Union Carbide Corporation v. Affiliated Fm Insurance Company

• Decision Date: 15 December 2009
• Docket Number: 600133/06,600804/04,4462,4461
• Citation: 68 A.D.3d 534,891 N.Y.S.2d 347,2009 NY Slip Op 9290
• Parties: UNION CARBIDE CORPORATION, Respondent, v. AFFILIATED FM INSURANCE COMPANY et al., Defendants, and CONTINENTAL CASUALTY COMPANY et al., Appellants. UNION CARBIDE CORPORATION, Respondent, v. AFFILIATED FM INSURANCE COMPANY et al., Defendants, and CONTINENTAL CASUALTY COMPANY et al., Appellants.
• Court: New York Supreme Court — Appellate Division

68 A.D.3d 534

2009 NY Slip Op 9290

891 N.Y.S.2d 347

UNION CARBIDE CORPORATION, Respondent, v. AFFILIATED FM INSURANCE COMPANY et al., Defendants, and CONTINENTAL CASUALTY COMPANY et al., Appellants.

UNION CARBIDE CORPORATION, Respondent, v. AFFILIATED FM INSURANCE COMPANY et al., Defendants, and CONTINENTAL CASUALTY COMPANY et al., Appellants.

4461

600804/04

4462

600133/06

Appellate Division of the Supreme Court of New York, First Department.

Decided December 15, 2009.

Order, Supreme Court, New York County (Charles E. Ramos, J.), entered May 9, 2007, which denied defendant-appellant insurers' motions for partial summary judgment, granted plaintiff insured Union Carbide's motion for partial summary judgment, and adjudged that the aggregate limits of liability for the policies that defendants-appellants issued to Union Carbide apply on an annual basis, modified, on the law, to deny Union

Carbide's motion, and otherwise affirmed, without costs. Order, same court and Justice, entered November 8, 2007, which granted Union Carbide's motion for partial summary judgment and adjudged that a two-month extension of a policy issued by defendant-appellant Continental Casualty Company to Union Carbide carried with it a full $5 million aggregate limit, unanimously reversed, on the law without costs, and the motion denied.

We agree with Judge Martin's analysis in Maryland Cas. Co. v W.R. Grace & Co. (1996 WL 169326, 1996 US Dist LEXIS 4500 [SD NY 1996]), as the relevant terms of the multiyear excess policies are indistinguishable from those in W.R. Grace. A declaration in each multiyear policy specifies a dollar amount as the "limit of liability" under the policy and states that the limit applies to each occurrence and "in the aggregate." The multiyear excess policies in W.R. Grace contained essentially the same language. Like the insured in W.R. Grace, Union Carbide seeks "to alter the plain terms of the contract by adding the word `annual' where it simply does not otherwise exist" (1996 WL 169326, *5, 1996 US Dist LEXIS 4500, *15; see also Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475 [2004] ["courts may not by construction add or excise terms" (internal quotation marks omitted)]). As the phrase "in the aggregate" is unambiguous (W.R. Grace), it is of no moment that the excess policies do not contain language elaborating on the phrase that expressly negates in annualization (see Nissho Iwai Europe v Korea First Bank, 99 NY2d 115, 121-122 [2002] ["ambiguity does not arise from silence, but from what was written so blindly and imperfectly that its meaning is doubtful" (internal quotation marks omitted)]). Accordingly, we reject Union Carbide's argument that because the excess policies are silent as to whether the limit of liability is annualized, one must look to the underlying policy due to the "follow form" clause in the excess policies. Moreover, the subscription pages of the excess policies state "[t]his policy being for [the specified dollar amount], each of the signatories assumes for its Account their [sic] indicated quota share amount of the total [the specified dollar amount] limit of liability" (emphasis added). This language, to which there was no analogue in W.R. Grace, provides additional support for the conclusion that the limit of liability stated in each excess policy is not an annual amount.

Union Carbide's effort to distinguish W.R. Grace is unpersuasive. Here, each multiyear excess policy states that the insurance it affords follows form to an underlying policy (a policy with annual limits) "subject to the declarations set forth below" (one of which, as discussed above, sets forth the limit of liability). In W.R. Grace, each multiyear excess policy also stated that the insurance it afforded followed form to an underlying policy (at least one of which had annual limits), but the follow-form clause stated that the excess insurance followed form "except for limits" (1996 WL 169326, *3, 1996 US Dist LEXIS 4500, *10). Contrary to Union Carbide's position, there is no substantive distinction between the "except for" and the "subject to" clauses. The most that can be said is that reading the excess policy to contain the same (i.e., annual) limits of liability as the underlying policy is expressly precluded by the former clause, but is only implicitly precluded by the latter clause. Both clauses, however, plainly state a rule of priority pursuant to which terms of the excess policy governing certain matters control over the terms of the underlying policy governing those matters. If the "subject to" clause does not perform the office of negating terms of the underlying policy that differ from those of the referenced declarations, it is not clear that the clause performs any function (see Suffolk County Water Auth. v Village of Greenport, 21 AD3d 947, 948 [2005] ["an interpretation which renders language in the contract superfluous is unsupportable"]; Helmsley-Spear, Inc. v New York Blood Ctr., 257 AD2d 64, 69 [1999] ["(c)ourts should construe a contract so as to give meaning to all of its language and avoid an interpretation that effectively renders meaningless a part of the contract"]).

The cases on which Union Carbide relies (Travelers Cas. & Sur. Co. v Ace Am. Reins. Co., 392 F Supp 2d 659 [SD NY 2005], affd 201 Fed Appx 40 [2d Cir 2006]; Commercial Union Ins. Co. v Swiss Reins. Am. Corp., 413 F3d 121 [1st Cir 2005]; American Employers' Ins. Co. v Swiss Reins. Am. Corp., 413 F3d 129 [1st Cir 2005]) are distinguishable. In each of these reinsurance cases, the relevant language of the reinsurance certificates differs significantly from that of the excess policies; in the two First Circuit decisions, the court expressly relied in part on the follow-the-fortunes doctrine (Commercial Union, 413 F3d at 127-128; American Employers', 413 F3d at 137).

On the extension issue, the burden of proving coverage is on Union Carbide (Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 218 [2002]), and the policy is ambiguous as to whether it is entitled to $5 million in coverage from Continental for the extended, or "stub," two-month period in question (see Stonewall Ins. Co. v Asbestos Claims Mgt. Corp., 73 F3d 1178, 1216-1217 [2d Cir 1995], mod on other grounds 85 F3d 49 [2d Cir 1996]; United States Min. Prods. Co. v American Ins. Co., 348 NJ Super 526, 559, 792 A2d 500, 525 [App Div 2002]). Thus, given the ambiguity, Union Carbide failed to meet its burden of demonstrating that it is entitled to the full annual limit for the two-month extension and partial summary judgment should not have been granted (see Uniroyal, Inc. v American Reins. Co., 2005 WL 4934215 [NJ Super Ct App Div 2005]).

Concur — SWEENY, NARDELLI, McGUIRE and DeGRASSE, JJ.

Tom, J.P., dissents in part in a memorandum as follows:

Plaintiff obtained general liability and marine insurance from nonparties Employers Liability Assurance Corp. and Appalachian Insurance Co. These underlying policies each provide an "annual aggregate" limit of liability. Reinsurance (denominated "excess policies" by defendants) was provided by appell...