By Susan Engstrom
In a coverage dispute involving asbestos claims against two pump manufacturers, Delaware’s Superior Court erred in holding that only the excess policies in place during a claimant’s first significant exposure to asbestos were triggered, the state’s highest court ruled. Because asbestos-related diseases result from gradual and continuous injurious processes, bodily injury occurs not only upon significant exposure to asbestos but continues thereafter. The state supreme court also held that the manufacturers’ predecessor had validly assigned its rights under the excess policies, and that the insureds’ 1980-1985 primary policies were exhausted. Finally, the court affirmed in part and reversed in part the Superior Court’s findings with respect to the excess insurers’ defense obligations (In re Viking Pump, Inc., September 12, 2016, Valihura, K.).
Viking Pump, Inc. and Warren Pumps, LLC acquired pump manufacturing businesses from Houdaille Industries in the late 1980s. Those acquisitions later subjected Viking and Warren to significant potential liability in connection with asbestos-exposure claims dating back to when the businesses were owned by Houdaille.
Liberty Mutual Insurance Co. had provided Houdaille with occurrence-based primary and umbrella insurance coverage from 1972 through 1985. Above the Liberty umbrella layer, Houdaille had purchased 35 excess policies through 20 different carriers. Viking and Warren sought to fund the liabilities arising from the asbestos claims using the insurance program originally purchased by Houdaille. The excess insurers denied coverage, however, prompting the manufacturers to file suit.
Prior rulings. Applying New York law, which governed the policies, Delaware’s Chancery Court determined that an "all sums" method of allocation was applicable in the case. That approach permits an insured to collect its total liability under any policy in effect during the periods that damage occurred, up to the policy limits. The insurer then has the burden of seeking contribution from other insurers.
Following the Chancery Court proceedings, the case was transferred to the Superior Court, which held that horizontal exhaustion of all policies in each excess layer was not required before triggering the liability of the higher-level excess policies (see Insurance Law Daily’s April 9, 2014 analysis). Delaware’s highest court subsequently certified two questions to the New York Court of Appeals, which held that: (1) losses sustained by the manufacturers should be allocated pursuant to an "all sums" method under the excess policies; and (2) the excess policies were triggered by vertical exhaustion of the underlying available coverage within the same policy period (see Insurance Law Daily’s May 3, 2016 analysis). The litigation then resumed in Delaware.
Validity of assignments. Delaware’s high court first determined that Houdaille validly assigned its rights under the excess policies to Viking and Warren via an "assignment and assumption agreement" and an amended "asset sale agreement," respectively. The insurers argued that because Houdaille had never sought their consent for the transfer, the assignments were invalid under the policies’ anti-assignment clauses. However, at the time of assignments, the losses triggering the excess insurers’ potential liability already had occurred within the policy periods. Under New York law, therefore, the anti-assignment provisions were ineffective.
Exhaustion of primary policies. The excess insurers also contended that Liberty’s 1980-1985 primary policies—which included a $100,000 per-occurrence deductible—were not exhausted. Although the insurers did not dispute that Liberty had paid the policies’ full aggregate limits, they asserted that it had failed to collect the appropriate deductible. In the court’s view, however, the insurers’ argument was based on an erroneous view that the deductibles did not erode Liberty’s aggregate limits.
Under the language of the 1980-1985 primary policies, exhaustion did not depend on who paid the deductible. In this case, Liberty had settled a dispute over the deductibles with Warren and Viking, retroactively billing them for the deductibles under the primary policies and collecting them as part of Liberty’s adjusted premiums. Nothing in the policies prevented Liberty from collecting the deductibles after the fact. Thus, the policies were exhausted.
Defense costs. With respect to defense costs, the Delaware Supreme Court agreed with the Superior Court that Liberty had defense obligations under its umbrella policies in addition to the policy limits, and that several groups of excess policies provided coverage for defense costs within their policy limits. However, the high court reversed the Superior Court in part with respect to another group of excess insurers, finding that they had a duty to pay defense costs contingent on consent, and that those costs were to be paid in addition to the policy limits.
Trigger of coverage. Finally, the high court held that the Superior Court erred in holding that only those excess policies in place during a claimant’s significant exposure to asbestos were triggered. The parties agreed that under New York law, a policy is triggered if the claimant suffered some "injury in fact" during the policy period. Experts on both sides testified that a person who ultimately develops asbestosis has undergone a continuous process from a person’s first significant exposure to asbestos that continued until diagnosis. At trial, the experts differed only as to when bodily injury first occurs. The jury resolved that dispute in Warren’s favor, finding that bodily injury first occurs "upon cellular and molecular damage caused by asbestos inhalation." The excess insurers did not appeal that factual finding.
The supreme court agreed with Warren that the Superior Court’s application of an "exposure" trigger was inconsistent with New York law. The high court also rejected the excess insurers’ contention that Warren essentially was seeking a "continuous trigger" as opposed to New York’s operative injury-in-fact trigger. The insureds did not rely on a presumption that asbestos-related injuries take place from exposure through manifestation. Rather, they presented to the jury expert medical testimony that the cellular and molecular damage that leads to asbestos-related disease is a continuous process that is triggered after there is an injury-in-fact, i.e., the claimant’s first significant exposure to asbestos.
The parties acknowledged that every asbestos claim involves a claimant who ultimately develops an asbestos-related disease, and that asbestos-related diseases result from gradual and continuous injurious processes. Accordingly, the Superior Court’s judgment should be revised to hold that bodily injury occurs upon significant exposure to asbestos and continues thereafter, the high court concluded.
The case is No. 518, 2014.
Attorneys: David J. Baldwin (Potter Anderson & Corroon LLP) for Warren Pumps LLC. Lisa A. Schmidt (Richards, Layton & Finger, P.A.) for Viking Pump, Inc. Kenneth J. Nachbar (Morris, Nichols, Arsht & Tunnell LLP) and Garrett B. Moritz (Ross Aronstam & Moritz LLP) for TIG Insurance Co., f/k/a International Insurance Co. and Ace Property & Casualty Insurance Co. f/k/a Cigna Property & Casualty Insurance Co.
Companies: Warren Pumps LLC; Viking Pump, Inc.; TIG Insurance Co., f/k/a International Insurance Co.; Ace Property & Casualty Insurance Co. f/k/a Cigna Property & Casualty Insurance Co.
MainStory: TopStory DamagesNews DefensesLiabilityNews AsbestosNews DelawareNews NewYorkNews
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