This opinion is uncorrected and subject to revision before

publication in the New York Reports.

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No. 59 

In the Matter of Viking Pump, 

Inc. and Warren Pumps, LLC, 

Insurance Appeals.

--------------------------------

Viking Pump, Inc. and Warren 

Pumps, LLC,

 Appellants,

TIG Insurance Company, et al.,

 Respondents.

Michael P. Foradas, for appellant Viking Pump, Inc.

Robin Cohen, for appellant Warren Pumps, LLC.

Kathleen M. Sullivan, for respondents.

Complex Insurance Claims Litigation Association et al.; 

New York State Electric & Gas Corporation; United Policyholders

et al.; Olin Corporation; ITT Corporation, amici curiae.

STEIN, J.:

In this complex insurance dispute, we have accepted two

certified questions from the Delaware Supreme Court asking us to 

determine (1) whether "all sums" or "pro rata" allocation applies

where the excess insurance policies at issue either follow form

to a non-cumulation provision or contain a non-cumulation and

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prior insurance provision, and (2) whether, in light of our

answer to the allocation question, horizontal or vertical

exhaustion is required before certain upper level excess policies

attach. We reaffirm that, under New York law, the contract

language of the applicable insurance policies controls each of

these questions, and we answer the certified questions in

accordance with the opinion herein, concluding that all sums

allocation and vertical exhaustion apply based on the language in

the policies before us. 

I.

The facts and procedural history of the underlying

litigation are explained in more detail in decisions of the

Delaware courts (see In re Viking Pump, Inc., ___ A3d ___, ___,

2015 WL 3618924, 2015 Del LEXIS 278 [Del June 10, 2015]; Viking

Pump, Inc. v Century Indem. Co., 2014 WL 1305003, 2014 Del Super

LEXIS 707 [Del Super Feb. 28, 2014]; Viking Pump, Inc. v Century

Indem. Co., 2013 WL 7098824, 2013 Del Super LEXIS 615 [Del Super

Oct. 31, 2013]; Viking Pump, Inc. v Century Indem. Co., 2 A3d 76

[Del Ch 2009]). As relevant here, Viking Pumps, Inc., and Warren

Pumps, LLC, acquired pump manufacturing businesses from Houdaille

Industries in the 1980s. Those acquisitions later subjected

Viking and Warren to significant potential liability in

connection with asbestos exposure claims. Houdaille had

extensive multi-layer insurance coverage spanning from 1972 to

1985 that included coverage for such claims. More specifically,

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Liberty Mutual Insurance Company provided Houdaille with primary

insurance (totaling approximately $17.5 million) and umbrella

excess coverage (totaling approximately $42 million) through

successive annual policies. Beyond that, Houdaille obtained

additional layers of excess insurance through annual policies

issued by various excess insurers (totaling over $400 million in

coverage), including a number of policies issued by defendants,

designated herein as "the Excess Insurers." 

Viking and Warren sought coverage under the Liberty

Mutual policies, and the Delaware Court of Chancery determined

that both companies were entitled to exercise rights as insureds

under those policies (see generally Viking Pump, Inc. v Liberty

Mut. Ins. Co., 2007 WL 1207107, 2007 Del Ch LEXIS 43 [Del Ch Apr

2, 2007]). As the Liberty Mutual coverage neared exhaustion,

litigation arose regarding whether Viking and Warren were

entitled to coverage under the additional excess policies issued

to Houdaille by the Excess Insurers and, if so, how indemnity

should be allocated across the triggered policy periods. 

Central to the underlying litigation, the Liberty

Mutual umbrella policies provide that the insurer

"will pay on behalf of the insured all sums

in excess of the retained limit which the

insured shall become legally obligated to

pay, or with the consent of [the Insurer],

agrees to pay, as damages, direct or

consequential, because of: (a) personal

injury . . . with respect to which this

policy applies and caused by an occurrence"

(emphasis added). 

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"Occurrence" is defined, in relevant part, as "injurious exposure

to conditions, which results in personal injury" which, in turn,

is defined as "personal injury or bodily injury which occurs

during the policy period" (emphasis added). The policies also

state that, "[f]or the purpose of determining the limits of [the

Insured's liability]: (1) all personal injury . . . arising out

of continuous or repeated exposure to substantially the same

general conditions . . . shall be considered as the result of one

and the same occurrence." The excess policies issued by the

Excess Insurers either follow form to (i.e., incorporate) these

provisions, or provide for substantively identical coverage. 

The majority of the excess policies at issue also

follow form to a "non-cumulation" of liability or "anti-stacking"

provision in the Liberty Mutual umbrella policies, which provides

that

"[i]f 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." 

Those excess policies that do not follow form to the Liberty

Mutual non-cumulation provision, contain a similar two-part

"Prior Insurance and Non[-]Cumulation of Liability" provision,

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sometimes referred to as "Condition C," as follows:

"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 . . .

