ACandS, Inc. v. Aetna Cas. & Sur. Co.

• Decision Date: 22 December 1981
• Docket Number: Nos. 80-2659,80-2660,s. 80-2659
• Citation: 666 F.2d 819
• Parties: ACandS, INC., Appellant, v. The AETNA CASUALTY AND SURETY COMPANY, Appellee, and The Travelers Indemnity Company and The Travelers Insurance Company, Appellees. ACandS, INC., Appellee, v. The AETNA CASUALTY AND SURETY COMPANY, Appellee, and The Travelers Indemnity Company and The Travelers Insurance Company, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 819

666 F.2d 819

ACandS, INC., Appellant, v. The AETNA CASUALTY AND SURETY COMPANY, Appellee, and The Travelers Indemnity Company and The Travelers Insurance

Company, Appellees.

ACandS, INC., Appellee, v. The AETNA CASUALTY AND SURETY COMPANY, Appellee, and The Travelers Indemnity Company and The Travelers Insurance

Company, Appellants.

Nos. 80-2659, 80-2660.

United States Court of Appeals Third Circuit.

Argued Nov. 19, 1981.

Decided Dec. 9, 1981.

As Amended Dec. 22, 1981.

Richard G. Schneider, Frank H. Griffin, III (argued), Mark C. Rahdert, Dechert, Price & Rhoads, Philadelphia, Pa., for ACandS, Inc.

Tyson W. Coughlin, Linda S. Martin, Philadelphia, Pa., William H. Black, Jr. (argued), Hecker, Maginnis, Rainer & Brown, Philadelphia, Pa., for The Travelers Indemnity Co. and The Travelers Insurance Co.; Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pa., of counsel.

Richard K. Masterson (argued), Margaret Mary Maguire, Masterson, Braunfeld, Himsworth & Maguire, Norristown, Pa., for The Aetna Casualty and Surety Co.

Before GIBBONS and HIGGINBOTHAM, Circuit Judges, and MEANOR, District Judge. ^*

OPINION OF THE COURT

GIBBONS, Circuit Judge.

ACandS, Inc. appeals from an order dismissing its suit against The Aetna Casualty & Surety Company ("Aetna"), The Travelers Indemnity Company and The Travelers Insurance Company ("Travelers") for declaratory relief and for damages. ¹ Travelers also appeal from an order of the district court dismissing their cross-claim for a declaratory judgment against ACandS and Aetna. We conclude that the district court, 500 F.Supp. 511, erred in finding the complaint and cross-claim non-justiciable and we reverse.

ACandS, Inc., ² since it began business in 1957, has, among other activities, installed industrial and commercial insulation. Until 1972-73, these insulations contained asbestos, a pernicious chemical that may cause asbestosis, mesothelioma, and lung cancer-lung diseases with long gestation periods. ³

ACandS has been caught in the recent nationwide flood of lawsuits ⁴ seeking to recover damages for harm caused by exposure to asbestos. These cases typically involve insulation installers or their survivors claiming injury or wrongful death as a result of inhaling asbestos fibers. ⁵ The aggregated costs of defending these cases and the potential liability for damages are staggering.

ACandS does not, however, face this burden alone. Since 1958, it has had comprehensive liability insurance, first from Travelers and then from Aetna. Coverage has been under policies obligating the insurer to defend ACandS in any damages suit for injury arising out of an "accident" or "occurrence" ⁶ during the policy period. The insurer also has to pay all sums to which ACandS becomes obligated as damages in these suits. Coverage for the consequences of any successfully asserted complaint will thus depend on which policies are implicated by a given claim of injury. ⁷ The complicated nature of human physiological interactions with asbestos, as well as the nature of the resulting diseases, have led to a disagreement among the litigants about their respective duties to defend and to pay in the underlying suits. ⁸ ACandS asserts that whichever insurer had a policy in effect at the time an injured claimant was first exposed to asbestos must defend the resulting suit and indemnify ACandS for the resulting judgment-the "exposure" theory. Aetna subscribes to the "manifestation" theory, contending that it is only obligated to perform its contract duties with respect to asbestos injuries that first manifested themselves during the period of coverage. Finally, Travelers advance the "pro-rata exposure" theory whereby the injury is viewed as occurring continuously from the first instance of exposure until death-even during periods of no contact with asbestos. Under this theory, an insurer's obligations are prorated in the ratio of the period of its coverage to the entire period of injury. ⁹

Each defendant has acted upon its interpretation of the policy terms: Aetna refuses to handle and defend lawsuits in which potential liability is based on exposure to asbestos; ¹⁰ Travelers have not offered to defend ACandS or to make any payments on its behalf. ¹¹ The net result has been that ACandS is forced to defend underlying cases and pay costs and face liabilities that would otherwise be incurred by its insurers.

