FILED U.S. COURT OF AP P EALS E LEVEN T HC IRC U IT JULY 07, 2008 THOMAS K. KAH

N CLERK [ DO NO T P UB L I S H] I N THE UN I TE D STATE S C OU RT OF APPE ALS F O R T H E E L E V E N T H C IR C U IT

________________________ N o. 06- 15748

________________________ D. C . Do c k e tNo . 9 9 - 0 0 1 0 1 - C V- T - 2 5 - MAP BK CY N o . 9 0 - 1 0 0 1 6 - 8 B1 I N R E : T H E C E L O T E X C O R P ., D ebt or.

_________________________________________________________________ A S B E S T O S S E T T L E M E N T T R U S T , P la in tif f - A p p e lla n t, v ersu s C O N T I N E N T A L I N S U R A N C E C O M P A N Y , N A T I O N A L S U R E T Y C O R P O R A T I O N , P A T R I C K S E L W Y N P L A I S T E D , C E R T A I N U N D E R W R I T E R S A T L L O Y D 'S L O N D O N , CERTA I N LO N D O N M A RK ET I N SU RA N CE CO M PA N I ES ( P la is te d ) , e t a l., D e f e n d a n ts - A p p e lle e s .

________________________ A pp ea l fr om the U ni t ed S t at es D i stri ctC ou rt f orthe M i ddl e D i s tr i c tof F l or i da

_________________________ ( Ju l y 7, 2008)Summary judgment was denie d as to some insurer s, who arenot parties to the appe al. 1 This does not defe at our jurisdiction. Although a bankr uptcy court order which adjudicates fewer t ha n all c laimsag ains t all p artie s toan adv ers ary proc e e dingis ty

pic ally no t f inal, it become s so if the court dire cts separate entry of judgment pursuant to Fe d. R. Bankr . P. 7054, which inc or

po rate s F e d. R. C iv. P. 5 4(b) . Se eIn reF DR Hi c ko ry Hous e , 6 0 F .3 d 7 24 , 7 25 (1 1th Cir . 1 99 5) . H ere , th eba

nk ru ptcy c ourt dire c te d entr

y of judgment pur su ant to F e d. R. B ank r. P. 7054, renderingits judgment appe alable a s to the claims and par ties cer tified. Fur

ther, the 2 B efo re E D M O N D S O N , C h i ef Ju d g e, P R Y O R an d K R A V IT C H , C i rcu i tJu d g es. P E R C U R I A M: T h i s i s an i n su ran ce co v erag e d i sp u t e ari si n g i n th e co n t ex to f a d ecad esl on g C hapt er11 bank rupt cy . T he debt or, C el ot ex C orp. , m anufactured c o n s tru c tio n p r o d u c ts a n d b u ild in g m a te r ia ls c o n ta in in g a s b e s to s , a n d a s s u c h it f a c e d at orr e ntof

l a w s ui t s a l l e gi ng bodi l y i nj ury a nd pr ope r ty da m a ge . A s pa r tof its r e o r g a n iz a tio n p la n , C e lo te x c r e a te d th e ap p e lla n t, A s b e s to s S e ttle m e n t T ru s t. T h e T ru s t a s s u m e d C e lo te x ’s to rt liab ilitie s a n d w a s a s s ig n e d C e lo te x ’s r ig h t to i nd em ni ty, i f any, un der c ert ai n exces s l i abi l i ty i nsurance pol i ci es . C el ot ex fi l ed thi s a dve r s a ry pr oc e e di ng s e e ki ng ade c l a r a t i on tha tpa y m e ntw a s due unde rthe pol i c i e s , w hi c h the i ns ur e r s c ont e s t e d. A f t e ral e ngthy be nc h tr i a l , the ba nkrupt c y c our tde t e rm i ne d, a s pe r t i ne nt h e r e , th a t th e p o lic y te rm s c o v e r e d c la im s f o rb o th p r o p e r ty d a m a g e a n d b o d ily i n j u ry, b u tth att i m el y n o t i ce o f cl ai m s w as n o tg i v en t o th e ex cess i n su rers. T h u s, th e b an k ru p t cy j u d g e g ran t ed j u d g m en tas a m att er o f l aw fo r th e n i n e ex cess in s u r e r s o n ap p e a l. T h e ju d g m e n t w a s a f f irm e d o n ap p e a l to th e d is tr ic t c o u r t. 1district court finally adjudicate d all the claims properly before it on appeal, so we seeno need f or a sepa rateFe d. R. Civ. P . 54(b) c ertification by the district court. Seeid. at 725 n.1 (where a district court af

firms a ba nkruptcy court order, both orders nece ssarily possess the same de gree of finality ). 3 T he on l y i ss ue before us i s w hether not i ce w as t i m el y gi ven t o the exces s i nsurer s abou tthe prop erty- dam age c l ai m s. W e a gree w i th the bank rupt cyand d i stri ct c o u r ts th a t it w a s n o t. I . T he pe rt i ne ntf

