Mark IV Indus., Inc. v Lumbermens Mut. Cas. Co.

[*1] Mark IV Indus., Inc. v Lumbermens Mut. Cas. Co. 2006 NY Slip Op 50990(U) [12 Misc 3d 1161(A)] Decided on April 28, 2006 Supreme Court, Erie County Fahey, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 28, 2006
Supreme Court, Erie County

Mark IV Industries, Inc. and DAYCO PRODUCTS, LLC, Plaintiffs

against

Lumbermens Mutual Casualty Company, TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, LIBERTY MUTUAL FIRE INSURANCE COMPANY and ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendants



2005/2029



KEVIN J. CROSS, ESQ.

LIPPES MATHIAS WEXLER FRIEDMAN LLP

Attorneys for Plaintiffs

WILLIAM M. SAVINO, ESQ.

M. PAUL GORFINKEL, ESQ.

JASON B. GURDUS, ESQ.

RIVKIN RADLER LLP

Attorneys for Defendants

Eugene M. Fahey, J.

Plaintiffs, Mark IV Industries, Inc. and Dayco Products, LLC, commence this action for declaratory relief relating to certain liability insurance policies provided to them by Defendants, Lumbermens Mutual Casualty Company, Travelers Property Casualty Company of America, Liberty Mutual Fire Insurance Company and St. Paul Fire and Marine Insurance Company.

Now, Plaintiffs Mark IV and Dayco move for summary judgment against Defendant Liberty [*2]Mutual, together with a declaration that certain non-cumulation provisions contained in the four liability policies sold by Liberty Mutual to Mark IV are inapplicable here, and that Liberty Mutual must pay a full two million dollars per occurrence under each of the four policies.

Defendant Liberty Mutual moves for summary judgment and a declaration that the non-cumulation provisions contained in the policies are fully applicable here and that the total maximum amount of insurance coverage under the four policies is two million dollars.

Plaintiffs Mark IV and Dayco's motion for summary judgment is denied; Defendant Liberty Mutual's motion for summary judgment is granted.

Plaintiff, Dayco Products, Mark IV's subsidiary, was the manufacturer of washing machine inlet hoses prior to 1992, which allegedly were defective, and thus prone to bursting and leaking failures. As a result, Mark IV and Dayco became the targets of numerous, possibly thousands of lawsuits brought for flooding property damages, usually by first-party property insurers.

Plaintiff Mark IV had purchased four primary insurance policies from Defendant Liberty Mutual, which ran consecutively, with policy periods of from December 1, 2000 to December 1, 2001, from December 1, 2001 to December 1, 2002, from December 1, 2002 to December 1, 2003, and from December 1, 2003 to February 15, 2005, respectively. Each policy provided limits of two million dollars per occurrence, with an aggregate limit of four million dollars.

Early on in each policy, it is stated at Section I (A.)(1)(b): "This insurance applies to ... 'property damage' only if ... 'property damage' is caused by an occurrence."

"Occurrence" was then defined in each of the policies as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions", except for one policy which inserted "happening or event" after "accident".

Each of the Liberty Mutual policies also included a "non-cumulation of limits (same occurrence)" provision:

"If one occurrence' causes bodily injury', personal injury' and/or property damage' during this policy period AND during the policy period of one or more prior and/or future policy(ies) that include(s) a commercial general liability coverage form issued to you by us, then this policy's Each Occurrence Limit will be reduced by the amount of each payment made by us under the other policy(ies) because of such occurrence'."

Primary and excess coverage also appears to have been provided by the other insurer Defendants, among others.

Starting in 2001, Plaintiffs Mark IV and Dayco tendered a number of inlet hose claims by State Farm and Casualty to Defendant Liberty Mutual, which by letter dated August 21, 2001 indicated that "we intend to handle the seven claims that fall within the Liberty Mutual policy period as one occurrence (see Exhibit "I" of Affidavit of Susan Mumma of December 20, 2005)".

By letter dated August 10, 2004 (see Exhibit "J" of Affidavit of Susan Mumma dated December 20, 2005), Susan Chernow, an employee of Defendant Liberty Mutual, invoked the Non-[*3]Cumulation of Limits provision to conclude that if the property damage from inlet hose claims spanned more then one policy period, that the Each Occurrence Limit of the later policies would be reduced by the amount paid under the first policy. Such a stance would limit the total amount paid under those policies to two million dollars.

The Parties' Arguments

It is Defendant Liberty Mutual's argument that it is entitled to summary judgment in that all of the inlet hose claims, regardless of the policy period, are the result of but one occurrence. The single occurrence is a design defect in the hoses alleging that they were insufficiently reinforced by rayon fabric rather than polyester. This sole occurrence, the design defect, then triggers the limitation contained in the Non-Cumulation of Limits Provision.

Plaintiffs Mark IV and Dayco argue that for the Non-Cumulation of Limits Provision to apply, "there must be the same damage taking place during the policy period of the subject policy and during the policy period(s) of one or more prior and/or future policies' (Plaintiff Mark IV's Memorandum of Law of December 21, 2005 p. 5)".

