By Sara Cracau, J.D.
In a coverage dispute between primary and excess insurers regarding asbestos-exposure suits against their mutual insured, a gasket manufacturer, the U.S. Court of Appeals for the Fifth Circuit determined that asbestos was both a pollutant and an irritant. Thus, the underlying suits fell within the excess policies’ pollution exclusion, and the burden shifted to the primary insurer to show whether the "sudden and accidental" exception to the exclusion applied to negate any effect the exclusion might have on coverage. Accordingly, the district court’s judgment in favor of the primary insurer was vacated and the case was remanded for a determination of the exception’s applicability (Longhorn Gasket and Supply Co. v. United States Fire Insurance Co., August 18, 2017, per curiam).
Longhorn Gasket and Supply Company (LGS), which manufactured and sold gaskets throughout the 1980s and 1990s, some of which contained asbestos, was sued for damages that occurred over many years in numerous asbestos and mixed dust cases in Texas. During a portion of the 1980s, Trinity Lloyd’s Insurance Company and Trinity Universal Insurance Company (collectively, Trinity) provided primary comprehensive general liability insurance coverage to LGS, and United States Fire Insurance Company (U.S. Fire) provided excess coverage.
The policies. Trinity’s primary policies (each of which had an annual limit of $500,000 per occurrence and in the aggregate) and U.S. Fire’s excess policies (which had policy limits of $5 million) overlapped from May 21, 1983, through February 1, 1986. The U.S. Fire excess policies excluded coverage for pollution. More specifically, they barred claims for "(1) a bodily injury or property damage liability claim; (2) arising out of the discharge, dispersal, release, or escape into or upon the land, the atmosphere or any water course or body of water; (3) of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants." However, the exclusion did not apply "if such discharge, dispersal, release or escape [was] sudden and accidental" (the "sudden and accidental" exception).
The coverage dispute. In 2007, LGS sued U.S. Fire, alleging breach of contract and insurance code violations based on the insurance company’s refusal to acknowledge the applicability of coverage, to provide settlement authority, to negotiate, and to prevent LGS’s exposure in the outstanding asbestos lawsuits. LGS also sought a declaratory judgment that U.S. Fire’s excess policies were triggered, enforceable, and applicable to the claims asserted against LGS in the asbestos cases. In November 2008, Trinity filed a motion to intervene, contending that its policies from 1983 to 1988 were exhausted and that, as a result, U.S. Fire was obligated to indemnify and defend the claims against LGS for the period that U.S. Fire provided excess coverage. Trinity alleged that it paid $2,432,566.44 in indemnity payments to asbestos claimants on LGS’s behalf and that it expended another $3,171,028.61 defending LGS against asbestos claims. It sought reimbursement for all the defense and indemnity payments it made on behalf of LGS on the grounds that once the 1980—1983 policies were exhausted, U.S. Fire was obligated to defend and indemnify LGS from the claims that Trinity defended and settled.
All the parties moved for summary judgment and the motions were granted in part and denied in part. A series of subsequent motions and interlocutory appeals followed. A special master appointed by the district court issued a report and recommendation which reiterated that the cause of the underlying claims was exposure to LGS’s gaskets with asbestos, that LGS did not have to horizontally exhaust its primary coverage, that U.S. Fire’s excess policies were triggered upon exhaustion of any of the underlying primary insurance policies, that the exposure to asbestos was an injury-in-fact triggering coverage under Texas law, and that all claimants exposed "at the same time and location" constituted one occurrence. On the basis of the report and recommendation, the district court concluded that Trinity was entitled to $903,638.52 in settlement payments and $1,564.47 in defense costs from U.S. Fire. U.S. Fire appealed the final judgment, which adopted the report and recommendations.
Pollution exclusion. The Fifth Circuit noted that neither it nor the Texas Supreme Court had ever determined whether asbestos was a pollutant. Therefore, it turned to the plain, broad language of the policies and agreed with U.S. Fire that asbestos irritates the lungs and contaminates the atmosphere and body, thereby making it an "irritant," "contaminant," or "pollutant."The appellate panel also noted that relevant case law appeared to slightly favor considering asbestos as a pollutant. Accordingly, the court concluded that the underlying claims fell within the pollution exclusion because they: (1) were for bodily injury; (2) arose out of the discharge, dispersal, release or escape, into the atmosphere; and (3) originated with an irritant and pollutant—namely, asbestos.
Because the exclusion applied, the burden shifted to Trinity to show the applicability of the "sudden and accidental" exception. Accordingly, the Fifth Circuit vacated the district court’s judgment and remanded the case for a determination of the exception’s applicability.
The case is No. 15-41625.
Attorneys: Bruce Alan Smith (Ward, Smith & Hill, PLLC) for Longhorn Gasket and Supply Co. and LGS Technologies, Inc. f/k/a Loma Alta Corp. Brian Scott Martin (Thompson Coe Cousins & Irons, LLP) for U.S. Fire Insurance Co.
Companies: Longhorn Gasket and Supply Co.; LGS Technologies, Inc. f/k/a Loma Alta Corp.; U.S. Fire Insurance Co.
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