In Re Viking Pump, Inc. and , 2015 Del. LEXIS 278 ( 2015 )

IN THE SUPREME COURT OF THE STATE OF DELAWARE
INREVIKING PUMP, INC. § No. 518, 2014
AND WARREN PUMPS, LLC § No. 523, 2014
INSURANCE APPEALS § No. 525, 2014
§ No. 528, 2014
§
§ CONSOLIDATED
§
§ CASES BELOW:
§
§ SUPERIOR COURT OF THE STATE
§ OF DELAWARE IN AND FOR
§ NEW CASTLE COUNTY, Consolidated
§ CA. No. N10C-06—141 FSS [CCLD]
§ -and-
§ COURT OF CHANCERY OF THE STATE
§ OF DELAWARE, CA. No. l465-VCS
Submitted: May 13, 2015
Decided: June 10, 2015
BEFORIE HOLLAND, VALIHURA, VAUGHN, Justices, WALLS and RYAN,
Judges.
Upon Appeals fiom the Superior Court and the Court of Chancery. CERTIFIED
QUESTION TO THE NEW YORK COURT OF APPEALS.
Lisa A. Schmidt, Esquire, Travis S. Hunter, Esquire, Richards, Layton & Finger,
P.A., Wilmington, Delaware; Michael P. Foradas, Esquire, (argued), Lisa G.
Esayian, Esquire and William T. Pruitt, Esquire, Kirkland & Ellis, Chicago,
Illinois, Attorneys for Plaintiff-Appellant, Viking Pump, Inc.
Jennifer C. Wasson, Esquire, and Michael B. Rush, Esquire, Potter Anderson &
Corroon LLP, Wilmington, Delaware; Robin L. Cohen, Esquire (argued), and
1 Sitting by designation pursuant to art. IV, § 12 of the Delaware Constitution and Supreme
Court Rules 2 and 4(a) to fill up the quorum as required.
Keith McKenna, Esquire, Kasowitz, Benson, Torres & Friedman LLP, New York,
New York, Attorneys for Plaintiff-Appellant, Warren Pumps LLC.
Kenneth J. Nachbar, Esquire (argued), Morris, Nichols, Arsht & Tunnell LLP,
Wilmington, Delaware; Garrett B. Moritz, Esquire, Nicholas D. Mozai, Esquire,
Ross Aronstarn & Moritz LLP, Wilmington, Delaware; Tancred V. Schiavoni,
Esquire, Gary Svirsky, Esquire, O'Melveny & Myers LLP, New York, New York,
for Defendants TIG Insurance Company, f/k/a International Insurance Company,
with respect to policies numbered 5220113076 and 5220282357, and Westchester
Fire Insurance Company, with respect to policy numbered 5220489339, by
operation of novation; ACE Property & Casualty Insurance Company (We
CIGNA Property & Casualty Insurance Company), as successor-in-interest to
Central National Insurance Company of Omaha, but only as respects policies
issued through Cravens, Dargan & Company, Pacific Coast (improperly named as
The Central National Insurance Company of Omaha); and Century Indemnity
Company, as successor to CCI Insurance Company, as successor to Insurance
Company of North America and Century Indemnity Company as successor to
CIGNA Specialty Insurance Company (f/k/a California Union Insurance
Company).
Paul Cottrell, Esquire, Tighe & Cottrell, P.A., Wilmington, Delaware; Timothy Jay
Houseal, Esquire, Jennifer M. Kinkus, Esquire, Young Conaway Stargatt &
Taylor, LLP, Wilmington, Delaware; Lynn H. Murray, Esquire, Shook, Hardy &
Bacon LLP, Chicago, Illinois; Laura S. McKay, Esquire, Hinkhouse Williams
Walsh LLP, Chicago, Illinois, for Defendant The Continental Insurance Company
as successor by merger to Fidelity & Casualty Company of New York.
Paul Cottrell, Esquire, Tighe & Cottrell, P.A., Wilmington, Delaware; Timothy Jay
Houseal, Esquire, Jennifer M. Kinkus, Esquire, Young Conaway Stargatt &
Taylor, LLP, Wilmington, Delaware; Laura S. McKay, Esquire, Douglas M.
DeWitt, Esquire, Hinkhonse Williams Walsh LLP, Chicago, Illinois, for
Defendants Certain Underwriters at Lloyd’s, London and Certain London Market
Insurance Companies; Granite State Insurance Company; Lexington Insurance
Company; and National Union Fire Insurance Company Of Pittsburgh, Pa.