Or, as contained in the Affirmation of Kevin Cross of December 21, 2005 at p. 3:

"When, as is here the case with respect to the Underlying Claims, separate cognizable damage occurs in each policy period, and not individually across multiple policy periods, the Liberty Mutual non-cumulation provision cannot be used...(that such) provisions...are designed to prevent stacking' of policies by insureds for continuous or progressive losses, e.g., claims arising from environmental contamination or asbestos containing products, involving injury that is indivisible and not subject to allocation of separate cognizable injury or damage to specific policy periods."

The Court is persuaded that Liberty Mutual has the stronger, clearer argument and that Plaintiff Mark IV advances an incorrect interpretation of the Provision.

The Single Occurrence

There is no dispute among the movant parties that the underlying claims here, that under the policies and New York State law, are the result of a single occurrence.[FN1]

Indeed, Susan Mumma, Director of Global Risk Management for Plaintiff Mark IV, [*4]in a letter to one of the excess carriers (Exhibit "E", Savino Affidavit of December 27, 2005) went so far as to say:

" Mark IV has been advised by legal counsel that their position that these claims arise from one occurrence' is wholly consistent with decisional law throughout the country determining that multiple product liability claims stemming from a single manufacturing process constitute a single occurrence'. In Household Manufacturing, Inc. v. Liberty Mutual Insurance Co., No. 85C8519 (N.D. Ill. February 11, 1987), the insured manufactured and sold a defective plumbing system for residential use. Numerous lawsuits were brought against the insured manufacturer alleging that the system leaked, causing property damage. The Court found that all claims were the result of the continuous and repeated sale of the allegedly defective system on a mass basis. The Court stated that the cause' or underlying circumstance' of the claims is therefore unitary: the sale of the allegedly defective...system. All damage was therefore held to arise from one occurrence. A view taken by the Household Manufacturing Court has been reiterated and shared by many Courts throughout the nation. See, Home Indemnity Co. v. City of Mobile, 749 F.2d 659, 663 (11 Cir. 1984) (occurrence does not refer to the flooding damages sustained by each individual property, since that interpretation improperly focuses on the effects of the events leading to liability, rather than on the cause of those events); Headley v. St. Paul Fire & Marine Insurance Co., 712 F. Supp. 745, 748 (D.S.D. 1989) (property damage caused by leakage from sewage system constituted one occurrence); Wilkinson & Son, Inc. v. Providence Washington Insurance Co., 124 N.J. Super. 466 (Law Div. 1973) (defective carpet cleaning process that damaged carpets in numerous apartments is one occurrence)."

The Court is persuaded that such a stance is consistent with the classic New York test articulated in Arthur A. Johnson Corp. v. Indemnity Insurance Company of North American, 7 NY2d 222 (1959) and Hartford Accident & Indemnity Company v. Wesolowski, 33 NY2d 169 (1973) - that "occurrence" and "accident" are synonymous and mean, " given the reasonable expectation and purpose of the ordinary businessman when making an ordinary business contract' (Johnson supra [*5]at 227, quoting Bird v. St. Paul Fire and Marine Ins. Co., 224 NY2d 47 at 51 [1919])", " an event of an unfortunate character...tak(ing) place without one's foresight or expectation' (Johnson supra at 228 quoting Croshier v. Levitt, 5 NY2d 259 [1959] at 269)."

Thus, although the Court finds no New York State case directly on point, we concur with the parties that a continuous and repeated manufacture and sale of a defectively designed product constitutes a single occurrence, accident or event. The triggering occurrence is the defective design.

In this regard, the Court notes Endicott Johnson Corporation v. Liberty Mutual Insurance Company, 928 F. Supp. 176 (1996). There the District Court for the Northern District New York found repeated dumping of hazardous substances at two separate waste disposal sites to be two single occurrences, relying on the continued repeated exposure to substantially the same general conditions language in the policy there.

The Court also notes the holding in Uniroyal v. Home Insurance Co., 707 F. Supp. 1368 (1988). That case involved coverage issues in an underlying mass toxic tort action brought on behalf of some 2.5 million Vietnam veterans and their families against the United States and manufacturers of phenoxy herbicides used during the Vietnam war.

Uniroyal contended that it should have been reimbursed from its insureds for its share of the settlement, that there was but one occurrence, the negligent manufacture of and failure to warn of the dioxin, rather than each spraying in Vietnam, constituting an occurrence.

In applying New York law, the Uniroyal court determined that it was the delivery of the herbicides to the military that was the single occurrence (Uniroyal supra at 1383).

In response to the insurer's argument that the number of occurrences must be determined by reference to the time and place of the ultimate injury, the Court said at 1380:

"There is no support for such a view.

