In a pair of recent asbestos coverage decisions, a Pennsylvania federal court issued rulings addressing expedited funding orders, number of “occurrences,” and the applicability of aggregate limits under the Fourth Circuit’s Wallace & Gale approach.
Zurn Industries, LLC v. Allstate Insurance Company, 2018 U.S. Dist. LEXIS 197481 (W.D. Pa. Nov. 20, 2018)
Policyholder Zurn, a manufacturer and distributor of boilers, was named as a defendant in thousands of underlying asbestos-related bodily injury suits. After its primary insurers claimed exhaustion, Zurn moved on an expedited basis to require two of its excess insurers to each assume fifty percent of its defense and indemnity costs until they reached a permanent cost-sharing agreement. In denying Zurn’s expedited request for interim funding, the court held that the record was insufficient “in the opening stages of litigation, before discovery has occurred” to determine whether the underlying coverage had been properly exhausted but left the door open for Zurn to refile its motion on a more developed record.
Relying on J.H. France and Koppers, Zurn argued that it had properly “selected” the excess insurers’ policies and, therefore, they were obligated to share its defense and indemnity costs subject only to their right “to redistribute the burden among themselves.” Zurn also argued that, under Pennsylvania’s “four corners” rule, it only needed to make a prima facie showing that the underlying asbestos claims fell within the scope of coverage based on proof of exhaustion from a prior insurer. Zurn’s excess insurer countered that the relief sought was premature due to a dispute over the accuracy of the primary insurer’s representations concerning exhaustion that must be resolved following discovery and motion practice.
The district court noted that “extenuating circumstances” complicated the application of the usual “four corners” rule because the case involved (1) thousands of underlying asbestos claims rather than a single claim; and (2) excess insurance coverage, meaning that the policyholder must also establish that the insurer’s policies were triggered by the exhaustion of underlying coverage. The court further observed that exhaustion is “inherently a factual issue, and the record before the Court [was] both limited and underdeveloped.” Ultimately, the court concluded that it was premature to make any determination concerning exhaustion since the insurer who provided representations of exhaustion had yet to answer the complaint or file cross-claims against it. As the court explained:
To the extent that Zurn cites [cases] for the proposition that it has satisfied its prima facie evidentiary burden by supplying loss runs, . . . does not necessarily mean that the Court can or should determine whether that burden has been met in the opening stages of litigation, before discovery has occurred…. Notably, none of the cases cited by [Zurn] involved the type of interim relief being sought here in the opening stage of litigation, and this Court has been unable to find any Pennsylvania case in which such relief has been requested or granted at the outset (emphasis added).
The court therefore denied Zurn’s motion without prejudice. Because the court deemed Zurn’s defense of thousands of asbestos lawsuits a “serious matter that deserve[d] prompt attention,” it directed the parties to confer and submit a proposal for expedited discovery on the issue of exhaustion.
Ohio Valley Insulating Company, Inc. v. Maryland Casualty Company, 2018 U.S. Dist. LEXIS 216393 (W.D. Pa. Dec. 27, 2018)
Policyholder Ohio Valley Insulating Company (OVI), an installer of steam pipes and boiler insulation, brought a coverage action against its insurer in a dispute over numerous asbestos bodily injury claims. The district court held on summary judgment that (1) each site where the insured conducted operations was a separate “occurrence”; and (2) the aggregate limits of the “completed operations” hazard applied.
First, the district court considered whether the claims brought against OVI were one or multiple occurrences. The policies at issue provided that “all bodily injury . . . arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence.” The court was persuaded by Kvaerner v. OneBeacon, 74 Pa. D. & C.4th 32 (Pa. Ct. Com. Pl. Phila. Cty. 2005), which held that each construction site where the insured used asbestos constituted a separate “occurrence” because “the claimants that were exposed to asbestos at the same location and at the same time were exposed to substantially the same general condition.” The court distinguished between products and operations claims and concluded that the activities that “triggered the underlying claims did not arise from a single, negligent practice that could be considered one cause such as distributing a uniformly defective product from a single manufacturer or selling a product containing asbestos from one location.”
In following Kvaerner, the court emphasized that (1) the policies restricted coverage to OVI’s specified operations—i.e., “Steam Pipe or Boiler Insulation”—at various sites; (2) the policies provided coverage for “completed operations” hazards but were silent on “products” hazards coverage; (3) the asbestos suits derived from multiple contract, operations, and job sites; and (4) the insurers’ determination of OVI’s liability in the asbestos suits was based on a “contract book” match, i.e., whether a particular claimant’s work history coincides with the list of OVI’s contemporaneously recorded operations. According to the court, these facts “demonstrate[d] that claimants in the Asbestos Suits who were exposed to asbestos during the same time and at the same site where OVI was conducting one of its operations were subjected to continuous or repeated exposure to substantially the same general condition.”
Second, the court rejected OVI’s contention that the asbestos suits fell solely within the policies’ “operations” coverage. Instead, the court followed the rule announced by the Fourth Circuit Court in In re Wallace & Gale Co., 385 F.3d 820, 830 (4th Cir. 2004) (establishing that “where the injury that triggers coverage occurs subsequent to exposure to an operation, that claim is subject to the aggregate limits of the ‘completed operations’ hazard” which “encompass any bodily injury claim in which the claimant was injured by asbestos exposure attributable to an operation that the insured completed prior to the start of the policy period.”). The court found that the approach in Wallace & Gale “comports with Pennsylvania ‘trigger’ theory of coverage in asbestos cases”—specifically noting that, under J.H. France, a claimant’s exposure to asbestos, as well as all phases of an ensuing disease, independently “trigger” coverage. Thus, the court concluded that multiple policies were triggered and “the aggregate limits associated with the ‘completed operations’ hazard [were] applicable.”