CSX Transp., Inc. v. Commercial Union Ins. Co.

• Decision Date: 26 April 1996
• Docket Number: 95-7107,Nos. 95-7106,s. 95-7106
• Citation: 82 F.3d 478
• Parties: CSX TRANSPORTATION, INC., Appellant, v. COMMERCIAL UNION INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 478

82 F.3d 478

317 U.S.App.D.C. 234

CSX TRANSPORTATION, INC., Appellant, v. COMMERCIAL UNION INSURANCE COMPANY, Appellee.

Nos. 95-7106, 95-7107.

United States Court of Appeals, District of Columbia Circuit.

Argued March 5, 1996.

Decided April 26, 1996.

Appeals from the United States District Court for the District of Columbia (85cv3162 & 85cv3163).

Leon B. Kellner argued the cause, for appellant, with whom Lee M. Straus and Robert W. Pommer, III, Washington, DC, were on the briefs.

Richard A. Ifft, Washington, DC, argued the cause and filed the brief, for appellee.

Before: EDWARDS, Chief Judge, SILBERMAN, and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge:

CSX Transportation, Inc. appeals the district court's grant of summary judgment in favor of Commercial Union Insurance Company on coverage issues arising out of excess insurance policies issued to CSX. We affirm in part, reverse in part, and remand.

I.

CSX is the successor in interest to a number of railroads that purchased excess insurance policies from insurance carriers to which Commercial Union is, in turn, the successor. ¹ The 15 policies that remain in contention here, encompassing years between 1964 and 1973, provided coverage for liabilities in excess of an underlying limit that varied from policy to policy. A condition precedent to coverage under the policies is notice to the insurer of an "occurrence" likely to trigger the coverage. ²

CSX seeks coverage for liabilities arising out of asbestos-related injuries allegedly suffered by current and former employees of CSX. While information concerning the hazards associated with asbestos was available to the railroad industry to some degree throughout the last 50 years, no suit claiming injury from exposure to asbestos was brought against a CSX predecessor until 1979. From 1979 through 1984, however, the railroads were sued for asbestos-related injuries in a number of actions with claimed damages totaling many millions of dollars. By the end of 1984, all the predecessor railroads had notified Commercial Union of the lawsuits. Commercial Union responded that, in its view, the suits would be "adequately taken care of by the underlying insurance coverage" such that the Commercial Union excess insurance policies would not be involved. CSX sought a declaratory judgment that the insurer was obliged to provide coverage under the policies for CSX's asbestos-related liability.

Commercial Union moved for summary judgment on grounds that, despite its sanguine responses to CSX's notice of the lawsuits, timely notice of occurrence was due soon after the filing of the first asbestos claim in 1979. CSX's notice, given five years later, was untimely as a matter of law. The district court agreed. Chesapeake & Ohio Ry. Co. v. Certain Underwriters at Lloyd's, London, 834 F.Supp. 456, 459 (D.D.C.1993). But the court perceived a conflict between the laws of the potentially applicable jurisdictions as to whether a showing of prejudice to the insurer was required before untimely notice would relieve the insurer of its obligations under the policies. Commercial Union contended that the court should apply one state's law to the various policies--Virginia's. Virginia, which does not require an insurer to demonstrate prejudice before coverage is precluded, was the only state in which all of CSX's predecessors had operated. Apparently finding that CSX's failure to contest the choice of law issue waived it, the court acceded again to Commercial Union's argument and entered summary judgment. The district court also determined that the "per-occurrence" limitations in three-year policies issued by Commercial Union applied only once for a given occurrence over the entire three-year term of the policies, not once per year. CSX appeals these aspects of the district court's decision.

II.

Appellant, challenging the district court's determination that the predecessor railroads failed to give timely notice of occurrence, claims that the district court improperly focused its inquiry only on the ad damnums in complaints filed against CSX's predecessor railroads to decide when notice was due; in so doing, the court ignored both the language of the Commercial Union policies, and evidence that the ad damnums were unreliable indicators of whether coverage would be required. The policies only required notice to Commercial Union if an occurrence was "likely" to or would "probably" give rise to a claim under the policies. Because the policies provided excess insurance coverage, appellant argues that a lawsuit filed would only "likely" or "probably" give rise to a claim if the amount to be recovered against CSX was likely to exceed the underlying limit of a given policy. While the ad damnums in complaints filed against CSX were larger than the underlying limits in many cases, CSX's actual claims experience--in which claims were resolved for pennies on the dollar--demonstrated that the ad damnums were poor predictors as to the amounts that would finally be paid. And Commercial Union's own response to the notice that was ultimately given agreed with CSX's assessment that the claims were not likely to exceed the underlying limits.

