A question has been raised concerning the effect of a provision in an excess carrier's policy that a given amount must be satisfied by underlying insurers or Squibb before the excess carrier is liable. Such provisions create the equivalent of a deductible, which may be satisfied by payment or settlement by other carriers. Until such a deductible is satisfied by either or a combination of these methods or by unreimbursed payments by Squibb if the policy so provides, the excess carrier is not liable to Squibb.
Questions have also been raised concerning the allocation between carriers of responsibility where more than one may be liable under the policies involved as interpreted here and in the May 1994 order. Pro rata sharing of cost among carriers is appropriate and called for to avoid placing any carrier at a special disadvantage, perhaps as a settlement device commonly employed in cases involving joint and several liability to induce a rush to settle early in the course of a litigation. See generally Uniroyal v. Home Ins Co, 707 F. Supp. 1368, 1392 (EDNY 1988); Stonewall Ins Co v. National Gypsum Co, 1992 U.S. Dist. LEXIS 8898 (SDNY June 24, 1992). This point was also made in the 1992 order.
The pro rata approach does not mean that an insurer's duty to pay another insurer takes priority over its obligation to pay the insured where other insurers are not responsible for a given claim because of exhaustion of policy limits or inapplicability of other policies to the time period involved. See Continental Casualty Co v. Rapid-American Corp, 80 N.Y.2d 640, 655, 593 N.Y.S.2d 966, 974, 609 N.E.2d 506 (1993); Burroughs Wellcome Co v. Commercial Union Ins Co, 632 F. Supp. 1213 (SDNY 1986). For this to occur would exalt resolution of inter-insurer allocation issues over the fundamental purpose of insurance: to protect the insured in return for the premium paid. This would, however, run counter to the purpose of insurance to the interests of both insurers and insureds were the result of such complex calculations be to prevent recovery by an insured where it would otherwise be available under a policy.
In other words, inter-insurer allocation does not permit allocation of losses to the insured (except in the self-evident situation where no insurance is available for the period involved). Putting it another way, payment of claims of the insured must take priority over matters of inter-insurer allocation, even though pro rata allocation is the proper criteria for inter-insurer allocation.
Although entitled to allocation in connection with disputes among carriers, an insurer cannot decline to pay amounts due under its policy until matters of pro rata allocation among carriers are resolved. To permit this would encourage delay in resolving inter-insurer disputes since each disputing insurer could claim it need not pay until the other's status is determined. Such a procedure would also require adjudication of the status of each carrier before any would be required to pay under the policies involved. This would exalt obfuscation and defeat the contractual obligations undertaken in the policies involved.
Numerous concatenations of circumstances are likely to arise in applying allocation principles. The court cannot usefully attempt to rule in advance on how each of these circumstances is to be resolved. It is the responsibility of the carriers to seek to address these matters in the first instance based on the principles set forth above. In the interim, Squibb need not await resolution of these before pursuing payments from carriers who are directly liable to it. Any contrary approach would defeat the "speedy and inexpensive" as well as the "just" determination of this action as called for by Fed.R.Civ.P. 1.
All litigation - even this one - must at some point come to an end, in the interests of the litigants, the court and the public. To permit further delay in litigation involving matters of such moment would be unwise even were only remote risks of injury rather than a situation such as that created by DES involved.
This is particularly true where members of the public are affected by the availability or nonavailability of insurance to cover liability of a manufacturer for injuries caused by nationally distributed pharmaceutical products. Further clarifications could doubtless be articulated with respect to the May 1994 order and also its interpretation here. Were the full implications of the principles set forth here to be described as they apply to each variation extant in this case, the result would end with a multi-volume "encyclopedia of law and procedure or else with plain exhaustion." Llewellyn, "Meet Negotiable Instruments," 44 Colum L Rev 298, 322 (1944).
To the extent this case is not settled or an agreement reached for binding alternate dispute resolution by October 15, 1994, any party may move for final declaratory, injunctive or monetary judgment or such combination of these as appropriate. No further applications for clarification of this or prior orders in this case will be considered except in that context.
Dated: White Plains, New York
July 28, 1994
/s/ Gerard L. Goettel, USDJ
in the absence of
VINCENT L. BRODERICK, U.S.D.J.