OPINION OF THE COURT
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.
I
In the mid 1970s, UCC sought—wisely, as it turned out—to obtain as much liаbility 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 рolicy, 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 thе policy provides: “[T]he limit of liability ... set forth as ‘aggregate’ shall be the total limit of the company’s liability under this policy for ultimate net toss . . . during each consecutive twelve months of the policy рeriod.”
The рolicy 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 оf 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 $5 million for each year in which they provided coverage. Continental and Argonaut say that their liability for the entire period is capped at $5 milliоn 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 Dеcember 1976 says: “In consideration of an additional premium of $1,530, it is agreed that the policy is hereby extended to read: 2/1/77 Exp. Date.” According to UCC, a new $5 million policy limit became available to it by virtue of this two-month extension.
On UCC’s motions for partial summary judgment, Supreme Court ruled in its favor on both issues. The Appellate Division, with one Justice dissenting, disagreed and denied UCC’s
II
On the annualization issue, Continental and Argonaut argue in substance that the words of the declarations in the subsсription form policy, “$30,000,000 ... in the aggregate,” can mean only that $30 million is the maximum that may be paid under the policy, and thus that the maximum share for each of the six signatories, including Continental and Argonaut, is $5 million. Thеy stress that the follow-the-form clause, which incorporates the Appalachian policy by reference, is expressly made “subject to the declarations set forth below” and that those declarations, unlike the Appalachian policy, speak of an “aggregate,” not an “annual aggregate,” limit of liability. UCC argues that, under the follow-the-form clause, the conditions in the Appalachian policy are part of the subscription form policy, and that one of those conditions is that the “aggregate” limit shall be annualized. Each side cites precedent interpreting arguably similar, though not identical, language in other policies
(compare Maryland Cas. Co. v W. R. Grace & Co.,
UCC has the better of the argument. While the reading Continental and Argonaut give to the word “aggregate” might be plausible in many contexts, here the follow-the-form clause should prevail. Such clauses serve the important purpose of allowing an insured, like UCC, that deals with many insurers for the same risk to obtain uniform coverage, and to know, without a minute policy-by-policy analysis, the nature and extent of that coverage. It is implausible that an insured with as large and complicated an insurance program as UCC would have bargained for рolicies that differed, as between primary and excess layers, in the time over which policy limits were spread. Under Continental’s and Argonaut’s reading, UCC could (and in fact did) reach the second and third years of its excess policies with the full limit of its primary coverage in place, but with its fifth-
This conclusion is reinforced by the рart of the declarations in the subscription form policy that Continental and Argonaut rely on. The fifth-layer subscription form policy says that the limit of liability shall be “$30,000,000. each occurrence and in the aggregate” (emphasis added). If $30 milliоn was the most that could be paid on the entire policy why, UCC asks, did the parties bother to specify a per occurrence limit in an equal amount? Continental and Argonaut offer no answer.
Though extrinsic evidence of the policy’s meaning has been proffered, our analysis thus far has considered only the text of the subscription form policy, and the underlying policy that it incorporates by rеference. Both sides here endorse this approach, and all of the judges who considered the case below adopted it also. This is an approach strongly favored in our preсedents, which hold that, where the meaning of a writing is clear from its text, extrinsic evidence will not be considered
(e.g. Vintage, LLC v Laws Constr. Corp.,
We need not decide whether this is such a case, because, even assuming that there is an ambiguity, the extrinsic evidence—all of it submitted by UCC—overwhelmingly supports UCC’s position. UCC has submitted expert testimony that annualization of limits was the universal custom of the industry. It has also submitted contemporaneous evidence showing the existence of that custom, and other evidence showing that at least some participants in the transactions at issue assumed that the limits under the fifth-layer excess policy would be annualized. Continental’s аnd Argonaut’s only response is to insist that the language of the policy unambiguously forbids annualization, an assertion with which we do not agree.
Ill
The question of whether the two-month extension of the Continental рolicy created a new “year” for policy limit purposes is a vexing one. Under Continental’s view (assuming that the annualization issue is resolved as we have resolved it), UCC had a $5 million policy limit—the limit normally
A number of courts have considered similar questions and, perhaps unsurprisingly, reached divergent results
(compare Stonewall Ins. Co. v Asbestos Claims Mgt. Corp.,
Facts peculiar to this case may shed light on the problem, but do not solve it. The record suggests that, in late 1976, Continental wanted to withdraw entirely from insuring UCC’s liabilities, and was persuaded to rеmain on the risk for two more months as an accommodation. It may be argued that the parties would not reasonably have expected that accommodation to give UCC a fresh set of policy limits. On the other hand, extrinsic evidence submitted by UCC shows that a representative of UCC’s insurance broker tried to negotiate an “extension period to be treated as a separate аnnual period for aggregate reckoning purposes,” and that he was optimistic about succeeding. But the record does not clearly show whether he did succeed; the document that Continental actually issued says only “that the policy period is hereby extended”—it does not mention policy limits.
We conclude, as the Appellate Division majority did, that UCC has not met its burden on summary judgment of establishing coverage for an additional year’s policy limits
(see Consolidated
Accordingly, the order of the Appellate Division should be modified to grant UCC’s motion for summary judgment on the annualization issue, and otherwise affirmed, without costs, and the certified question answered in the negative.
Chief Judge Lippman and Judges Ciparick, Graffeo, Read, Pigott and Jones concur.
Order modified, etc.