Robert J. Katzenstein, Esquire, Smith, Katzenstein & Jenkins LLP, Wilmington,
Delaware; Christopher R. Carroll, Esquire, Heather B. Simpson, Esquire, Carroll,
McNulty & Kull LLC, Basking Ridge, New Jersey, for Defendant TIG Insurance
Company, as successor by merger to International Insurance Company, as
successor by merger to International Surplus Lines Insurance Company (Policy
No. XSI 5217 only).
Thaddeus J. Weaver, Esquire, Dilworth Paxson LLP, Wilmington, Delaware;
Timothy Jay Houseal, Esquire, Jennifer M. Kinkus, Esquire, Young Conaway
Stargatt & Taylor, LLP, Wilmington, Delaware; Laura S. McKay, Esquire,
Hinkhouse Williams Walsh LLP, Chicago, Illinois, for Defendants OneBeacon
America Insurance Company, now known as Lamorak Insurance Company, as
successor to Commercial Union Insurance Company, XL Insurance America, Inc.,
as successor to Vanguard Insurance Company, and Republic Insurance Company,
We Starr Indemnity & Liability Company.
James W. Sample, Esquire, Cooch and Taylor P.A., Wilmington, Delaware; Kristin
Suga Heres, Esquire, Zelle Hofmann Voelbel & Mason, LLP, Waltham,
Massachusetts, for Defendant Westport Insurance Corporation.
Robert M. Greenberg, Esquire, Tybout Redfearn & Pell, Wilmington, Delaware;
Amy R. Paulus, Esquire, Mark D. Paulson, Esquire, Don R. Sampen, Esquire,
Clausen Miller P.C., Chicago, Illinois, for Defendant Old Republic Insurance
Company.
Neal J. Levitsky, Esquire, Seth A. Niederrnan, Esquire, Fox Rothschild LLP,
Wilmington, Delaware; Kathleen D. Monnes, Esquire, Joseph K. Scully, Esquire,
John W. Cerreta, Esquire, Day Pitney LLP, Hartford, Connecticut, for Defendant
Travelers Casualty and Surety Company.
HOLLAND, Justice:
This is a consolidated appeal in an insurance-coverage dispute from separate
trial court judgments by the Court of Chancery and the Superior Court. Viking
Pump, Inc. (“Viking”) and Warren Pumps, LLC (“Warren”) seek to recover under
insurance policies issued to a third company: Houdaille Industries, Inc.
(“Houdaille”). The litigation first arose in 2005, when Viking brought suit in the
Court of Chancery claiming that it was the successor to insurance policies that the
Liberty Mutual Insurance Company (“Liberty”) had issued to Houdaille or, in the
alternative, seeking partition of the Liberty policy limits. Liberty, Viking, and
Warren settled their dispute.
Court of Chancery
Viking and Warren then filed new complaints in the Court of Chancery
against more than twenty other insurers that had issued excess policies to
Houdaille. The parties cross-moved for summary judgment, inter alia, on how to
allocate the losses where, as here, the underlying asbestos injuries potentially
trigger coverage across multiple policy periods.2
With regard to allocation, the Court of Chancery found a split in authority:
some jurisdictions adopt a “joint and several” rule that allows the insured to pick a
triggered policy and collect in full up to policy limits; other courts allocate liability
2 See Viking Pump, Inc. v. Century Indem. C0,, 2 A.3d 76 (Del. Ch. 2009).
4
according to each triggered period’s “pro rata” share.3 The Court of Chancery
acknowledged that New York’s highest court had rejected “joint and several
allocation as “not consistent” with standard policy language, also included in the
policies here, limiting coverage to injury “during the policy jrrweriod.”4
The lanuae construed in Con Ed The [an ua e here
“To indemnify the insured for all sums “The company will pay on behalf of the
which the insured shall be obligated to insured all sums in excess of the
pay by reason of the liability . . . for retained limit which the insured shall
damages, direct or consequential, and become legally obligated to pay . . . as
expenses, all as more fully defmed by damages, direct or consequential,
the term ultimate net loss, on account of because of . . . personal injury [with
. . . property damage, caused by or personal injury defined as ‘personal or
arising out of each occurrence [with bodily injury which occurs during the
occurrence defined to mean ‘an event, policy period sustained by a natural
or continuous or repeated exposure to person . . . .’] . . . with respect to which
conditions, which causes injury, damage this policy applies and caused by an
or destruction during the policy occurrence.” Addendum A-l4,-18,-20,—
period’].” 774 N.E.2d at 693 (emphasis 25,-29,-3 1,-37 ,-43 ,—48,-55,—62,—72
added . (em hasis added .
