Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-01827/USCOURTS-cand-3_04-cv-01827-3/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

THE FLINTKOTE COMPANY, a Delaware

Corporation,

Plaintiff,

v.

GENERAL ACCIDENT ASSURANCE COMPANY

OF CANADA, a Canada insurance company;

GENERAL ACCIDENT FIRE AND LIFE

ASSURANCE CORPORATION LIMITED OF

PERTH, SCOTLAND, a Scotland insurance company;

and Does ONE through TEN,

Defendants. 

No. C 04-01827 MHP

MEMORANDUM AND

ORDER

Re: Motions for Summary

Adjudication

On April 14, 2004, plaintiff Flintkote Company filed an action in San Francisco Superior

Court against defendants General Accident Assurance Company of Canada and General Accident

Fire and Life Assurance Corporation Limited of Perth, Scotland, predecessors of Aviva Insurance

Company of Canada. The state complaint alleged breach of contract for defendants’ failure to

defend or indemnify plaintiff for claims covered under an insurance policy issued to two of

plaintiff’s subsidiaries. Defendants removed the action to this court. Now before the court are two

motions, brought by plaintiff, for summary adjudication under Federal Rule of Civil Procedure 56(d)

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of the meaning of key terms of the insurance policy. Having considered the parties’ arguments and

submissions, and for the reasons set forth below, the court rules as follows.

BACKGROUND1

Plaintiff, presently based in San Francisco, is a company that formerly mined and sold

asbestos and asbestos-based products. Defendants are insurance companies that issued general

liability policies to two of plaintiff’s Canadian subsidiaries—The Flintkote Company of Canada

LTD and The Flintkote Mines Limited. Plaintiff was recently forced to seek bankruptcy protection

as a result of the enormous volume of asbestos-related litigation that arose in response to the

revelation that exposure to asbestos fibers can have severe long-term health consequences. Plaintiff

brought the present action in order to obtain indemnification for money paid out as a result of that

litigation. 

The insurance policy at issue in the instant motions, number L-90-4672 (the “policy”), was in

force between 1958 and 1961. It provides broad coverage for damage associated with the insureds’

products: “[The policy] shall include coverage for liability. . .arising out of the possession,

consumption, processing or use of any merchandise or product manufactured, sold, processed or

distributed by the insured.” Declaration of John Bay in Support of Flintkote’s Motion for Partial

Summary Judgment Re: Definition of “Occurrence” Under Policy L 90-5010 (“Bay ‘occurrence’

Dec.”), Exh. A at 3. The parties do not dispute that the policy covers liability attributable to the sale

of asbestos and asbestos-based products. They do dispute, however, two key provisions of the

policy that relate to the scope of parties covered and limits on the insurer’s liability.

The first dispute is whether plaintiff, the corporate parent of the two companies that appear

on the face of the policy, is also a “named insured.” The paragraph titled “NAME OF INSURED”

lists the named insureds for the policy: “THE FLINTKOTE COMPANY OF CANDA LIMITED

and/or THE FLINTKOTE MINES LIMITED and/or Subsidiary or Affiliated corporations or

corporations now existing or hereafter created as their respective interests may appear.” Id. at 2. 

Plaintiff requests summary adjudication that the phrase “Affiliated corporations” includes corporate

parents—i.e., plaintiff.

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The second dispute relates to the meaning of the word “occurrence,” as used in various

sections within the policy, including the “Limitation of Liability” section. The limitation of liability

clause provides, in relevant part, as follows:

In respect of coverages A [bodily injury] and B [property damage], the liability of the

Company for all damages, including damages for care and loss of services, arising out

of bodily injury to or death of one person, shall be limited to the sum of $100,000.00

in any one occurrence, and subject to the same limit for each person, the total limit of

the Company’s liability for all damages, including damages for care and loss of

services, arising out of bodily injury to or death of two or more persons, shall be

limited to the sum of $200,000.00 in any one occurrence. . . . There is no limit to the

number of occurrences for which claims may be made hereunder, provided such

occurrences occur during the currency of this policy, except as hereafter provided.

Plaintiff requests summary adjudication that an “occurrence,” in the context of asbestos-related

injuries, means “each incident of asbestos exposure causing bodily injury.”

Defendants object to both of plaintiff’s requests for summary adjudication on jurisdictional

grounds, claiming that the motions are not ripe and that plaintiff has not demonstrated that it has

standing. Defendants also object that plaintiff has not yet proved that it complied with other

requirements of the policy. With respect to the merits of plaintiff’s arguments, defendants counter

that “Affiliated corporations” should be construed to mean “sister companies or companies with a

common parent.” Defendants further argue that “occurrence” should be interpreted to refer to the

overall enterprise of distributing asbestos-based products, or some other (less numerous) set of

asbestos-related activities. In the alternative, defendants request additional time to conduct further

discovery prior to adjudication of either of plaintiff’s motions.

The parties dispute whether Canadian law or California law should govern interpretation of

the policy, but defendants concede that there are no material differences in the two bodies of law for

purposes of deciding the instant motions.2

 The court will therefore apply California law.

LEGAL STANDARD

I. Motion for Summary Judgment

Summary judgment is proper when the pleadings, discovery and affidavits show that there is

“no genuine issue as to any material fact and that the moving party is entitled to judgment as a

matter of law.” Fed. R. Civ. P. 56(c). Material facts are those which may affect the outcome of the

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case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is

genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving

party. Id. The party moving for summary judgment bears the burden of identifying those portions

of the pleadings, discovery, and affidavits that demonstrate the absence of a genuine issue of

material fact. Celotex Corp. v. Cattrett, 477 U.S. 317, 323 (1986). On an issue for which the

opposing party will have the burden of proof at trial, the moving party need only point out “that

there is an absence of evidence to support the nonmoving party’s case.” Id.

Once the moving party meets its initial burden, the nonmoving party must go beyond the

pleadings and, by its own affidavits or discovery, “set forth specific facts showing that there is a

genuine issue for trial.” Fed. R. Civ. P. 56(e). Mere allegations or denials do not defeat a moving

party’s allegations. Id.; Gasaway v. Northwestern Mut. Life Ins. Co., 26 F.3d 957, 960 (9th Cir.