a c t s a r e undi s put e d, e xc e pta s not e d. A . C elot ex ’s E

xc es s P ol i ci es C el o t ex w as a so p h i st i cat ed i n su red an d an ex p eri en ced d efen d an ti n m ass to r t c a s e s . I t b e g a n f

a c in g la r g e n u m b e r s o f

a s b e s to s - r e la te d b o d ily - in ju ry s u its in the 19 70 s. B ec ause of these sui t s, C el ot ex (w i th i t s par entcom pany) had an in s u r a n c e d e p a rtm e n t a n d in - h o u s e le g a l te a m w h ic h a tte m p te d to m a n a g e its liab ility e x p o s u r e . C e lo te x b o u g h t m u ltip le la y e r s o f in s u r a n c e c o v e r a g e to m a n a g e its r is k s . A tal l pert i nentt i m es , C el ot ex had m ul t i pl e l ay er s of l i abi l i ty i nsurance co v erag e: p ri m ary p o l i ci es w i th A etn a, b u tal so u m b rel l a (seco n d l ayer) an d ex cess (thi rd and h i gh erl ay er s) po l i ci es w i th n um er ou s i nsurer s. O nl y the exces s pol i ci es f r om 1978 t o 1984 a r e a ti s s ue he r e . T he pol i c i e s w e r e r e ne w e d a nnua l l y . T he u m b re ll a p o li cies p ro v id ed co v er ag e f o r liab il ity b ey o n d th e p rim ar y p o li cy ’sIt appea rs the primar

y policies did provide coverag e for bodily-injury

claims unrelated 2 to a sb e sto s. 4 l i m i t s , w hi l e e a c h e xc e s s pol i c y i n turn pr ovi de d c ove r a ge f orl i abi l i ty e xc e e di ng the l i m i t s of

the pol i c y i m m e di a t e l y unde r l y i ng i t , a nd s o f or th. T he um br e l l aa nd e xc e s s pol i c i e s “ f

ol l ow e d f

orm ” t o the unde r l y i ng pr i m a ry pol i c y ; tha ti s , the s c ope o f in s u r e d r is k s w a s id e n tic a l, e x c e p t in s o f a ra s th e e x c e s s p o lic ie s e x p r e s s ly p r o v id e d o th e rw is e . T h e p r im a ry p o lic ie s h a d s e p a r a te c o v e r a g e lim its f o rb o d ily i nj ury a nd pr ope rty da m a ge ; $2 m i l l i on of c ove r a ge w a s a va i l abl e y e a r l y f orthe prop erty dam age c l ai m s. T he um brel l a and exce ss po l i ci es , ho w ever , had an ag g reg at e co v erag e l i m i tfo r b o d i l y i n j u ry an d p ro p erty d am ag e; i n o th er w o rd s, p a y in g c la im s o f

o n e c a te g o ry d im in is h e d th e c o v e r a g e a v a ilab le f o rth e o th e r . D ur i ng 1978- 1984, C e l ot e x’ s pr i m a ry pol i c i e s e xc l ude d c ove r a ge f or as best os-r el at ed bo di l y- i nj ury c l ai m s. T hi s w as i m po rt antbecause i tm eantthat 2 m a s s i ve a m ount s of

bodi l y - i nj ury c l a i m s a nd s e tt l e m e nt s w e r e be i ng pa i d outof hi ghe rl a y e r s of

c ove r a ge , notthe pr i m a ry c ove r a ge . M or e ove r , be c aus e the s e c o n d a n d h ig h e rla y e rp o lic ie s h a d s in g le c o v e r a g e lim its e n c o m p a s s in g b o th bo di l y- i nj ury and prop erty- dam age c l ai m s, any property- dam age c l ai m s w er e m ore l i ke l y t o i m pa c tthe uppe r - l a y e re xc e s s c a rr i e r s tha n the y w oul d ha ve be e n i n the abse nce of the excl usi on s i n the pri m ary pol i ci es , as any pay m ent s on b od i l y- i nj ury c l a i m s w oul d c ons um e the l ow e rl e ve l s of e xc e s s c ove r a ge . B e tw e e n 1978 a ndTh efo cusof thec ov erag edisputeov er b odily-inju ry c laimswa s whether “ a sb e sto sis ” 3 was onediscretedisease or a ter m the parties use d to refer g enerically to all sy mptoms and diseases resulting f

