Source: http://ny.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20081230_0013352.NY.htm/qx
Timestamp: 2016-10-22 21:54:39
Document Index: 711607778

Matched Legal Cases: ['§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', 'art, 748']

| Continental Casualty Co. v. Employers Insurance Company of Wausau
Continental Casualty Co. v. Employers Insurance Company of Wausau
CONTINENTAL CASUALTY COMPANY, ET AL., PLAINTIFFS-APPELLANTS-RESPONDENTS,v.EMPLOYERS INSURANCE COMPANY OF WAUSAU, ET AL., DEFENDANTS-RESPONDENTS-APPELLANTS, MICHAEL O'REILLY, ETC., ET AL., DEFENDANTS-RESPONDENTS, ROBERT A. KEASBEY COMPANY, ETC., DEFENDANT. THE TRAVELERS INDEMNITY COMPANY, AMICUS CURIAE.
Cross appeals from an order of the Supreme Court, New York County (Richard F. Braun, J.), entered on or about June 11, 2007, insofar as it declared that the asbestos claims against insured Keasbey are not within the products liability coverage, and thus not subject to the policies' aggregate limits; that the defendant class is not subject to the affirmative defenses that plaintiffs may have had against Keasbey; that coverage for the defendant class is triggered by exposure and that each individual class member's exposure to conditions resulting in bodily injury constituted a separate occurrence; and that the aggregate limit of CNA's policy RDU 8047261 was not exhausted.
Peter Tom, J.P., David H. Friedman, Eugene Nardelli and James M. Catterson, JJ.
601037/03
In this declaratory judgment action, plaintiff insurance companies seek a declaration that they do not have a duty to indemnify the now-defunct insured, Robert A. Keasbey Co., in pending asbestos-related claims. Although the tort claims of the defendant class (hereinafter referred to as "the claimants") have not yet been adjudicated, and even though a judgment must be entered against Keasbey before an action could be brought under Insurance Law § 3420(a)(2) against the plaintiffs, the insurers seek the declaration that all the pending claims in the underlying complaints against Keasbey fall within the products hazard/completed operations coverage. Such coverage is subject to aggregate limits which indisputably were exhausted after the insurers paid out more than $110,000,000 in negotiated settlements on policies issued to Keasbey.
Continental Insurance Co. and American Casualty Co. (hereinafter referred to as "CNA") initiated this action first against its insured, Keasbey, as aggregate limits were being exhausted by lawsuits that had been brought against Keasbey as a manufacturer, seller and distributor of an inherently dangerous product, asbestos. In May 2001, counsel for about 20,000 claimants informed Keasbey and CNA that these claimants would be pursuing a new theory of liability (non-products or "operations" coverage), which was not subject to aggregate limits, and thus opened up Keasbey and its insurers to "perpetual coverage."
The record reflects that now-dissolved defendant Keasbey was an insulation contractor that installed, repaired, renovated and removed insulation at various sites in and around New York since the late 1800s. Keasbey distributed and installed insulation materials for industrial and commercial facilities including the powerhouses, Consolidated Edison and other utilities. Until about 1972 those insulation materials contained asbestos. Keasbey also mixed and distributed two asbestos-containing finishing cements.
By 1965, however, studies conducted by Dr. Irving Selikoff and his research team at Mt. Sinai Hospital revealed the potential dangers of asbestos. Dr. Selikoff's studies sparked concern among asbestos workers, other trades and their employers, about the use of asbestos.
The subject insurance policies are 17 primary level comprehensive general liability (hereinafter referred to as "CGL") policies that were issued by CNA to Keasbey between February 1970 and February 1987. None of the CNA policies issued to Keasbey during this time period contained asbestos-related exclusions.*fn1 The primary policies generally insured Keasbey against claims for "bodily injury" caused by an "occurrence."
The CNA policies have aggregate limits that apply only to claims that come within the definition of "products hazard" or "completed operations hazard." The products hazard aggregates range from $300,000 to $1,000,000 per policy, with combined aggregate limits of $8,700,000. Under the policies, "products hazard" "includes bodily injury [...] arising out of the named insured's products [...] but only if the bodily injury [...] occurs away from premises owned by or rented to the named insured and after physical possession of such products has been relinquished to others."
The completed operations hazard is defined as: "bodily injury and property damage arising out of operations [...] but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to [...] the named insured."
The CNA policies contain no aggregate limits for claims that are not products hazards, such as "operations" claims. The only limitation for such coverage is the per occurrence provision in each policy. Between 1972-78 CNA additionally issued Keasbey five excess policies with aggregate limits totaling $50 million.
