Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-95-07107/USCOURTS-caDC-95-07107-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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1The predecessor railroads, the Chesapeake and Ohio Railway Company, the Baltimore and

Ohio Railroad Company, Seaboard Coast Line Railroad Company, Louisville and Nashville

Railroad Company, and Atlantic Coast Line Railroad Company, operated throughout much of the

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 5, 1996 Decided April 26, 1996

No. 95-7106

CSX TRANSPORTATION, INC.,

APPELLANT

v.

COMMERCIAL UNION INSURANCE COMPANY,

APPELLEE

Consolidated with

95-7107

-

Appeals from the United States District Court

for the District of Columbia

(85cv3162 & 85cv3163)

Leon B. Kellner argued the cause for appellant, with whom Lee M. Straus and Robert W. Pommer,

III were on the briefs.

Richard A. Ifft argued the cause and filed the brief for appellee.

Before: EDWARDS, Chief Judge, SILBERMAN, and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge: CSX Transportation, Inc. appeals the district court's grant of

summary judgment in favor ofCommercialUnion Insurance Company on coverage issues arising out

of excess insurance policies issued to CSX. We affirm in part, reverse in part, and remand.

I.

CSX is the successor in interest to a number of railroads that purchased excess insurance

policies from insurance carriers to which Commercial Union is, in turn, the successor.1 The 15

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eastern half of the United States during the relevant period. 

2Each policy at issue contains one of three different notice provisions:

1. The assured upon knowledge of any occurrence likely to give rise to a claim hereunder shall

give immediate advice thereof to the Underwriters....

2. In the event of an occurrence likely to exceed [the underlying limit], no law costs shall be

incurred without consent of the Underwriters herein. After such occurrence, the Assured

may proceed immediately with settlements and at the earliest practicable moment advise

the representatives of the Underwriters of the occurrence, the adjustments so far made,

and agree with the said representatives upon further settlements or legal proceedings.

3. The Insured shall advise the Company immediately or as soon thereafter as the Insured has

knowledge of any occurrence or event in which the indemnity is or probably will be

concerned, and shall forward full information ... to [the agent] ... who [is] to be promptly

advised of all occurrences or events considered likely to come within the scope of this

excess insurance.

Occurrence is defined in some policies as "one or more accidents or series of accidents

arising out of or resulting from one event" and in others as "an accident, or a continuous or

repeated exposure to conditions which result in personal injury or property damage which is

neither expected nor intended from the standpoint of the Insured." 

policies that remain in contention here, encompassing years between 1964 and 1973, provided

coverage for liabilities in excess of an underlying limit that varied from policy to policy. A condition

precedent to coverage under the policies is notice to the insurer of an "occurrence" likely to trigger

the coverage.2

CSX seeks coverage for liabilities arising out of asbestos-related injuries allegedly suffered

by current and former employees ofCSX. While information concerning the hazards associated with

asbestos was available to the railroad industry to some degree throughout the last 50 years, no suit

claiming injury from exposure to asbestos was brought against a CSX predecessor until 1979. From

1979 through 1984, however, the railroads were sued for asbestos-related injuries in a number of

actions with claimed damages totaling many millions of dollars. By the end of 1984, all the

predecessor railroads had notified CommercialUnion ofthe lawsuits. Commercial Union responded

that, in its view, the suits would be "adequately taken care of by the underlying insurance coverage"

such that the Commercial Union excess insurance policies would not be involved. CSX sought a

declaratory judgment that the insurer was obliged to provide coverage under the policies for CSX's

asbestos-related liability.

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Commercial Union moved for summary judgment on grounds that, despite its sanguine

responses to CSX's notice of the lawsuits, timely notice of occurrence was due soon after the filing

of the first asbestos claim in 1979. CSX's notice, given five years later, was untimely as a matter of

law. The district court agreed. Chesapeake & Ohio Ry. Co. v. Certain Underwriters at Lloyd's,

London, 834 F. Supp. 456, 459 (D.D.C. 1993). But the court perceived a conflict between the laws

of the potentially applicable jurisdictions as to whether a showing of prejudice to the insurer was

required before untimely notice would relieve the insurer of its obligations under the policies.

Commercial Union contended that the court should apply one state's law to the various

policiesVirginia's. Virginia, which does not require an insurer to demonstrate prejudice before

coverage is precluded, was the only state in which all of CSX's predecessors had operated.

