FILED

U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

JULY 07, 2008

THOMAS K. KAHN

CLERK

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

________________________

No. 06-15748

________________________

D. C. Docket No. 99-00101-CV-T-25-MAP

BKCY No. 90-10016-8B1

IN RE: 

THE CELOTEX CORP., 

Debtor.

_________________________________________________________________ 

ASBESTOS SETTLEMENT TRUST, 

Plaintiff-Appellant, 

versus 

CONTINENTAL INSURANCE COMPANY, 

NATIONAL SURETY CORPORATION, 

PATRICK SELWYN PLAISTED, 

CERTAIN UNDERWRITERS AT LLOYD'S LONDON, 

CERTAIN LONDON MARKET INSURANCE COMPANIES 

(Plaisted), et al., 

Defendants-Appellees. 

________________________

Appeal from the United States District Court

for the Middle District of Florida

_________________________

(July 7, 2008)
 Summary judgment was denied as to some insurers, who are not parties to the appeal. 1

This does not defeat our jurisdiction. Although a bankruptcy court order which adjudicates

fewer than all claims against all parties to an adversary proceeding is typically not final, it

becomes so if the court directs separate entry of judgment pursuant to Fed. R. Bankr. P. 7054,

which incorporates Fed. R. Civ. P. 54(b). See In re FDR Hickory House, 60 F.3d 724, 725 (11th

Cir. 1995). Here, the bankruptcy court directed entry of judgment pursuant to Fed. R. Bankr. P.

7054, rendering its judgment appealable as to the claims and parties certified. Further, the

2

Before EDMONDSON, Chief Judge, PRYOR and KRAVITCH, Circuit Judges.

PER CURIAM:

This is an insurance coverage dispute arising in the context of a decadeslong Chapter 11 bankruptcy. The debtor, Celotex Corp., manufactured

construction products and building materials containing asbestos, and as such it

faced a torrent of lawsuits alleging bodily injury and property damage. As part of

its reorganization plan, Celotex created the appellant, Asbestos Settlement Trust. 

The Trust assumed Celotex’s tort liabilities and was assigned Celotex’s right to

indemnity, if any, under certain excess liability insurance policies. Celotex filed

this adversary proceeding seeking a declaration that payment was due under the

policies, which the insurers contested.

After a lengthy bench trial, the bankruptcy court determined, as pertinent

here, that the policy terms covered claims for both property damage and bodily

injury, but that timely notice of claims was not given to the excess insurers. Thus,

the bankruptcy judge granted judgment as a matter of law for the nine excess

insurers on appeal. The judgment was affirmed on appeal to the district court. 1
district court finally adjudicated all the claims properly before it on appeal, so we see no need for

a separate Fed. R. Civ. P. 54(b) certification by the district court. See id. at 725 n.1 (where a

district court affirms a bankruptcy court order, both orders necessarily possess the same degree

of finality).

3

The only issue before us is whether notice was timely given to the excess insurers

about the property-damage claims. We agree with the bankruptcy and district

courts that it was not.

I. 

The pertinent facts are undisputed, except as noted.

A. Celotex’s Excess Policies

Celotex was a sophisticated insured and an experienced defendant in mass

tort cases. It began facing large numbers of asbestos-related bodily-injury suits in

the 1970s. Because of these suits, Celotex (with its parent company) had an

insurance department and in-house legal team which attempted to manage its

liability exposure. Celotex bought multiple layers of insurance coverage to

manage its risks. 

At all pertinent times, Celotex had multiple layers of liability insurance

coverage: primary policies with Aetna, but also umbrella (second layer) and excess

(third and higher layers) policies with numerous insurers. Only the excess policies

from 1978 to 1984 are at issue here. The policies were renewed annually. The

umbrella policies provided coverage for liability beyond the primary policy’s
 It appears the primary policies did provide coverage for bodily-injury claims unrelated 2

to asbestos.