1994). The court may not make credibility determinations, and inferences to be drawn from the

facts must be viewed in the light most favorable to the party opposing the motion. Masson v. New

Yorker Magazine, 501 U.S. 496, 520 (1991); Anderson, 477 U.S. at 249. Nonetheless, even if

summary adjudication of an entire claim is not warranted, Federal Rule of Civil Procedure 56(d)

allows a court to grant partial summary judgment, thereby reducing the number of facts at issue in a

trial. Fed. R. Civ. P. 56(d); State Farm Fire & Cas. Co. v. Geary, 699 F. Supp. 756, 759 (N.D. Cal.

1987) (Patel, J.). 

II. Insurance Contract Interpretation

“Where the terms and conditions of an insurance policy constitute the entire agreement

between the parties, its interpretation is essentially a question of law, particularly well-suited for

summary judgment.” State Farm Fire & Cas. Co. v. Yukiyo, Ltd., 870 F. Supp. 292, 294 (N.D. Cal.

1994) (Williams, J.) (citing St. Paul Fire & Marine Ins. Co. v. Weiner, 606 F.2d 864, 867 (9th Cir.

1979)).

The mutual intention of the parties at the time the contract was formed governs interpretation

of an insurance policy. Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal. 4th 645, 666 (1995). 

The parties’ intent “is to be inferred, if possible, solely from the written provisions of the contract.” 

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Id. In construing provisions of a contract, “[t]he whole of a contract is to be taken together, so as to

give effect to every part, if reasonably practicable, each clause helping to interpret the others.” Cal.

Civ. Code § 1641.

A court interpreting provisions of an insurance contract should proceed according to the

following series of steps. First, “[t]he clear and explicit meaning of these provisions, interpreted in

their ordinary and popular sense, controls judicial interpretation unless [the disputed terms are] used

by the parties in a technical sense, or unless a special meaning is given to them by usage.” Montrose

Chem., 10 Cal. 4th at 666 (internal quotations and citations omitted). In other words, “[i]f the

meaning a layperson would ascribe to the language of a contract of insurance is clear and

unambiguous, a court will apply that meaning.” Id. at 666–67.

Second, if the disputed terms are ambiguous, a court must attempt to resolve the ambiguity

by adopting the meaning that reflects the objectively reasonable expectations of the insured. Id. at

667. Courts often combine the first two steps into a single inquiry, noting that “contract language

cannot be found to be ambiguous in the abstract” and “must be construed in the context of [the]

instrument as a whole, and in the circumstances of the case.” Bank of the West v. Superior Court,

2 Cal. 4th 1254, 1264–65 (1992). As a result, courts consider all relevant intrinsic and extrinsic

evidence before concluding that contract language is ambiguous. See Cooper Cos. v.

Transcontinental Ins. Co., 31 Cal. App. 4th 1094, 1104–05 (1995) (considering extrinsic evidence,

including the “known business activities” of the insured, in evaluating the objectively reasonable

expectations of the insured).

Third, if the court is unable to determine the objective expectations of the insured, the

ambiguity is resolved against the insurer. Montrose Chem., 10 Cal. 4th at 667. Courts have also

observed, generally, that ambiguities should be resolved in favor of coverage, and that coverage

clauses of insurance policies should be interpreted broadly. Id. “Because the insurer writes the

policy, it is held responsible for ambiguous policy language, which is therefore construed in favor of

coverage.” Id. (internal quotation omitted).

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DISCUSSION

I. Jurisdictional Objections to Plaintiff’s Motions

A. Ripeness

Defendants first argue that the issues raised in plaintiff’s motions are not ripe for

adjudication. Specifically, defendants complain that plaintiff has not provided sufficient evidence of

claims of injury from exposure to asbestos, which are the predicate for seeking indemnification

under the policy. In support of its argument, defendant cites a California case, Armstrong World

Industries, Inc. v. Aetna Casualty & Surety Co., 45 Cal. App. 4th 1, 108 (1996), which states that

“before the insured’s liability has been established, the trial court cannot determine the amount of

the insured’s indemnity obligation.” Plaintiff responds that the declaration accompanying its motion

provides evidence of asbestos-related claims and further observes that this court has previously

taken judicial notice of the more than 100,000 asbestos-related cases pending against Flintkote

nationwide. See Memorandum & Order, No. C 04-01827 MHP, slip op. at 3 (N.D. Cal. Sept. 7,

2004).

“Ripeness doctrine protects against premature adjudication of suits in which declaratory

relief is sought,” Hodgers-Durgin v. de la Vina, 199 F.3d 1037, 1044 (9th Cir. 1999) (en banc), in

order to prevent “entanglement in theoretical or abstract disagreements that do not yet have a

concrete impact on the parties.” 18 Unnamed “John Smith” Prisoners v. Meese, 871 F.2d 881, 883

(9th Cir. 1989). The ripeness inquiry contains both a constitutional and a prudential component. 

Thomas v. Anchorage Equal Rights Comm’n, 220 F.3d 1134, 1138 (9th Cir. 2000) (en banc), cert.

denied, 531 U.S. 1143 (2001). Ripeness is evaluated at the commencement of a lawsuit, and is not

subsequently defeated through changed circumstances. Malama Makua v. Rumsfeld, 136 F. Supp.

2d 1155, 1161 (D. Haw. 2001).

The court agrees with plaintiff that the lawsuit is ripe for adjudication based on the volume of

asbestos-related claims against plaintiff, many of which have been or are being heard in California

courts regarding events that took place in California during the period covered by defendants’

insurance policies. Defendants’ argument is flawed in a number of respects.

First, Armstrong World Industries is not factually on point, as the instant motions do not seek

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a determination of the amount of defendants’ liability, but rather a declaration as to whether The

Flintkote Company is a named insured on the policy and a declaration of which event in the causal

chain preceding an asbestos-related injury corresponds to an “occurrence” under the policy. Indeed,

the following sentence in Armstrong World Industries completely undermines defendants’

argument: “[the court] must limit its declaration to whether the claim is covered by the policy.” 45

Cal. App. 4th at 108 (emphasis added). Plaintiff seeks precisely the same sort of declaration here.