Thus, by May 1992, CNA exhausted their aggregate limits of $8,700,000 in the State Powerhouse Cases. Between May 1992 and May 2001, the excess insurance carriers, including CNA, paid out more than $100,000,000 under their policies and, for all intents and purposes, CNA exhausted their excess policy limits also*fn2. Keasbey ceased doing business in 1995, and was dissolved in 2001.
By letter dated May 15, 2001, the attorneys for the majority of the remaining asbestos-injured claimants sent a letter to Keasbey's litigation counsel asserting that the remaining claims against Keasbey were "non-products" or "operations" hazard claims that were not subject to the products hazard aggregate limits.
"it is highly likely that the products/ completed operations aggregate limits do not apply to these so-called non-products' claims. As a result, the actual value of Keasbey's insurance asset appears to be vastly greater than is reflected [...] The claimants therefore wish to ensure [...] that Keasbey and the carriers do not [...] otherwise extinguish the insurers' obligations that, in many cases could be perpetual." (emphasis added).
CNA did not issue a disclaimer of coverage in response to the May 15, 2001 letter; instead, it commenced this declaratory judgment action in October 2001 against Keasbey and added as of right the defendant class of asbestos claimants against Keasbey. CNA asked the court to declare that it owed no duty to indemnify Keasbey for any of the pending asbestos-related bodily injury claims because all of the remaining claims were within the definition of products liability/completed operations coverage in the primary level policies that CNA had issued to Keasbey, that the limits of the subject policies had been exhausted, and that CNA had other defenses to further obligations under the policies.
Following a transfer of venue from Westchester County to New York County, the case was certified as a class action against the defendant class in January 2004. After extensive discovery and motion practice, a non-jury trial began on July 13, 2005, and ended on October 28, 2005. Keasbey, which had already ceased operations, defaulted in the action.
Second, the court decided that the defunct Keasbey was guilty of laches but that the claimants were not subject to the affirmative defenses that CNA may have had against Keasbey. The court observed that such defenses as timely notice of claim, laches, ratification, estoppel and judicial estoppel were based on Keasbey's conduct, and that any right of the members of the defendant class to sue CNA was not derived from Keasbey directly, but was derived from Insurance Law § 3420(a)(2). Thus, the court determined that the only defenses the insurer had against the injured claimants were those that "grow out of" the terms of the policy. The court also determined that CNA would nonetheless be precluded from asserting affirmative defenses, as it failed to timely disclaim coverage as to the class defendants.
Further, the court held that CNA could not rely on the "expected or intentional" exclusion, nor on the pollutant exclusion under the primary policies; and that the aggregate limit of plaintiff's excess policy RDU 8047261 was not exhausted. Finally, the court determined that One Beacon's defense obligations extended only to claims arising out of an exposure to a Keasbey asbestos-containing product at the Indian Point Nuclear Power Plant Units #2 and #3.
Defendant One Beacon America Insurance Company cross-appeals from that part of the order declaring that CNA's claims for reimbursement and contribution against One Beacon were not barred by CNA's failure to provide timely notice of the claims for which reimbursement and contributions were sought. Defendant Employers Insurance Company of Wausau also cross-appeals from the court's findings of fact and conclusions of law with respect to the obligations of CNA and One Beacon under their policies.
At the outset, we find that a disclaimer of coverage is not necessary in order for CNA to preserve its defenses under the policy. See Generali-U.S. Branch v. Rothschild, 295 A.D.2d 236, 237-238, 744 N.Y.S.2d 159, 161 (1st Dept. 2002) (commencement of a declaratory judgment action can constitute disclaimer); see also Travelers Ins. Co. v. Volmar Constr. Co., 300 A.D.2d 40, 45, 752 N.Y.S.2d 286, 290 (1st Dept. 2002) (insurer has duty to disclaim only after it receives demand for defense and indemnification).
Further, for the reasons set forth below, this Court finds that the trial court erred in denying CNA the declaration it sought. As a threshold matter, it is well established that CNA has the burden of proving that it is entitled to the declarations it seeks. Mount Vernon Fire Ins. Co. v. NIBA Constr., 195 A.D.2d 425, 427, 600 N.Y.S.2d 936, 937 (1st Dept. 1993) (Sullivan J., concurring). For CNA to obtain a declaratory judgment as to its obligation to indemnify in advance of trial, it must demonstrate as a matter of law that "there is no possible factual or legal basis on which the insurer may eventually be held liable under its policy." First State Ins. Co. v. J & S United Amusement Corp., 67 N.Y.2d 1044, 1046, 504 N.Y.S.2d 88, 90, 495 N.E.2d 351, 353 (1986).
