Maryland Cas. Co. v. W.R. Grace and Co.

• Decision Date: 16 May 1994
• Docket Number: D,No. 11,11
• Citation: 23 F.3d 617
• Parties: 24 Envtl. L. Rep. 20,968 MARYLAND CASUALTY COMPANY, Plaintiff-Appellee, v. W.R. GRACE AND COMPANY, Defendant-Appellant, Continental Casualty Company; Aetna Casualty & Surety Company and General Insurance Company of America, Defendants, Royal Indemnity Company; Aetna Casualty and Surety Company, Defendants-Appellees. ocket 91-9322.
• Court: U.S. Court of Appeals — Second Circuit

Page 617

23 F.3d 617

24 Envtl. L. Rep. 20,968

MARYLAND CASUALTY COMPANY, Plaintiff-Appellee, v. W.R. GRACE AND COMPANY, Defendant-Appellant, Continental Casualty Company; Aetna Casualty & Surety

Company and General Insurance Company of America, Defendants,

Royal Indemnity Company; Aetna Casualty and Surety Company,

Defendants-Appellees.

No. 11, Docket 91-9322.

United States Court of Appeals, Second Circuit.

Argued Sept. 30, 1992.

Decided Sept. 1, 1993.

Petition for Rehearing Granted

Jan. 11, 1994.

Opinion Amended May 16, 1994.

Randy Paar, New York City (Jerold Oshinsky, Jordan Stanzler, Anderson Kill Olick & Oshinsky, P.C., of counsel), for defendant-appellant W.R. Grace & Co.

Laura A. Foggan, Washington, DC (James P. Anasiewicz, Nancy J. Lemay, Wiley, Rein & Fielding, of counsel), for plaintiff-appellee Maryland Cas. Co.

Carl J. Pernicone, New York City (James P. Donovan, Robert L. Joyce, Wilson, Elser, Moskowitz, Edelman & Dicker, of counsel), for defendant-appellee Royal Indem. Co.

James E. Rocap, III, Washington, DC (Jay L. Alexander, Miller, Cassidy, Larroca & Lewin, Washington, DC, Kaare Phillips, Grais & Phillips, New York City, of counsel), for defendant-appellee Aetna Cas. & Sur. Co.

Edward M. Shaw, New York City (Stillman, Friedman & Shaw, P.C., New York City, William J. Bowman, Donald C. Brown, Jr., James P. Ruggeri, Hogan & Hartson, Washington, DC, of counsel), filed a brief on behalf of Hartford Acc. & Indem. Co. and First State Ins. Co. as amici curiae.

R. Nicholas Gimbel, Philadelphia, PA (Jill A. Douthett, Hoyle, Morris & Kerr, of counsel), filed a brief on behalf of National Gypsum Co. as amicus curiae.

Thomas J. Quinn, New York City (Eileen T. McCabe, Stephen T. Roberts, Mendes & Mount, of counsel), filed a brief on behalf of Rayment and London Market Companies as amicus curiae.

Gerald V. Weigle, Jr., Cincinnati, OH (Stephen G. Schweller, Trudy Weiss Craig, Gregory A. Harrison, Dinsmore & Shohl, Cincinnati, OH, Marcia B. Golden, Boston, MA, of counsel), filed a brief on behalf of Liberty Mut. Ins. Co. as amicus curiae.

Wilson M. Brown, III, Philadelphia, PA (Paul H. Saint-Antoine, Drinker Biddle & Reath, Philadelphia, PA, Peter N. Hillman, Susan J. Leskowitz, Chadbourne & Parke, New York City, James W. Christie, James A. Pabarue, Catherine C. Olanich, Christie, Pabarue, Mortensen & Young, Philadelphia, PA, Philip C. Stahl, Katherine E. Rakowsky, Grippo & Elden, Chicago, IL, of counsel), filed a brief on behalf of Lumbermens Mut. Cas. Co., American Motorists Ins. Co., American Mfrs. Mut. Ins. Co., Republic Ins. Co., Commercial Union Ins. Co., and Fireman's Fund Ins. Co. as amici curiae.

Before MESKILL, Chief Judge, ^* LUMBARD and CARDAMONE, Circuit Judges.

CARDAMONE, Circuit Judge:

The subject of this appeal is asbestos, a hazardous material found in public and private buildings everywhere. The presence of this substance has precipitated widespread litigation against its manufacturers, which have looked to their insurance carriers to defend and indemnify them. Before us on this appeal are a former manufacturer of asbestos products and the insurance companies

that insured it. Here, the legal maxim volenti non fit injuria--that is no injury which is done with the injured party's consent--does not apply even though the owners had asbestos installed in their buildings. The maxim is inapt because neither the owners nor the individuals actually harmed by its carcinogenic effects consented to their injuries. The question before us instead centers on the bottom-line issue of who ultimately is liable in damages and litigation expenses to the owners of buildings contaminated with this mineral fiber. To resolve that question, we must make an initial legal determination as to when injury occurs to such a building.