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 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."

In the underlying litigation, the parties cross-moved

for summary judgment with respect to the availability of coverage

and the allocation of liability under the excess policies. The

Delaware Court of Chancery granted Viking and Warren summary

judgment on those issues, and denied the Excess Insurers' cross

motions (2 A3d at 130). As a threshold matter, the Court of

Chancery held that New York law applied to the dispute and that

Viking and Warren were each entitled to coverage under the excess

policies (see id. at 90).1

With regard to the allocation issue, the Court of

Chancery agreed with Warren and Viking (hereinafter,

collectively, "the Insureds") that the proper method of

allocation was the all sums approach, as compared with the pro

1 Neither of those holdings is before us. 

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rata allocation method propounded by the Excess Insurers (see id.

at 119-127). The Court of Chancery acknowledged that this Court

had previously applied the pro rata method in Consolidated Edison

Co. of N.Y. v Allstate Ins. Co. (98 NY2d 208, 222 [2002]), where

the policy language similarly provided that the insurer would pay

"all sums" for an occurrence happening "during the policy period"

(see 2 A3d at 120-121). However, the Court of Chancery

distinguished the policy language at issue here from that

interpreted in Consolidated Edison on the ground that the

non-cumulation and prior insurance provisions in the policies

here evinced a clear and unambiguous intent to use all sums

allocation (see id. at 119-127). The Court of Chancery rejected

the argument of the Excess Insurers that these provisions would

not apply if liability was apportioned on a pro rata basis

because, according to that court, such an interpretation would --

contrary to New York principles of contract interpretation --

render the non-cumulation and prior insurance provisions

surplusage (see id. at 124-126). The Court of Chancery also

observed that, even if the policy language was ambiguous, "the

only substantial extrinsic evidence offered by the parties weighs

in favor of the use of the all sums method" because, the court

asserted, Liberty Mutual had, in the past, routinely allocated

its liability under its own policies -- to which the excess

policies followed form -- in accordance with the all sums method

(id. at 119, 127-129). The Court of Chancery further noted that,

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to the extent the policies are ambiguous, any ambiguity must be

resolved in favor of the Insureds (see id. at 129-130).

The matter was transferred to the Delaware Superior

Court (2010 WL 2989690 [Del Ch June 2010]), where a trial was

ultimately held (2013 WL 7098824, at *6-7, 2013 Del Super LEXIS

615, *21-22). A verdict was returned largely in the Insureds'

favor, and the parties made post-judgment motions. As relevant

here, the Superior Court rejected the Excess Insurers' renewed

arguments that pro rata allocation applied. The Superior Court

also determined that, as a matter of New York law, the Insureds

were obligated to horizontally exhaust (i.e., deplete) every

triggered primary and umbrella layer of insurance before

accessing the excess policies. While the Superior Court agreed

with the Insureds that policy language supported vertical

exhaustion, in the court's view, New York law required that

horizontal exhaustion be utilized with respect to primary and

umbrella policies.2

On appeal, the Delaware Supreme Court concluded that

resolution of the allocation and exhaustion disputes between the

Excess Insurers and the Insureds "depends on significant and

unsettled questions of New York law that have not been answered,

2 The Superior Court subsequently limited that ruling to

the primary/umbrella layers, holding that horizontal exhaustion

did not apply among additional layers of excess coverage (see

Viking Pump, Inc. v Century Indem. Co., 2014 WL 1305003, 2014 Del

Super LEXIS 707 [Del Super Feb. 28, 2014]). The propriety of

that holding is not before us. 

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in the first instance, by the New York Court of Appeals" (___ A3d

___, ___, 2015 WL 3618924, at *2, 2015 Del LEXIS 278, at *9-10). 

Therefore, the Delaware Supreme Court certified, and we accepted,

the following questions:

"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?"

(id. 2015 WL 3618924, at *3, 2015 Del LEXIS 278, at *10; see

Matter of Viking Pump, Inc., 25 NY3d 1188 [2015]).

II. Allocation

(A)

Courts across the country have grappled with so-called

"long-tail" claims -- such as those seeking to recover for

personal injuries due to toxic exposure and property damage

resulting from gradual or continuing environmental contaminations

-- in the insurance context. These types of claims present

unique complications because they often involve exposure to an

injury-inducing harm over the course of multiple policy periods,

spawning litigation over which policies are triggered in the

first instance, how liability should be allocated among triggered

policies and the respective insurers, and at what point insureds

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may turn to excess insurance for coverage. Given the particular

certified questions presented here, we are not asked to review

the Delaware courts' rulings regarding which policies were

triggered and upon what events such triggering occurred, and we

do not pass on those issues here.3 Rather, we consider only the

allocation and exhaustion issues, and we first address the

question of allocation.

