Argued October 14, 2020; decided November 24, 2020

Jin Ming Chen v Insurance Co. of the State of Pa., 165 AD3d 588, affirmed.

This appeal involves a dispute concerning an excess insurer's obligation to pay interest on an underlying personal injury judgment after the primary policy was voided. Like the courts below, we are unpersuaded by the injured plaintiff's argument that the excess policy provided overlapping coverage for certain interest payments covered in the primary policy, and we therefore affirm the Appellate Division order.

Plaintiff Jin Ming Chen was injured at a construction site and sued the general contractor Kam Cheung Construction, Inc. (Kam Cheung). At the time, Kam Cheung maintained both primary and excess liability insurance policies: a primary policy with a liability limit of $1 million per occurrence from Arch Specialty Insurance Company (Arch) and an excess policy with $4 million per occurrence in coverage from defendant Insurance Company of the State of Pennsylvania (ICSOP). In December 2011, Supreme Court granted partial summary judgment to plaintiff in that action, and, in October 2013, the court entered a personal injury judgment awarding plaintiff $2,330,000 plus $396,933.70 in prejudgment interest. During that time, Arch commenced a declaratory judgment action seeking rescission of the primary policy due to material misrepresentations made by Kam Cheung in its application, securing a judgment declaring that the Arch policy was void ab initio. Thus, Arch provided no coverage relating to the personal injury judgment.

Plaintiff subsequently commenced this action against ICSOP, the excess insurer, asserting ICSOP was obligated to pay the entire underlying damages award. ICSOP answered, raising various defenses and contending it had validly disclaimed coverage. Plaintiff moved for summary judgment seeking a declaration that ICSOP's disclaimer of coverage was invalid and an order directing ICSOP to satisfy the underlying judgment. In opposition, ICSOP conceded both that its [*2]disclaimer of coverage was unenforceable due to its failure to serve plaintiff and that it was obligated to provide some coverage,{**36 NY3d at 137} but argued that its policy did not "drop down" to fill the gap created by the voided Arch policy.

After oral argument Supreme Court granted partial summary judgment to plaintiff, concluding that ICSOP was liable for a portion of the award but the excess policy did not "drop down" to cover the $1 million of liability coverage provided by the primary Arch policy. Plaintiff then submitted a proposed judgment, which he calculated by taking the $2,726,993.70 personal injury judgment, adding postjudgment interest, and then subtracting $1 million representing the liability limit of the Arch policy. In response, ICSOP moved for reargument, challenging the manner in which plaintiff had allocated interest payments, contending it was not obligated to cover interest that would have been paid by Arch had its policy not been voided.

After initially declining to address the interest issue, Supreme Court granted leave to reargue, permitting the parties to file briefs and participate in oral argument. ICSOP argued that plaintiff's proposed judgment was "inconsistent" with the court's prior holding that the excess policy did not "drop down" to subsume payments Arch would have paid, including the Arch policy's coverage of the disputed interest. Plaintiff opposed, raising a series of procedural objections to the court's consideration of the issue and asserting, on the merits, that the ICSOP policy covered loss in excess of $1 million—including all interest. After oral argument, Supreme Court rejected plaintiff's arguments and accepted ICSOP's proposed judgment, under which the excess insurer was obligated to pay the $1,330,000 in excess damages, prejudgment interest on those damages from the date summary judgment was granted in the personal injury action, plus interest that accrued from the date partial summary judgment was granted to plaintiff in this insurance dispute until the entry of judgment. ICSOP promptly paid the judgment.

On plaintiff's appeal, the Appellate Division affirmed (165 AD3d 588 [1st Dept 2018]). After concluding that Supreme Court did not err in considering the interest issue,^[FN1] the Court rejected plaintiff's contention that ICSOP was required to cover all interest under the policy's "follow form" provision, observing {**36 NY3d at 138}that the ICSOP policy covered only interest in excess of what would have been paid under the primary Arch policy's "Supplementary Payments" provision, which covered certain pre- and all postjudgment interest. We granted leave to appeal (33 NY3d 907 [2019]).