4

limits, while each excess policy in turn provided coverage for liability exceeding

the limits of the policy immediately underlying it, and so forth. The umbrella and

excess policies “followed form” to the underlying primary policy; that is, the scope

of insured risks was identical, except insofar as the excess policies expressly

provided otherwise. The primary policies had separate coverage limits for bodily

injury and property damage; $2 million of coverage was available yearly for the

property damage claims. The umbrella and excess policies, however, had an

aggregate coverage limit for bodily injury and property damage; in other words,

paying claims of one category diminished the coverage available for the other. 

During 1978-1984, Celotex’s primary policies excluded coverage for

asbestos-related bodily-injury claims. This was important because it meant that 2

massive amounts of bodily-injury claims and settlements were being paid out of

higher layers of coverage, not the primary coverage. Moreover, because the

second and higher layer policies had single coverage limits encompassing both

bodily-injury and property-damage claims, any property-damage claims were more

likely to impact the upper-layer excess carriers than they would have been in the

absence of the exclusions in the primary policies, as any payments on bodily-injury

claims would consume the lower levels of excess coverage. Between 1978 and
 The focus of the coverage dispute over bodily-injury claims was whether “asbestosis”

3

was one discrete disease or a term the parties used to refer generically to all symptoms and

diseases resulting from asbestos exposure. The bankruptcy court chose the former interpretation.

5

1982, the excess policies had exclusions for “asbestosis,” although beginning in

April 1983 Celotex took the position that there was still excess coverage for some

bodily-injury claims. Between 1982 and 1984, the exclusion language in the 3

excess policies was even broader, excluding coverage for asbestosis “and related

diseases arising out of asbestos products.”

The excess policies required written notice to the insurers “as soon as

practicable” in the event of an “occurrence” “reasonably likely” to implicate

coverage. They also required notice of “any claim made on account of such

occurrence” and required legal papers to be forwarded to the insurer. Although not

all the policies used precisely this language in their notice provisions, the language

was substantially similar in each policy, and the lower courts treated the notice

obligations under each policy as identical. No one contends otherwise here.

B. The Property Damage Litigation

Before the initial wave of bodily-injury suits against asbestos manufacturers

in the 1970s had subsided, a second wave of property-damage suits appeared on

the horizon. Such suits were foreseen by Celotex, which anticipated an
6

“explosion” of property-damage litigation similar to the then-familiar bodily-injury

cases. Asbestos-related property-damage suits were encouraged by the federal

government. In 1979, the EPA published a document called the Orange Book

which provided guidance to owners of buildings containing asbestos. The Orange

Book advised building owners that any exposure to asbestos, even in small

amounts, could be carcinogenic, and that owners should remove asbestos from

their buildings. Congress passed legislation in 1980 which obligated school

districts to look for asbestos in their buildings, assisted them in doing so, and

assisted them in mitigating hazardous conditions resulting from asbestos exposure. 

See generally 20 U.S.C. § 3601 et seq. The first asbestos-related property-damage

suits were filed in 1980, but Celotex was not a party. In 1981, pursuant to federal

statutory requirements, the Attorney General issued a report on the state of

asbestos litigation which was essentially a blueprint for school boards to sue

asbestos manufacturers; the report included a model complaint and specifically

named Celotex as a potential defendant. 

The first asbestos-related property-damage suit naming Celotex was filed in

1981, and more soon followed. In June 1982, the first of five class action suits

seeking damages for asbestos-related property damage was filed against Celotex. 

The other four suits included a case filed January 1983 involving 4,000 buildings. 
 The Trust contends it had about $6.6 million remaining in primary coverage for 4

property-damage claims; the insurers contend the amount was closer to $2.2 million. Nothing

turns on the distinction, which is insignificant in the larger picture of asbestos litigation.

7

Altogether, the pre-1985 property-damage suits against Celotex sought about $2

billion in damages. Nonetheless, Celotex did not notify its excess insurers of these

suits as the pleadings were received.

