Opinion ID: 469785
Heading Depth: 2
Heading Rank: 1

Heading: The Trigger

Text: 26 The central and dispositive issue on appeal is the meaning of the word occurrence as defined in the CGL policy used by the insurers in this case. Our interpretation of the word occurrence will, in turn, determine what event or events will trigger the insurers' duties to defend and indemnify Abex. The courts that have addressed this issue have come to significantly different conclusions. Some courts, for example, have held that the insurers' obligations under the CGL policy are triggered only when an injury is manifest during the policy period. 15 Others hold that liability is triggered by mere exposure to the harmful conditions during the policy period. 16 In Keene Corp. v. Insurance Company of North America, 17 we addressed this very issue and concluded that inhalation exposure, exposure in residence, and manifestation all trigger coverage under the policies.... [and that] 'bodily injury' ... mean[s] any part of the single injurious process that asbestos-related diseases entail. 18 27 Under the mandate of Erie Railroad Co. v. Tompkins, 19 however, our obligation in a diversity action such as this one is to interpret and apply state law--in this case, the law of New York. In Keene, we did not purport to apply the law of New York--nor did we even explicitly apply the law of any single state. Instead, because we determined that none of the states whose law was arguably applicable had addressed specifically the issue in dispute, we applied the basic principles governing the interpretation of insurance policies, 20 in interpreting the CGL policy. Keene, therefore, does not necessarily identify the correct interpretation of the CGL policy under New York law. As we concluded in Eli Lilly & Co. v. Home Insurance Co., 21 Keene is relevant only insofar as we determine that the [state] courts would adopt it. 22 Indeed, in Eli Lilly, this court cited New York law as an example of a state whose law is possibly inconsistent with Keene. 23 We must therefore look specifically to the law of New York. 28 Fortunately, we are not without guidance. This is one of the rare instances in which a sister circuit has provided an unambiguous answer to our inquiry. In American Home Products Corp. v. Liberty Mutual Insurance Co., 24 Judge Sofaer explicitly rejected the Keene multiple trigger as inconsistent with New York law, and instead adopted an injury-in-fact trigger. As modified on appeal by the Second Circuit, insurance obligations under the CGL policy arise when real injury occurs during the policy period. Real injury need not have been compensable or diagnosable during the policy period if its existence during that period can be proved in retrospect. Thus, unlike the approach in Keene, under the injury-in-fact trigger the central issue is when injury actually occurred. Injury need not be manifest, but it must exist in fact. According to Judge Sofaer, the plain meaning of the definition of occurrence in the CGL policy mandates that the insurers' obligations to indemnify the insured arise when real injury occurs during the policy period. Under New York law, extrinsic evidence of intent is admissible only if a contract provision is susceptible of at least two fairly reasonable meanings. 25 Because Judge Sofaer concluded that the plain meaning of the definition of occurrence permits only the injury-in-fact trigger, he looked to extrinsic evidence of the parties' intent only to confirm his analysis of the plain language of the contracts. 26 29 We will follow the American Home Products interpretation of the CGL policy under New York law. As Judge Newman wisely concluded in Factors Etc., Inc. v. Pro Arts, Inc., 27 30 Where, as here, the pertinent court of appeals has essayed its own prediction of the course of state law on a question of first impression within that state, the federal courts of other circuits should defer to that holding, perhaps always, and at least in all situations except the rare instance when it can be said with conviction that the pertinent court of appeals has disregarded clear signals emanating from the state's highest court pointing toward a different rule. 28 31 The application of a contract interpretation different than that adopted by the Second Circuit would create the oddity of a split in the circuits over the correct application of New York law. The evils of forum shopping, which the Erie doctrine is designed in part to prevent, could only be exacerbated by such a split over an issue of state law. It seems obvious, for example, that this case was brought in the District Court for the District of Columbia because the holding in Keene is favorable to Abex. Furthermore, it is fair to assume that the circuit with jurisdiction over the state whose law is in question will inevitably have a better sense of the applicable state law than that of our own. The holding of a home circuit is especially strong when, as here, it substantially adopts the reading of state law offered by a district court in the pertinent state. 29 32 For these reasons, we will defer to the local circuit's view of the law of a state in its jurisdiction when that circuit has made a reasoned inquiry into state law, unless we are convinced that the court has ignored clear signals emanating from the state courts. 30 Only when we are certain that the pertinent circuit has clearly misread state law would it make sense to reject that circuit's view of state law. In such a case, our adoption of a clearly incorrect reading of state law would do nothing to prevent forum shopping. Litigants would still choose a federal forum whenever the circuit's reading of state law is more favorable than that actually adopted by state courts. We are convinced, however, that such a clear misreading of state law will rarely occur. 33 We are confident from our examination of the applicable case law of New York that the Second Circuit has not disregarded clear signals emanating from the New York courts. Indeed, several New York decisions cast doubt on the Keene approach by rejecting exposure as a sufficient basis for the triggering of coverage under the CGL policy. In American Motorists Insurance Co. v. E.R. Squibb & Sons, Inc., 31 for example, a New York trial court suggested that an injury --and not mere exposure--must occur during a policy period: 34 A reading of the [CGL] policy language would appear to indicate that coverage is predicated not on the act which might give rise to ultimate liability, but upon the result. It would be a strained interpretation to construe the occurrence clause as though it covered exposure during the policy period which results in bodily injury. It is the result which is keyed to the period, and not the accident or exposure. 32 35 Similarly, the Appellate Division concluded that exposure after initial injury that aggravated existing injuries or caused additional injuries also triggered coverage. 33 Clearly, these cases do not offer an unambiguous embrace of the injury-in-fact approach, but they are far more consistent with the injury-in-fact trigger than with the multiple trigger adopted by Keene and the manifestation theory adopted by other courts. 34 36 Furthermore, American Home Products is more consistent with our own reading of the insurance contracts than is Keene. 35 The plain language of the definition of occurrence used in the CGL policy requires exposure that results, during the policy period, in bodily injury in order for an insurer to be obligated to indemnify the insured. The unambiguous meaning of these words is that an injury --and not mere exposure--must result during the policy period. The CGL policies expressly distinguish exposure from injury; to equate the two as urged by Abex is to ignore this distinction. Any argument that mere exposure--without injury--triggers liability is simply unsound linguistically. Additionally, the manifestation theory, too, is inconsistent with the definition of occurrence. Although the language of these policies demands that the insured prove that an exposure caused an injury during the policy period, it imposes no requirement that the injury be discovered at that time.