The Supreme Court of Delaware issued its decision in the long-standing dispute in In re Viking Pump, Inc. and Warren Pumps, LLC.  The appeal arose out of several rulings in the Court of Chancery and after a jury trial in the Complex Commercial Litigation Division of the Superior Court of Delaware. 

The litigation began in 2005 in the Court of Chancery, when Viking brought suit claiming it was the successor to certain insurance policies that Liberty Mutual Insurance Company had issued to Houdaille Industries, Inc., or, in the alternative, seeking partition of the Liberty policy limits.  That dispute settled.  Viking and Warren then filed new complaints in the Court of Chancery against more than twenty excess insurers that had issued excess policies to Houdaille.  The issue was whether to allocate using either the “pro rata” or “all sums” approach.  The Court of Chancery held that, under New York law, the language of the policy unambiguously provided for “all sums” allocation.  The case was then transferred to the Superior Court.

Following trial, the Superior Court held that Viking and Warren were obligated to horizontally exhaust all triggered primary and umbrella insurance layers before tapping into Houdaille’s excess coverage.  The Superior Court later clarified that this horizontal exhaustion requirement was limited to the primary and umbrella coverage layers and not excess coverage. 

After trial, all parties appealed.  Following oral argument, the Supreme Court of Delaware certified two questions of law 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?

The New York Court of Appeals held that the “all sums” allocation was appropriate and also held that the Excess Policies were triggered by vertical exhaustion of the underlying available coverage within the same policy period. 

Thus, after the New York Court of Appeals decision, four main issues remained.  The Supreme Court decided the issues as follows:

1. The Court of Chancery correctly held that Warren and Viking obtained valid assignments of insurance rights.  The Supreme Court rejected the insurer’s arguments that certain transactional agreements did not validly assign the policies.  The Court agreed with plaintiffs that “the anti-assignment provisions [did] not bar the assignment of insurance rights for pre-assignment occurrences.”  Therefore, because the losses triggering the policies at issue had already occurred at the time of assignment, the assignment provisions in the policies did not bar coverage.
2. The Superior Court correctly ruled that the 1980-1985 Liberty Primary policies were exhausted.  Under the policies at issue, Liberty could pay any part or all or part of the deductible amount to effect settlement of any claim or suit, and exhaustion did not depend on who paid the deductible.  As such, the Superior Court correctly held that the parties could continue the underlying litigation without the complicated per-occurrence deductible payments urged by the defendants.
3. The Superior Court’s ruling regarding its determination of the Excess Policies’ coverage for defense costs was affirmed in part and reversed in part.  The Supreme Court’s ruling on this issue varied depending on the language in the excess policy.  Where the Excess Policy was truly “follow form,” the Supreme Court held that the insurers were required to pay defense costs in addition to limits because that was the obligation in the underlying umbrella policy.  However, where the policies were not follow form, the language of each particular excess policy controlled.
4. The Superior Court’s ruling with respect to the trigger of coverage was reversed.  The Supreme Court held that, under New York law, bodily injury resulting from asbestos exposure first occurs “during each and every period of an asbestos claimant’s significant exposure to asbestos and continues thereafter.”