| Union Carbide Corp. v Affiliated FM Ins. Co. |
| 2009 NY Slip Op 09290 [68 AD3d 534] |
| December 15, 2009 |
| Appellate Division, First Department |
| Union Carbide Corporation, Respondent, v Affiliated FMInsurance 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. |
—[*1] Steptoe & Johnson, LLP, Washington, District of Columbia (James E. Rocap, III and FrankWinston, Jr., of the bar of the District of Columbia, admitted pro hac vice, of counsel), forAmerican Home Assurance Company, Lexington Insurance Company, American MotoristsInsurance Company, St. Paul Fire and Marine Insurance Company and Argonaut InsuranceCompany, appellants. Steven R. Gilford, Chicago, Illinois, of the bar of the State of Illinois, admitted pro hac vice,and Proskauer Rose LLP, New York, for respondent.
Order, Supreme Court, New York County (Charles E. Ramos, J.), entered May 9, 2007,which denied defendant-appellant insurers' motions for partial summary judgment, grantedplaintiff insured Union Carbide's motion for partial summary judgment, and adjudged that theaggregate limits of liability for the policies that defendants-appellants issued to Union Carbideapply on an annual basis, modified, on the law, to deny Union Carbide's motion, and otherwiseaffirmed, without costs. Order, same court and Justice, entered November 8, 2007, which [*2]granted Union Carbide's motion for partial summary judgment andadjudged that a two-month extension of a policy issued by defendant-appellant ContinentalCasualty 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 themultiyear excess policies are indistinguishable from those in W.R. Grace. A declarationin each multiyear policy specifies a dollar amount as the "limit of liability" under the policy andstates that the limit applies to each occurrence and "in the aggregate." The multiyear excesspolicies in W.R. Grace contained essentially the same language. Like the insured inW.R. Grace, Union Carbide seeks "to alter the plain terms of the contract by adding theword 'annual' where it simply does not otherwise exist" (1996 WL 169326, *5, 1996 US DistLEXIS 4500, *15; see also VermontTeddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475 [2004] ["courts may notby construction add or excise terms" (internal quotation marks omitted)]). As the phrase "in theaggregate" is unambiguous (W.R. Grace), it is of no moment that the excess policies donot contain language elaborating on the phrase that expressly negates in annualization (seeNissho Iwai Europe v Korea First Bank, 99 NY2d 115, 121-122 [2002] ["ambiguity does notarise from silence, but from what was written so blindly and imperfectly that its meaning isdoubtful" (internal quotation marks omitted)]). Accordingly, we reject Union Carbide's argumentthat because the excess policies are silent as to whether the limit of liability is annualized, onemust 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] limitof 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 eachexcess policy is not an annual amount.
Union Carbide's effort to distinguish W.R. Grace is unpersuasive. Here, eachmultiyear 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, asdiscussed above, sets forth the limit of liability). In W.R. Grace, each multiyear excesspolicy also stated that the insurance it afforded followed form to an underlying policy (at leastone of which had annual limits), but the follow-form clause stated that the excess insurancefollowed 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 containthe same (i.e., annual) limits of liability as the underlying policy is expressly precluded by theformer 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 certainmatters control over the terms of the underlying policy governing those matters. If the "subjectto" clause does not perform the office of negating terms of the underlying policy that differ fromthose of the referenced declarations, it is not clear that the clause performs any function (see Suffolk County Water Auth. v Villageof Greenport, 21 AD3d 947, 948 [2005] ["an interpretation which renders language inthe contract superfluous is unsupportable"]; Helmsley-Spear, Inc. v New York BloodCtr., 257 AD2d 64, 69 [1999] ["(c)ourts should construe a contract so as to give meaning toall of its language and avoid an interpretation that effectively renders meaningless a [*3]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 reinsurancecertificates differs significantly from that of the excess policies; in the two First Circuitdecisions, the court expressly relied in part on the follow-the-fortunes doctrine (CommercialUnion, 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 thepolicy is ambiguous as to whether it is entitled to $5 million in coverage from Continental for theextended, or "stub," two-month period in question (see Stonewall Ins. Co. v Asbestos ClaimsMgt. Corp., 73 F3d 1178, 1216-1217 [2d Cir 1995], mod on other grounds 85 F3d49 [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 tomeet its burden of demonstrating that it is entitled to the full annual limit for the two-monthextension and partial summary judgment should not have been granted (see Uniroyal, Inc. vAmerican 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 liabilityand marine insurance from nonparties Employers Liability Assurance Corp. and AppalachianInsurance Co. These underlying policies each provide an "annual aggregate" limit of liability.Reinsurance (denominated "excess policies" by defendants) was provided by appellant insurersunder a second tier of policies, each having a three-year duration. Each such excess policy,issued by a group of participating insurers, includes a "follow the form" clause, stating that it"shall follow all the terms, insuring agreements, definitions, conditions and exclusions" of theapplicable underlying insurance policy.
