Dayton Independent School D. v. National Gypsum Co.

• Decision Date: 04 February 1988
• Docket Number: B-81-293-CA and B-87-701-CA.,Civ. A. No. B-81-227-CA
• Citation: 682 F. Supp. 1403
• Parties: DAYTON INDEPENDENT SCHOOL DISTRICT, et al., Plaintiffs, v. NATIONAL GYPSUM CO., et al., Defendants. W.R. GRACE & CO., Defendant and Third-Party Plaintiff, v. CONTINENTAL CASUALTY CO., et al., Third-Party Defendants.
• Court: U.S. District Court — Eastern District of Texas

682 F. Supp. 1403

DAYTON INDEPENDENT SCHOOL DISTRICT, et al., Plaintiffs, v. NATIONAL GYPSUM CO., et al., Defendants.

W.R. GRACE & CO., Defendant and Third-Party Plaintiff, v. CONTINENTAL CASUALTY CO., et al., Third-Party Defendants.

Civ. A. Nos. B-81-227-CA, B-81-293-CA and B-87-701-CA.

United States District Court, E.D. Texas, Beaumont Division.

February 4, 1988.

Charles Dewey Cole, Jr., Newman, Schlau, Fitch & Burns, Jerold Oshinsky, Randy Paar, Anderson Russell Kill & Olick, P.C., New York City, for third-party plaintiff, W.R. Grace & Co.

Kerry L. Neves, Mills, Shirley, Eckel & Bassett, Galveston, Tex., for Continental Cas. Co.

Hubert Oxford, III, Benckenstein, Oxford, Radford & Johnson, Beaumont, Tex., for Lexington Ins. Co.

R. Jeff Carlisle, Lyndberg & Watkins, Los Angeles, Cal., for AIU Ins. Co., Birmingham Fire Ins. Co., Granite State Ins. Co., and Nat. Union Fire Ins. Co. of Pittsburgh.

L.S. Carsey, Fulbright and Jaworski, Houston, Tex., for Certain Underwriters at Lloyds, London and London Market Ins. Companies.

G. Patrick Black, Hawthorne & Black, Beaumont, Tex., for Allstate Ins. Co.

Gordon R. Pate, Pate & Dodson, Beaumont, Tex., for the Hartford Acc. & Indem. Co.

Stephen F. English, Bullivant, Houser, Bailey, Pendergrass & Hoffman, Portland, Or., for Guarantee Ins. Co.

MEMORANDUM OPINION

JOE J. FISHER, District Judge.

INTRODUCTION

This insurance coverage dispute concerns questions of coverage for claims of asbestos-related property damage. Presently before the Court is the motion for summary judgment of Defendant and Third-Pardy Plaintiff W.R. Grace & Co. ("Grace"). The issue of coverage is a question of contract construction and, thus, can be decided by this Court as a matter of law. Having reviewed the contracts, and there being no other genuine issue of material fact, Grace's motion for summary judgment is granted.

BACKGROUND

Prior to 1974, Grace and its predecessors and affiliates were in the business of manufacturing and distributing various construction and building products, including those containing asbestos. Third-Party defendants sold primary and excess liability insurance policies to Grace between 1978 and 1985 in the aggregate amounts of approximately $75 million for each annual policy period. Third-party defendant Continental Casualty Company ("CNA") sold primary comprehensive general liability insurance to Grace for each policy year.¹ In addition, Grace purchased excess liability insurance from the other eleven third-party defendants.²

In April of 1984, Grace was named as a defendant in an action brought by 83 school districts ("Plaintiffs") located throughout the State of Texas (the "Main Action").³ Plaintiffs had constructed or renovated approximately 600 school buildings, allegedly using asbestos-containing building materials supplied, in part, by Grace.

Plaintiffs claimed that the presence and incorporation of Grace's asbestos-containing products contaminated and damaged their school buildings because they continuously released, or threatened to release, asbestos fibers into the buildings over extended periods of time, damaging the buildings and causing health hazards to the buildings' occupants. According to Plaintiffs' allegations, the release or threatened release of asbestos fibers continued up to and including the time that Plaintiffs brought suit against Grace, thus encompassing the time during which the liability insurance policies sold to Grace by the Carriers were in effect. Plaintiffs' complaint sought in excess of $175,000,000 in compensatory damages. Upon receipt of Plaintiffs' summons and complaint in 1984, Grace timely notified its insurance carriers of the pendency of the litigation. At that time, none of the Carriers either reserved their rights or denied coverage.

In January of 1987, the Court ordered that an initial trial, involving five school districts, would begin in May of 1987. As this trial date approached, Grace and the Plaintiffs engaged in settlement negotiations. During the course of these negotiations, Grace notified its carriers of Plaintiffs' settlement offer and, as it had done previously, sought their participation in trial preparation and settlement negotiations. Grace also renewed its demand that its insurance carriers provide coverage for any judgment entered or settlement negotiated in the Main Action. None of Grace's insurance carriers agreed to participate in the negotiations or to indemnify Grace for sums paid in settlement. At the same time, none of the carriers formally disclaimed coverage or reserved their rights.

