In re Prudential Lines, Inc.

• Citation: 202 BR 13
• Decision Date: 05 November 1996
• Docket Number: Bankruptcy No. 86-11773 AJG,Adv. No. 90-6830A.
• Parties: In re PRUDENTIAL LINES, INC., Debtor. Lee J. DiCOLA, Trustee of the PLI Disbursement Trust, Plaintiff, v. AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY ASSOCIATION, INC., Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

202 B.R. 13 (1996)

In re PRUDENTIAL LINES, INC., Debtor.

Lee J. DiCOLA, Trustee of the PLI Disbursement Trust, Plaintiff, v. AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY ASSOCIATION, INC., Defendant.

Bankruptcy No. 86-11773 AJG, Adv. No. 90-6830A.

United States Bankruptcy Court, S.D. New York.

November 5, 1996.

Franklin B. Velie, Salvatore A. Santoro, Christy & Viener, New York City, and Richard H. Brown, Jr., Kirlin, Campbell & Keating, New York City, for American Steamship Owners Mutual Protection and Indemnity Association, Inc. Alan Kellman, The Maritime Asbestosis Legal Clinic, A Division of the Jaques Admiralty Law Firm, Detroit, MI, for plaintiffs-intervenors Asbestosis Claimants.

Harold D. Jones, Pryor, Cashman, Sherman & Flynn, New York City, for Lee J. DiCola, Trustee of the PLI Disbursement Trust.

MEMORANDUM DECISION ON REMAND TO DETERMINE THE APPLICATION OF DEDUCTIBLES TO ASBESTOSIS CLAIMS

ARTHUR J. GONZALEZ, Bankruptcy Judge.

The instant controversy requires the Court to determine the number of deductibles the defendant insurance company may apply before indemnifying its insured for the thousands of claims filed as a result of claimants' exposure to asbestos while working aboard the insured's marine vessels. The issues discussed below were remanded by the district court for this Court's consideration of extrinsic evidence to interpret the terms of the deductible provisions contained in the insurance policies. The Court has reviewed the evidence presented and renders this memorandum decision consistent with the direction provided by the district court in its memorandum opinion and order.

BACKGROUND

Debtor Prudential Lines, Inc., including its predecessor corporations Grace Lines, Inc., Prudential-Grace Lines, Inc. and Prudential Steamship Company (collectively, "PLI"), was a United States cargo shipping company incorporated under Delaware law with its principal place of business in New York. During the 1940's, 1950's, 1960's, 1970's, and 1980's, PLI employed seamen who were exposed to asbestos aboard PLI's vessels. Thousands of those seamen claim to have developed some manifestation of asbestotic disease from the regular inhalation of asbestos fibers during their PLI employment.

American Steamship Owners Mutual Indemnity Association, Inc. ("American Club"), a nonprofit mutual insurance association, was PLI's primary insurer. American Club issued PLI protection and indemnity ("P & I") policies for every year from 1940 through early 1986, excepting the four years from 1971 through 1974.

All of the P & I policies issued to PLI by American Club were substantively similar to each other, aside from their deductible and policy limit amounts. Deductibles in the 1940's and 1950's ranged between $500 and $1,000 per accident or occurrence. Deductibles rose in the 1960's to between $2,500 and $10,000, in the 1970's to $25,000 and $50,000, and reached $100,000 at their highest. The policy limits during the 1940's were about $2,000,000. In the 1950's they ranged from $3,000,000 to $5,000,000, in the 1960's and 1970's from $5,000,000 to $10,000,000, and in the 1980's reached $100,000,000.

On November 4, 1986, PLI filed its consent to Chapter 11 relief in response to an involuntary petition filed in this Court by its creditors.¹ On October 4, 1990, Judge Howard C. Buschman confirmed the Second Amended Joint Plan of Reorganization, as Modified (the "Plan"). Among its provisions, the Plan provided for the creation of the PLI Disbursement Trust (the "Trust"). The Trust, which is governed by both the terms of the Plan and the PLI Disbursement Trust Agreement (the "Trust Agreement"), was established primarily for liquidating the multitudinous asbestos-related personal injury claims against PLI. The Trust Agreement designated Lee J. DiCola as the PLI Disbursement Trustee (the "Trustee").

When the Trust was established, the amount of cash assets earmarked for the liquidation of asbestosis claims was minimal. However, the Trust succeeded in interest to the numerous P & I policies issued to PLI by American Club. The Plan provided that the Trustee would utilize these policies to liquidate claims. The Plan directed the Trust to file a declaratory action to determine the Trust's rights under the policies. The Trustee commenced the present adversary proceeding against American Club on December 14, 1990, in this Court.

