Court Opinion

ID: 8976762
Source: CourtListenerOpinion
Date Created: 2022-11-27 11:06:03.828673+00
Date Added: 2024-06-11T17:10:35.344749
License: Public Domain

JOHN R. BROWN, Circuit Judge,
concurring in part and dissenting in part.
I concur in the court’s holding that New York, not Texas, law applies. I dissent as to the holding that the trial court abused its discretion in not dismissing the suit against the insurers after dismissal of the main case by Texas (plaintiff) School Districts against Grace and in ordering the dismissal of the suit against the insurers.
As the discussion in the court’s opinion in Part III (p. 869) reflects that one of the principal factors in the Gibbs approach is convenience to the litigants and judicial economy, this dissent is structured along these lines: I, retention of the case in Texas is required to achieve judicial efficiency and economy; II, The Texas District Court is the pre-eminent, most competent, court, state or federal, in the handling of asbestos cases; III, on accepted principles, the law justifies ancillary jurisdiction and the District Court’s exercise of that right was not an abuse of discretion; IV, Errors, if any, in determination of New York law by the Texas District Court is correctable by the New York Court of Appeals by certification.
I

The Insurance Cases Continue to be Really a Texas Asbestos Case

Although the court’s opinion naturally discounts the Texas asbestos nature of the problem concerning the impleaded insurers, both in fact and law, this case effectually ordered to be tried in New York is, and involves, asbestos in 600 Texas school buildings and asbestos facts ascertainable only on the basis of Texas evidence, obtainable only in Texas. Thus, the case against the insurers, whether tried in New York or Texas, continues to be Texas based.
The court’s opinion is the best proof of this conclusion. Its extended discussion of New York law, the significant difference between it and Texas law, and the factual requirements of New York law emphasizes many instances in which New York law requires proof not mere pleaded allegations. These include questions of:
Policy coverage
What is “property damage”?
Cost of removal, abatement, is that “property damage”?
Do policies trigger coverage?
The New York Discovery Rule
Defense of Non-Disclosure on Issuance of Policies
Policy Coverage
What is “Property Damage”?
Cost of Removal, Abatement as “Property Damage”
As the court’s opinion1 points out (p. 874):
One important issue of insurance law in this case is whether an insurer is liable to indemnify its policyholder for sums paid in settlement, where the allegations of the underlying claim may be within the policy coverage but no underlying facts have been proved. (Emphasis added).
It then proceeded to discuss New York cases, including Servidone Construction Corp. v. Security Insurance Co., 64 N.Y.2d 419, 423, 488 N.Y.S.2d 139, 477 N.E.2d 441 (1985), in which the New York Court of Appeals, reversing the trial *878court’s imposition of liability declared that “an insurer’s breach of duty to defend does not create coverage and that, even in cases of negotiated settlements, there can be no duty to indemnify unless there is first a covered loss.” (Emphasis added).
That court made it even clearer:
The duty to defend is measured against the allegations of pleadings but the duty to pay is determined by the actual basis for the insured’s liability to a third person.
Id. at 424, 488 N.Y.S.2d 139, 477 N.E.2d 441 (Emphasis added) (p. 874).