Celotex and Aetna did not pay anything on an asbestos-related propertydamage claim, whether by judgment or settlement, until 1986. From 1986 to 1988,

Aetna, the primary insurer, paid only $785,000 in property-damage claims. 

Further, these payments were well within the limits of property-damage coverage

under the primary policies, so no indemnity was due from the umbrella and excess

policies.

When Celotex filed for bankruptcy in 1990, it still had remaining propertydamage coverage under the primary policies; no excess carriers had yet been 4

impacted. Celotex initiated this declaratory judgment proceeding to determine its

rights under the policies. Approximately $20 billion in proofs of claim were filed

against Celotex alleging property damage from its asbestos products. Its ultimate

liability for property damage is not yet known, but Celotex estimates it will be on

the order of billions of dollars.

C. Notice or the Lack Thereof
8

On December 5, 1979, Aetna issued a reservation of rights letter to Celotex

concerning all asbestos-related bodily-injury claims. Aetna also recommended that

the umbrella and excess carriers be informed of its position. Rollins Burdick

Hunter (RBH), Celotex’s insurance broker, forwarded copies of the letter to the

umbrella and excess carriers in late 1979. At first, notice was given only to pre1977 carriers, not to the appellees here. On January 2, 1980, Robert Emerton,

Celotex’s in-house insurance counsel, decided to expand the scope of notice. 

Emerton wrote a letter instructing RBH to notify Celotex’s umbrella and excess

carriers of all pending asbestos related cases, stating it “appears likely that all our

excess carriers may be involved in our asbestos-related litigation.” In that same

letter Emerton issued the following critical instruction to RBH: “On all future cases

I would ask [RBH] to notify not only our first layer excess carriers, but all excess

carriers which would have coverage applicable to asbestos-related claims.” At

trial, a Celotex employee confirmed that this instruction was intended to apply,

going forward, to both bodily-injury claims and property-damage claims. The

latter were unfiled, but eminently foreseeable, when the letter issued.

There is some dispute between the parties as to whether and when notice of

property-damage claims was given. The bankruptcy court found that, despite

Celotex’s instruction to RBH, notice had not been given to any of the excess
 The Trust raises no argument on appeal to this court that the limited-purpose admission 5

was erroneous, so the issue is forfeited. Likewise, the Trust argued on appeal to the district court

that the bankruptcy court erred in excluding altogether certain documents which purported to

show notice, a contention which the district court rejected and which was not argued on appeal

here.

9

insurers of any property-damage claims until after Celotex’s bankruptcy filing in

1990. The district court stated that notice was given beginning in 1984 and

periodically thereafter. It did not state, however, that it was disturbing any factual

finding by the bankruptcy court, and was apparently unaware of the inconsistency. 

The inconsistency probably is best explained by the fact that the Trust offered

some documents which purported to show contemporaneous notice of the

property-damage suits, but they were received by the bankruptcy court for a

limited (and different) purpose. We will adhere to the bankruptcy court’s finding 5

that notice was not given contemporaneously as the property-damage suits were

filed, as underwriting presentations by Celotex to the excess insurers were

conducted, or as the excess policies were entered into, as the Trust’s argument to

the contrary was based on documents admitted only for another purpose.

In any event, the bankruptcy court concluded that a reasonable insured

would have given notice of the property-damage claims in April 1983 at the latest.

When Celotex filed for bankruptcy in 1990, it had paid $6.95 million in settlements

and judgments on property-damage claims, and had, at most, approximately $6.6
10

million in primary property-damage coverage remaining.

II. 

The parties agree that Illinois law governs this dispute. Under Illinois law,

whether notice was timely given under particular circumstances is a question of

law subject to plenary review. See Hartford Accident & Indemnity Co. v. Rush

Presbyterian St Luke’s Med. Ctr., 595 N.E.2d 1311, 1316 (Ill. App. 1992)

(citations omitted).

