UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF PENNSYLVANIA 

 

 ) 

ARMSTRONG WORLD INDUSTRIES, INC. ) 

PERSONAL INJURY SETTLEMENT TRUST, ) 

 ) 

 Plaintiff, ) 

 ) Civil Action No. 02-CV-4360 

v. ) 

 ) 

LIBERTY MUTUAL INSURANCE COMPANY, ) 

 ) 

 Defendant. ) 

 ) 

JOINT CASE REPORT

Plaintiff Armstrong World Industries, Inc. Personal Injury Settlement Trust (the “Trust”) 

and Defendant Liberty Mutual Insurance Company (“Liberty Mutual”) submit this Joint Case 

Report for the Initial Pretrial Conference scheduled for October 22, 2007. 

A. Statement of the Case and Basis for Jurisdiction

 1. Joint Statement of the Case 

This is an asbestos-related insurance coverage action filed by Armstrong World 

Industries, Inc. (“AWI”) regarding its rights to coverage for asbestos-related claims under 

comprehensive general liability insurance policies issued by Liberty Mutual to AWI for policy 

periods from 1977 through 1981 (the “Policies”). Because of mounting asbestos-related 

liabilities, AWI filed for bankruptcy in 2000. The Trust was created in 2006 and, through 

operation of AWI’s confirmed plan of reorganization, succeeded to AWI’s asbestos-related 

liabilities and AWI’s rights arising under certain liability insurance policies, including the 

Policies at issue here, with respect to liability for asbestos-related claims. In 2007, by agreement 

among the parties, the Trust was substituted for AWI as the plaintiff in this case. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 1 of 31
 

2

Pursuant to the First Amended Complaint, the Trust seeks damages and a declaration of 

the parties’ rights and obligations regarding insurance coverage under the Policies for past, 

present, and future asbestos-related bodily injury claims that allegedly arise out of exposure to 

asbestos during the installation of, or other operations involving, asbestos-containing materials 

before AWI or its subsidiaries relinquished those materials (which the parties refer to as nonproducts bodily injury claims). 

Liberty Mutual asserts that it does not owe such coverage and has filed counterclaims 

seeking declaratory relief, including, but not limited to, a finding that the Trust’s claims are 

barred by the statute of limitations, a finding of reformation or rescission of the Policies based on 

alleged mutual mistake, and a declaration that certain provisions of the Policies exclude or 

significantly limit its liability to the Trust for such claims. 

The parties have engaged in prior insurance litigation. The parties first were involved in 

a state court litigation (the “California Coordinated Litigation”) commencing in 1980 over 

various issues related to insurance coverage for AWI’s asbestos liabilities, which involved 

Liberty Mutual and other insurers. The parties also engaged in an alternative dispute resolution 

proceeding (the “ADR Proceeding” or the “ADR”) commencing in 1996 under the Wellington 

Agreement.1

 The ADR concerned non-products coverage under policies issued by Liberty 

Mutual and other insurers. In 2002, the trial arbitrator awarded AWI non-products coverage for 

74% of its asbestos bodily injury claims under 1973 through 1976 policies issued by Liberty 

Mutual and held that AWI’s claim for insurance coverage under these policies was timely. In 

2004, an ADR appellate panel reversed that award on statute of limitations grounds, without 

 

1 The Wellington Agreement (formally titled the Agreement Concerning Asbestos-Related 

Claims, dated June 19, 1985) is an agreement between insurers (including Liberty Mutual) and 

insureds (including Armstrong) regarding coverage for asbestos bodily injury claims. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 2 of 31
 

3

reaching the merits of the trial arbitrator’s other decisions. In a separate action in this Court, the 

Trust has moved to vacate the appellate arbitration award in favor of Liberty Mutual, and Liberty 

Mutual has cross-moved to confirm that award. See Case No. 04-CV-499. The dispute in the 

present case deals with AWI’s rights to insurance coverage for asbestos-related bodily injury 

claims under the 1977-1981 policies issued by Liberty Mutual. 

Because the California Coordinated Litigation and the ADR Proceeding involved facts 

and issues relevant in this case, the parties anticipate that pertinent portions of the record in those 

prior matters will be used here. 

 2. Basis for Jurisdiction 

The parties agree that this Court has subject-matter jurisdiction under 28 U.S.C. § 1332 

(diversity jurisdiction) and § 2201 (declaratory judgments) because there is complete diversity of 

citizenship between the parties and the amount in controversy exceeds $75,000. The Trust’s 

principal place of business is in Delaware. (The Trust’s predecessor, AWI, was a Pennsylvania 

corporation with its principal place of business in Lancaster, Pennsylvania.) Liberty Mutual is a 

Massachusetts corporation with its principal place of business in Boston, Massachusetts. 

B. Statement of Causes of Action, Essential Elements of Each Cause of Action, 

and Relief Sought

The following table lists the counts of both the First Amended Complaint (“Complaint”) 

and the Counterclaim, and each of these counts is explained in greater detail following the table. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 3 of 31
 

4

Complaint Counterclaim 

Count Issue Count Issue 

1 Reformation 1 Completed operations 

2 Number of occurrences 2 Statute of limitations 

3 Expansion of the Wellington 

Coverage Block 3 Number of occurrences 

4 Retrospective premium under 

1977 and 1978 Policies 4 Reformation 

5 Additional premium under 1977 

to 1981 Policies 5 Estoppel from asserting more than 7% non-products claims 

6 Additional rights under the 1977 

to 1981 Policies 6 Non-existent or limited coverage for certain types of claims 

7 Damages under the 1977 Policy 7 Expansion of the Wellington 

Coverage Block 

The parties’ respective versions of the factual background for these issues are set forth 

succinctly in the First Amended Complaint and Counterclaim.2

 What follows is a short 

statement of each issue, followed by a summary of each party’s position. 

