author: Pigott, J.

text:
    [51 NE3d 555, 32 NYS3d 44]
    Mary Finerty, Individually and as Executor of Raymond Finerty, Deceased, Respondents, v Abex Corporation, Formerly Known as American Brake Shoe Company, et al., Defendants, and Ford Motor Company, Appellant. (And Another Action.)
    Argued March 22, 2016;
    decided May 3, 2016

      O’Melveny & Myers LLP, New York City (.Anton Metlitsky of counsel), O’Melveny & Myers LLP, Washington, D.C. (Jonathan D. Hacker and Brittney Lane of counsel), and Aaronson Rappa-port Feinstein & Deutsch, LLP, New York City (Elliott J. Zucker of counsel), for appellant.

      Levy Konigsberg, LLP, New York City (James M. Kramer, Robert I. Komitor and Brendan J. Tully of counsel), for respondents.

      Orrick, Herrington & Sutcliffe LLP, New York City (E. Joshua Rosenkranz and Matthew L. Bush of counsel), and U.S. Chamber Litigation Center, Inc., Washington, D.C., for Chamber of Commerce of the United States of America, amicus curiae.
   OPINION OF THE COURT

Pigott, J.

Plaintiff claims that he was exposed to asbestos during the 1970s and 1980s while replacing asbestos-containing brakes, clutches and engine parts on Ford tractors and passenger vehicles in Ireland. In 1985, plaintiff emigrated to Queens, New York, and, years later, was diagnosed with peritoneal me-sothelioma.

In 2010, plaintiff and his wife commenced this action against, among others, Ford Motor Company (Ford USA), Ford Motor Company, Ltd. (Ford UK) and Henry Ford & Son, Ltd. (Ford Ireland) alleging strict products liability under the theories of defective design and failure to warn. After discovery, Ford USA moved for summary judgment seeking to dismiss the complaint on the ground that Ford USA did not manufacture, produce, distribute or sell the parts in question, pointing out that they were manufactured, produced, distributed and sold by its wholly-owned subsidiary, Ford UK. Ford USA further moved to dismiss the complaint pursuant to CPLR 3211 (a) (7) arguing that the complaint should be dismissed for failure to state a cause of action because it was devoid of any allegations supporting a claim that the court should “pierce the corporate veil” such that Ford USA could be held derivatively liable for the acts of Ford UK.

Plaintiff countered that Ford USA was “actively involved” in the design, specification, production and sale of Ford products throughout the world, including the United Kingdom, such that it could be held liable for the role it “independently played” in placing the products into the stream of commerce and in failing to warn plaintiff.

Supreme Court, while holding that there was no basis upon which to pierce the corporate veil, nonetheless determined that because plaintiff produced evidence showing that Ford USA “exercised significant control over Ford [UK] and Ford Ireland and had a direct role in placing the asbestos-containing products to which [plaintiff] was exposed into the stream of commerce,” there was a question of fact concerning Ford USA’s “direct responsibility for plaintiff’s] injuries.”

The Appellate Division affirmed the order of Supreme Court denying Ford USA’s motion for summary judgment (125 AD3d 564 [1st Dept 2015]). It agreed with Supreme Court that there was “no basis for piercing the corporate veil” but held that “the record demonstrate [d] that Ford USA acted as the global guardian of the Ford brand, having a substantial role in the design, development, and use of the auto parts distributed by Ford UK, with the apparent goal of the complete standardization of all products worldwide that carried the signature Ford logo” {id. at 565). As such, the Appellate Division held that there were factual issues concerning whether Ford USA could be found “directly liable as a result of its role in facilitating the distribution of the asbestos-containing auto parts on the ground that it was ‘in the best position to exert pressure for the improved safety of products’ or to warn the end users of these auto parts of the hazards they presented” (id., quoting Godoy v Abamaster of Miami, 302 AD2d 57, 60-61 [2d Dept 2003], lv dismissed 100 NY2d 614 [2003]).

The Appellate Division granted Ford USA leave to appeal to this Court pursuant to CPLR 5713 (2015 NY Slip Op 75895[U] [1st Dept 2015]), and certified the question of whether that portion of the order that affirmed the order of Supreme Court was properly made. We hold that it was not, and answer the certified question in the negative.

It is well settled that a manufacturer of defective products who places them into the stream of commerce may be held strictly liable for injuries caused by its products, regardless of privity, foreseeability or due care (see Sukljian v Ross & Son Co., 69 NY2d 89, 94 [1986]; Codling v Paglia, 32 NY2d 330, 342 [1973]; see also Amatulli v Delhi Constr. Corp., 77 NY2d 525, 532 [1991]). It is the manufacturer, and the manufacturer alone, “who can fairly be said to know and to understand when an article is suitably designed and safely made for its intended purpose” and who “has the practical opportunity, as well as a considerable incentive, to turn out useful, attractive, but safe products” (Codling, 32 NY2d at 340-341).

Strict liability may also be imposed on retailers and distributors of allegedly defective products because such sellers, due to their continuing relationship with the manufacturers, are usually “in a position to exert pressure for the improved safety of products and can recover increased costs within their commercial dealings, or through contribution or indemnification in litigation” (Sukljian, 69 NY2d at 95). Sellers who engage in product sales in the ordinary course of their business are subject to strict liability because they “may be said to have assumed a special responsibility to the public, which has come to expect them to stand behind their goods” (id.; see Restatement [Second] of Torts § 402A, Comment c).

Plaintiff asserts that he raised a question of fact concerning Ford USA’s role in the “chain of distribution” by submitting evidence establishing that Ford USA played a “direct role” in the design, distribution and marketing of asbestos-containing parts by “imposing” its decisions in those areas on Ford UK. The record evidence demonstrates, however, that it was Ford UK, not Ford USA, that manufactured and distributed the tractor and vehicle parts.

Ford USA was not a party within the distribution chain, nor can it be said that it actually placed the parts into the stream of commerce. Although plaintiff submitted evidence tending to show that Ford USA provided guidance to Ford UK in the design of certain tractor components, absent any evidence that Ford USA was in fact a manufacturer or seller of those components, Ford USA may not be held liable under a strict products liability theory (cf. Sage v Fairchild-Swearingen Corp., 70 NY2d 579, 586-587 [1987] [designer of defective hanger was also the manufacturer]). Moreover, absent any indication that Ford USA was in the distribution chain, it is of no moment that Ford USA exercised control over its trademark (see Laurin Mar. AB v Imperial Chem. Indus., 301 AD2d 367, 367-368 [1st Dept 2003], lv denied 100 NY2d 501 [2003]; Porter v LSB Indus., 192 AD2d 205, 211 [4th Dept 1993]). In any event, the record indicates that Ford USA’s “world-wide” trademark program described how the trademark was to be used on packaging of Ford products, and did not contain directives as to what warnings, if any, were required to be placed on the packaging itself.

The Appellate Division did not determine that there was a factual question as to whether Ford USA was the manufacturer, retailer or distributor of the asbestos-containing parts. Rather, the Appellate Division hinged Ford USA’s potential liability on the premise that there was evidence that Ford USA played “a substantial role in the design, development, and use of the auto parts distributed by Ford UK,” such that Ford USA’s “role in facilitating the distribution of the asbestos-containing auto parts” could subject it to strict liability because it was in the best position to exert pressure on Ford UK and to warn end users of the hazards presented by the auto parts (125 AD3d at 565 [emphases supplied]). That was error.

Ford USA, as the parent corporation of Ford UK, may not be held derivatively liable to plaintiff under a theory of strict products liability unless Ford USA disregarded the separate identity of Ford UK and involved itself directly in that entity’s affairs such that the corporate veil could be pierced {see Billy v Consolidated Mach. Tool Corp., 51 NY2d 152, 163 [1980]), a conclusion that neither Supreme Court nor the Appellate Division reached in this instance.

It was also error for the Appellate Division to conclude that Ford USA could be subject to strict liability because it was in the “best position” to “exert pressure” on Ford UK for improved product safety. Of course, as Ford UK’s parent company, Ford USA could “exert pressure” on Ford UK, but we have never applied that concept to a parent company’s presumed authority over a wholly-owned subsidiary. We have, however, routinely applied that concept to sellers of a manufacturer’s products, because it is the sellers who, through their ongoing relationship with the manufacturers and through contribution and indemnification in litigation, combined with their role in placing the product in the consumer’s hands, are in the best position to pressure the manufacturers to create safer products (see Sukljian, 69 NY2d at 95; see also Jaramillo v Weyerhaeuser Co., 12 NY3d 181, 192 [2009] [refusing to hold seller of used equipment liable for strict products liability because there was no reason to think that imposition of such liability “would create any measurable ‘pressure for the improved safety of products’ on . . . manufacturers”]; Godoy, 302 AD2d at 63 [holding that seller could obtain indemnification from distributor that was higher in the distribution chain because the distributor was “closest to the manufacturer” and was in a better position to “exert pressure” on the manufacturer]; Nutting v Ford Motor Co., 180 AD2d 122, 129 [3d Dept 1992] [seller of fleet of vehicles was in position to use its leverage against the manufacturer to encourage the manufacturer to make safer vehicles]).