rom asbestos exposure. Thebankruptcy court chose the for

mer interpretation. 5 1 9 8 2 , th e e x c e s s p o lic ie s h a d e x c lu s io n s f o r“a s b e s to s is ,” a lth o u g h b e g in n in g in A p r i l 1 9 8 3 Ce l o t e x t o o kth e p o s i t i o n th a tth e r e w a s s t i l l e x c e s s c o v e r a g e f o rs o me bodi l y - i nj ury c l a i m s . B e tw e e n 1982 a nd 1984, the e xc l us i on l a ngua ge i n the 3 exce ss po l i ci es w as even broader, excl ud i ng coverage f or as best osi s “ and rel at ed d is e a s e s a r is in g o u t o f

a s b e s to s p r o d u c ts .” T he exces s pol i ci es re qu i re d w ri tt en no t i ce t o the i nsurer s “ as soon as p r a c tic ab le ” in th e e v e n t o f a n “o c c u rr e n c e ” “r e a s o n ab ly lik e ly ” to im p lic a te coverage. T hey a l so re qu i re d n ot i ce of “ any c l ai m m ade on account of s uch oc c urr e nc e ” a nd r e qui r e d l e ga l pape r s t o be f orw a r de d t o the i ns ur e r . A l though not a l l the pol i c i e s us e d pr e c i s e l y thi s l a ngua ge i n the i rnot i c e pr ovi s i ons , the l a ngua ge w as subst ant i al l y s i m i l ari n eac h p ol i cy , and the l ow ercourt s tre at ed the no t i ce ob l i gat i on s und erea ch po l i cyas i dent i ca l . N o o ne cont ends otherw i se here . B . T he P r ope r t

y D am age L i t i

gat i on B ef ore the i ni t i al w ave of bod i l y- i nj ury s ui t s a gai nstas best os m anufacturer s i n the 1970s ha d s ubs i de d, as e c ond w a ve of pr ope r ty - da m a ge s ui t s appe a r e d on the ho ri zon. S uch sui t s w er e f ores ee n b y C el ot ex, w hi ch ant i ci pat ed an6

“ expl osi on ” of property- dam age l i t i gat i on si m i l art o the then-fami l i arbo di l y- i nj ury ca se s. A sbes t os-r el at ed prop erty- dam age s ui t s w er e e ncou ra ged b y the fe dera l gove rnm e nt . I n 1979, the E P A publ i s he d adoc um e ntc a l l e d the O r a nge B ook w hi c h pr ovi de d gui da nc e t o ow ne r s of bui l di ngs c ont a i ni ng a s be s t os . T he O r a nge B o o ka d v is e d b u ild in g o w n e r s th a t a n y e x p o s u r e to a s b e s to s , e v e n in s m a ll a m ount s , c oul d be c a r c i noge ni c , a nd tha tow ne r s s houl d r e m ove a s be s t os f r om the i rbui l di ngs . C ongr e s s pa s s e d l e gi s l a t i on i n 1980 w hi c h obl i ga t e d s c hool di s tr i c t s t o l ook f

ora s be s t os i n the i rbui l di ngs , a s s i s t e d the m i n doi ng s o, a nd a s s is te d th e m in m itig a tin g h a z a r d o u s c o n d itio n s r e s u ltin g f r o m a s b e s to s e x p o s u r e . S e e ge ne r a l l y 20 U . S . C . § 3601 et se q . T he f

i r s ta s be s t os - r e l a t e d pr ope r ty - da m a ge sui t s w er e f

i l ed i n 1 98 0, bu tC el ot ex w as no ta party. In 19 81 , pu rs uantt o federa l s t a tut ory r e qui r e m e nt s , the A tt orne y G e ne r a l i s s ue d ar e por ton the s t a t e of a s be s t os l i t i ga t i on w hi c h w a s e s s e nt i a l l y abl ue pr i ntf ors c hool boa r ds t o s ue a s b e s to s m a n u f

a c tu r e r s ; th e r e p o r t in c lu d e d am o d e l c o m p la in t a n d s p e c if ic a lly n a m e d C e lo te x a s ap o te n tia l d e f e n d a n t. T h e f ir s t a s b e s to s - r e la te d p r o p e r ty - d a m a g e s u it n a m in g C e lo te x w a s f ile d in 1 9 8 1 , a n d m o r e s o o n f

o llo w e d . I n J u n e 1 9 8 2 , th e f ir s t o f f iv e c la s s a c tio n s u its s e e k in g d a m a g e s f

o ra s b e s to s - r e la te d p r o p e r ty d a m a g e w a s f ile d a g a in s t C e lo te x . T h e o th e rf

o u rs u its in c lu d e d ac a s e f ile d J a n u a ry 1 9 8 3 in v o lv in g 4 ,0 0 0 b u ild in g s .The Tr ust contends it had about $6.6 million remainingin primary coverag e for 4 proper ty-damag e claims; the insurers contend the a mount was closer