Accepting the court’s opinion that this New York law “is plainly different from” the law (Texas) applied by the District Court, (p. 875), the opinion goes on to pinpoint, “[a]nother important issue in this case is the meaning of ‘property damage’ for the purposes of imposing insurance coverage.” (p. 875). The opinion then points out that while the school districts sued “with a theory that the asbestos in the fireproofing materials ... caused ‘property damage,’ it is unclear whether there was actual property damage so as to require coverage ...” as defined in the policies, (p. 875). Highlighting this difference between pleadings and proof, the court points out that “Grace and the district court relied on the School Districts’ allegation that ceilings, walls, floors, etc. had become dusted with asbestos particles.” (p. 875).
Closely related to these two issues just discussed is the question whether costs associated with removal of asbestos “should be treated as property damage.” (p. 875). Pointing out by cited cases that courts have disagreed on this and that the courts of New York “have not had occasion to decide how the term ‘property damage’ applies in cases such as this,” the court’s opinion concludes that this “issue of state law should have been left” to the New York Courts, (p. 875).
Accepting this court’s opinion that New York law requires proof, not mere allegations in the underlying basic complaint, we come face-to-face with the problem of how such proof is to be obtained and where. Conceding that the court where this issue is to be tried could effectually contrive a system by which individualized proof would not be required for each and every one of the many plaintiff Texas School Districts, and each of the 600 buildings, it is simply beyond contradiction that this proof can be obtained only in Texas from Texas witnesses.
This will include either as to each of the plaintiff school districts, or adequate proof from which representative districts can be established, and probably with respect to each and all of the 600 school buildings within each of the representative districts and representative buildings, adequate particularized proof as to many items. These will include, among many others, such things as the time at which the asbestos was installed, how and in what manner, the nature and type of buildings in which installed, where, if ever, there were any signs of asbestos breakage or becoming disintegrated into dust, fissures or the like, where and in what facilities, e.g., classrooms, assembly halls, boiler rooms, such occurred, what remedial steps, if any, were taken and with what success, the total cost of removal or other abatement, the nature of the asbestos coated installation (steam, water, cooling, pipes, air conditioning ducts, ceiling and wall soundproofing, etc.) and the consequences of removal in terms of damage to the remaining main structure of the school building and the like.
If tried within the State of New York this, at a minimum, would mean hundreds of depositions from hundreds of Texas witnesses. Assuming that the case is to be tried within New York State against all of the insurers in one sort of consolidated proceeding — just as it would be in Texas— this would incur extensive judicial time on behalf of either the trial court, the jury, or both, with the expenditure of thousands of hours of judicial time in which a court more or less new to the problem is being educated on questions of asbestos, installation, disintegration and its devastating effect in terms of disease, injury, disability and death.
Without such particularized, evidentiary proof, Grace will not be able to shoulder its considerable burden under New York law of proving in fact that property was damaged by the introduction and installation of asbestos. Nor could it bring itself within the policy definitions of “property damage” and “occurrence.”

