Case Briefs

New York Supreme Court Bars Discovery of Extrinsic Evidence Without Allegation Of Contract Ambiguity

One of the issues driving the cost and length of insurance coverage litigation is whether policyholders may pursue discovery of other policies and policyholders to establish a coverage claim. Disputes over such discovery have brought more and more third parties into these cases and have led to increasingly protracted and expensive discovery-related litigation. On Dec. 10, 2008, in a long-running New York insurance coverage case, Mt. McKinley Insurance Co., et al. v. Corning, Inc., et al., No. 02-602454 (Sup. Ct. N.Y. County), Justice Eileen Bransten gave helpful guidance about the outer bounds of such discovery. Justice Bransten denied discovery of extrinsic evidence, reiterating the scope of the long-established New York rule that extrinsic and parole evidence is not admissible to create an ambiguity in a written agreement that is complete, clear and unambiguous on its face. The court ruled that to obtain such third-party discovery, the threshold question is whether the requesting party has alleged an ambiguity; if not, then discovery of extrinsic evidence is impermissible.

In Mt. McKinley, policyholder Corning, Inc. (“Corning”) sought a commission to obtain discovery from third-party Insurance Services Office, Inc. (“ISO”). Corning argued that ISO maintained a repository of insurance policies and their drafting history. Without alleging that the policies at issue contained ambiguities, and relying on the proposition that CPLR Article 31 should be liberally interpreted to permit broad discovery, Corning argued that the ISO drafting history: 1) was “material and necessary” to its coverage claims; and 2) may be used for multiple purposes, including demonstrating the insurers' alleged inconsistent positions and seeking admissions from deponents. Corning also argued that if the court were to determine later that the policies were ambiguous, the drafting history would be relevant and admissible to resolve any ambiguity and, therefore, discovery of such extrinsic evidence should be allowed now.

In opposition to the commission request, and in moving for a protective order, one of Corning's alleged insurers, Century Indemnity Company (“Century”), argued that because Corning did not allege any ambiguity in the policies, it should not be allowed to obtain discovery of ISO documents. Century relied on two New York Court of Appeals decisions for the proposition that evidence outside the four corners of a contract is generally inadmissible and cannot be used to create an ambiguity. See R/S Assocs. v. New York Job Development, 98 N.Y.2d 29 (2002); Chimart Associates v. Paul, 66 N.Y.2d 570 (1986). Century argued that while those cases were not decided in the discovery context, the same principle applied to Corning's discovery request. Here, because Corning did not allege that the insurance policies were ambiguous, it should not be permitted to obtain discovery to create an ambiguity.

Justice Bransten agreed. Noting that Corning failed to allege any ambiguity, Justice Bransten concluded that the policies subject to the coverage litigation could be interpreted by reference to their terms only. The court noted that it was bound by the two New York Court of Appeals decisions Century cited. Quoting R/S Assocs., Justice Bransten ruled from the bench that “where the language is clear, unequivocal and unambiguous, the contract is to be interpreted by its own language.” 98 N.Y.2d at 32. The court similarly quoted Chimart that “the initial question, then, is whether the agreement on its face is reasonably susceptible of more than one interpretation '” 66 N.Y.2d at 573. Although Corning argued that extrinsic evidence should be discoverable even if not ultimately admissible, Justice Bransten disagreed, observing that:

There has been nothing said by Corning which would any way lead the Court to conclude that Corning is saying that the contract between Corning and a variety of insurance companies was in any way ambiguous and therefore, the Court must rely on 3101(d) of the CPLR which states, basically, that if there can be a clear reason given for discovery, that while the Court itself will not limit discovery if it is relevant to the issues at hand, it nevertheless will not permit fishing expeditions to go forward where there has been nothing articulated to give a reason to allow such discovery.

Wisconsin Supreme Court Adopts 'All Sums' Allocation, Finds Asbestos Claims Are Multiple Occurrences

The Wisconsin Supreme Court in Plastics Engineering Co. v. Liberty Mutual Insurance Co., 759 N.W. 613 (Wis. 2009), answered three certified questions from the United States Court of Appeals for the Seventh Circuit in an asbestos bodily injury coverage action, holding that: 1) standard-form comprehensive general liability policies require each triggered policy to pay “all sums” of the policyholder's liability up to the policy limits, even where some of the property damage or bodily injury takes place outside the policy period; 2) Wisconsin Statute ' 631.43, barring anti-stacking clauses, applies only to concurrent policies, not successive policies; and 3) each individual's asbestos-related bodily injuries constituted a separate occurrence.

