Maryland Casualty Co. v. Continental Casualty
| Decision Date | 01 August 1999 |
| Docket Number | Docket Nos. 98-7492,98-7582,98-7584 |
| Citation | 218 F.3d 204 |
| Parties | (2nd Cir. 2000) MARYLAND CASUALTY COMPANY, Plaintiff-Appellant-Cross-Appellee, CONTINENTAL CASUALTY COMPANY, Defendant-Appellant-Cross-Appellee, v. W.R. GRACE AND COMPANY, AETNA CASUALTY & SURETY COMPANY, Defendants, ROYAL INDEMNITY CO., Defendant-Appellee, GENERAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee-Cross-Appellant |
| Court | U.S. Court of Appeals — Second Circuit |
LAURA A. FOGGAN, Washington, D.C. (John C. Yang, Timothy J. Simeone, Wiley, Rein & Fielding, Washington, D.C., of counsel), for Appellant Maryland Casualty Company.
GUY M. STRUVE, New York, New York (James D. Liss, Daryl E. Davis (law clerk), Davis Polk & Wardwell, New York, New York; Michael I. Anania, Paul V. Majkowski, Ford Marrin Esposito Witmeyer & Gleser, LLP, New York, New York, of counsel), for Appellant Continental Casualty Company.
CARL J. PERNICONE, New York, New York (James P. Donovan, Robert L. Joyce, Wilson, Elser, Moskowitz, Edelman & Dicker, New York, New York, of counsel), for Appellee Royal Indemnity Company.
KURTIS B. REEG, St. Louis, Missouri (Cawood K. Bebout, Gallop, Johnson & Neuman, L.C., St. Louis, Missouri, of counsel), for Appellee General Insurance Company of America.
Before: NEWMAN, CARDAMONE, and JACOBS, Circuit Judges.
The record on this appeal reveals that asbestos-laden dust readily adheres to clothing, house furniture, and automobile upholstery, exposing not only the individual who works directly with the substance, but also others who come in contact with these familiar objects, to the pernicious health risks asbestos dust causes. The litigation before us is a reflection of the complex efforts to determine who will pay, insofar as possible, for the human losses incurred as a result of breathing in this cancer-causing dust. And while the long-lasting risk to health from asbestos may not yet have ended, the litigation it spawned against a principal producer of the product and its insurers hopefully with this opinion will have run its course.
The specific task facing us in this mass tort case concerns the proper allocation of defense costs arising from asbestos related litigation against W.R. Grace & Company (Grace). We must decide under equitable principles whether later settling insurance carriers are obligated to contribute to defense costs paid by carriers that had settled earlier with the insured.
The parties before us are four insurance companies. Two of them - Maryland Casualty Company and Continental Casualty Company - are appellants, the third - General Insurance Company of America is a cross-appellant, and the fourth - Royal Indemnity Company - took no appeal itself, but along with General Insurance Company is an appellee. The appeal and cross-appeal are from a final judgment entered on March 4, 1998 in the United States District Court for the Southern District of New York (Bernikow, Magistrate Judge) that dismissed all the claims of all the parties.
As a backdrop to our discussion we trace very briefly how this asbestos litigation began and its impact on Grace. Asbestos was first recognized as a cancer risk about 35 years ago. In 1964 a Grace mine worker developed pulmonary fibrosis from exposure to asbestos-laden dust. That same year the Journal of the American Medical Association published a study on death due to lung cancer and its relation to asbestos. The study tracked, up until 1962, 632 insulation workers who entered the trade before 1943 and found that 45 died of lung cancer, while only 6.6 such deaths were to be expected. After 1964 the evidence that asbestos-laden dust caused cancer mounted. By 1969 Grace had acknowledged that asbestos was a health hazard, and it instituted a program to develop a substitute for asbestos in its fireproofing products. Between 1965 and 1972 more studies were released reconfirming the 1964 report of cancer risk. The problem was of nationwide proportions, since asbestos fireproofing material was installed in all kinds of public buildings, including schools, hospitals, and airports, as well as homes throughout the country.