to $2.2 mill ion. Nothing turns on the distinction, which is insi gnificant in the larg er pic ture of a sbestos liti g ation. 7 A l t oge the r , the pr e - 1985 pr ope rty - da m a ge s ui t s a ga i ns tC e l ot e x s oughtabout$2 b i l l i o n i n d am ag es. N o n eth el ess, C el o t ex d i d n o tn o t i fy i t s ex cess i n su rers o f th ese s ui t s a s the pl e a di ngs w e r e r e c e i ve d. C el o t ex an d A etn a d i d n o tp ay an yth i n g o n an asb est o s-rel at ed p ro p ertyda m a ge c l a i m , w he the rby j udgm e ntors e tt l e m e nt , unt i l 1986. F r om 1986 t o 1988, A e tn a , th e p r im a ry in s u r e r , p a id o n ly $ 7 8 5 ,0 0 0 in p r o p e r ty - d a m a g e c la im s . F ur the r , the s e pa y m e nt s w e r e w e l l w i thi n the l i m i t s of pr ope r ty - da m a ge c ove r a ge u n d er th e p ri m ary p o l i ci es, so n o i n d em n i ty w as d u e fro m th e u m b rel l a an d ex cess p o l i ci es. W h en C el o t ex fi l ed fo r b an k ru p t cy i n 1 9 9 0 , i tst i l l h ad rem ai n i n g p ro p ertydam age c ov er age und erthe pri m ary pol i ci es ; no exce ss carr i er s had ye tbeen 4 im p a c te d . C e lo te x in itia te d th is d e c la r a to ry ju d g m e n t p r o c e e d in g to d e te rm in e its ri gh t s und erthe po l i ci es . A pp roxi m at el y $20 bi l l i on i n p roofs of c l ai m w er e f i l ed a g a in s t C e lo te x a lle g in g p r o p e rty d a m a g e f r o m its a s b e s to s p r o d u c ts . I ts u ltim a te l i abi l i ty f orpr ope rty da m a ge i s noty e tknow n, butC e l ot e x e s t i m a t e s i tw i l l be on th e o rd er o f b i l l i o n s o f d o l l ars. C . N ot i c e orthe L ac k

T he r e of8

O n D ec em ber 5, 19 79 , A etna i ss ued a res ervat i on of ri gh t s l ett ert o C el ot ex concerni ng al l as best os-r el at ed bo di l y- i nj ury c l ai m s. A etna al so re com m ended that the um brel l a and exce ss carr i er s be i nform ed of i t s posi t i on . R ol l i ns B urdi ck H unt e r( R B H ) , C e l ot e x’ s i ns ur a nc e br oke r , f orw a r de d c opi e s of

the l e tt e rt o the um brel l a and exce ss carr i er s i n l at e 197 9. A tfi rs t , no t i ce w as gi ven o nl y t o p re 1977 c a rr i e r s , nott o the appe l l e e s he r e . O n J a nua ry 2, 1980, R obe r tE m e r t on, C e lo te x ’s in - h o u s e in s u r a n c e c o u n s e l, d e c id e d to e x p a n d th e s c o p e o f n o tic e . E m ert o n w ro t e a l ett er i n stru ct i n g R B H t o n o t i fy C el o t ex ’ s u m b rel l a an d ex cess c a rr i e r s of

a l l pe ndi ng a s be s t os r e l a t e d c a s e s , s t a t i ng i t“ appe a r s l i ke l y tha ta l l our e x c e s s c a rr i e r s ma y b e i n v o l v e d i n o u ra s b e s t o s - r e l a t e d l i t i g a t i o n . ” I n th a ts a me l ett erE m ert on i ss ued the fol l ow i ng cr i t i ca l i nstruct i on t o R B H : “ O n al l future c as es I w o u l d ask[R B H ] t o n o t i fy n o to n l y o u r fi rstl ayer ex cess carriers, b u tal l ex cess c a rr i e r s wh i c h wo u l d h a v e c o v e r a g e ap p l i c ab l e t o a s b e s t o s - r e l a t e d c l a i m s . ” At tri al , a C el o t ex em p l o yee co n fi rm ed th atth i s i n stru ct i o n w as i n t en d ed t o ap p l y, goi ng f orw a r d, t o both bodi l y - i nj ury c l a i m s a nd pr ope r ty - da m a ge c l a i m s . T he l a tt e rw e r e unf

i l e d, bute m i ne nt l y f

or e s e e abl e , w he n the l e tt e ri s s ue d. T he r e i s s om e di s put e be tw e e n the pa r t i e s a s t o w he the ra nd w he n not i c e of p r o p e r ty - d a m a g e c la im s w a s g iv e n . T h e b a n k ru p tc y c o u r t f o u n d th a t, d e s p ite C el o t ex ’ s i n stru ct i o n t o R B H , n o t i ce h ad n o tb een g i v en t o an y o f th e ex cessThe Tr ust raises no argument on appeal to this court that the limited-purposeadmission 5 was errone ous, so the issue is forfe ited. Likewise, the Tr ust argued on appe al to the district court that th eba