The Insureds argue that the losses should be allocated

through a "joint and several" or "all sums" method. This theory

of allocation "permits the insured to 'collect its total

liability . . . under any policy in effect during' the periods

that the damage occurred," up to the policy limits (Roman

Catholic Diocese of Brooklyn v National Union Fire Ins. Co. of

Pittsburgh, Pa., 21 NY3d at 154, quoting Consolidated Edison, 98

NY2d 208, 222 [2002]; see United States Fid. & Guar. Co. v

American Re-Ins. Co., 20 NY3d 407, 426 [2013]). The burden is

then on the insurer against whom the insured recovers to seek

contribution from the insurers that issued the other triggered

policies (see Consolidated Edison, 98 NY2d at 222). 

The Excess Insurers, by contrast, advocate for pro rata

3 After the Delaware Court of Chancery held that the

policies were triggered upon an injury-in-fact that occurred upon

asbestos exposure (2 A3d 76, 110-111 [Del Ch 2009]), the trigger

issue was litigated at trial, and the Superior Court declined to

alter the jury's verdict on this point (see 2013 WL 7098824, at

*17-18, 2013 Del Super LEXIS 615, *55-58 [Del Super Oct. 31,

2013]).

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allocation. Under this method, an insurer's liability is limited

to sums incurred by the insured during the policy period; in

other words, each insurance policy is allocated a "pro rata"

share of the total loss representing the portion of the loss that

occurred during the policy period (see Roman Catholic Diocese of

Brooklyn, 21 NY3d at 154; Consolidated Edison, 98 NY2d at 223).4

Generally, "[p]roration of liability among the insurers

acknowledges the fact that there is uncertainty as to what

actually transpired during any particular policy period" in

claims alleging a gradual and continuing harm (Consolidated

Edison, 98 NY2d at 224).

Courts of different states and federal jurisdictions

are divided on the issue of allocation in relation to long-tail

claims. Some jurisdictions have expressed a preference for the

all sums method, usually relying on language in policies

obligating an insurer to pay "all sums" for which an insured

becomes liable (see e.g. State of California v Cont. Ins. Co., 55

Cal 4th 186, 199, 281 P3d 1000, 1007 [2012], as mod [Sept. 19,

2012]; Plastics Eng'g Co. v Liberty Mut. Ins. Co., 315 Wis 2d

556, 583, 759 NW2d 613, 626 [2009]; Goodyear Tire & Rubber Co. v

Aetna Cas. & Sur. Co., 95 Ohio St 3d 512, 515, 769 NE2d 835, 840

[2002]; Hercules, Inc. v AIU Ins. Co., 784 A2d 481, 491 [Del

4 Courts have devised different methods of fixing losses

between policy periods (see Consolidated Edison Co. of N.Y. v

Allstate Ins. Co., 98 NY2d 208, 224-225 [2002]). Again, we have

no occasion to discuss these methods in this case.

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2001]; American Physicians Ins. Exch. v Garcia, 876 SW2d 842, 855

[Tex 1994]; J.H. France Refractories Co. v Allstate Ins. Co., 534

Pa 29, 39, 626 A2d 502, 507 [1993]; Keene Corp. v Ins. Co. of N.

Am., 667 F2d 1034, 1047 [DC Cir 1981]). Others have, instead,

utilized the pro rata method, emphasizing language in the

insurance policies that may be interpreted as limiting the "all

sums" owed to those resulting from an occurrence "during the

policy period," or public policy reasons supporting pro rata

allocation, or a combination of the two (see e.g. EnergyNorth

Nat. Gas, Inc. v Certain Underwriters at Lloyd's, 156 NH 333,

344, 934 A2d 517, 526 [2007]; Public Serv. Co. of Colorado v

Wallis and Cos, 986 P2d 924, 940 [Colo 1999]; Owens-Illinois,

Inc. v United Ins. Co., 138 NJ 437, 473, 650 A2d 974, 992 [1994];

Insurance Co. of N. Am. v Forty-Eight Insulations, Inc., 633 F2d

1212, 1225 [6th Cir 1980], decision clarified on reh, 657 F2d 814

[6th Cir 1981], cert denied 454 US 1109 [1981]).

We first confronted the question of pro rata versus all

sums allocation in Consolidated Edison (98 NY2d at 222). In that

case, we applied the pro rata method to claims involving

environmental contamination over a number of years and insurance

policy periods. Significantly, we did not reach our conclusion

in Consolidated Edison by adopting a blanket rule, based on

policy concerns, that pro rata allocation was always the

appropriate method of dividing indemnity among successive

insurance policies. Rather, we relied on our general principles

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of contract interpretation, and made clear that the contract

language controls the question of allocation. 

We emphasized in Consolidated Edison, and have

reiterated thereafter, that "'[i]n determining a dispute over

insurance coverage, [courts] first look to the language of the

policy'" (Roman Catholic Diocese of Brooklyn, 21 NY3d at 148,

quoting Consolidated Edison, 98 NY2d at 221; see Selective Ins.