What Triggers Coverage?

In addition to the problems growing out of proof to meet these three requirements, the opinion raises also the question of whether, and what, and the extent thereof, triggers coverage considering the plaintiff *879school district’s theory that property damage took place from the time of installation through the time those products were removed or contained, (p. 875). With the insurance policies providing coverage during the “policy period” New York law following the plain meaning of the policy language, would restrict coverage to property damage that in fact occurs during the policy period. As the Second Circuit stated in American Home Products Corp. v. Liberty Mutual Ins. Co., 748 F.2d 760 (2d Cir.1984), the District Court applying New York law held that policies restricting coverage in this manner were triggered only upon “a showing of actual injury ... occurring during the policy period, based upon the facts proved in each particular case.” Id. at 763, quoting 565 F.Supp. 1485, 1489, 1497 (S.D.N.Y.1983) (Emphasis added). The Court of Appeals affirmed. Likewise is Judge Weinstein’s holding in Uniroyal, Inc. v. Home Ins. Co., 707 F.Supp. 1368 (E.D.N.Y.1988) (a non-personal injury situation) that “New York law requires that injury in fact theory under a comprehensive general liability policy. Under that theory, ‘coverage [is] based upon the occurrence during the policy period of an injury in fact,’ ” (p. 876), and these federal court decisions were supported by the cited New York State Court decisions holding that coverage was triggered only by “the sustaining of a specified injury during the policy period.” (p. 876) (Emphasis added) (citations omitted).
The court trying these cases, whether in New York or Texas, cannot answer the problems involved in proof of an actual injury without evidentiary, factual proof on substantially all of the matters outlined above.

Is Cost of Removal “Property Damage”?

