International Business v. Liberty Mut.
| Decision Date | 19 March 2004 |
| Docket Number | Docket No. 03-7237. |
| Citation | 363 F.3d 137 |
| Parties | INTERNATIONAL BUSINESS MACHINES CORPORATION, Plaintiff-Counter-Defendant-Appellee, v. LIBERTY MUTUAL INSURANCE COMPANY and Liberty Mutual Fire Insurance Company, Defendants-Counter-Claimants-Appellants, Zurich Insurance Company, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
Joseph G. Blute, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, Massachusetts, (Jaffe & Asher LLP, New York, New York, on the brief) for Appellants.
Thomas H. Sear (Mark R. Seiden, Howard F. Sidman, on the brief), Jones Day, New York, New York for Appellee, International Business Machines Corp.
Thomas W. Queen (Thomas W. Brunner, Alysa B. Wakin, on the brief), Wiley Rein & Fielding, LLP, Washington, DC, (John H. Eickemeyer, Vedder, Price, Kaufman & Kammholz, P.C., New York, New York, on the brief) for Appellee, Zurich Insurance Co.
Before: OAKES, JACOBS and POOLER, Circuit Judges.
At issue on this appeal is the duty of defendants-appellants Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company (together, "Liberty Mutual") to defend International Business Machines ("IBM") in toxic tort suits commenced by IBM employees who allege that they contracted cancer by working in IBM's California "cleanroom" facilities. After the California court dismissed some of the claims and Liberty Mutual disclaimed coverage for intentional torts, Liberty Mutual terminated its ongoing defense of IBM on the ground that all the claims remaining were the subject of a stipulation (compelled by a wrinkle in California's workers compensation law) that limited any potential recovery to personal injury suffered prior to January 1, 1983 — a policy year which no longer provided coverage for such claims.
In a nutshell, Liberty Mutual disclaimed on the grounds that the trigger of coverage in the relevant policy years was a claimant's last day of last exposure to cleanroom conditions at IBM; that by virtue of the stipulation, the 1982 insurance contract is the one that was in force on the last day of last exposure for which damages are now being claimed and is therefore the only contract triggered; that the 1982 contract excludes claims for bodily injury by disease unless the resultant claim or suit was brought within three years after the end of the policy period; and that none of the underlying suits were commenced within that time.
In response, IBM argues that Liberty Mutual owes a duty to defend each claim under the policy in force on each claimant's last day of exposure to a cleanroom; that absent evidence to the contrary, the last day of exposure is a plaintiff's last day of employment with IBM; that the stipulation does not allege or set the plaintiffs' last day of exposure to the California cleanrooms; and that the last date of employment specified by plaintiffs in interrogatories (ranging from 1977 to 1999) arguably implicates coverage under subsequent insurance policies that contain no claims-made exclusion.
The United States District Court for the Southern District of New York (Brieant, J.) ruled that New York law governs this insurance question (rather than the law of California); and that the last day of last exposure or employment is a question of fact that is not controlled by the stipulation. The court therefore declared that Liberty Mutual had a continuing duty to defend the claims for negligence and strict liability.
On appeal, Liberty Mutual challenges the district court's choice of law and its declaration. We conclude that New York law and California law present a false conflict, and we affirm the declaratory judgment. We therefore necessarily affirm the district court's holding that the Liberty Mutual policies require Liberty Mutual to defend IBM against claims of minor plaintiffs in the same toxic tort litigations.
The facts recounted in this opinion are those that bear upon the issues decided in this appeal, and those that supply necessary context.
Annually from the 1960s through at least 1999, Liberty Mutual wrote employers liability and workers compensation coverage for IBM's California manufacturing facilities.1
The form and wording of the insurance contracts has changed three times since 1976, though with a couple of exceptions the substantive policy provisions have been unchanged.
Beginning in April 1998, dozens of current and former IBM employees brought six "toxic tort" actions against the company alleging, inter alia, injuries caused by exposure to chemicals in IBM's San Jose "cleanrooms." A cleanroom is a "room in which the concentration of airborne particles is controlled[.]" Federal Standard 209E § 3.5 (). IBM uses cleanrooms for the manufacture of hard drives and other sensitive computer components.