nk ru ptcy c ourt erre d in e xcludingalto g e ther c ertain documentswhich pur po rte d to show notice, a

contention which the district c ourt reje cted a nd which wa s not argued on appe al here . 9 in s u r e r s o f

a n y p r o p e rty - d a m a g e c la im s u n til a f te rC e lo te x ’s b a n k ru p tc y f ilin g in 1990. T he di s tr i c tc ourts t a t e d tha tnot i c e w a s gi ve n be gi nni ng i n 1984 a nd peri od i ca l l y there af

t er . Itdi d n otst at e, ho w ever , thati tw as di sturbi ng any f ac tual f in d in g b y th e b a n k ru p tc y c o u rt, a n d w a s ap p a r e n tly u n a w a r e o f th e in c o n s is te n c y . T he i ncon si st encyprob abl y i s bes texpl ai ned b y the fa ctthatthe T rustoffe re d s om e doc um e nt s w hi c h purport e d t o s how c ont e m por ane ous not i c e of the prop erty- dam age s ui t s, bu tthey w er e r ec ei ved b y the bank rupt cycourtfor a l i m i t e d ( a nd di f

f e r e nt ) purpos e . W e w i l l a dhe r e t o the ba nkrupt c y c our t ’ s f i ndi ng 5 thatno t i ce w as no tgi ven con t em po raneou sl y a s the prop erty- dam age s ui t s w er e fi l ed, as un derw ri t i ng pres ent at i on s by C el ot ex t o the exces s i nsurer s w er e c o n d u c te d , o ra s th e e x c e s s p o lic ie s w e r e e n te r e d in to , a s th e T ru s t’s a r g u m e n t to the contraryw as base d o n d ocum ent s a dm i tt ed on l y f or another purpo se . In any e vent , the bank rupt cycourtconcl ud ed thata r ea sonabl e i nsured w o u ld h a v e g iv e n n o tic e o f th e p r o p e r ty - d a m a g e c la im s in A p r il 1 9 8 3 a t th e la te s t. W h e n C e lo te x f

ile d f o rb a n k ru p tc y in 1 9 9 0 , it h a d p a id $ 6 .9 5 m illio n in s e ttle m e n ts a n d ju d g m e n ts o n p r o p e rty - d a m a g e c la im s , a n d h a d , a t m o s t, ap p r o x im a te ly $ 6 .610

m i l l i on i n pr i m a ry pr ope rty - da m a ge c ove r a ge r e m a i ni ng. I I . T h e p a rt i e s a g r e e th a tI l l i n o i s l a w g o v e rn s th i s d i s p u t e . Un d e rI l l i n o i s l a w, w he the rnot i c e w a s t i m e l y gi ve n unde rpa r t i c ul a rc i r c um s t a nc e s i s aque s t i on of l aw su b j ectt o p l en ary rev i ew . S ee H art fo rd A cci d en t& In d em n i ty C o . v . R u sh P r e s by t e r i a n S tL uke ’ s M e d. C tr . , 595 N . E . 2d 1311, 1316 ( I l l . A pp. 1992) (c i t at i on s om i tt ed). W h e r e ap o lic y r e q u ir e s n o tic e to a n in s u r e ro f ac la im o ro c c u rr e n c e , tim e ly n o tic e is ac o n d itio n p r e c e d e n t to c o v e r a g e . H o w e v e r , n o tic e r e q u ir e m e n ts in exce ss po l i ci es ar e i nt erpret ed di ff er ent l y f rom thei r c ou nt erpart s i n p ri m ary pol i c i e s , be c aus e e xc e s s i ns ur e r s of t e n do noti nve s t i ga t e oc c urr e nc e s norde f e nd the i nsured. Id. at13 15 (c i t at i on om i tt ed). A cc ordi ng l y, the i nsured typi ca l l y has s om e di s c r e t i on i n not i f y i ng a n e xc e s s i ns ur e rof ac l a i m oroc c urr e nc e . I d. T he po l i cyl angu age here re qu i re d n ot i ce “ as soon as prac t i cabl e” i n the eventof an oc c urr e nc e “ r e a s onabl y l i ke l y ” t o i m pl i c a t e c ove r a ge , t e rm s w hi c h c onve y tha tthe i ns ur e d r e t a i ns s om e di s c r e t i on i n pr ovi di ng not i c e . A s the pol i c y l a ngua ge i m pl i e s , not i c e i s notne c e s s a r i l y due i m m e di a t e l y upon l e a rni ng of ac l a i m or oc c urr e nc e , orw he n i ti s m e r e l y pos s i bl e tha tthe e xc e s s c ove r a ge w oul d be i m pl i ca t ed, bu ton l y once are as on abl e i nsured w ou l d rea l i ze thati tw as11

