AT&SF RY. CO. v. Stonewall Ins. Co.

Decision Date30 May 2003
Docket NumberNo. 85,794,85,794
Citation275 Kan. 698,71 P.3d 1097
CourtKansas Supreme Court

Douglas R. Richmond, of Armstrong & Teasdale, LLP, of Kansas City, Missouri, argued the cause, and William A. Larson and Timothy A. Shultz, of Gehrt & Roberts, Chartered, of Topeka, and Richard W. Bryan and Erin N. McGonagle, of Jackson & Campbell, P.C., of Washington, D.C., were on the briefs for appellants American Home Assurance Company, Audubon Indemnity Company, Granite State Insurance Company, Insurance Company of Pennsylvania, Landmark Insurance Company, Lexington Insurance Company, National Union Fire Insurance Company of Pittsburgh, Pa., New Hampshire Insurance Company, and Union Atlantique D'Assurance, S.A.

Hal D. Meltzer, of Baker Sterchi Cowden & Rice, of Kansas City, Missouri, and Michael F. Sommerville, of Centrulo & Capone, LLP, of Boston, Massachusetts, were on the brief for appellant Stonewall Insurance Company.

Eric I. Unrein, of Davis Unrein McCallister Biggs and Head, of Topeka, and Eric C. Young, of Dunham Boman and Leskera, of Belleville, Illinois, were on the briefs for appellants Employers Insurance of Wausau and Nationwide Mutual Insurance Company.

Stephen W. Cavanaugh and Todd D. Powell, of Fisher, Cavanaugh, Smith & Lemon, P.A., of Topeka, and Joseph S. Crociata, Stuart Peacock, and Michelle Oshman, of Bonner, Kiernan, Trebach & Crociata, of Washington, D.C., were on the briefs for appellants Fireman's Fund Insurance Company and National Surety Corporation.

David V. Goodsir, of Freeborn & Peters, of Chicago, Illinois, argued the cause, and Weston W. Marsh, of the same firm, and Steve R. Fabert, of Fisher, Patterson, Sayler & Smith, L.L.P., of Topeka, were with him on the briefs for appellee Atchison, Topeka, & Santa Fe Railway Company.

Karen R. Glickstein, of Shughart Thomson & Kilroy, of Kansas City, Missouri, and Laura A. Foggan and Elizabeth A. Eastwood, of Wiley Rein & Fielding LLP, of Washington, D.C., were on the brief for amicus curiae Complex Insurance Claims Litigation Association.

The opinion of the court was delivered by


This is a declaratory judgment action, which was filed by the Atchison, Topeka and Santa Fe Railway Company (Santa Fe) initially against approximately 120 insurance companies that issued excess liability policies to Santa Fe between 1945 and 1986. Appellants are some of the defendant insurance companies: American Home Assurance Company, Audubon Indemnity Company, Granite State Insurance Company, Insurance Company of the State of Pennsylvania, Landmark Insurance Company, Lexington Insurance Company, National Union Fire Insurance Company of Pittsburgh, Pa., New Hampshire Insurance Company, Union Atlantique D'Assurance, S.A., Nationwide Mutual Insurance Company, Employers Insurance of Wausau, a Mutual Company, Stonewall Insurance Company, Fireman's Fund Insurance Company, and National Surety Corporation (collectively known as Insurers).

Santa Fe sought declarations that the Insurers must indemnify it for settlements of several thousand claims and lawsuits by employees who alleged hearing losses due to excessive noise in the workplace. In 1995, the district court, ruling on cross-motions it had directed the parties to file before completion of discovery, entered judgment in favor of Santa Fe. Insurers appealed the 1995 decision, and this court reversed and remanded. Atchison, Topeka & Santa Fe Railway Co. v. Stonewall Insurance Co., 1997 WL 1048134.

On remand, the parties developed the factual record. Subsequently, ruling on the parties' motions and cross-motions for partial summary judgment, the district court concluded that Kansas law applied to all issues and that the declaratory judgment sought by Santa Fe would be entered in its favor. Insurers appealed. Insurers' motion for transfer to this court was granted pursuant to K.S.A. 20-3017.

The district court's decisions that, taken together, constitute the final declaratory judgment in this case are on choice of law, which were made on November 3, 1999, March 12, 1999, and December 14, 1998, and on all substantive issues, which were made on July 24, 2000. Each memorandum decision and order was the district court's ruling on a motion or motions for partial summary judgment or summary judgment. In each memorandum decision and order, the district court set out a statement of uncontroverted facts.