Second, the ripeness inquiry applies to the lawsuit as a whole and is evaluated at the time the

lawsuit commences. Malama Makua, 136 F. Supp. 2d at 1161. Defendants’ argument that a motion

brought in the context of an otherwise ripe lawsuit can be unripe is therefore legally malformed.

Third, as plaintiff observes, the policy includes a duty to defend the insured in any product

liability lawsuits. Thus the existence of lawsuits against plaintiff is sufficient to create a ripe

controversy, regardless of whether plaintiff has made any claims for coverage.

What defendant actually appears to be arguing is that insufficient discovery has taken place

for the court to consider plaintiff’s motion. See Fed. R. Civ. P. 56(f) (permitting the court to

continue a motion for summary adjudication in order to permit further needed discovery). The court

considers the parties’ arguments concerning the evidence offered in connection with the motions

below.

B. Standing

Defendants also argue that plaintiff does not have standing to bring the current motions. 

Defendants claim in particular that plaintiff has not presented evidence that it paid the required

premiums for the policy, and that plaintiff has not established that it is an insured covered by the

policy.

Under Article III of the United States Constitution, federal courts cannot entertain a litigant’s

claims unless that party demonstrates concrete injury, satisfying the burden to demonstrate both

constitutional and prudential standing to sue. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560

(1992). To meet constitutional requirements, a plaintiff must show that (1) he has suffered an

“injury in fact” which is “concrete and particularized” and “actual or imminent”; (2) the injury is

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fairly traceable to the challenged actions of the defendant; and, (3) “it must be ‘likely,’ as opposed to

merely ‘speculative,’ that the injury will be redressed by a favorable decision.” Id. at 560–61

(internal quotations and citations omitted). Prudential requirements for standing include: (1) whether

plaintiff’s alleged injury falls within the “zone of interests” protected by the statute or constitutional

provision at issue, (2) whether the complaint amounts to generalized grievances that are more

appropriately resolved by the legislative and executive branches, and (3) whether the plaintiff is

asserting his or her own legal rights and interests, rather than those of third parties. See Desert

Citizens Against Pollution v. Bisson, 231 F.3d 1172, 1179 (9th Cir. 2000); Gladstone, Realtors v.

Village of Bellwood, 441 U.S. 91, 100 (1979); Powers v. Ohio, 499 U.S. 400, 410 (1991).

Under California law, both the parties to an insurance contract and third-party beneficiaries

of the contract are entitled to enforce the contract. See Cal. Civ. Code § 1559 (“A contract, made

expressly for the benefit of a third person, may be enforced by him at any time before the parties

thereto rescind it”). Here, plaintiff has offered facts to prove that it is both a named insured on the

contract (and therefore a beneficiary) and that it is an “additional insured” under the policy by virtue

of its financial control over the expressly named insureds. At this stage in the case, plaintiff is not

seeking summary adjudication that it is covered under the policy; rather, plaintiff is seeking

interpretation and application of two of the policy’s terms. By alleging and providing facts in

support of its status as a named beneficiary in the policy, plaintiff has demonstrated that it has

standing to do so.

Whether plaintiff failed to comply with some other term of the policy, such as the

requirement to make payments, is of course relevant to the ultimate question of defendants’ liability. 

Properly construed, defendants’ challenge to plaintiff’s standing is simply a challenge to plaintiff’s

ability ultimately to prevail on the merits. The fact that defendant has an affirmative defense which

may undermine liability, however, is irrelevant to the question of plaintiff’s standing to litigate

issues prefatory to establishing ultimate liability. Thus, plaintiff has standing.

II. Evidentiary Objections

The parties make a number of objections to the affidavits offered in support of and in

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opposition to the two pending motions.

A. Defendants’ Objections

Defendants object to the contents of two declarations—one in connection with each of the

two pending motions—submitted by John Bay, Vice-President and Insurance Counsel for plaintiff. 

The first declaration, for the “occurrence” motion, describes plaintiff’s business during the relevant

time period, authenticates a copy of the insurance policy at issue, and describes the extent of

asbestos-related litigation against plaintiff in California. The second declaration, for the “Affiliated

corporations” motion, contains much of the same information, and in addition purports to

authenticate certain of plaintiff’s business records that describe the relationship among plaintiff and

the two companies expressly named on the policy—The Flintkote Company of Canada LTD and The

Flintkote Mines LTD.

Defendants object to the contents of the Bay declarations because Mr. Bay was not employed

by plaintiff during the time period he attempts to describe. As a result, according to defendants, he

lacks foundation for his testimony. In the alternative, assuming that Mr. Bay obtained knowledge of

the relevant time period by reviewing documents, defendants object that the documents are not

included with the declaration and, in any case, are hearsay. Defendants also object that the

documents describing the relationship among plaintiff and its subsidiaries are irrelevant, as there is

no allegation that they were ever provided to defendants during the relevant time period. Plaintiff

responds that Mr. Bay is permitted to testify based on the extensive knowledge he has gained of the

company’s history. Plaintiff also asserts that the documents attached to the two Bay declarations are

relevant to establish plaintiff’s corporate relationship with the two expressly named insureds,

regardless of defendants’ awareness of the documents.

Defendants are correct that Mr. Bay may not testify about events as to which he lacks

personal knowledge. Fed. R. Evid. 602. The portions of the Bay declarations that cover the general

history of The Flintkote Company prior to Mr. Bay’s arrival at the company are therefore

inadamissible unless Mr. Bay can produce admissible documents or other testimony on which his

knowledge is based. Mr. Bay does have personal knowledge, however, of plaintiff’s record keeping

practices and is permitted to lay the foundation for the documents attached to his declarations. See

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Bay Reply Dec. ¶ 3. The individual relevance of the attached documents is discussed, as needed,

below.