“ r e a s onabl y l i ke l y ” the e xc e s s c ove r a ge c oul d be i m pa c t e d by a n oc c urr e nc e or c l a i m . S e e i d. a t1315, 1317. W he n a n i ns ur e d ha s pr i m a ry c ove r a ge a va i l abl e a nd c o u ld n o t f

o r e s e e th a t a n e x c e s s p o lic y w o u ld b e im p lic a te d , n o tic e is n o t d u e . Z uri ch Ins. C o. v. W al sh C on str. C o. , 81 6 N . E . 2d 80 1, 80 6-07 (I l l . A pp . 20 04 ). In othe rw or ds , the c r i t i c a l que s t i on i s w he n “ s houl d [ the i ns ur e d] r e a s onabl y ha ve k n o w n th ati t s ex cess i n su ran ce co v erag e w o u l d b e i m p l i cat ed ? ” A t l an t a In t ’ l In s. C o. v. C hecker Taxi Co . , 57 4 N . E . 2d 22 , 25 (I l l . A pp . 19 91 ). A l though w e m us tl ook t o the t ot a l i ty of the c i r c um s t a nc e s i n de t e rm i ni ng w he the rar e a s onabl e i ns ur e d w oul d ha ve know n a n e xc e s s i ns ur e rw oul d be i m pa c t e d, s e ve r a l pa rt i c ul a rc i r c um s t a nc e s a r e e s pe c i a l l y r e l e va nt . T he f i r s ti s the a m o u n t o f

d a m a g e s s o u g h t b y th e p r o p e r ty - d a m a g e s u its . N o tic e is n o t n e c e s s a r ily du e j ustbecause acom pl ai ntse eks dam ages i n exces s of the re m ai ni ng pri m ary c ove r a ge . H a rt f

or d, 595 N . E . 2d a t1316- 17 ( r e j e c t i ng abr i ght - l i ne rul e r e qui r i ng not i c e t o e xc e s s c a rr i e r s upon r e c e i ptof ac om pl a i nts e e ki ng da m a ge s i n e xc e s s of pri m ary c ov er age) . B utal tho ug h n otdet erm i nat i ve of w hether not i ce i s due t o an e x c e s s i n s u r e r , th e a m o u n to f d a m a g e s s o u g h ti n ac o m p l a i n ti s r e l e v a n t . Ad dam nu m cl ause s w hi ch dw ar f the pri m ary c ov er age a re , as the bank rupt cycourt n o te d , c au s e f

o rc o n c e rn a n d m ilita te in f a v o ro f p r o v id in g n o tic e . O f c ou rs e, a r ea sonabl e i nsured m ayun dert ake adi l i genti nv es t i gat i on of a12

cl ai m o r o ccu rren ce an d co n cl u d e th ati tw i l l n o ti m p l i cat e an ex cess p o l i cy, n o tw i th st an d i n g a p rayer fo r rel i ef w h i ch w o u l d d o so o n i t s face. In th o se ci rcu m st an ces, th e i n su red act s reaso n ab l y b y w i th h o l d i n g n o t i ce. In o th er w o rd s, th e in s u r e d ’s o w n r e a s o n ab le e v a lu a tio n o f th e m e r its o f

a n y s u it o rd e m a n d is hi gh l y r el evantt o w hether not i ce w as t i m el y gi ven. S ee H art ford, 59 5 N . E . 2d at 13 17 . T he soph i st i ca t i on of the i nsured i s a l so re l evanti n d et erm i ni ng w hether not i c e w a s t i m e l y gi ve n. C ountry M ut . I ns . C o. v. L i vor s i M a r i ne , I nc . , 856 N . E . 2d 33 8, 34 4 (Il l . 20 06 ). A n i nsurerneed no tshow prej ud i ce t o p re vai l on an u n tim e lyn o tic e d e f

e n s e , b u t th e p r e s e n c e o rab s e n c e o f p r e ju d ic e is r e le v a n t to w he the rnot i c e w a s r e a s onabl y gi ve n i n the c i r c um s t a nc e s . I d. a t346. I m p o rta n tly , a n in s u r e d m a y n o t w ith h o ld n o tic e th a t th e e x c e s s c a rr ie r s w ill b e i m p a c t e d s i m p l y b e c au s e i tm i g h tt a k e awh i l e f o rs u c h a n i m p a c tt o b e f e l t . An i nsured w ho has r ea son t o b el i eve e xces s c arri er s w i l l be i m pact ed i n the future m us tgi ve not i c e w he n i tr e a c he s tha tunde r s t a ndi ng; i tc a nnotw a i tunt i l the unde r l y i ng c ove r a ge i s aboutt o run out . S e e S i s t e r s of D i vi ne P r ovi de nc e v. I nt e r s t a t e F i r e & C a s . C o. , 453 N . E . 2d 36, 38 ( I l l . A pp. 1983) ; s e e a l s o H a r t f or d, 5 9 5 N .E .2 d a t 1 3 1 6 ( “T h e in s u r e d m u s t s h o w th a t n o tic e w a s g iv e n w h e n it concl ud ed thatthe exces s i nsurance pol i cyw as i m pl i ca t ed. . . . ”) . T h e T ru s t a r g u e s th a t n o tic e o f th e p r o p e r ty - d a m a g e c la im s w a s n o t d u e to13

