Category Archives: Guest Blog Posts

START SPREADIN’ THE NEWS…NEW YORK’S HIGHEST COURT SAYS PRO RATA ALLOCATION IS LEAVING TODAY

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Guest Blogger: John G. Koch, Weisbrod Matteis & Copley PLLC

In a much anticipated decision, New York’s highest court handed policyholders a significant victory in In re Viking Pump, Inc. & Warren Pumps, LLC, Insurance Appeals, No. 59 (N.Y. May 3, 2016).  In the context of long-tail bodily injuries or property damage spanning multiple policy periods, the Court declared that policy language is the King of New York and trumps all else when determining whether the “all sums” or “pro rata” allocation approach applies to a liability insurer’s indemnity obligation.  Specifically, the Court held that the “all sums” approach applies to an insurer’s indemnity obligation where the policy contains language inconsistent with a pro rata approach. In this case, the Court reasoned that a “non-cumulation” or “anti-stacking” clause is inconsistent with allocating an insurer’s liability on a pro rata basis.  Although Viking Pump dealt only with the duty to indemnify, its ruling applies to the broader duty to defend and bolsters existing case law recognizing that the duty to defend language in most general liability policies cannot be reconciled with a pro rata allocation approach.

To put the Viking Pump decision in context, insurers usually prefer a pro rata approach, meaning they can only be liable for their share of a loss based on the time period their policies were in force compared to the overall period that the long term injury or property damage occurred.  This rests on the legal fiction that a single indivisible loss taking place over many years can be treated as one occurrence in each successive policy period, which is an expedient method for dividing the indivisible loss among multiple successive policies based upon each policy’s time on the risk, as opposed to the extent of actual injury or damage that took place during any specific period.  Id.  As the Court stated, the foundation of this approach is that no insurer will have to pay for any injury or damage that occurs outside of its policy period.  Viking Pump, slip op. at 11-12.

Insurers usually prefer the pro rata approach because their risk is typically reduced and the risk of lost policies, insurer insolvencies or other gaps in coverage may fall upon the policyholder.  In contrast, under the “all sums” approach, each successive insurance policy triggered by a long term injury or damage is, essentially, jointly and severally liable for the entire loss up until the policy’s limits are exhausted.  Under this approach, the insured may target one or many insurers for the entire loss, leaving it to the insurers to seek contribution from one another.

Prior to Viking Pump, insurers often brandished Consolidated Edison Co. of New York v. Allstate Insurance Co., 98 N.Y.2d 208 (2002), to assert that New York is a “pro rata” state.  But in Viking Pump, the Court of Appeals distinguished and limited the reach of Consolidated Edison by pointing out that it never formed a blanket rule for pro rata allocation and that the policies in Consolidated Edison did not contain non-cumulation or similar clauses.  Viking Pump, slip op. at 11-12.

The Viking Pump Court held that non-cumulation clauses are antithetical to the concept of a pro rata allocation.  Non-cumulation clauses essentially provide that where a single loss triggers successive policies, any amount paid by a prior policy will reduce the limits of the policy containing the non-cumulation clause.  The original purpose of the clause was to prevent policyholders from double dipping when the industry made the switch from accident based policies to occurrence based policies.  Non-cumulation clauses are inconsistent with a pro rata allocation because they “plainly contemplate that multiple successive insurance policies can indemnify the insured for the same loss or occurrence,” whereas the entire premise underlying pro rata allocation is that an insurer cannot be liable for the same loss to the extent the loss occurs in another insurer’s policy period – hence the legal fiction that a separate occurrence takes place in each successive policy period.  Id. at 18 (emphasis added).  The two provisions are logically inconsistent.  Thus, adopting the pro rata approach would render the non-cumulation clause superfluous in violation of New York’s principles of policy interpretation. For this reason, the Court determined that the “all sums” approach applies to policies containing a non-cumulation clause.

In addition to the pro rata versus all sums allocation issue, the Court determined that the proper method for allocating between primary and excess layers of insurance under the “all sums” method is vertical exhaustion – meaning that a single primary policy may be required to respond to the long term loss up to its policy limits, at which time the excess coverage above that policy is pierced on an all sums basis.  The Court rejected the argument that horizontal exhaustion should apply, where all primary coverage would have to be exhausted before any excess coverage must respond to a loss, noting that the excess coverage was tied to the exhaustion of only the underlying policy, not prior or subsequent policies.  Thus, the Court ruled that vertical exhaustion is the appropriate method.

Although Viking Pump specifically addressed the effect of non-cumulation clauses, it undoubtedly stands for the propositions that: (1) no blanket rule controls how an  insurer’s indemnity obligation must be allocated, and (2), where language or a clause in an insurance policy is inconsistent with the pro rata approach, pro rata allocation does not apply.

The latter point is especially important when considering the issue of whether the duty to defend is subject to pro rata allocation.  Most general liability policies provide that the insurer has a duty to defend “any suit” in which at least one potentially covered claim is alleged.  New York courts have interpreted this language as requiring the defense of the entire lawsuit so long as at least one claim is at least in part potentially covered.  A pro rata allocation is inconsistent with the language obligating insurers to “defend” “any suit” if at least one potentially covered claim is alleged.  Thus, the reasoning in Viking Pump suggests that the “all sums” approach is the appropriate method respecting the duty to defend and is consistent with the duty to defend language found in most liability policies.

To learn more, contact John G. Koch

“UBER” Liabilities: Legislatures Respond To Emerging RideShare Liabilities With New Insurance Laws

Guest Blogger, Annie Kernicky, Esq.