The California actions alleged eight common claims for: (i) negligence, (ii) strict liability, (iii) ultra-hazardous strict liability, (iv) fraud, (v) intentional and (vi) negligent breach of California Labor Code § 3602(b)(2) (the "California Labor Code"), (vii) post-employment negligent failure to warn and (viii) post-employment intentional concealment of hazards. Two California actions, Barron v. IBM ("Barron") and Gomez v. IBM ("Gomez"), include claims asserted by and on behalf of minor plaintiffs David Hecksel and Malissa Garcia (collectively, the "minor plaintiffs").
IBM first gave notice of the claims in May 1998; eventually, Liberty Mutual shouldered the defense. In its several reservation of rights letters, Liberty Mutual disclaimed coverage for several of the eight claims for various reasons (and disclaimed as to all claims brought on behalf of the minor plaintiffs). Eventually, Liberty Mutual disclaimed altogether its duty to continue the ongoing defense, on the ground that no claim could result in a covered loss.
From the outset, Liberty Mutual disclaimed coverage for the three claims pleading intentional wrongs (fraud, intentional breach of § 3602 and post-employment intentional concealment of hazards) on the ground that coverage is defeated by, inter alia, an Intentional Act Exclusion and California Insurance Code § 533. That disclaimer is not at issue on this appeal.
In rulings issued in September and December 1999, the California Superior Court dismissed three of the eight claims: ultra-hazardous strict liability, negligent breach of the California Labor Code, and post-employment negligent failure to warn. IBM does not predicate its claim for defense upon the dismissed claims.
IBM's claim to a defense rests upon the two remaining claims: negligence and strict liability. Liberty Mutual argues that those two claims do not support a duty to defend because a stipulation between IBM and the California plaintiffs, dated November 17, 1998, operated (as described below) to preclude insurance coverage by Liberty Mutual for the negligence and strict liability claims asserted by the underlying plaintiffs. Among other things, the stipulation limited the scope of plaintiffs' claims for negligence and strict liability to injury suffered as a result of cleanroom exposure prior to January 1, 1983.
In April 2000, Liberty Mutual therefore advised IBM that its duty to defend ended on December 14, 1999.
On July 24, 2000, IBM filed a complaint against Liberty Mutual and Zurich seeking, inter alia, damages incurred by the insurers' refusals to defend the California actions, and a declaratory judgment requiring Liberty Mutual and/or Zurich to continue to pay the cost of defense. Following discovery, Liberty Mutual moved for partial summary judgment on the ground that, as a matter of law, it had no duty to continue its defense of the California actions after December 14, 1999. Essentially, Liberty Mutual argued that: (i) by that date (because of the 1998 stipulation and 1999 dismissals of certain claims), the only coverage that could be triggered by the remaining claims for negligence and strict liability was the 1982 contract; (ii) the 1982 contract did not apply to claims filed after December 31, 1985; and (iii) none of the California actions was filed by that date. Liberty Mutual additionally disclaimed a duty to defend against the minor plaintiffs' claims in the Barron and Gomez actions — a position it has maintained since announcing its initial coverage positions in July 1999.
IBM opposed the motion and cross-moved for summary judgment on the ground that, as a matter of law, Liberty Mutual had a continuing duty to defend against the California actions. IBM argued that Liberty Mutual's policies are triggered on an employee-plaintiff's "last day of last exposure" to a San Jose cleanroom; that the 1999 dismissals left standing the underlying claims of negligence and strict liability; that the 1998 stipulation between IBM and the California plaintiffs had no bearing on the trigger of coverage for those claims; and that Liberty Mutual's duty to defend against the California actions (including the claims of minor plaintiffs) therefore continued after December 14, 1999. Zurich moved for an order requiring Liberty Mutual to defend IBM against minor plaintiffs' claims in the Barron and Gomez actions.
The district court granted IBM's motion, and declared that Liberty Mutual's duty to defend the California actions continued after December 14, 1999. Before reaching the merits, the district court concluded — applying "grouping of contacts" analysis — that New York law governed this dispute. The court then rejected Liberty Mutual's contention that the 1998 stipulation terminated its defense obligations with respect to the California actions and held that, based on "clear, unambiguous" policy language, Liberty Mutual's policies are "in all instances ... triggered by the last day of last exposure to the conditions allegedly causing or aggravating...
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