1. Reformation. Complaint Count 1 and Counterclaim Count 4 seek a declaration 

on the same issue: whether the Policies’ per-person deductible and aggregate limit provisions, 

which by their terms apply only to asbestos-related products bodily injury claims should be 

applied as written or reformed to apply also to asbestos-related non-products bodily injury 

claims. 

 

2

 See First Amended Complaint ¶¶ 8, 37, 41, 45, 49, 54, 57, 63, 67, 71, and 74-77; Counterclaim 

¶¶ 7, 10-11, 17-23, 29, 35-39, 45-51, 56, 58, and 63.

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 4 of 31
 

5

The Trust contends that these provisions are unambiguous, that the Wellington 

Agreement requires that they be applied “as written,” and that there was no mutual mistake of 

fact regarding the clear provisions of the Policies. The Trust also asserts that Liberty Mutual 

improperly failed to classify claims as non-products bodily injury claims that they knew or 

should have known should be so classified, and misclassified such claims as product claims 

subject to aggregate limits. Finally, the Trust asserts that Liberty Mutual waived any reformation 

defense when it signed the Wellington Agreement, which provides that Liberty Mutual waived 

all defenses to coverage except those expressly reserved and which does not specify reformation 

as a reserved defense. 

Liberty Mutual contends that these provisions should be reformed to apply to asbestos 

non-products bodily injury claims because, at the time the Policies were issued, both parties 

intended that the endorsement would apply to all asbestos claims and thus the language in the 

endorsement limiting it to products bodily injury claims was a “mutual mistake of expression.” 

Alternatively, Liberty Mutual contends that these provisions should be reformed, or the Policies 

should be rescinded, because the parties contracted under a “mutual mistake of fact,” namely that 

all the asbestos claims would be products bodily injury claims, and thus fall under the 

endorsement. Liberty Mutual denies that it misclassified any claim or waived its claim for 

reformation. 

2. Number of occurrences. Complaint Count 2 and Counterclaim Count 3 seek a 

declaration on the same issue: whether each individual person’s claim alleging asbestos-related 

bodily injury arises from a separate “occurrence” under the Policies, or whether all such 

individual claims arise from a single “occurrence.” The resolution of this question will 

determine whether each individual’s claim is separately subject to the per-occurrence limit in the 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 5 of 31
 

6

Policies of $1 million, or whether all of the individual claims collectively are subject to a single 

$1 million per-occurrence limit. 

The Trust contends that each claim arises from a separate occurrence based on, inter alia: 

(i) the plain language of the Policies; (ii) Liberty Mutual’s course of conduct throughout its 

defense of AWI against asbestos-related tort claims in the 1980’s in treating each individual 

person’s claim as a separate occurrence; (iii) Liberty Mutual’s prior admissions, including 

Liberty Mutual’s 1985 proposed written agreement that “each asbestos claim would be treated as 

a separate occurrence”; and (iv) Liberty Mutual’s position in the ADR that there is no dispute on 

this issue. 

Liberty Mutual contends that all claims constitute a single occurrence based on the plain 

language of the Policies, and the fact that all of the asbestos bodily injury claims against the 

Trust arise from a single, uninterrupted and continuing cause – AWI’s manufacturing, 

distribution, sale, and installation of products containing asbestos to which the claimants were 

exposed. Liberty Mutual believes that Pennsylvania case law clearly establishes that multiple 

claims arising from asbestos exposure constitute a single occurrence. Liberty Mutual disputes 

the Trust’s interpretation of the parties’ 1985 agreement, and its alleged course of conduct. 

3. Expansion of the Wellington Coverage Block. Complaint Count 3 and 

Counterclaim Count 7 both seek a declaration on the same issue: whether AWI’s “coverage 

block” under the Wellington Agreement can be expanded by the Trust to include just the nonproducts coverage of the 1977 policy, or whether the coverage block must be expanded to 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 6 of 31
 

7

include all of the coverage potentially afforded under the 1977 policy, including products 

coverage and completed operations coverage, in addition to non-products coverage.3

 

The Trust contends that AWI properly expanded its coverage block, which at that time 

ended on December 31, 1976, to include the non-products coverage of the 1977 Liberty Mutual 

policy. 

Liberty Mutual asserts that the Wellington Agreement requires that any expansion of the 

coverage block must include all coverage potentially available under a Policy. 

4. Retrospective premium under the 1977 and 1978 policies. In Complaint Count 

4, the Trust seeks a declaration that no additional retrospective premiums (i.e., additional 

premiums that the insurer can collect retroactively based on the policyholder’s losses during the 

policy period) must be paid to Liberty Mutual for the 1977 and 1978 policies. 

The Trust contends that, as of April 20, 1998, the parties had agreed upon a “final 

adjustment” for those Policies, which contractually terminated AWI’s obligations to pay 

retrospective premiums under the 1977 and 1978 policies. 

Liberty Mutual disputes the Trust’s position and contends that it is entitled to 

retrospective premiums under the 1977 and 1978 policies to the extent there is coverage for 

asbestos claims under those policies. 

5. Additional premium under the 1977 to 1981 policies. In Complaint Count 5, 

the Trust seeks a declaration that, under all of the Policies, Liberty Mutual cannot collect 

 

3

 A “coverage block” is the group of insurance policies upon which an insured can seek coverage 

for asbestos tort claims under the terms of the Wellington Agreement. When AWI signed the 

Wellington Agreement, AWI included the 1973-1976 Liberty Mutual policies in its “coverage 

block.” 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 7 of 31
 

8

“additional” or “excess” premiums, as those terms are used in the Policies, for asbestos-related 

non-products claims. 

The Trust contends that Liberty Mutual has no right to collect such premiums based on, 

inter alia, the plain language of the 1981 policy, which states that the “Expense Premium on 

Asbestos Claims” applies only to “products” bodily injury claims. 

