Eagle-Picher Industries, Inc. v. Liberty Mut. Ins. Co.

• Decision Date: 30 June 1982
• Docket Number: Nos. 81-1761,EAGLE-PICHER,s. 81-1761
• Citation: 682 F.2d 12
• Parties: INDUSTRIES, INC., Plaintiff, Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, et al., Defendants, Appellees.INDUSTRIES, INC., Plaintiff, Appellee, v. LIBERTY MUTUAL INSURANCE COMPANY, et al., Defendants, Appellees, Philip Alan Froude, et al., Defendants, Appellants.INDUSTRIES, INC., Plaintiff, Appellee, v. LIBERTY MUTUAL INSURANCE COMPANY, et al., Defendants, Appellees, American Motorists Insurance Company, Defendant, Appellant. to 81-1763.
• Court: U.S. Court of Appeals — First Circuit

Page 12

682 F.2d 12

EAGLE-PICHER INDUSTRIES, INC., Plaintiff, Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, et al., Defendants, Appellees.

EAGLE-PICHER INDUSTRIES, INC., Plaintiff, Appellee, v. LIBERTY MUTUAL INSURANCE COMPANY, et al., Defendants, Appellees, Philip Alan Froude, et al., Defendants, Appellants.

EAGLE-PICHER INDUSTRIES, INC., Plaintiff, Appellee, v. LIBERTY MUTUAL INSURANCE COMPANY, et al., Defendants, Appellees, American Motorists Insurance Company, Defendant, Appellant.

Nos. 81-1761 to 81-1763.

United States Court of Appeals, First Circuit.

Argued March 4, 1982.

Decided June 30, 1982.

Malcolm B. Rosow, with whom Lewis Herman, Arthur Liederman, Standard Weisberg, Heckerling & Rosow, New York City, Erik Lund, Robert T. Harrington, David J. Hatem, and Posternak, Blankstein & Lund, Boston, Mass., were on brief, for Philip Alan Froude, et al.

Francis J. Bousquet, with whom Frank A. Smith, III, T. Mark Herlihy, and Herlihy & O'Brien, Boston, Mass., were on brief, for American Motorists Ins. Co.

Charles R. Parrott, with whom Andrew J. McElaney, Jr., Brian T. Kenner, Robert S. Brintz, and Nutter, McClennen & Fish, Boston, Mass., were on brief, for Eagle-Picher Industries, Inc.

Christopher C. Mansfield, with whom Lawrence A. Podolski, Robert C. Macaulay, Nancy A. Froude, Candace L. Sutcliffe, Boston, Mass., Gerald V. Weigle, Jr., and Dinsmore, Shohl, Coates & Deupree, Cincinnati, Ohio, were on brief, for Liberty Mut. Ins. Co.

George Marshall Moriarty, with whom John M. Harrington, Jr., Kenneth W. Erickson, and Ropes & Gray, Boston, Mass., were on brief, for The Manifestation Companies and Underwriters in the London Market.

Charles A. Lynberg, R. Jeff Carlisle, and Lynberg & Nelsen, Los Angeles, Cal., on brief, for American Home Assur. Co., et al., amicus curiae.

Stephen McReavy, Jeffrey Kaufman, Stephen Dennis, Wallace Tice-Wallner, and Hall, Henry, Oliver & McReavy, San Francisco, Cal., on brief for Fireman's Fund Ins. Co., et al., amici curiae.

F. Lee Bailey, Kenneth J. Fishman, and Law Offices of F. Lee Bailey, Boston, Mass., on brief, for Commercial Union Ins. Companies, amicus curiae.

John G. Niles, Ira M. Feinberg, Martin S. Checov, and O'Melveny & Myers, Los Angeles, Cal., on brief for Ins. Co. of North America, amicus curiae.

Robert N. Sayler, Elizabeth W. M. Teel, John E. Heintz, Scott D. Gilbert, Covington & Burling, Washington, D. C., John J. Curtin, Jr., A. Van C. Lanckton, Bingham, Dana & Gould, Boston, Mass., Curtis M. Caton, Robert S. Venning, Stephen N. Goldberg, Heller, Ehrman, White & McAuliffe, San Francisco, Cal., Gael Mahony, Hill & Barlow, Boston, Mass., E. Judge Elderkin, William R. Irwin, Brobeck, Phleger & Harrison, San Francisco, Cal., William P. Manning, Jr., Wright, Manning & Sagendorph, Norristown, Pa., James A. Young, Philadelphia, Pa., James M. White, Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, Pa., Thomas C. MacDonald, Jr., Charles P. Schropp, Shackleford, Farrior, Stallings & Evans, Tampa, Fla., Robert R. Reeder, Cozen, Begier & O'Connor, Philadelphia, Pa., David A. Welte, and Polsinelli, White & Schulte, Kansas City, Mo., on brief for Armstrong World Industries, Inc., et al., amici curiae.

Before COFFIN, Chief Judge, CAMPBELL and BOWNES, Circuit Judges. ^*

COFFIN, Chief Judge.

