Gen. Refractories Co. v. First State Ins. Co.

• Decision Date: 03 March 2015
• Docket Number: Civil Action No. 04–3509.
• Citation: 94 F.Supp.3d 649
• Parties: GENERAL REFRACTORIES COMPANY v. FIRST STATE INSURANCE COMPANY, et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

94 F.Supp.3d 649

GENERAL REFRACTORIES COMPANY

v.FIRST STATE INSURANCE COMPANY, et al.

Civil Action No. 04–3509.

United States District Court, E.D. Pennsylvania.

Signed March 3, 2015.

Mark E. Gottlieb, Meghan K. Finnerty, Michael Conley, William H. Pillsbury, Offit Kurman PA, Philadelphia, PA, for General Refractories Company.

American International Ins. Co., pro se.

Karen H. Moriarty, Kevin E. Wolff, Coughlin Duffy LLP, Morristown, NJ, Samuel J. Arena, Jr., Daniel T. Fitch, William T. Mandia, Stradley Ronon Stevens & Young LLP, Philadelphia, PA, for First State Insurance Company, et al.

MEMORANDUM

L. FELIPE RESTREPO, District Judge.

Plaintiff General Refractories Company (“GRC”), a manufacturer and supplier of refractory products that at times contained some asbestos, sues its insurance carriers for a declaration of excess insurance coverage against underlying asbestos-related lawsuits and breach of insurance contract. Since about 1978, GRC has been named as a defendant in many asbestos-related suits throughout the United States. Each of those insurance carriers has now settled with GRC, except one—defendant Travelers Casualty and Surety Company, formerly known as The Aetna Casualty and Surety Company (“Travelers”).¹

A one-day bench trial was held on the proper interpretation of an “Asbestos Exclusion” contained in two insurance policies, which Travelers sold to GRC. See Trial record (“R.”), transcript dated Nov. 3, 2014 (doc. no. 634); insurance policies, defendant Travelers' trial exhibits (“D–1 through D–12”), see D–1 and D–2. That Exclusion eliminates coverage for sums, which GRC becomes legally obligated to pay for injuries or loss “arising out of asbestos.” Id. Both policies were in effect as of August 1, 1985, for a one-year period.Id.; parties' stipulations, D–12 at ¶ 9.

Travelers maintains that the Exclusion is subject to only one reasonable interpretation: claims for injuries related to asbestos in any form are excluded. R. 115:10–19. This, Travelers asserts, is the natural, plain, and ordinary meaning of the terms, “arising out of asbestos.”² Id.

Specifically, Travelers maintains that the phrase is a “broad” exclusion in the sense that

asbestos meant asbestos. It didn't mean asbestos in one particular form. It meant asbestos, the stuff that was causing these injuries, causing these diseases and that was causing these lawsuits.

R. 125:9–13; see also R. 117:23–25 (“as broad as you could possibly make it”). Furthermore:

It's the asbestos that [GRC] put in its products that caused [GRC] to be sued. It's that asbestos which is excluded under the Travelers' policies.

R. 125:21–24. Travelers' position is that injuries arising from mining, milling, or manufacturing raw asbestos are the same as those arising from exposure to other finished products that contain only some of the mineral—they are not insured. Travelers: “It's all the same stuff because the harm is the fiber.” R. 121:21–22, 121:17–122:1.

GRC's position is that circa the late 1970s to 1985, “arising out of asbestos” did not mean the same thing as “arising out of asbestos-containing products.” R. 126:7–10, 126:22–25, 135:25136:13. “Asbestos,” GRC maintains, plainly meant “a mineral”—that is, a physical substance mined, milled, processed, produced, or manufactured for sale in its raw form. GRC did not make raw mineral asbestos products. Instead, GRC made refractory products that at times contained some asbestos components. GRC also maintains that it is insured against the underlying lawsuits, which sue “typically ... for bodily injuries, diseases, and fear of contracting the same, allegedly resulting from exposure to asbestos-containing products manufactured, sold, and distributed by GRC.” Compl. ¶ 23.

At trial, GRC presented extrinsic evidence showing how the insurance industry, insurance policies, and litigants of asbestos-related claims used and regarded comparable exclusions. This evidence, GRC maintains, distinguishes the meaning and use of “arising out of asbestos” from “arising out of asbestos-containing products” for purposes of determining liability, damages, and insurance coverage. R. 81:24–83:2. This evidence, GRC also asserts, establishes that its proffered interpretation of the exclusionary terms is reasonable and gives insurance protection to GRC.

After considering the testimony of GRC's expert, Gene Locks, Esquire—who was the only live witness presented at trial, the deposition testimony of GRC's risk manager, Joseph Mulvaney, the parties' trial exhibits, the insurance policies' language and purpose as a whole, the parties' conflicting interpretations of the policies' exclusionary language, Pennsylvania's principles of contract construction, and relevant case law, the Court finds that the Asbestos Exclusion is ambiguous and must be construed in favor of insurance protection for GRC, the policyholder. Specifically, the Court finds and concludes as follows:

I. FINDINGS OF FACT

The “Asbestos Exclusion” contained in Travelers' policies states, in part:

It is agreed that this policy does not apply to the EXCESS NET LOSS³ arising out of asbestos, including but not limited to bodily injury arising out of asbestosis

or related diseases or to property damage.