The opinion accurately reflects that the real harm asserted by the school districts concerned the need to remove or contain the asbestos building materials themselves, (p. 875).
As this undoubtedly comprehends most of the monetary damages sustained by the plaintiff school districts which were thereby included in the settlement (and thus involved in the suits against the insurers), the opinion cites a number of cases from many courts on whether the cost of removal should be treated as covered property damage or non-covered economic loss. (p. 875). The opinion concludes that as New York has not yet expressed its view on this issue, resolution should be left to the court trying the insurance cases.
Whether, and to what extent, such removal abatement costs are included in “property damage” “in New York and in Texas .-

The First “Discovery” Rule

The opinion reports that the amici argue that personal injury cases do not state the law for property damage cases and that neither the “continuous trigger” nor the “injury in fact” tests are proper but that the “first discovery” principle should be applied, (p. 876). This theory rests on an economic analysis that damage to property cannot occur until the damage is perceived. As to this theory, the New Jersey District Court in American Motorist Ins. Co. v. Levelor Lorentzen, Inc., 88-1994, (D.N.J. Oct. 14, 1988), looking to New York law, held that “[i]n the context of damage to property caused by contamination from hazardous waste, the ‘first discovery’ principle is the most appropriate standard to apply_” (p. 876). Whether it squarely conflicts with the principle applied by the District Court or is unsettled in New York “this important issue of New York law [ought to] be decided by a New York court.” (p. 876).
Obviously, to satisfy this test of “first discovery” requires detailed, factual, evi-dentiary proof of the kind previously discussed and which is available only in Texas from Texas witnesses concerning Texas school buildings.

Insurer’s Defense of Non-Disclosure (Misrepresentation) at Issuance of Policies

Finally, the opinion, discussing the excess carrier’s defense of non-disclosure, holds squarely that New York law is not the same as Texas law which limits the defense to “misrepresentation ... made willfully with the intent to deceive.” (p. 876). The court in its properly limited analysis of this problem and New York law expresses the view that “[t]he rule in New York appears to be that an insured may still be covered if it engages in conduct which it knows might cause damage, but not if it engages in conduct which it knows or should know is likely to do so.” (p. 877) (Emphasis in original).
*880The legal standard required by New York law would depend on facts whether the conduct of Grace as the prospective insured came within this standard. This would require extensive evidentiary factual proof as to the nature of asbestos risks, when first recognized as the source of serious, substantial, judicial risks. This may likewise depend on extensive proof of the experience within the Eastern District of Texas which has been and continues to be the court most plagued with asbestos-related claims.
II

Eastern District Most Qualified Court to Dispose of Asbestos-Related Issues

Accepting, as I do, the court’s holding that New York law controls, New York is not necessarily the only jurisdiction to decide the issues. To the contrary, in our Erie role the daily grist of every Federal District Court is to ascertain, pass upon and apply the substantive law of a given state. The Eastern District of Texas is competent to perform this task. That it made a mistake in assuming that Texas and New York law was the same, or that Texas law should apply as well as general contract law, no more disqualifies the distinguished trial judge in this case than it would in a remand of ordinary appeal not involving the complicating problem of ancillary jurisdiction.
In my view, no court is as well equipped as the District Court for the Eastern District of Texas, or is better able, to ascertain, evaluate and conclude problems relating to asbestos and asbestos-related judicial matters, including asbestos fact issues in insurance product-liability or other cases. We have to go no further than the monumental opinion which Judge Higginbotham has authored for this court, In re Fibreboard Corp., Petitioner, In re Pittsburg Corning Corp., Petitioner, In re Acands, Inc., Petitioner, 893 F.2d 706 (5th Cir.1990). In granting mandamus in the last, but unsuccessful, innovative efforts of Judge Robert Parker,2 who is relentless in his efforts to “slay this dragon,” sometimes unsuccessfully, sometimes successfully,3 but always with the praise and encouragement of this court,4 the court disal*881lowed a class action determination of specified issues of 3,031 cases. The court clerk informally advises that in February 1990, there are 3,548 asbestos cases pending with 576 cases filed in the last year at the average rate of 48 per month.
To those who might wonder why a court, now beleaguered by nearly 4,000 asbestos cases, be considered as the best place in which to try these 11 additional asbestos-related insurance cases, the wonderment itself is the best answer. That court, in its efforts somehow to surmount the problem, some successful, some unsuccessful, demonstrated its intimate familiarity with all of the problems of asbestos litigation. It is in the best position of all courts to exercise its innovative ambitions to work out with the collaboration of counsel ways to streamline the factual, evidentiary problems described in Part I, answers to which are essential and obtainable only in Texas in the application of New York law.
The waste of precious judicial resources within the State of New York is avoided by leaving this task to the Eastern District of Texas for resolution of the New York law and its application to this very problem.
Ill