Eagle-Picher Industries, Inc., manufactured a variety of industrial insulation products containing asbestos. Beginning in the late 1960's, and accelerating rapidly in the mid-1970's, Eagle-Picher has been named as a defendant in lawsuits in which plaintiffs allege personal injury or wrongful death resulting from the inhalation of asbestos from Eagle-Picher's products. Between 1968 and 1980, Eagle-Picher was covered by numerous insurance policies provided by several different carriers. In 1977, Eagle-Picher's primary insurer, Liberty Mutual Insurance Co., notified Eagle-Picher that the policy limits for 1974 and 1975 were about to be reached. Eagle-Picher sent this notice to its excess insurers, American Motorists Insurance Co. and various underwriters in the London Market. American Motorists responded, arguing that Liberty Mutual had been construing its policy incorrectly and implying that Liberty Mutual's coverage would not be exhausted under a proper interpretation. The London Market sent a reservation of rights letter to Eagle-Picher, pending resolution of the correct theory of insurability. Eagle-Picher subsequently brought this action, seeking a declaration of the rights and liabilities of its various insurers pursuant to the applicable policies.

Two theories of insurance coverage were presented to the district court. Eagle-Picher, Liberty Mutual, and various London Market underwriters referred to as the "Bird" underwriters argued for a "manifestation" theory: those insurers on the risk at the time the asbestos-related disease first manifested itself by way of medically diagnosable symptoms must provide coverage. American Motorists, and other London Market insurers known as the "Froude" underwriters, argued for an "exposure" theory: those insurers on the risk at the time of exposure to asbestos must indemnify Eagle-Picher for a pro-rata share of its liability, the proportion to be determined by the ratio of the number of years the insurer was on the risk to the total number of years of exposure. The district court, relying on the common meaning of the policy language, the medical evidence relating to asbestosis, and the policy of construing insurance contracts to promote coverage, ruled that the manifestation theory was correct. 523 F.Supp. 110 (D.Mass.1981).

The exposure theorists have appealed, alleging that the district court erred by excluding extrinsic evidence of Eagle-Picher's intent in obtaining the policies and that the court misconstrued the policies as a matter of law. Eagle-Picher has cross-appealed, relying on the recent decision in Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034 (D.C.Cir.1981), cert. denied, --- U.S. ----, 102 S.Ct. 1644, 71 L.Ed.2d 875 (1982), to argue for the first time that all policies in force from the time of initial exposure until and including the time of manifestation are triggered by an asbestosis claim. Eagle-Picher also urges that the district court chose the wrong date of manifestation. Less consequential contentions are dealt with in the margin. ¹ For the reasons that follow, we agree with most of the district court's thoughtful opinion but modify its judgment in part.

Eagle-Picher was uninsured for liability resulting from exposure to its asbestos products prior to 1968. Between January 1 1968, and January 1, 1980, Liberty Mutual provided Eagle-Picher with primary comprehensive liability insurance. From June 1, 1973, until October 1975, American Motorists provided Eagle-Picher with first layer excess umbrella coverage; from October 1975 through January 1, 1979, the London Market provided Eagle-Picher with first layer excess coverage. Each of these policies contains independent coverage clauses and definitions. In addition, the London Market provided Eagle-Picher with second layer excess coverage from September 1, 1973, to January 1, 1979; these policies incorporate by reference the terms of the underlying first layer excess policies. The excess policies go into effect only if the policy limits of the underlying coverage layer become exhausted.

The coverage clauses, which are set out in detail in the district court's opinion, are virtually identical, with the exception of the American Motorists policy. In essence, the insurer agrees to "pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury ... caused by an occurrence." An "occurrence" is defined as "an accident, including continuous or repeated exposure to conditions, which results, during the policy period, in bodily injury." "Bodily injury" is defined as "bodily injury, sickness or disease." It is clear from this language that each occurrence is made up of two components, the exposure and the resulting bodily injury; and it is the resulting bodily injury, not the exposure, which must take place "during the policy period." 523 F.Supp. at 114; see also Keene, supra, 667 F.2d at 1040; American Motorists Ins. Co. v. E.R. Squibb & Sons, Inc., 95 Misc.2d 222, 406 N.Y.S.2d 658, 659-60 (Sup.Ct.1978). The American Motorists policy states that the insurer shall indemnify the insured for liability due to "personal injury caused by ... an occurrence which takes place during the policy period." (Emphasis added.) The definition of "occurrence", however, is substantially identical to that in the other policies, as is the definition of "personal injury" as "bodily injury, ... sickness or disease."

The principal issue in this case is whether asbestosis "results" soon after initial and subsequent exposure to asbestos, or whether the disease "results" when it becomes clinically evident or manifest. Secondarily, we must decide when an "occurrence ... takes place" under the terms of the American Motorists policy.

Insurance policies are generally interpreted in the same way as other contracts. ² In construing the policies at issue, our dominant purpose is to give effect to the intentions of the parties. Where the relevant language is unambiguous and the application of the policy to the relevant facts is clear, that intent must be ascertained by the plain and ordinary meaning of the contract language. Where, however, the policy terms are ambiguous and the coverage issue is reasonably disputed, a court may consider extrinsic evidence of the surrounding circumstances and of the parties' intent. For example, evidence of the construction given to the language by the parties and of the customary usage of persons in the same commercial setting is normally admissible. If the meaning of the policy terms remains unclear, the policy is generally construed in favor of the insured in order to promote...