Accordingly, the order of the Appellate Division insofar as appealed from should be reversed, with costs, Ford USA’s motion for summary judgment dismissing the complaint against it granted and the certified question answered in the negative.

Chief Judge DiFiore and Judges Abdus-Salaam, Stein, Fahey and Garcia concur; Judge Rivera taking no part.

Order insofar as appealed from reversed, with costs, defendant Ford Motor Company’s motion for summary judgment dismissing the complaint against it granted and certified question answered in the negative.

      . In September 2014, plaintiff consented to the dismissal of the complaint against Ford Ireland for lack of personal jurisdiction.

      . The Appellate Division also reversed a separate order of Supreme Court that had denied Ford UK’s motion to dismiss the complaint for lack of personal jurisdiction (125 AD3d 564, 565 [1st Dept 2015]). Plaintiff has not appealed from that portion of the Appellate Division order.

      . Nor has plaintiff argued that Ford USA and Ford UK had a principal/ agent relationship.


source: Caselaw Access Project

author: Stein, J.

license: Public Domain

text:
    [52 NE3d 1144, 33 NYS3d 118]
    In the Matter of Viking Pump, Inc., et al., Insurance Appeals. Viking Pump, Inc., et al., Appellants; TIG Insurance Company et al., Respondents.
    Argued March 29, 2016;
    decided May 3, 2016

      Kirkland & Ellis LLP, Chicago, Illinois (.Michael P. Foradas, of the Illinois bar, admitted pro hac vice, Lisa G. Esayian of the Illinois bar, admitted pro hac vice, and William T. Pruitt of the Illinois bar, admitted pro hac vice, of counsel), and Kirkland & Ellis LLP, New York City (Peter A. Bellacosa of counsel), for Viking Pump, Inc., appellant.

      Kasowitz Benson Torres & Friedman LLP, New York City (Robin L. Cohen, Elizabeth A. Sherwin and Keith McKenna of counsel), for Warren Pumps LLC, appellant.

      Quinn Emanuel Urquhart & Sullivan, LLP, New York City (.Kathleen M. Sullivan of counsel), Simpson Thacher & Bartlett LLP, New York City {Mary Kay Vyskocil, Summer Craig and Alexander Li of counsel), OMelveny & Myers LLP, Washington, D.C. {Jonathan D. Hacker, of the District of Columbia bar, admitted pro hac vice, of counsel), OMelveny & Myers LLP, New York City {Tancred Schiavoni, Gary Svirsky, Anton Metlitsky and Brad M. Elias of counsel), Hinkhouse Williams Walsh LLP, Chicago, Illinois {Laura S. McKay, of the Illinois bar, admitted pro hac vice, of counsel), Day Pitney LLP, Hartford, Connecticut {Kathleen D. Monnes, of the Connecticut bar, admitted pro hac vice, John K. Scully, of the Connecticut bar, admitted pro hac vice and John W. Cerreta of counsel), Clausen Miller P.C., Chicago, Illinois {Mark D. Paulson, of the Illinois bar, admitted pro hac vice, Amy R. Paulus, of the Illinois bar, admitted pro hac vice and Don R. Sampen, of the Illinois bar, admitted pro hac vice, of counsel), Zelle Hofmann Voelbel & Mason LLP, Framingham, Massachusetts {Kristin Suga Heres, of the Massachusetts bar, admitted pro hac vice, of counsel), and Carroll, McNulty & Kull LLC, Basking Ridge, New Jersey {Heather E. Simpson and Christopher R. Carroll of counsel), for respondents.

      Vedder Price P.C., New York City (John H. Eickemeyer and Daniel C. Green of counsel), and Wiley Rein LLP, Washington, D.C. (Laura A. Foggan and Nicole Audet Richardson of counsel), for Complex Insurance Claims Litigation and another, amici curiae.

      Lowenstein Sandler LLP, New York City (David L. Elkind and Eric Jesse of counsel), for New York State Electric & Gas Corporation, amicus curiae.

      Anderson Kill P.C., New York City (.Robert M. Horkovich and Edward J. Stein of counsel), and Amy Bach, United Policyholders, San Francisco, California, for United Policyholders and others, amici curiae.

      Jenner & Block LLP, Chicago, Illinois (Craig C. Martin, of the Illinois bar, admitted pro hac vice, and Peter J. Brennan of counsel), for Olin Corporation, amicus curiae.

      Morgan, Lewis & Bockius LLP, Washington, D.C. (.Randall M. Levine, Gerald P. Konkel, Stephanie Schuster and Christopher M. Popecki of counsel) and Morgan, Lewis & Bockius LLP, Los Angeles, California (David S. Cox of counsel), for ITT Corporation, amicus curiae.
   OPINION OF THE COURT

Stein, J.

In this complex insurance dispute, we have accepted two certified questions from the Delaware Supreme Court asking us to determine (1) whether “all sums” or “pro rata” allocation applies where the excess insurance policies at issue either follow form to a non-cumulation provision or contain a non-cumulation and prior insurance provision, and (2) whether, in light of our answer to the allocation question, horizontal or vertical exhaustion is required before certain upper level excess policies attach. We reaffirm that, under New York law, the contract language of the applicable insurance policies controls each of these questions, and we answer the certified questions in accordance with the opinion herein, concluding that all sums allocation and vertical exhaustion apply based on the language in the policies before us.

I.

The facts and procedural history of the underlying litigation are explained in more detail in decisions of the Delaware courts (see In re Viking Pump, Inc., — A3d —, 2015 WL 3618924, 2015 Del LEXIS 278 [June 10, 2015]; Viking Pump, Inc. v Century Indem. Co., 2014 WL 1305003, 2014 Del Super LEXIS 707 [Feb. 28, 2014, C.A. No. 10C-06-141 FSS CCLD]; Viking Pump, Inc. v Century Indem. Co., 2013 WL 7098824, 2013 Del Super LEXIS 615 [Oct. 31, 2013, C.A. No. 10C-06-141 FSS CCLD]; Viking Pump, Inc. v Century Indem. Co., 2 A3d 76 [Del Ch 2009]). As relevant here, Viking Pump, Inc., and Warren Pumps, LLC, acquired pump manufacturing businesses from Houdaille Industries, Inc. in the 1980s. Those acquisitions later subjected Viking and Warren to significant potential liability in connection with asbestos exposure claims. Houdaille had extensive multilayer insurance coverage spanning from 1972 to 1985 that included coverage for such claims. More specifically, Liberty Mutual Insurance Company provided Hou-daille with primary insurance (totaling approximately $17.5 million) and umbrella excess coverage (totaling approximately $42 million) through successive annual policies. Beyond that, Houdaille obtained additional layers of excess insurance through annual policies issued by various excess insurers (totaling over $400 million in coverage), including a number of policies issued by defendants, designated herein as “the Excess Insurers.”

Viking and Warren sought coverage under the Liberty Mutual policies, and the Delaware Court of Chancery determined that both companies were entitled to exercise rights as insureds under those policies (see generally Viking Pump, Inc. v Liberty Mut. Ins. Co., 2007 WL 1207107, 2007 Del Ch LEXIS 43 [Apr. 2, 2007, C.A. No. 1465-VCS]). As the Liberty Mutual coverage neared exhaustion, litigation arose regarding whether Viking and Warren were entitled to coverage under the additional excess policies issued to Houdaille by the Excess Insurers and, if so, how indemnity should be allocated across the triggered policy periods.

Central to the underlying litigation, the Liberty Mutual umbrella policies provide that the insurer

“will pay on behalf of the insured all sums in excess of the retained limit which the insured shall become legally obligated to pay, or with the consent of the [insurer], agrees to pay, as damages, direct or consequential, because of:
“(a) personal injury . . .
“with respect to which this policy applies and caused by an occurrence” (emphasis added).

“Occurrence” is defined, in relevant part, as “injurious exposure to conditions, which results in personal injury” which, in turn, is defined as “personal injury or bodily injury which occurs during the policy period” (emphasis added). The policies also state that, “[f]or the purpose of determining the limits of the [insured’s] liability: (1) all personal injury . . . arising out of continuous or repeated exposure to substantially the same general conditions . . . shall be considered as the result of one and the same occurrence.” The excess policies issued by the Excess Insurers either follow form to (i.e., incorporate) these provisions, or provide for substantively identical coverage.

The majority of the excess policies at issue also follow form to a “non-cumulation” of liability or “anti-stacking” provision in the Liberty Mutual umbrella policies, which provides that

“[i]f the same occurrence gives rise to personal injury, property damage or advertising injury or damage which occurs partly before and partly within any annual period of this policy, the each occurrence limit and the applicable aggregate limit or limits of this policy shall be reduced by the amount of each payment made by [Liberty Mutual] with respect to such occurrence, either under a previous policy or policies of which this is a replacement, or under this policy with respect to previous annual periods thereof.”

