Opinion ID: 63053
Heading Depth: 2
Heading Rank: 1

Heading: Celotex’s Excess Policies

Text: Celotex was a sophisticated insured and an experienced defendant in mass tort cases. It began facing large numbers of asbestos-related bodily-injury suits in the 1970s. Because of these suits, Celotex (with its parent company) had an insurance department and in-house legal team which attempted to manage its liability exposure. Celotex bought multiple layers of insurance coverage to manage its risks. At all pertinent times, Celotex had multiple layers of liability insurance coverage: primary policies with Aetna, but also umbrella (second layer) and excess (third and higher layers) policies with numerous insurers. Only the excess policies from 1978 to 1984 are at issue here. The policies were renewed annually. The umbrella policies provided coverage for liability beyond the primary policy’s district court finally adjudicated all the claims properly before it on appeal, so we see no need for a separate Fed. R. Civ. P. 54(b) certification by the district court. See id. at 725 n.1 (where a district court affirms a bankruptcy court order, both orders necessarily possess the same degree of finality). 3 limits, while each excess policy in turn provided coverage for liability exceeding the limits of the policy immediately underlying it, and so forth. The umbrella and excess policies “followed form” to the underlying primary policy; that is, the scope of insured risks was identical, except insofar as the excess policies expressly provided otherwise. The primary policies had separate coverage limits for bodily injury and property damage; $2 million of coverage was available yearly for the property damage claims. The umbrella and excess policies, however, had an aggregate coverage limit for bodily injury and property damage; in other words, paying claims of one category diminished the coverage available for the other. During 1978-1984, Celotex’s primary policies excluded coverage for asbestos-related bodily-injury claims.2 This was important because it meant that massive amounts of bodily-injury claims and settlements were being paid out of higher layers of coverage, not the primary coverage. Moreover, because the second and higher layer policies had single coverage limits encompassing both bodily-injury and property-damage claims, any property-damage claims were more likely to impact the upper-layer excess carriers than they would have been in the absence of the exclusions in the primary policies, as any payments on bodily-injury claims would consume the lower levels of excess coverage. Between 1978 and 2 It appears the primary policies did provide coverage for bodily-injury claims unrelated to asbestos. 4 1982, the excess policies had exclusions for “asbestosis,” although beginning in April 1983 Celotex took the position that there was still excess coverage for some bodily-injury claims.3 Between 1982 and 1984, the exclusion language in the excess policies was even broader, excluding coverage for asbestosis “and related diseases arising out of asbestos products.” The excess policies required written notice to the insurers “as soon as practicable” in the event of an “occurrence” “reasonably likely” to implicate coverage. They also required notice of “any claim made on account of such occurrence” and required legal papers to be forwarded to the insurer. Although not all the policies used precisely this language in their notice provisions, the language was substantially similar in each policy, and the lower courts treated the notice obligations under each policy as identical. No one contends otherwise here.