In any case, defendants’ objections have little or no effect on the disposition of the current

motions. Defendants do not dispute that the copy of the policy attached to the Bay declarations is

accurate; rather, defendants argue that it is incomplete. See Defs.’ Objections to Bay “occurrence”

Dec. at 5–6. Defendants also do not appear to dispute that plaintiff manufactured and distributed

building materials containing asbestos, that plaintiff has done business in California, or that plaintiff

and its subsidiaries have obtained numerous liability insurance policies, including the policy at issue

in this case.

Other than defendants’ Rule 602 objection to Mr. Bay’s testimony, defendants’ objections

are therefore overruled.

B. Plaintiff’s Objections

Plaintiff objects on two grounds to two expert declarations offered by defendants in support

of their arguments on the “Affiliated corporations” motion. First, plaintiff argues that expert

testimony is irrelevant to insurance policy interpretation as a matter of law. Second, plaintiff argues

that defendants have not complied with the requirements of Rule 26 for the two expert witnesses. 

Plaintiff appears to be correct that under California law expert testimony is inadmissible to establish

the meaning of language in an insurance policy. See, e.g., Cooper Cos., 31 Cal. App. 4th at 1100

(“the meaning of the policy is a question of law about which expert opinion testimony is

inappropriate”); Chatton v. National Union Fire Ins. Co., 10 Cal. App. 4th 846, 865 (1992) (“it has

ben held that opinion evidence is completely irrelevant to interpret an insurance contract”).

The case cited by defendants in support of their contention that expert testimony is

admissible, Yount v. Acuff Rose-Opryland, 103 F.3d 830, 835–36 (9th Cir. 1996), is not on point. 

Yount suggested (but did not directly hold) that extrinsic evidence may be considered in interpreting

an insurance contract to establish an “industry custom” or “course of dealing” that narrows the

otherwise broad plain meaning of contract terms. Id. at 836. The Ninth Circuit said nothing,

however, about whether expert testimony is appropriate extrinsic evidence. The court cited Cooper

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Cos. with approval, which indicates the opposite. Thus the court will not consider the proffered

expert testimony in ruling on plaintiff’s motions.

Plaintiff also objects to portions of the declarations of Judith Gold in support of defendants’

opposition to plaintiff’s motions. The portions of the declarations to which plaintiff objects consist

of legal argument and opinions. See, e.g., Gold “occurrence” Dec. ¶ 4 (“it is your declarant’s

sincere belief that Flintkote has not met its burden on summary judgment”); id. ¶ 7 (“Aviva is

mindful of the fact that while many courts have ruled in a manner consistent with Aviva’s position,

courts have considered alternatives which Flintkote has not brought to this Court’s attention”). The

court agrees that these statements have no significance and will disregard them.

Finally, plaintiff objects to Exhibit 2 to the Gold “Affiliated corporations” declaration, which

on its face appears to be a letter from General Accident Fire and Life Assurance Corp. to Marsh &

McLennan, Ltd., the insurance broker that sold the policy to plaintiff’s subsidiaries. Exhibit 2 states

that the policy “is primary insurance applying to Canadian operations”; defendants seek to introduce

the letter as evidence that “Affiliated corporations” does not encompass plaintiff, which is based in

the United States. The declaration attempts to establish a foundation for the letter by noting that it

was found in the middle of defendant’s copy of the policy and observing that the document

“contains the same three black circles [from a hole punch] on the left-hand side that the insurance

policy attached as Exhibit 1 contains.” Gold “Affiliated corporations” Dec. ¶ 2. The same

paragraph notes, however, that “the chain of custody of this letter, and its initial source, are not

presently known.” Id.

The letter is hearsay, as it is offered for the truth of its contents—that the policy covers only

“Canadian operations.” The Gold declaration does not establish a proper foundation for admitting

the letter as a business record, as the chain of custody is unclear. The letter (and the copy of the

letter included in defendants’ copy of the policy) is therefore inadmissible and will not be

considered.

Having disposed of the parties’ jurisdictional and evidentiary arguments, the court now turns

to the substance of plaintiff’s motions.

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III. Contract Interpretation

A. Scope of Adjudication

Before embarking on the requested contract interpretation, the court must clarify the nature

and scope of the adjudications that plaintiff requests in its two motions. Plaintiff argues in its first

motion that the phrase “Affiliated corporations” in the policy encompasses corporate parents, and

that as a result The Flintkote Company is a named insured as a matter of law. Plaintiff argues in its

second motion that the term “occurrence” in the policy means “each incident of asbestos exposure

causing bodily injury.”

Although contract interpretation is a question of law—so long as the “terms and conditions

of an insurance policy constitute the entire agreement between the parties,” see State Farm, 870 F.

Supp. at 294—plaintiff here requests both interpretation of the contract terms and application of the

proper interpretation to the facts of this case. Plaintiff’s first motion requests both a legal

adjudication that the phrase “Affiliated corporations” encompasses corporate parents and a factual

adjudication that The Flintkote Company is the corporate parent of one of the companies expressly

named in the policy. Likewise, plaintiff’s second motion requests both a legal adjudication that

“occurrence” refers to the final injury-causing event (and not to some antecedent event in the chain

of causation) and that in the case of asbestos-related injuries, exposure to asbestos is the final injurycausing event.

The court will separately consider the legal and factual components of plaintiff’s requests in

the discussion that follows.

B. Interpretive Authorities

The parties offer a thicket of authorities to assist the court in interpreting the policy. First,

the cited California statutes and judicial precedents set forth a fairly elaborate procedure for

interpretation of insurance contracts, which serves as an interpretive “meta-framework.” Second,

both parties agree that the contract itself is the primary source of interpretive authority. Third, the

parties point to numerous prior adjudications of the meaning of similar terms in other insurance

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contracts. Fourth, the parties offer extrinsic evidence (aside from the improper expert testimony) as

to what the contracting parties intended.

With respect to the first two sources of authority, the court is clearly bound to follow

California contract interpretation law, and California law makes clear that the policy itself is the

primary guide to interpretation. See Montrose Chem., 10 Cal. 4th at 666 (the intent of the parties is

“to be inferred, if possible, solely from the written provisions of the contract”).

