Asbestos Litigation Creates Vague Notions About the Law

When some primary insurers exhaust their policy limits, excess insurers must take over the defense and indemnity of the insured as their interests appear. When there are multiple primary and excess insurers the allocation of the costs of defense and indemnity become complicated and result in litigation when the multiple parties should work together to resolve the disputes. Who pays what and when requires an interpretation of the contract terms of each policy.

In MW Custom Papers LLC v. Allstate Insurance Co., 25430, 2014-Ohio-1112 (indeterminate 03/21/2014), MW Custom Papers, LLC appealed from a trial court judgment which granted the motions to dismiss for lack of justiciability filed by Associated International Insurance Company (“Associated”), Federal Insurance Company (“Federal”), Fireman’s Fund Insurance Company (“Fireman’s Fund”), Travelers Casualty and Surety Company (“Travelers”), OneBeacon American Insurance Company (“OneBeacon”), and Granite State Insurance Company, Lexington Insurance Company, and National Union Fire Insurance Company of Pittsburgh, PA (“the Chartis Defendants”)

Factual History

From 1958 to 1985, The Mead Corporation purchased written primary, excess and/or umbrella general liability policies that provided insurance coverage for asbestos-related liabilities. Mead has been named as a defendant or third-party defendant in numerous lawsuits or claims for bodily injury, personal injury, or death resulting from exposure to certain asbestoscontaining products. Mead believes that additional claims will be asserted against it in the future.

According to Mead, each insurer has an indivisible duty to provide Mead with a full defense and/or indemnification of defense costs, and full indemnification of settlements or judgments “in which any part of the continuous and/or progressive injury process is alleged to have existed during any part of a policy period of the Policy or Policies issued by the [Insurers], subject only to the applicable limit of liability, if any, contained in that Insurer’s Policy or Policies.” Mead alleged that it is “entitled to select which of the triggered Policies should respond to each Asbestos Bodily Injury Claim.”

Following exhaustion of primary policies Mead requested coverage for the Asbestos Bodily Injury Claims from certain of the Defendants [Insurers] under the terms of their respective umbrella and/or excess policies, and timely placed those Defendants on notice that they would be required under their respective Policies to pay for the investigation, defense and settlements or judgments in connection with the Asbestos Bodily Injury Claims. It is a custom, practice and obligation of insurers to notify their policyholders of the alleged exhaustion of any allegedly-applicable limits of liability. This custom, practice and obligation stems from the fundamental duty of good faith and fair dealing.

OneBeacon and the Chartis Defendants moved to dismiss Mead’s complaint against them, alleging that no justiciable issues exist because the policies could not be triggered based upon current underlying damages. The insurers stated that they were “high level excess insurers who issued insurance policies which cannot be triggered until at least $270 million of underlying liability is exhausted through payment of claims. There is no damage threat that is remotely near that level of liability.” Other insurers joined in the motion stating their lower limits had not yet been reached since their trigger points had not been reached by exhaustion of underlying limits by the payments of claims. The trial court granted the motions to dismiss because Mead had never presented an asbestos liability claim to the high-level excess insurers with proof of how much was owed. By settling with its primary and umbrella insurers, GenCorp had made the choice to allocate its liability as broadly as possible, which meant that it has to demonstrate that its liabilities would exceed the cumulative limits of all the primary and umbrella policies before it could trigger the excess policies.

Justiciability of Mead’s Claims

A declaratory judgment may be either affirmative or negative in form and effect, and the declaration has the effect of a final judgment or decree. With the exception of actions brought by non-insureds against insurers (which does not apply here), a contract may be construed by a declaratory judgment or decree either before or after there has been a breach of the contract. Nevertheless, it is the duty of every judicial tribunal to decide actual controversies between parties legitimately affected by specific facts and to render judgments which can be carried into effect. It has become settled judicial responsibility for courts to refrain from giving opinions on abstract propositions and to avoid the imposition by judgment of premature declarations or advice upon potential controversies. To be justiciable, a controversy must be grounded on a present dispute, not on a possible future dispute. The Declaratory Judgment Act expressly states that courts of record may refuse to render or enter a declaratory judgment or decree if the judgment or decree would not terminate the uncertainty or controversy giving rise to the action or proceeding in which the declaratory relief is sought.

Here, the only evidence outside the complaint that was offered by the Dismissed Insurers was the declaration pages of their respective policies, which purportedly established the amount of underlying coverage that needed to be exhausted before their policies applied. Regardless of whether the trial court properly considered these documents, we do not find that it resolves whether Mead presented a justiciable controversy against the Dismissed Insurers.

In support of its assertion that the complaint adequately alleges justiciable claims against the Dismissed Insurers, Mead focuses on its allegations that (1) the asbestos bodily injury claims are claims covered under the policies; (2) each insurer has an indivisible duty to provide Mead with a full defense and/or indemnification, subject to the policies’ applicable limits of liability; (3) Mead is entitled to select which of the triggered policies should respond to each asbestos claim; (4) the action presents justiciable controversies; and (5) each insurer disputes or has asserted a conflicting position regarding one or more of the declarations requests by Mead and/or is an indispensable party.

On its face, these allegations in Mead’s complaint set forth justiciable claims against all of the insurers. Simply stated, the complaint alleges facts indicating that actual disputes exist between Mead and its insurers regarding the parties’ duties and obligations under the various Policies and/or that the insurers have been joined as indispensable parties. Construing Mead’s complaint in the light most favorable to it, Mead did not allege that it allocated its asbestos liability horizontally across the primary polices. Rather, Mead alleged that the two companies with primary policies paid certain defense and indemnification costs and that those policies are now exhausted. The complaint did not specify how Mead presented claims and exhausted its primary policies before turning to its excess/umbrella Polices. Mead did not allege that it settled with any primary, umbrella, or excess insurers, nor has it alleged that the cost-sharing agreements between certain insurers and Mead constituted an election to allocate its liability horizontally among the various tiers of insurers. The cost-sharing agreements were not placed before the court, and it is in no position to speculate as to the nature of the agreements’ terms.

The Dismissed Insurers have not filed answers agreeing or disagreeing with any or all of Mead’s interpretation of the policies at issue. Rather, at this juncture, the court merely had Mead’s allegation that the defendant- insurers dispute or have asserted conflicting positions regarding the issues for which Mead has requested a declaratory judgment.

This litigation involves multi-year, multi- layered insurance policies issued by numerous insurers to Mead. The insurance dispute stems from numerous asbestos bodily injury lawsuits against Mead, for which Mead has incurred damages and will be required to expend substantial amounts of money in the future in defending current and future claims.

Although no claims have been filed by Mead against the Dismissed Insurers, Mead has a real and substantial present interest in determining how the various policies are triggered, how costs are allocated among the triggered policies, how many occurrences are involved under the terms of the policies, and how and when lower-layer policies exhaust and higher-layer policies attach, among other issues.

Insurance policies, let alone the litigation and judicial opinions sometimes arising from them, can generate foggy notions but under the procedural and factual circumstances of this case, the court of appeal concluded that the trial court erred in dismissing the high-level excess insurers for want of justiciability.

Zalma Opinion

 

The insurers in this case obtained a Pyrrhic victory – they convinced the trial court but not the court of appeal. Mead’s victory is just as Pyrrhic – they can now litigate with the insurers to determine who’s on first and which of its excess and umbrella insurers must step up to defend and indemnify possible future asbestos suits.

The wording of each policy will govern the court, faced with Mead’s request for declaratory relief, will analyze each and determine a schedule of who pays what and when.

Of course Mead is dealing with professional insurers who should avoid the litigation and work up an agreement between themselves. [IA]