Notwithstanding the foregoing, the equally well established principle is that an insured must prove entitlement to the coverage sought while an insurer must prove an exclusion in the policy to defeat coverage. Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 218, 746 N.Y.S.2d 622, 625, 774 N.E.2d 687, 690 (2002). Since Keasbey, the insured, defaulted and claimants stand in its shoes, claimants bear the same burden of proof. D'Arata v. New York Cent. Mut. Fire Ins. Co., 76 N.Y.2d 659, 665, 563 N.Y.S.2d 24, 27, 564 N.E.2d 634, 637 (1990).
In this case, CNA demonstrated that there exists no possible basis, factual or legal, for liability outside of the products/completed operations provisions. In any event, claimants did not produce any evidence whatsoever in support of the new theory of liability; namely, that injuries arose before contracting operations by Keasbey were completed.
Indisputably, Keasbey was guilty of laches. The court found, however, that the claimants were in a different position. In so ruling, the trial court misconstrued Insurance Law § 3420, which deals with the rights of an injured plaintiff to proceed directly against an insurer after obtaining judgment against an insured. See Lang v. Hanover Ins. Co., 3 NY3d 350, 354-355, 787 N.Y.S.2d 211, 214, 820 N.E.2d 855, 858 (2004), quoting Coleman v. New Amsterdam Cas. Co, 247 N.Y. 271, 275, 160 N.E. 367, 369 (1928) (Cardozo, Ch.J.) (under New York's direct action statute, Insurance Law § 3420, the rights of an injured claimant against the insurer are no less and no greater than those of the insured). This plainly means that all the defenses available to an insurer against an insured are available also against injured claimants.
In its departure from New York law, the trial court appeared to rely on Rucaj v. Progressive Ins. Co. (19 AD3d 270, 797 N.Y.S.2d 79 [1st Dept. 2005]), in which this Court held that an insurer's defenses in a section 3420 action against a claimant are those it would have against the insured. Then, without the support of any legal authority, the court stated: "That should not be held to mean that all of the insurer's defenses against the insured are available against an injured claimant." Instead of relying on case law that was precisely on point, the trial court relied on two cases that had nothing to do with rights derived from Insurance Law § 3420.
The principle that neither party in a section 3420 action has any rights greater or lesser than if the action were between insurer and insured has been consistently applied by the Court of Appeals and intermediate appellate courts, which have found that those rights include the equitable affirmative defenses available against a policyholder. See D'Arata, 76 N.Y.2d at 665, 563 N.Y.S.2d at 27. In D'Arata, the plaintiff, a victim of an assault, brought an action under section 3420, seeking to compel the insurer to pay a judgment on behalf of the insured defendant up to the limit of the policy. The insurer used collateral estoppel as an affirmative defense asserting that the plaintiff was estopped from relitigating the issue of insured's intent to inflict bodily injury. Id. at 662, 563 N.Y.S.2d at 25 (analysis related to whether a finding in a criminal proceeding could be used to satisfy the expected and intended exclusion of the policy).
In considering whether the defense barred the claim, the Court of Appeals first observed that the affirmative defense of collateral estoppel is an "equitable doctrine [...] grounded on concepts of fairness and should not be rigidly or mechanically applied." Id. at 664; 563 N.Y.S.2d at 26. The Court further held that the plaintiff was subject to the same affirmative defenses that would apply against the insured, and explained: "Plaintiff by proceeding directly against [insurer] does so as subrogee of the insured's rights and is subject to whatever rules of estoppel would apply to the insured." Id. at 665, 563 N.Y.S.2d at 27; see also Zimmerman v. Tower Ins. Co. of N.Y., 13 AD3d 137, 138-139, 788 N.Y.S.2d 309, 310-311 (1st Dept. 2004) (plaintiff subrogee of insured's rights is subject to whatever rules of estoppel that would apply to insured); Van Gordon v. Otsego Mut. Fire Ins. Co., 232 A.D.2d 405, 648 N.Y.S.2d 306 (2d Dept. 1996) (non-cooperation of insured party is ground upon which insurer was denying coverage and may be asserted by insurer as defense in action on a judgment by injured plaintiff pursuant to Insurance Law § 3420(a)).
Thus, the issue is not whether claimants engaged in delay and are guilty of laches. The issue properly framed is whether claimants can obtain coverage under a newly asserted theory of liability when the insured engaged in acts or omissions that would preclude that coverage had the insured brought this claim. The answer must be, as precedent demands, that equitable affirmative defenses are available to CNA against the claimants who stand in Keasbey's shoes, and that if laches is available against Keasbey, it may be used against the claimants.