Those excess policies that do not follow form to the Liberty Mutual non-cumulation provision contain a similar two-part “Prior Insurance and Non [-] Cumulation of Liability” provision, sometimes referred to as “Condition C,” as follows:

“It is agreed that if any loss covered hereunder is also covered in whole or in part under any other excess Policy issued to the Insured prior to the inception date hereof [,] the limit of liability hereon . . . shall be reduced by any amounts due to the Insured on account of such loss under such prior insurance.
“Subject to the foregoing paragraph and to all the other terms and conditions of this Policy in the event that personal injury or property damage arising out of an occurrence covered hereunder is continuing at the time of termination of this Policy the Company will continue to protect the Insured for liability in respect of such personal injury or property damage without payment of additional premium.”

In the underlying litigation, the parties cross-moved for summary judgment with respect to the availability of coverage and the allocation of liability under the excess policies. The Delaware Court of Chancery granted Viking and Warren summary judgment on those issues, and denied the Excess Insurers’ cross motions (2 A3d at 130). As a threshold matter, the Court of Chancery held that New York law applied to the dispute and that Viking and Warren were each entitled to coverage under the excess policies (see id. at 90).

With regard to the allocation issue, the Court of Chancery agreed with Warren and Viking (hereinafter, collectively, the Insureds) that the proper method of allocation was the all sums approach, as compared with the pro rata allocation method propounded by the Excess Insurers (see id. at 119-127). The Court of Chancery acknowledged that this Court had previously applied the pro rata method in Consolidated Edison Co. of N.Y. v Allstate Ins. Co. (98 NY2d 208, 222 [2002]), where the policy language similarly provided that the insurer would pay “all sums” for an occurrence happening “during the policy period” (see 2 A3d at 120-121). However, the Court of Chancery distinguished the policy language at issue here from that interpreted in Consolidated Edison on the ground that the non-cumulation and prior insurance provisions in the policies here evinced a clear and unambiguous intent to use all sums allocation (see id. at 119-127). The Court of Chancery rejected the argument of the Excess Insurers that these provisions would not apply if liability was apportioned on a pro rata basis because, according to that court, such an interpretation would — contrary to New York principles of contract interpretation — render the non-cumulation and prior insurance provisions surplusage (see id. at 124-126). The Court of Chancery also observed that, even if the policy language was ambiguous, “the only substantial extrinsic evidence offered by the parties weighs in favor of the use of the all sums method” because, the court asserted, Liberty Mutual had, in the past, routinely allocated its liability under its own policies — to which the excess policies followed form — in accordance with the all sums method (id. at 119, 127-129). The Court of Chancery further noted that, to the extent the policies are ambiguous, any ambiguity must be resolved in favor of the Insureds (see id. at 129-130).

The matter was transferred to the Delaware Superior Court (Viking Pump, Inc. v Century Indem. Co., 2010 WL 2989690, 2010 Del Ch LEXIS 301 [June 11, 2010, C.A. No. 1465-VCS]), where a trial was ultimately held (2013 WL 7098824, *6-7, 2013 Del Super LEXIS 615, *21-22). A verdict was returned largely in the Insureds’ favor, and the parties made postjudgment motions. As relevant here, the Superior Court rejected the Excess Insurers’ renewed arguments that pro rata allocation applied. The Superior Court also determined that, as a matter of New York law, the Insureds were obligated to horizontally exhaust (i.e., deplete) every triggered primary and umbrella layer of insurance before accessing the excess policies. While the Superior Court agreed with the Insureds that policy language supported vertical exhaustion, in the court’s view, New York law required that horizontal exhaustion be utilized with respect to primary and umbrella policies.

On appeal, the Delaware Supreme Court concluded that resolution of the allocation and exhaustion disputes between the Excess Insurers and the Insureds “depends on significant and unsettled questions of New York law that have not been answered, in the first instance, by the New York Court of Appeals” (— A3d —, —, 2015 WL 3618924, *2, 2015 Del LEXIS 278, *9-10). Therefore, the Delaware Supreme Court certified, and we accepted, the following questions:

“1. Under New York law, is the proper method of allocation to be used all sums or pro rata when there are non-cumulation and prior insurance provisions?
“2. Given the Court’s answer to Question #1, under New York law and based on the policy language at issue here, when the underlying primary and umbrella insurance in the same policy period has been exhausted, does vertical or horizontal exhaustion apply to determine when a policyholder may access its excess insurance?” (— A3d at —, 2015 WL 3618924, *3, 2015 Del LEXIS 278, *10; see Matter of Viking Pump, Inc., 25 NY3d 1188 [2015].)

II. Allocation

A.

Courts across the country have grappled with so-called “long-tail” claims — such as those seeking to recover for personal injuries due to toxic exposure and property damage resulting from gradual or continuing environmental contaminations — in the insurance context. These types of claims present unique complications because they often involve exposure to an injury-inducing harm over the course of multiple policy periods, spawning litigation over which policies are triggered in the first instance, how liability should be allocated among triggered policies and the respective insurers, and at what point insureds may turn to excess insurance for coverage. Given the particular certified questions presented here, we are not asked to review the Delaware courts’ rulings regarding which policies were triggered and upon what events such triggering occurred, and we do not pass on those issues here. Rather, we consider only the allocation and exhaustion issues, and we first address the question of allocation.

The Insureds argue that the losses should be allocated through a “joint and several” or “all sums” method. This theory of allocation “permits the insured to ‘collect its total liability . . . under any policy in effect during’ the periods that the damage occurred,” up to the policy limits (Roman Catholic Diocese of Brooklyn v National Union Fire Ins. Co. of Pittsburgh, Pa., 21 NY3d 139, 154 [2013], quoting Consolidated Edison, 98 NY2d 208, 222 [2002]; see United States Fid. & Guar. Co. v American Re-Ins. Co., 20 NY3d 407, 426 [2013]). The burden is then on the insurer against whom the insured recovers to seek contribution from the insurers that issued the other triggered policies (see Consolidated Edison, 98 NY2d at 222).

The Excess Insurers, by contrast, advocate for pro rata allocation. Under this method, an insurer’s liability is limited to sums incurred by the insured during the policy period; in other words, each insurance policy is allocated a “pro rata” share of the total loss representing the portion of the loss that occurred during the policy period (see Roman Catholic Diocese of Brooklyn, 21 NY3d at 154; Consolidated Edison, 98 NY2d at 223). Generally, “[p]roration of liability among the insurers acknowledges the fact that there is uncertainty as to what actually transpired during any particular policy period” in claims alleging a gradual and continuing harm (Consolidated Edison, 98 NY2d at 224).

Courts of different states and federal jurisdictions are divided on the issue of allocation in relation to long-tail claims. Some jurisdictions have expressed a preference for the all sums method, usually relying on language in policies obligating an insurer to pay “all sums” for which an insured becomes liable (see e.g. State of California v Continental Ins. Co., 55 Cal 4th 186, 199, 281 P3d 1000, 1007 [2012], as mod [Sept. 19, 2012]; Plastics Eng’g Co. v Liberty Mut. Ins. Co., 315 Wis 2d 556, 583, 759 NW2d 613, 626 [2009]; Goodyear Tire & Rubber Co. v Aetna Cas. & Sur. Co., 95 Ohio St 3d 512, 515, 769 NE2d 835, 840 [2002]; Hercules, Inc. v AIU Ins. Co., 784 A2d 481, 491 [Del 2001]; American Physicians Ins. Exch. v Garcia, 876 SW2d 842, 855 [Tex 1994]; J.H. France Refractories Co. v Allstate Ins. Co., 534 Pa 29, 39, 626 A2d 502, 507 [1993]; Keene Corp. v Insurance Co. of N. Am., 667 F2d 1034, 1047 [DC Cir 1981]). Others have, instead, utilized the pro rata method, emphasizing language in the insurance policies that may be interpreted as limiting the “all sums” owed to those resulting from an occurrence “during the policy period,” or public policy reasons supporting pro rata allocation, or a combination of the two (see e.g. EnergyNorth Nat. Gas, Inc. v Certain Underwriters at Lloyd’s, 156 NH 333, 344, 934 A2d 517, 526 [2007]; Public Serv. Co. of Colorado v Wallis & Cos., 986 P2d 924, 940 [Colo 1999]; Owens-Illinois, Inc. v United Ins. Co., 138 NJ 437, 473, 650 A2d 974, 992 [1994]; Insurance Co. of N. Am. v Forty-Eight Insulations, Inc., 633 F2d 1212, 1225 [6th Cir 1980], decision clarified on reh 657 F2d 814 [6th Cir 1981], cert denied 454 US 1109 [1981]).

