Babcock & Wilcox Co. v. Arkwright-Boston Mfg. Mut. Ins. Co.

• Decision Date: 04 August 1995
• Docket Number: 93-4150,Nos. 93-4149,ARKWRIGHT-BOSTON,s. 93-4149
• Citation: 53 F.3d 762
• Parties: The BABCOCK & WILCOX COMPANY, Plaintiff-Appellant/Cross-Appellee, v.MANUFACTURING MUTUAL INSURANCE CO.; St. Paul Mercury Insurance Co.; American Home Assurance Co.; American International Marine Agency; Allianz Insurance Co.; Insurance Co. of North America; Caryl Vaughn Gibbs, individually and on behalf of certain underwriters of Lloyds of London; Indemnity Marine Assurance Co., Ltd.; English and American Insurance Co., Ltd.; Insurance Co. of North America (UK), Ltd.; C.A. Parr, Defendants-Appellees/Cross-Appellants, Creole Insurance Co., Ltd., Defendant-Appellant/Cross-Appellee, McDermott, Inc., Third-Party Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 762

53 F.3d 762

The BABCOCK & WILCOX COMPANY, Plaintiff-Appellant/Cross-Appellee, v. ARKWRIGHT-BOSTON MANUFACTURING MUTUAL INSURANCE CO.; St.

Paul Mercury Insurance Co.; American Home Assurance Co.;

American International Marine Agency; Allianz Insurance

Co.; Insurance Co. of North America; Caryl Vaughn Gibbs,

individually and on behalf of certain underwriters of

Lloyds of London; Indemnity Marine Assurance Co., Ltd.;

English and American Insurance Co., Ltd.; Insurance Co. of

North America (UK), Ltd.; C.A. Parr,

Defendants-Appellees/Cross-Appellants,

Creole Insurance Co., Ltd., Defendant-Appellant/Cross-Appellee,

McDermott, Inc., Third-Party Defendant-Appellant/Cross-Appellee.

Nos. 93-4149, 93-4150.

United States Court of Appeals, Sixth Circuit.

Argued March 9, 1995.

Decided May 17, 1995.

Rehearing and Suggestion for Rehearing En Banc Denied Aug. 4, 1995.

Duke W. Thomas, Vorys, Sater, Seymour & Pease, Columbus, OH, David S. Cupps (briefed), Stephen J. Petras, Jr., Matthew J. Hatchadorian, K. Ellen Toth, Vorys, Sater, Seymour & Pease, Cleveland, OH, James E. Scheuermann (briefed), John M. Sylvester, Peter J. Kalis (argued), Kirkpatrick & Lockhart, Pittsburgh, PA, for Babcock & Wilcox Co. in No. 93-4149.

A. Thomas Kajander (briefed), Sharpe & Kajander, Houston, TX, Robert D. Archibald, McNeal, Schick, Archibald & Biro, Cleveland, OH, for Arkwright-Boston Mfg. Mut. Ins. Co., American Intern. Marine Agency, Allianz Ins. Co. and American Home Assur. Co.

William H. Baughman, Jr., Weston, Hurd, Fallon, Paisley & Howley, Cleveland, OH, Thomas H. Crouch, Robert E. Salmon (argued and briefed), Stacy A. Broman, Meagher, Geer, Markham, Anderson, Adamson & Flaskamp, Minneapolis, MN, for St. Paul Mercury Ins. Co.

Thomas E. Betz, Gallagher, Sharp, Fulton & Norman, Cleveland, OH, Richard M. Shusterman, E. Douglas Sederholm (briefed), Barbara S. Zellner, White & Williams, Philadephia, PA, William J. Cleary, Mendes & Mount, New York, NY, for Insurance Co. of North America.

Nicholas J. Milanich, Jr., Reminger & Reminger, Cleveland, OH, Thomas J. Quinn, William J. Cleary, Mendes & Mount, New York, NY, for Caryl Gibbs.

Paul A. Rose (briefed), Brouse & McDowell, Akron, OH, C. Gordon Starling, Jr., Gerard T. Gelpi (briefed), Gelpi, Sullivan, Carroll & LaBorde, New Orleans, LA, for Creole Ins. Co., Ltd.

William J. Kraus, Kraus & Kraus, Cleveland, OH, Rockne L. Moseley (briefed), Janet M. Ahern, New Orleans, LA, for McDermott, Inc.

Duke W. Thomas, Vorys, Sater, Seymour & Pease, Columbus, OH, Matthew J. Hatchadorian, Vorys, Sater, Seymour & Pease, Cleveland, OH, James E. Scheuermann (briefed), John M. Sylvester, Peter J. Kalis (argued), Kirkpatrick & Lockhart, Pittsburgh, PA, for Babcock & Wilcox Co. in No. 93-4150.

Before: KENNEDY and NORRIS, Circuit Judges; TAYLOR, District Judge. ^*

KENNEDY, Circuit Judge.

Defendants, a group of insurance companies, subscribed to an insurance policy designed to provide excess liability insurance to plaintiff. Plaintiff filed this declaratory judgment action against defendants, seeking a judgment that its lower levels of insurance had been exhausted and that defendants were now liable under the excess insurance policy. The parties filed cross-motions for summary judgment, and the District Court granted summary judgment in favor of defendants. Plaintiff now appeals, and we affirm. Defendants have also filed a cross-appeal, but we find it unnecessary to reach that issue.