Co. of Am. v County of Rensselaer, 26 NY3d 649, 655 [2016]). We

did not adopt a strict rule mandating either pro rata or all sums

allocation because insurance contracts, like other agreements,

should "be enforced as written," and "parties to an insurance

arrangement may generally 'contract as they wish and the courts

will enforce their agreements without passing on the substance of

them'" (J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 21 NY3d 324,

334 [2013], quoting New England Mut. Life Ins. Co. V Caruso, 73

NY2d 74, 81 [1989]). 

When construing insurance policies, the language of the

"contracts must be interpreted according to common speech and

consistent with the reasonable expectation of the average

insured" (Dean v Tower Ins. Co. of N.Y., 19 NY3d 704, 708 [2012],

quoting Cragg v Allstate Indem. Corp., 17 NY3d 118, 122 [2011]). 

Furthermore, "we must construe the policy in a way that affords a

fair meaning to all of the language employed by the parties in

the contract and leaves no provision without force and effect"

(Roman Catholic Diocese of Brooklyn, 21 NY3d at 148 [internal

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quotation marks and citations omitted]). Significantly,

"surplusage[ is] a result to be avoided" (Westview Assoc. v

Guaranty Natl. Ins. Co., 95 NY2d 334, 339 [2000]). Moreover,

while "'[a]mbiguities in an insurance policy are to be construed

against the insurer'" (Dean, 19 NY3d at 708, quoting Breed v

Insurance Co. of N. Am., 46 NY2d 351, 353 [1978]; see Federal

Ins. Co. v International Bus. Machs. Corp., 18 NY3d 642, 650

[2012]), a contract is not ambiguous "if the language it uses has

a definite and precise meaning, unattended by danger of

misconception in the purport of the [agreement] itself, and

concerning which there is no reasonable basis for a difference of

opinion" (Selective Ins. Co. of Am., 26 NY3d at 655 [internal

quotation marks and citation omitted]).

In Consolidated Edison, we applied the foregoing

principles to the parties' arguments in support of, and in

opposition to, pro rata allocation. The arguments presented in

that case, and our resulting decision, turned exclusively upon

the interpretation of two phrases in the insurance policies that

were before us: (1) that an insurer agreed to indemnify the

insured for "all sums" for which the insured was liable and which

were caused by or arose out of an "occurrence;" and (2) that the

"policies provide[d] indemnification for liability incurred as a

result of an accident or occurrence during the policy period, not

outside that period" (Consolidated Edison, 98 NY2d at 224

[emphasis added]). The Court concluded that "[p]ro rata

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allocation under th[o]se facts, while not explicitly mandated by

the policies, [was] consistent with the language of the

policies," whereas the mere use of the phrase "all sums" was

insufficient to establish a contrary view (98 NY2d at 224

[emphasis added]). To be sure, we also suggested that, in the

absence of language weighing in favor of a different conclusion,

pro rata allocation was the preferable method of allocation in

long-tail claims in light of the inherent difficulty of tying

specific injuries to particular policy periods. Nevertheless, we

recognized that "different policy language" might compel all sums

allocation (98 NY2d at 223), citing, as a point of comparison, to

the Delaware Supreme Court's decision in Hercules, Inc. v AIU

Ins. Co., wherein the Delaware Court adopted the all sums method

(784 A2d 481).

The policy language at issue here, by inclusion of the

non-cumulation clauses and the two-part non-cumulation and prior

insurance provisions, is substantively distinguishable from the

language that we interpreted in Consolidated Edison, and the

arguments that were made to us in that case were, likewise,

different.5 Indeed, the excess policies before us here present

the very type of language that we signaled might compel all sums

allocation in Consolidated Edison. Inasmuch as the question is

now squarely before us, we must determine whether the presence of

5 While such provisions were included in some of the

policies at issue in Consolidated Edison, there was no reference

in our decision to their existence.

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a non-cumulation clause or a non-cumulation and prior insurance

provision mandates all sums allocation.

(B)

Generally, non-cumulation clauses prevent stacking, the 

situation in which "an insured who has suffered a long term or

continuous loss which has triggered coverage across more than one

policy period . . . wishes to add together the maximum limits of

all consecutive policies that have been in place during the

period of the loss" (12 Couch on Ins. § 169:5 [3d ed]; see Barry

R. Ostrager & Thomas R. Newman, Handbook on Ins. Coverage

Disputes § 11.02 [e] [16th ed 2013]). Such clauses originated

during the shift from "accident-based" to "occurrence-based"

liability policies in the 1960s and 1970s, and were purportedly

designed to prevent any attempt by policyholders to recover under

a subsequent policy -- based on the broader definition of

occurrence -- for a loss that had already been covered by the

prior "accident-based" policy (see Jan M. Michaels et al., The

"Non-Cumulation" Clause: Policyholders Cannot Have Their Cake and

Eat It Too, 61 U Kan L Rev 701, 717 [2013]; Christopher C.