Laches is an equitable doctrine based on fairness. Courts have invoked the doctrine to prevent stale claims and the prejudice that can result. Whether the doctrine is applicable, however, depends on the facts of the case. See Orange & Rockland Util. v. Philwold Estates, 70 A.D.2d 338, 343, 421 N.Y.S.2d 640, 643 (3rd Dept. 1979), modified, 52 N.Y.2d 253, 437 N.Y.S.2d 291, 418 N.E.2d 1310 (1981).
In this case, the inequity would be particularly egregious. As the amicus curiae brief asserts in behalf of Keasbey's insurers, CNA would be in a position to owe "perpetual and virtually unlimited obligations to provide coverage for a never-ending torrent of asbestos claims" under a theory of coverage "never before asserted by Keasbey," and yet they would be "hampered in their ability to defend [...] because of the loss of evidence." Here, counsel for claimants raised the possibility of "perpetual coverage" under a new theory of liability in May 2001 as the products aggregates were being exhausted. As a result of negotiated settlements, eventually more than $110,000,000 was paid out over 10 years, largely to the clients of the law firm of Weitz & Luxenberg. Of that, CNA paid out $8.7 million on its primary policies and more than $50,000,000 as an excess insurer.
Indeed, the simplest route to recovering damages for asbestos-related claims after 1973 was to assert products liability against the manufacturer, distributor or seller based on asbestos being "unreasonably dangerous." See Borel v. Fiberboard Paper Prods. Corp., 493 F.2d 1076 (5th Cir. 1973), cert. denied, 419 U.S. 969, 95 S.Ct. 127, 42 L.Ed.2d 107. Under Borel, which was followed in New York, claimants were obligated to prove only that (1) they had been exposed to defendant's product and (2) show an asbestos-related disease. Additional relief for claimants appeared in 1986 when a legislative amendment to the statute of limitations meant that the clock started running upon "discovery" of disease rather than actual injury.
The foregoing events led to the biggest mass tort litigation of our time with courts in New York creating asbestos dockets where cases, sometimes hundreds at a time, were consolidated and special asbestos rules allowed standard complaints and discovery requests to be used in cases where, as CNA asserts, facts were tried for a few and then special verdicts were applied to all. Cases against Keasbey were brought mainly in New York by a handful of law firms, the most prolific of which were Weitz & Luxenberg, and Wilentz Goldman.
The record reflects that in the State Powerhouse consolidation trial of 1992, two claimants obtained multi-million damages verdicts after claimants' counsel opened the proceedings by pointing to Keasbey's role as a manufacturer with a " resultant obligation' to understand [...] its resultant potential liability for a failure to warn." Counsel closed by calling Keasbey a "murderer." After 1992 and until 2003, only a few Keasbey cases began trial and all settled before verdict
As CNA asserts, it was understood that excess carriers would pay for Keasbey's asbestos cases only if prior products cases had exhausted the aggregate limits in the primary policies and if the pending cases were all products-hazard cases. Since insurers at the time were aware that a "non-products" argument could avoid aggregation, Hartford, INA and Fireman's Fund scrutinized the evidence on these issues to satisfy themselves that the claims indeed fit within the products-hazard coverage and thus were subject to aggregate limits.
The well-established rationale for the doctrine of laches is to prevent a party from injustice that would arise from the assertion of stale claims. See Marcus v. Village of Mamaroneck, 283 N.Y. 325, 332, 28 N.E.2d 856, 859 (1940) (defense of laches is based upon the principle that plaintiffs have delayed to the prejudice of defendants). Thus, the trial court correctly found that laches is applicable in this case.
Furthermore, the trial court erred in holding that a factual basis exists for CNA's liability under the non-products/operations provisions because it incorrectly relied on the holding in Frontier Insulation Contrs. v. Merchants Mut. Ins. Co. (91 N.Y.2d 169, 667 N.Y.S.2d 982, 690 N.E.2d 866 [1997]). The court erred in its extrapolation from that case that exposure by inhalation constitutes an injury that triggers coverage. The instant case is simply not controlled by Frontier.
Frontier involves only the very narrow issue of an insurer's duty to defend where allegations before the court included those of negligent installation. In fact, the Court started its opinion with the words: "The narrow issue before us [...] is whether the products hazards' exclusions in the insurance policies at issue relieve defendant insurers of the duty to defend their insured, an asbestos insulation contractor." Id. at 173-174, 667 N.Y.S.2d at 984.