Liberty Mutual believes that, under the applicable policy provisions, it would be entitled 

to collect “additional” or “excess” premiums under the Policies on certain asbestos-related 

claims if coverage for those claims was found to exist. 

6. Additional rights under the 1977 to 1981 policies. In Complaint Count 6, the 

Trust seeks a declaration as to the Trust’s rights under the Policies to coverage for asbestosrelated bodily injury claims, based on, in whole or in part, issues decided in the trial phase of the 

ADR. 

Liberty Mutual cannot determine from this Count exactly what types of declarations the 

Trust is seeking, but states that (i) the trial phase of the ADR was vacated and reversed on appeal 

by the appellate ADR panel, and thus, findings made in the trial phase are moot, and (ii) in any 

event, under the Wellington Agreement, disputes regarding the 1977 through 1981 policies are 

not subject to resolution by binding arbitration. 

7. Damages under the 1977 Policy. In Complaint Count 7, the Trust alleges that 

Liberty Mutual has breached its contractual obligation to provide coverage for asbestos claims 

under the 1977 Policy, and the Trust accordingly seeks compensatory damages. 

Liberty Mutual denies that it has breached its obligations under the 1977 Policy, and 

disputes that the Trust is entitled to damages. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 8 of 31
 

9

8. Completed operations. In Counterclaim Count 1, Liberty Mutual seeks a 

declaration that all asbestos claims against the Trust that arise from a claimant’s alleged exposure 

to asbestos during an asbestos installation (or removal) operation of AWI or its subsidiaries must 

fall within the Policies’ “completed operations” hazard. If this is the case, then all asbestos 

installation claims against the Trust will be subject to the “aggregate limits” for “completed 

operations” claims under the Policies, as opposed to being “non-products” claims for which there 

are no aggregate limits. 

Liberty Mutual contends that, under the plain language of the Policies, all installation 

claims fall within the completed operations hazard because all of the asbestos operations of AWI 

or its subsidiary that gave rise to those claims were completed long before any of the Policies 

was issued. Hence, the bodily injury during each Policy period which triggers coverage under a 

Policy necessarily occurred after the operation that gave rise to the injury had been completed. 

Liberty Mutual asserts that all relevant case law supports this interpretation of the Policies. 

Liberty Mutual believes that, because the policy language is clear and unambiguous, no extrinsic 

evidence is relevant to this question. 

The Trust disputes Liberty Mutual’s interpretation of the “completed operations” hazard. 

That interpretation, which was rejected by the trial arbitrator, is contradicted by (1) the language 

of the Policies; and (2) Liberty Mutual’s consistent course of conduct, which Pennsylvania law 

recognizes as persuasive evidence of the meaning of a contract. In particular, Liberty Mutual 

has consistently acknowledged the availability under their policies of non-products coverage for 

claims involving alleged exposure during operations (e.g., installation) under all of its policies, 

regardless of when the initial exposure occurred. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 9 of 31
 

10

9. Statute of limitations. In Counterclaim Count 2, Liberty Mutual seeks a 

declaration that the statute of limitations bars the Trust’s claims for non-products coverage under 

the Policies. 

Liberty Mutual contends that because the Trust’s predecessor, AWI, first believed it had 

such claims in 1984, first sought to assert such claims against Liberty Mutual in 1985, was told 

by the court to bring those claims in another action, but failed to do so until this suit was filed in 

2002, the Trust is now barred by the statute of limitations from pursuing those claims. As the 

ADR appellate panel found, by 1986 Liberty Mutual had repudiated any obligation to provide 

non-products coverage for AWI’s asbestos claims, thus triggering the running of the four-year 

statute of limitations. 

The Trust contends that its claims are timely. First, as the trial arbitrator found, Liberty 

Mutual, by its admissions and course of conduct, waived or is estopped from raising the statute 

of limitations. Second, AWI first sought a declaration of coverage under the Policies when it 

filed the ADR in April 1996; as of April 1992, Liberty Mutual had not repudiated its nonproducts coverage obligations under the Policies, and therefore the statute of limitations had not 

been triggered. Third, the 1977 policy was not added to AWI’s coverage block until 2000, and 

the 1978-1981 policies have not yet been added to the coverage block. Accordingly, these 

policies have not yet been triggered and the statute of limitations has not begun to run.

10. Estoppel from asserting more than 7% non-products claims. In Counterclaim 

Count 5, Liberty Mutual seeks a declaration that the Trust is estopped from asserting that more 

than 7% of the asbestos claims against it are non-products bodily injury claims. 

Liberty Mutual bases its claim for this relief on: AWI’s long-standing practice, from 

1973 through 1984, of characterizing all of the claims against it as products bodily injury claims; 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 10 of 31
 

11

and AWI’s written and oral assurances to Liberty Mutual in 1985 that only 7% of the asbestos 

claims against it were non-products bodily injury claims, on which Liberty Mutual detrimentally 

relied in agreeing to enter into the Wellington Agreement at AWI’s urging in 1985. 

The Trust contends that this Court should reject Liberty Mutual’s estoppel argument, as 

the trial arbitrator did. Liberty Mutual had the duty properly to classify claims submitted under 

its policies, yet consistently misclassified AWI’s claims as products bodily injury claims subject 

to aggregate limits when it knew that a large portion were or could be non-products bodily injury 

claims. AWI’s statement in 1985 regarding the 7% figure related solely to a limited number of 

past claims, and not to present or future claims. 

11. Non-existent or limited coverage for certain types of claims. In Counterclaim 

Count 6, Liberty Mutual seeks a declaration that seven specific types of asbestos claims against 

the Trust are not covered by the Policies, or are covered only to a limited extent.4

 Liberty 

Mutual asserts that the Policies’ provisions preclude or limit coverage for these types of 

individual claims. 