French, The "Non-Cumulation Clause": An "Other Insurance" Clause

by Another Name, 60 U Kan L Rev 375, 386 [2011]). More recently,

courts have been called upon to analyze the impact of these

clauses on the allocation question. Significantly, we have

enforced non-cumulation clauses in accordance with their plain

language (see Nesmith v Allstate Ins. Co., 24 NY3d 520, 523

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[2014]; Hiraldo v Allstate Ins. Co., 5 NY3d 508, 513 [2005]),

despite the limiting impact that such clauses may have on an

insured's recovery (and, by extension, that of an injured

plaintiff). However, we have never addressed the interplay

between non-cumulation/prior insurance provisions and allocation.

Courts in other states that have addressed this issue 

-- both those that have adopted all sums allocation and a few

that have followed a pro rata approach -- have concluded that

non-cumulation clauses cannot be reconciled with pro rata

allocation. For example, in Chicago Bridge & Iron Co. v Certain

Underwriters at Lloyd's, London, a Massachusetts appellate court

rejected pro rata allocation, in part, on the ground that the

non-cumulation/prior insurance provision "would be superfluous

had the drafter intended that damages would be allocated among

insurers based on their respective time on the risk" (59 Mass App

Ct 646, 656, 797 NE2d 434, 441 [Mass App Ct 2003]). Similarly,

the Supreme Court of Wisconsin supported its determination that

all sums allocation applied by pointing to non-cumulation clauses

contemplating indemnity where an injury occurs "'partly before

and partly within the policy period'" (Plastics Eng'g Co., 315

Wis 2d at 583, 759 NW2d at 626; see also Riley v United Services

Auto. Ass'n, 161 Md App 573, 592, 871 A2d 599, 611 [Md Ct Spec

App 2005] [noting that prohibiting stacking would run counter to

pro rata allocation], affd 393 Md 55, 899 A2d 819 [2006]). 

In addition, at least two courts in jurisdictions that

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have adopted the pro rata allocation method, have held that noncumulation clauses cannot be enforced in conjunction with that

method (see Spaulding Composites Co., Inc. v Aetna Cas. and Sur.

Co., 176 NJ 25, 44-46, 819 A2d 410, 422-423 [2003]; Outboard

Marine Corp. v. Liberty Mut. Ins. Co., 283 Ill App 3d 630, 219

Ill Dec 62, 670 NE2d 740 [1996], appeal denied 169 Ill 2d 570,

221 Ill Dec 439, 675 NE2d 634 [1996] [declining to enforce noncumulation clause with pro rata allocation]). In Spaulding

Composites Co., Inc. v Aetna Cas. and Sur. Co., the New Jersey

Supreme Court explained that, "even if the non-cumulation clause

was not facially inapplicable, . . . it would thwart the

. . . pro-rata allocation modality" (176 NJ at 44, 819 A2d at

422). That Court reasoned that, 

"[o]nce the court turns to pro rata

allocation, it makes sense that the

non-cumulation clause, which would allow the

insurer to avoid its fair share of

responsibility, drops out of the policy

. . . . The pro-rata sharing methodology

has, at its core, a public policy that favors

maximizing, in a fair and just manner,

insurance coverage for cleanup of

environmental disasters. By applying the

non-cumulation clause, insurers who were

actually 'on the risk' would be insulated

from their fair share of liability. . . ."

(id. at 44-45; see 15 Couch on Ins. § 220:30 [3d ed 1999] ["Once

a court has determined that a loss is to be shared among

sequential insurers on a pro rata basis, 'prior insurance' and

'non[-]cumulation of liability' clauses in the policies become

unenforceable"]). 

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These cases are persuasive authority for the

proposition that, in policies containing non-cumulation clauses

or non-cumulation and prior insurance provisions, such as the

excess policies before us, all sums is the appropriate allocation

method. We agree that it would be inconsistent with the language

of the non-cumulation clauses to use pro rata allocation here. 

Such policy provisions plainly contemplate that multiple

successive insurance policies can indemnify the insured for the

same loss or occurrence by acknowledging that a covered loss or

occurrence may "also [be] covered in whole or in part under any

other excess [p]olicy issued to the [Insured] prior to the

inception date" of the instant policy. 