The Wisconsin Supreme Court, after acknowledging a split among courts across the country on the allocation issue, rejected a pro rata allocation scheme and concluded that the insurance company, Liberty Mutual, had an obligation to pay “all sums” arising out of the bodily injury triggering coverage, up to the policies' limits. The court held that the policy language did not contain any unambiguous language that supported the application of a pro rata allocation scheme. It noted that the policies employed a standard “occurrence” definition that included “continuous or repeated exposure to conditions” thus contemplating bodily injury over a long period of time.

The court rejected Liberty Mutual's argument that the definition of bodily injury ' “bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom” ' supported adoption of pro rata allocation. The court found the “during the policy period” language was “trigger” language and not a limitation of liability clause. The court also rejected Liberty Mutual's argument that, because the policyholder did not purchase coverage for certain periods, it should not be entitled to coverage for the part of the injury taking place during those periods: “Under the language of this policy ' once a policy is triggered by bodily injury, Liberty Mutual is responsible for 'all sums' that arise out of the injury, up to that policy's limits.”

The court also addressed whether consecutive comprehensive general liability occurrence-based policies are subject to Wisconsin Statute ' 631.43. This statute provides that, when two or more policies promise to indemnify an insured for the same loss, no “other insurance” clause can reduce the policies' aggregate limits. The court held that the statute did not apply to consecutive, or successive policies, but only concurrent policies.

The court also addressed the number of occurrences. The court applied the “cause” theory ' “where a single uninterrupted cause results in all of the injuries or damage, there is but one 'accident' or 'occurrence'” ' and agreed with the policyholder that each individual claimant's injuries stemming from continuous or repeated exposure to asbestos-containing products constituted a separate occurrence: “Multiple occurrences arise because each individual's injury stems from his or her repeated exposure to asbestos-containing products.”

This month's first Case Brief was contributed by O'Melveny & Myers LLP attorneys Tancred Schiavoni, Gary Svirksy, and Shannon Griffin, who, along with other firm attorneys, represent Century. The second brief was contributed by Michael T. Sharkey, a partner, and Paul Spackman, an associate, with Dickstein Shapiro LLP, Washington, DC. The opinions expressed in these Case Briefs are those of the authors and not necessarily those of any of their clients.

New York Supreme Court Bars Discovery of Extrinsic Evidence Without Allegation Of Contract Ambiguity

One of the issues driving the cost and length of insurance coverage litigation is whether policyholders may pursue discovery of other policies and policyholders to establish a coverage claim. Disputes over such discovery have brought more and more third parties into these cases and have led to increasingly protracted and expensive discovery-related litigation. On Dec. 10, 2008, in a long-running New York insurance coverage case, Mt. McKinley Insurance Co., et al. v. Corning, Inc., et al., No. 02-602454 (Sup. Ct. N.Y. County), Justice Eileen Bransten gave helpful guidance about the outer bounds of such discovery. Justice Bransten denied discovery of extrinsic evidence, reiterating the scope of the long-established New York rule that extrinsic and parole evidence is not admissible to create an ambiguity in a written agreement that is complete, clear and unambiguous on its face. The court ruled that to obtain such third-party discovery, the threshold question is whether the requesting party has alleged an ambiguity; if not, then discovery of extrinsic evidence is impermissible.

In Mt. McKinley, policyholder Corning, Inc. (“Corning”) sought a commission to obtain discovery from third-party Insurance Services Office, Inc. (“ISO”). Corning argued that ISO maintained a repository of insurance policies and their drafting history. Without alleging that the policies at issue contained ambiguities, and relying on the proposition that CPLR Article 31 should be liberally interpreted to permit broad discovery, Corning argued that the ISO drafting history: 1) was “material and necessary” to its coverage claims; and 2) may be used for multiple purposes, including demonstrating the insurers' alleged inconsistent positions and seeking admissions from deponents. Corning also argued that if the court were to determine later that the policies were ambiguous, the drafting history would be relevant and admissible to resolve any ambiguity and, therefore, discovery of such extrinsic evidence should be allowed now.

In opposition to the commission request, and in moving for a protective order, one of Corning's alleged insurers, Century Indemnity Company (“Century”), argued that because Corning did not allege any ambiguity in the policies, it should not be allowed to obtain discovery of ISO documents. Century relied on two New York Court of Appeals decisions for the proposition that evidence outside the four corners of a contract is generally inadmissible and cannot be used to create an ambiguity. See R/S Assocs. v. New York Job Development , 98 N.Y.2d 29 (2002); Chimart Associates v. Paul , 66 N.Y.2d 570 (1986). Century argued that while those cases were not decided in the discovery context, the same principle applied to Corning's discovery request. Here, because Corning did not allege that the insurance policies were ambiguous, it should not be permitted to obtain discovery to create an ambiguity.