The Law Supports Retention on the Basis of Ancillary Jurisdiction of the Insurance Third Party Complaint

On this aspect both the court’s opinion and this dissent draw on the same sources, the disagreement being over the court’s holding that it was an abuse of discretion for the District Court to retain jurisdiction over the third party complaint after dismissal of the main claim by the school districts, while the dissent’s position is the exact opposite.
There is, first, no doubt of the District Court’s jurisdiction over the third party complaint at the time it was allowed and filed (pp. 868 and 871, n. 9).
Quoting from what all agree is the “premier case in this circuit addressing the exercise of ancillary jurisdiction after the settlement of the main suit,” Joiner v. Diamond M. Drilling Co., 677 F.2d 1035 (5th Cir.1982), “[generally, when the primary federal claim has been settled or dismissed before trial, the district court should dismiss any lingering ancillary state law claims,” id. at 1041, citing United Mine Workers v. Gibbs. The court’s opinion, nevertheless, went on to state:
However, we recognize that “there will be instances in which retention of the third-party claim ... may be appropriate.”
The opinion further stated that “[wjhile Gibbs suggests that dismissal of appended state law claims is mandatory whenever this main federal claim is dropped prior to trial, in practice district courts have been allowed a measure of discretion in determining whether to retain their ancillary jurisdiction over appended state claims.” Joiner, 677 F.2d at 1042.
Having earlier stated that the review of the District Court’s continuing exercise of ancillary jurisdiction was by an abuse of discretion standard (p. 870), this court’s opinion declared “[b]y this measure we affirm [the District Court’s retention of ancillary jurisdiction] absent a definite and firm conviction of clear error.” (p. 870) (Emphasis added). Ostensibly attempting to meet this standard the opinion stated, “[njonetheless, we are left with only little more than objective facts in the record ...” to determine “whether the district court’s retention of ancillary jurisdiction was an abuse of discretion given the situation in February 1988.” (p. 870).
The opinion undertakes to support its conclusion of abuse of discretion by its approach epitomized by this statement:
*882Once the main action has reached settlement prior to trial, there is generally little that can be gained in the way of judicial efficiency and economy by continuing to adjudicate ancillary state-law claims, and considerations of comity and federalism militate in favor of dismissal.
(p. 872).
Replying to Grace’s contention “that a substantial amount of activity had already occurred in the federal court relating to the ancillary claims by the time the main action against Grace was dismissed, and that judicial efficiency and economy would be served by the district court’s retention of jurisdiction over the third-party action because the district court was familiar with the suit, had presided over the primary suit for a long time prior to the dismissal, and was familiar with the applicable law and facts,” (p. 872), the opinion first acknowledged that the Judge in the Eastern District of Texas “was very familiar with Texas law” and presumably with the intricate facts of the main case. (p. 872). The opinion continued, “[t]he error of these arguments is manifest once the district court’s choice of law is examined,” (p. 872) which led to the conclusion that New York, not Texas, law applied. The opinion then continued, “the district court’s familiarity with the main action and with Texas law did not make its exercise of jurisdiction efficient in this case, nor was there any reason for the case to be decided in a federal forum located in Texas-” (p. 872) (Emphasis added).
As I have demonstrated in Part I of this dissent, application of New York law calls for extensive actual, evidentiary proof which can only be obtained in Texas largely from the prior litigants in the main case. Instead, as the opinion declared, the “factors of judicial efficiency and economy and concerns with federalism and comity all militated for dismissal ...” (p. 872), the inescapable demand for all of this Texas-based evidence obtainable only in Texas established without effective dispute that judicial efficiency and economy best be served by allowing the case to be retained by the District Court most familiar with the case and presumably competent for resolution of asbestos-related problems in the determination of New York law and its application.
Because of its importance, we repeat the court opinion’s quotation from Joiner:
Gibbs reminds us that judicial efficiency and economy is the raison d’etre of ancillary jurisdiction. If the interests of judicial economy are no longer advanced by the retention of ancillary claims, the state-law action ought to be dismissed.”
(p. 870).
Paraphrasing the additional quotation from Joiner, (p. 870-871) this dissent can agree with that part which states that “federal courts should not be overeager” to hold on to the determination of issues that might be more appropriately left to settlement in state court, (p. 871). But when determination of such state issues, as the court’s opinion extensively demonstrates (but somehow does not acknowledge), depends on evidentiary factual proof which can be obtained only in Texas, largely from the litigants in the main case, that principle should no longer govern.5
The opinion’s emphasis (p. 872) on Waste Systems v. Clean Land, Air, Water Corp., 683 F.2d 927, 931 (5th Cir.1982), and its decision that it would in that case be an abuse of discretion for the trial court to retain jurisdiction after settlement of the main suit does not, as stare decisis compel reversal here. This is so for at least two reasons. First, abuse of discretion is largely fact-bound, so stare decisis would seldom compel a decision on different facts, as there are in our case. Second, Waste Management involved a situation in which, unlike ours, the District Court had not faced the question of ancillary jurisdiction after settlement and the issue apparently was raised for the first time by the Court of Appeals on its own motion.6 (see, P. II, 683 F.2d at 930).
*883Considering the trial court’s extensive participation in the main case against Grace and the enormity of the first-hand knowledge thus acquired concerning Texas facts — available only in Texas — which are now indispensable in the determination of New York law (whether by a court sitting in New York or one in Texas) neither Finley v. United States, 490 U.S. -, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989) or Owen Equipment and Erection Co. v. Kroger, 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978), should prevent this court (or the trial court) from determining within its discretion that jurisdiction should be retained in the Texas court.
IV
Finally, as a sort of postscript, if on the trial in the Eastern District Court, which this dissent seeks, and on appeal, this court should determine that the trial court had erred in its decision on New York law or conclude that New York law was unclear, this court, as has the Second Circuit, Home Ins. Co. v. American Home Products Corp., 873 F.2d 520, 521 (2d Cir.1989), could certify7 the issue to the New York Court of Appeals, the really only court of final resort.
For these reasons, I must respectfully dissent.