By contrast, the very essence of pro rata allocation is

that the insurance policy language limits indemnification to

losses and occurrences during the policy period -- meaning that

no two insurance policies, unless containing overlapping or

concurrent policy periods, would indemnify the same loss or

occurrence. Pro rata allocation is a legal fiction designed to

treat continuous and indivisible injuries as distinct in each

policy period as a result of the "during the policy period"

limitation, despite the fact that the injuries may not actually

be capable of being confined to specific time periods. The noncumulation clause negates that premise by presupposing that two

policies may be called upon to indemnify the insured for the same

loss or occurrence. Indeed, even commentators who have advocated

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for pro rata allocation and propounded the complications that can

be caused by all sums allocation have recognized that

non-cumulation clauses cannot logically be applied in a pro rata

allocation (see Jan M. Michaels et al., The Avoidable Evils of

"All Sums" Liability for Long-Tail Insurance Coverage Claims, 64

U Kan L Rev 467, 489 [2015] ["Provisions such as the

non-cumulation clause [do] not even apply and need not be

analyzed under pro rata allocation"]). In a pro rata allocation,

the non-cumulation clauses would, therefore, be rendered

surplusage -- a construction that cannot be countenanced under

our principles of contract interpretation (see Roman Catholic

Diocese of Brooklyn, 21 NY3d at 148; Consolidated Edison, 98 NY2d

at 221-222; Westview Assoc., 95 NY2d at 339), and a result that

would conflict with our previous recognition that such clauses

are enforceable (see Nesmith, 24 NY3d at 523; Hiraldo, 5 NY3d at

513).6 

Several of the excess policies here also contain

continuing coverage clauses within the non-cumulation and prior

6 Notably, the Insurers originally argued to the Delaware

courts that the non-cumulation clauses should not be given effect

in a pro rata allocation. Apparently recognizing that this would

conflict with our principles of contract interpretation -- as the

Delaware Court of Chancery concluded -- the Insurers now take the

position that the non-cumulation clauses can be given effect with

pro rata allocation. Indeed, according to the Delaware Superior

Court, even the Excess Insurers' own witness, an insurance law

professor, conceded that non-cumulation clauses were inconsistent

with pro rata allocation (see 2013 WL 7098824, at *12, 2013 Del

Super LEXIS 615, at *39).

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insurance provisions, reinforcing our conclusion that all sums --

not pro rata -- allocation was intended in such policies. The

continuing coverage clause expressly extends a policy's

protections beyond the policy period for continuing injuries. 

Yet, under a pro rata allocation, no policy covers a loss that

began during a particular policy period and continued after

termination of that period because that subsequent loss would be

apportioned to the next policy period as its pro rata share. 

Using the pro rata allocation would, therefore, render the

continuing coverage clause irrelevant. Thus, presence of that

clause in the respective policies further compels an

interpretation in favor of all sums allocation (see Hercules,

Inc., 784 A2d at 493-494; Dow Corning Corp. v Cont. Cas. Co.,

Inc., 1999 WL 33435067, at *7, 1999 Mich App LEXIS 2920, at *23-

24 [Mich Ct App Oct. 12, 1999], lv denied 463 Mich 854, 617 NW2d

554 [2000]; Boston Gas Co. v Century Indem. Co., 454 Mass 337,

362, 910 NE2d 290, 309 [2009]; Liberty Mut. Ins. Co. v Those

Certain Underwriters at Lloyds, 650 F Supp 1553, 1559 [WD Pa

1987]). 

The Excess Insurers contend that a conclusion that all

sums allocation is required would be inconsistent with the Second

Circuit's holding in Olin Corp. v Am. Home Assur. Co. (704 F3d

89, 95 [2d Cir 2012] [Olin III]) and those cases that have

followed in its stead (see Liberty Mut. Ins. Co. v Fairbanks Co.,

2016 WL 1169511, *7, 2016 US Dist LEXIS 36662, at *22 [SD NY

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2016]; Liberty Mut. Fire Ins. Co. v J&S Supply Corp., 2015 US

Dist LEXIS 177124, *24-25 [SD NY 2015]). We discern no such

impediment to our holding.

In Olin I, the Second Circuit held that pro rata

allocation applied to distribute the insured's liability to

insurance policies triggered by soil and groundwater

contamination resulting from Olin Corporation's pesticide

manufacturing operations (see Olin Corp. v Ins. Co. of N. Am.,

221 F3d 307 [2d Cir 2000] [Olin I]). There, the Second Circuit

relied both on public policy reasons supporting pro rata

allocation, and on language in the insurance policies limiting

the scope of coverage to damages incurred during the policy

period (see id. at 324-326). In a later appeal in additional

related litigation (see Olin Corp. v Certain Underwriters at

Lloyd's London, 468 F3d 120, 127 [2d Cir 2006] [Olin II]), the

Second Circuit reaffirmed that its conclusion was consistent with

our decision in Consolidated Edison. 

