The past two years have seen insurance coverage lawyers coming to terms with the impact of two landscape-changing decisions from New York’s highest court, colloquially referred to as Viking Pump and Keyspan. These cases addressed the proper allocation scheme and methodology applicable to “long-tail” liabilities such as environmental or asbestos claims. Specifically, the decisions mandated whether all sums or pro rata allocation applies based on the relevant policy language at issue, and how those allocation schemes should be applied in practice under the specific facts of those cases.
Many in the insurance industry and legal community were quick to characterize Viking Pump as “pro-policyholder” and Keyspan as “pro-insurance company” because of Viking Pump’s endorsement of all sums allocation as compatible with New York law and Keyspan’s rejection of the “unavailability rule” in pro rata allocation. Before Keyspan (which deals specifically with environmental claims), New York law held that insurance companies could not allocate a share of losses to policyholders for periods when insurance for certain types of liabilities (such as pollution or asbestos) was not available for purchase. Keyspan reached the opposite conclusion under the specific facts of that case, placing the burden on the policyholder for all years during which it did not have coverage whether insurance was available or not.
Despite this seemingly negative result on the unavailability issue, Keyspan is potentially just as critical a case in favor of policyholders seeking to have all sums allocation apply to their claims. Both Viking Pump and Keyspan make clear that under New York law, the allocation approach that will apply to long tail claims is governed by the presence (or absence) of certain policy language. Keyspan states that “the method of allocation is governed foremost by the particular language of the relevant insurance policy,” and Viking Pump states that “the contract language controls the question of allocation”). Under the Keyspan and Viking Pump line of cases, the Court of Appeals of New York has made clear that policy language will dictate the applicable allocation scheme, and that any policy containing “continuing coverage” language extending coverage for injuries or property damage beyond the policy period mandates application of the all sums allocation methodology. Where all sums allocation applies, insurance companies cannot prorate their liability for these claims to the policyholder — even for periods when insurance was “unavailable.”
Read more: How 2 Cases Have Settled NY Insurance Allocation Law