In Nesmith v. Allstate Insurance Co., New York’s highest court, over a two-judge dissent, held that under the noncumulation clause in a landlord’s liability policy, only one limit was available to cover claims by children from different families who were exposed to lead paint in the same apartment during successive policy terms.  This result should cause holders of similar policies to stop and think, before renewing, about what they are getting for their premium.

In September 1991, Allstate Insurance Company issued a liability policy to the landlord of a two-family house in Rochester, New York.  The policy was renewed annually in 1992 and 1993.  It had a $500,000 limit for “each occurrence” and a noncumulation clause that provided that “[r]egardless of the number of insured persons, injured persons, claims, claimants or policies involved, our potential liability under the Family Liability Protection coverage for damages resulting from one accidental loss will not exceed” the limits.  The clause further provided that “[a]ll bodily injury and property damage resulting from one accidental loss or from continuous or repeated exposure to the same general conditions is considered the result of one accidental loss.”

In 2004, two separate families of former tenants sued the landlord in separate actions for alleged injuries from lead paint exposure during tenancies during the policy terms.  The Young action was brought by a mother who had lived with her children in the house from November 1992 until September 1993.  During that period, in July and August 1993, the Department of Health had notified the landlord that one of the children had an elevated blood lead level and that parts of the apartment violated State regulations governing lead paint; the landlord had made repairs, as directed; and the DOH had advised him that the violations had been “corrected.”  The Nesmith action was brought by a grandmother whose grandchildren had lived in the same apartment from September 1993 until December 1994, and who likewise had been found to have elevated blood lead levels, leading to another DOH letter and further corrections.

The Young action was settled in 2006 for $350,000, which Allstate paid.  In 2008, the Nesmith action was settled, with Allstate paying $150,000 and stipulating that the issue of the policy limit was reserved for further litigation.  The Nesmith plaintiffs then sued Allstate for a declaratory judgment that a full policy limit was available to cover their claim.  The trial court granted the declaration; the intermediate appellate court reversed, holding that only one limit was available; and the state’s highest court affirmed.

The four judge majority observed that in light of precedent, the plaintiffs could not and did not argue that the annual renewals of the landlord’s policy increased the limits of the available coverage.  Further, the language of the noncumulation clause made clear that the number of injured persons, claims and claimants made no difference.  Thus, the majority observed, the only argument for coverage was that the alleged injuries to the two families’ children were separate losses because they did not result “from continuous or repeated exposure to the same general conditions.”  The majority rejected that argument because the two sets of children were exposed to the same hazard, lead paint, in the same apartment.  The plaintiffs argued that the landlord’s attempt to correct the problem after the first DOH letter and before their tenancy resulted in new “conditions,” but the majority concluded that there was no basis to infer that new lead paint had been introduced into the apartment between the tenancies, so both sets of children were exposed to the same “general conditions,” in the words of the noncumulation clause, and only one limit was available.

The dissent argued that when the insured purchased another year’s insurance in 1993, he did not know that coverage for liability had diminished due to the injuries that led, years later, to the Young claim.  It argued that if the insured had realized when renewing in 1993 that he was procuring less protection for the same premium, he surely would not have renewed.  Under the circumstances, the dissent found that holding that after the Young settlement only $150,000 remained to cover the Nesmith claims was contrary to the reasonable expectation of the insured.  Perhaps inconsistently, the dissent also suggested that the landlord’s failed effort to correct the lead paint problem before the Nesmiths moved in might have differentiated their claim from the Young claim as a distinct occurrence.

Nesmith is a sobering decision for the reasons stated by the dissent.  A video of the oral argument, available on the Court’s website, shows that the entire Court grappled with the apparent harshness of the result from the perspective of the Nesmith plaintiffs.  The majority decision shows, however, that the Court will accept such a result to remain consistent with its precedents.