Subsequently, in Olin III, the issue on appeal in

related litigation against one of Olin's excess insurance

carriers was whether the attachment point (i.e., the point at

which the insured's liability triggers excess coverage) for two

excess policies had been met (704 F3d at 93-95). Applying strict

pro rata allocation to the underlying policies, as provided for

in Olin I, the attachment point for the two excess insurance

policies was not reached (see id. at 95). The parties' arguments

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in Olin III centered upon the "Prior Insurance and Non-Cumulation

of Liability" provision in the underlying policies to which the

excess policies followed form (id. at 94), which had not been

raised in Olin I or Olin II (see id. at 98). Olin argued that,

although pro rata allocation applied under the Second Circuit's

earlier holding in Olin I, the continuing coverage clause

contained in the non-cumulation/prior insurance provision

required that the losses allocated to subsequent years be swept

back into the policy periods covering the earlier years. The

excess insurer, by contrast, argued, as relevant here, that pro

rata allocation was inconsistent with the non-cumulation and

continuing coverage clauses and, consequently, those provisions

could not be enforced in conjunction with pro rata allocation.

The Second Circuit held that the plain language of the

continuing coverage clause of the prior insurance provision

"require[d] the insurer to indemnify the insured for personal

injury or property damage continuing after the termination of the

policy" (id. at 100). The court, therefore, divided up the

damages for each year as if allocating them on a pro rata basis,

but then swept the shares attributable to the years outside the

policy period back into the earlier policy periods. 

At first glance, the Second Circuit's decision in Olin

III could be viewed as harmonizing the non-cumulation and prior

insurance provision containing the continuing coverage clause

with pro rata allocation. However, the Court's rejection of the

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insurer's argument that these provisions were inconsistent with

pro rata allocation turned on its conclusion that "New York state

court decisions and those prior decisions of this Court endorsing

the pro rata approach foreclose [the Court] from interpreting

[the non-cumulation and prior insurance provision] as imposing

joint and several liability" (id. at 102). As discussed above,

our holding in Consolidated Edison does not require pro rata

allocation in the face of policy language undermining the very

premise upon which the imposition of pro rata allocation rests. 

In light of the Second Circuit's view that it was foreclosed from

utilizing all sums allocation -- either by Consolidated Edison or

by its own earlier holding in Olin I imposing pro rata allocation

-- and the fact that the resulting allocation apportioning

numerous years of liability outside the policy period to the

relevant policies closely resembles an all sums allocation, the

Excess Insurers' contention that Olin III supports a pro rata

allocation here is unavailing. Nor have those courts that have

followed Olin III reconciled the language of the non-cumulation

clause and prior insurance provision with pro rata allocation

(see Liberty Mut. Ins. Co. v Fairbanks Co., 2016 US Dist LEXIS

36662, at *22; Liberty Mut. Fire Ins. Co v J&S Supply Corp, 2016

WL 1169511, at *7, 2015 US Dist LEXIS 177124, at *24-25). 

Indeed, the Excess Insurers have cited to no authorities

satisfactorily reconciling non-cumulation clauses with pro rata

allocation.

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Accordingly, based on the policy language and the

persuasive authority holding that pro rata allocation is

inconsistent with non-cumulation and non-cumulation/prior

insurance provisions, we hold that all sums allocation is

appropriate in policies containing such provisions, like the ones

at issue here.

III. Exhaustion

With the allocation issue resolved, we turn to the

second question -- namely, whether horizontal or vertical

exhaustion applies under the relevant policies. That is, we must

determine whether the Insureds are required under the terms of

the excess policies to "horizontally" exhaust all triggered

primary and umbrella excess layers before tapping into any of the

additional excess insurance policies, or whether the Insureds

need only "vertically" exhaust the primary and umbrella policies,

which would allow the Insureds to access each excess policy once

the immediately underlying policies' limits are depleted, even if

other lower-level policies during different policy periods remain

unexhausted. The Excess Insurers argue that, if we utilize all

sums allocation, then horizontal exhaustion should be applied.7

7 While, in some situations, horizontal exhaustion may be

beneficial to excess insurers, particularly where the underlying

layers of insurance contain a non-cumulation clause, we note that

-- like with the allocation issue -- neither method necessarily

militates in favor of insurers or insureds, with much depending

on the specifics of the underlying policies and their limits. 

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All of the excess policies at issue primarily hinge

their attachment on the exhaustion of underlying policies that

cover the same policy period as the overlying excess policy, and

that are specifically identified by either name, policy number,

or policy limit. In our view, vertical exhaustion is more

consistent than horizontal exhaustion with this language tying

attachment of the excess policies specifically to identified

policies that span the same policy period. Further, vertical

exhaustion is conceptually consistent with an all sums

allocation, permitting the Insured to seek coverage through the

layers of insurance available for a specific year (see Westport

Ins. Corp. v Appleton Papers Inc., 327 Wis 2d 120, 168-169, 787

NW2d 894, 919 [2010], review denied 329 Wis 2d 63 [2010]; Cadet

Mfg. Co. v Am. Ins. Co., 391 F Supp 2d 884, 892 [WD Wash 2005];

J. Stephen Berry, Jerry B. McNally, Allocation of Insurance

Coverage: Prevailing Theories and Practical Applications, 42 Tort

Trial & Ins Prac LJ 999, 1015-1016 [2007]). 

