosure: Anderson Kill filed an amicus brief on behalf of United Policyholders in support of Viking Pump in the Viking Pump case.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates.

This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] In re Viking Pump Inc. , 27 N.Y.3d 244 (2016). [2] Id. at 262. [3] Covil Corp. v. Pa. Nat'l Mut. Cas. Ins. Co., C.A. No. 2020-CP-40-02098, slip op. (S.C. Ct. C.P. Mar. 1, 2024). [4] Viking Pump, 27 N.Y.3d at 250. [5] Id. at 252 (alteration and ellipsis in original). [6] Id. at 261. [7] Id. [8] Id. [9] Id. at 253. [10] Id. at 262. [11] Id. [12] Id. at 261. [13] See Covil Corp., C.A. No. 2020-CP-40-02098, slip op.; Polar-Mohr Maschinenvertriebsgesellschaft GMBH, Co. KG v. Zurich Am. Ins. Co. , No. 17-CV-01804- WHO, 2018 WL 1335880 (N.D. Cal. Mar. 15, 2018); Cannon Elec., Inc. v. Ace Prop. & Cas. Co. , No. BC 290354, 2017 WL 10992340, at *1 (Cal. Super. Ct. Aug. 17, 2017). [14] Cannon Elec., 2017 WL 10992340, at *26. [15] Id. [16] Id. [17] Polar-Mohr, 2018 WL 1335880, at *4. [18] Id. [19] Id. at 60. [20] Id. [21] Id. at 61. [22] Id. [23] Id. at 62 ("[The all sums] approach to allocation not only reflects the grant of coverage made by the terms of the [insurance] policies. It also is most consistent with the overall purpose of comprehensive general liability ('CGL') insurance, which is to protect the policyholder from liability."). [24] Id.