the exces s i nsurer s e ven i n 1 99 0, l etal on e i n A pri l 19 83 as the bank rupt cycourt hel d, because there w as st i l l prop erty- dam age c ov er age a vai l abl e und erthe pri m ary pol i c i e s i n 1990. W e di s a gr e e . C e l ot e x de t e rm i ne d i n 1980 tha ta l l f utur e a s be s t os l i t i g at i o n , i n cl u d i n g p ro p erty-d am ag e l i t i g at i o n , co u l d w el l i m p actth e ex cess c a rr i e r s . T ha ti s w hy , i n 1980, i tdi r e c t e d not i c e of a l l f utur e a s be s t os l i t i ga t i on be g i v en t o i t s ex cess i n su rers. W h en an i n su red actu al l y (an d q u i t e reaso n ab l y) co n cl u d es al l fu tu re cl ai m s w i l l i m p actex cess co v erag e, i ti s a f o rt i o ri un re as on abl e t o w i thh ol d n ot i ce of cl ai m s f or ye ar s a ft erthe com pl ai nt s are r e c e i ve d. Y e ttha ti s w ha thappe ne d he r e . I ne xpl i c abl y , R B H di d notpr ovi de no t i ce despi t e i nstruct i on s f rom C el ot ex t o d o so. N or di d C el ot ex prov i de no t i ce i t se l f or ver i fythati t s a gentw as perf orm i ng ac cordi ng t o i nstruct i on . C el ot ex ar gu es thatthe 19 80 concl usi on thatfuture s ui t s w ou l d aff ec tthe exces s i nsurer s onl y c onc e rne d bodi l y - i nj ury s ui t s , butthe r e w a s c r e di bl e t e s t i m ony t o the co n trary. M oreover, the nat i on w i de sc op e of a sbes t os prop erty- dam age l i t i gat i on , as w e l l a s the m a s s i ve da m a ge s s oughti n the pr ope r ty - da m a ge a c t i ons , s ugge s t s the ex cess i n su rers sh o u l d h av e b een n o t i fi ed l o n g b efo re C el o t ex ’ s b an k ru p t cy. T h ese sui t s s ou gh tdam ages i n the bi l l i on s of dol l ar s, w hi l e the pri m ary c ov er age w hi ch th e T ru s t r e lie s u p o n to ju s tif y its la c ko f

n o tic e h a d , a t m o s t, $ 6 .6 m illio n inTh e i n s ure rs p o intu s t o a r ep re s ent at i v e c as e, co n ce rn in g a F ed er alRes erv e B ui l din g, 6 that settled for $5.5 million. 14 p r im a ry c o v e r a g e r e m a in in g . E v e n if th e a d d a m n u m c lau s e s w e r e g r o s s ly o v e r s ta te d , a s C e lo te x a r g u e s , th e c a s e s n e e d e d o n ly to s e ttle f o ram in u s c u le f r a c t i on of

the i rpurport e d va l ue t o e xc e e d the pr i m a ry c ove r a ge . O r , a f t e rone or tw o br e a kthr ough ve r di c t s ors e tt l e m e nt s , the e xc e s s i ns ur e r s w oul d be i m pl i c a t e d. 6 O b v io u s ly , a n in s u r e d n e e d n o t b e s o c o n s e rv a tiv e a s to a s s u m e th a t e v e ry c a s e is w orth the pl ai nt i ff’ s dem and. B utnei ther c an a r ea sonabl e, prud enti nsured opt i m i s t i c a l l y a s s um e tha tda m a ge c l a i m s e xc e e di ng i t s pr i m a ry c ove r a ge by m ul t i pl es of se vera l hu nd re d w i l l no ti m pl i ca t e e xces s pol i ci es , part i cul ar l y w hen one l i t i ga t i on de f