The Trust disputes Liberty Mutual’s characterizations of AWI’s past and future claims 

for coverage, and disputes Liberty Mutual’s interpretation of the Policies. 

C. Defenses and Essential Elements of Each Affirmative Defense

1. Liberty Mutual’s Defenses to the Trust’s Complaint. Liberty Mutual denies 

the factual allegations and disagrees with the legal arguments that form the basis of the 

Complaint and asserts the following affirmative defenses: 

 

4

 The seven types of claims are those involving: (1) post-1957 installation of an AWI product; 

(2) post-1957 installation of another manufacturer’s product; (3) medically unimpaired 

claimants; (4) inadequate product identification or medical evidence; (5) AWI employees; 

(6) lack of tender to or cooperation with Liberty Mutual; or (7) unreasonable settlements or 

settlements not presented to Liberty Mutual for approval. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 11 of 31
 

12

 (a) Estoppel. The elements of estoppel are an inducement to act and a 

justifiable reliance on that inducement. The Trust is estopped from raising some or all of its 

claims and arguments because its predecessor, AWI, induced Liberty Mutual to enter into 

agreements by making representations on which Liberty Mutual relied to its detriment, including 

but not limited to, the representations that no more than 7 % of asbestos claims were nonproducts bodily injury claims, and that the asbestos deductible endorsement was intended to 

apply to all asbestos claims. Aff. Def. 1. 

 (b) Waiver. Waiver is a “voluntary and intentional abandonment or 

relinquishment of a known right” and “may be established by a party’s undisputed acts or 

language so inconsistent with a purpose to stand on the contract provisions as to leave no 

opportunity for a reasonable inference to the contrary.” RCN Telecom Services of Philadelphia, 

Inc. v. Newtown Tp., Bucks County, 848 A.2d 1108, 1113 (Pa. Cmwlth. 2004). The Trust, which 

is bound by the conduct of its predecessor, AWI, has waived some or all of its claims and 

arguments, including but not limited to its claims that more than 7 % of the claims against it are 

non-products bodily injury claims, by continually engaging in conduct that is inconsistent with 

those claims and arguments. Aff. Def. 4. 

 (c) Time Bar. The Trust’s claims are time-barred by the Pennsylvania 4-year 

statute of limitations for contract claims, or alternatively, by the equitable doctrine of laches. 

Aff. Defs. 2 and 3. 

 (d) Violation of policy terms and the Wellington Agreement. The Trust’s 

claims are barred by its (or AWI’s) failure to satisfy conditions precedent for coverage under the 

Policies, its (or AWI’s) violation of terms and conditions of the Policies, and its (or AWI’s) 

assertion of claims and coverage positions inconsistent with the Wellington Agreement. Aff. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 12 of 31
 

13

Defs. 8, 9, 13, 14, and 15. To the extent that the Trust (or AWI) has settled claims before 

properly adding the Policies to its Wellington Agreement coverage block, the Policies do not 

cover such settlements. Aff. Def. 11. 

 (e) Unripeness. The Trust’s claim for damages in Count 7 is barred because 

the Trust has not properly added the 1977 Policy to its coverage block under the Wellington 

Agreement and thus is not yet entitled to any payment under the 1977 Policy. In addition, prior 

to filing its claim for damages, AWI had not tendered any claims to Liberty Mutual for payment 

under the 1977 Policy, and thus Liberty Mutual cannot have breached any payment obligation. 

Aff. Defs. 10 and 12. 

 (f) Other Settlements. To the extent the Trust (or AWI) has settled with other 

insurers concerning coverage for asbestos bodily injury claims, the Trust’s claim for coverage 

under the Liberty Mutual Policies must be reduced by the applicable limits of, or coverage under 

the policies issued by other settling insurers. Aff. Def. 16. 

 (g) The Trust’s claims or part of them may be barred by accord and 

satisfaction, failure to exhaust required arbitration, and failure of consideration. Aff. Defs. 5-7. 

 (h) Liberty Mutual reserves the right to raise additional defenses. 

2. The Trust’s Defenses to Liberty Mutual’s Counter-Complaint. The Trust 

denies the factual allegations and disagrees with the legal arguments on which Liberty Mutual 

bases its counterclaims and asserts the following affirmative defenses: 

 (a) Waiver. Waiver is a “voluntary and intentional abandonment or 

relinquishment of a known right” and “may be established by a party’s undisputed acts or 

language so inconsistent with a purpose to stand on the contract provisions as to leave no 

opportunity for a reasonable inference to the contrary.” RCN Telecom Services of Philadelphia, 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 13 of 31
 

14

Inc. v. Newtown Tp., Bucks County, 848 A.2d 1108, 1113 (Pa. Cmwlth. 2004). Liberty Mutual 

waived some or all of its claims and arguments, including but not limited to its claims that all 

asbestos-related claims are products bodily injury claims, that all asbestos-related claims 

constitute one occurrence, and that it is entitled to retrospective premiums on certain policies, by 

continually engaging in conduct that is inconsistent with those claims and arguments. 

 (b) Estoppel. The elements of estoppel are an inducement to act and a 

justifiable reliance on that inducement. Liberty Mutual is estopped from raising some or all of 

its claims and arguments because it failed to raise them as arguments, claims, defenses, or 

affirmative defenses in prior communications with AWI or in prior proceedings where it would 

have been necessary and appropriate to do so. As just one example, Count 7 of Liberty Mutual’s 

counterclaim is precluded by estoppel because Liberty Mutual did not promptly explain the basis 

for its objection to the manner in which AWI expanded its coverage block by adding the nonproducts coverage of the 1977 Policy. AWI was prejudiced by Liberty Mutual’s delay because 

AWI was deprived of the opportunity to cure any alleged deficiencies in the expansion of the 

coverage block. 