We first confronted the question of pro rata versus all sums allocation in Consolidated Edison (98 NY2d at 222). In that case, we applied the pro rata method to claims involving environmental contamination over a number of years and insurance policy periods. Significantly, we did not reach our conclusion in Consolidated Edison by adopting a blanket rule, based on policy concerns, that pro rata allocation was always the appropriate method of dividing indemnity among successive insurance policies. Rather, we relied on our general principles of contract interpretation, and made clear that the contract language controls the question of allocation.

We emphasized in Consolidated Edison, and have reiterated thereafter, that “ ‘[i]n determining a dispute over insurance coverage, [courts] first look to the language of the policy’ ” (Roman Catholic Diocese of Brooklyn, 21 NY3d at 148, quoting Consolidated Edison, 98 NY2d at 221; see Selective Ins. Co. of Am. v County of Rensselaer, 26 NY3d 649, 655 [2016]). We did not adopt a strict rule mandating either pro rata or all sums allocation because insurance contracts, like other agreements, should “be enforced as written,” and “parties to an insurance arrangement may generally ‘contract as they wish and the courts will enforce their agreements without passing on the substance of them’ ” (J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 21 NY3d 324, 334 [2013], quoting New England Mut. Life Ins. Co. v Caruso, 73 NY2d 74, 81 [1989]).

When construing insurance policies, the language of the “contracts must be interpreted according to common speech and consistent with the reasonable expectation of the average insured” (Dean v Tower Ins. Co. of N.Y., 19 NY3d 704, 708 [2012], quoting Cragg v Allstate Indem. Corp., 17 NY3d 118, 122 [2011]). Furthermore, “we must construe the policy in a way that affords a fair meaning to all of the language employed by the parties in the contract and leaves no provision without force and effect” (Roman Catholic Diocese of Brooklyn, 21 NY3d at 148 [internal quotation marks and citations omitted]). Significantly, “surplusage [is] a result to be avoided” (Westview Assoc. v Guaranty Natl. Ins. Co., 95 NY2d 334, 339 [2000]). Moreover, while “ ‘ambiguities in an insurance policy are to be construed against the insurer’ ” (Dean, 19 NY3d at 708, quot ing Breed v Insurance Co. of N. Am., 46 NY2d 351, 353 [1978]; see Federal Ins. Co. v International Bus. Machs. Corp., 18 NY3d 642, 650 [2012]), a contract is not ambiguous “if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion” (Selective Ins. Co. of Am., 26 NY3d at 655 [internal quotation marks and citation omitted]).

In Consolidated Edison, we applied the foregoing principles to the parties’ arguments in support of, and in opposition to, pro rata allocation. The arguments presented in that case, and our resulting decision, turned exclusively upon the interpretation of two phrases in the insurance policies that were before us: (1) that an insurer agreed to indemnify the insured for “all sums” for which the insured was liable and which were caused by or arose out of an “occurrence”; and (2) that the “policies provide [d] indemnification for liability incurred as a result of an accident or occurrence during the policy period, not outside that period” (Consolidated Edison, 98 NY2d at 224 [emphasis added]). The Court concluded that “[p]ro rata allocation under th[o]se facts, while not explicitly mandated by the policies, [was] consistent with the language of the policies,” whereas the mere use of the phrase “all sums” was insufficient to establish a contrary view (98 NY2d at 224 [emphasis added]). To be sure, we also suggested that, in the absence of language weighing in favor of a different conclusion, pro rata allocation was the preferable method of allocation in long-tail claims in light of the inherent difficulty of tying specific injuries to particular policy periods. Nevertheless, we recognized that “different policy language” might compel all sums allocation (98 NY2d at 223), citing, as a point of comparison, to the Delaware Supreme Court’s decision in Hercules, Inc. v AIU Ins. Co., wherein the Delaware Court adopted the all sums method (784 A2d 481).

The policy language at issue here, by inclusion of the non-cumulation clauses and the two-part non-cumulation and prior insurance provisions, is substantively distinguishable from the language that we interpreted in Consolidated Edison, and the arguments that were made to us in that case were, likewise, different. Indeed, the excess policies before us here present the very type of language that we signaled might compel all sums allocation in Consolidated Edison. Inasmuch as the question is now squarely before us, we must determine whether the presence of a non-cumulation clause or a non-cumulation and prior insurance provision mandates all sums allocation.

B.

Generally, non-cumulation clauses prevent stacking, the situation in which “an insured who has suffered a long term or continuous loss which has triggered coverage across more than one policy period . . . wishes to add together the maximum limits of all consecutive policies that have been in place during the period of the loss” (12 Couch on Insurance 3d § 169:5; see 1 Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes § 11.02 [e] [16th ed 2013]). Such clauses originated during the shift from “accident-based” to “occurrence-based” liability policies in the 1960s and 1970s, and were purportedly designed to prevent any attempt by policyholders to recover under a subsequent policy — based on the broader definition of occurrence — for a loss that had already been covered by the prior “accident-based” policy (see Jan M. Michaels et al., The “Non-Cumulation” Clause: Policyholders Cannot Have Their Cake and Eat It Too, 61 U Kan L Rev 701, 717 [2013]; Christopher C. French, The “Non-Cumulation Clause”: An “Other Insurance” Clause by Another Name, 60 U Kan L Rev 375, 386 [2011]). More recently, courts have been called upon to analyze the impact of these clauses on the allocation question. Significantly, we have enforced non-cumulation clauses in accordance with their plain language (see Nesmith v Allstate Ins. Co., 24 NY3d 520, 523 [2014]; Hiraldo v Allstate Ins. Co., 5 NY3d 508, 513 [2005]), despite the limiting impact that such clauses may have on an insured’s recovery (and, by extension, that of an injured plaintiff). However, we have never addressed the interplay between non-cumulation/prior insurance provisions and allocation.

Courts in other states that have addressed this issue — both those that have adopted all sums allocation and a few that have followed a pro rata approach — have concluded that non-cumulation clauses cannot be reconciled with pro rata allocation. For example, in Chicago Bridge & Iron Co. v Certain Underwriters at Lloyd’s, London, a Massachusetts appellate court rejected pro rata allocation, in part, on the ground that the non-cumulation/prior insurance provision “would be superfluous had the drafter intended that damages would be allocated among insurers based on their respective time on the risk” (59 Mass App Ct 646, 656, 797 NE2d 434, 441 [2003]). Similarly, the Supreme Court of Wisconsin supported its determination that all sums allocation applied by pointing to non-cumulation clauses contemplating indemnity where an injury occurs “ ‘partly before and partly within the policy period’ ” (Plastics Eng’g Co., 315 Wis 2d at 583, 759 NW2d at 626; see also Riley v United Servs. Auto. Assn., 161 Md App 573, 592, 871 A2d 599, 611 [2005] [noting that prohibiting stacking would run counter to pro rata allocation], affd 393 Md 55, 899 A2d 819 [2006]).

In addition, at least two courts in jurisdictions that have adopted the pro rata allocation method have held that non-cumulation clauses cannot be enforced in conjunction with that method (see Spaulding Composites Co., Inc. v Aetna Cas. & Sur. Co., 176 NJ 25, 44-46, 819 A2d 410, 422-423 [2003]; Outboard Mar. Corp. v Liberty Mut. Ins. Co., 283 Ill App 3d 630, 670 NE2d 740 [1996], lv denied 169 Ill 2d 570, 675 NE2d 634 [1996] [declining to enforce non-cumulation clause with pro rata allocation]). In Spaulding Composites Co., Inc. v Aetna Cas. & Sur. Co., the New Jersey Supreme Court explained that, “even if the non-cumulation clause was not facially inapplicable, ... it would thwart the . . . pro-rata allocation modality” (176 NJ at 44, 819 A2d at 422). That court reasoned that,

“[o]nce the court turns to pro rata allocation, it makes sense that the non-cumulation clause, which would allow the insurer to avoid its fair share of responsibility, drops out of the policy. . . . The pro-rata sharing methodology has, at its core, a public policy that favors maximizing, in a fair and just manner, insurance coverage for cleanup of environmental disasters. By applying the non-cumulation clause, insurers who were actually ‘on the risk’ would be insulated from their fair share of liability” (176 NJ at 44-45, 819 A2d at 422; see 15 Couch on Insurance 3d § 220:30 [“Once a court has determined that a loss is to be shared among sequential insurers on a pro rata basis, ‘prior insurance’ and ‘non(-)cumulation of liability’ clauses in the policies become unenforceable”]).

These cases are persuasive authority for the proposition that, in policies containing non-cumulation clauses or non-cumulation and prior insurance provisions, such as the excess policies before us, all sums is the appropriate allocation method. We agree that it would be inconsistent with the language of the non-cumulation clauses to use pro rata allocation here. Such policy provisions plainly contemplate that multiple successive insurance policies can indemnify the insured for the same loss or occurrence by acknowledging that a covered loss or occurrence may “also [be] covered in whole or in part under any other excess [p]olicy issued to the [insured] prior to the inception date” of the instant policy.