The parties agree that the timeliness of the notice must be determined in accordance with an objective test, i.e., were the insured's actions reasonable? See, e.g., Greycoat Hanover F Street Ltd. Partnership v. Liberty Mut. Ins. Co., 657 A.2d 764, 768-69 & n. 4 (D.C.App.1995); Ruby v. Midwestern Indem. Co., 40 Ohio St.3d 159, 532 N.E.2d 730, 732 (1988); Ideal Mut. Ins. Co. v. Waldrep, 400 So.2d 782, 785 (Fla.Dist.Ct.App.1981). ³ The district court correctly stated that the notice obligation arises when, "viewed objectively, the facts and circumstances known to the insured would have suggested to a reasonable person the possibility of a claim likely to trigger the excess insurer's coverage." 834 F.Supp. at 459. In applying this standard, however, the district court appears to have misapprehended what constitute "the facts and circumstances known to the insured." CSX argued that its claims experience created a genuine issue of material fact, relying on Norfolk & W. Ry. Co. v. Accident & Casualty Ins. Co., 796 F.Supp. 925, 928-29 (W.D.Va.1992), in which the court reviewed claims experience before determining that notice of occurrence was timely. But the district court refused to consider events postdating the filing of the first claim, stating that "[t]hat approach is contrary to the overwhelming weight of authority, which ... favors an objective determination of when the notice obligation accrues." 834 F.Supp. at 460 n. 9. The district court thus seems to have treated consideration of the railroads' actual claims experience as equivalent to employing a subjective test.

We think the district court erred. The court must inquire as to when a reasonable railroad, knowing everything that the railroads in this case knew or should have known, would give notice. That, of course, means that the railroads' actual experience with settlements and verdicts, notwithstanding large ad damnums, would be relevant in determining whether the railroads acted reasonably. Also relevant would be the insurer's own views, when made aware of the claims (or lawsuits) directed against the railroads, as to the likelihood that the excess policies would be implicated. Suffice it to say that these evidentiary considerations raise issues of material fact as to the reasonableness of CSX's actions. ⁴ Of course, issues of fact can become questions of law if a court concludes that no reasonable fact finder could find one way or the other. But we do not think the district judge so concluded--nor could he have on this record. On this ground alone, then, the case must be remanded.

That brings us to the conflict of laws/prejudice issue. The district court determined that neither Virginia nor Kentucky law requires a showing of prejudice to the insurer based on late notice, and that Florida and Ohio provide a rebuttable presumption that late notice prejudiced the insurer. ⁵ 834 F.Supp. at 460 n. 12. The court agreed with Commercial Union that "different states' laws on a particular question of law should not be applied to different insurance policies in a single action," and "adopt[ed]" Commercial Union's view that "the Court should apply Virginia law because Virginia is the only state through which all of the railroads insured by [Commercial Union] operated their lines during the terms of the applicable policies." 834 F.Supp. at 460. CSX "contended that the conflict among the applicable states is false, or, alternatively, that the choice of law issue requires separate analysis and briefing." Id. at 460 n. 12. The court, believing the conflict of laws to be "obvious," and noting that CSX "did not brief this issue or provide a detailed explanation as to why [it] elected not to," found that CSX "waived [its] opportunity to brief the applicable choice of law with respect to this motion." Id. (emphasis added).

Appellant raises before us a powerful argument that the district court's choice of Virginia law--assuming the issue was not waived--was erroneous. Although the selection of one jurisdiction's law to govern the proceedings surely simplifies the district court's task, we very much doubt that considerations of litigation convenience can override the ex ante expectations of parties to individual insurance contracts. See, e.g., Liberty Mut. Ins. Co. v. Travelers Indemnity Co., 78 F.3d 639, 642-43 (D.C.Cir.1996) (applying different states' laws to different insurance policies). Even if applying one state's law to all the policies were appropriate, Virginia does not seem the best candidate; that the railroads all operated some track in Virginia appears to be of marginal relevance under the test employed in the District of Columbia for resolving conflicts of law. See, e.g., Eli Lilly...