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

• Decision Date: 06 May 1987
• Docket Number: EAGLE-PICHER,Nos. 86-1913,86-1915,s. 86-1913
• Citation: 829 F.2d 227
• Parties: INDUSTRIES, INC., Plaintiff, Appellee, v. LIBERTY MUTUAL INSURANCE COMPANY, et al., Defendants, Appellees. American Motorists Insurance Company, Defendant, Appellant.INDUSTRIES, INC., Plaintiff, Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 227

829 F.2d 227

56 USLW 2170

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

American Motorists Insurance Company, Defendant, Appellant.

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

Nos. 86-1913, 86-1915.

United States Court of Appeals, First Circuit.

Heard May 6, 1987.

Decided Sept. 16, 1987.

Mark A. Michelson with whom Edward H. Seksay and Choate, Hall & Stewart, Boston, Mass., were on brief, for American Motorists Ins. Co.

Richard H. Gimer, John G. DeGooyer, Stephen L. Humphrey, Kathryn A. Underhill and Hamel & Park, Washington, D.C., on brief, for Commercial Union Ins. Co., amicus curiae, in No. 86-1913.

Richard H. Gimer, John G. DeGooyer, Theodore A. Howard and Hamel & Park, Washington, D.C., on brief, for Commercial Union Ins. Companies, amicus curiae, in No. 86-1915.

Brian T. Kenner with whom Charles R. Parrott, James B. Conroy and Nutter, McClennen & Fish, Boston, Mass., were on brief, for Eagle-Picher Industries, Inc.

Before CAMPBELL, Chief Judge, COFFIN and TORRUELLA, Circuit Judges.

COFFIN, Circuit Judge.

When this case between an asbestos manufacturer and its insurance companies was first before us five years ago, we decided that insurance coverage for asbestos-related diseases was triggered when a disease "becomes reasonably capable of medical diagnosis," Eagle-Picher Industries v. Liberty Mutual Insurance Co., 682 F.2d 12, 25 (1st Cir.1982) ("Eagle-Picker I "). ¹ The intervening years have shown that making a determination of diagnosability is no easy task. The case has returned to us because Eagle-Picher, the manufacturer of products containing asbestos, and one of its insurers, American Motorists Insurance Co. ("AMICO"), continue to urge sharply conflicting methods for determining when an individual's disease became diagnosable. Each party contends that its method is the most consistent with our earlier judgment, and each insists that the other's approach is seriously flawed. The district court accepted Eagle-Picher's method, and AMICO has appealed. In a cross-appeal, Eagle-Picher challenges a certification requirement in the district court's final order, and also claims that the district court erred in failing to award it damages for bad faith and prejudgment interest.

I.

Eagle-Picher has been named as a defendant in more than 25,000 lawsuits alleging bodily injury or death resulting from exposure to products containing asbestos. Between 1968 and 1979, the company was covered for the losses from these suits by numerous insurance policies provided by several different carriers, including AMICO. AMICO provided "excess coverage" of up to $5 million per policy for three separate policies from June 1, 1973 to October 10, 1975. As a first-level excess insurer, AMICO is responsible for claims, up to its policy limit, once Eagle-Picher's primary insurance coverage is exhausted. This case began after the primary insurer, Liberty Mutual Insurance Co., notified Eagle-Picher in 1977 that its policy limits for 1974 and 1975 were about to be reached. When informed that their policies were about to be triggered, the excess insurers, including AMICO, questioned whether there had, in fact, been exhaustion of the primary policy under the proper theory of insurability. To resolve the conflict, Eagle-Picher brought an action seeking a declaration of the rights and liabilities of its various insurers, which led to our decision five years ago adopting the "manifestation" theory of coverage. Eagle-Picher I, 682 F.2d at 24.

Following the 1982 decision linking insurance coverage to the date of diagnosability, Eagle-Picher asked five pulmonary medicine specialists when an asbestos-related disease was capable of diagnosis. Each opined that such disease was likely to be diagnosable about five years prior to the actual date of diagnosis. At that point, the insurers still declined to settle. Eagle-Picher then commissioned Dr. Hans Weill, an expert on asbestos-related disease, to study the question of diagnosability, and his conclusion was that diagnosability more likely than not preceded diagnosis by about six years. ² After completion of the Weill study, all insurers but AMICO agreed to settle on the basis of what has been called a five-year coverage "rollback," meaning that the date of diagnosability--and thus the trigger of insurance coverage--is deemed to be the date five years before the actual diagnosis date. ³ AMICO has steadfastly maintained that a blanket rollback of any number of years is inconsistent with Eagle-Picher I, and argues that a determination of when individual claimants' diseases were capable of diagnosis can be made only by means of a case-by-case review of the medical data in their files. AMICO did, however, enter into an interim financing agreement with Eagle-Picher under which AMICO agreed, for the limited purpose of the interim agreement, that asbestos-related claims were capable of medical diagnosis one year prior to the actual diagnosis. ⁴ Under this agreement, AMICO has so far paid Eagle-Picher $2.2 million.

