Stonewall Insurance v. Asbestos Claims Management Corp.
73 F.3d 1178 (1995)
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Rule of Law:
Under an "injury-in-fact" approach to triggering insurance coverage for progressive diseases, all policies in effect from initial exposure through the date of claim are triggered if evidence shows injury was continuous. Liability is prorated among triggered policies, with the insured bearing a pro-rata share for periods it was voluntarily uninsured, but not for periods when coverage for the risk was unavailable in the market.
Facts:
- From 1930 until 1981, National Gypsum Company (NGC) manufactured and sold various construction products that contained asbestos.
- Beginning in 1972, approximately 100,000 claimants sued NGC seeking damages for bodily injuries, such as asbestosis and mesothelioma, allegedly resulting from exposure to NGC's asbestos-containing products.
- Starting in 1980, owners of several thousand buildings also sued NGC, alleging property damage from the incorporation and continued presence of asbestos-containing materials (ACMs), seeking costs for abatement and removal.
- Through 1985, NGC maintained a liability insurance program with numerous primary and excess insurers, with policies covering bodily injury or property damage caused by an 'occurrence' during the policy period.
- In 1985, NGC's insurers began adding asbestos-specific exclusions to its policies, making insurance coverage for asbestos-related claims effectively unavailable thereafter.
- To manage the high volume of bodily injury lawsuits, NGC joined the Asbestos Claims Facility (ACF) in 1985 and later the Center for Claims Resolution (CCR), which settled claims and allocated costs among member producers based on a formula.
- Several of the insurers involved in this litigation were not signatories to the Wellington Agreement that created the ACF or the subsequent CCR agreements.
Procedural Posture:
- Stonewall Insurance Company filed a declaratory judgment action against National Gypsum Company (NGC) and other insurers in the U.S. District Court for the Southern District of New York regarding property damage claims.
- NGC asserted counterclaims and cross-claims seeking a declaration of coverage for both asbestos-related property damage and bodily injury claims.
- The District Court issued several pretrial summary judgment rulings on key issues like proration of liability and the definition of 'property damage.'
- The case against insurer Commercial Union (CU) was tried before a jury, which found in favor of NGC on all major issues, including a continuous trigger for all asbestos diseases.
- The claims against the remaining insurers were decided in a bench trial, where the judge found a continuous trigger for non-cancer diseases but an exposure-only trigger for cancer.
- The District Court entered partial declaratory judgments reflecting its rulings and certified them for an immediate interlocutory appeal to the U.S. Court of Appeals for the Second Circuit.
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Issue:
Does an 'occurrence-based' liability insurance policy, under an 'injury-in-fact' approach, provide coverage for all periods from initial exposure to asbestos through the date of claim or death, if evidence demonstrates that a progressive disease process caused continuous injury throughout that time?
Opinions:
Majority - Chief Judge Newman
Yes. An occurrence-based policy is triggered throughout a progressive disease process where the insured proves by a preponderance of the evidence that an injury-in-fact was occurring at each point in that process. The court adopted an injury-in-fact trigger of coverage, rejecting both the insurers' proposed 'exposure-only' and 'manifestation-only' theories. It held that under both New York and Texas law, evidence of a continuous disease process with recurring, successive injuries could trigger all policies in effect from exposure to the date of claim or death. The court affirmed the jury's finding of a continuous trigger for both cancer and non-cancer diseases against insurer CU and the district court's similar finding for non-cancer diseases in the bench trial. On the issue of allocating liability, the court affirmed the district court's 'proration-to-the-insured' approach, requiring NGC to bear a pro-rata share of liability for periods in which it chose to be uninsured or its coverage was exhausted. However, the court modified this ruling by holding that proration-to-the-insured does not apply to the period after 1985 when asbestos liability insurance became unavailable, as it would be unrealistic and unfair to penalize NGC for being 'uninsured' when no coverage could be purchased. The court also held that NGC's participation in the ACF and CCR claims-handling facilities was reasonable, and thus payments made through these facilities were covered. For property damage claims, the court ruled that installation of asbestos constituted the 'property damage' and the 'occurrence,' but that each separate installation in a building was a distinct occurrence for the purposes of policy deductibles, reversing the district court's finding of a single occurrence.
Analysis:
This decision significantly shaped insurance law for mass torts involving long-latency diseases by endorsing a fact-based continuous trigger under the 'injury-in-fact' framework, allowing insureds to access multiple policy periods. The court's nuanced proration ruling established a key equitable principle: an insured is responsible for its decision to 'go bare' but not for its inability to find coverage in the market. This 'unavailability' exception became a major point of contention in subsequent coverage disputes nationwide. Finally, by defining each property installation as a separate 'occurrence' for deductible purposes, the decision created a substantial financial burden for policyholders in property damage contexts, demonstrating that pro-insured rulings on one issue (trigger) can be balanced by pro-insurer rulings on another (deductibles).