Seeking to extricate itself from this untenable position, ACandS brought this multiple count suit against Aetna and Travelers. Counts I and IV seek a declaration of the respective obligations of Aetna, Travelers and ACandS to defend the underlying suits and to pay the resultant judgments. The focus of these claims is the interpretation of the insurance policies. Counts II and III are against Aetna alone. They allege breach of Aetna's contractual obligation to provide competent claims handling services and to defend asbestos lawsuits against ACandS; a breach of Aetna's duties of fair dealing; and, torts committed by Aetna against ACandS. No damage claims were asserted against Travelers. Travelers cross-claimed, seeking also a declaration of rights and obligations under the insurance policies.

The district court decided that the matters before it were not justiciable, and dismissed the complaint and cross-claim. The court determined that it was being asked to render a constitutionally impermissible advisory opinion as to the legal interrelationship of ACandS, Aetna and Travelers: there was no concrete dispute because the parties and the facts of the underlying asbestos suits were not before the court; plaintiff had no actual need for a determination of insurance coverage since it had not yet become liable to pay any judgment; and declaratory relief would not necessarily terminate the controversy. The claims for declaratory relief were thus dismissed as beyond the constitutional competence of a federal court.

The court also dismissed the breach of contract and tort claims against Aetna. It held that since these claims involved non-justiciable questions of policy coverage, they must also be non-justiciable.

We think the district court committed error in dismissing the case as non-justiciable. ¹² See generally Keene Corp. v. Insurance Company of North America, No. 81-1179/81 (D.C.Cir. Oct. 1, 1981); see also Insurance Co. of North America v. Forty-Eight Insulations Inc., 451 F.Supp. 1230 (E.D.Mich.1978), aff'd, 633 F.2d 1212, opinion clarified, 657 F.2d 814 (6th Cir. 1981). Counts II and III of ACandS' suit allege present injury to plaintiff by Aetna's tortious conduct and by its breach of various contract obligations. All the parties in that respect are here, the harm has already occurred and defendant has acted. Plainly there is a "case or controversy" over these counts for purposes of Article III, Section 2 of the Constitution. This result would not be changed even if, arguendo, the assessment of relative defense and indemnity obligations under the insurance policies were deemed non-justiciable in the context of the declaratory claims. The non-justiciability of an issue is not immutable. If issues of contract interpretation occur in the context of a justiciable case or controversy-e.g. the damage action here-they must be considered by the federal court.

Counts I and IV for declaratory relief, as well as Travelers' cross-claims are also justiciable. A federal court's authority to grant declaratory relief under 28 U.S.C. § 2201 (1976) extends to the article III limits on the court's power to adjudicate disputes. Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 239-40, 57 S.Ct. 461, 463, 81 L.Ed. 617 (1937). For a matter to be justiciable it must be a "case or controversy." "A justiciable controversy is distinguished from a difference or dispute of a hypothetical or abstract character; from one that is academic or moot.... The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests." 300 U.S. at 240-41, 57 S.Ct. at 463-64. There is sometimes a fine line between the hypothetical and the concrete, Maryland Casualty Co. v. Pacific Coal and Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941), but not here. The dispute between Aetna, Travelers and ACandS as to the coverage of the insurance policies is real and concrete. The factors that will determine the relative duties and benefits under the insurance contracts are independent of the underlying claims and are being presented in an adversarial context by parties with adverse interests. See generally, Maryland Casualty Co., supra. Declaratory suits to determine the scope of insurance coverage have often been brought independently of the underlying claims albeit the exact sums to which the insurer may be liable to indemnify depend on the outcome of the underlying suits. See Crowley's Milk Co. v. American Mutual Liability Insurance Co., 426 F.2d 752 (2d Cir. 1970); Sears, Roebuck & Co. v. Zurich Insurance Co., 422 F.2d 587, 590 (7th Cir. 1970); St. Paul Fire & Marine Insurance Co. v. Aetna Casualty & Surety Co., 357 F.2d 315 (10th Cir. 1966); Federal Insurance Co. v. Michigan Mutual Liability Co., 277 F.2d 442 (3d Cir. 1960); Bituminous Insurance Cos. v. Pennsylvania...