Although Insurers assert in several instances (trigger of coverage, nonfortuity, and known loss) that disputed facts preclude summary judgment, in fact, their substantive arguments challenge the district court's application of law to facts rather than the district court's findings of fact. Insurers' contentions involving facts are discussed along with the issues. The trial court's findings of fact relevant to the discussion of the issues are as follows 1. As of March 1998, Santa Fe has paid in excess of $28 million in connection with more than 3,800 claims that have been filed by its employees. The employees allege that they sustained noise-induced hearing loss (NIHL) from continuous exposure to excessive noise while employed by Santa Fe.

2. Noise is an obvious and unavoidable by-product of Santa Fe's normal railroad operations.

3. NIHL is an injury that occurs contemporaneously with unprotected exposure to excessive noise.

4. NIHL injuries continue progressively throughout the course of unprotected exposure until the exposure to excessive noise is interrupted.

5. The NIHL claimants alleged that their work environment involved a network of multiple excessive noise sources and that they were exposed to on a daily basis in different ways to noises from a variety of sources. The claimants, whether engineers, carmen, or maintenance-of-way workers, were mobile employees, changing locations and job assignments in the course of their work.

6. Santa Fe purchased millions of dollars of comprehensive general liability insurance policies throughout the years, and Santa Fe also maintained a variable level of Self-Insured Retention (SIR).

7. From at least 1945 to 1986, Santa Fe maintained a program of excess insurance coverage purchased from Insurers to protect it from "liability incurred as a result of its operations."

8. Santa Fe's self-insured retentions underlying its excess policies ranged from $1,000,000 for the period from 1956 to 1971, to $7,000,000 for the period from 1984 to 1986. In 1991, the coverage grew to $10,000,000. The self-insured coverage currently is $25,000,000.

9. In each year of coverage, Santa Fe purchased several layers of insurance.

10. Each layer has upper and lower coverage limits and each layer is composed of separate, multiple policies issued by different insurance companies.

11. Total premiums on the International Surplus Lines Insurance Company (ISLIC) policies decrease as each successive layer of coverage is reached. For the period of March 17, 1982, to March 17, 1983, the premium ranged from $170,000 for a $1,700,000 coverage of the first $10,000,000 that exceeded Santa Fe's $5,250,000 Self-Insured Retentions, to a $5,000 premium for a $5,000,000 coverage of the $50,000,000 excess over the $150,250,000 that was covered by higher layers.

12. Under the excess policies, Insurers agree, subject to all terms and conditions of their policies, to indemnify the assured for certain losses up to the limits of the policies incurred as a result of an "occurrence."

13. On December 29, 1994, Santa Fe filed its original petition for declaratory relief against the defendant insurance companies that issued general liability insurance policies for the years 1945-1986 to Santa Fe, seeking coverage for claims brought by employees of the railroad for NIHL.

14. Santa Fe is not seeking reimbursement from any policy after 1986, after which time Santa Fe began to reinsure itself and after which time the NIHL occurrence ceased.

15. Each of the pre-1974 insurance policies at issue in this case contains standard language in which the insurers agreed, subject to terms and conditions of the policies, to indemnify Santa Fe for "any and all sums" of damages arising out of an "accident or accidents" in excess of a certain amount. While the coverage limits varied from year to year, the indemnification and limits policy language was otherwise substantially similar and provided:

"To indemnify the Assured for any and all sums which the Assured shall become liable to pay, and shall pay, to any person or persons as compensation for injury or damage to persons (whether such injury or damage be fatal or nonfatal) and injury or damage to property (excluding property of the Assured or in its custody or control) arising out of any accident or accidents caused by or growing out of the Assured's Railroad operations in the United States of America and all operations incidental thereto."

16. The pre-1974 Santa Fe policies define the term "Ultimate Net Loss" with wording substantially similar to the following definition:

"the sum actually paid in cash in the settlement of losses for which the Assured is liable, after making proper deductions for all recoveries, salvages, and other insurances, and shall include all loss and legal expenses (excluding salaries of employees and office expenses) incurred in investigation, adjustment or litigation."

17. Each pre-1974 Santa Fe policy contains an "other insurance" provision. These clauses are substantially similar and provide:

"This insurance does not cover any loss or damage which at the time of the happening of such loss or damage is insured by any other existing policy or policies of valid and collectible insurance except in respect of any excess beyond the amount which would have been payable under such other existing policy or policies had this insurance not been effected."

18. Some of the pre-1974 policies define "occurrence" to mean "one or more...

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