Maryland Cas. Co. v. WR Grace & Co.

Decision Date06 March 1991
Docket NumberNo. 83 Civ. 7451 (SWK).,83 Civ. 7451 (SWK).
Citation794 F. Supp. 1206
PartiesThe MARYLAND CASUALTY COMPANY, Plaintiff, v. W.R. GRACE & COMPANY, Continental Casualty Company, Royal Indemnity Company, Aetna Casualty and Surety Company, and General Insurance Company of America, Defendants.
CourtU.S. District Court — Southern District of New York

COPYRIGHT MATERIAL OMITTED

Laura A. Foggan, Wiley, Rein & Fielding, Washington, D.C., for Maryland Cas. Co.

Randy Paar, Anderson Kill Olick & Oshinsky, P.C., New York City, for defendant W.R. Grace & Co. Stuart C. Levene, Ford Marrin Esposito & Witmeyer, New York City, for defendant Continental Cas. Co.

James P. Donovan, Wilson, Elser, Moskowitz, Edelman & Dicker, New York City, for defendant Royal Indem. Co.

James E. Rocap, III, Miller, Cassidy, Larroca & Lewin, Washington, D.C., for defendant Aetna Cas. & Sur. Co.

Albert D. Brault, Brault, Graham, Scott & Brault, Rockville, Md., for defendant General Ins. Co. of American.

                TABLE OF CONTENTS                                                              PAGE
                Background .................................................................... 1209
                Discussion
                  Summary Judgment ............................................................ 1213
                  Trigger of Coverage for Bodily Injury Claims ................................ 1213
                  Coverage for Knowing Misconduct ............................................. 1217
                  Punitive Damages ............................................................ 1219
                  Duty to Defend Upon Exhaustion of Limits .................................... 1220
                  Limitation of Coverage to Sums Payable as Damages and Limitation of Coverage
                    to Claims for Property Damage ............................................. 1221
                  Trigger of Coverage for Public Building and School Claims ................... 1224
                  Exclusion for Insured's Own Product ......................................... 1226
                  Sistership .................................................................. 1227
                  Special Limits Provisions in Maryland's Policies ............................ 1228
                  Proof of Existence of Terms of Policies ..................................... 1229
                  Coverage for Subsequent Acquisitions ........................................ 1230
                  Policies issued to predecessors (Identity of the insured) ................... 1233
                  Scope of "Accident" Policies Coverage ....................................... 1236
                
OPINION

BERNIKOW, United States Magistrate Judge:

This case, like many others across the country, involves a dispute between an insured and insurers concerning coverage for underlying asbestos personal injury and property damages cases.1 The parties' motions for partial summary judgment are now before the court.2

BACKGROUND

Maryland Casualty Company ("Maryland") initially brought this declaratory judgment action, based on diversity of citizenship, against W.R. Grace & Co. ("Grace") and CNA, concerning its obligations to defend and indemnify Grace under Maryland's comprehensive general liability ("CGL") insurance policies issued to Grace between 1955 and June 30, 1973, in regard to asbestos-related bodily injury and property damage lawsuits. These underlying lawsuits are "part of the national `asbestos scene, an unparalleled situation in American tort law,' in which many thousands of personal injury claims have been filed `against asbestos manufacturers and producers.'" Racich v. The Celotex Corp., 887 F.2d 393, 394 (2d Cir.1989) (quoting In re School Asbestos Litigation, 789 F.2d 996, 1000 (3d Cir.), cert. denied, 479 U.S. 852, 107 S.Ct. 182, 93 L.Ed.2d 117 (1986)).

As of November 3, 1987, over 6,400 asbestos-related lawsuits have been filed against Grace for bodily injury arising out of exposure to asbestos or asbestos-containing products manufactured or sold by Grace or its predecessors. Posner November 13, 1987 affidavit at ¶ 19. Grace has also been sued in 134 cases that seek damages for property damage resulting from asbestos-containing products that were installed in various buildings throughout the country from the mid-1940's until the 1970's. Posner June 1, 1987 affidavit at ¶ 14.

In its answer, filed on January 27, 1984, Grace asserted various counterclaims including those seeking a declaratory judgment regarding Maryland's duty to defend and indemnify. On April 30, 1984, Grace started an action against the Royal Indemnity Company ("Royal") in the District of Columbia Superior Court for the same declaratory relief it sought against Maryland. Grace later amended its District of Columbia complaint to add Aetna Casualty and Surety Co. ("Aetna") and the General Insurance Company of America ("General") as defendants. On June 21, 1984, Maryland successfully moved in this court to join Royal, Aetna and General as additional defendants.