The Court of Chancery distinguished Consol. Edison of N. Y., Inc. v. Allstate
Ins. Co. on the ground that the policies here contain additional provisions — “Non-
Cumulation” and “Prior Insurance” provisions — that the Chancery Court viewed as
3 Id. at 107 n.99.
4 Consol. Edison Co. of N. Y., Inc. v. Allstate Ins. Ca, 774 N.E.2d 687, 695 (N .Y. 2002) (citing
Olin Corp. v. Ins. Co. of N. Am, 221 A.3d 307, 323 (2d Cir. 2002)); see Viking Pump, 2 A.3d at
84, 109, 118.
5
inconsistent with pro rata allocations The Umbrella Policies all contain the
following Non—Cumulation Provisions:
If the same occurrence gives rise to personal injury,
property damage or advertising injury or damage which
occurs partly before and partly within any annual period
of this policy, the each occurrence limit and the
applicable aggregate limit or limits of this policy shall be
reduced by the amount of each payment made by
[Liberty Mutual] with respect to such occurrence, either
under a previous policy or policies of which this is a
replacement, or under this policy with respect to previous
annual periods thereof.6
Twenty-eight of the Excess Policies follow form to this language.7
Similarly, seventeen of the Excess Policies, and all of the Policies which do
not incorporate the Non—Cumulation Provisions, have substantively identical Prior
Insurance Provisions which generally state that:
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 stated in the Items 5 and 6 of
the Declarations 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 the other
terms and conditions of this Policy in the event that
personal injury or property damage arising out of an
5 Viking Pump, 2 A.3d at 118-27. One New York trial court disagreed with the Court of
Chancery. Mt. McKinley Ins. Co. v. Corning Inc, 2012 NY. Misc. LEXIS 6531, at *12-14
(NY. Sup. Ct. Sept. 7, 2012).
6JAZSi-lZ; Viking Pump, Inc, 2 A3d at 121-22.
7Viking Pump, Inc., 2 A.3d at 121—22.
occurrence covered hereunder is continuing at the time of
termination of this Policy the Company will continue to
protect the Insured for liability in respect of such
personal injury or property damage without payment of
additional premium.8
The Court of Chancery held that the Houdaille policies unambiguously provide for
all sums allocation.9
Superior Court
Following the Court of Chancery proceedings, the case was transferred to
the Superior Court to hear and determine several other issues, one of which was
whether the excess policies were subject to vertical or horizontal exhaustion. In a
post-trial opinion dated October 31, 2013, the Superior Court held that, as a matter
of New York law, Viking Pump and Warren were obligated to horizontally exhaust
all triggered “primary and umbrella insurance layers before tapping” any of
Houdaille’s excess coverage.10 In a subsequent opinion dated February 28, 2014,
the Superior Court clarified that this horizontal-exhaustion requirement was limited
to the primary and umbrella coverage layers.11
The legal insurers in this appeal are controlled by New York law. Section
500.27 of the New York Rules of Court authorizes certification of cases to the New
“Id.
91d. at 119.
1" Viking Pump, Inc. v. Century Indem. Co., 2013 WL 7098824, at *21 (Del. Super. Ct. Oct. 31,
2013).
“ Viking Pump, Inc. v. Century Indem C0., 2014 WL 1305003, at #1142 (Del. Super. Ct. Feb.
28,2014).
7
York Court of Appeals “[w]henever it appears to . . . a court of last resort of any
other state that determinative questions of New York law are involved in a case
pending before that court for which no controlling precedent of the Court of
Appeals exists . . . 3’12 We have concluded that a resolution of this appeal depends
on significant and unsettled questions of New York law that have not been
answered, in the first instance, by the New York Court of Appeals.
Certified Questions
This Court hereby certifies the following questions to the New York Court
of Appeals:
1. Under New York law, is the proper method of
allocation to be used all sums or pro rata when there
are non-cumulation and prior insurance provisions?
2. Given the Court’s answer to Question #1, under New
York law and based on the policy language at issue
here, when the underlying primary and umbrella
insurance in the same policy period has been
exhausted, does vertical or horizontal exhaustion
apply to determine when a policyholder may access
its excess insurance?
We direct the Clerk of this Court to send this opinion to the Clerk of the
New York Court of Appeals, as our certificate, together with the parties’ briefs and
appendices. We will take no further action in this appeal until after the New York
Court of Appeals acts on this certification request.
‘2 N.Y. Comp. Codes R. & Regs. Tit. 22, § 500.27(a) (2010).
8