The court is more troubled by the parties’ reliance on past judicial interpretations of other

insurance contracts. The cited cases provide guidance on various levels, not all of which is relevant

to interpretation of the contract in the present case. To the extent that the cited cases provide

guidance on the procedures to follow in interpreting contracts under California law, they of course

are controlling authority for this court, which is applying California law. Also, to the extent that the

cited cases provide general rules or policy considerations for interpreting third-party liability

contracts such as the one at issue in this case, they are relevant. See, e.g., id. at 663–64 (outlining

the differences in the parties’ expectations in third-party “personal” liability policies as compared to

first-party “property” liability policies).

Reliance on the holdings of past cases is more problematic, as the insurance contracts at issue

in those cases are different from the contract between plaintiff’s subsidiaries and defendants. Also,

the cited cases all date from long after the date the contract in this case was formed; as a result, the

holdings of those cases have no bearing on the parties’ understanding of the terms at issue here. The

court is aware, however, that insurance contracts are deliberately drafted to include standardized

language. Consistent interpretation of standardized terms in insurance contracts promotes clear

understanding of future contracts that are negotiated. It would be foolish, however, to state as a

matter of law that the word “occurrence” or the phrase “Affiliated corporations” has the same

meaning in all insurance contracts, or even all asbestos-related insurance contracts. Thus, the court

will endeavor to construe those terms solely on the basis of the words of the policy and any

necessary, relevant extrinsic evidence. The precedents cited by the parties are valuable primarily for

the guidance they provide in the interpretive process.

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Finally, with respect to extrinsic evidence, the relevant point in time for contract

interpretation is the date of formation. The court will therefore consider, to the extent needed to

resolve ambiguity in the policy’s language, extrinsic evidence relevant to the contracting parties’

reasonable expectations as of that date.

C. “Affiliated corporations”

Plaintiff argues that the phrase “Affiliated corporations” means “a corporation with close

ties,” which would include parent corporations as well as corporate siblings. Defendants argue in

response that “Affiliated corporations” is limited by the context of the policy to corporations that are

siblings of the expressly named insured or, in the alternative, corporations whose “interests” appear

on the face of the policy.

1. Policy Language

The court begins with the plain meaning of the policy language. In determining the plain

meaning of language in a contract, a court may look to a “general” dictionary definition to aid in its

analysis. Scott v. Continental Ins. Co., 44 Cal. App. 4th 24, 29 (1996). Plaintiff cites a definition

from the Seventh Edition of Black’s Law Dictionary, dated 1999, that an “affiliate” is a “corporation

that is related to another corporation by shareholdings or other means of control; a subsidiary,

parent, or sibling corporation.” Although Black’s Law Dictionary qualifies as a “general” dictionary

for purposes of insurance contract interpretation, see Cooper Cos., 31 Cal. App. 4th at 1103 (relying

on Black’s), the court is at a loss to see how a dictionary definition from almost forty years after the

formation of the contract is relevant to understanding the meaning of the terms of that contract.

Turning to contemporaneous dictionaries, Webster’s New International Dictionary (2d ed.

1957) includes several potentially relevant definitions of “affiliated.” Used as a verb, “affiliate” may

have any of the following relevant meanings: (1) “To adopt; to receive into the family as a son;

hence, usually, to bring or receive into close connection; to ally; to unite or attach as a member or

branch”; (2) “To connect in the way of descent; to trace origin (to)”; and (3) “To band together, as

railroads, by stock ownership, lease, or permanent agreement.” Id. at 43; accord Black’s Law

Dictionary 80 (4th ed. 1951) (the word “affiliate” “[s]ignifies a condition of being united, being in

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close connection, allied, or attached as a member or branch”). Taken together, these definitions

support several understandings of what it means to be an affiliate; i.e., a parent, a descendant, an

ally, or a financially linked entity. The final definition, which expressly covers corporate affiliation

(in the context of railroads), appears particularly relevant, and directly supports plaintiff’s argument

that financial connection is the essence of corporate affiliation.3

Given the range of possible meanings, however, the term is not unambiguous without

consideration of the remainder of the policy and its context. See Bank of the West, 2 Cal. 4th at

1265; Scott, 44 Cal. App. 4th at 30 n.4.

2. Reasonable Expectation of the Insured

The policy contains an assortment of language suggestive of both a narrow

interpretation—that the policy was intended to cover only the local Canadian mining

operations—and a broad interpretation covering the entirety of plaintiff’s global distribution of

asbestos and asbestos-related products.

Portions of the policy supporting a narrow construction include the following. First, as

defendants point out, the policy’s description of how premiums are calculated appears to consider

only the gross receipts and sales of the Canadian subsidiaries. Bay “occurrence” Dec., Exh. A at 2,

5, 9–11; cf. Gold Dec., Exh. 3 (listing annual sales for plaintiff, which are substantially higher than

the sales listed in the policy); see generally Cooper Cos., 31 Cal. App. 4th at 1108 n.12 (finding that

a layperson is capable of drawing inferences from sufficiently clear language describing the method

of calculating the policy premium). Second, the policy includes express definitions for such

specialized equipment as “ELEVATOR” and “ESCALATOR”, which appear to pertain solely to the

Canadian mining operations. Bay “occurrence” Dec., Exh. A at 4.

The following parts of the policy appear to support a broader interpretation. First, the policy

covers “occurrences occurring anywhere in the World.” Id. at 4. Second, the policy’s description of

the “BUSINESS OF THE INSURED” includes the “manufacturing of road surfacing and

waterproofing materials, asphalt and asbestos products.” Id. at 2. According to defendants’

complaint filed in a parallel Canadian action pertaining to the same policy, the Canadian subsidiaries

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did not manufacture asbestos products, a fact not challenged by plaintiff: “The Flintkote Company

of Canada Limited and The Flintkote Mines Limited were companies incorporated in Canada in

1945 by their parent, The Flintkote Company for the sole purpose of [the] mining and selling of raw

asbestos to the U.S. parent.” Bay “occurrence” Dec., Exh. B at 4 ¶ 6.4

Although the policy does contain some language suggesting a narrow interpretation of

“Affiliated corporations,” the broad geographic scope of the policy and the express global coverage

of asbestos “products” which were manufactured principally by the United States parent make the

narrow reading unreasonable. The court therefore finds that “Affiliated corporations” encompasses,

at a minimum, the parent of the Canadian subsidiaries. As there is no dispute that plaintiff is the

parent company, plaintiff is a named insured under the policy.