Unlike the underlying policies, the excess policies do not expressly state that the aggregateliability of the participating insurers is annual, limiting liability to, for example, "$30,000,000each occurrence and in the aggregate." The signature page recites, "This policy being for$30,000,000, each of the signatories assumes for its account their indicated quota share amountof the total $30,000,000 limit of liability."
It is the majority's position that despite the provision contained in each excess policy that itreflect the terms and definitions of the underlying policy providing for an annual limit ofliability, the aggregate liability limitation of such excess policy is not annual, but extends over itsthree-year duration. While, standing alone, an aggregate limit of $30,000,000 contained in athree-year insurance policy might logically be construed as a limit to be applied over the life ofthe policy, the explicit expression of the parties' intent that the excess policy mirror the terms ofthe underlying insurance coverage dispels any doubt that the limitation on the coverage affordedis meant to be annualized. As stated in Commercial Union Ins. Co. v Swiss Reins. Am.Corp. (413 F3d 121, 128 [1st Cir 2005], quoting Aetna Cas. & Sur. Co. v Home Ins.Co., 882 F Supp [*4]1328, 1337 [SD NY 1995]), " '[w]here afollowing form clause is found in the reinsurance contract, concurrency between the policy ofreinsurance and the reinsured policy is presumed, such that a policy of reinsurance will beconstrued as offering the same terms, conditions and scope of coverage as exist in the reinsuredpolicy, i.e., in the absence of explicit language in the policy of reinsurance to the contrary.' " Thelanguage on the signature page does not detract from this analysis, merely indicating eachinsurer's partial share of the total liability, without specifying whether such totalis to be aggregated annually or over the duration of the policy.
The unreported case relied upon by the majority, Maryland Cas. Co. v W.R. Grace &Co. (1996 WL 169326, 1996 US Dist LEXIS 4500 [SD NY 1996]), is distinguishable inrespect of the exception contained in the follow the form clause in the reinsurance policies,which reads: " 'Except as otherwise provided herein the insurance afforded by this policy shallfollow the terms, conditions and definitions as stated in the policies of underlying insurance,except for limits of liability, any renewal agreement and any obligation to investigate ordefend' " (1996 WL 169326, *3, 1996 US Dist LEXIS 4500, *9-10). The court noted that "whilethe policies 'follow form' to the underlying insurance in certain respects, this does not includelimits of liability, which are set forth as $5 million for 'each occurrence' and $5 million'aggregate' " (1996 WL 169326, *3, 1996 US Dist LEXIS 4500, *10). In view of the explicitexception, it is hardly remarkable that the court applied the aggregate limit over the multiyearduration of the excess policies rather than applying an annual limit, as provided in the underlyinginsurance.
The facts of the matter at bar are consonant with those of Travelers Cas. & Sur. Co. vAce Am. Reins. Co. (392 F Supp 2d 659 [SD NY 2005], affd 201 Fed Appx 40 [2dCir 2006]), in which the court noted that the inclusion of a follow the form clause in a three-yearreinsurance certificate creates a presumption of concurrency with the terms of the underlyingpolicy that can only be overcome "through the placement of explicit liability limitations in thecertificate itself" (id. at 665). Thus, the court annualized the aggregate limit of liability,holding that because, as here, "the certificates do not clearly or explicitly limit the coverageterms of the underlying policy, the presumption of concurrency between the excess policy andthe Three-Year Certificates is not overridden" (id.).
Plaintiff has submitted an expert's affidavit stating that it is industry custom that liability beaggregated annually, and that "unless a multi-year policy clearly states otherwise, its aggregatelimits are understood to apply on an annual basis." However, because the parties' intent toharmonize the terms of the excess policies with those of the underlying policies is apparent andunequivocal, it is unnecessary to consider extrinsic evidence (see R/S Assoc. v New YorkJob Dev. Auth., 98 NY2d 29, 33 [2002]; W.W.W. Assoc. v Giancontieri, 77 NY2d157, 163 [1990]). Even if an ambiguity could be said to be presented and the proffered affidavitis deemed to be conclusory, "the ambiguity must be resolved against the insurer which draftedthe contract" (State of New York v Home Indem. Co., 66 NY2d 669, 671 [1985]).[*5]
Accordingly, the order should be affirmed to the extent itgranted plaintiff's motion for partial summary judgment.