Grace, a Connecticut corporation, with its principal place of business in New York, is primarily engaged in the chemical business on a worldwide basis and in energy-related natural resource activities. Posner 5-29-87 affidavit at ¶ 3. Maryland, a Maryland corporation, has its principal place of business in Baltimore, Maryland.

CNA, an Illinois corporation, has its principal place of business in Chicago, Illinois. Royal is a Delaware corporation, with its principal place of business in Charlotte, North Carolina. Aetna, a Connecticut corporation, has its principal place of business in Hartford, Connecticut. General is incorporated in the State of Washington and has its principal place of business in Seattle, Washington. Maryland, CNA, Royal, Aetna and General are engaged in the business of providing and underwriting insurance, including the extension of liability insurance coverage. Of the five insurers, only Maryland and CNA issued policies to Grace itself. The other carriers allegedly issued policies to companies subsequently acquired by Grace.

Grace, in its own name, purchased policies from Maryland from 1955 to 1973, though Maryland denies that it provided continuous coverage for that period. Maryland notes that Grace has produced no primary policies in effect during the early years of the alleged period of coverage. The policies for the period from June 30, 1962 through June 30, 1970, Maryland asserts, are incomplete and, in some cases, fragmentary. Thus, Maryland has placed in issue the extent of its obligation to Grace for any asbestos-related claims arising before the periods for which any policies or policy fragments have been discovered and for the period as to which no complete policies have been discovered. Grace contends that it has located the originals of the policies, which include the missing pages, thus resolving Maryland's argument about missing pages.

Maryland also notes that its policies with Grace were negotiated in New York City between its own representatives and those of Grace. The policies, Maryland adds, were not the standard forms used in the insurance industry, but were individually tailored and negotiated "manuscript" policies, whose provisions were authored by Grace or by its brokers, and not by Maryland. Nonetheless, as Grace notes, a comparison of Maryland's policy language with the standard comprehensive general liability ("CGL") forms shows that the language is essentially the same.3 Indeed, the managing director of the broker, Marsh & McLennan, Inc., involved in the negotiation and placement of the Maryland policies sold to Grace from at least June 30, 1961, through June 30, 1973, stated in an affidavit that the policies from June 30, 1961 to June 30, 1967 were standard form CGL policies, not drafted by Grace. See Keating November 16, 1987 affidavit at ¶ 3. He recognized that the policies from June 30, 1967 to June 30, 1973, were "manuscript" policies, but, he added, the language contained in them was taken from the standard form CGL policy.4Id. at ¶ 4.

With respect to the other insurers, Grace alleges that it, or various asbestos companies that it acquired, purchased CGL policies from Royal for all or part of the period from April 1, 1950 to April 1, 1963 and from May 26, 1967 to March 26, 1968. As for General, Grace alleges that General sold CGL coverage to Vermiculite North-west, a company acquired by Grace in 1966, from June 1, 1961 to June 1, 1967. Grace also contends that Aetna sold CGL policies to companies acquired by Grace from January 31, 1951 until January 1, 1970. Grace does not possess copies of these policies, but asserts it has secondary evidence proving the existence of this coverage. Lastly, CNA directly sold CGL coverage to Grace from 1973 to the present.

In regard to the motions for partial summary judgment, Maryland requests relief in the form of a judgment declaring that:

(i) Maryland Casualty has no duty to indemnify or defend Grace for periods as to which the existence and terms of Maryland Casualty-Grace policies have not been proven by clear and convincing evidence;
(ii) Maryland Casualty has no duty to indemnify or defend Grace (a) under pre-1963 policies or (b) for liability involving products of any company acquired by or merged with Grace until after the date on which such company was acquired by or merged with Grace and insured under a Maryland Casualty policy;
(iii) Maryland Casualty has no duty to indemnify or defend Grace for liability for asbestos-related bodily injury claims as to which injury in fact occurred outside Maryland Casualty's policy periods;
(iv) Defense costs in each asbestos-related bodily injury case against Grace must be shared by all insurers as to which responsive policies have been proven except where it can determined that the injury in fact occurred outside of the policy period or periods of an insurer or that the claimed injury could not have resulted from exposure to a product manufactured by an insured under the relevant policy or policies;
(v) Maryland Casualty has no duty to indemnify or defend Grace for liability for asbestos-related claims for equitable or declaratory relief or any relief other than the
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