. This will be referred to as p.-throughout.

. See, Migues v. Nicolet Industries, Inc., 493 F.Supp. 61 (E.D.Tex.1980), in which, among other things, the District Judge granted partial summary judgment for the plaintiff on the issue of whether asbestos products were unreasonably dangerous to users or consumers. This court in Migues v. Fibreboard Corp., 662 F.2d 1182 (5th Cir. Unit A 1981), reversed the grant of summary judgment on the based ground that our earlier case of Borel v. Fibreboard Paper Products Corp., 493 F.2d 1076 (5th Cir.1973), was not res judicata. Undaunted, the Judge then decided Hardy v. Johns-Manville Sales Corp., et al., 509 F.Supp. 1353 (E.D.Tex.1981), entered an omnibus order mandating application of Borel, supra, as collateral estoppel. This court, in Hardy v. Johns-Manville Sales Corp., 681 F.2d 334 (5th Cir.1982), reversed trial court's use of collateral estoppel based on Borel.

. Finally, in Jenkins v. Raymark Industries, Inc., 109 F.R.D. 269 (E.D.Tex.1985), the Judge entered an extensive order and certified a class action as to common questions. This was affirmed by this court, Jenkins v. Raymark Industries, Inc., 782 F.2d 468 (5th Cir.1986).
Presumably, this final success on the basis of ultimately succeeding Judge Parker undertook ordering a class action trial in three phases. That action was reversed by this court in In re Fibreboard Corp., In re Pittsburg Corning Corp., In re Acands, Inc., supra.

. Without a doubt, Judge Parker from all of these efforts and his handling of asbestos cases is among the most knowledgeable and innovative Judges in the whole country on the problems of asbestos and asbestos-related litigation as is that court as a whole.
Judge Goldberg first expressed it for us in Migues, supra:
Considerations of judicial economy demand a more streamlined mechanism for compensating asbestos victims and apportioning liability among those responsible for causing injury.... There may be alternative methods for adjudicating the thousands of asbestos cases facing the courts in a manner that conserves the resources of both the courts and the parties. Nothing in our opinion today should be read as foreclosing these alternatives.... Whether through judge-made common law or legislative enactment, there is an urgent need for new approaches to the national tragedy of asbestos-related disease.
662 F.2d 1182 at 1189.
Judge Gee expressed for us in Hardy, supra: Like the court in Migues, we too sympathize with the district court’s efforts to streamline the enormous asbestos case load it faces.... We reiterate the Migues court’s invitation to district courts to attempt innovative methods for trying these cases.
681 F.2d 334 at 348.
Judge Reavley in Jenkins, supra, expressed the problem for us:
If Congress leaves us to our own devices, we may be forced to abandon repetitive hearings and arguments for each claimant’s attorney to the extent enjoyed by the profession in the *881past. Be that as time will tell, the decision at hand is driven in one direction by all the circumstances. Judge Parker’s plan is clearly superior to the alternative of repeating, hundreds of times over, the litigation of the state of the art issues with, as that experienced Judge says, "days of the same witnesses, exhibits and issues from trial to trial.”
782 F.2d 468 at 473.
Judge Higginbotham, in In re Fibreboard Corp., supra, expressed it for us in these terms:
The core problem is that Phase II, while offering an innovative answer to an admitted crisis the judicial system, is unfortunately beyond the scope of federal judicial authority.... We admire the work of our colleague, Judge Robert Parker, and are sympathetic with the difficulties he faces. This grant of the petition for writ of mandamus should not be taken as a rebuke of an able Judge, but rather as another chapter in an ongoing struggle with the problems presented by the phenomenon of mass torts_ We encourage the district court to continue its imaginative and innovative efforts to confront these cases....
893 F.2d at 711, 712 (5th Cir.1990).

. It is important to emphasize that this dissent not rest upon any suggestion "that Texas rather than New York law should control because this will determine the source of funds for payment of its settlement with the school districts,” (p. 873) and our case of Atlantic Mutual Co. v. Trucking Insurance Ex., 797 F.2d 1288 (5th Cir.1986), although unquestioned, is wholly irrelevant, and insignificant with respect to this dissent's approach.

. The other cited Fifth Circuit cases involve holdings that the trial court did not abuse its discretion in declining to retain the ancillary claim after dismissal. Putnam v. Williams, 652 F.2d 497 (1981); Tinker v. DeMaria Porsche Audi, Inc., 632 F.2d 520 (5th Cir.1980); McDonald v. Oliver v. Local Union 795, 642 F.2d 169 (5th Cir.1981).

. A device expressly approved and often used by the Supreme Court. See, Lehman v. Schein, 416 U.S. 386, 94 S.Ct. 1741, 40 L.Ed.2d 215, n. 6 (1974); and Virginia v. American Booksellers Ass'n., 484 U.S. 383, 108 S.Ct. 636, 98 L.Ed.2d 782 (1988).