 Where a policy requires notice to an insurer of a claim or occurrence, timely

notice is a condition precedent to coverage. However, notice requirements in

excess policies are interpreted differently from their counterparts in primary

policies, because excess insurers often do not investigate occurrences nor defend

the insured. Id. at 1315 (citation omitted). Accordingly, the insured typically has

some discretion in notifying an excess insurer of a claim or occurrence. Id. The

policy language here required notice “as soon as practicable” in the event of an

occurrence “reasonably likely” to implicate coverage, terms which convey that the

insured retains some discretion in providing notice. As the policy language

implies, notice is not necessarily due immediately upon learning of a claim or

occurrence, or when it is merely possible that the excess coverage would be

implicated, but only once a reasonable insured would realize that it was
11

“reasonably likely” the excess coverage could be impacted by an occurrence or

claim. See id. at 1315, 1317. When an insured has primary coverage available and

could not foresee that an excess policy would be implicated, notice is not due. 

Zurich Ins. Co. v. Walsh Constr. Co., 816 N.E.2d 801, 806-07 (Ill. App. 2004). In

other words, the critical question is when “should [the insured] reasonably have

known that its excess insurance coverage would be implicated?” Atlanta Int’l Ins.

Co. v. Checker Taxi Co., 574 N.E.2d 22, 25 (Ill. App. 1991).

Although we must look to the totality of the circumstances in determining

whether a reasonable insured would have known an excess insurer would be

impacted, several particular circumstances are especially relevant. The first is the

amount of damages sought by the property-damage suits. Notice is not necessarily

due just because a complaint seeks damages in excess of the remaining primary

coverage. Hartford, 595 N.E.2d at 1316-17 (rejecting a bright-line rule requiring

notice to excess carriers upon receipt of a complaint seeking damages in excess of

primary coverage). But although not determinative of whether notice is due to an

excess insurer, the amount of damages sought in a complaint is relevant. Ad

damnum clauses which dwarf the primary coverage are, as the bankruptcy court

noted, cause for concern and militate in favor of providing notice. 

Of course, a reasonable insured may undertake a diligent investigation of a
12

claim or occurrence and conclude that it will not implicate an excess policy,

notwithstanding a prayer for relief which would do so on its face. In those

circumstances, the insured acts reasonably by withholding notice. In other words,

the insured’s own reasonable evaluation of the merits of any suit or demand is

highly relevant to whether notice was timely given. See Hartford, 595 N.E. 2d at

1317. The sophistication of the insured is also relevant in determining whether

notice was timely given. Country Mut. Ins. Co. v. Livorsi Marine, Inc., 856

N.E.2d 338, 344 (Ill. 2006). An insurer need not show prejudice to prevail on an

untimely notice defense, but the presence or absence of prejudice is relevant to

whether notice was reasonably given in the circumstances. Id. at 346.

Importantly, an insured may not withhold notice that the excess carriers will

be impacted simply because it might take a while for such an impact to be felt. An

insured who has reason to believe excess carriers will be impacted in the future

must give notice when it reaches that understanding; it cannot wait until the

underlying coverage is about to run out. See Sisters of Divine Providence v.

Interstate Fire & Cas. Co., 453 N.E.2d 36, 38 (Ill. App. 1983); see also Hartford,

595 N.E.2d at 1316 (“The insured must show that notice was given when it

concluded that the excess insurance policy was implicated... .”).

