Union Carbide Corp.. v. Affiliated Fm Ins. Co.

• Decision Date: 22 February 2011
• Citation: 922 N.Y.S.2d 220,947 N.E.2d 111,16 N.Y.3d 419,2011 N.Y. Slip Op. 01317
• Parties: UNION CARBIDE CORPORATION, Appellant,v.AFFILIATED FM INSURANCE COMPANY et al., Defendants,andContinental Casualty Company et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

16 N.Y.3d 419
947 N.E.2d 111
922 N.Y.S.2d 220
2011 N.Y. Slip Op. 01317

UNION CARBIDE CORPORATION, Appellant,
v.
AFFILIATED FM INSURANCE COMPANY et al., Defendants,andContinental Casualty Company et al., Respondents.

Court of Appeals of New York.

Feb. 22, 2011.

[922 N.Y.S.2d 220]

Proskauer Rose LLP (Steven R. Gilford, of the Illinois bar, admitted pro hac vice, and John Sloat of counsel), Proskauer Rose LLP, New York City (Bruce E. Fader and Matthew J. Morris of counsel), and Kirkland & Ellis LLP, Chicago, Illinois (Michael P. Foradas of counsel), for appellant.

[922 N.Y.S.2d 221]

Carroll, Burdick & McDonough LLP (G. David Godwin, of the California bar, admitted pro hac vice, and Laurie J. Hepler of counsel) and Ford Marrin Esposito Witmeyer & Gleser, L.L.P., New York City (Charles A. Booth and Patrick J. Bernal of counsel), for Continental Casualty Company and Litchfield Cavo LLP (Edward Fogarty, Jr., of counsel) for Argonaut Insurance Company, respondents.

[16 N.Y.3d 422] [947 N.E.2d 112] OPINION OF THE COURT SMITH, J.

This appeal calls on us to interpret an excess liability insurance policy covering asbestos claims made against Union Carbide Corporation (UCC). UCC and its insurers dispute: (1) whether the policy's aggregate limit was renewed annually or continued over the three-year life of the policy; and (2) whether a two-month extension of coverage by one of the insurers triggered a new limit. We decide the first issue in UCC's favor: The limit was renewed each year. On the second issue, however, we agree with the Appellate Division that UCC's motion for summary judgment should be denied.

I

In the mid 1970s, UCC sought—wisely, as it turned out—to obtain as much liability insurance coverage as it reasonably could. To accomplish this, it acquired coverage in layers.

In the bottom layer, a policy issued by Appalachian Insurance Company covered UCC for the first $5 million of loss, except for a “retained” amount for which UCC was self-insured. The Appalachian policy had a three-year duration, but it is clear, and not disputed, that the limit of that policy, as it applied to the claims in issue here, was renewed annually, or “annualized.” The limit is identified in the policy declarations as an “annual aggregate,” and one of the conditions of the policy provides: “[T]he limit of liability ... set forth as ‘aggregate’ shall be the total limit of the company's liability under this policy for ultimate net loss ... during each consecutive twelve months of the policy period.”

[16 N.Y.3d 423] Losses above the $5 million were covered by successive layers of excess insurance. Our concern here is with the so-called fifth excess layer, which covered losses exceeding $70 million, up to $100 million. This $30 million of coverage was divided equally—$5 million each—among six insurers, two of which, Continental Casualty Company and Argonaut Insurance Company, are involved in this appeal.

The policy issued by the fifth-layer excess insurers was a brief “subscription form policy” prepared by UCC's insurance broker. It incorporated by reference the terms of the Appalachian policy, in what is known as a “follow-the-form” clause:

“subject to the declarations set forth below, the Companies signatory hereon agree with the Insured named below that the Insurance afforded by this agreement shall follow all the terms, insuring agreements, definitions, conditions and exclusions of [the] underlying ... Policy ... issued by Appalachian Insurance Company.”

The “declarations set forth below” included the following: “LIMIT OF LIABILITY: $30,000,000. each occurrence and in the aggregate excess of $70,000,000. Umbrella Liability.” The fifth-layer excess policy had a policy period beginning December 1, 1973 and ending December 1, 1976.

UCC was a seller of asbestos, with the result that enormous claims were made against it for the years in question. It says that it has paid over $1.5 billion in defense costs, settlements and judgments. It asserts that Continental and Argonaut

[947 N.E.2d 113 , 922 N.Y.S.2d 222]

are each liable under the subscription form policy for $5 million for each year in which they provided coverage. Continental and Argonaut say that their liability for the entire period is capped at $5 million per company.

As to Continental, UCC claims an additional $5 million because the policy was extended beyond the three years. A supplement to the subscription form policy issued by Continental in December 1976 says: “In consideration of an additional premium of $1,530, it is agreed that the policy is hereby extended to read: 2/1/77 Exp. Date.” According to UCC, a new $5 million policy limit became available to it by virtue of this two-month extension.

On UCC's motions for partial summary judgment, Supreme Court ruled in its favor on both issues. The Appellate Division, with one Justice dissenting, disagreed and denied UCC's [16 N.Y.3d 424] motions as to both issues ( Union Carbide Corp. v. Affiliated FM Ins. Co., 68 A.D.3d 534, 891...