Court Sides with Insurers; Rules Pro Rate Approach Applies on Liability Costs

The case involves two consolidated lawsuits — one from the federal district court for the Southern District of New York, and another from Georgia state court. The Georgia state court action was removed to federal court and then transferred to the Southern District of New York.

This lawsuits concern insurance coverage for The Fairbanks Company for liability arising from asbestos-related personal injury actions. Prior to 1984, Fairbanks manufactured packings and gaskets that contained asbestos. Fairbanks entered into insurance policies with several insurers, including Liberty, between 1974 and 1998. Beginning in 2002, Fairbanks was sued in several asbestos-related actions. Its insurers collectively paid its defense costs and funded settlements between 2005 and 2013. In 2013, one insurer became insolvent, leading to disputes among the remaining insurers over the shares of liability costs to be borne by each.

The insurers argued that liability costs should be divided pro rata based on the amount of time each insurer was on the risk, with the result that the insured would bear the risk that one of its insurers became insolvent. Fairbanks argued that the “all sums” approach should apply, under which each insurer would be jointly and severally liable for the entire amount of defense and liability costs, including the insolvent insurer’s share.

The court held that the pro rata approach applied. The court rejected arguments from Fairbanks attempting to distinguish New York precedent on grounds that the policies at issue did not require that the “occurrence” giving rise to coverage take place “during the policy period.” The court noted that the policies instead required the “bodily injury” to take place “during the policy period,” preserving the requirement.

Fairbanks also argued that the non-cumulation provisions in the Liberty policies were inconsistent with pro rata allocation. The court noted that an identical issue was certified to and accepted by the New York Court of Appeals in 2015. In re Viking Pump, Inc., No. 518, 2014, 2015 WL 3618924, at *3 (Del. June 10, 2015), certified question accepted, 37 N.E.3d 104 (N.Y. 2015). The New York Court of Appeals has not yet decided the issue. However, prior precedent led the court to conclude that the pro rata approach applies even when relevant policies contain non-cumulation provisions. Thus, the court rejected Fairbanks’s argument and held in favor of the insurers.

Read the full decision here.