The opinion of the court was delivered by: Smith, J.:
This opinion is uncorrected and subject to revision before publication in the New York Reports.
This appeal calls on us to interpret an excess liability insurance policy covering asbestos claims made against Union Carbide Corporation (UCC). UCC and its insurers dispute:
(1) whether the policy's aggregate limit was renewed annually or continued over the three-year life of the policy; and (2) whether a two-month extension of coverage by one of the insurers triggered a new limit. We decide the first issue in UCC's favor: The limit was renewed each year. On the second issue, however, we agree with the Appellate Division that UCC's motion for summary judgment should be denied.
In the mid 1970s, UCC sought -- wisely, as it turned out -- to obtain as much liability insurance coverage as it reasonably could. To accomplish this, it acquired coverage in layers.
In the bottom layer, a policy issued by Appalachian Insurance Company covered UCC for the first $5 million of loss, except for a "retained" amount for which UCC was self-insured. The Appalachian policy had a three-year duration, but it is clear, and not disputed, that the limit of that policy, as it applied to the claims in issue here, was renewed annually, or "annualized." The limit is identified in the policy declarations as an "annual aggregate," and one of the conditions of the policy provides: "The limit of liability . . . set forth as 'aggregate' shall be the total limit of the company's liability under this policy for ultimate net loss . . . during each consecutive 12 months of the policy period."
Losses above the $5 million were covered by successive layers of excess insurance. Our concern here is with the so-called fifth excess layer, which covered losses exceeding $70 million, up to $100 million. This $30 million of coverage was divided equally -- $5 million each -- among six insurers, two of which, Continental Casualty Company and Argonaut Insurance Company, are involved in this appeal.
The policy issued by the fifth-layer excess insurers was a brief "subscription form policy" prepared by UCC's insurance broker. It incorporated by reference the terms of the Appalachian policy, in what is known as a "follow-the-form" clause:
"subject to the declarations set forth below, the Companies signatory hereon agree with the Insured named below that the Insurance afforded by this agreement shall follow all the terms, insuring agreements, definitions, conditions and exclusions of [the] underlying . . . Policy . . . issued by Appalachian Insurance Company."
The "declarations set forth below" included the following: "Limit of Liability: $30,000,000. each occurrence and in the aggregate excess of $70,000,000. Umbrella Liability."
The fifth-layer excess policy had a policy period beginning December 1, 1973 and ending December 1, 1976.
UCC was a seller of asbestos, with the result that enormous claims were made against it for the years in question. It says that it has paid over $1.5 billion in defense costs, settlements and judgments. It asserts that Continental and Argonaut are each liable under the subscription form policy for $15 million of this amount -- $5 million for each year of the three-year period. Continental and Argonaut say that their liability for the entire three-year period is capped at $5 million per company.
As to Continental, UCC claims an additional $5 million because the policy was extended beyond the three years. A supplement to the subscription form policy issued by Continental in December 1976 says:
"In consideration of an additional premium of $1,530, it is agreed that the policy is hereby extended ...