The insurer in Frontier sought a ruling that all of the claims against its policyholder should be considered products-hazards claims since injuries arose out of the inherently dangerous nature of the product. Frontier however, was not a manufacturer or seller like Keasbey, but only an installer of insulation products. The tort claims arising against it were not based on a manufacturer's or seller's duty to warn or based on what a seller or manufacturer should know about a product they put into the stream of commerce, but were based on a theory of negligent installation. The Court of Appeals ruled against the insurer, as it found that products liability coverage "cannot apply to accidents or occurrences that allegedly took place while Frontier's installation work was in progress because the offending product the asbestos installation was not relinquished from Frontier's control until installation was complete." Id. at 177, 667 N.Y.S.2d at 986 (emphasis added).
Rather, the Court observed that at least some of the suits "expressly allege" that negligent installation of asbestos caused their personal injuries. The Court then added that:
"Since asbestos fibers may be readily released into the air and inhaled while a contractor is cutting and sawing the product during installation, there is a reasonable possibility that any liability attributed to Frontier would stem from injuries that occurred during ongoing operations covered events." Id. at 177-78, 667 N.Y.S.2d at 986.
First, the issue before the Frontier court was the duty to defend, which is a much broader duty than the duty to indemnify. Atlantic Mut. Ins. Co. v. Terk Tech. Corp., 309 A.D.2d 22, 28, 763 N.Y.S.2d 56, 60 (1st Dept. 2003) (the duty to indemnify does not turn on the pleadings but rather on whether the loss as established by the facts is covered by the policy). The duty to defend is decided solely on the allegations in the complaint which must be accepted by a court as true, and which here included allegations of personal injuries arising out of negligent installation.
Further, the declaration sought in Frontier was that all the claims fell within the products-hazard exclusion, and there was no distinction made as to whether the injuries happened before or after operations were completed. More significantly, the insurers did not present any evidence as to the scope or timing of the injury, and so there was no such analysis by the Frontier Court. In other words, there was no evidence, as there is in the instant case, as to what constitutes injury in an asbestos claim, and whether that injury can in fact occur while operations are ongoing and before they are completed. Ultimately, the Frontier Court was constrained to rule against the insurer because it found there was a "reasonable possibility" of liability.
To reach that point in this case, the trial court made the distinction between three different theories of liability: (1)products hazard coverage for insurable risks due to a defective product that has been put into the stream of commerce; (2) completed operations coverage, which covers risks of loss for injuries that arise out of operations of the insured that have been completed and occur away from the premises of the insured, and (3) premises/operations coverage, which covers risks that arise due to injuries from the defective product while the work with the product is still in progress. 16 Misc 3d 223, 230-231, 839 N.Y.S.2d 403, 410-411 (2007). "If relinquishment has not occurred, and the operations have not been completed, then operations coverage applies." Id. at 231, 839 N.Y.S.2d at 411.
The court then held that CNA had not demonstrated that the injuries of claimants occurred after relinquishment of the asbestos products or after operations were completed. The court observed that: "When defendant Keasbey cut, sawed, mixed, and removed asbestos-containing materials as part of its installation operations at various job sites, other individuals at those sites were exposed to asbestos dust." Id. at 229, 839 N.Y.S.2d at 410. Without pointing to any other evidentiary material, the court then concluded: "the evidence has shown that the injuries happened while the installation operations of defendant Keasbey were ongoing." Id. at 231, 839 N.Y.S.2d at 411 (emphasis added).
In its discussion as to when coverage is triggered for malignant and non-malignant asbestos-related injuries, the court stated that "coverage is triggered under the subject insurance policies when a bodily injury occurs." Id. at 241, 839 N.Y.S.2d at 418. In the next paragraph however, citing to Appalachian Ins. Co. v. General Elec. Co.,(19 AD3d 198, 796 N.Y.S.2d 609 [1st Dept. 2005], aff'd, 8 NY3d 162, 831 N.Y.S.2d 742, 863 N.E.2d 994 [2007]) and Matter of Midland Ins. Co., (269 A.D.2d 50, 709 N.Y.S.2d 24 [1st Dept. 2000]), the court held that, "it is an occurrence that triggers coverage, and an occurrence is the exposure to asbestos by inhaling it [...] not an injury therefrom." Therefore coverage for both types of injuries is "triggered by exposure to asbestos during the policy periods." 16 Misc 3d at 241, 839 N.Y.S.2d at 418.
Finally, in addition to these conflicting determinations, the trial court observed: "[t]he risks of injuries during operations grows out of the use of the asbestos products during the operations." Id. at 231, 839 N.Y.S.2d at 411.
Setting aside the fact that the timing of the risks of injuries is irrelevant, the court, in relying on Matter of Midland Ins. Co. and Frontier [that occurrence not injury triggers coverage] ignored the applicable policy provisions relevant to this case; and in holding that "injuries happened" during installation operations, disregarded New York law. The court all but ignored the testimony of medical experts that went largely uncontroverted at trial.
