Continental Casualty Co. v. Rapid-American Corp.
593 N.Y.S.2d 966, 609 N.E.2d 506, 80 N.Y. 2d 640 (1993)
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Rule of Law:
An insurer's duty to defend is triggered if the underlying complaint suggests a reasonable possibility that the injury-in-fact occurred during the policy period. A standard pollution exclusion clause for discharges into the 'atmosphere' is ambiguous and does not preclude coverage for personal injury claims arising from exposure to asbestos fibers in a confined, indoor setting.
Facts:
- Philip Carey Manufacturing Corporation was a manufacturer and distributor of asbestos products.
- Rapid American Corporation (Rapid) became a successor to Philip Carey, inheriting its asbestos-related liabilities.
- Continental Casualty Company and Transportation Insurance Company (collectively CNA) issued comprehensive general liability (CGL) policies to Rapid, covering the period from January 1, 1971, through January 1, 1980.
- The policies covered bodily injury from an 'occurrence,' defined as 'continued or repeated exposure to conditions which unexpectedly and unintentionally results' in injury during the policy period.
- The policies contained a pollution exclusion for injury arising from the 'discharge, dispersal, release or escape' of pollutants into 'the atmosphere or any water course or body of water'.
- Beginning in 1990, numerous individuals sued Rapid, alleging personal injury and wrongful death from prolonged exposure to Philip Carey's asbestos products at various times between the 1950s and 1980s.
- Rapid timely notified CNA of the lawsuits and requested that CNA defend and indemnify it under the policies.
Procedural Posture:
- CNA filed a declaratory judgment action against Rapid in the New York Supreme Court (trial court) to establish it had no duty to defend or indemnify.
- Rapid moved for partial summary judgment to declare CNA's duty to defend, and CNA cross-moved for summary judgment.
- The Supreme Court granted summary judgment to CNA, finding no duty to defend.
- Rapid appealed to the Appellate Division of the Supreme Court (intermediate appellate court).
- The Appellate Division reversed the trial court's order, granted partial summary judgment to Rapid, and declared that CNA had a duty to defend.
- CNA appealed to the New York Court of Appeals (the state's highest court).
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Issue:
Under a comprehensive general liability policy, does an insurer have a duty to defend its insured against asbestos-related personal injury lawsuits when the policy's 'pollution exclusion' clause does not clearly apply to asbestos exposure in confined spaces and the injuries may have occurred 'in fact' during the policy period?
Opinions:
Majority - Kaye, J.
Yes. An insurer has a duty to defend its insured against asbestos-related personal injury claims where the policy's terms create a reasonable possibility of coverage. The court reasoned that an insurer's duty to defend is exceedingly broad and is triggered if the allegations in the complaint suggest a possibility of coverage, a standard met here. First, the court concluded that the underlying complaints alleged a covered 'occurrence' under the policies by applying an 'injury-in-fact' trigger, which posits that injury occurs when it actually begins. Because the claimants' long-term exposure could have resulted in an injury-in-fact during CNA's 1971-1980 policy period, a potential for coverage exists. Second, the court held that the pollution exclusion clause was ambiguous as applied to these claims. The term 'atmosphere' is not clearly defined and can be reasonably interpreted to refer to the ambient air or broader environment, rather than the confined, indoor air of a workplace where exposure occurred. Given this ambiguity and the exclusion's purpose to address widespread environmental pollution, it must be construed against the insurer and in favor of coverage. Therefore, CNA cannot rely on the exclusion to escape its duty to defend.
Analysis:
This decision solidifies the 'injury-in-fact' trigger for coverage in long-tail toxic tort cases under New York law, providing policyholders with a strong basis to claim coverage from policies in effect when the latent injury may have begun. Furthermore, the ruling significantly curtails the reach of the standard pollution exclusion by deeming it ambiguous in the context of indoor, product-related exposures. This interpretation differentiates such claims from traditional environmental pollution, thereby preserving coverage for a wide range of product liability and workplace injury lawsuits that insurers might otherwise have denied. The case reinforces the principle that an insurer's broad duty to defend cannot be easily disclaimed, and any ambiguity in an exclusion will be resolved in favor of the insured.