e a tc oul d e xhaus tthe pr i m a ry pol i c y . C e l ot e x c oul d f a l l ba c k on its o w n r e a s o n ab le d ilig e n c e o rc la im s e v a lu a tio n p r o c e s s h a d it r a tio n a lly concl ud ed thatprop erty- dam age l i abi l i ty e xcee di ng the pri m ary c ov er age w as un l i kel y, no tw i thst andi ng the hu ge ad dam nu m cl ause s. B utthe bank rupt cycourt f ound no e vi de nc e tha ta ny s uc h pr oc e s s ordi l i ge nc e oc c urr e d – af a c tua l f i ndi ng th e in s u r e r s h a v e n o t c h a lle n g e d . C e lo te x ’s f a ilu r e to g iv e n o tic e w a s ap p a r e n tly th e resu l to f o v ersi g h to r n eg l i g en ce, n o ta m et i cu l o u s ev al u at i o n o f th e su i t s’ m e r its . T he T rus ta r gue s tha tbe c aus e the e a r l y pr ope r ty - da m a ge s ui t s w e r e be i ng di s m i s s e d ors e tt l i ng f

orm i nus c ul e a m ount s , not i c e w a s notdue be f or e 1990. B ut15

th atd o es n o tal t er th e factth atC el o t ex fo resaw a d ecad e earl i er th ati t s ex cess in s u r e r s w o u ld b e im p a c te d b y th e o v e r a ll c o u r s e o f th e p r o p e r ty - d a m a g e litig a tio n . T he i nsured’ s ow n k no w l edge thatexce ss i nsurer s w ou l d b e i m pl i ca t ed i s m ore i m po rt antthan the pace of l i t i gat i on or se tt l em ent , as “ [t ] he i nsured m ustshow that no t i ce w as gi ven w hen i tconcl ud ed thatthe exces s i nsurance pol i cyw as i m pl i ca t ed. . . . ” H art ford, 59 5 N . E . 2d at13 16 . A nd C el ot ex’ s 198 0 rea l i za t i on w as corr ec t ; al tho ug h i tt oo k years t o exh austthe pri m ary A etna coverage, that co v erag e u l t i m at el y w i l l n o tb e su ffi ci en tt o co v er C el o t ex ’ s ev en tu al p ro p ertyd am ag e l i ab i l i ty. M or e ove r , the ba nkrupt c y c our tw a s c orr e c ttha tC e l ot e x’ s A pr i l 1983

“ e pi pha ny ” i s hi ghl y r e l e va ntt o the r e a s onabl e ne s s of not i c e pr a c t i c e s c onc e rni ng the pr ope rty - da m a ge c l a i m s . I tw a s the n tha tC e l ot e x, f orthe f i r s tt i m e , t ook the po si t i on thatthere w as exce ss coverage f or bo di l y- i nj ury c l ai m s other than

“ as best osi s. ” I f thi s i nt erpret at i on of the exces s pol i ci es w as corr ec t , a r ea sonabl e, s o p h i s t i c a t e d i n s u r e d w o u l d h a v e r e a l i z e d a tth a tt i me th a tp r o p e r ty - d a ma g e c l a i ms c oul d w e l l a f

f e c tthe hi ghe r - l e ve l e xc e s s i ns ur e r s , be c aus e of ( i ) the vol um e a nd am o u n to f b o d i l y-i n

j u ry cl ai m s, an d (i i ) th e ag g reg at e co v erag e l i m i t s fo r b o d i l yi n j u ry an d p ro p erty-d am ag e cl ai m s, resu l t i n g i n co n su m p t i o n o f l o w er-l ev el ex cess co v erag e b y b o d i l y-i n

j u ry su i t s.16

I n s u m , C e lo te x c o n c lu d e d in 1 9 8 0 th a t a ll f u tu r e a s b e s to s litig a tio n c o u ld i m pa c ti t s e xc e s s c ove r a ge . I tf or e s a w am a s s i ve w a ve of pr ope r ty - da m a ge litig a tio n , w h ic h m a te r ia liz e d . I t w a s s u e d f o ro v e r$ 2 b illio n d o lla r s in p r o p e r ty da m a ge , a s a ga i ns tl e s s tha n $7 m i l l i on i n pr i m a ry c ove r a ge . I tpr oduc e d no e vi de nc e tha tar a t i ona l c l a i m s e va l ua t i on pr oc e s s l e d i tt o a l t e ri t s 1980 de t e rm i na t i on tha tnot i c e of s ui t s s houl d be gi ve n goi ng f orw a r d, ort o c onc l ude thati t s pri m ary c ov er age w ou l d l as ti n the l on g run . A nd i tgave no no t i ce un t i l at le a s t f iv e y e a r s , a n d in s o m e c a s e s a lm o s t ad e c a d e , a f te rth e p r o p e r ty - d a m a g e s u its w er e f i l ed. A s the bank rupt cyand d i stri ctcourt s r ec og ni ze d, such negl ec tw as u n r e a s o n ab le in th e c ir c u m s ta n c e s . AF F I RME D.