KeySpan sought a declaration of coverage and determination of liability owed under the policies issued Gax Century. The Appellate Division reversed, determining that, under the applicable insurance policies, Century did not need to indemnify KeySpan for losses that were attributable to time periods when liability insurance was otherwise unavailable in the marketplace.
The Court of Appeals affirmed, thereby rejecting application of the unavailability rule for time-on-the-risk pro rata allocation.
On this appeal, we once again venture into the complex realm of long-tail insurance claims. The particular question before us is whether, under the "pro rata time-on-the-risk" method of allocation, defendant Century Gaz Company is liable to its insured, plaintiff KeySpan Gas East Corporation, for years outside of its policy periods when there was no applicable insurance coverage available on the market.
For the reasons explained herein, we hold that KeySpan, not Century, bears the risk for those years during which such coverage was unavailable.
We, therefore, affirm the order of the Appellate Division. Gas production at the sites began in the late s and early s. The DEC required KeySpan to undertake costly remediation efforts, which were apparently Cimpany at the Hempstead and Rockaway Park sites in andrespectively.
For the purposes of this appeal, it is Comlany that environmental contamination at the sites occurred gradually and continuously before, during, and after the Century policy periods.
It is also uncontroverted that the environmental contamination that occurred in any given year is unidentifiable and indivisible from the total resulting damages. KeySpan eventually commenced this action, seeking a declaration of coverage and determination of liability owed under a number of insurance policies, including the policies issued by Century. This litigation has spanned decades and involves multiple insurers, but only Century's policies are relevant to this appeal.
InCentury moved for partial summary judgment declaring that it was "not responsible for Lost Highway Brewing Company Denver portion of the property damage at the Rockaway Park and Hempstead sites that occurred outside the Century policy periods," and that "[a]ny covered costs are to be allocated pro rata over the entire period during which property damage at each site occurred.
According to KeySpan, Century's expert had opined that such coverage was not available to Dxn Networking Company until approximatelyand that a "sudden and accidental pollution exclusion" was later generally adopted by Kwyspan insurance industry sometime in or after October Thus, KeySpan argued, the allocation should not take into account any years prior to the availability, or after the unavailability, of the applicable coverage.
However, the court denied the motion with respect to those years in which the relevant insurance coverage was otherwise unavailable in the marketplace 46 Misc 3d at Upon Century's appeal, the Appellate Division reversed Kdyspan Court's order to the extent appealed from, holding that "under the insurance policies at issue, Century does not have to indemnify KeySpan for losses that are attributable to Yale Electric Supply Company periods when liability insurance was otherwise unavailable in the marketplace" AD3d 86, 88 [1st Dept ].
Thereafter, the Appellate Division certified to us the question of whether its order was properly made. Before stating and addressing the parties' arguments, we must place them in context. In such cases, the injury-producing harm is gradual and continuous and typically spans multiple insurance policy periods or, as here, implicates years during which insurance coverage was in place, as well as years for which no coverage was purchased.
In these situations, courts across the country have been tasked with determining the appropriate distribution of liability among various insurers and between the insurers and the policyholder.
In general, two primary methods of allocation are used by the courts to apportion liability across multiple policy periods: all sums and proration. All sums allocation "permits the insured to collect its total liability under any policy in effect during the periods that the damage occurred, Data Capture Systems Company Llc to the policy limits" id.
By contrast, under pro rata allocation, assuming complete coverage, "an insurer's liability is limited to sums incurred by the insured during the policy period; in other words, 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" Matter of Viking Pump, 27 NY3d at ; see Roman Catholic Diocese of Brooklyn v National Union Fire Ins.
Pro rata shares are often, although not exclusively, calculated based Keyspan Gas Company an insurer's "time on the risk," a fractional amount corresponding to the duration of the coverage provided by each insurer in relation to the total loss see Consolidated Edison, 98 NY2d Griffin Realty Company ; Stonewall Ins.
In New York, we have not adopted a strict pro rata or all sums allocation rule. Thus, applying principles of contract interpretation, we held in Consolidated Edison Co.
As we explained, the policies at issue Keysoan contained such language providing "for liability incurred as a result of an accident or occurrence during the policy period, not outside that period," and we concluded that "[p]roration of liability acknowledges the fact that there is uncertainty as to what actually transpired during any particular policy period" id. We subsequently distinguished the policy language in Consolidated Edison from that presented in Matter of Viking Pump, Inc.
Such provisions are inconsistent with pro rata allocation because "the very essence of pro rata allocation is that the insurance policy language limits indemnification to losses and occurrences during the policy period," such that no two insurance policies indemnify the same loss or occurrence absent overlapping or concurrent policy periods id. Where policy language indicates allocation by the pro rata method and gaps in coverage exist, the question arises as to which party — the insurer or the policyholder — bears the risk for periods of time in which no applicable coverage was in place.
When using a pro rata time-on-the-risk allocation, a number of jurisdictions have declined to place the policyholder "on the risk" if insurance was unavailable. These Keypan recognize the "unavailability rule" or, stated differently, an "unavailability exception" to the general rule that a policyholder is self-insured and on the risk for periods of time Compahy insurance coverage was not obtained see R.
Vanderbilt Co. Co, 73 F3d at Application of this rule serves to reduce the number of years included in Object And Animal Production Company overall proration calculation, thereby increasing the shares of liability attributable to an insurer for each year in which a policy was in effect. Other Keysspan have rejected the unavailability rule. These courts have held that a policyholder is on the risk New York Company Bags periods of non-coverage, regardless of whether the lack of Keypsan coverage was attributable to a voluntary decision to self-insure or to an inability Keyspan Gas Company Copany coverage see Boston Gas Co.