The only argument of the Excess Insurers in support of

horizontal exhaustion that merits discussion is their contention

that it is compelled by the "other insurance" clauses in the

Liberty Mutual umbrella policies and the subject excess policies. 

The Liberty Mutual umbrella policies provide that the insurer

will pay "all sums in excess of the retained limit," which is

defined as the relevant limit of liability of underlying

policies, "plus all amounts payable under other insurance, if

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any." An "underlying policy" is "a policy listed as an

underlying policy in the declarations," which, as already stated,

includes only policies spanning the same policy period as the

respective excess policy. Other insurance, in turn, "means any

other valid and collectible insurance (except under an underlying

policy) which is available to the insured, or would be available

to the insured in the absence of this policy." The excess

policies have similar clauses providing for such policies to be

excess to other insurance.

The Excess Insurers contend that the "other insurance"

available to the Insureds includes coverage provided by

successive insurance policies. Their argument in this regard is

not completely baseless (see Dow Corning Corp., 1999 WL 33435067,

at *9, 1999 Mich App LEXIS 2920, at *26-29; United States Gypsum

Co. v Admiral Ins. Co., 268 Ill App 3d 598, 653, 643 NE2d 1226,

1261 [Ill App Ct 1994], lv denied 161 Ill 2d 542 [1995]). 

However, we stated in Consolidated Edison that "other insurance"

clauses "apply when two or more policies provide coverage during

the same period, and they serve to prevent multiple recoveries

from such policies," and that such clauses "have nothing to do"

with "whether any coverage potentially exist[s] at all among

certain high-level policies that were in force during successive

years" (Consolidated Edison, 98 NY2d at 223 [emphases added]). 

Those cases relied on by the Delaware Superior Court do not hold

otherwise because they each involved instances of concurrent

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insurance policies (see e.g. American Home Assur. Co. v

International Ins. Co., 90 NY2d 433, 437 [1997]; State Farm Fire

& Cas. Co. v LiMauro, 65 NY2d 369, 372 [1985]; Lumbermens Mut.

Cas. Co. v Allstate Ins. Co., 51 NY2d 651 [1980]; Bovis Lend

Lease LMB, Inc. v Great Am. Ins. Co., 53 AD3d 140 [1st Dept

2008]). Moreover, our conclusion in Consolidated Edison that

other insurance clauses are not implicated in situations

involving successive -- as opposed to concurrent -- insurance

policies finds support in other jurisdictions (see Ohio Cas. Ins.

Co. v Unigard Ins. Co., 268 P3d 180, 184 [2012]; Century Indem.

Co. v Liberty Mut. Ins. Co., 815 F Supp 2d 508, 516 [DRI 2011];

Westport Ins. Corp., 327 Wis 2d at 168-169, 787 NW2d at 919;

Boston Gas Co., 454 Mass at 361, 910 NE2d at 308 [the 'other

insurance' clauses simply reflect a recognition of the many

situations in which concurrent, not successive, coverage would

exist for the same loss]; LSG Tech., Inc. v U.S. Fire Ins. Co.,

2010 WL 5646054, at *12, 2010 US Dist Lexis 140879 [ED Tex Sept.

2, 2010]; Owens-Illinois, Inc. v United Ins. Co., 138 NJ 437,

470, 650 A2d 974, 991 [1994]). 

Here, the Insureds are not seeking multiple recoveries

from different insurers under concurrent policies for the same

loss, and the other insurance clause does not apply to successive

insurance policies (see Consolidated Edison, 98 NY2d at 223).

Thus, in light of the language in the excess policies tying their

attachment only to specific underlying policies in effect during

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the same policy period as the applicable excess policy, and the

absence of any policy language suggesting a contrary intent, we

conclude that the excess policies are triggered by vertical

exhaustion of the underlying available coverage within the same

policy period (see United States Fid. & Guar. Co. v American

Re-Ins. Co., 20 NY3d at 428; Ostrager & Thomas R. Newman,

Handbook on Ins. Coverage Disputes § 13.14).

IV.

Accordingly, following certification of questions by

the Supreme Court of Delaware and acceptance of the questions by

this Court pursuant to section 500.27 of the Rules of Practice of

the New York State Court of Appeals, and after hearing argument

by counsel for the parties and consideration of the briefs and

the record submitted, the certified questions should be answered

in accordance with this opinion.

* * * * * * * * * * * * * * * * *

Following certification of questions by the Supreme Court of

Delaware and acceptance of the questions by this Court pursuant

to section 500.27 of the Rules of Practice of the New York State

Court of Appeals, and after hearing argument by counsel for the

parties and consideration of the briefs and the record submitted,

certified questions answered in accordance with the opinion

herein. Opinion by Judge Stein. Chief Judge DiFiore and Judges

Pigott, Rivera, Abdus-Salaam and Fahey concur. Judge Garcia took

no part.

Decided May 3, 2016

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