Lincoln Electric Co. v. St. Paul Fire & Marine Ins. Co.

• Decision Date: 02 November 1999
• Docket Number: CROSS-APPELLAN,DEFENDANT-APPELLANT,CROSS-APPELLEE,PLAINTIFF-APPELLEE,V,Nos. 98-4236,98-4340,s. 98-4236
• Citation: 210 F.3d 672
• Parties: (6th Cir. 2000) THE LINCOLN ELECTRIC COMPANY,/ST. PAUL FIRE AND MARINE INSURANCE COMPANY,/ Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 672

210 F.3d 672 (6th Cir. 2000)

THE LINCOLN ELECTRIC COMPANY, PLAINTIFF-APPELLEE/ CROSS-APPELLANT,

V.

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, DEFENDANT-APPELLANT/

CROSS-APPELLEE.

Nos. 98-4236, 98-4340

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: November 2, 1999

Decided and Filed: April 27, 2000

Appeal from the United States District Court for the Northern District of Ohio at Akron. No. 96-00537--James S. Gwin, District Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Robert S. Walker, Brian F. Toohey, Mark J. Andreini, Jones, Day, Reavis & Pogue, Cleveland, Ohio, Michael H. Ginsberg Peter D. Laun, Jones, Day, Reavis & Pogue, Pittsburgh, Pennsylvania, for Plaintiff-Appellee/Cross-Appellant.

Clifford M. Sloan, Wiley, Rein & Fielding, Washington, D.C., Thomas P. Kane, Oppenheimer, Wolff & Donnelly, St. Paul, Minnesota, for Defendant-Appellant/Cross-Appellee.

Gerald V. Weigle, Dinsmore & Shohl, Cincinnati, Ohio, Mary A. Cavanaugh, Dennis R. Lansdowne, Spangenberg, Shibley & Liber, Cleveland, Ohio, Mitchell F. Dolin, Covington & Burling, Washington, D.C., Thomas J. Quinn, Mendes & Mount, New York, New York, for Amici Curiae.

Before: Keith, Norris, and Clay, Circuit Judges.

OPINION

Alan E. Norris, Circuit Judge.

Defendant St. Paul Fire and Marine Insurance Company ("St. Paul") appeals a district court judgment and award entered pursuant to a bench-trial verdict for plaintiff, the Lincoln Electric Company ("Lincoln Electric"). The trial concerned a dispute over products liability insurance policies that Lincoln Electric purchased from St. Paul over the course of several decades. The policies were altered over time as to the levels of deductibles for 1) assessed product-related injury liability and 2) legal costs associated with litigation stemming from the covered product-related injuries. The basis for insurance coverage between the parties also changed from an "occurrence" basis (coverage from the date of the injury) to a "claims" basis (coverage from the date of the lawsuit), creating a situation where some claims against Lincoln Electric could simultaneously trigger the "occurrence" policy and the "claims" policy.

In addition, the parties have had a long-standing disagreement about how they should determine when a particular policy has been triggered by a claim involving a long-term exposure and delayed manifestation injury. This question is of special importance to both parties and to the products-liability insurance market. Since the 1970s there has been an explosion in class-action suits by welders for medical problems alleged to have resulted from exposure to asbestos, manganese, and welding fumes. Lincoln Electric, along with many other similarly-situated industrial entities, has faced thousands of these class-action suits. Typically, the suits allege both harmful exposure for decades and delayed manifestation of injury, but do not allege any precise moment of transformation from wellness to infirmity¹. These characteristics can result in both the industrial entity and its insurer having a strong fiscal incentive to manipulate the "triggering" date. Both parties may do this in order to take advantage of what each considers to be the most favorable set of policy terms (e.g., deductibles and assumption of legal costs) found at some chronological point along the time-frame of a long-standing insurance relationship.

On appeal, St. Paul asserts that it fulfilled its contractual obligations and that the district court erred in finding any liability whatsoever on its part. It contends that the district court reached its finding of liability by misapplying the voluntary payment and mistake of law doctrine and the course of conduct doctrine. St. Paul also argues that the district court applied an incorrect standard of proof when it reached a factual finding for Lincoln Electric concerning the contents of "missing" policies covering the years 1945 to 1972. St. Paul further believes that, even if there was liability on its part, the district court should have equitably allocated the application of the claims to the various triggered policies rather than allowing Lincoln Electric to "pick and choose" between policies while invoking coverage for each claim. Finally, St. Paul asserts that even if it loses every other issue on appeal, the judgment award should be reduced because the district court utilized an incorrect accrual date which resulted in exorbitant prejudgment interest.

