Insurance Co. of North America v. Forty-Eight Insulations, Inc.
657 F.2d 814 (1981)
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Rule of Law:
For insurance coverage purposes in latent, long-tail disease cases, 'bodily injury' occurs upon exposure to the harmful substance, not when the disease manifests. Consequently, all insurers on the risk during the exposure period, as well as the insured for any uninsured periods, must share liability and defense costs proportionally.
Facts:
- A company, Forty-Eight, manufactured products containing asbestos.
- Over a period of many years, numerous workers were exposed to and inhaled asbestos fibers from these products.
- This cumulative exposure caused some workers to develop latent, progressive diseases such as asbestosis, mesothelioma, and lung cancer, which became apparent long after the initial exposure.
- The development of these diseases was dose-related, meaning the greater the exposure, the greater the likelihood of contracting the illness.
- Over the long period of the workers' exposure, Forty-Eight was insured by various insurance carriers at different times and also had periods with no insurance coverage.
- Workers who contracted these diseases filed lawsuits against Forty-Eight, alleging their illnesses were caused by its products.
Procedural Posture:
- Numerous plaintiffs filed personal injury lawsuits against Forty-Eight, an asbestos manufacturer, in federal district court.
- Forty-Eight and its insurance carriers brought a declaratory judgment action in federal district court to determine the insurers' obligations to defend and indemnify Forty-Eight.
- Following a ruling by the district court, the losing parties appealed to the United States Court of Appeals.
- A panel of the Court of Appeals issued an opinion (633 F.2d 1212) adopting the 'exposure theory' of insurance coverage.
- The parties subsequently filed cross-petitions for rehearing and rehearing en banc with the Court of Appeals.
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Issue:
For the purpose of triggering a general liability insurance policy in a case involving latent diseases caused by asbestos, does 'bodily injury' occur at the time of exposure to the asbestos fibers or at the time the disease becomes diagnosable or manifest?
Opinions:
Majority - Per Curiam
The court holds that 'bodily injury' occurs at the time of exposure. The court reaffirmed its adoption of the 'exposure theory,' holding that the plain meaning of the policy language and the rule of construing policies in favor of the insured support this conclusion. The court reasoned that for a worker who contracts an asbestos-related disease, the physiological injury process begins upon the first inhalation of asbestos fibers, even if the disease is not yet diagnosable. For policy reasons, the court also held that mesothelioma and lung cancer should be treated the same as asbestosis to avoid needlessly complicating litigation. Finally, it affirmed its prior holding that defense costs should be allocated in the same pro-rata manner as indemnity costs, meaning the insured (Forty-Eight) must bear its fair share of defense costs for any periods in which it was uninsured.
Dissenting - Merritt, J.
Judge Merritt dissented from the majority's adoption of the exposure theory. He adhered to the position outlined in his original dissenting opinion, which favored the manifestation theory - that bodily injury occurs when the disease becomes diagnosable or manifest, not at the time of initial exposure.
Analysis:
This decision solidifies the 'exposure theory' of coverage for long-tail torts like asbestos claims within the circuit, creating a significant precedent. This approach spreads liability across multiple insurance policies and policy periods, impacting insurers who wrote policies decades ago. By requiring the insured to pay a pro-rata share for uninsured periods (proration), the court prevents policyholders from 'stacking' limits from a single policy to cover the entire loss. This ruling contrasts with the 'manifestation theory' adopted in other jurisdictions, contributing to a circuit split on a critical issue in insurance law with vast financial implications.