Apparently finding that CSX's failure to contest the choice of law issue waived it, the court acceded

again to Commercial Union's argument and entered summary judgment. The district court also

determined that the "per-occurrence" limitations in three-year policies issued by Commercial Union

applied only once for a given occurrence over the entire three-year term of the policies, not once per

year. CSX appeals these aspects of the district court's decision.

II.

Appellant, challenging the district court's determination that the predecessor railroads failed

to give timely notice of occurrence, claims that the district court improperly focused its inquiry only

on the ad damnums in complaints filed against CSX's predecessor railroads to decide when notice

was due; in so doing, the court ignored both the language of the Commercial Union policies, and

evidence that the ad damnums were unreliable indicators of whether coverage would be required.

The policies only required notice to Commercial Union if an occurrence was "likely" to or would

"probably" give rise to a claim under the policies. Because the policies provided excess insurance

coverage, appellant argues that a lawsuit filed would only "likely" or "probably" give rise to a claim

ifthe amount to be recovered against CSX waslikely to exceed the underlying limit of a given policy.

While the ad damnumsin complaintsfiled against CSX were larger than the underlying limitsin many

cases, CSX's actual claims experiencein which claims were resolved for pennies on the

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3

Indeed, the Virginia Supreme Court has concluded that even policy language requiring notice

when "an occurrence takes place which, in the opinion of the insured, involves or may involve

liability on the part of the" insurer, "demands an objective determination." Dan River, Inc. v.

Commercial Union Ins. Co., 317 S.E.2d 485, 489 (Va. 1984) (emphasis added). 

dollardemonstrated that the ad damnums were poor predictors asto the amountsthat would finally

be paid. And Commercial Union's own response to the notice that was ultimately given agreed with

CSX's assessment that the claims were not likely to exceed the underlying limits.

The parties agree that the timeliness of the notice must be determined in accordance with an

objective test, i.e., were the insured's actionsreasonable? See, e.g., Greycoat Hanover F Street Ltd.

Partnership v. Liberty Mut. Ins. Co., 657 A.2d 764, 768-69 & n.4 (D.C. App. 1995); Ruby v.

Midwestern Indem. Co., 532 N.E.2d 730, 732 (Ohio 1988); Ideal Mut. Ins. Co. v. Waldrep, 400 So.

2d 782, 785 (Fla. Dist. Ct. App. 1981).3 The district court correctly stated that the notice obligation

arises when, "viewed objectively, the facts and circumstances known to the insured would have

suggested to a reasonable person the possibility of a claim likely to trigger the excess insurer's

coverage." 834 F. Supp. at 459. In applying this standard, however, the district court appears to

have misapprehended what constitute "the facts and circumstances known to the insured." CSX

argued that its claims experience created a genuine issue ofmaterialfact, relying on Norfolk & W. Ry.

Co. v. Accident & Casualty Ins. Co., 796 F. Supp. 925, 928-29 (W.D. Va. 1992), in which the court

reviewed claims experience before determining that notice of occurrence wastimely. But the district

court refused to consider events postdating the filing of the first claim, stating that "[t]hat approach

is contrary to the overwhelming weight of authority, which ... favors an objective determination of

when the notice obligation accrues." 834 F. Supp. at 460 n.9. The district court thus seems to have

treated consideration ofthe railroads' actualclaims experience as equivalent to employing a subjective

test.

We think the district court erred. The court must inquire as to when a reasonable railroad,

knowing everything that the railroads in this case knew or should have known, would give notice.

That, of course, means that the railroads' actual experience with settlements and verdicts,

notwithstanding large ad damnums, would be relevant in determining whether the railroads acted

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4That the test is objective does not mean that the question whether the railroads reasonably

should have given notice earlier is not an issue of factjust as in a negligence determination. See,

Lathem v. Sentry Ins., 845 F.2d 914, 918 (11th Cir. 1988); see also Blanchard v. Peerless Ins.