Insurance contracts are governed by the general rules of contract interpretation (see Burlington Ins. Co. v NYC Tr. Auth., 29 NY3d 313, 321 [2017]). When resolving disputes concerning the scope of coverage, we look to the specific language in the relevant insurance policies (see Keyspan Gas E. Corp. v Munich Reins. Am., Inc., 31 NY3d 51, 60 [2018], citing Roman Catholic Diocese of Brooklyn v National Union Fire Ins. Co. of Pittsburgh, Pa., 21 NY3d 139, 148 [2013]; see also State of New York v Home Indem. Co., 66 NY2d 669, 671 [1985]). As we have [*3]explained, "[i]t is axiomatic that a contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language employed" (Breed v Insurance Co. of N. Am., 46 NY2d 351, 355 [1978] [internal quotation marks and citation omitted]). The language of a policy, when clear and unambiguous, must be given its plain and ordinary meaning (see United States Fid. & Guar. Co. v Annunziata, 67 NY2d 229, 232 [1986]). On appeal in this Court, plaintiff argues that ICSOP was obligated to pay all prejudgment and postjudgment interest on the entire underlying personal injury award based on its "Ultimate Net Loss" provision, which plaintiff interprets as saddling ICSOP with all covered losses over the Arch policy's $1 million liability limit. Further, plaintiff contends that the excess insurer was obligated to pay all prejudgment and postjudgment interest on the underlying personal injury judgment (regardless of whether that interest would have been paid by Arch under the Arch policy) pursuant to the "follow form" language in the excess policy, suggesting that ICSOP could avoid interest obligations only if it included language in the Ultimate Net Loss provision specifically addressing interest. We reject both arguments. Here, based on the unambiguous language of the two policies, the ICSOP policy covered only losses in excess of those that would have been paid by Arch under the Arch policy.{**36 NY3d at 139}

The parties agree that this dispute is governed exclusively by the language of the relevant insurance contracts.^[FN2] It is undisputed that the primary Arch policy had a liability limit of $1 million per occurrence and, in addition, provided Supplementary Payments coverage that included "[p]rejudgment interest . . . on that part of the judgment we pay" and "[a]ll interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid." Importantly, the policy expressly stated these Supplementary Payments (pre- and postjudgment interest) "will not reduce the limits of Insurance"—Arch's $1 million liability limit. Thus, in the context of this case, the Arch policy provided coverage for up to $1 million in damages plus certain interest in the form of "Supplementary Payments," even if those interest payments brought the total award over $1 million.

ICSOP's payment obligations are described in the excess policy's "Coverage" provision, which states that ICSOP will pay "Ultimate Net Loss in excess of the Underlying Insurance as shown in Item 4 of the Declarations." "Ultimate Net Loss" is defined in that policy as "the amount payable in settlement of the liability of the Insured after making deductions for all recoveries and for other valid and collectible insurance, excepting however the Underlying Insurance shown in Item 4 of the Declarations." In turn, Item 4 of the Declarations cites an attached "Schedule of Underlying Insurance," which references the Arch policy generally (policy number, policy period, limits of insurance and type of coverage) without excluding any type of coverage [*4]provided therein (such as Supplementary Payments coverage). Thus, based on the ICSOP policy's Coverage and Ultimate Net Loss provisions, the excess policy covers only losses in excess of those that would have been paid by Arch under the Arch policy. Accordingly, ICSOP is not obligated to pay the interest Arch agreed to pay as Supplementary Payments.

Two other provisions in the ICSOP policy support this result. First, a "Maintenance of Underlying Insurance" provision required that Kam Cheung maintain "[t]he limits of insurance {**36 NY3d at 140}of the Underlying Insurance"—here, the $1 million per occurrence liability limit—indicating that if Kam Cheung failed to comply, ICSOP would "only be liable to the same extent that [ICSOP] would had [Kam Cheung] fully complied." In contrast to the phrase "Underlying Insurance" used in the Coverage and Ultimate Net Loss provisions, the Maintenance of Underlying Insurance provision uses the more specific and limited reference to the Arch policy's $1 million liability limit. This shows that the drafter knew how to isolate the Arch policy's liability limit when it intended to reference only that aspect of coverage, using the broader term—Underlying Insurance—when referencing total coverage, including Supplementary Payments. As we have stated, "[t]he use of different terms in the same agreement . . . implies that they are to be afforded different meanings" (see Platek v Town of Hamburg, 24 NY3d 688, 696 [2015]). It is significant that ICSOP used the broader language in the Coverage and Ultimate Net Loss provisions, which define ICSOP's payment obligations, in a manner that excludes losses to be paid by Arch under the Arch policy—including those addressed in the Arch Supplementary Payments provision.

Moreover, the Maintenance of Underlying Insurance provision clearly states that ICSOP's coverage would be unaffected by Kam Cheung's failure to maintain the required $1 million in primary liability coverage, which is effectively what occurred here. The ICSOP policy's "Bankruptcy or Insolvency" condition further clarifies that, despite the "bankruptcy, insolvency or inability to pay" of either Kam Cheung or Arch, ICSOP would not "drop down" and replace Arch or "assume any obligation within the Underlying Insurance area." Payment of some prejudgment and all postjudgment interest over the $1 million liability limit is an obligation "within the Underlying Insurance area."