I.

The Babcock & Wilcox Company ("Babcock") has manufactured boilers since the nineteenth century. Until 1972, Babcock approved the use of asbestos insulation, as well as various components containing asbestos, in its boilers. In 1972, Babcock ceased approving the use of asbestos insulation, although the use of certain asbestos-containing components continued until the mid 1980's.

In 1978, J. Ray McDermott & Company ("McDermott") acquired Babcock. Beginning in 1979, McDermott and Babcock jointly purchased excess umbrella liability insurance coverage. McDermott, with the help of its long-time broker Adams & Porter, drafted an insurance policy to satisfy McDermott's needs. After the two parties finalized the language and contents of the policy, Adams & Porter lined up several insurance companies to "subscribe" to the policy. These insurance companies (collectively, the "Subscribers") are defendants in the present action.

The relevant portions of the policy provide as follows:

1. COVERAGE

Underwriters hereby agree, subject to the limitations, terms and conditions hereinafter mentioned, to pay on behalf of the Assured all sums which the Assured shall be obligated to pay by reason of their liability imposed upon the Assured by Federal, State, and Municipal or other qualified authority or in respect of liabilities assumed by the Assured under contract or agreement, for "property damage" and "personal injuries" as defined herein resulting from an "occurrence" as defined herein.

...

DEFINITIONS

...

4. OCCURRENCE

The term "Occurrence," whenever used herein, shall mean any happening or series of happenings, arising out of or due to one event taking place during the term of this contract in respect to all the Assured's operations.

The dispute in the District Court centered around the definition of an "occurrence". This definition is the center of controversy due to the "buffer layer" established in the policy. All parties acknowledge that the Subscribers' policy does not come into play until the damages for each occurrence exceed a specified minimum amount. ¹ The dispute, therefore, centers around how many "occurrences" have arisen under the 1979-80 policy.

The policy defines "occurrence", in part, as a "happening" that arises out of an "event." Babcock's primary argument before the District Court was that the relevant "event" is Babcock's decision to use asbestos in its boilers, and the "happening" or "series of happenings" are the injuries suffered by people exposed to the boilers. While the Subscribers do not take issue with Babcock's definition of "happening," they do strenuously argue that the "event" is not the decision to use asbestos-containing components, but rather is each person's exposure to the asbestos components.

The District Court did not resolve the "number of occurrences" issue. Instead, the lower court assumed that Babcock's definition of "event" was correct and focused on the last clause of the policy's definition of an "occurrence." That last clause states "arising out of or due to one event taking place during the term of this contract...." After reviewing the record, the District Court concluded that Babcock had not carried its burden of showing that it made any pertinent decision during the term of the policy. Accordingly, the District Court granted summary judgment in favor of the Subscribers. Babcock now appeals.

II.

A. Trigger of Coverage

Babcock strenuously argues that the District Court erred in deciding the trigger of coverage issue, as it was not raised below and was not fully briefed. We disagree. We have reviewed the material submitted to the District Court in relation to the cross-motions for summary judgment, and the Subscribers clearly made this argument to the District Court. The argument was foreshadowed in early pleadings, and it explicitly appeared in the pleading entitled "Defendant Subscribers' Reply Memorandum in Opposition to Summary Judgment Motions of Babcock & Wilcox and McDermott." This pleading was filed with the District Court on March 5, 1993. A review of the lower court's docket sheet shows that Babcock filed at least one other relevant pleading after that date. On March 12, 1993, Babcock filed its "Reply by Plaintiff Babcock & Wilcox Co. in Opposition to Defendants' Cross Motion for Summary Judgment on Occurrence Issue and in Further Support of Plaintiffs' Partial Summary Judgment Motion." Thus, the Subscribers clearly placed the trigger of coverage issue before the District Court, and Babcock had at least one opportunity to respond to that argument. Accordingly, the District Court did not err in resting its decision on that ground.

Turning to a review of the merits of this issue, we start our examination, as did the District Court, with the assumption that Babcock's definition of "event" is correct--that Babcock's decision to use asbestos in its boilers is the relevant cause of the injuries. Babcock argues that this assumption should essentially end our inquiry, as the Subscribers have conceded that injuries did occur during the policy year. Babcock's argument misses two key points. First, it totally ignores the dispute over what must occur during the policy term--the injuries or the event. Second, it lifts the Subscribers' alleged "concession" completely out of context. As we noted above, both parties agree on the definition of "happening"--the dispute is over the definition of "event." The Subscribers' "concession" was made in conjunction with their contention that the relevant "event" was the exposure to asbestos.

We turn then to what must occur during the policy terms under Babcock's definition of event. The relevant portion of the policy states: "The term 'Occurrence' whenever used herein, shall mean any happening or series of happenings, arising out of or due to one event taking place during the term of this contract in respect to all the Assured's operations." The dispute revolves around the phrase "taking place during the term of this contract" and whether the phrase modifies "happening" or "event." Babcock argues that the policy requires the "happening or series of happenings" to occur during the policy term, as opposed to the "event."

The District Court correctly rejected this interpretation, and we adopt that portion of his opinion:

Such an interpretation requires the court to ignore the plain import of the sentence; it would have this court apply a phrase at the end of the sentence to a phrase at the beginning of the sentence without regard to...