This conclusion is consistent with the only two cases cited by either party in support of their

proposed constructions, Braun v. Insurance Co. of North America, 488 F.2d 1066 (5th Cir. 1974)

and Harold Ives Trucking Co. v. Pickens, 139 S.W.3d 471 (Ark. 2003). The court in Braun held that

“affiliate” can include a corporate parent, refusing to “adopt the appellant’s restrictive downstream

definition of the word affiliate.” 488 F.2d at 1067. The court in Harold Ives Trucking also upheld

the interpretation of “affiliate” as including a corporate parent. 139 S.W.3d at 474 (finding that the

plaintiff and its “affiliates,” including its corporate parent, had a net worth of more than $50

million).

Defendants’ other arguments in support of a narrow construction are unavailing. First,

defendants argue that plaintiff obtained its own separate liability coverage, which suggests that

plaintiff did not believe that it was covered under its subsidiaries’ policy. This argument ignores the

nature of the insurance policy, which is a liability policy that provides for payment to injured third

parties. The California Supreme Court has noted that insureds may purchase many such policies,

resulting in overlapping coverage. Montrose Chem., 10 Cal. 4th at 665 (noting the possibility of

“secondary” liability policies establishing redundant coverage). Indeed, the policy itself provides for

the existence of overlapping coverage. Bay “occurrence” Dec., Exh. A at 7 (“OTHER

INSURANCE,” discussing the effect of “other insurance against a loss covered by this policy”).

Second, defendants argue that plaintiff’s previous litigation conduct demonstrates that

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plaintiff did not believe it was covered under the policy. According to defendants, in 1983 plaintiff

filed a lawsuit against its insurers in an attempt to obtain assistance in defending against asbestosrelated claims. The lawsuit did not include defendants or their predecessors. Whatever inference

might be drawn from plaintiff’s previous litigation tactics, however, no such inference can overcome

the fact that the face of the written policy supports only one reasonable interpretation. Cf. Crestview

Cemetary Ass’n v. Dieden, 54 Cal. 2d 744, 752–54 (1960) (using the actions of the two parties,

which disclosed their intent “with crystal clarity,” to interpret an otherwise undocumented oral

contract).5

Third, defendants argue that the phrase “as their respective interests may appear” limits

coverage under the policy to entities whose “interests”—apparently construed by defendants to mean

gross sales or other financial information—appear in the remainder of the policy. Defendants offer

no reason, however, to interpret “interests” in the particular, narrow way they propose. To the

extent that plaintiff’s business “interests” generally include the manufacturing and distribution of

asbestos and asbestos products, the policy expressly provides coverage.

Finally, defendants claim that interpreting “Affiliated corporations” to include corporate

parents causes the “NAME OF INSURED” section to be redundant with the “Additional Insured”

section, which provides coverage for “[p]ersons, firms or corporations financially controlling or

controlled by the Insured.” According to defendants, interpreting the contract in a way that creates

overlap between these two sections is “repugnant, redundant, and in violation of the law,” including

California Civil Code section 1641 and Carmel Development Co. v. RLI Insurance Co., 126 Cal.

App. 4th 502, 511 (2005).

Section 1641 provides that contracts should be construed in a manner that gives effect to

every part, “if reasonably practicable.” Here, under the court’s construction the “Additional

Insured” section at a minimum continues to confer separate rights on “[p]ersons” financially

controlling the named insured. The court also notes that the “NAME OF INSURED” section

extends coverage to “Subsidiary” corporations, which appears to be unavoidably redundant with

designating “financially. . .controlled” corporations as “Additional Insured[s].” Compare Bay

“occurrence” Dec., Exh. A at 2 with id. at 3. Construing “Affiliated corporations” in a manner that

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results in some overlap does not introduce a significant additional violation of the statutory canon of

construction. Carmel Development Co. simply rearticulates the general principle codified in section

1641, rejecting the argument that a contract provision was “simply a redundancy” when an alternate,

more plausible construction was possible. 126 Cal. App. 4th at 511–12. Here, in contrast, the court

has adopted the only reasonable construction of the contract. The fact that some redundancy results

is not fatal.

“Affiliated corporations” is thus construed to include corporate parents, which in this case is

plaintiff, The Flintkote Company.

D. “Occurrence”

Plaintiff argues that the word “occurrence,” as used in the policy and as applied to injuries

arising out of exposure to asbestos, means “each incident of asbestos exposure causing bodily

injury.” Defendants argue that the word “occurrence” might mean various things, depending on the

results of additional fact discovery. For example, defendants suggest that “occurrence” might be

construed to mean “the insured’s decision to mine and sell asbestos” or “the number of Flintkote

plants which receive Mines’ asbestos.” Defendants’ principal argument appears to be that the court

should adopt an “equitable alternative” to plaintiff’s proposed construction, depending on the facts

of the instant case.

As an initial matter, the court is mystified as to defendants’ appeal to “equity” in the context

of insurance contract interpretation. Courts do not interpret contracts or other legal documents in

order to achieve a particular result, equitable or not. Rather, the meaning of a contract is determined

by the parties’ reasonable expectations at the time of formation. Montrose Chem., 10 Cal. 4th at

666. Discovery of further facts, such as the number of claims plaintiff expects to make under the

policy, is completely unnecessary prior to interpreting the policy’s language. Defendants’ informal

request for such discovery, regardless of whether it meets the formal requirements of Rule 56(f), is

therefore denied.

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1. Policy Language

A contemporaneous dictionary defines “occurrence” in relevant part as follows: “2.