Travelers' policies, D–1 and D–2; parties' stipulations, D–12 at ¶ 9. The terms “arising out of” and “asbestos” are not defined in the policies.

As was previously ruled, Travelers drafted the Asbestos Exclusion. See Mem., dated Mar. 21, 2012, at 3 (doc. no. 428). The Exclusion was not specially crafted or designed for GRC, and GRC did not negotiate any of the exclusionary terms. Id. GRC received copies of the Exclusion only after the policies were sold. Id.

GRC never mined, milled, processed, produced, or manufactured raw mineral asbestos. GRC made and sold refractory products, which at times contained asbestos components. See R. 37:1838:14. See also GRC's “Former Asbestos Containing Products,” dated June 8, 1987, plaintiff GRC's trial exhibits (“P–1 through P–12, and P–14”), see P–1. GRC used the term “asbestos” to refer to the mineral and used the phrase “asbestos-containing products” to refer to its refractory products. Id.

On June 10, 2002, GRC first tendered to Travelers a claim for insurance coverage as to GRC's potential liability for injuries alleged in the underlying lawsuits. Travelers acknowledges as much. See letter of Barry L. Katz, GRC's general counsel, dated June 10, 2002, D–11; Travelers' findings of fact (“FF”) and conclusions of law (“CL”) (doc. no. 630), def. FF ¶ 7. This was the first time that GRC asked Travelers to perform under the insurance contracts.

At trial, GRC presented comparable policy forms that other insurance carriers had used circa the late 1970s to 1985. In one instance, American Empire's form was effective during the same annual period as the policies at issue here. P–6. See also Orders, dated Jan. 16, 2009, and July 2, 2010 (doc. nos. 227 and 270) (Caracappa, J., compelling production of these forms). See further GRC's findings of fact and conclusions of law (doc. no. 629), pl. FF ¶¶ 28–36; policy forms, P–2 through P–10. These forms evidence use of exclusions by major insurance companies during that era, whose terms are comparable to those at issue here.

The policy forms presented by GRC distinguished and differentiated “asbestos” from “asbestos-containing” materials and products, in part as follows:

• Republic Insurance Company's form, dated 11/1982: “This policy is not applicable to property damage arising from the disposal of any asbestos or asbestos-containing material.” P–2; R. 39–40; pl. FF ¶ 29.

• Century Indemnity's form: “We also will not protect nor defend against any claim for liability relating in any way to asbestos or asbestos-containing materials you assume under any contract or agreement.” P–3; R. 40–42; pl. FF ¶ 30. It is not disputed that the form was issued during 1978 to 1986. R. 42:5–13.

• AIG's form, dated 5/1/1984: “this policy shall not apply to liability of the insured ... arising out of the manufacturing, selling or distributing of products containing asbestos.” P–4; R. 42–43; pl. FF ¶ 31.

• First State Insurance Company's form, dated 10/1/1979: “this policy shall not apply to any and all liability for past, present or future claims arising out of the manufacture, distribution, installation or handling of asbestos or products containing asbestos.” P–5; R. 43–44; pl. FF ¶ 32.

• American Empire's form, dated 1985 or 1986: “this insurance does not apply to bodily injury ... arising out of the existence or manufacturing, sale, handling, use or distribution of asbestos or of any product containing asbestos material.” P–6; R. 44–45; pl. FF ¶ 33.

• GEICO's form, dated 10/1/1982 through 10/1/1983: “this policy does not apply to any claim(s) arising out of the manufacture and/or distribution and/or handling in any fashion of asbestos products or products containing asbestos fibers and all claims resulting from asbestosis

or any other asbestos related injuries or diseases.” P–7, R. 45–46, pl. FF ¶ 34.

• Republic Insurance Company's “Absolute Asbestos Exclusion,” dated 5/1984: “no coverage under this policy shall apply to any loss arising out of the sale, handling, or distribution of any asbestos product or any other product containing asbestos.” P–8; R. 46; pl. FF ¶ 35.

In addition, GRC presented Entertainment Brokers International's form, dated August 8, 1999, to demonstrate “that if there is an issue as to the meaning of a specific term, insurance companies know how to define a term.” R. 47–50. That form defined “asbestos” broadly:

As used in this exclusion, “Asbestos” includes, but is not limited to, the mineral asbestos in any form, asbestos fibers, asbestos dust, asbestos products, asbestos containing materials, and asbestos contained in any products, goods, materials, buildings, structures, or other real or personal property.

P–9; pl. FF ¶ 36. See also The Hartford's form, which defined “asbestos” to mean “the mineral in any form, including but not limited...