By contrast, the very essence of pro rata allocation is that the insurance policy language limits indemnification to losses and occurrences during the policy period — meaning that no two insurance policies, unless containing overlapping or concurrent policy periods, would indemnify the same loss or occurrence. Pro rata allocation is a legal fiction designed to treat continuous and indivisible injuries as distinct in each policy period as a result of the “during the policy period” limitation, despite the fact that the injuries may not actually be capable of being confined to specific time periods. The non-cumulation clause negates that premise by presupposing that two policies may be called upon to indemnify the insured for the same loss or occurrence. Indeed, even commentators who have advocated for pro rata allocation and propounded the complications that can be caused by all sums allocation have recognized that non-cumulation clauses cannot logically be applied in a pro rata allocation (see Jan M. Michaels et al., The Avoidable Evils of “All Sums” Liability for Long-Tail Insurance Coverage Claims, 64 U Kan L Rev 467, 489 [2015] [“Provisions such as the non-cumulation clause (do) not even apply and need not be analyzed under pro rata allocation”]). In a pro rata allocation, the non-cumulation clauses would, therefore, be rendered surplus-age — a construction that cannot be countenanced under our principles of contract interpretation (see Roman Catholic Diocese of Brooklyn, 21 NY3d at 148; Consolidated Edison, 98 NY2d at 221-222; Westview Assoc., 95 NY2d at 339), and a result that would conflict with our previous recognition that such clauses are enforceable (see Nesmith, 24 NY3d at 523; Hiraldo, 5 NY3d at 513).

Several of the excess policies here also contain continuing coverage clauses within the non-cumulation and prior insurance provisions, reinforcing our conclusion that all sums — not pro rata — allocation was intended in such policies. The continuing coverage clause expressly extends a policy’s protections beyond the policy period for continuing injuries. Yet, under a pro rata allocation, no policy covers a loss that began during a particular policy period and continued after termination of that period because that subsequent loss would be apportioned to the next policy period as its pro rata share. Using the pro rata allocation would, therefore, render the continuing coverage clause irrevelant. Thus, presence of that clause in the respective policies further compels an interpretation in favor of all sums allocation (see Hercules, Inc., 784 A2d at 493-494; Dow Corning Corp. v Continental Cas. Co., Inc., 1999 WL 33435067, *7-8, 1999 Mich App LEXIS 2920, *23-24 [Oct. 12, 1999, No. 200143 et al.], lv denied 463 Mich 854, 617 NW2d 554 [2000]; Boston Gas Co. v Century Indent. Co., 454 Mass 337, 362, 910 NE2d 290, 309 [2009]; Liberty Mut. Ins. Co. v Those Certain Underwriters at Lloyds, 650 F Supp 1553, 1559 [WD Pa 1987]).

The Excess Insurers contend that a conclusion that all sums allocation is required would be inconsistent with the Second Circuit’s holding in Olin Corp. v American Home Assur. Co. (704 F3d 89, 95 [2d Cir 2012] [Olin III]) and those cases that have followed in its stead (see Liberty Mut. Ins. Co. v Fairbanks Co., 2016 WL 1169511, *7, 2016 US Dist LEXIS 36662, *22 [SD NY, Mar. 22, 2016, Nos. 13-CV-3755 (JGK) & 15-CV-1141 (JGK)]; Liberty Mut. Fire Ins. Co. v J.&S. Supply Corp., 2015 US Dist LEXIS 177124, *24-25 [SD NY, June 29, 2015, No. 13-CV-4784 (VSB)]). We discern no such impediment to our holding.

In Olin I, the Second Circuit held that pro rata allocation applied to distribute the insured’s liability to insurance policies triggered by soil and groundwater contamination resulting from Olin Corporation’s pesticide manufacturing operations (see Olin Corp. v Insurance Co. of N. Am., 221 F3d 307 [2d Cir 2000] [Olin I]). There, the Second Circuit relied both on public policy reasons supporting pro rata allocation, and on language in the insurance policies limiting the scope of coverage to damages incurred during the policy period (see id. at 324-326). In a later appeal in additional related litigation (see Olin Corp. v Certain Underwriters at Lloyd’s London, 468 F3d 120, 127 [2d Cir 2006] [Olin II]), the Second Circuit reaffirmed that its conclusion was consistent with our decision in Consolidated Edison.

Subsequently, in Olin III, the issue on appeal in related litigation against one of din’s excess insurance carriers was whether the attachment point (i.e., the point at which the insured’s liability triggers excess coverage) for two excess policies had been met (704 F3d at 93-95). Applying strict pro rata allocation to the underlying policies, as provided for in Olin I, the attachment point for the two excess insurance policies was not reached (see id. at 95). The parties’ arguments in Olin III centered upon the “Prior Insurance and Non-Cumulation of Liability” provision in the underlying policies to which the excess policies followed form (id. at 94), which had not been raised in Olin I or Olin II (see id. at 98). Olin argued that, although pro rata allocation applied under the Second Circuit’s earlier holding in Olin I, the continuing coverage clause contained in the non-cumulation/prior insurance provision required that the losses allocated to subsequent years be swept back into the policy periods covering the earlier years. The excess insurer, by contrast, argued, as relevant here, that pro rata allocation was inconsistent with the non-cumulation and continuing coverage clauses and, consequently, those provisions could not be enforced in conjunction with pro rata allocation.

The Second Circuit held that the plain language of the continuing coverage clause of the prior insurance provision “require [d] the insurer to indemnify the insured for personal injury or property damage continuing after the termination of the policy” (id. at 100). The court, therefore, divided up the damages for each year as if allocating them on a pro rata basis, but then swept the shares attributable to the years outside the policy period back into the earlier policy periods.

At first glance, the Second Circuit’s decision in Olin III could be viewed as harmonizing the non-cumulation and prior insurance provision containing the continuing coverage clause with pro rata allocation. However, the court’s rejection of the insurer’s argument that these provisions were inconsistent with pro rata allocation turned on its conclusion that “New York state court decisions and those prior decisions of this Court endorsing the pro rata approach foreclose [the Court] from interpreting [the non-cumulation and prior insurance provision] as imposing joint and several liability” (id. at 102). As discussed above, our holding in Consolidated Edison does not require pro rata allocation in the face of policy language undermining the very premise upon which the imposition of pro rata allocation rests. In light of the Second Circuit’s view that it was foreclosed from utilizing all sums allocation — either by Consolidated Edison or by its own earlier holding in Olin I imposing pro rata allocation — and the fact that the resulting allocation apportioning numerous years of liability outside the policy period to the relevant policies closely resembles an all sums allocation, the Excess Insurers’ contention that Olin III supports a pro rata allocation here is unavailing. Nor have those courts that have followed Olin III reconciled the language of the non-cumulation clause and prior insurance provision with pro rata allocation (see Liberty Mut. Ins. Co. v Fairbanks Co., 2016 WL 1169511, *7, 2016 US Dist LEXIS 36662, *22; Liberty Mut. Fire Ins. Co. v J.&S. Supply Corp, 2015 US Dist LEXIS 177124, *24-25). Indeed, the Excess Insurers have cited to no authorities satisfactorily reconciling non-cumulation clauses with pro rata allocation.

Accordingly, based on the policy language and the persuasive authority holding that pro rata allocation is inconsistent with non-cumulation and non-cumulation/prior insurance provisions, we hold that all sums allocation is appropriate in policies containing such provisions, like the ones at issue here.

III. Exhaustion

With the allocation issue resolved, we turn to the second question — namely, whether horizontal or vertical exhaustion applies under the relevant policies. That is, we must determine whether the Insureds are required under the terms of the excess policies to “horizontally” exhaust all triggered primary and umbrella excess layers before tapping into any of the additional excess insurance policies, or whether the Insureds need only “vertically” exhaust the primary and umbrella policies, which would allow the Insureds to access each excess policy once the immediately underlying policies’ limits are depleted, even if other lower-level policies during different policy periods remain unexhausted. The Excess Insurers argue that, if we utilize all sums allocation, then horizontal exhaustion should be applied.

All of the excess policies at issue primarily hinge their attachment on the exhaustion of underlying policies that cover the same policy period as the overlying excess policy, and that are specifically identified by either name, policy number, or policy limit. In our view, vertical exhaustion is more consistent than horizontal exhaustion with this language tying attachment of the excess policies specifically to identified policies that span the same policy period. Further, vertical exhaustion is conceptually consistent with an all sums allocation, permitting the Insured to seek coverage through the layers of insurance available for a specific year (see Westport Ins. Corp. v Appleton Papers Inc., 327 Wis 2d 120, 168-169, 787 NW2d 894, 919 [Ct App 2010], review denied 329 Wis 2d 63, 791 NW2d 66 [2010]; Cadet Mfg. Co. v American Ins. Co., 391 F Supp 2d 884, 892 [WD Wash 2005]; J. Stephen Berry & Jerry B. McNally, Allocation of Insurance Coverage: Prevailing Theories and Practical Applications, 42 Tort Trial & Ins Prac LJ 999, 1015-1016 [2007]).