Asbestosis claimants, represented by the Maritime Asbestosis Legal Clinic ("MALC"), were granted leave on February 26, 1991, to intervene in the adversary proceeding as a party in interest. MALC currently represents approximately 8,000 seamen who were employed by PLI during the years in which the P & I policies were in effect and who have filed over 10,000 proofs of claim for injuries resulting from asbestos exposure.

On November 20 and 21, 1991, MALC and American Club filed cross motions for summary judgment. Judge Francis G. Conrad, sitting in this Court, partially granted both motions on December 10, 1992. Dicola v. American Steamship Owners Mutual Indemnity Association, Inc. (In re Prudential Lines, Inc.), 148 B.R. 730 (Bankr.S.D.N.Y. 1992). Following that decision, the Trustee entered into a stipulation and agreement with MALC providing for the settlement of claims which was approved by Judge Conrad on March 9, 1993. On September 21, 1993, Judge Conrad entered the First Partial Judgment, submitted by MALC, which required payment of $66,160,000 by American Club pursuant to the stipulation and agreement.

American Club appealed Judge Conrad's decision and judgment to the District Court for the Southern District of New York. On review, Judge Charles S. Haight, on July 29, 1994, partially affirmed and partially reversed Judge Conrad's decision, vacated the First Partial Judgment, and remanded the case to this Court for further proceedings regarding the policies' deductible provisions. Dicola v. American Steamship Owners Mutual Indemnity Association, Inc. (In re Prudential Lines, Inc.), 170 B.R. 222 (S.D.N.Y. 1994).

American Club appealed Judge Haight's decision, and MALC sought permission to bring an interlocutory appeal of Judge Haight's ruling. On June 26, 1995, the Second Circuit Court of Appeals, in Dicola v. American Steamship Owners Mutual Indemnity Association, Inc. (In re Prudential Lines, Inc.), 59 F.3d 327 (2d Cir.1995), dismissed American Club's appeal. Judge Roger J. Miner, writing for the court, found that the district court's remand rendered this Court's original ruling non-final and therefore removed the circuit court's appellate jurisdiction. Judge Miner also rejected MALC's request, stating that although the circuit court could consider MALC's interlocutory appeal, it would be more efficient to consider it in conjunction with American Club's appeal following the remand.

DISCUSSION

The issues before the Court have arisen because of the ambiguous language contained in the policy provisions governing the number of deductibles that American Club may apply to PLI's requests for the indemnification of asbestosis claims. The resolution of this disagreement will have a significant impact on the asbestosis claimants' recovery. If American Club's construction of the deductible provision is utilized, there are potentially tens of thousands of deductibles which could be applied. MALC's construction would limit the deductibles to a few dozen.

The district court's remand directed this Court to consider "extrinsic evidence relating to the parties' course of dealing with respect to applying deductibles to claims arising from exposure to asbestos." Prudential Lines, 170 B.R. at 239. At issue are the deductible provisions in the P & I policies which are all identical and provide:

1). . . .

. . . .

(e) Claims hereunder, other than for burial expenses, are subject to a deduction of with respect to each accident or occurrence.

There are two issues of construction within this provision which could impact upon how many deductibles American Club may apply: (1) the definition of "claims hereunder" and (2) the definition of "occurrence".

I. "Claims Hereunder"

The interpretation given the phrase "claims hereunder" affects the number of deductibles that American Club may apply to the indemnification of the asbestosis claims. If "claims hereunder" is construed as meaning each claim hereunder, then the provision would require that each claim filed was subject to a deductible, and might be subject to more than one based on the remaining portion of the provision. However, if the phrase is construed as meaning all claims hereunder, then it merely introduces the provision, noting that all claims filed are subject to deductibles generally, but leaves the number of deductibles applied to be wholly determined by the remaining portion of the provision. The latter construction would, therefore, permit the application of a single deductible to multiple claims while the former would not.

Both this Court and the district court construed the phrase "claims hereunder" to mean all claims hereunder. This Court concluded that "the words `claims hereunder' merely mean that the deductible applies to claims filed under that P & I policy" generally, not to each and every claim filed under that P & I policy separately. Prudential Lines, 148 B.R. at 746. The district court affirmed that part of this Court's holding, noting that "Judge Conrad correctly concluded that the phrase `claims hereunder' in the context of the deductible provision is unambiguous" and "is not the axis on which the deductible application turns. . . . Rather . . . it serves as an introductory phrase not directly linked to the application of deductibles." Prudential Lines, 170 B.R. at 236-37.

American Club is seeking to have this Court revisit the "claims hereunder" issue on two grounds: (1) the district court's remand was broad enough to encompass its reconsideration; and (2) the circuit court's observation that "the proceedings in ...