As a starting point for any analysis as to what triggers coverage, the Court must look at the applicable policy provisions. As noted, in this case, the policies at issue are 17 primary level CGL policies. The policies between 1970 and 1987 cover bodily injury and property damage which occur during the policy period. Three pre-1973 policies under the CGL provisions state that CNA is obligated to pay "all sums" for an occurrence defined as an "accident including continuous or repeated exposure to conditions which results during the policy period in bodily injury."
In the 1973-1987 primary policies, "bodily injury" is defined as "bodily injury, sickness or disease sustained by a person which occurs during the policy period." "Occurrence" is defined as "an accident including continuous or repeated exposure to conditions which results in bodily injury [...] neither expected nor intended from the standpoint of the insured."
Testimony at trial indicated that a typical instruction for claims handlers looking at claims falling within "operations" coverage stated: "This type of loss relates to injuries that allege injury to the claimant resulting from exposure while the insured is using a substance or causes a substance to be released." The example given in the instructions was of an employee of the insured - as for example a Keasbey installer would be - repairing a chemical tank on the premises of corporation "A". During repair the insured ruptures the tank causing an employee of corporation "A" to suffer chemical burns.
This simple example of a visible injury sustained contemporaneously with the negligent act or occurrence however is not particularly useful to any analysis of asbestos-related claims. The undisputed fact that both malignant and non-malignant asbestos-related diseases require periods of long, intensive exposure rather than a single period of inhalation coupled with the fact that the full-blown version of both types of disease develop only after a long latency period almost always prompts the question of what constitutes injury in an asbestos-related claim. Moreover, in an "operations coverage" case, establishing the when and the how of the injury is especially crucial since injury must be shown to arise before the completion of an operation.
The question of what constitutes injury in asbestos-related claims has vexed state and federal courts across the nation since the 1980s. See Insurance Co. of N. Am. v. Forty-Eight Insulations Inc., 633 F.2d 1212, 1222 (6th Cir. 1980), cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981) ("cumulative, progressive disease does not fit the disease or accident situation which the policies typically cover"). The Sixth Circuit majority explained the dilemma as follows: "There is usually little dispute as to when an injury occurs when dealing with a common disease or accident. [In the case of asbestosis] there is considerable dispute as to when an injury [...] should be deemed to occur." Id. at 1222. Hence the pertinent question is: what constitutes sufficient bodily injury to trigger coverage. See Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 650, 593 N.Y.S.2d 966, 970-971, 609 N.E.2d 506, 510-511 (1993).
Testimony by CNA's medical experts as to how malignant and non-malignant types of asbestos-related diseases develop was largely uncontroverted. It established that adverse health effects from asbestos are "due to the inhalation of fibers in concentrations sufficient to overwhelm the normal pulmonary defense and clearance mechanisms." Researchers, acknowledged to be authoritative by the claimants' expert, testified that "most workers with asbestos exposure, as well as members of the general population who inhale asbestos fibers from ambient air, show no evidence of [subclinical] fibrosis."
Medical experts for both sides at trial agreed that there is a threshold fiber dose below which asbestosis is not seen, although the claimants' expert did not offer an opinion as to when it was reached. CNA, however, introduced testimony based on leading studies that showed the following statistics: that asbestosis is usually observed in individuals who have had many years of high-level exposure, typically asbestos miners and millers, asbestos textile workers and asbestos insulators like Keasbey employees (who are not members of the class in the instant case because workers compensation laws prevent them from suing Keasbey). The Selikoff studies showed that for asbestos insulators asbestosis occurs in 92% of those with more than 40 years exposure but in only 10% of those with 10-19 years of exposure.
Typical "bystanders" on the other hand, who comprise the majority of the claimants, here have normal lungs 71% of the time if they had less than 30 years of exposure. Based partly on these studies, one of CNA's medical experts opined that the threshold is typically not reached for "bystanders" for at least "several years" - which CNA asserts is longer than any Keasbey contracting job took to complete.
"Each inhalation of asbestos fibers results in alterations that contribute in a significant manner to the cumulative disease process. I would not use the word injury [...] but certainly the presence of asbestos fibers indirectly results in damage to cells and alterations of cellular material that over a period of 20-40 years can result in the development of impairment." (Emphasis supplied).
Testifying about the point where cell mutation becomes irreversible in malignant asbestos related diseases like mesothelioma, Dr. Cohen stated:
"to say that cancers develop well before clinical manifestations is true but not for mesothelioma [...] once the last mutation occurs the cells take off and grow very, very rapidly and the evidence from that is the time of death from the time symptoms first appear."
