American Home Prod. v. Liberty Mut. Ins. Co.

Decision Date29 August 1983
Docket NumberNo. 80 Civ. 5653 (ADS).,80 Civ. 5653 (ADS).
Citation565 F. Supp. 1485
CourtU.S. District Court — Southern District of New York



Willkie, Farr & Gallagher, New York City, for plaintiff; Louis L. Hoynes, Jr., Stephen W. Greiner, Lawrence O. Kamin, John R. Dutt, New York City, of counsel.

Dinsmore, Shohl, Coates & Deupree, Cincinnati, Ohio, A. Paul Goldblum, Brooklyn, N.Y., Christopher C. Mansfield, Boston, Mass., Craig & Skydel, New York City, for defendant; Gerald V. Weigle, Jr., Janet R. Eaton, David F. Mayo, Cincinnati, Ohio, Alan W. Craig, New York City, of counsel.


SOFAER, District Judge:

Plaintiff American Home Products Corporation ("AHP"), a diversified company manufacturing drugs, foods, and household products, is the defendant in fifty-four products-liability suits arising from AHP's manufacture and sale of six pharmaceuticals: Ovral and L/Ovral (oral contraceptives), DES (Diethylstilbestrol), Mysoline, Atromid-S, Premarin, and Anacin. Defendant Liberty Mutual Insurance Company ("Liberty"), which provided AHP with insurance from 1944 until 1976, has refused to assume AHP's burden of defense or to indemnify AHP in those lawsuits, because in each case physical harm did not become manifest until after termination of the insurance policies. In this action AHP seeks a judgment declaring that Liberty is obliged to defend and to indemnify AHP in the underlying lawsuits because, regardless of when physical harm became manifest, exposure to the alleged agents of harm occurred during the policy periods, thereby triggering coverage.

Jurisdiction is based on diversity of citizenship, 28 U.S.C. § 1332 (1976), and New York law controls. AHP contends there are no disputed issues of material fact, and has moved for summary judgment awarding the declaration it seeks. Liberty opposes this motion, and has itself moved for partial summary judgment on the basis of a provision in the AHP policies which Liberty argues excludes coverage for all claims involving exposures to allegedly harmful substances after termination of Liberty's coverage on November 1, 1976.

Several courts have recently ruled on the scope of insurance policies covering liability for insidious diseases, which are illnesses that become manifest long after initial exposure to the substances believed to cause them. The policy provisions at issue in these cases were all variants of the Comprehensive General Liability Policy ("CGL"), a standard-form policy for liability coverage drafted during the 1960's by representatives of the insurance industry to deal with the problem of liability for injuries caused over a period of time. Instead of covering only "accidents", a word that connotes an event causing immediate or contemporaneous injury, the CGL was written to cover "occurrences", defined to include "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." CGL, Pl.Ex. 22 at 12. This change in terminology made clear the intent of insurers to provide coverage for insidious diseases. But the new language provided no definition of "bodily injury" other than the words themselves, thereby creating a basis for disputes as to the trigger of coverage.

AHP's insurance policies with Liberty were "manuscript" policies written specifically for AHP. Like the 1966 version of the CGL, however, AHP's policies throughout the period relevant to this litigation provided liability coverage for "occurrences" that result in "personal injury, sickness or disease including death resulting therefrom ... sustained by any person." An occurrence is defined by inference from Article IV: "This policy applies only to (1) personal injury, sickness or disease including death resulting therefrom ... which occurs during the policy period." Pl.Ex. 20 at 3. The ultimate question under both the CGL language and the AHP policies at issue here is therefore the same: when does "injury, sickness or disease" occur? Under both policies, coverage exists only for injuries occurring during the policy period. Moreover, both the CGL and AHP's policies require the insurer to defend any suit against the insured that seeks damages for an injury alleged to have occurred under the policy, even if the suit is groundless or fraudulent. See CGL, Pl.Ex. 22 at 1; AHP Policy, Pl.Ex. 20 at 1.

One provision in AHP's policies after 1968 differs from anything in the CGL, however. The provision Liberty relies on in its motion for partial summary judgment states:

The policy does not apply to such injury, death or destruction caused by such continuous or repeated exposure any part of which occurs after the termination of the policy.