Plaintiff effectively asks us to treat interest payments on the underlying award as falling within or reducing the Arch policy's $1 million liability limit, which is contrary to the plain language of the Arch Supplementary Payments provision and the ICSOP policy's Coverage, Ultimate Net Loss, and Maintenance of Underlying Insurance provisions. To do so would be inconsistent with the language chosen by the parties to the insurance contracts, rendering several clauses forceless—a result that should be avoided (see Westview Assoc. v Guaranty Natl. Ins. Co., 95 NY2d 334, 339 [2000]). Arch agreed to expand its coverage of pre- and postjudgment interest beyond its liability limits, and ICSOP agreed to provide coverage only for losses in{**36 NY3d at 141} excess of Arch's coverage—including both the $1 million Arch policy limit and its Supplementary Payments.

Plaintiff's reliance on Ragins v Hospitals Ins. Co., Inc. (22 NY3d 1019 [2013]) is misplaced. In Ragins, the plaintiff sued collective excess insurers for unpaid interest on an underlying medical malpractice judgment after a liquidator paid out the primary insurer's $1 million per occurrence limit. There, the primary policy's Supplementary Payments provision stated that the primary insurer would pay any "postjudgment interest only 'before' it has 'paid . . . that part of the judgment which does not exceed the limit of the company's liability thereon' " (id. at 1021-1022). Thus, unlike the Arch policy, the primary policy there did not expressly cover any interest that [*5]exceeded that policy's $1 million liability limit. Moreover, in Ragins (unlike this case) the excess policy covered "all sums" in excess of the primary policy's "limits of liability," which was $1 million (id. at 1023-1024 [emphasis added and internal quotation marks omitted]). We held that the liquidator's payment of the $1 million fulfilled the insolvent primary insurer's obligations, and the excess insurer was liable to pay the rest, reasoning that the interest constituted a "sum" that was in excess of the primary policy limit and, thus, was covered by the excess policy (id. at 1022-1023). Although plaintiff would have us read into the ICSOP policy's Coverage provision a similar reference to the Arch policy's $1 million limit, the absence of such language in the contract before us is consequential. In fact, the coverage obligations in the primary and excess policies at issue in Ragins are distinguishable from the provisions interpreted here inasmuch as ICSOP agreed only to provide coverage in excess of the Arch policy, including the interest covered under that policy's Supplementary Payments provision. Thus, that interest was appropriately excluded from the judgment entered in this case.

The inclusion in the ICSOP policy of a standard "follow form" provision does not alter this result. Follow form policies allow an insured that deals with multiple "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" (Union Carbide Corp. v Affiliated FM Ins. Co., 16 NY3d 419, 424 [2011]). In other words, if the underlying policy covers certain conduct, the excess policy does as well (see Federal Ins. Co. v International Bus. Machs. Corp., 18 NY3d 642, 646 [2012]). However, a general "follow form" provision does not {**36 NY3d at 142}override the express payment terms set forth in the excess policy that define the limits of excess coverage.^[FN3] By its terms, the ICSOP policy did not drop down in the event Arch failed to satisfy its obligations; it existed to cover losses in excess of those covered by the Arch policy, up to ICSOP's $4 million limits of liability. The fact that the Arch policy was voided does not warrant a different reading of the plain language of the two policies, although it unfortunately resulted in a coverage gap that included both the $1 million liability limit of the Arch policy and certain interest covered in the Arch Supplementary Payments provision. Notably, however, the tortfeasor, Kam Cheung, remains liable for this component of the loss, which is appropriate given that the tortfeasor's own misrepresentations caused the gap in coverage (see Keyspan, 31 NY3d at 63).

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Fahey, J. (dissenting).

I join Judge Wilson's dissent, save for its conclusion with respect to the allocation of responsibility for postjudgment interest. In my view, Insurance Company of the State of Pennsylvania (ICSOP) is responsible for paying all postjudgment interest with respect to the award in the underlying action based on a combined reading of the excess and primary policies. [*6]This conclusion is based on a single analysis that, given the complicated nature of this dispute, is best explained in two parts.