"mesothelioma is common in individuals who have been exposed to asbestos however [...] many individuals with mesothelioma have no such exposure history [...] and even in individuals who have [it] and have an exposure history does not necessarily prove that mesothelioma was a consequence of the earlier exposure to asbestos and the only way to prove [that] is to examine the mesothelioma and look for presence of asbestos bodies."
Hence, testimony and evidence established that it can take 20 to 40 years after exposure for actual impairment of bodily functions to develop, that it is a progressive, cumulative disease that starts with alterations of tissue cells and subclinical tissue damage and could progress, though not necessarily progress, into full-blown asbestosis, mesothelioma or lung cancer.
Further, medical evidence submitted in this case established that while those with asbestos-related diseases can usually track the illness back to asbestos exposure of some type, it is not axiomatic that exposure results in asbestos-related injury, sickness or disease. The conclusion to be drawn therefore is that factors other than mere initial or one-time exposure to asbestos fibers are implicated in the development or progression towards asbestos-related injury sickness or disease. Whether these factors are related to the length of exposure or intensity of exposure, or whether there are catalysts like smoking or genetic predisposition involved is not established. However, one indisputable fact to emerge from medical evidence in the plethora of asbestos cases litigated in many different jurisdictions is that actual injury generally develops over time depending on a range of circumstances and conditions, but does not occur upon exposure by inhalation.
As one judge of the Sixth Circuit eloquently stated in his dissent in Insurance Co. Of N. Am. v. Forty Eight Insulations Inc.:
"The [exposure] rule is not satisfactory because some asbestos may be safely inhaled without the disease ever developing. With more exposure, some harm may later develop but remain latent for a significant number of years. Insurance law does not impose liability or coverage until some identifiable harm arises. An indemnifiable act does not occur at the time of the negligent act, but at the time the legally recognizable harm appears [...] [a]t the time of initial exposure, a victim could not successfully bring an action against the manufacturer because at that time he has suffered no compensable harm." 633 F.2d at 1229 (Merritt, J.).
There are jurisdictions like the Sixth Circuit that subscribe to the exposure theory holding that even minimal tissue damage is injury. It is the theory that the trial court appears to favor. But that is not the law in New York. The Court of Appeals declined to subscribe to an exposure theory in Continental Casualty Co. v. Rapid America Corp. (80 N.Y.2d 640, 593 N.Y.S.2d 966, 609 N.E.2d 506 (1993)), and instead appeared to approve of injury-in-fact as a trigger for coverage. It explained:
"Decisions on when coverage is triggered for asbestos-related injury generally may be divided into four categories: (1) on exposure to asbestos; (2) on manifestation of disease; (3) on onset of disease, whether discovered or not ( injury-in-fact'); and (4) all of the above in other words, a continuous trigger.' Federal courts have concluded that the injury-in-fact' rule is most consistent with New York law." Id. at 650-651, 593 N.Y.S.2d at 971 (internal citations omitted).
Indeed, an injury-in-fact test rests on when the injury, sickness, disease or disability actually began and, of the four categories, comports most closely with general principles of tort and insurance law. In American Home Prods. Corp. v. Liberty Mut. Ins. Co. (565 F.Supp. 1485 [S.D.N.Y. 1983], aff'd in part, modified in part, 748 F.2d 760 [2d Cir. 1984]), the court stated:
"although exposure to asbestos does not usually injure seriously enough to constitute an occurrence' in the context of a liability insurance policy, a finder of fact might, nevertheless, find that a particular exposure or period of exposure contemporaneously caused a compensable injury [...]" 565 F.Supp. at 1498.
"[A] real but undiscovered injury proved in retrospect to have existed at the relevant time would establish coverage irrespective of the time the injury became manifest." Id. at 1497.
But the court stated unequivocally that "injury-in-fact" requires the insured to demonstrate actual damage or injury during the policy period. Id. at 1497.
Claimants in the instant case offered no evidence whatsoever that any of them sustained an injury-in-fact in any one of the policy periods arising out of "ongoing operations." Not surprisingly since the burden on claimants to prove so would be insurmountable given not only the absence of evidentiary material, but the difficulty if not impossibility of pinpointing when any subclinical tissue damage tipped over into actual impairment. In Matter of Midland Ins. Co., this Court determined that "[t]here exist at present no medical techniques capable of specifically identifying and quantifying the progression of asbestos-related injury, sickness or disease actually sustained in each year from and after a first exposure to asbestos fiber." 269 A.D.2d at 58, 709 N.Y.S.2d at 30.