Liberty contends that this provision renders these policies inapplicable to twenty-eight specified cases. See Urmston Aff't, Ex. 1.

For the reasons that follow the policies in this case are construed as they are written — to require a showing of actual injury, sickness or disease occurring during the policy period, based upon the facts proved in each particular case. Thus, an occurrence of "personal injury, sickness, or disease" is read to mean any point in time at which a finder of fact determines that the effects of exposure to a drug actually resulted in a diagnosable and compensable injury. Depending upon the facts of each case, the drug involved, the period and intensity of exposure, and the person affected, an injury may occur in this sense upon exposure, at some point in time after exposure but before manifestation of the injury, and at manifestation. This construction is supported by the policy's language and background, the intentions and expectations of the parties, and considerations of practicability and fairness. It provides liberal protection to the insured, without doing violence to the principle — long a part of the law of New York — that insurance policies are contracts under which insureds obtain all the protection for which they may reasonably be said to have paid, but not more.

I. Meaning of The Policy Language

Whether the contract between AHP and Liberty is ambiguous is of central importance to this case, and particularly to the disposition of this motion. AHP argues that the policies supply an ambiguous definition of "occurrence" that is susceptible to at least two plausible constructions. Under one construction coverage would be triggered by every exposure to a harmful substance that could ultimately result in bodily injury. Another construction would trigger coverage only when injury became manifest, which has been defined to mean when the injury was diagnosed or when it produced symptoms that placed or should have placed the injured person on notice. Relying on these alleged ambiguities, AHP invokes the well established rule that resolves ambiguities in insurance contracts in favor of the insured and against the insurer. See, e.g., Breed v. Insurance Co. of North America, 46 N.Y.2d 351, 353, 385 N.E.2d 1280, 1282, 413 N.Y.S.2d 352, 354 (1978). AHP argues that, in this case, the governing rule of construction requires application of the exposure theory, which favors manufacturers, or perhaps an even broader construction providing coverage at any point from exposure to manifestation. An exposure theory makes sense, AHP contends, because it recognizes that manufacturers intend to protect themselves against the long-term risk of claims associated with insidious diseases; "personal injury, sickness or disease" should therefore be read to cover every potentially injurious exposure during the policy period that results at any future time in a claim for injury. If an exposure theory were applied, Liberty would be responsible to pay any liability AHP incurs in any suit against AHP where the plaintiff ingested the harmful product during the policy period, irrespective of how long after termination a diagnosable injury, sickness, or disease developed, or manifested itself.

Several courts have construed the CGL terms to provide coverage upon exposure. The Sixth Circuit, in Insurance Co. of North America v. Forty-Eight Insulations, Inc., 633 F.2d 1212, 1222 (6th Cir.1980), reh'g granted in part and denied in part, 657 F.2d 814 (1981), cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981), found the terms "bodily injury" and "occurrence" inherently ambiguous as applied in the "progressive disease context." The Court, faced with determining an asbestos manufacturer's coverage under a CGL-derived policy, relied on that ambiguity, on medical testimony of the progressive nature of diseases caused by prolonged exposure to asbestos, and on the presumed intent of the parties, to read the contract as providing coverage for all potentially injurious exposures. See also Porter v. American Optical Corp., 641 F.2d 1128 (5th Cir.), cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981). In Keene v. Insurance Co. of North America, 667 F.2d 1034 (D.C.Cir.1981), cert. denied, 455 U.S. 1007, 102 S.Ct. 1644, 71 L.Ed.2d 875 (1982), the District of Columbia Circuit also found that exposure to asbestos triggered coverage under the "ambiguous" CGL terms. It concluded that an exposure theory most closely approximated the reasonable expectation of manufacturers, who purchase insurance in order to gain certainty and be free from all risk of liability arising out of products-liability suits. To protect this alleged expectation, the Court held that insurance coverage was triggered not only by every exposure, but by "exposure in residence," when asbestos fibers were present in the body and causing further injury, and by every manifestation of an injury, sickness, or disease. 667 F.2d at 1048.1

Liberty counters with the claim that the relevant policy provisions unambiguously...

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