The only argument of the Excess Insurers in support of horizontal exhaustion that merits discussion is their contention that it is compelled by the “other insurance” clauses in the Liberty Mutual umbrella policies and the subject excess policies. The Liberty Mutual umbrella policies provide that the insurer will pay “all sums in excess of the retained limit,” which is defined as the relevant limit of liability of underlying policies, “plus all amounts payable under other insurance, if any.” An “underlying policy” is “a policy listed as an underlying policy in the declarations,” which, as already stated, includes only policies spanning the same policy period as the respective excess policy. Other insurance, in turn, “means any other valid and collectible insurance (except under an underlying policy) which is available to the Insured, or would be available to the Insured in the absence of this policy.” The excess policies have similar clauses providing for such policies to be excess to other insurance.

The Excess Insurers contend that the “other insurance” available to the Insureds includes coverage provided by successive insurance policies. Their argument in this regard is not completely baseless (see Dow Corning Corp., 1999 WL 33435067, *9, 1999 Mich App LEXIS 2920, *26-29; United States Gypsum Co. v Admiral Ins. Co., 268 Ill App 3d 598, 653, 643 NE2d 1226, 1261 [1994], lv denied 161 Ill 2d 542, 649 NE2d 426 [1995]). However, we stated in Consolidated Edison that “other insurance” clauses “apply when two or more policies provide coverage during the same period, and they serve to prevent multiple recoveries from such policies,” and that such clauses “have nothing to do” with “whether any coverage potentially exist [s] at all among certain high-level policies that were in force during successive years” (Consolidated Edison, 98 NY2d at 223 [emphases added]). Those cases relied on by the Delaware Superior Court do not hold otherwise because they each involved instances of concurrent insurance policies (see e.g. American Home Assur. Co. v International Ins. Co., 90 NY2d 433, 437 [1997]; State Farm Fire & Cas. Co. v LiMauro, 65 NY2d 369, 372 [1985]; Lumbermens Mut. Cas. Co. v Allstate Ins. Co., 51 NY2d 651 [1980]; Bovis Lend Lease LMB, Inc. v Great Am. Ins. Co., 53 AD3d 140 [1st Dept 2008]). Moreover, our conclusion in Consolidated Edison that other insurance clauses are not implicated in situations involving successive — as opposed to concurrent — insurance policies finds support in other jurisdictions (see Ohio Cas. Ins. Co. v Unigard Ins. Co., 268 P3d 180, 184 [Utah 2012]; Century Indem. Co. v Liberty Mut. Ins. Co., 815 F Supp 2d 508, 516 [D RI 2011]; Westport Ins. Corp., 327 Wis 2d at 168-169, 787 NW2d at 919; Boston Gas Co., 454 Mass at 361, 910 NE2d at 308 [the “other insurance” clauses simply reflect a recognition of the many situations in which concurrent, not successive, coverage would exist for the same loss]; LSG Tech., Inc. v United States Fire Ins. Co., 2010 WL 5646054, *12, 2010 US Dist LEXIS 140879, *33-35 [ED Tex, Sept. 2, 2010, No. 2:07-CV-399-DF]; Owens-Illinois, Inc. v United Ins. Co., 138 NJ 437, 470, 650 A2d 974, 991 [1994]).

Here, the Insureds are not seeking multiple recoveries from different insurers under concurrent policies for the same loss, and the other insurance clause does not apply to successive insurance policies (see Consolidated Edison, 98 NY2d at 223). Thus, in light of the language in the excess policies tying their attachment only to specific underlying policies in effect during the same policy period as the applicable excess policy, and the absence of any policy language suggesting a contrary intent, we conclude that the excess policies are triggered by vertical exhaustion of the underlying available coverage within the same policy period (see United States Fid. & Guar. Co. v American Re-Ins. Co., 20 NY3d at 428; 2 Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes § 13.14).

IV.

Accordingly, following certification of questions by the Supreme Court of Delaware and acceptance of the questions by this Court pursuant to section 500.27 of the Rules of Practice of the Court of Appeals (22 NYCRR 500.27), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, the certified questions should be answered in accordance with this opinion.

Chief Judge DiFiore and Judges Pigott, Rivera, Abdus-Saxaam and Fahey concur; Judge Garcia taking no part.

Following certification of questions by the Supreme Court of Delaware and acceptance of the questions by this Court pursuant to section 500.27 of the Rules of Practice of the Court of Appeals (22 NYCRR 500.27), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified questions answered in accordance with the opinion herein.

      . Neither of those holdings is before us.

      . The Superior Court subsequently limited that ruling to the primary/ umbrella layers, holding that horizontal exhaustion did not apply among additional layers of excess coverage (see Viking Pump, Inc. v Century Indem. Co., 2014 WL 1305003, 2014 Del Super LEXIS 707 [Feb. 28, 2014, C.A. No. 10C-06-141 FSS CCLD]). The propriety of that holding is not before us.

      . After the Delaware Court of Chancery held that the policies were triggered upon an injury-in-fact that occurred upon asbestos exposure (2 A3d 76, 110-111 [Del Ch 2009]), the trigger issue was litigated at trial, and the Superior Court declined to alter the jury’s verdict on this point (see 2013 WL 7098824, *17-18, 2013 Del Super LEXIS 615, *55-58 [Super Ct, Oct. 31, 2013, C.A. No. 10C-06-141 FSS CCLD]).

      . Courts have devised different methods of fixing losses between policy periods (see Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 224-225 [2002]). Again, we have no occasion to discuss these methods in this case.

      . While such provisions were included in some of the policies at issue in Consolidated Edison, there was no reference in our decision to their existence.

      . Notably, the Insurers originally argued to the Delaware courts that the non-cumulation clauses should not be given effect in a pro rata allocation. Apparently recognizing that this would conflict with our principles of contract interpretation — as the Delaware Court of Chancery concluded — the Insurers now take the position that the non-cumulation clauses can be given effect with pro rata allocation. Indeed, according to the Delaware Superior Court, even the Excess Insurers’ own witness, an insurance law professor, conceded that non-cumulation clauses were inconsistent with pro rata allocation (see 2013 WL 7098824, *12, 2013 Del Super LEXIS 615, *39).

      . While, in some situations, horizontal exhaustion may be beneficial to excess insurers, particularly where the underlying layers of insurance contain a non-cumulation clause, we note that — like with the allocation issue— neither method necessarily militates in favor of insurers or insureds, with much depending on the specifics of the underlying policies and their limits.


text:
    [52 NE3d 214, 32 NYS3d 551]
    In the Matter of Kenneth Cole Productions, Inc., Shareholder Litigation. Erie County Employees Retirement System, Appellant, v Michael J. Blitzer et al., Respondents, et al., Defendant.
    Argued March 23, 2016;
    decided May 5, 2016

      Kessler Topaz Meltzer & Check, LLP, Radnor, Pennsylvania (Lee D. Rudy, Michael Wagner and Leah Heifetz of counsel), and Bernstein Litowitz Berger & Grossmann LLP, New York City (Mark Lebovitch, Jeroen van Kwawegen and Adam Hollander of counsel), for appellant.

      Willkie Farr & Gallagher LLP, New York City (Tariq Mundiya, Sameer Advani and Benjamin P. McCallen of counsel), for Kenneth D. Cole and others, and Sidley Austin LLP, New York City (Andrew W. Stern, Nicholas P. Crowell, David L. Breau and David W. Denton, Jr., of counsel), and Kaye Scholer LLP, New York City (Vincent A. Sama, Catherine B. Schumacher and Daphne Morduchowitz of counsel), for Michael J. Blitzer and others, respondents.

      Whiteman Osterman & Hanna LLP, Albany (Howard A. Levine and Alan J. Goldberg of counsel), and Hach Rose Schirripa & Cheverie LLP, New York City (Frank R. Schirripa of counsel), for Eastern New York Laborers’ District Council, amicus curiae.
   OPINION OF THE COURT

Stein, J.

In this shareholder class action challenging a going-private merger, we adopt the standard of review recently announced by the Delaware Supreme Court in Kahn v M & F Worldwide Corp. (88 A3d 635, 644-645 [Del 2014] [MFW]). Specifically, in reviewing challenges to going-private mergers, New York courts should apply the business judgment rule as long as certain shareholder-protective conditions are present; if those measures are not present, the entire fairness standard should be applied. Applying the MFW standard to the case before us, we affirm the dismissal of the complaint.

I.