 (c) Prior conduct and agreements. Counts 3 and 4 of Liberty Mutual’s 

counterclaims are barred by Liberty Mutual’s prior consistent course of conduct and by written 

and oral agreements between AWI and Liberty Mutual. 

 (d) Failure of consideration/breach of insurance policy provisions. Count 6 of 

Liberty Mutual’s counterclaim is precluded, in whole or in part, because Liberty Mutual 

breached the Policies by wrongfully denying coverage for asbestos-related bodily injury claims. 

 (e) The Trust reserves the right to raise additional defenses.

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 14 of 31
 

15

D. Rule 26(a)(1) Disclosures

Given the parties’ prior involvement in extensive litigation and an ADR that involved 

facts and issues related to those presented in this case, the parties have agreed to waive the initial 

disclosure requirements of Rule 26(a)(1) of the Federal Rules of Civil Procedure. 

E. Necessary Parties 

At this time, no additional parties are necessary to this action. 

F. Status of Settlement Negotiations 

The parties have conducted initial settlement discussions, will continue to discuss the 

possibility of settlement, and will apprise the Court of further developments. 

G. List of Counsel that will Attend the Scheduling Conference

Representing the Trust will be: 

• Jerome C. Randolph and Mark A. Packman of Gilbert Randolph LLP; and 

• Stephen A. Madva and Steven E. Pachman of Montgomery, McCracken, Walker 

& Rhoads, LLP. 

Representing Liberty Mutual will be: 

• A. Hugh Scott and Kathleen Cloherty Henry of Choate, Hall & Stewart LLP; 

• John C. Sullivan of Post & Schell, P.C.; and 

• Cindy Koehler of Liberty Mutual Insurance Company. 

H. Discovery Schedule, Procedural and Legal Disputes, and Discovery Plan 

 1. Competing Proposals for Discovery Schedules 

The parties disagree as to whether this case should be bifurcated into two phases. 

Liberty Mutual believes that the estimation of (i) the number or value of asbestos claims 

against AWI and (ii) the percentage of asbestos claims against AWI that are “non-products” 

claims (the “estimation issues”) should be deferred until the Court has determined whether nonCase 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 15 of 31
 

16

products coverage exists under the Policies. These two quantitative estimates will be the result 

of dueling sophisticated, complex and costly expert analyses, none of which will be necessary if 

Liberty Mutual prevails on any of its multiple defenses to coverage (such as statute of 

limitations, which the ADR Appellate panel found persuasive). Estimation is not a small task: 

between the ADR and its bankruptcy case, AWI paid several experts more than $5.6 million for 

years of quantitative estimation work, none of which is relevant to the present case. Fed. R. Civ. 

P. 42(b) provides for separate trials “when . . . conducive to expedition and economy.” Phasing 

this case will allow the parties and the Court to focus their efforts on whether coverage exists for 

the AWI claims, and potentially avoid the burdensome effort and expense of the complex 

quantitative estimation process. 

The Trust contends that the evidence in this case is in fact intertwined and cannot be 

separated into two phases. For example, the Trust will offer testimony from former AWI 

employees that AWI’s involvement with asbestos-containing materials consisted primarily of 

contracting, which gives rise to non-products bodily injury claims. The Trust will bolster this 

testimony with expert statistical evidence that AWI derived significant revenues from 

contracting and that the bulk of its tort liability arose from its contracting activities. Moreover, 

the percentage of asbestos claims against AWI that are non-products bodily injury claims bears 

directly on Liberty Mutual’s knowledge and good faith when it misclassified such claims as 

“products” bodily injury claims subject to aggregate limits. Liberty Mutual’s attempt to prevent 

the Trust from presenting this evidence as proof of Liberty’s liability will damage the Trust’s 

ability to present its case-in-chief, will require repetitive trials with the same witnesses and 

evidence, and will substantially delay resolution of the case. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 16 of 31
 

17

The parties attach alternative proposed discovery plans as Exhibit A hereto. Under those 

plans, discovery would be completed on the following dates: 

1. Schedule Assuming No Bifurcation

• All discovery completed: 15 months after entry of the Rule 16 

Conference Order 

2. Schedule Assuming Bifurcation 

• Discovery completed except for estimation issues: 13 months after 

entry of the Rule 16 Conference Order 

• Discovery re estimation issues would take place subsequent to a 

ruling on whether coverage exists under a plan to be set at that 

time. 

 Liberty Mutual requests that the Court establish an expedited briefing schedule regarding 

the bifurcation issue. The Trust opposes Liberty’s request and respectfully requests that this 

issue be resolved at the Initial Pretrial Conference. 

2. Procedural and Legal Disputes, and Discovery Plan per Fed. R. Civ. 

Rule 26(f) 

At their initial Fed. R. Civ. P. Rule 26(f) conferences, the parties have discussed a 

proposed discovery plan and related issues, as required by the rule. The parties address those 

matters in the following subsections, in order to inform the Court of the parties’ agreements and 

to seek guidance from the Court on matters as to which the parties disagree. 

a. Subjects of Discovery (Rule 26(f)(2)). Although the parties do not agree 

that discovery will be granted on each topic, the parties anticipate that discovery may be sought 

on, inter alia, the following topics: 

• History, negotiation, drafting, and meaning of Liberty Mutual insurance 

policies issued to AWI, the Wellington Agreement, and other agreements 

or communications between the parties. 

• History of AWI’s business, including the scope of its contracting 

operations pertaining to asbestos. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 17 of 31
 

18

• Relevant aspects of the asbestos tort system and of the nature of asbestos 

and asbestos-related diseases. 

• The magnitude of AWI’s/the Trust’s current and future liability for 

asbestos-related claims, including non-products bodily injury claims. 

