Noncumulation Clause Results in “All Sums” Allocation for Long-Tail Environmental Liabilities

Originally published by Kevin Merriman.

By David M. Knapp, Ward Greenberg Heller & Reidy LLP

Applying the New York Court of Appeal’s landmark Viking Pump decision for the first time, the Second Circuit recently held that an “all sums” allocation applied to policies issued to Olin Corporation by OneBeacon American Insurance Company in a long-tail environmental coverage dispute. Olin Corp. v. OneBeacon A. Ins. Co., 2017 U.S. App. LEXIS 12939 (2d Cir. July 18, 2017). In accordance with Viking Pump, the Second Circuit held that an “all sums” allocation must be applied, because the policies contained the following noncumulation and continuing coverage provisions (“Condition C”):

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.

Subject to the foregoing paragraph and to all other terms and conditions of this Policy in 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, [OneBeacon] will continue to protect the Insured for liability in respect of such personal injury or property damage without payment of additional premium.

Id. at *9. According to the Court, “Condition C permits an insured to pursue full recovery from any insurer in its program whose policy covers the relevant loss and contains Condition C irrespective of whether the insurer’s policy was issued at the beginning, in the middle, or towards the end of the continuing occurrence.” Id. at *45.

The court also held that the noncumulation provision of Condition C also has the effect of reducing the limits of a triggered policy by the amount of coverage afforded under any policy within the same layer of coverage for a prior year. Id. at *46 (“This provision allows the insurer to offset its indemnification obligations by amounts already paid to cover the loss by another insurer in the same coverage tier.”). However, the Court noted that it would be the insurer’s burden to “prove its entitlement under this contractual provision.” Id. at *47.

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