The growing popularity of rideshare services like Uber and Lyft is resulting in new and emerging liabilities. Just last week in Michigan, for example, an Uber driver, in between shooting six people, allegedly picked up passengers for Uber. Passengers flock to rideshares for their touch-and-go convenience and low cost, and courts and legislatures are trying to keep up.

Situations such as the Michigan shooting will not only spur an increase rise in litigation connected to rideshare services (see previous blog post), but are also prompting new laws across the county to ensure that minimum insurance and adequate coverage exist during, and even before, a passenger’s trip in a rideshare vehicle.uBER 3

California, for example, recently enacted a new law designed to clarify what insurance coverage is required during the various phases that a rideshare driver goes through during a day of driving – i.e. Period 1, the time when the Uber app is on, but the driver hasn’t yet been matched to a driver; and Periods 2 and 3, which includes when the driver is matched with a rider, when the driver picks up the rider, and the entire drive until the rider is dropped off at the destination.

Like others of its kind across the country, the new California law sets insurance coverage requirements for all Transportation Network (TNCs) and driver partners while they are logged into the Uber platform and waiting for a trip request, i.e. Period 1.  The law requires either the TNC, Uber’s affiliate Rasier-CA LLC, or the rideshare driver partner to maintain primary third-party liability insurance that provides coverage in the amounts of $50,000 per individual with a total of $100,000 per accident along with up to $30,000 for property damage during Period 1.  Prior to the law, California’s minimum insurance requirement was $15,000. The new law also means that standard and optional coverages a driver may have purchased on their own personal auto policy no longer apply while the driver is logged into the app (in California only).

Outside of California, other states are enacting similar insurance-related laws, especially during Period 1 when other insurance may not be applicable because a passenger has not yet been picked up. At the beginning of February, in Florida, the Senate Judiciary Committee voted in favor of the law, which would set minimum insurance coverage requirements for when drivers are using their personal vehicles and are logged into the companies’ apps, but not in the act of transporting a paying passenger.  Among others, the Florida bill would require a TNC driver or company to maintain primary automobile insurance issued by specified insurers with certain coverages in specified amounts during the different periods, and also require a TNC driver to carry proof of insurance coverage at all times during the use of a personal vehicle for rideshare services.

Certainly the trend is to require rideshare drivers (or companies) to have higher insurance minimums when a driver has the company app on, even with no passengers in the vehicle.  These measures not only help protect public safety, but also ensure that there is adequate coverage and responsibility if an accident or potential liability does occur while a driver is using a rideshare app.

One Man’s Cow Manure is Another’s Liquid Gold: The Wisconsin Supreme Court Dumps on Policyholders

cow goldGuest Blogger: Emily Breslin Markos, Esq., Weisbrod Matteis & Copley PLLC

The Wisconsin Supreme Court recently held that cow manure used to fertilize a farm was a “pollutant” triggering the pollution exclusion in a farmer’s insurance policy. See Wilson Mutual Insurance Company v. Falk (Dec. 30, 2014). The Wisconsin Department of Natural Resources (“DNR”) advised the farmer that manure used as fertilizer had contaminated neighboring wells. The DNR cleaned up of the neighboring wells, and sought reimbursement from the farmer.

The farmer sought coverage under two farm-owner insurance policies. The insurer, Wilson Mutual, then filed a declaratory judgment action to determine whether the alleged contamination was covered by the policies. The central question before the Court was whether cow manure used to fertilize farm fields was a “pollutant” falling within the exclusion for bodily injury or property damage which results from the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants” into or upon land, water or air. Id. at 6.

The trial court found that the manure triggered the pollution exclusion but the court of appeals reversed, holding that a reasonable farmer considers cow manure to be “liquid gold,” and not a pollutant.

The Wisconsin Supreme Court agreed with the trial court, and held that a “reasonable insured would consider manure that seeped into a well to unambiguously be a pollutant.” Id. at 18. The Court had some precedent for this holding, the Wisconsin Supreme Court having concluded previously that bat guano can be a pollutant, despite its potential beneficial use as a fertilizer.

The Court noted that while “to a reasonable farmer” manure is generally not a pollutant under the test, manure “in relation to a well” is a pollutant. Id. at 23. The analysis of whether manure is a pollutant had to take place in the context of the occurrence at issue. Thus, the Court held that “manure is a unique and largely undesirable substance commonly understood to be harmful when present in a well.” Id. at 25.

The news wasn’t all bad for the farmer. A separate policy provision under the incidental coverages section provided that Wilson Mutual would indemnify the farmer up to $500 for each occurrence of damage to the property of others. The pollution exclusion did not apply to this provision. The provision additionally required Wilson Mutual to defend the farmer for claims of property damage. This actually entitled the farmer to a full defense for all claims because “[w]here an insurer’s policy provides coverage for even one claim made in a lawsuit, that insurer is obligated to defend the entire suit.” Id. at 39. Of course, the Court noted that, practically speaking, Wilson Mutual could extinguish its duty to defend and indemnify by settling each claim at the policy limit of $500.

Overall, the case serves as an important reminder that the interpretation of insurance policies is often subjective and largely dependent on context. One man’s pollutant is quite often another’s liquid gold.

Emily Breslin Markos is an associate at Weisbrod Matteis & Copley PLLC, where she focuses her practice on commercial litigation and insurance coverage counseling and litigation for policyholders. She received a B.A. from Brywn Mawr College in 2004 and graduated magna cum laude from Rutgers University School of Law – Camden in 2010. She can be reached at emarkos@wmclaw.com or 267.262.5589.

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