• The parties’ historical course of conduct with respect to (a) insurance 

policies issued by Liberty Mutual to AWI, (b) the negotiation, signing, and 

implementation of the Wellington Agreement, (c) the handling of 

asbestos-related claims, and (d) the handling of other claims. 

• The parties’ positions and discovery taken in the California Coordinated 

Litigation and ADR Proceeding. 

• Liberty Mutual’s policies issued to other policyholders and its course of 

conduct with respect to those policies and other policyholders’ coverage 

and defense claims. 

• Other insurers’ course of conduct regarding insurance policies, the 

Wellington Agreement, and asbestos-related claims involving AWI or the 

Trust. 

• The circumstances regarding the drafting of the language of the insurance 

policies at issue dealing with non-products coverage. 

• Other topics that may become relevant. 

The parties expressly reserve the right to oppose discovery on any of the foregoing topics and to 

seek discovery on additional topics. 

 b. Discovery of Electronically Stored Information (Rule 26(f)(3)). The 

parties agree to share the costs of having produced material scanned and made OCR-readable. 

Depending on specific vendor proposals, the parties may agree to share the costs of having 

produced material coded by computer for objective information (e.g., sender, recipient, date, 

subject line, etc.). 

 c. Inadvertent Disclosure of Privileged Information (Rule 26(f)(4)). The 

parties agree that allegedly privileged or protected material that is inadvertently produced will be 

returned on demand pending resolution of the claim of privilege. The parties further agree that 

the fact of inadvertent production will not be raised as a basis for finding waiver of any privilege 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 18 of 31
 

19

or protection, and a party challenging the claim of privilege will not argue that the inadvertent 

production constitutes or supports a waiver of any privilege or protection that otherwise might 

exist. 

 d. Limitations on Discovery (Rule 26(f)(5)). During the California 

Coordinated Litigation and the ADR Proceeding, a substantial body of documents was produced 

and testimony was given which may relate to the issues in this case. Accordingly, the parties 

have reached agreement as to how the record of those cases will be used in this litigation (see

Exhibit C), as well as on other limitations on discovery: 

• There shall be no limit on the number of fact depositions. 

• Depositions will be videotaped at the request of either party. 

• The parties will accommodate elderly or infirm witnesses regarding the length of 

any given deposition session. 

• The parties will not be required to produce documents that AWI and Liberty 

Mutual produced to each other in the California Coordinated Litigation or the 

ADR Proceeding, except to the extent that, in the ADR Proceeding, Liberty 

Mutual did not receive copies of documents that AWI produced to other insurers 

or AWI did not receive copies of documents that Liberty Mutual produced to 

other insurers. 

• Each party will serve new document requests and, if responsive documents have 

already been produced, the responding party will represent the extent to which the 

documents were produced in the prior proceedings, will identify such documents 

by bates range where possible, and, where appropriate, will make necessary 

supplemental productions. 

• The parties will execute a written agreement under which they will release all 

materials disclosed by AWI and Liberty Mutual in the ADR Proceeding from: 

(1) the confidentiality protections and restrictions of the Confidentiality 

Stipulation entered in that proceeding (the “ADR Confidentiality Stipulation”), 

and (2) the Certification Regarding the Confidentiality Stipulation entered 

previously in the present case, so that such materials may be used in connection 

with this case, except that (i) AWI’s privileged, protected, and defense-strategy 

material from underlying litigation and (ii) Liberty Mutual’s material regarding 

other policyholders, shall remain subject to the protections of the ADR 

Confidentiality Stipulation. Each of the parties, as well as AWI, may redesignate 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 19 of 31
 

20

materials used in this proceeding as confidential pursuant to the Stipulation 

Regarding Confidentiality attached hereto as Exhibit B. 

 e. Other Orders to be Entered (Rule 26(f)(6)). As noted in the preceding 

paragraph, the parties have reached agreement as to how testimony from the California 

Coordinated Litigation and the ADR Proceeding may be used in this litigation, which they have 

memorialized in a “Stipulation And Order Regarding Use Of Prior Testimony” attached hereto 

as Exhibit C. The parties request that the Court enter Exhibit C as an Order. 

In addition, the parties have reached a confidentiality agreement under which each party 

may designate certain materials disclosed in discovery as “confidential” material that shall be 

used only for purposes of this case subject to the provisions of that stipulation. The parties have 

memorialized that agreement in a “Stipulation Regarding Confidentiality” attached hereto as 

Exhibit B. The parties will execute and file Exhibit B, but are not requesting that the Court enter 

Exhibit B as an Order. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 20 of 31
 

21

 Respectfully submitted this 11th day of October, 2007, 

FOR THE TRUST: FOR LIBERTY MUTUAL: 

 /s/ Stephen A. Madva /s/ John C. Sullivan 

Stephen A. Madva John C. Sullivan 

Steven E. Pachman Kathleen K. Kerns 

Carmon M. Harvey Stacey Z. Jumper 

MONTGOMERY, MCCRACKEN, POST & SCHELL, P.C. 

