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By DAN REYNOLDS, senior editor of Risk & Insurance®

A state court in Delaware has issued a decision that could have lasting ramifications for holders of primary and excess insurance policies that respond to asbestos exposures.

In an all sums approach, the insureds, in this case Warren Pumps LLC and Viking Pumps LLC, which were hit with thousands of asbestos exposure claims, would be entitled to collect on each individual policy for the full extent of liability for occurrences that spanned multiple policy periods.

Under a pro rata approach, the 20 excess insurers in the case would be able to litigate for apportionment of the exposures on a percentage basis.

Strine ruled that, not only did the policies of the former parent company (Houdaille Industries Inc.) from the years 1972 through 1985 apply to the asbestos liability of the subsidiaries under New York law, but that an all sums, rather than a pro rata approach, should be used in determining which policies should respond to asbestos exposures.

"I find that there is no disputed issue of material fact as to whether Houdaille assigned New Warren and New Viking the rights to use the Houdaille Policies for Houdaille-era claims," Strine wrote in a 91-page opinion.

"I conclude that each excess policy is independently responsible for all of the liability that results from an occurrence during the term's policy coverage," Strine also wrote.

New Viking alone, according to a copy of Strine's opinion, was hit with more than 20,000 asbestos claims. Primary and umbrella layers underwritten by Liberty Mutual had been largely exhausted, resulting in "several million" in asbestos claim payments on the part of that insurer, according to the opinion.

THE ESSENCE

Strine's ruling, in essence, frees the insureds to collect on as many as 45 excess insurance policies for their asbestos claims, and it leaves the burden of litigating the apportionment of the exposure to the insurance companies.

According to Jim Murray, a partner in the Washington, D.C. office of Dickstein Shapiro, who was one of the attorneys representing the insureds, the judge's decision means the insurers will have to argue the issue of who should pay which claims on their dime, not the insureds.

"If the insurers don't like it, they can seek contribution from other insurers," Murray said.

"The most important fact is that you bought a lot of insurance over a lot of years, you shouldn't be put on the defensive at the time of the policies being paid," Murray said.

What is also significant, according to Murray, is that the judge recognized that the specific language of the insured's policies controlled the allocation issue, not prior precedent applying a pro rata allocation to policies with different insuring language.

"Viking Pump is a potentially troubling development for insurers operating under New York law," wrote William Shelley, the global insurance department chair for Philadelphia-based Cozen O'Conner, in an alert to his insurance industry clients.

"New Warren and New Viking can now designate a single policy year to bear the responsibility for a covered loss and leave it up to those insurers to then seek reimbursement from other insurers," Shelley wrote.

October 27, 2009

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