The fundamental and usual principles of law that guide our review of the postjudgment interest question are clear. We first inspect the language of the policy. In doing so we give unambiguous provisions their plain and ordinary meaning (see Lend Lease [US] Constr. LMB Inc. v Zurich Am. Ins. Co., 28 NY3d 675, 682 [2017]) and interpret the contract "according to common speech and consistent with the reasonable expectation of the average insured" (Matter of Viking Pump, Inc., 27 NY3d 244, 257 [2016] [internal quotation marks omitted]). Ambiguous{**36 NY3d at 143} provisions—those that may be reasonably interpreted in two conflicting manners—must be construed in favor of the insured and against the insurer (see Lend Lease [US] Constr. LMB, 28 NY3d at 682; see also White v Continental Cas. Co., 9 NY3d 264, 267 [2007]; Matter of Mostow v State Farm Ins. Cos., 88 NY2d 321, 326 [1996]).

Turning to the excess policy, it contains a "follow the form" clause providing that "the coverage [afforded] by [the excess] policy shall follow the terms, definitions, conditions and exclusions of the [primary policy]."^[FN1] In the primary policy is a supplementary payment provision, through which the primary insurer, Arch Specialty Insurance Company (Arch), agreed to cover "[a]ll interest on the full amount of any judgment that accrues after the entry of the judgment and before [the insurer] paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance" (emphases added).

Applying the usual rules of insurance policy interpretation, we should conclude that the "all interest" and "full amount" language would render the primary insurer responsible for all postjudgment interest accruing before that carrier paid the part of the judgment for which it was responsible. That is, had the primary policy been operable at the time of the underlying loss,^[FN2] the primary insurer would have been responsible for all postjudgment interest that accrued before that carrier paid its share of the judgment. Similarly, through the "follow the form" provision in the policy that it issued, the excess carrier (ICSOP) stepped into the shoes of the primary insurer and likewise assumed responsibility for all postjudgment interest that accrued before ICSOP paid the part of the judgment for which it was responsible.

Said differently, although they assumed different layers of risk, each carrier agreed that, to the extent it was responsible for part of a judgment against the insured, it would become responsible for all postjudgment interest on the entirety of the{**36 NY3d at 144} judgment until it satisfied the part of the judgment for which it was responsible. The postjudgment interest scenario that the insurers created is similar to the rule of joint and several liability in tort cases: each carrier is responsible not only for the share [*7]of postjudgment interest pertinent to the part of the judgment for which it is responsible, but also for the share of postjudgment interest attributable to the part of the judgment the carrier has no obligation to pay.

Absent from that review is treatment of the majority's misstep in its resolution of the postjudgment interest question. That analysis requires a lengthier and more complex discussion of the subject policies that sometimes overlaps with the concise account of the allocation of postjudgment interest responsibilities in the first section of this writing.

The majority concludes that, "based on the unambiguous language of the two policies, [ICSOP, through the excess policy,] covered only losses in excess of those that would have been paid by Arch under the [primary] policy" (majority op at &mdash). Flowing from that conclusion is the majority's belief that, because postjudgment interest is a "loss" within the meaning of the policies, and because Arch "agreed to pay [postjudgment interest] as Supplementary Payments" (majority op at &mdash), ICSOP, as the excess carrier, has no responsibility to "drop down" to assume that obligation in the absence of an operative primary policy (majority op at &mdash).

My analysis of the postjudgment interest question, however, begins not with the supplementary payments provision of the primary policy, but with the excess contract. As relevant here, the excess policy binds ICSOP to

"pay on [the] behalf [of the named insured] the Ultimate Net Loss in excess of the Underlying Insurance as shown in Item 4 of the Declarations, but only up to an amount not exceeding [ICSOP's] Limits of Insurance as shown in Item 3 of the Declarations. Except for the terms, definitions, conditions and exclusions of [the excess] policy, the coverage provided by [that] policy shall follow the terms, definitions, conditions and exclusions of the [primary policy]."

That language, to this point, refers to a $4 million limit of insurance in the excess policy (Item 3 of the Declarations), as well as the underlying primary policy of insurance (providing{**36 NY3d at 145} $1 million in coverage, issued by and later rescinded by Arch, and referred to in Item 4 of the Declarations). That language also refers to the phrase "Ultimate Net Loss," which the excess policy defines as meaning "[t]he amount payable in settlement of the liability of the insured after making deductions for all recoveries and for other valid and collectible insurance, excepting however the Underlying Insurance shown in Item 4 of the Declarations."