BACKGROUND

We set forth first the background facts. W.R. Grace & Co.-Conn. (Grace), and companies it later acquired, manufactured and sold asbestos building products. These products were used for soundproofing and fireproofing buildings from the 1940s until 1973 when the U.S. Environmental Protection Agency (EPA) prohibited asbestos sales because inhalation of asbestos fibers caused serious health problems, particularly cancer. Grace then experienced a flood of litigation. As of May 31, 1989, 17,411 individual lawsuits had been filed against it for personal injuries caused by asbestos products, and building owners had filed another 212 lawsuits for property damage caused by the presence of asbestos in their buildings and its subsequent removal or containment.

The instant litigation began as a declaratory judgment action in October 1983 in the United States District Court for the Southern District of New York. There the parties agreed, pursuant to 28 U.S.C. Sec. 636(c) (1988 & Supp. III 1991), to refer the matter to U.S. Magistrate Judge Leonard Bernikow. Plaintiff Maryland Casualty Co. (Maryland)--which had sold comprehensive general liability insurance to Grace from 1955 to 1973--sued defendant Grace and its current primary insurer, defendant Continental Casualty Co. (Continental), to obtain a judicial declaration as to what obligation, if any, Maryland owed to defend or indemnify Grace in the thousands of underlying asbestos lawsuits. Jurisdiction was premised on diversity of citizenship. In April 1985 Maryland successfully added three other defendants, Royal Indemnity Co. (Royal), Aetna Casualty & Surety Co. (Aetna), and General Insurance Co. (General). Each of these defendants had sold primary insurance to asbestos manufacturers and distributors acquired by Grace between 1963 and 1967. Prior to 1963 Grace itself did not manufacture or distribute any asbestos products.

The insurance companies, with the exception of Continental, dispute when they insured Grace or its acquired companies. Continental has insured Grace from 1973 until the present; Maryland, Continental's immediate predecessor, insured Grace from 1955 to 1973. Grace contends that the following other insurance was also issued: Royal supposedly insured Zonolite Co., an asbestos manufacturer acquired by Grace in 1963, from 1950 to 1963; General is argued to have insured a Grace predecessor, Vermiculite Northwest Inc., between 1961 and 1966; and Grace asserts Aetna insured three Grace predecessors, California Zonolite Co., Ari-Zonolite Co. and Western Mineral Products Co., from 1951 to 1970.

In June 1987 the parties, with the exception of Continental, cross-moved for summary judgment on 13 separate issues. Grace and Continental reached a settlement in July 1990. In a 75-page opinion dated March 1, 1991 the magistrate judge granted summary judgment on several matters, including the issue of insurance covering the property damage lawsuits. Most of the insurance policies sold to Grace and its predecessors had based coverage on an "occurrence" of property damage during their effective dates, except for Royal's policies that based coverage on "accidents." This distinction was not relevant, according to the magistrate judge, because "Royal agree[d] to be bound by whatever trigger of coverage the court endorse[d]."

Applying New York law, which the parties agree controls interpretation of all the insurance contracts, the magistrate judge adopted a "discovery trigger" for property damage coverage. Damage to property did not "occur," nor was insurance coverage triggered, the trial court explained, under the terms of The magistrate judge reaffirmed adoption of this trigger in orders dated July 8, 1991 and October 22, 1991. Application of the discovery trigger obligates only Continental, which as noted has insured Grace from 1973 to the present date, and relieves all the earlier insurers of any liability. According to the trial court's October 22 order, "Grace presented no evidence of the discovery of property damage during Maryland's policy period," so Maryland was relieved of any coverage obligation even though it had insured Grace from 1955 to 1973. The financial consequences of this decision are substantial. According to Grace, as of early 1992 it had spent $184.6 million to settle claims or satisfy judgments in property damage asbestos lawsuits and $194.8 million to defend itself in such suits. Continental has exhausted the limits of its insurance coverage by paying $117 million in defense costs and $70 million in indemnity to Grace.

the insurance policies until the building owner discovered, first, that there was asbestos in the building and, second, that it was hazardous. In nearly all the property damage cases building owners did not discover the dangers of asbestos until the early 1970s when the EPA and other federal agencies alerted the public to its hazardous nature.

As a result of the March 1, 1991 decision, Royal and Maryland requested entry of final judgments on the property damage trigger issue. These judgments from which Grace subsequently filed this appeal, were entered pursuant to Fed.R.Civ.P. 54(b) on November 19, 1991. In addition to its 1990 settlement with Continental, Grace and Maryland reached a settlement in December 1991, but Maryland still is a party to the appeal because its liability to the other insurers depends upon the coverage trigger we ultimately adopt. During a February 1992 trial to determine whether Aetna had sold insurance to any Grace predecessors, Aetna also settled with both Grace and Maryland. The Aetna-Maryland settlement is contingent on the continued validity of a March 13, 1992 judgment of the magistrate judge dismissing all the other insurers' claims against Aetna.

On this appeal Grace challenges the adoption of the discovery trigger for property damage as a matter of New York law. Royal and Maryland advocate the discovery trigger because its adoption relieves them of liability in the underlying property damage lawsuits against Grace. Grace also renews a challenge to subject matter jurisdiction that impacts, among other things, the Aetna-Maryland settlement. We discuss...