Appearance or happening; as, the occurrence of a fire. 3. Any incident or event, esp. one that

happens without being designed or expected; as, an unusual occurrence.” Webster’s New

International Dictionary 1684 (2d ed. 1957). Neither party argues that the definition of

“occurrence,” standing alone, is unambiguous, though the court notes that the phrase “without being

designed or expected” favors plaintiff’s proposed construction. Frequent usage of “occurrence”

throughout the policy provides ample basis for establishing the reasonable expectation of the

insured.

2. Reasonable Expectation of the Insured

The word “occurrence” is used throughout the policy in various provisions related to the

scope of coverage, limitation of liability, and procedures for obtaining coverage. The following

instances are helpful in resolving plaintiff’s motion. Within the section of the policy titled

“INSURING AGREEMENTS,” which sets forth the scope of coverage, “occurrence” appears three

times. In the paragraph titled “Assault,” the policy states that “[b]odily injury or death alleged to

have been caused by an assault shall be deemed the result of an occurrence within the meaning of

this policy.” Bay “occurrence” Dec., Exh. A at 4. Here, “occurrence” refers to the “assault” which

immediately preceded and caused the injury. In the paragraph titled “Defense, Settlement,

Supplementary Payments,” the policy states that the insurer shall pay for “such immediate medical

and surgical relief to others as shall be imperative at the time of occurrence.” Id. at 3. Here, as well,

the occurrence must immediately precede the injury, which results in the need for medical attention

“at the time of occurrence.” Finally, the paragraph titled “Territory” states that the policy applies to

“occurrences occurring anywhere in the World,” suggesting that occurrences may be geographically

dispersed. Id. at 4.

The section of the policy titled “CONDITIONS” includes the disputed limitation of liability

provision already quoted, supra. Id. at 5–6. As defendants correctly point out, the fact that there can

be multiple injuries as part of a single occurrence indicates that “injury” and “occurrence” do not

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have the same meaning. The “CONDITIONS” section also includes a paragraph titled “Notice of

Occurrence,” which states that “[u]pon happening of an occurrence. . .written notice shall be given

by or on behalf of the Insured to the Company. . .as soon as practicable after notice thereof has been

received by its executive officers.” Id. at 6. Further, the notice shall include “information respecting

the time, place and circumstances of the occurrence or accident” as well as information about the

injured party and any witnesses. Id.

All of the preceding passage use “occurrence” in the sense of “accident”: an unforseen event

that causes injury to one or more persons, or to property. In contrast, both of defendants’ proposed

constructions for “occurrence”—“the insured’s decision to mine and sell asbestos” or “the number

of Flintkote plants which receive Mines’ asbestos”—are better characterized as business decisions or

operational facts of plaintiff’s business. It would be nonsensical to require plaintiff to provide

“written notice. . .as soon as practicable” as to its business decision to sell asbestos or as to the

number of plants it operates. Neither of defendants’ proposed constructions is tenable.

Moreover, the reporting requirements and “Supplementary Payments” portions of the

policies indicate that an occurrence is generally contemporaneous in time with the resulting injury. 

Unlike other policies noted by the parties (and discussed in past cases considering liability for

asbestos exposure) there is no clause in the policy defining a condition existing for a prolonged

period of time as a single occurrence. Cf. Chemstar, Inc. v. Liberty Mut. Ins. Co., 797 F. Supp.

1541, 1546 (C.D. Cal. 1992) (quoting a portion of the insurance policy at issue, which states that

“[f]or the purpose of determining the limit of the Company’s liability all. . .property damage arising

out of continuous or repeated exposure to substantially the same general conditions shall be

considered as arising out of one occurrence”).

Finally, it is clear that an occurrence must give rise to liability. The portion of the policy

defining the scope of coverage obligates defendants to pay “all sums which the Insured shall become

legally obligated to pay by reason of liability for damages. . .because of bodily injury.” Bay

“occurrence” Dec., Exh. A at 3.

Taken in combination, these provisions of the policy give the term “occurrence” clear

meaning. The court finds, based on consistent usage within the policy, that “occurrence” means “an

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event that causes and immediately precedes an injury giving rise to liability under the policy.”

Given this definition of“occurrence,” the next question is which incidents qualify as

occurrences in the context of asbestos-related injuries. Here, past cases considering the cause of

asbestos-related injuries are useful. A Second Circuit decision, In re Prudential Lines, Inc., 158 F.3d

65 (2d Cir. 1998), is particularly helpful because its analysis of the meaning of “occurrence” tracks

this court’s analysis exactly, and because it bases its conclusion in part on California law:

The common thread running through the California cases is that an “occurrence” or

“accident” is associated with the time of injury. This leads to the conclusion that the

“cause” of injury which determines the number of occurrences undoubtedly refers to

the immediate rather than the remote cause of injury. . . . As the court stated in

Maples [v. Aetna Casualty and Surety Co.], supra, 83 Cal. App. 3d [641], 647–48,

148 Cal. Rptr. 80 [ (1978) ], in reference to both California and out-of-state cases on

the timing of “occurrences” or “accidents”: 

[T]his seemingly unbroken line of authority find[s] that the term

“accident” unambiguously refers to the event causing damage, not the

earlier event creating the potential for future injury. . . . The event

causing damage in the asbestos-related bodily injury cases is exposure

to asbestos fibers. . .. Since each individual claimant has a unique

work history, each claimant’s exposure must be viewed as a separate

occurrence. 

Id. at 1211 (quoting Asbestos Insurance Coverage Cases, Judicial Council

Coordination Proceeding No. 1072, Statement of Decision Concerning Phase IV

Issues, at 9–16 (Super. Ct. San Fran. Jan. 24, 1990), aff’d in part and reversed in part

on other grounds sub nom. Armstrong World Indus. v. Aetna Cas. & Sur. Co., 26 Cal.

Rptr. 2d 35, 20 Cal. App. 4th 296 (Ct. App. 1993))

Id. at 82 (emphasis added). The court is therefore in substantial agreement with plaintiff and finds

that, as applied to the context of asbestos-related injuries, an “occurrence” is “exposure to asbestos

that causes and immediately precedes an injury giving rise to liability under the policy.”