Co., 958 F.2d 483, 488 (1st Cir. 1992); R.A. Weaver & Assoc., Inc. v. Haas & Haynie Corp.,

663 F.2d 168, 175-76 (D.C. Cir. 1980). 

5Appellant argues here that the district court incorrectly interpreted Kentucky law because it

ignored a Kentucky Supreme Court opinion holding that failure to provide notice does not forfeit

coverage absent a showing by the insurer that it is prejudiced. Jones v. Bituminous Casualty

Corp., 821 S.W.2d 798 (Ky. 1991). As this argument apparently was not presented to the district

court, and in light of our disposition of this matter, we do not address this question. 

reasonably. Also relevant would be the insurer's own views, when made aware of the claims (or

lawsuits) directed against the railroads, as to the likelihood that the excess policies would be

implicated. Suffice it to say that these evidentiary considerations raise issues of material fact as to

the reasonableness ofCSX's actions.4 Of course, issues of fact can become questions of law if a court

concludes that no reasonable fact finder could find one way or the other. But we do not think the

district judge so concludednor could he have on this record. On this ground alone, then, the case

must be remanded.

That brings us to the conflict of laws/prejudice issue. The district court determined that

neither Virginia nor Kentucky law requires a showing of prejudice to the insurer based on late notice,

and that Florida and Ohio provide a rebuttable presumption that late notice prejudiced the insurer.5

834 F. Supp. at 460 n.12. The court agreed with Commercial Union that "different states' laws on

a particular question of law should not be applied to different insurance policies in a single action,"

and "adopt[ed]"CommercialUnion's view that "theCourtshould applyVirginia law because Virginia

isthe only state through which all ofthe railroadsinsured by [CommercialUnion] operated their lines

during the terms of the applicable policies." 834 F. Supp. at 460. CSX "contended that the conflict

among the applicable states is false, or, alternatively, that the choice of law issue requires separate

analysis and briefing." Id. at 460 n.12. The court, believing the conflict of laws to be "obvious," and

noting that CSX "did not brief this issue or provide a detailed explanation as to why [it] elected not

to," found that CSX "waived [its] opportunity to brief the applicable choice of law with respect to

this motion." Id. (emphasis added).

Appellant raises before us a powerful argument that the district court's choice of Virginia

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lawassuming the issue was not waivedwas erroneous. Although the selection of one

jurisdiction's law to govern the proceedings surely simplifies the district court's task, we very much

doubt that considerations of litigation convenience can override the ex ante expectations of parties

to individual insurance contracts. See, e.g., Liberty Mut. Ins. Co. v. Travelers Indemnity Co., No.

95-7039, slip op. at 5-6 (D.C. Cir. March 8, 1996) (applying different states' laws to different

insurance policies). Even if applying one state's law to all the policies were appropriate, Virginia does

not seem the best candidate; that the railroads all operated some track in Virginia appears to be of

marginalrelevance under the test employed in the District of Columbia for resolving conflicts of law.

See, e.g., Eli Lilly and Co. v. Home Ins. Co., 764 F.2d 876, 882 (D.C. Cir. 1985), cert. denied, 479

U.S. 1060 (1987) ("Indiana ... has a strong additional interest [in the insurance coverage dispute]

because it is [the insured's] principal place of business and place of incorporation."); Independent

Petrochemical Corp. v. Aetna Casualty & Surety Co., 654 F. Supp. 1334, 1355-56 (D.D.C. 1986),

aff'd by 944 F.2d 940 (D.C. Cir. 1991), cert. denied sub nom. Certain Underwriters at Lloyd's,

London v. Independent Petrochemical Corp., 503 U.S. 1011 (1992) (in insurance case, noting that

"five factors have been considered by this court: (1) the place of contracting; (2) the place of

negotiation of the contract; (3) the place of performance of the contract; (4) the location of the

subject matter of the contract; and (5) the place of the incorporation and the place of business of the

parties.") (citingRESTATEMENT(SECOND)OFCONFLICTSOFLAWS, § 188 (1971)); cf. Liberty Mutual

Ins., slip op. at 5-6 ("Under District law, insurance contracts are governed by the substantive law of

the state in which the policy is delivered."). And, we are dubious that Virginia can be said to have

the " "mostsignificant relationship' to the dispute." Hercules &Co., Ltd. v. Shama RestaurantCorp.,

566 A.2d 31, 40-41 (D.C. App. 1989).

Our reading of the record and of the opinion below leaves us uncertain whether the district

court determined that CSX waived its choice-of-law argument or merely any right to additional

briefing on the question for purposes of the summary judgment motion. It is undisputed that

Commercial Union raised the conflict question below, and argued that one state's law, Virginia's,

ought to be applied to all the policies under consideration. CSX's response is less clear. In its

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MemorandumofLaw in Opposition to [Commercial Union's] Motion for Summary Judgment on the

Issue of Purported Late Notice, CSX contended that the conflict of laws proffered by Commercial

Unionwas a "false" one because all the potentially applicable states' lawsrequired a prejudice inquiry.