Important to our review is the point that the "Ultimate Net Loss" clause provides that the amount payable in settlement of the liability of the insured "except[s] . . . the Underlying Insurance." The "Underlying Insurance," of course, is the primary insurance here in question. Inasmuch as the "Ultimate Net Loss" provision contains an offset for the coverage provided by the primary policy, even if that primary policy is deemed invalid and not collectible, the majority essentially concludes that ICSOP can have no liability for postjudgment interest because the primary policy obliged Arch [*8]to pay such monies (see majority op at &mdash).^[FN3]

Also relevant to this analysis is the maintenance provision of the excess policy, under which "[t]he limits of insurance of the Underlying Insurance shown in Item 4 of the Declarations shall be maintained in full effect during the period of this policy except for any reduction or exhaustion of aggregate limits contained therein solely by the payment for damages for accidents or occurrences, whichever is applicable, that take place during each annual period of this policy and that are insured by this policy."

To that point, the maintenance provision is relatively unremarkable. That clause, however, also provides that:"If you [(the insured)] fail to comply with this [maintenance] requirement, we [(the insurer)] will only be liable to the same extent that we would had you fully complied with this requirement."

The maintenance provision, ISCOP believes (and the majority agrees [see majority op at —]), supports its view that it has no obligation for postjudgment interest. As the theory{**36 NY3d at 146} goes, because the primary policy rendered Arch responsible for postjudgment interest, because the "Ultimate Net Loss" provision of the excess policy allows the excess carrier to offset postjudgment interest allocable to the primary carrier, and because the maintenance provision of the excess policy does not allow an obligation of the primary carrier to be shifted to the excess carrier where the primary policy is rescinded, ISCOP has no obligation with respect to postjudgment interest. That conclusion, however, ignores the point that the primary insurer's responsibility for postjudgment interest is neither singular nor comprehensive, and instead is shared with an excess carrier that adopts the terms and conditions of the primary policy. The supplementary payments provision of the primary policy provides that, with respect to postjudgment interest,

"[w]e [(the insurer)] will pay, with respect to any claim we investigate or settle, or any 'suit' against an insured we defend . . . [a]ll interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance."

To be sure, that clause burdens the primary carrier with responsibility for all postjudgment interest that accrues before that carrier pays its share of a judgment. That is, here, until Arch (assuming its primary coverage here was operable at the time of the underlying incident) paid the $1 million in damages protection owed under the primary policy, it would be responsible for postjudgment interest accruing with respect to the entirety of the approximately $2.3 million judgment. Nothing in that language, however, places that responsibility exclusively with the primary insurer. Indeed, the excess policy contains a "follow the form" clause that incorporates the terms and conditions of the primary policy into the excess agreement, except as noted in that contract. Although the excess policy exempts from coverage risk accepted and protected by the primary policy, responsibility for postjudgment interest does not rest solely with the primary insurer. Under the plain terms of the supplementary payments provision of the primary policy, by which ICSOP's responsibilities are governed, postjudgment interest is treated similarly to joint and several liability; to the extent a carrier is responsible for part of the judgment, it is responsible for all postjudgment interest on the [*9]entirety of the judgment until it has satisfied the portion of the judgment for{**36 NY3d at 147} which it is responsible.^[FN4] That conclusion—which suggests that the allocation of responsibility for postjudgment analysis is the functional equivalent of joint and several liability thereby rendering ICSOP, as the excess carrier, responsible for the entirety of the postjudgment interest assessment here—admittedly presents one potential problem. Absent an effective policy of primary insurance, it is impossible to determine whether and when Arch would have paid its $1 million share of the underlying judgment (and therefore terminated its responsibility for postjudgment interest). To the extent Arch immediately paid that judgment, ICSOP's responsibility for postjudgment interest would be confined to the amount accruing on its approximately $1.3 million share of the judgment.

However, that is not what happened. Ultimately, the point remains that the policy language requires that ICSOP bear responsibility for all postjudgment interest in the scenario presented. At bottom, according to the primary policy, every carrier on the risk with respect to postjudgment interest is to be treated equally. In the absence of language establishing an exclusive primary responsibility for that risk item, and because the excess carrier is unquestionably responsible for postjudgment interest on the $1.3 million share of the judgment in the underlying action until that judgment is paid by the excess carrier, we are left with only one logical conclusion. Namely, we should conclude that ICSOP (as the excess carrier) has a mutual responsibility for postjudgment interest and that, because Arch has not paid on what would have been its $1 million share of the underlying judgment, such interest duty covers the entirety of the $2.3 million of the underlying judgment, without an offset or multi-policy sharing. At worst (from the perspective of the insured), the interplay of the parts of the primary and excess policies considering the postjudgment interest question yields an ambiguity with respect to the extent of protection owed by ICSOP that is to be resolved in favor of coverage (see generally Lend Lease [US] Constr. LMB Inc., 28 NY3d at 681-682).