The continuing stalemate between Eagle-Picher and AMICO on the issue of diagnosability led Eagle-Picher to file a motion for further relief in the district court in December 1983. The motion asked the court to compel AMICO to comply with the Weill study's six-year rollback, and also sought an immediate money judgment, with pre- and post-judgment interest, as well as bad faith and punitive damages, and attorney's fees. After nine days of hearings in July 1984, supplemented by written testimony and many exhibits, the district court endorsed the six-year rollback as preferable to AMICO's alternative proposal of an individualized file review. ⁵ In its memorandum of decision filed May 30, 1986, the court also concluded that Eagle-Picher was not entitled to a money judgment or bad faith damages. This appeal resulted.

II.

A.

For anyone to resolve the primary question before us--when should an asbestos-related disease be deemed capable of diagnosis--seems surely to require the wisdom of Solomon. This is so for at least two reasons. First, as the district court noted, the evidence adduced at trial indicates that the question of when any particular claimant's disease was "reasonably capable of medical diagnosis" is unanswerable. The best that can be hoped for is an informed estimate. ⁶ Second, the two alternative methods proposed by the parties for making this "guestimate"--one a "macro," the other a "micro" approach--both appear to have significant shortcomings. Eagle-Picher's proposal of an automatic six-year rollback from the date of diagnosis is based on statistical probabilities and would likely prove accurate in only six percent of the cases to which it is applied. Tr. 3-157. The study on which the proposal was based drew broad conclusions from a small sample and was based entirely on x-ray readings that, from a clinical viewpoint, tell little about whether an individual has an asbestos-related disease. ⁷ The study is applicable only to asbestosis, so the six-year rollback result drawn from it has no applicability to the other diseases suffered by Eagle-Picher claimants, including lung cancer and mesothelioma. The Eagle-Picher approach would ignore all medical evidence in the individual claimants' files despite this court's prior recognition that "the policies are geared to the injuries of a particular claimant," 682 F.2d at 25 n. 12.

The AMICO proposal, which is labeled a "Draft Protocol," would require Eagle-Picher to examine each claimant's file to look for evidence of diagnosability, and would include consideration of such factors as the type of disease claimed, the length of exposure to asbestos, the claimant's symptoms and the results of laboratory tests. The AMICO proposal consists of two parts: (1) a list of the factors on which a diagnosis could be based, and (2) a list of combinations of those factors that would support "an insurance determining date for that disease." App. 2318. The list of factors includes latency (minimum of 15 years since first exposure) and diagnostic confirmation (laboratory or radiologic evidence). In the case of lung cancer, one combination for establishing an "insurance-determining date" is proof the claimant was exposed to asbestos for a sustained period of time at least fifteen years earlier together with "laboratory confirmation," which is specifically defined to include certain types of diagnostic findings, such as "sputum cytology." Given those two elements, the insurance determining date is the "date sample taken, or date of event giving rise to recommendation for testing, including visit to doctor." ⁸ The shortcomings of this method are inherent both in the analytic approach of the Protocol and in practical application of it. We borrow the district court's language to describe the theoretical problems:

[T]he protocol also relies on a series of assumptions. For example, the protocol assumes that a latency period of at least 15 years is necessary and that to produce the three most prevalent types of lung disease, mesothelioma, lung cancer or asbestosis, different intensities of exposure are required. The protocol defines these intensities as heavy, moderate, and light exposure, assigns to each a numerical value (point) which differs for each disease, and it requires a minimum value, again a different one for each disease, (but the same for each claimant who has the disease) to establish the element of exposure. Moreover, a substantial number of the protocols lead to coverage dates that are in fact dates of diagnosis. Except with respect to claimants suffering from mesothelioma, the protocol ignores earlier symptoms and focuses entirely on "diagnostic confirmation." For example, the coverage date for lung cancer may be fixed as of the "date sample taken," or "date x-ray taken," or...