The Fifth Circuit echoed that view, observing: "[t]he challenge in adopting the injury-in-fact approach is that, in each case [...] a mini-trial must be held to determine at what point the build-up of asbestos in the plaintiff's lungs resulted in the body's defenses being overwhelmed. At that point, asbestosis could truly be said to occur." Guaranty Natl. Ins. Co. v. Azrock Indus., 211 F.3d 239, 246 (5th Cir. 2000) (internal quotation marks and citation omitted).
They are mixing apples and oranges. CNA acknowledged that claimants were exposed during operations, and that at some future point in time, sometimes decades later, claimants manifested asbestos-related disease. Recovery under products liability claims is not dependent, as it is here, on the timing of the actual injury nor the particular stage of installation projects at which actual injury may have taken place. The claimants are making an impermissible leap if they believe they can go forward and prove injury during ongoing operations simply by a conclusory assertion: claimant was exposed, claimant developed full blow-blown asbestos-related injury decades later, ergo, injury was sustained at time of exposure.
In rejecting the contention that manifestation of asbestosis 40 years later is proof that injury occurred when the first asbestos dust was inhaled, it is perhaps worth considering the view of Judge Learned Hand in 1939 when he wrote on a health insurance case: "A disease is no disease until it manifests itself. Few adults are not diseased, if by that one means only that the seeds of future troubles are not already planted." Grain Handling Co. v. Sweeney, 102 F.2d 464, 465-466 (2d Cir. 1939) cert. denied, 308 U.S. 570, 60 S.Ct. 83, 84 L.Ed. 478 (1939).
We find, therefore, that CNA has demonstrated that there is no factual or legal basis for liability other than under the products/completed operation provisions of the policies, and so the declaration sought by plaintiffs that they have no duty to indemnify is warranted by the record.
Finally, we are persuaded that as to excess policy RDU 8047261, the aggregate limit of $1,000,000 is exhausted. More than a year after CNA filed its declaratory action in 2001, CNA settled six claims for $2,865,000. At the time of the settlements, CNA did not know there was a 1971 excess policy with $1,000,000 in untapped products coverage. Consequently, it accounted for the settlement of the six claims by labeling them with an accounting code that indicated bodily injury claims rather than products cases. The defendant class assert that CNA cannot now reclassify the claims and so have the excess policy declared exhausted. We disagree.
As CNA points out, the claims were settled on six trial-ready cases that CNA was not ready to defend. It argues that it used a catch-all accounting code for bodily injury because no other code applied once aggregate limits appeared exhausted. But CNA rejects the contention that it made a deliberate coverage decision to classify the claims as operations claims. It settled the claims to avoid default judgment. Indeed, by bringing the declaratory judgment action in the prior year, we would agree that CNA reserved its right to apply the $2,865,000 against the later-discovered products policy, thus exhausting the aggregate limit of the policy.
In light of the foregoing, we find the remaining issues raised by plaintiffs on appeal and defendants One Beacon and Wausau on cross appeal academic, and therefore decline to rule on them.
Accordingly, the order of the Supreme Court, New York County (Richard F. Braun, J.) entered on or about June 11, 2007, insofar as it declared that the asbestos claims against insured Keasbey are not within the products liability coverage, and thus not subject to the policies' aggregate limits; that the defendant class is not subject to the affirmative defenses that plaintiffs may have had against Keasbey; that coverage for the defendant class is triggered by exposure and that each individual class member's exposure to conditions resulting in bodily injury constituted a separate occurrence; and that the aggregate limit of CNA's policy RDU 8047261 was not exhausted, should be reversed, on the law, with costs, and it is declared that (1) claims arising out of Keasbey's asbestos insulating activities are included within the products hazard/completed operations coverage (2) defendant class is subject to the affirmative defenses that CNA may have had against Keasbey (3) coverage for defendant class is not triggered by exposure, but by injury-in-fact and each individual class member's exposure to conditions resulting in bodily injury does not constitute a separate occurrence (4) the aggregate limit of CNA's excess policy RDU 8047261 is exhausted.
M-6192Continental Casualty Company, et al v Employers Insurance Company, etc.
Order, Supreme Court, New York County (Richard F. Braun, J.), entered on or about June 11, 2007, reversed, on the law, with costs, and it is declared that (1) claims arising out of Keasbey's asbestos insulating activities are included within the products hazard/completed operations coverage, (2) defendant class is subject to the affirmative defenses that CNA may have had against Keasbey, (3) coverage for defendant class is not triggered by exposure, but by injury-in-fact and each individual class member's exposure to conditions resulting in bodily injury does not constitute a separate occurrence (4) the aggregate limit of CNA's excess policy RDU 8047261 is exhausted.
Opinion by Catterson, J. All concur.