The Trust argues that notice of the property-damage claims was not due to
13

the excess insurers even in 1990, let alone in April 1983 as the bankruptcy court

held, because there was still property-damage coverage available under the primary

policies in 1990. We disagree. Celotex determined in 1980 that all future asbestos

litigation, including property-damage litigation, could well impact the excess

carriers. That is why, in 1980, it directed notice of all future asbestos litigation be

given to its excess insurers. When an insured actually (and quite reasonably)

concludes all future claims will impact excess coverage, it is a fortiori

unreasonable to withhold notice of claims for years after the complaints are

received. Yet that is what happened here. Inexplicably, RBH did not provide

notice despite instructions from Celotex to do so. Nor did Celotex provide notice

itself or verify that its agent was performing according to instruction. Celotex

argues that the 1980 conclusion that future suits would affect the excess insurers

only concerned bodily-injury suits, but there was credible testimony to the

contrary.

Moreover, the nationwide scope of asbestos property-damage litigation, as

well as the massive damages sought in the property-damage actions, suggests the

excess insurers should have been notified long before Celotex’s bankruptcy. These

suits sought damages in the billions of dollars, while the primary coverage which

the Trust relies upon to justify its lack of notice had, at most, $6.6 million in
 The insurers point us to a representative case, concerning a Federal Reserve Building, 6

that settled for $5.5 million.

14

primary coverage remaining. Even if the ad damnum clauses were grossly

overstated, as Celotex argues, the cases needed only to settle for a minuscule

fraction of their purported value to exceed the primary coverage. Or, after one or

two breakthrough verdicts or settlements, the excess insurers would be implicated.6

Obviously, an insured need not be so conservative as to assume that every case is

worth the plaintiff’s demand. But neither can a reasonable, prudent insured

optimistically assume that damage claims exceeding its primary coverage by

multiples of several hundred will not implicate excess policies, particularly when

one litigation defeat could exhaust the primary policy. Celotex could fall back on

its own reasonable diligence or claims evaluation process had it rationally

concluded that property-damage liability exceeding the primary coverage was

unlikely, notwithstanding the huge ad damnum clauses. But the bankruptcy court

found no evidence that any such process or diligence occurred – a factual finding

the insurers have not challenged. Celotex’s failure to give notice was apparently

the result of oversight or negligence, not a meticulous evaluation of the suits’

merits. 

The Trust argues that because the early property-damage suits were being

dismissed or settling for minuscule amounts, notice was not due before 1990. But
15

that does not alter the fact that Celotex foresaw a decade earlier that its excess

insurers would be impacted by the overall course of the property-damage litigation. 

The insured’s own knowledge that excess insurers would be implicated is more

important than the pace of litigation or settlement, as “[t]he insured must show that

notice was given when it concluded that the excess insurance policy was

implicated... .” Hartford, 595 N.E.2d at 1316. And Celotex’s 1980 realization was

correct; although it took years to exhaust the primary Aetna coverage, that

coverage ultimately will not be sufficient to cover Celotex’s eventual propertydamage liability.

Moreover, the bankruptcy court was correct that Celotex’s April 1983

“epiphany” is highly relevant to the reasonableness of notice practices concerning

the property-damage claims. It was then that Celotex, for the first time, took the

position that there was excess coverage for bodily-injury claims other than

“asbestosis.” If this interpretation of the excess policies was correct, a reasonable,

sophisticated insured would have realized at that time that property-damage claims

could well affect the higher-level excess insurers, because of (i) the volume and

amount of bodily-injury claims, and (ii) the aggregate coverage limits for bodilyinjury and property-damage claims, resulting in consumption of lower-level excess

coverage by bodily-injury suits.
16

In sum, Celotex concluded in 1980 that all future asbestos litigation could

impact its excess coverage. It foresaw a massive wave of property-damage

litigation, which materialized. It was sued for over $2 billion dollars in property

damage, as against less than $7 million in primary coverage. It produced no

evidence that a rational claims evaluation process led it to alter its 1980

determination that notice of suits should be given going forward, or to conclude

that its primary coverage would last in the long run. And it gave no notice until at

least five years, and in some cases almost a decade, after the property-damage suits

were filed. As the bankruptcy and district courts recognized, such neglect was

unreasonable in the circumstances. 

AFFIRMED.