Significantly, as the Appellate Division recognized here, the applicability of the unavailability rule is a matter of first impression in New York. KeySpan does not dispute that it bears the risk for those years in which property damage insurance was available to, but not The Dream Vision Company by, LILCO and it was, therefore, voluntarily self-insured. KeySpan argues, however, that it should be responsible only for those years in which insurance was available in the marketplace.
Thus, Keyspan — supported by various amici — urges us to adopt the unavailability rule and hold that, in a pro rata time-on-the-risk allocation, liability should not Zee Music Company Com allocated to the policyholder for years in which insurance was unobtainable, either because it had not yet been offered by insurers or because the industry had adopted a pollution exclusion. In response, Century argues that the unavailability rule is inconsistent with the policy language that mandates pro rata allocation in the first instance.
Century further contends that the imposition of liability on an insurer for damages resulting from occurrences outside the policy period would contravene Comany very premise underlying pro rata allocation.
We agree. It follows Ketspan our holding in Consolidated Edison that the unavailability rule is inconsistent with the contract language that provides the foundation for the pro rata approach — namely, the "during the policy period" limitation — and that to allocate risk to the insurer for years outside the policy period would be to ignore the very premise underlying pro rata allocation id. Indeed, such an approach could, once a policy is triggered, impose liability in perpetuity or retroactively to periods prior to coverage on an insurer who issued insurance coverage for only a limited number of years, thereby eviscerating much of the distinction between pro Keyspzn and all sums allocation.
In the context of continuous harms, where the contamination attributable to each policy period cannot Keyspan Gas Company proven and we draw from the contract Keyspan Gas Company to distribute the harm pro rata across the policy periods, it would be incongruous to include harm attributable to years of non-coverage within the policy periods.
Further, application of the unavailability rule to an insurance policy that directs pro rata allocation, either expressly or under our interpretation in Consolidated Edison 98 NY2d atwould effectively provide insurance coverage to policyholders for years in which no premiums were paid and in which insurers made the calculated choice not to assume or accept premiums for Compan risk in question.
However, "[a]s an insurer, the defendant is free to select its risks" and to exclude certain risks Vander Veer v Continental Cas. To be sure, some courts have adopted the unavailability rule in the pro rata context, but they have done so by relying heavily on public policy concerns and a desire to maximize resources available to Kyespan against the policyholder see e. Stonewall Ins. By contrast, those courts which have rejected the unavailability rule have focused their analysis on the policy language that serves as the foundation for pro rata allocation see Boston Gas Co.
In Keyspsn Transition Corp. The full risk is not affected by whether insurance is available later" F3d at That Court declined to require an insurer who furnished coverage during a specific period of time before the magnitude of a risk was recognized "to furnish, for nothing, an additional period of high-price coverage" outside of the policy period because the insured, not the insurer, created the risk of Keyspan Gas Company and there was no contractual basis to impose the consequences of that risk "on an Copany unlucky enough Gass insure an early slice of the risk" id.
Likewise, the Supreme Court of Massachusetts declined to apply the unavailability rule in the pro rata context "because to do so would contravene the limitation of coverage in the Century policies to liability attributable to property damage during the policy periods" Boston Gas Co. We agree with the reasoning of these courts. Similarly, here, we concur with the Appellate Division that "the spreading of industry risk through insurance is accomplished through the setting and payment of premiums for insurance, consistent with the parties' forward[-]looking assessment of what that risk might entail," and that, "[i]n the absence of a contract requiring such action, spreading risk should not by itself serve as a legal basis for providing free insurance to an insured" AD3d at The policyholder is the one who allegedly caused the injury and, therefore, who ultimately will be financially responsible should insurance prove insufficient" R.
In any event, notwithstanding competing policy concerns, "this [C]ourt may not make or vary the contract of insurance to accomplish its notions of abstract justice or moral obligation" Breed v Insurance Co.
Ultimately, because "the very essence of pro rata allocation is that the insurance policy language limits indemnification to losses and occurrences during the policy period" Matter of Viking Pump, 27 NY3d at ; see Consolidated Edison, 98 NY2d atthe unavailability rule cannot be reconciled with the pro rata approach.
We, therefore, reject application of the Melbourne Clothesline Company rule for time-on-the-risk pro rata allocation. Accordingly, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.
Order affirmed, with costs, and Littman Company question answered in the affirmative. Opinion by Judge Stein. Judges Rivera, Fahey, Wilson and Feinman concur. Receive free Keyspxn summaries of new opinions from the New York Court of Keyspan Gas Company.
Enter your email. Keyspan Gas East Corp. Annotate this Case. Keyspan Gas E. This opinion is uncorrected and subject to revision before publication in the Usa Gold Pencil Company Reports. Decided on March 27, No. Robert A.
Long, for appellant. Jonathan Hacker, for respondents. Decided March 27, Footnotes Footnote 1: KeySpan's alternative argument that certain "other insurance" clauses in the policies constitute noncumulation clauses and, therefore, mandate all sums allocation, is not properly before us on this appeal.
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KeySpan Corporation, now part of National Grid USA, was the fifth largest distributor of natural gas in the United States.KeySpan was formed in 1998 as a result of the merger of Brooklyn Union Gas Company (founded 1895 by merging several smaller companies) and Long Island Lighting Company (LILCO), and briefly operated under the name MarketSpan following the merger.Headquarters: One MetroTech Center, Brooklyn, ……
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