The policy (the insurer) Home sold to Uniroyal makes clear the distinction between the occurrence' and the injury'. It specifies that an occurrence' is an accident or a happening or event or a continuous or repeated exposure to conditions which ... results in personal injury ... during the policy period'. The occurrence is not defined to be the injury; the injury is clearly stated to be the result of the occurrence. The plain meaning of the policy language is unambiguous and admits of no other interpretation."

The Court takes the Uniroyal supra ruling as precedent for its own conclusion that there is a single occurrence here.

The Non-Cumulation of Limits Provision[*6]

The Endicott Johnson case supra also upheld the validity of the Non-Cumulation of Limits Provision in the insurance policies there, while rejecting the argument that the Provision was ambiguous. The Court also carefully distinguished between the various instances of property damage over the policies periods - the results of the single occurrence - and the single occurrence itself, a matter which is confused in the Plaintiffs' paper.

The lead New York State case in this area is Hiraldo ex rel. Hiraldo v. Allstate Ins. Co., 5 NY3d 508 (2005). The case involved three annual liability policies issued by Allstate, each for $300,000.00 and each containing a non-cumulation clause, and a child's exposure to lead-based paints during the three year period.

The Plaintiffs contended that since the loss occurred over each of three policy periods, and that each policy applies to losses which occur during the policy period, that Allstate is liable up to its policy limit under each policy.

The Court disagreed, holding that:

"the policies ... clearly provide otherwise. The non-cumulation clause says that regardless of the number of ... policies involved, [Allstate's] total liability [*5] under Business Liability Protection coverage for damages resulting from one loss will not exceed the limit of liability ... shown on the declarations page.' That limit is $300,000, and thus Allstate is liable for no more. We agree with the recent decisions of three Federal District Court judges, applying New York law and interpreting identical policy language, that the non-cumulation clause is fatal to plaintiffs' claim (citations omitted) (Hiraldo supra at 513)."

None of the cases introduced by the Plaintiffs are relevant to the non-cumulation of limits provision question.

The Uniroyal case supra, has a great deal to say about how a court can go about determining precisely what constitutes a single occurrence. But none of the policies there had a non-cumulation of limits provision. Thus the central issue here - the applicability of the provision - was never before the Uniroyal court.

Spaulding Composites Co., Inc. v. Aetna Casualty and Surety Co., 179 N.J. 25 (2003) is a hazardous waste site case involving non-cumulation of limits provisions, this time in some nine policies issued by the defendant insurer.

The New Jersey Supreme Court invoked its own "continuous trigger" and "pro-rata allocation" theories and citing its own case, Owen-Illinois, Inc. v. United Ins. Co., 138 N.J. 437 (1994).

The New Jersey Court then held that, when addressing complex environmental insurance coverage issues, 1) that it must look beyond contract language and traditional rules of insurance policy interpretation to serve specific policy goals - maximization of resources for [*7]environmental clean-up, creating incentives for purchasing insurance, and notions of simple justice, 2) that non-cumulation of limits provisions under such circumstances were not enforceable, and 3) that under the "continuous trigger" theory in an environmental injury context, progressive indivisible property damage should be treated as an occurrence within each policy year (see Spaulding supra pp. 40-43). The Spaulding court specifically rejected the argument that the non-cumulation of limits provision was an invalid "escape" clause at page 43.

"Because it is well settled that an escape clause is a sub-species of other insurance, see 15 Couch on Ins. § 219:5 at 219-12 (3d ed.1999) (observing that there are three basic types of other-insurance clauses including escape clause), and because a non-cumulation clause is not an other-insurance clause, it follows that a non-cumulation clause technically is not an escape clause."

Thus, Plaintiff Mark IV's reliance on the Spaulding case is fatally undermined by two considerations. First, as per Endicott Johnson and Hiraldo supra, Spaulding's doctrinal underpinnings have not been adopted by the New York courts. Second, the analysis in Spaulding has been adopted by the New Jersey courts only in an environmental hazard exposure context.

Our case does not involve environment hazard exposure, but does involve non-progressive, readily divisible property damage. This Court is not persuaded that Spaulding supra stands as effective precedent even under New Jersey law. Clearly it is not under the present New York law.

Therefore, the Court can only return to its initial conclusion: that all the property damage, over all four policy terms, was as the result of a single occurrence, that the ordinary language of the non-cumulation provision applies, hence the policy limit is two million dollars.

Plaintiffs Mark IV and Dayco's motion for summary judgment is denied; Defendant Liberty Mutual's motion for summary judgment is granted.

Submit order upon notice to opposing counsel.

EUGENE M. FAHEY, J.S.C.

Dated: April 28, 2006 Footnotes

Footnote 1:Plaintiffs do argue in their Memorandum of Law of December 21, 2005 at p. 9 that the term "occurrence" is ambiguous and must be construed in their favor. The Court finds nothing ambiguous in the definition simply because it adds a clause, derived from the case law, since the time of Hartford Accident v. Wesolowski supra. The Court does not accept the proposition that there is a single occurrence here for the excess policies, but not for the primary policies.