The Delaware Court of Chancery recently issued a detailed, scholarly opinion addressing anti-assignment provisions and the proper allocation for asbestos-related claims. See Viking Pump, Inc. v. Century Indemn. Co., 2009 Del. Ch. LEXIS 180 (Del. Ct. Ch. Oct. 14, 2009). Significantly, in determining the anti-assignment clauses did not bar assignment of the policies, the court departed from the reasoning utilized by the the Hawai`i Supreme Court in Del Monte Fresh Produce (Hawaii), Inc. v. Firemans' Fund Ins. Co., 117 Haw. 357, 183 P.3d 734 (2007).
Prior to the mid-1980's, both Warren Pumps and Viking Pump were independent companies that had been acquired by Houdaille Industries, Inc. Houdaille divested itself of Warren Pumps in 1985 through an asset sale to New Warren. Subsequently, Houdaille sold Viking Pump to New Viking in 1987.
The new companies, New Warren and New Viking, were sued for asbestos exposure claims by plaintiffs who asserted that they were injured by Viking and Warren's use of asbestos while those businesses were operated by Houdaille. Houdaille had three layers of insurance coverage: primary liability policies; umbrella excess policies; and additional layers of excess coverage. Liberty Mutual provided the first two layers of insurance, while the Excess Policies were provided by twenty separate insurers who issued forty-five separate policies. The policies all provided "occurrence-based" coverage, protecting Houdaille from liability for any injury for which Houdaille was liable that occurred during the policy period. This phase of the litigation addressed coverage of the new companies under the Excess Policies.
Anti-Assignment Provisions
The court first considered whether Houdaille agreed to assign its rights under the Excess Policies to New Warren and New Viking. An amendment to the asset sale agreement to New Warren specifically gave the buyer Houdaille's insurance rights under the Excess Policies. After a detailed analysis of the Assignment and Assumption Agreement and the Stock Purchase Agreement with the New Viking, the court determined the insurance rights to the Excess Policies for pre-existing liabilities were assigned to New Viking.
The Excess Insurers argued the assignments to New Warren and New Viking were void because the Excess Insurers did not consent. The policies typically provided, "assignment of interest under this policy shall not bind the insurer until its consent is endorsed hereon." The Excess Insurers relied on the California Supreme Court's holding in Henkel Corp. v. Hartford Accident and Indemn. Co., 129 Cal. Rptr. 2d 828 (Cal. 2003), to argue the anti-assignment provisions barred assignment of rights under the policies. The Hawai`i Supreme Court followed Henkel in Del Monte v. Firemans' Fund. In Henkel and Del Monte, the courts found the anti-assignment clauses barred a transfer of insurance claims because even though the underlying tort had already occurred, the insured loss had not been reduced to a fixed amount at the time of the assignment.
Nevertheless, applying New York law, the Delaware court determined the anti-assignment clauses were unenforceable. New York law did not permit anti-assignment clauses to bar the transfer of "post-loss claims," or claims for losses that had already happened. Once the insured-against loss occurred, there was no issue of an insurer having to insure against an additional risk.
Allocation of Coverage
Turning to the allocation issue, the insurers promoted the "pro rata" approach, while the insureds urged the "all sums" concept. The "pro rata" formula meant any given insurer, having agreed to insure Houdaille for a fixed period of time, was only responsible for some "pro rata" share of the liability the insured owed to an asbestos plaintiff who suffered harm due to exposure through several policy periods. In contrast, under the "all sums" approach, a policy would be responsible for all liability that flowed from a covered occurrence up to policy limits.
The court noted that New York courts look to the intent of the parties to resolve competing interpretations of policy language. The all sums approach was the one embraced by the Houdaille Policies. Reading the policies in their entirety, they included either a "non-cumulation provision" or a "prior insurance provision." Under these clauses, recovery under one policy reduced an insured's recovery from policies in effect in other periods from the same occurrence (e.g., continuous asbestos exposure), and an insurer had to pay for injuries caused by that occurrence that continued into other periods. The non-cumulation and prior insurance provisions could not sensibly be applied within a pro rata allocation scheme. Instead, the effect of these clauses was to keep an insured from "stacking" coverage so as to exceed the limits of individual policies.