WALKER & RHOADS, LLP Four Penn Center 

123 South Broad Street 1600 John F. Kennedy Boulevard 

Philadelphia, PA 19109 Philadelphia, PA 19103-2808 

Tel: (215) 772-1500 Tel: (215) 587-1000 

Fax: (215) 772-7620 Fax: (215) 587-1444 

 /s/ Jerome C. Randolph /s/ A. Hugh Scott 

Jerome C. Randolph A. Hugh Scott 

Mark A. Packman Kathleen Burdette Shields 

Alyson A. Foster Kathleen Cloherty Henry 

GILBERT RANDOLPH LLP CHOATE, HALL & STEWART LLP 

1100 New York Ave. NY, Suite 700 Two International Place 

Washington, DC 20005 Boston, MA 02110 

Tel: (202) 772-2200 Tel: (617) 248-5000 

Fax: (202) 772-3333 Fax: (617) 248-4000 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 21 of 31
Exhibit A to Joint Case Report 

Armstrong Settlement Trust v. Liberty Mutual 

Proposed Case Schedule for Unbifurcated Case 

Time Period 

(measured from 

entry of Rule 16 

Conference Order) 

Case Deadline 

Waived by parties’ 

agreement Rule 26(a)(1) initial disclosures 

7 months 

Case-in-chief expert reports that contain affirmative estimations of 

number or value of asbestos claims, or the percentage of 

asbestos claims that are “non-products” claims (the “estimation 

issues”) 

8 months Designation of rebuttal experts who will respond to estimation 

issues 

12 months Rebuttal expert reports responding to estimation issues 

Case-in-chief expert reports on non-estimation issues 

14 months Rebuttal expert reports on non-estimation issues 

Fact discovery completed on all issues 

15 months Expert discovery and depositions completed 

*ALL DISCOVERY COMPLETED* 

17 months 

Deadline for filing dispositive motions, although any party may 

file dispositive motions at any time during the discovery 

period 

One month after 

decision on 

dispositive motions, 

or if no motions 

filed, 2 months after 

close of expert 

discovery 

Final pretrial conference 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 22 of 31
 

2

Armstrong Settlement Trust v. Liberty Mutual 

Proposed Case Schedule for Bifurcated Case 

Time Period 

(measured from 

entry of Rule 16 

Conference Order) 

Case Deadline 

Waived by parties’ 

agreement Rule 26(a)(1) initial disclosures 

10 months Case-in-chief expert reports, excluding estimation issues* 

11 months Fact discovery completed, excluding estimation issues 

12 months Rebuttal expert reports, excluding estimation issues 

13 months 

Expert discovery and depositions completed, excluding 

estimation issues 

*ALL DISCOVERY COMPLETED* 

14 months 

Deadline for filing dispositive motions, excluding estimation 

issues, although any party may file dispositive motions at any 

time during the discovery period 

One month after 

decision on 

dispositive motions, 

or if no motions 

filed, 2 months after 

close of expert 

discovery 

Final pretrial conference re all matters except estimation issues 

Two weeks 

following entry of 

judgment on 

coverage issues (if 

needed) 

Parties to submit to Court proposed schedule for addressing 

estimation issues, to be followed by scheduling conference with 

the Court 

* The term “estimation issues” is defined on the preceding table.

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 23 of 31
Exhibit B to Joint Case Report 

UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF PENNSYLVANIA 

 

 ) 

ARMSTRONG WORLD INDUSTRIES, INC. ) 

ASBESTOS PERSONAL INJURY ) 

SETTLEMENT TRUST, ) 

 ) 

 Plaintiff, ) 

 ) 

v. ) Civil Action No. 02-CV-4360 

 ) 

LIBERTY MUTUAL INSURANCE COMPANY, ) 

 ) 

 Defendant. ) 

 ) 

STIPULATION REGARDING CONFIDENTIALITY

WHEREAS Armstrong World Industries, Inc. Asbestos Personal Injury Settlement Trust 

(the “Trust”) and Liberty Mutual Insurance Company (“Liberty Mutual”), and Reorganized 

Armstrong World Industries, Inc. (“Reorganized Armstrong”) (the “Parties”) each recognize that 

discovery in this case may call for the disclosure of information which the disclosing Party may 

believe to be of a confidential, sensitive, or proprietary nature, and the public disclosure of which 

could adversely affect the disclosing Party or violate a binding confidential undertaking of a 

Party, and 

WHEREAS the Parties wish to ensure that such information (i) is not used for any 

purpose other than the above-captioned litigation, and (ii) is not made public or otherwise 

disseminated except as provided in this stipulation; 

IT IS HEREBY STIPULATED AND AGREED by and among the Trust, Liberty Mutual, 

and Reorganized Armstrong that: 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 24 of 31
 

 2

 1. If a Party believes in good faith that any discovery it provides in this case 

(including documents, interrogatory answers, or depositions (or portions thereof)) contains 

confidential, sensitive, or proprietary information, the public disclosure of which could adversely 

affect the producing Party or violate a binding confidential undertaking of a Party, the producing 

Party may designate such material as “Confidential.” 

 2. Materials designated as “Confidential” will be used only for purposes of this case, 

and will not be disclosed beyond the Parties themselves, counsel for the Parties, deponents 

testifying in this case, court reporters and other persons engaged in preparing transcripts of 

depositions, the Parties’ consultants retained for purposes of this case, the Parties’ expert 

witnesses retained for purposes of this case, other vendors employed by the Parties in connection 

with this case, and Liberty Mutual’s reinsurers, who shall maintain the confidentiality of such 

materials and not further disclose them, except as provided in paragraph 3 below. 

 3. Before any Party discloses in court filings or court proceedings materials that 

have been designated by another Party as “Confidential,” the Party who received those materials 

will give all other Parties notice of the materials that it wishes to disclose. The notice will be 

sufficient to permit the Party who designated the materials “Confidential,” or any other Party, to 

move for a protective order from the Court and obtain a ruling on that motion in advance of any 

public disclosure of the materials. Alternatively, the Party seeking to disclose materials that have 

been designated “Confidential” in court filings or court proceedings may file them under seal, 

pursuant to the Court’s procedures therefore. 

 4. Notwithstanding this stipulation, each Party reserves the right to seek a protective 

order from the Court for any material requested or produced in discovery in this case. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 25 of 31
 

 3

Dated: ________ ___, 2007 

ARMSTRONG WORLD INDUSTRIES, INC. 