In April of 1987, Grace filed its third-party complaint against the Carriers. The third-party complaint sought indemnification from the Carriers for all amounts paid by Grace to the Plaintiffs as a result of the Main Action.⁴ Grace and the Plaintiffs have agreed to the settlement of all of the Plaintiffs' claims. Grace now seeks an order of summary judgment directing the Carriers to indemnify Grace for the costs incurred by Grace in the defense and settlement of the Main Action.

DISCUSSION

I. PRELIMINARY MATTERS

A. Choice of Law

No significant choice of law question is presented by Grace's summary judgment motion where, as here, the basic principles of policy construction in each jurisdiction are the same. Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034, 1041 n. 10 (D.C.Cir.1981), cert. denied, 455 U.S. 1007, 102 S.Ct. 1644, 71 L.Ed.2d 875 (1982) ("Keene"). Although the Carriers urge this Court to apply New York law, in both Texas and New York the principles of policy construction are the same: ambiguities in an insurance policy are strictly construed against the insurance company and in favor of the policyholder; insurance contracts are construed to foster the policies' dominant purpose of indemnity; and exclusions and exceptions are interpreted narrowly, resolving all doubts in favor of the policyholder.⁵ Further, courts in both Texas and New York recognize the doctrine that the interpretation of an insurance policy should honor the objective reasonable expectations of the policyholder.⁶ Moreover, with regard to the trigger-of-coverage question, the only specific issue as to which the Carriers assert a conflict exists, no choice of law is required. Both New York and Texas law trigger successive policies where injury or damage took place while those policies were in effect.⁷

B. The effect of Settlement Upon The Coverage Issues

The general rule is that an insurance company which denies coverage is liable to indemnify its policyholder for sums paid in settlement where the underlying claim is within the policy coverage. See Parker Prods., Inc. v. Gulf Ins. Co., 486 S.W.2d 610 (Tex.Civ.App.—Fort Worth 1972), aff'd, 498 S.W.2d 676 (Tex.1973). This rule applies not only where the carrier has breached its duty to defend but also where the carrier has wrongfully refused to settle. Id. In determining whether the claim is within coverage, the nature of the third party's claim is determinative, and not the actual facts underlying that claim. Winn v. Continental Casualty Co., 494 S.W.2d 601 (Tex.Civ.App.—Tyler 1973, no writ). A policyholder, therefore, does not have to prove its actual liability as a prerequisite to obtaining coverage. As the Second Circuit recently held in Luria Bros. & Co. v. Alliance Assurance Co., Ltd., 780 F.2d 1082 (2d Cir.1986):

When an insurer declines coverage, as here, an insured may settle rather than proceed to trial to determine its legal liability. In order to recover the amount of the settlement from the insurer, the insured need not establish actual liability to the party with whom it has settled so long as ... a potential liability on the facts known to the insured is shown to exist, culminating in a settlement in an amount reasonable in view of the size of possible recovery and degree of probability of claimant's success against the insured.

780 F.2d at 1091-92 (brackets, citations and quotation marks omitted).

Here, the record demonstrates that, at the time Grace agreed to the settlement of the Plaintiffs' claims, it was aware of its potential for liability.⁸ This Court finds that the settlement of the Main Action was reasonable. Thus, the only question remaining is whether the claim asserted by Plaintiffs describes a type of claim covered by the policies. In ruling on this issue, the Court has reviewed not only the complaint, but also the entire record of the underlying suit and the third-party action.

II. COVERAGE ISSUES

The operative language of each of the excess liability insurance policies before the Court is virtually identical.⁹ In relevant part, the insuring agreements contained in the policies provide that the Carriers are obligated to indemnify Grace for "all sums" which Grace shall be obligated to pay by reason of liability for "damages" on account of "property damage" caused by or arising out of an "occurrence." The manner in which each of these identified terms provides coverage to Grace is discussed below.

A. "Property Damage"

The policies define "property damage" as the:

loss or direct damage to or destruction of tangible property (other than property owned by the named insured).

The underlying complaint clearly alleges that Grace's products, both by their presence in Plaintiffs' buildings and by their gradual deterioration, have caused damage to Plaintiffs' buildings, including physical injury. The Complaint alleges, inter alia: (i) that Grace's products "have caused asbestos fibers to invade and damage the ... floors, carpets, upholstery, light fixtures, window sills, desks and other physical property" and that "the presence and incorporation of said products into the constructed buildings has damaged the buildings" (¶ VI); and (ii) that the necessary removal and abatement of Grace's products from the school buildings would "cause damage to Plaintiffs' property" (¶ V).

Thus, for purposes of insurance coverage, the nature of Plaintiffs'...