Defendants vehemently argue that the court should ignore portions of the policy and

precedent cases that define “occurrence” in the context of triggering coverage, because the meaning

of “occurrence” is different in the coverage and limitation of liability contexts. Defendants

seemingly contend that a single word—“occurrence”—should be given two different meanings in

two different sections of the policy. The two principal cases cited by defendants in support of their

argument, however, compel no such finding.

In Whittaker Corp. v. Allianz Underwriters, Inc., 11 Cal. App. 4th 1236 (1992), the court

considered whether property damage associated with defective rubber seals was covered under a

liability policy. The manufacturer of the seals began using the defective rubber compound during

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the coverage period of the policy, but the damage resulting from the defective seals occurred after

the policy expired. Id. at 1240. The manufacturer argued that the relevant “occurrence” triggering

coverage under the policy was the decision to use the defective compound. Id. The court disagreed,

noting that the policy at issue in Whittaker contained the following definition of “occurrence”: 

“‘Occurrence’ means an accident, including continuous or repeated exposure to conditions, which

results in bodily injury or property damage neither expected nor intended from the standpoint of the

insured.” Id. at 1241. In light of the fact that an “occurrence” required both a “condition” and

resulting “property damage,” the court concluded that property damage occurring after the

termination of the policy was not covered. Id. at 1244–45.

In reaching this conclusion, however, the court noted that in the context of establishing the

correct limitation of liability, “occurrence has generally been held to mean the underlying cause of

the injury, rather than the injury or claim itself; otherwise, the insurer’s effort to limit its liability

would be substantially weakened.” Id. at 1241–42. This passage is confusing in several respects. 

First, although the court never explicitly so stated, the strong implication of the quoted

passage is that there was only a single occurrence for purposes of determining the limitation on

liability—the decision to use the defective compound, which “caused” all of the resulting property

damage. See id. at 1242 (citing Champion Int’l Corp. v. Continental Casing Co., 546 F.2d 502 (2d

Cir. 1976), in which the court found that 1,400 instances of damage related to defective plywood

panels constituted a single “occurrence” for purposes of establishing limitation of liability). The

Whittaker court did not reconcile that conclusion with the express language of the policy, which

defined an “occurrence” as an “accident, including continuous or repeated exposure to conditions.” 

Id. at 1241. To say that a business decision is an “accident” or a harmful “condition” tortures

language beyond reason.

Second, the Whittaker court’s argument that construing “occurrence” as anything beyond the

decision to use the defective compound would be detrimental to insurers is pure “reasoning from

result,” see In re Prudential Lines, 158 F.3d at 83 n.10, and is at odds with both the statutory

framework for contract interpretation based on the language of the policy and the requirement of

resolving truly ambiguous language in favor of the insured. See Montrose Chem., 10 Cal. 4th at

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667. California statutes and decisions of the California Supreme Court have substantially more

weight than dicta in a single Court of Appeal decision.

Third, the Whittaker court’s observation that an “occurrence” is “the underlying cause of the

injury” (also the holding of Chemstar, 797 F. Supp. at 1547, the other case cited by defendants) is

not particularly helpful analytically, as many events preceding an injury are causally connected to

the injury. Plaintiff’s motion seeks a determination of which event preceding an asbestos-related

injury is an “occurrence” as contemplated by the policy. As just discussed, the plain language of the

policy indicates that the “occurrence” immediately precedes the injury. In the case of asbestosrelated injuries, the immediate cause of injury is exposure to asbestos fibers.

Finally, contrary to defendants’ suggestion, the finding that “occurrence” in the context of

asbestos-related injuries refers to an exposure to asbestos fibers does not eliminate the distinction

drawn in the policy between occurrences and injuries. As the court pointed out at oral argument, an

exposure to asbestos fibers is not an injury; rather, the harm done to the body as a result of the

exposure is the injury.

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CONCLUSION

For the above reasons the court hereby GRANTS plaintiff’s motions for summary

adjudication of the meaning of “Affiliated corporations” and “occurrence” as used in policy number

L-90-4672 and the application of those meanings to the facts of this case. The phrase “Affiliated

corporations” is construed to include the corporate parent—The Flintkote Company—of the

expressly named insureds. The term “occurrence” in the context of plaintiff’s asbestos products is

construed to mean “exposure to asbestos that causes and immediately precedes an injury giving rise

to liability under the policy.”

IT IS SO ORDERED.

Date: January 3, 2006 ________________________

MARILYN HALL PATEL

United States District Judge

Northern District of California

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1. Unless otherwise noted, background facts are taken from the declarations accompanying the parties’

briefs. Material disputes of fact are noted.

2. Defendants somewhat confusingly include “Choice of Law” sections in their briefs in opposition,

suggesting that the choice of law may have bearing on the resolution of the motions. In the same

section, however, defendants note that “there is slight or no difference between the laws of Ontario, and

the laws of California.” As defendants have stated no cognizable argument based on choice of law, the

court will assume that California law governs for purposes of deciding the instant motions. 

3. Oddly, defendants observed at oral argument that the Latin root for “affiliate,” filius, means “son.”

This meaning further supports plaintiff’s construction of “affiliate,” which includes corporate parentchild relationships as well as the sibling relationship that defendants propose. 

4. At oral argument, defendants initially corroborated this assertion while addressing the interpretation

of “occurrence,” claiming that the Canadian companies were only in the business of mining. When

confronted with the implications of such a fact for the interpretation of “Affiliated corporations,”

defendants retracted, instead claiming that the Canadian companies engaged in limited manufacturing

of asbestos products for use only in Canada. Even if defendants were able to prove this through

admissible evidence, limited local manufacturing of asbestos products is difficult to reconcile with

the policy’s coverage of all occurrences, including occurrences resulting from product defects, which

occur “anywhere in the World.” See Bay “occurrence” Dec., Exh. A at 4.

5. Because plaintiff’s litigation conduct is not dispositive of the meaning of “Affiliated corporations,”

defendants’ implied request for further discovery regarding the earlier litigation is denied.

 ENDNOTES

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