Kenneth Cole Productions, Inc. (KCP) is a New York corporation that designs and markets apparel, footwear, handbags and accessories. KCP was organized with two classes of common stock. As of June 2012, there were approximately 10,464,627 outstanding shares of Class A stock, which were traded on the New York Stock Exchange. Each Class A share entitled the holder to one vote, and defendant Kenneth D. Cole held approximately 6% of these shares. As of June 2012, there were approximately 7,890,497 outstanding shares of Class B stock, all of which were held by Cole. Class B shares entitled the holder to 10 votes, giving Cole approximately 89% of the voting power of the KCP shareholders. At the time in question, KCP’s board of directors consisted of Cole and the other individual defendants herein. Defendants Michael J. Blitzer and Philip R. Peller were elected by Class A shareholders. Notably, defendants Denis F. Kelly and Robert C. Grayson held directorships voted on by both Class A and Class B shareholders, effectively giving Cole sole authority to fill these positions.

At a meeting held in February 2012, Cole proposed a going-private merger by informing KCP’s board of his intention to submit an offer to purchase the remainder of the outstanding Class A shares and, in effect, take the publicly-traded company private. After making this announcement, Cole left the meeting, and the board established a special committee to consider the proposal and negotiate any potential merger. The special committee consisted of directors Grayson, Kelly, Blitzer and Peller. On February 23, 2012, Cole made an initial offer of $15.00 per share. The offer was conditioned on approval by (1) the special committee, and, then, (2) a majority of the minority shareholders. At that time, Cole indicated that he had no desire to seek any other type of merger and, as a stockholder, would not approve of one. He also stated that, if the special committee did not recommend approval or the stockholders voted against the proposed transaction, his relationship with KCP would not be adversely affected.

Within a few days of Cole’s announcement, several shareholders, including plaintiff Erie County Employees Retirement System, commenced separate class actions alleging, among other things, breach of fiduciary duty by Cole and the directors. The committee retained legal counsel and a financial advi-sor, and proceeded to negotiate the terms of the going-private merger with Cole. The committee asked Cole to increase his offer several times, which he ultimately raised to $15.50 and then $16.00. Within a week of the $16.00 offer, Cole reduced his offer to $15.00, citing the alleged recent emergence of problems in the company and the economy. Finally, after months of negotiations, the special committee again asked Cole to increase his offer and, thereafter, approved Cole’s offer of $15.25 for each outstanding share of Class A stock, which it recommended to the minority shareholders. Although the shareholder vote apparently occurred after an amended complaint was filed in this action, and is not mentioned therein, 99.8% of the minority shareholders voted in favor of the merger.

In the amended complaint, plaintiff sought, among other things, (1) a judgment declaring that Cole and the directors had breached the fiduciary duties they owed to the minority shareholders, (2) an award of damages to the class, and (3) a judgment enjoining the merger. Defendants separately moved to dismiss the complaint on the ground that it failed to state a cause of action.

Supreme Court granted defendants’ motions and dismissed the complaint. The court determined that the complaint “fail[ed] to set forth facts demonstrating a lack of independence on the part of any of the . . . individual defendants” (2013 NY Slip Op 32114[U], *7 [Sup Ct, NY County 2013]). Further, the court held that “the complaint d[id] not adequately allege any facts that, if true, demonstrate [d] that the decision not to seek other bids constituted a breach of fiduciary duty,” as “plaintiff[ ] acknowledge [d] that the special committee negotiated with Cole over a period of months and obtained an increase in the price he would pay . . . where the original price represented a premium over the stock’s most recent selling price” (id. at *7-8). Ultimately, the court reasoned that, “absent a showing of specific unfair conduct by the special committee, the [c]ourt will not second guess the [special] committee’s business decisions in negotiating the terms of [the] transaction” (id. at *9). The court further held that “the complaint d[id] not contain adequate statements regarding a breach” of Cole’s fiduciary duty (id. at *11). Plaintiff appealed, on behalf of itself and the class.

The Appellate Division affirmed, holding that, “[c]ontrary to plaintiff’s claim, the motion court was not required to apply the ‘entire fairness’ standard to the transaction” (122 AD3d 500, 500 [1st Dept 2014]). The Court noted that, unlike in Alpert v 28 Williams St. Corp. (63 NY2d 557 [1984]), “the merger in the case at bar required the approval of the majority of the minority (i.e., non-Cole) shareholders” (122 AD3d at 500). In addition, Cole, an interested party, “did not participate when [KCP]’s board . . . voted on the merger,” and plaintiff did “not allege [ ] that the remaining members of the board . . . were self-interested” (id.). The Court held that “there [were] no allegations sufficient to demonstrate that the members of the board or the special committee did not act in good faith or were otherwise interested” (id. at 501). This Court granted plaintiff leave to appeal (25 NY3d 909 [2015]).

II.

The primary issue before us is what standard should be applied by courts reviewing a going-private merger that is subject from the outset to approval by both a special committee of independent directors and a majority of the minority shareholders. Plaintiff urges that we apply the entire fairness standard, which places the burden on the corporation’s directors to demonstrate that they engaged in a fair process and obtained a fair price. Defendants seek application of the business judgment rule, with or without certain conditions. We are persuaded to adopt a middle ground. Specifically, the business judgment rule should be applied as long as the corporation’s directors establish that certain shareholder-protective conditions are met; however, if those conditions are not met, the entire fairness standard should be applied.

We begin with the general principle that courts should strive to avoid interfering with the internal management of business corporations. To that end, we have long adhered to the business judgment rule, which provides that, where corporate officers or directors exercise unbiased judgment in determining that certain actions will promote the corporation’s interests, courts will defer to those determinations if they were made in good faith (see 40 W. 67th St. v Pullman, 100 NY2d 147, 153 [2003]; Chelrob, Inc. v Barrett, 293 NY 442, 459-460 [1944]). The doctrine is based, at least in part, on a recognition that: courts are ill equipped to evaluate what are essentially business judgments; there is no objective standard by which to measure the correctness of many corporate decisions (which involve the weighing of various considerations); and corporate directors are charged with the authority to make those decisions (see Auerbach v Bennett, 47 NY2d 619, 630-631 [1979]). Hence, absent fraud or bad faith, courts should respect those business determinations and refrain from any further judicial inquiry (see id. at 631). We have, therefore, held that the substantive determination of a committee of disinterested directors is beyond judicial inquiry under the business judgment rule, but that “the court may inquire as to the disinterested independence of the members of that committee and as to the appropriateness and sufficiency of the investigative procedures chosen and pursued by the committee” (id. at 623-624).

A freeze-out merger is typical of situations in which a director’s loyalty may be divided or compromised, thereby calling into question the applicability of the business judgment rule. In such a merger, the majority stock owner or group in control attempts to freeze out the interests of minority shareholders. There are three main types of freeze-out mergers: (1) two-step mergers, in which an outside investor purchases control of the majority shares of a target company, then uses that control to merge the target with a second company, thereby freezing out the minority shareholders of the target and forcing a cash-out of their shares; (2) parent-subsidiary mergers; and (3) going-private mergers, in which the majority shareholder seeks to remove public investors and gain ownership of the entire company.

This Court’s seminal decision regarding freeze-out mergers is Alpert v 28 Williams St. Corp. (63 NY2d 557 [1984]). In that case, we recognized that, where there are common directors or majority ownership between the parties involved in a transaction, “the inherent conflict of interest and the potential for self-dealing requires careful scrutiny of the transaction” (id. at 570). In reviewing a two-step merger in Alpert, we held that while, “[generally, the plaintiff has the burden of proving that the merger violated the duty of fairness, . . . when there is an inherent conflict of interest, the burden shifts to the interested directors or shareholders to prove good faith and the entire fairness of the merger” (id.; see Chelrob, Inc., 293 NY at 461-462). This “entire fairness” standard has two components: fair process and fair price (see Alpert, 63 NY2d at 569-570). The fair process aspect concerns timing, structure, disclosure of information to independent directors and shareholders, how approvals were obtained, and similar matters (see id. at 570-571). The fair price aspect can be measured by whether independent advisors rendered an opinion or other bids were considered, which may demonstrate the price that would have been established by arm’s length negotiations (see id. at 571). Considering the two components, the transaction is viewed as a whole to determine if it is fair to the minority shareholders (see id. at 567; see also Kahn v Lynch Communication Sys., Inc., 638 A2d 1110, 1115 [Del 1994]).

In Alpert, we specifically stated that we were not deciding whether the circumstances that would satisfy fiduciary duties in a two-step merger would be the same for other types of mergers (see Alpert, 63 NY2d at 567 n 3). Thus, that decision is not dispositive of the standard for reviewing a going-private merger, such as the one now before us. The present case is also distinguishable because, in Alpert, there was no independent committee and no minority shareholder vote.

The parties here debate whether we should apply the entire fairness standard, as in Alpert, or, alternatively, whether we should adopt the test recently established by the Delaware Supreme Court in Kahn v M & F Worldwide Corp. (88 A3d 635, 644-645 [Del 2014]). In MFW, a controlling shareholder sought to purchase all of the shares of stock and take the corporation private, but made the proposal contingent from the outset upon two shareholder-protective measures — negotiation and approval by a special committee of independent directors, and approval by a majority of shareholders that were unaffiliated with the controlling shareholder (see id. at 638). As in the case before us, the controlling shareholder also made it clear that it was not interested in selling any of its shares, would not vote in favor of any alternative sale or merger and, if the merger was not recommended, its future relationship with the company — including its desire to remain a shareholder — would not be adversely affected (see id. at 641).