In Virginia, for example, insurer prejudice is "a circumstance to be considered on the question of the

materiality of the information which the insured withheld." CSX does not make this "false conflict"

argument before us. To be sure, CSX asserted that Commercial Union had not established that

Virginia had the "most significant contacts" asrequired by the District's choice of law test, and noted

that "the determination of the applicable law in this action is highly fact intensive," but it provided no

support for these statements merely saying that "[e]ven if this motion had so much as a theoretical

basis under Virginia law, which it does not, all of these issues would require separate analysis and

briefing."

CSX's response to Commercial Union's choice of law argument seems to us somewhat

half-hearted, so the district court could have determined that CSX waived the issue. We doubt that

such a determination could be thought an abuse of discretion. See, e.g., Zenith Radio Corp. v.

Hazeltine Research, Inc., 401 U.S. 321, 332-33 (1971); Southern Pacific Communications Co. v.

American Tel. & Tel. Co., 740 F.2d 1011, 1018 (D.C. Cir. 1984). However, the district court's

opinion can also be interpreted to mean that CSX waived not the argument on choice of law, but

merely its opportunity to say anything more about it for purposes of the summary judgment motion.

If that is what the district court intended, CSX preserved its objection to the district court's choice

of law conclusion. We simply do not know which reading is the correct one. Since if the argument

were waived, we would not reach it, and would therefore uphold the district court's application of

Virginia law, we remand this issue as well to the district court to clarify its ruling.

It will be recalled that CSX also appeals the district court's determination that the "per

occurrence" limitations contained in five multi-year policies apply to any occurrence for the length

of the policy term (three years) rather than once per year. While adverting to the contract language

thatstatesthatCommercialUnion'sliabilitylimits are for "each occurrence,"CSX arguesthat because

it paid a similar premiumfor one-year policies with similar per-occurrence limitations asfor each year

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of the three-year policies, the latter must be read to provide coverage up to the per-occurrence limit

for each of the three years. Interpreting the contract as the district court did, CSX contends, requires

believing that CSX would buy a three-year policy that costs as much as three one-year policies but

may provide as little as one-third the recovery in the event of an occurrence that lasts more than one

year.

We are satisfied that the contract language setting forth the coverage limitations is plain, and

that the district court interpreted it correctly. A typical provision states that the insurer agrees to

indemnify CSX's predecessor railroad for "the excess of loss ... from any one occurrence or series

of occurrences arising out of any one event, and then only up to $ [x] for each occurrence." The

coverage limitation is devoid of any language suggesting that "each occurrence" should be read as

"each occurrence each year." Nor are we convinced by CSX's premium argument. CSX points to

the illogic of paying the same premium for a three-year policy as for three one-year policies, unless

the underlying conditions are the sameincluding the per-occurrence condition. In resolving an

analogous dispute, the Fifth Circuit asked the question whether "carriers issuing three-year policies

should bear the same burden as if they had issued three one-year policies." Society of the Roman

Catholic Church of the Diocese of Lafayette and Lake Charles, Inc. v. Interstate Fire & Casualty

Co., 26 F.3d 1359, 1366 (5th Cir. 1994). The court concluded that "[c]learly, a three-year

"occurrence' policy providesless coverage than three one-year policies, because an occurrence could

last longer than one year. While an insurance policy should be interpreted in favor of the insured, we

see no justification for providing more insurance coverage than the insured bargained for." Id. We

agree. Moreover, "[i]f the language found in the policy is not ambiguous or otherwise susceptible

of more than one meaning, the court's duty is to apply the plain meaning of the words and phrases

used to the facts before it." Carey Canada, Inc. v. Columbia Casualty Co., 940 F.2d 1548, 1556

(D.C. Cir. 1991). We are thus not convinced that the premium terms of the multi-year policies

undermine the district court's reading of the plain language of the coverage limitations.

* * *

Accordingly, we reverse the grant ofsummary judgment on the issue of untimely notice and

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remand. On the choice of law question, we remand for the district court to clarify its finding as to

CSX's waiver and for such other proceedings as are necessary. We affirm the summary judgment on

the per-occurrence limitations in the multi-year policies.

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