New York Appeals Court Upholds Decision Ordering Insurance Company to Provide Defense for Asbestos Claims Under "Joint and Several Liability" Standard

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In a unanimous decision, the Appellate Division of the New York State Supreme Court, First Department, has upheld a trial court determination that an asbestos defendant is entitled to a full defense from its primary insurance company for certain asbestos liabilities, with the primary insurance company responsible to pay all defense costs for covered claims that are not paid by other insurance companies.

In Travelers Casualty and Surety Company v. Alfa Laval Inc., a unanimous court found on November 13, 2012 that "the insured should not be denied initial recourse to a carrier merely because another carrier may also be responsible." The ruling upheld the Supreme Court's November 22, 2011 partial summary judgment in favor of Alfa Laval, which found that Travelers owed a defense for asbestos claims for which Alfa is charged with direct liability under a "joint and several liability" standard. In that decision, Justice Debra A. James ruled that Alfa had not forfeited its right to seek a complete defense from Travelers by virtue of having sought coverage from other insurance companies.

In the underlying case, Justice James ruled similarly with regard to a parallel motion by OneBeacon, which also insured Alfa, finding that "OneBeacon shall provide Alfa with a full defense against those claims which fall primarily under its policies." The Appellate Division modified that ruling, finding that "Travelers, as the long standing insurer, should provide a complete defense, and OneBeacon may eventually be required to contribute to both defense costs and indemnification on a pro rata basis.

Justice James' Nov. 2011 ruling on Travelers' suit, upheld by the Appellate Division, addressed three important coverage issues: first, should responsibility for defense be assessed on a "joint and several liability" standard, under which multiple parties can be held liable for the same event and each may be responsible for all restitution required, or on an "allocation" basis, under which each is responsible for only a portion, determined in advance? Second, did Alfa's pursuit of coverage from other insurance companies affect that issue? Finally, since Alfa was seeking defense both for asbestos suits charging the company with direct liability and for suits against a predecessor company, how far did Travelers' duty to defend extend?

On the first issue, Justice James noted that the decision whether to apportion risk on a joint and several or allocation basis is fact-specific: "it is up to the court to determine which of the two methods is the proper one in each case" (Nov. 2011 Ruling at p. 4). In this case, "it would be highly impractical to allocate the insurer's liability for defending Alfa in the plethora of pending suits against it...most of those 650 cases, which are scattered all over the country, allegedly involve different co-defendants and insurers, so Travelers' pro rata share would be different in each one" (Nov. 2011 Ruling at p. 5).

As to whether Alfa's pursuit of coverage from multiple insurance companies imposed a kind of de facto allocation standard, Justice James found that "Alfa's conduct does not relieve Travelers of its obligation to defend Alfa in the Hawkins case [in which Alfa was charged with direct liability]...Double recovery will be avoided by reducing Travelers' liability for Alfa's defense by the amounts obtained by Alfa from the other insurers" (Nov. 2011 Ruling at pp.6-7, emphasis added).

Finally, Alfa is seeking defense in two kinds of pending actions, represented by Hawkins v. Alfa Laval, in which plaintiffs directly charge Alfa with liability, and Stewart v Alfa Laval, in which part of the case against Alfa is based on its being the successor of Sharples, Inc. Justice James found that while need not provide defense where Alfa is a defendant solely because of its acquisition of Sharples, "where, as in Stewart, Alfa is charged with direct liability as well as vicarious, Travelers must provide it with a complete defense, subject to Travelers' potential recoupment from contribution, if appropriate, after the conclusion of the underlying case" (Nov. 2011 Ruling at p. 8).

William G. Passannante of Anderson Kill & Olick, counsel to Alfa Laval, commented, "The Appellate Division upheld a vital principle of insurance coverage under clear New York law -- that a covered policyholder is entitled to a full defense. That basic commitment takes precedence over any possibility that the insurance company may obtain contributions from other insurance companies on the risk."

Cort Malone of Anderson Kill, also counsel to Alfa Laval, added, "The court reaffirmed that the duty to defend under New York law constitutes essential litigation insurance for the policyholder. For that insurance to be effective, the coverage must be timely as well as complete."

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