In MFW, the question before the Delaware Supreme Court was framed as “what standard of review should apply to a going private merger conditioned upfront by the controlling stockholder on approval by both a properly empowered, independent committee and an informed, uncoerced majority-of-the-minority vote” (id. at 639 [internal quotation marks omitted]). We are presented with the same question here. In prior cases, the Delaware Supreme Court had applied the entire fairness standard when reviewing mergers with interested directors, although the court had created a burden shift — placing the burden on the objecting minority shareholders — in situations in which the interested director required approval by an independent committee or a majority of the minority shareholders (see Americas Mining Corp. v Theriault, 51 A3d 1213, 1240 [Del 2012]; Kahn v Tremont Corp., 694 A2d 422, 428-429 [Del 1997]; Kahn v Lynch Communication Sys., Inc., 638 A2d at 1115-1116). Never before had that court addressed a situation in which both of those protections were present (see MFW, 88 A3d at 642).

The Delaware Supreme Court opined in MFW that the opportunity for review under the business judgment rule — as opposed to the entire fairness standard — created a strong incentive for controlling shareholders to provide a structure for freeze-out mergers that is most likely to protect the interests of minority shareholders, because when both protections are in place, the situation replicates an arm’s length transaction and supports the integrity of the process (see id. at 643). That court ultimately held that “business judgment is the standard of review that should govern mergers between a controlling stockholder and its corporate subsidiary, where the merger is conditioned ab initio upon both the approval of an independent, adequately-empowered Special Committee that fulfills its duty of care; and the uncoerced, informed vote of a majority of the minority stockholders” (id. at 644). The court articulated a number of reasons for the adoption of this new standard, including that: where the controlling shareholder clearly disabled itself from using its control to dictate the outcome, the merger acquired the characteristics of “third-party, arm’s length mergers” that are reviewed under the business judgment rule; “the dual procedural protection merger structure optimally protects the minority stockholders in controller buyouts”; it is consistent with the tradition of courts deferring to informed decisions by impartial directors, especially when approved of by disinterested and informed stockholders; and it will provide an incentive to create structures that best protect minority shareholders (id.). The standard was summarized as follows:

“in controller buyouts, the business judgment standard of review will be applied if and only if: (i) the controller conditions the procession of the transaction on the approval of both a Special Committee and a majority of the minority stockholders; (ii) the Special Committee is independent; (iii) the Special Committee is empowered to freely select its own advisors and to say no definitively; (iv) the Special Committee meets its duty of care in negotiating a fair price; (v) the vote of the minority is informed; and (vi) there is no coercion of the minority” (id. at 645).

We now adopt that standard of review for courts reviewing challenges to going-private mergers. The standard set forth in MFW reinforces that the business judgment rule is our general standard of review of corporate management decisions, and is consistent with this Court’s statement in Auerbach that the substantive determination of a committee of disinterested directors is beyond judicial inquiry under the business judgment rule, but that courts "may inquire as to the disinterested independence of the members of [a special] committee and as to the appropriateness and sufficiency of the investigative procedures chosen and pursued by the committee” (47 NY2d at 623-624). While the business judgment rule is deferential to corporate boards, minority shareholders are sufficiently protected by MFWs conditions precedent to the application of that standard in going-private mergers. Overall, the MFW standard properly considers the rights of minority shareholders — to obtain judicial review of transactions involving interested parties, and to proceed to trial where there is adequate proof that those interests may have affected the transaction — and balances them against the interests of directors and controlling shareholders in avoiding frivolous litigation and protecting independently-made business decisions from unwarranted judicial interference.

According to the Delaware Supreme Court, for purposes of this rule, a complaint is sufficient to state a cause of action for breach of fiduciary duty — and the plaintiff may proceed to discovery — if it alleges “a reasonably conceivable set of facts” showing that any of the six enumerated shareholder-protective conditions did not exist (MFW, 88 A3d at 645). Conclusory allegations or bare legal assertions with no factual specificity are not sufficient, and will not survive a motion to dismiss (see Godfrey v Spano, 13 NY3d 358, 373 [2009]; Health-Loom Corp. v Soho Plaza Corp., 209 AD2d 197, 198 [1st Dept 1994] [con-clusory allegations that two directors control the remaining directors are insufficient; a complaint must contain specific allegations of coercive power over others or that interested or controlled directors constitute a majority]). Mere speculation cannot support a cause of action for breach of fiduciary duty (see e.g. Kassover v Prism Venture Partners, LLC, 53 AD3d 444, 450 [1st Dept 2008]). If the pleading requirements are met, in order to defeat summary judgment, a plaintiff must then demonstrate that there is a question of fact as to the establishment or efficacy of any of the enumerated conditions designed to protect the minority shareholders (see MFW, 88 A3d at 645-646). Finally, if the evidence demonstrates that any of the protections were not in place, then the business judgment rule is inapplicable and the entire fairness standard applies.

Reviewing the complaint here under the MFW standard, we conclude that the courts below properly determined that the allegations do not withstand defendants’ motions to dismiss. Plaintiff did not sufficiently and specifically allege that any of MFWs six enumerated conditions were absent from the merger here. Beginning with the first condition, plaintiff concedes that Cole conditioned the merger, from the outset, upon approval by both a special committee of independent directors and a majority of the minority shareholders.

Next, in challenging the independence of the special committee, plaintiff alleged that Cole and/or his personally selected directors were responsible for nominating and electing the committee members to KCP’s board. In this regard, the question is whether a director is beholden to the controlling party or so under that party’s influence that the director’s discretion would be compromised (see MFW, 88 A3d at 648-649). Friendships, traveling in the same circles, some financial ties, and past business relationships are not enough to rebut the presumption of independence; the ties must be material in the sense that they could affect impartiality (see id. at 649). None of the allegations of the complaint, even if true, indicate that any of the members of the special committee engaged in fraud, had a conflict of interest or divided loyalties, or were otherwise incapable of reaching an unbiased decision regarding the proposed merger (compare Marx v Akers, 88 NY2d 189, 202 [1996]).

As to the third MFW condition, the complaint does not allege that the special committee lacked the freedom to reject Cole’s offer or was prevented from hiring its own advisors, nor does it dispute that the committee did, in fact, select its own financial advisors and legal counsel. Plaintiff’s speculation that the committee merely submitted to Cole’s wishes is insufficient to state a cause of action for breach of fiduciary duty, particularly in view of Cole’s statement at the time of his initial proposal that, if the committee did not recommend approval or the minority shareholders did not vote in favor of the proposed transaction, such a determination “would not adversely affect [his] . . . relationship” with KCP.

Turning to the fourth condition, while the complaint contains various allegations suggesting that the special committee could have been more effective in negotiating a higher buyout price, none of those allegations are sufficient to support more than conclusory assertions that the committee failed to meet its duty of care in negotiating a fair price. Significantly, the complaint fails to allege any basis to conclude that the committee had an incentive to accept an inadequate price without meaningful negotiations or that it engaged in any unfair conduct. Additionally, the final price of $15.25 per share was higher than the original offer, was within the range of value determined by the committee’s independent financial analysts, was recommended by the committee’s independent legal counsel and financial advi-sors, and was higher than the stock’s price prior to Cole’s announcement that he intended to take the company private.

Regarding the fifth condition, the complaint lacks any specific challenges to the information contained in, or allegedly omitted from, the proxy statement provided to the minority shareholders prior to the vote, such that it could be said that the shareholders were not informed (see Kimeldorf v First Union Real Estate Equity & Mtge. Invs., 309 AD2d 151, 158 [1st Dept 2003]). Finally, plaintiff did not allege any coercion of the minority shareholders in relation to the vote.

Because plaintiff has not sufficiently alleged that any of the six enumerated MFW conditions were absent, the business judgment standard of review applies to the transaction at issue (see MFW, 88 A3d at 645). Pursuant to that standard, absent fraud or bad faith, we defer to the determinations of the special committee and the KCP board of directors in recommending and approving the merger (see Auerbach, 47 NY2d at 630-631). Inasmuch as no fraud or bad faith has been alleged here, the complaint was properly dismissed. Accordingly, the Appellate Division order should be affirmed, with costs.

Judges Pigott, Rivera., Abdus-Salaam, Fahey and Garcia concur; Chief Judge DiFiore taking no part.

Order affirmed, with costs.

      . After the special committee recommended that Cole’s $15.25 offer be accepted, plaintiff amended its complaint to reflect what had occurred since the action was commenced. This action was ultimately consolidated with five other class actions.

      . Although the complaint cites rising KCP stock prices and positive financial analyses following Cole’s announcement that he planned to take the company private, defendants correctly note that this information cannot be used to properly value the stock because those figures reflect an artificial increase in the price due to the prospect of the merger.