Lincoln Electric asserts that the district court's judgment should be upheld because it was not clearly erroneous, and, on cross-appeal, takes issue with the district court's refusal to award attorney's fees.

We affirm in part and reverse in part.

I.

1. The Pre-1979 (September 1945-79) Relationship

Lincoln Electric, a manufacturer of industrial products, including welding rods, is an Ohio corporation with its principal place of business in Ohio. St. Paul is a Minnesota corporation with its principal place of business also in that state. By 1979, Lincoln Electric and St. Paul had a longstanding commercial relationship stretching back to at least 1945, with St. Paul issuing insurance policies to Lincoln Electric on a yearly basis. The James B. Oswald Company ("Oswald"), a Cleveland insurance broker, was St. Paul's agent. Lincoln Electric was a sophisticated business entity, but an unsophisticated insured; it had no risk management department and relied upon Oswald and, to a lesser degree, St. Paul, for expertise in handling liability insurance matters.

In the years leading up to 1979, the policies contained 1) a $5,000 deductible for indemnity costs related to judgments and settlements from covered injuries, 2) no deductible for legal defense costs, and 3) an "occurrence" or "accident"² basis of insurance. The policies covered "bodily injury . . . caused by an occurrence ["an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury . . . neither expected nor intended from the standpoint of the insured"]."³ The policies also granted St. Paul an exclusive contractual "right and duty to defend" Lincoln Electric.

The 1970s witnessed an industry-wide explosion of toxic exposure tort cases, implicating Lincoln Electric and its welding-rod manufacturing business as a defending litigant in thousands of tort cases. Each case was typically brought by hundreds of welders acting in a class or otherwise cooperating as a concerted group of litigants. The suits alleged lung disease and/or cancer and/or neurological problems, all arising from decades of exposure to manganese and asbestos in the welding rods dating as far back as the 1930s. The plaintiffs did not contend that their injuries were attributable to any single exposure year, but did allege that each exposure caused injury.

By the late 1970s, the extent of Lincoln Electric's exposure to welding fumes cases had become apparent. At the same time, the products liability insurance market was experiencing pressure due to an increasing volume of products liability lawsuits, including those related to asbestos. A controversy began to emerge over the appropriate "trigger" for insurance coverage in claims alleging delayed injuries from long-term exposure. See, e.g., Stonewall Ins. Co. v. Asbestos Claims Management Corp., 73 F.3d 1178, 1195-96 (2d Cir. 1995), modified, 85 F.3d 49 (2d Cir. 1996)(discussing various trigger theories). However, St. Paul and Lincoln Electric continued the renewal of policies and cooperated in the defense of welding fumes cases. The concerns of the parties respecting the emerging trend of lawsuits ultimately led to an August 1979 meeting to negotiate renewal of coverage.

2. The 1979 Deductible Endorsement and Subsequent Coverage 1979-85

In the August 1979 meeting, the parties discussed issues including control of cases, the "occurrence" date, expenses, the renewal agreement, and premiums. St. Paul insisted upon higher premiums, higher deductibles or cost sharing, or a combination of these. Several policy proposals were discussed, including one for a combined defense-and-indemnity deductible, but the parties never discussed the language of the $25,000 deductible that eventually became part of the 1979 policy. Date of occurrence was a major issue. During the meeting, Lincoln Electric advocated a trigger for the occurrence date that would run "from the day the welder commences welding to [the] day he ceases to be a welder,"⁴ while St. Paul countered with a "manifestation date"⁵ alternative⁶. St. Paul acknowledged Lincoln Electric's position⁷. Lincoln Electric asserts that no agreement on trigger or date of loss was reached.

No deal of any kind was made at the August 15 meeting. A week later, on August 23, St. Paul sent a letter to Oswald's CEO describing two options⁸ for Lincoln Electric, and the substance of the letter was then communicated to Lincoln Electric. The letter included the following language (emphasis added):

On August 21 . . . we quoted to Insured renewal of this policy at current limits with one exception an annual premium of $1,200,000 [sic]. The one exception was the endorsement relating to a retroactive deductible on each claim for $25,000. This is to apply to all fume cases reported after August 1, 1979. Allocated claims expense plus settlements [are] to be included in the deductible.

All other quota share quotes are withdrawn; however, renewal of this policy at current limits, excluding fume cases, still stands at an annual premium of $652,000.

We recognize the dispute in application of limits and coverage⁹ for fumes cases exists. In keeping with these issues as status quo and without prejudice to either party on this position, the attached endorsement has been drafted in an effort to clearly indicate our intention on future reported cases if we are to remain with this risk.

We expect the decision from the...