The impact on Grace, one of the product's principal producers, was enormous. In August 1971 the first asbestos bodily injury suit was filed against Grace. In July 1981, ten years after the filing of that first bodily injury asbestos suit against Grace, the New York Times reported that 251,000 workers exposed to asbestos had filed 12,000 lawsuits against 260 companies that manufactured, used or sold asbestos. This tide of lawsuits began slowly against Grace, but eventually engulfed it. By 1982 Grace was a defendant in 30 more suits; at the close of 1983 it was a defendant in 297 additional suits and by 1993 - 38,000.
Grace's defense costs escalated as the volume of claims against it rose, so that by early 1991 it was incurring defense costs of millions of dollars per month. From 1991 to 1995 Grace's defense costs were in excess of $200 million.
To help meet this rising tide of litigation, Grace turned to its insurance carriers. Grace had primary insurance coverage from appellant Maryland Casualty Company (Maryland) from June 30, 1962 to June 30, 1973 and from appellant Continental Casualty Company (CNA) from 1973 through 1985. Grace produced no asbestos-related materials before 1963. In 1963 it acquired Zonolite Company, a nationwide manufacturer, distributor and licenser of asbestos materials. Appellee Royal Indemnity Company (Royal) insured Zonolite from March 31, 1953 through April 1, 1963. In 1966 Grace acquired Vermiculite Northwest, Inc., a small business employing 14 people, manufacturing products containing vermiculite - a mineral that contained asbestos - under a license from Zonolite. Vermiculite's sales were restricted to five northwestern states. General Insurance Company of America (General) insured Vermiculite Northwest, Inc. from June 1, 1961 to June 1, 1967.
In 1983 Maryland brought a declaratory judgment action against Grace and CNA in the Southern District of New York to obtain a judicial determination regarding its obligation to indemnify and defend Grace. The three parties referred the litigation for all purposes to U.S. Magistrate Judge Leonard Bernikow pursuant to 28 U.S.C. §636(c). Maryland and CNA each agreed to pay 50 percent of Grace's bodily injury defense costs as they accrued, pending a ruling on their legal obligations.
In 1984 evidence of Royal's and General's policies came to light and Maryland successfully moved before the trial court to add these two carriers as defendants to the pending action. During the eight-year period from 1983 to 1991, Maryland and CNA continued to pay Grace's bodily injury defense costs as they accrued. Royal and General concede that they paid none of those costs. The failure of appellees to pay their allegedly appropriate share of the pre-1991 defense costs as they accrued is the subject of the instant litigation. Maryland and CNA seek to recover from the two appellees contribution of an equal share of those costs.
During the course of this extensive litigation all four insurance companies settled with Grace: CNA in 1990, Maryland in 1991, General in 1994 and Royal in 1995. Under CNA's 1990 settlement with Grace, CNA paid Grace its entire indemnity limit plus all of Grace's defense costs through July 31, 1990. The settlement terminated any subsequent defense obligations of CNA. Grace agreed not to seek reimbursement from its other insurers for defense costs incurred through July 31, 1990 as CNA, which had paid them, would seek reimbursement and Grace, it was agreed, would seek recovery for defense costs from other insurers for costs incurred after July 31, 1990. In 1991 Maryland entered into a settlement with Grace similar to CNA's. Maryland also exhausted its policy limits. In addition, Maryland paid millions more to ensure that Grace was fully reimbursed for defense costs incurred through August 31, 1991.
When appellee General settled with Grace in March 1994, it acknowledged that CNA and Maryland collectively "fully paid and Grace has been fully reimbursed for all judgments, settlements, and Defense Costs incurred by Grace through August 31, 1991." Royal settled with Grace in January 1995 after appellants had made motions seeking reimbursement of defense costs they had paid earlier. Under the settlement agreement Royal paid Grace many millions of dollars in full satisfaction of its indemnity and defense obligations to Grace. Grace agreed to indemnify and hold Royal harmless from products claims from other insureds. It is the purpose of the agreement to release Royal from any and all obligations "past, present, existing or future" occurring "to Grace or the other insureds."
Maryland and CNA thereafter sought summary judgment against Royal for reimbursement of Royal's alleged share of the pre-1991 defense costs. Royal opposed reimbursement on the grounds that its settlement with Grace barred Maryland's suit against it as a matter of law. Royal also cross-moved for summary judgment with respect to Maryland's and CNA's claims against it on the grounds that the notice provisions in Royal's policies had...
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