ASBESTOS PERSONAL INJURY 

SETTLEMENT TRUST 

By its counsel, 

 

Stephen A. Madva 

Steven E. Pachman 

Carmon M. Harvey 

MONTGOMERY, MCCRACKEN, 

WALKER & RHOADS, LLP 

123 South Broad Street 

Philadelphia, PA 19109 

Tel: (215) 772-1500 

Fax: (215) 772-7620 

 

Jerome C. Randolph 

Mark A. Packman 

Alyson A. Foster 

GILBERT RANDOLPH LLP 

1100 New York Avenue, NW 

Suite 700 

Washington, DC 20005 

Tel: (202) 772-2200 

Fax: (202) 772-3333 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 26 of 31
 

 4

LIBERTY MUTUAL INSURANCE 

COMPANY 

By its counsel, 

 

John C. Sullivan 

Kathleen K. Kerns 

Stacey Z. Jumper 

Post & Schell, P.C. 

Four Penn Center 

1600 John F. Kennedy Boulevard 

Philadelphia, PA 19103-2808 

(215) 587-1000 

 

A. Hugh Scott 

Kathleen Burdette Shields 

Choate, Hall & Stewart LLP 

Two International Place 

Boston, MA 02110 

(617) 248-5000 

REORGANIZED ARMSTRONG WORLD 

INDUSTRIES, INC. 

By its counsel, 

 

William P. Skinner 

Covington & Burling LLP 

1201 Pennsylvania Avenue, NW 

Washington, DC 20004-2401 

(202) 662-6000

 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 27 of 31
Exhibit C to Joint Case Report 

UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF PENNSYLVANIA 

 

 ) 

ARMSTRONG WORLD INDUSTRIES, INC. ) 

ASBESTOS PERSONAL INJURY ) 

SETTLEMENT TRUST, ) 

 ) 

 Plaintiff, ) 

 ) 

v. ) Civil Action No. 02-CV-4360 

 ) 

LIBERTY MUTUAL INSURANCE COMPANY, ) 

 ) 

 Defendant. ) 

 ) 

STIPULATION AND ORDER REGARDING USE OF PRIOR TESTIMONY

WHEREAS Armstrong World Industries, Inc. (“AWI”) and Liberty Mutual Insurance 

Company (“Liberty Mutual”) were parties to the civil action captioned In re Asbestos Insurance 

Coverage Cases, Judicial Coordination Proceeding No. 1072 (filed in San Francisco Superior 

Court, California, in 1980) (the “California Coordinated Litigation”); 

 WHEREAS AWI and Liberty Mutual were also parties to an arbitration conducted by 

the Center for Public Resources Institute for Dispute Resolution captioned Armstrong World 

Industries, Inc. v. Aetna Casualty & Surety Company, et al., commencing in 1996 (the “ADR 

Proceeding”); 

WHEREAS, in both the California Coordinated Litigation and in the ADR Proceeding, 

discovery was taken, and witnesses testified, on matters that may be relevant to the issues in this 

case; 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 28 of 31
2

WHEREAS the Armstrong World Industries, Inc. Asbestos Personal Injury Settlement 

Trust (the “Trust”) has been substituted for AWI as plaintiff in this case; and 

WHEREAS the Trust and Liberty Mutual have reached certain agreements concerning 

the use of prior testimony from the California Coordinated Litigation and the ADR Proceeding in 

an attempt to streamline the discovery and reduce expense for this case, 

IT IS HEREBY STIPULATED AND AGREED by and among the Trust and Liberty 

Mutual that: 

1. Any deposition, trial, or hearing testimony given by AWI, Liberty Mutual, or any 

of their officers, employees or agents in either the California Coordinated Litigation or in the 

ADR Proceeding (“prior testimony”) can be used in this case in the same manner as if such 

testimony had been given in a deposition taken in this case. 

2. Any witness who gave prior testimony will be deemed to be unavailable for trial 

testimony for purposes of Fed. R. Civ. P. 32(a)(3). 

3. Subject to the application of the Federal Rules of Civil Procedure, any witness 

who gave prior testimony may be deposed again in this case, for a maximum of seven hours. 

4. Subject to the application of the Federal Rules of Civil Procedure, any witness 

who gave prior testimony may be called as a witness at the trial of this case. 

5. The parties reserve all other rights with respect to all other materials, testimony, 

or documentary record from the California Coordinated Litigation or the ADR Proceeding. 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 29 of 31
3

Dated: ________ ___, 2007 

ARMSTRONG WORLD INDUSTRIES, INC. 

ASBESTOS PERSONAL INJURY 

SETTLEMENT TRUST 

By its counsel, 

 

Stephen A. Madva 

Steven E. Pachman 

Carmon M. Harvey 

MONTGOMERY, MCCRACKEN, 

WALKER & RHOADS, LLP 

123 South Broad Street 

Philadelphia, PA 19109 

Tel: (215) 772-1500 

Fax: (215) 772-7620 

 

Jerome C. Randolph 

Mark A. Packman 

Alyson A. Foster 

GILBERT RANDOLPH LLP 

1100 New York Avenue, NW 

Suite 700 

Washington, DC 20005 

Tel: (202) 772-2200 

Fax: (202) 772-3333 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 30 of 31
4

LIBERTY MUTUAL INSURANCE 

COMPANY 

By its counsel, 

 

John C. Sullivan 

Kathleen K. Kerns 

Stacey Z. Jumper 

Post & Schell, P.C. 

Four Penn Center 

1600 John F. Kennedy Boulevard 

Philadelphia, PA 19103-2808 

(215) 587-1000 

 

A. Hugh Scott 

Kathleen Burdette Shields 

Choate, Hall & Stewart LLP 

Two International Place 

Boston, MA 02110 

(617) 248-5000 

 

SO ORDERED: 

____________________________ Dated: 

Honorable R. Barclay Surrick 

United States District Judge 

Case 2:02-cv-04360-RBS Document 67 Filed 10/11/2007 Page 31 of 31