Justice Bransten agreed. Noting that Corning failed to allege any ambiguity, Justice Bransten concluded that the policies subject to the coverage litigation could be interpreted by reference to their terms only. The court noted that it was bound by the two New York Court of Appeals decisions Century cited. Quoting R/S Assocs., Justice Bransten ruled from the bench that “where the language is clear, unequivocal and unambiguous, the contract is to be interpreted by its own language.” 98 N.Y.2d at 32. The court similarly quoted Chimart that “the initial question, then, is whether the agreement on its face is reasonably susceptible of more than one interpretation '” 66 N.Y.2d at 573. Although Corning argued that extrinsic evidence should be discoverable even if not ultimately admissible, Justice Bransten disagreed, observing that:

There has been nothing said by Corning which would any way lead the Court to conclude that Corning is saying that the contract between Corning and a variety of insurance companies was in any way ambiguous and therefore, the Court must rely on 3101(d) of the CPLR which states, basically, that if there can be a clear reason given for discovery, that while the Court itself will not limit discovery if it is relevant to the issues at hand, it nevertheless will not permit fishing expeditions to go forward where there has been nothing articulated to give a reason to allow such discovery.

Wisconsin Supreme Court Adopts 'All Sums' Allocation, Finds Asbestos Claims Are Multiple Occurrences

The Wisconsin Supreme Court in Plastics Engineering Co. v. Liberty Mutual Insurance Co. , 759 N.W. 613 (Wis. 2009), answered three certified questions from the United States Court of Appeals for the Seventh Circuit in an asbestos bodily injury coverage action, holding that: 1) standard-form comprehensive general liability policies require each triggered policy to pay “all sums” of the policyholder's liability up to the policy limits, even where some of the property damage or bodily injury takes place outside the policy period; 2) Wisconsin Statute ' 631.43, barring anti-stacking clauses, applies only to concurrent policies, not successive policies; and 3) each individual's asbestos-related bodily injuries constituted a separate occurrence.

The Wisconsin Supreme Court, after acknowledging a split among courts across the country on the allocation issue, rejected a pro rata allocation scheme and concluded that the insurance company, Liberty Mutual, had an obligation to pay “all sums” arising out of the bodily injury triggering coverage, up to the policies' limits. The court held that the policy language did not contain any unambiguous language that supported the application of a pro rata allocation scheme. It noted that the policies employed a standard “occurrence” definition that included “continuous or repeated exposure to conditions” thus contemplating bodily injury over a long period of time.

The court rejected Liberty Mutual's argument that the definition of bodily injury ' “bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom” ' supported adoption of pro rata allocation. The court found the “during the policy period” language was “trigger” language and not a limitation of liability clause. The court also rejected Liberty Mutual's argument that, because the policyholder did not purchase coverage for certain periods, it should not be entitled to coverage for the part of the injury taking place during those periods: “Under the language of this policy ' once a policy is triggered by bodily injury, Liberty Mutual is responsible for 'all sums' that arise out of the injury, up to that policy's limits.”

The court also addressed whether consecutive comprehensive general liability occurrence-based policies are subject to Wisconsin Statute ' 631.43. This statute provides that, when two or more policies promise to indemnify an insured for the same loss, no “other insurance” clause can reduce the policies' aggregate limits. The court held that the statute did not apply to consecutive, or successive policies, but only concurrent policies.

The court also addressed the number of occurrences. The court applied the “cause” theory ' “where a single uninterrupted cause results in all of the injuries or damage, there is but one 'accident' or 'occurrence'” ' and agreed with the policyholder that each individual claimant's injuries stemming from continuous or repeated exposure to asbestos-containing products constituted a separate occurrence: “Multiple occurrences arise because each individual's injury stems from his or her repeated exposure to asbestos-containing products.”

This month's first Case Brief was contributed by O'Melveny & Myers LLP attorneys Tancred Schiavoni, Gary Svirksy, and Shannon Griffin, who, along with other firm attorneys, represent Century. The second brief was contributed by Michael T. Sharkey, a partner, and Paul Spackman, an associate, with Dickstein Shapiro LLP, Washington, DC. The opinions expressed in these Case Briefs are those of the authors and not necessarily those of any of their clients.