Asbestos Liability "Occurs" Again and Again and Again and . . . .

State Farm is having a bad day in Mississippi, and David Rossmiller is on the case at Insurance Coverage Blog.  First, a federal magistrate ruled that State Farm's parent company may be sued over Katrina damage even though the policies were issued by its separate subsidiary.  Then, a Mississippi trial court judge directed a $223,000 verdict against State Farm on a Katrina claim, to which the jury promptly applied the maximum ten-times multiplier the Constitutional [apparently] permits and awarded an additional $2.5 Million in punitive damages.  Stay tuned to Mr. Rossmiller for further developments.

State Farm, however, is not the only major insurer in the country, and Katrina not the only catastrophe.

Slower moving but every bit as devastating, asbestos injury claims continue their slow trudge to resolution and insurers continue their efforts to contain their exposure to those claims.  One insurer that has been in the thick of this issue is Truck Insurance Exchange, one of the Farmers Insurance companies.  Truck has already paid out more than $50 Million to satisfy injury claims brought by persons exposed to asbestos products produced by Truck's insured, Kaiser Cement and Gypsum Corporation.  Truck thought that it had established that its available limits of coverage have been exhausted, but this week California's Second District Court of Appeal concluded otherwise, reversing an earlier order of the Los Angeles Superior Court that had ruled in favor of Truck.  The Court of Appeal writes:

This petition for writ of mandate presents an issue of first impression in this state: The meaning of 'occurrence' in a commercial general liability (CGL) policy as applied to bodily injuries caused by exposure to asbestos.  We conclude that, as used in the policies at issue, 'occurrence' means injurious exposure to asbestos, not the manufacture and distribution of those products.  Accordingly, we grant the writ and direct the trial court to vacate its summary adjudication order.

(Emphasis added.)

Truck provided liability insurance coverage to Kaiser for almost twenty years, from 1964 to 1983.  Each of the Truck policies issued over that period specified that it would provide coverage up to a stated amount "per occurrence."  The definition of "occurrence" changed over the course of twenty years, but Truck argued successfully in the lower court that Kaiser's manufacture and distribution of asbestos throughout that period should be considered a single "occurrence."  Truck persuaded the court that its $50 Million-plus in payments to date exceeds the total limits of all of its policies issued to Kaiser, so that it has fully performed its obligations and owes nothing further. 

• Kaiser, for its part, agreed with Truck, principally because the policies also required Kaiser to pay a deductible also calculated on a "per occurrence" basis.  As the appellate court notes, "Kaiser’s share of the total asbestos liability increases as the number of occurrences increases. . . . [and] if each claim is treated as a separate occurrence, Kaiser may have no
  coverage for a substantial number of claims."  Kaiser was thus in the unusual position of trying to reduce the number of "occurrences" in order to reduce the amount it must pay in deductible, even though the result would also be to reduce the total amount of insurance provided to Kaiser by Truck.
  

The upshot of Truck's position would not be to leave Kaiser -- or injured claimants -- altogether without access to insurance.  Truck's coverage was only the first layer of several.  Once Truck's limits are exhausted, financial responsibility for the claims passes to the insurers who issued various excess policies of liability insurance to Kaiser.  Not surprisingly, it is those excess insurers -- a group referred to collectively as the London Market Insurers -- who disagreed with the trial court's ruling and petitioned the Court of Appeal to overturn it.

The Court of Appeal's 30-page opinion is worth reading in its entirety for its application of the First Three Rules of Insurance Policy Interpretation:

1. Read the Policy,
2. Read the  Policy, and
3. Read the Policy.

After parsing through the definitions of "occurrence" in each of the Truck policies, the Court of Appeal emphasizes that while Truck may have wanted or subjectively intended that term to carry a meaning under which twenty years of production and distribution of asbestos products constitutes a single "occurrence," the language it actually used will not sustain that interpretation.  That language compels the conclusion that an "occurrence" must refer not to what was done by the insured (Kaiser) but to what happened to the claimants/victims who were injured by the insured's actions.

Having come to its conclusion, the Court of Appeal overturns the trial court's grant of summary adjudication in Truck's favor.  Truck may ultimately be able to show that its limits have been exhausted, even under the Court of Appeal's expansive construction of "occurrence," but it will not be able to do so via the shortcut that the lower court elected to follow.

• Given that this issue is an important one, and that the Court of Appeal's decision here is the first to attempt to decide it under California law, it will not be surprising if Truck petitions the California Supreme Court for further review.

~~~

The Court of Appeal's decision in London Market Insurers v. Superior Court (January 9, 2007), Case No. B189000, can be accessed at these links in PDF and Word formats.

[Note: The links will expire in approximately 120 days; the opinion should still be accessible thereafter by substituting "archive" for "documents" in the URL.]