Guaranty Nat'l Ins. Co.
| Decision Date | 27 April 2000 |
| Docket Number | No. 98-21031,98-21031 |
| Citation | 211 F.3d 239 |
| Parties | (5th Cir. 2000) GUARANTY NATIONAL INSURANCE CO., Plaintiff-Appellee, v. AZROCK INDUSTRIES INC., d/b/a Azrock Commercial Flooring Defendant-Appellant |
| Court | U.S. Court of Appeals — Fifth Circuit |
Appeal from the United States District Court for the Southern District of Texas
[Copyrighted Material Omitted]
ON PETITION FOR REHEARING
(Opinion March 10, 2000, 5th Cir., 2000, 205 F.3d 253).
Before WIENER and STEWART, Circuit Judges*:
The petition for rehearing filed by Plaintiff-Appellee Guaranty National Insurance Co.'s ("Guaranty National") is GRANTED, our prior panel opinion is WITHDRAWN, and this opinion is SUBSTITUTED therefor. We AFFIRM IN PART, REVERSE IN PART and REMAND with instructions.
In this diversity case, Defendant-Appellant Azrock Industries Inc. ("Azrock") appeals from the district court's grant of summary judgment to Guaranty National. We must decide what event triggers an insurer's duty to defend its insured against asbestos-related personal injury claims under a Commercial General Liability ("CGL") policy, here, one issued by Guaranty National to Azrock. For reasons we explain below, we reverse the district court, which applied "manifestation of injury or disease" as the triggering event, and remand with instructions.
From the 1930s to the early 1980s, Azrock manufactured floor tiles containing asbestos fibers. Between January 1989 and March 1998, Azrock was sued in at least thirty-three separate actions for personal injuries allegedly caused by exposure to asbestos; and was sued in one case by a governmental entity for property damage from asbestos installation. Faced with the costs of litigation and the potential for substantial liability, Azrock turned to its liability insurance providers for defense and indemnity.
Azrock had no general liability insurance from 1930 to 1958. From 1958 to 1983, Azrock's primary CGL insurance provider was Employers Casualty Company ("Employers"). Employers became insolvent and was placed in receivership by the state of Texas in 1994. From 1983 to 1985, Azrock's primary CGL insurance provider was Western Employers Insurance Company ("Western"). Western also became insolvent and was placed in receivership in 1991. From 1986 to 1991, Azrock's CGL policies were issued by Kemper and Reliance; but those policies contained asbestos exclusion provisions on the basis of which both insurers denied coverage for the underlying asbestos-related claims.
For the period of July 1, 1985 through June 30, 1986, Azrock's primary CGL coverage was provided by National American Insurance Company of New York ("NAIC"). For that same twelve-months period, Azrock was covered by an umbrella (excess) liability policy issued by Guaranty National, covering personal injury, property damage, and advertising liability. NAIC, as the primary carrier, undertook the defense of Azrock until 1996, when that insurer notified Guaranty National that its policy limit had been exhausted. Subsequently, Azrock formally demanded that Guaranty National, as the umbrella carrier, take over the defense of the lawsuit and indemnify it on any ultimate liabilities.
In response to Azrock's formal demand, Guaranty National assumed the defense of the underlying claims, but, early in 1997, filed this declaratory judgment action in federal district court, seeking to establish that it had no duty to defend Azrock in the underlying lawsuits. Later that year, Guaranty National filed a motion for partial summary judgment grounded on the assertion that it had no duty to defend Azrock. The following March, the district court granted Guaranty National's motion, declaring that as a matter of law it had no duty to defend Azrock in the underlying asbestos claims. In so ruling, the district court applied a "manifestation theory" of triggerage for continuous bodily injury claims. It noted that none of the plaintiffs in the underlying suits had alleged that their illnesses became identifiable during the term of the Guaranty National policy; accordingly, there was no "occurrence" during the coverage period within the meaning of the policy. Therefore, reasoned the district court, Guaranty National had no duty to defend the suits and thus no duty to indemnify Azrock in the underlying claims. Azrock appealed.
This appeal arises from the grant of summary judgment to Guaranty National. The district court applied Texas law to hold that coverage under the Guaranty National policy was not triggered by any of the underlying lawsuits; thus, as a matter of law, Guaranty National had no duty to defend (and consequently no duty to indemnify) Azrock in those lawsuits. We review the district court's grant of summary judgment de novo.1 In holding that Guaranty National had no duty to defend the claims against Azrock, the district court determined that the trigger of coverage under a CGL policy for continuous exposure was settled under Texas law and, accordingly, applied the manifestation theory. We review de novo the district court's determinations of state law.2
Guaranty National filed this federal court declaratory judgment suit in the Southern District of Texas on the basis of diversity of citizenship: Guaranty National is a Colorado corporation with its principle place of business in Englewood, California; Azrock is a Delaware corporation with its principal place of business in Houston, Texas. Federal district courts sitting in diversity apply the law and the choice of law rules of the forum state.3 The district court in this case applied Texas law and the parties do not dispute the propriety of that approach; thus, we do not reach the choice of law issue and proceed on the assumption that Texas law applies.4
In reaching the conclusion that, as a matter of law, Guaranty National had no duty to defend and, accordingly, no duty to indemnify Azrock in various underlying claims for damages resulting from asbestos exposure, the district court examined only the insurance policy and the underlying complaints, applying the so-called "eight-corners" rule. Under this maxim, an insurer's duty to defend is determined by reference to the allegations in the pleadings and the language of the insurance policy only.5 When courts apply the eight-corners rule, they must liberally interpret the allegations in the pleadings, resolving doubts in favor of the insured.6 Courts may not, however, (1) read facts into the pleadings, (2) look outside the pleadings, or (3) imagine factual scenarios which might trigger coverage.7
The duty to defend is broader than the duty to indemnify.8 The duty to indemnify is triggered by the actual facts that establish liability in the underlying lawsuit.9
Generally, insurance policies are subject to the same rules of interpretation as other contracts.10 If the policy terms are susceptible of only one reasonable construction, they will be enforced as written.11 If, however, the policy is susceptible of more than one reasonable interpretation, the court must resolve the uncertainty by adopting the construction that most favors the insured.12 This rule of construction is sometimes called contra proferentem.
The district court in this case determined that the insurance contract was not ambiguous and purported to interpret the policy language according to its plain meaning. We conclude, however, that the policy provisions, in particular the terms "occurrence" and "bodily injury," are susceptible of more than one reasonable interpretation in the progressive disease context, and are therefore ambiguous as a matter of law. Consequently, Texas law requires that we resolve those ambiguities in favor of Azrock. A cumulative, progressive disease does not fit any of the disease or accident situations that the CGL policy typically covers.13 Our conclusion that the policy terms are susceptible of more than one reasonable interpretation is amply demonstrated by the fact that federal and state courts have developed at least four distinct interpretations of precisely the same uniform CGL policy language in the context of continuous exposure, latent disease cases.
The Guaranty National policy issued to Azrock provides that the insurance company will "pay on behalf of the insured all sums which the insured shall be legally obligated to pay as ultimate net loss because of (A) Personal Injury, (B) Property Damage, or (C) Advertising Liability caused by an occurrence during the policy period..." (emphasis added). The policy defines "occurrence" as
an accident, or a happening or event, or a continuous or repeated exposure to conditions which unexpectedly or unintentionally results in personal injury, property damage or advertising liability. All such exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence.
In defining "personal injury," the policy lists numerous types of injurious events, such as false arrest, wrongful entry, libel, slander, and the like, including "bodily injury." In contrast, the policy specifically defines "property damage" as
(a) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (b) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.
We agree with the district court's construction of the policy to the extent the court determined that "occurrence during the policy period" requires that the actual "injury," not merely the negligent act or omission that causes the injury, must happen during the policy period. Where we part ways with that court is in defining the relevant "injury." The...
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