Owens-Illinois, Inc. v. United Ins. Co.

• Decision Date: 29 April 1993
• Docket Number: OWENS-ILLINOI,INC
• Citation: 264 N.J.Super. 460,625 A.2d 1
• Parties: , Plaintiff-Respondent and Cross-Appellant, v. UNITED INSURANCE CO., Owens Insurance Limited, American Risk Management, Inc., International Risk Management Ltd., Armrisk, Inc., General Reinsurance Corporation, Allstate Ins. Co. and Cigna Reinsurance Co., Defendants-Appellants and Cross-Respondents, and American Reinsurance Company, Intervenor.
• Court: New Jersey Superior Court — Appellate Division

Page 460

264 N.J.Super. 460

625 A.2d 1

OWENS-ILLINOIS, INC., Plaintiff-Respondent and Cross-Appellant, v. UNITED INSURANCE CO., Owens Insurance Limited, American Risk

Management, Inc., International Risk Management Ltd.,

Armrisk, Inc., General Reinsurance Corporation, Allstate

Ins. Co. and Cigna Reinsurance Co., Defendants-Appellants

and Cross-Respondents,

and

American Reinsurance Company, Intervenor.

Superior Court of New Jersey,

Appellate Division.

Argued March 30, 1993.

Decided April 29, 1993.

Bertram E. Busch, North Brunswick, for defendant-appellant and cross-respondent Owens Insurance Ltd. (Busch and Busch, attorneys; Mr. Busch, of counsel, and on the brief).

Thomas F. Quinn, Newark, for defendants-appellants and cross-respondents American Risk Management, Inc., Intern. Risk Management, Ltd. and ARMRISK, Inc. (Wilson, Elser, Moskowitz, Edelman & Dicker, attorneys; James Crawford Orr, of counsel; Mr. Quinn and Matthew S. Slowinski, on the brief).

David R. Gross, Short Hills, for defendant-appellant and cross-respondent General Reinsurance Corp. (Budd Larner Gross Rosenbaum Greenberg & Sade, attorneys; Cuyler, Burk & Matthews, Morristown, of counsel; Mr. Gross, Joseph J. Schiavone and Donald P. Jacobs, Short Hills, on the brief).

Thomas A. Allen, Philadelphia, PA, for defendant-appellant and cross-respondent CIGNA Reinsurance Co. (White and Williams, Philadelphia, PA, attorneys; Miller, Singer, Raives & Brandes, New York City, of counsel; Mr. Allen, Regina B. Mapes, Philadelphia, PA, Lawrence I. Brandes, Clifford H. Schoenberg and Nancy K. Eisner, New York City, on the brief).

William J. Brennan, III, Princeton, for intervenor American Reinsurance Co. (Smith, Stratton, Wise, Heher & Brennan, Princeton, and Pope & John, Ltd., Chicago, IL, attorneys; Mr. Brennan, Wendy L. Mager, Princeton, Robert J. Bates, Jr., Patrick J. Foley and Caeser A. Tabet, Chicago, IL, on the brief).

Andrew T. Berry, Newark, for plaintiff-respondent and cross-appellant Owens-Illinois, Inc. (McCarter & English, Newark, attorneys; Clifford & Warnke, Washington, DC, of counsel; Mr. Berry, Gita F. Rothschild, Jerry P. Sattin, Anthony Bartell, Teresa L. Moore, Stephen Marinko, Sherilyn Pastor, Rosanne C. Kemmet and Arnold L. Natali, Jr., Newark, on the brief).

No one appeared on behalf of amicus curiae Insurance Environmental Litigation Ass'n (Hughes & Hendrix, West Trenton, attorneys; Wiley, Rein & Fielding, Washington, DC, of counsel; Gerald A. Hughes, West Trenton, Thomas W. Brunner, James M. Johnstone and Stephen P. Keim, Washington, DC, on the brief).

David D'Aloia, Newark, for defendant-appellant and cross-respondent Allstate Ins. Co. (Saiber Schlesinger Satz & Goldstein, attorneys; Mr. D'Aloia, Sean R. Kelly and Gregg S. Sodini, on the brief).

Allen E. Molnar, Morristown, for appellant and cross-respondent United Ins. Co. (Cuyler, Burk & Matthews, attorneys; appellant relied on the brief of Allstate Ins. Co.).

Before Judges MICHELS, BAIME and WALLACE.

The opinion of the court was delivered by

BAIME, J.A.D.

These appeals and cross-appeals present difficult questions concerning the construction and application of a series of primary and excess insurance policies issued by United Insurance Company (United) and Owens Insurance, Ltd. (OIL) to their insured Owens-Illinois, Inc. (O-I). OIL passed off 100% of its umbrella liability to various reinsurers who have also appealed from the Chancery Division's judgment. Between 1948 and 1958, O-I manufactured Kaylo, a thermal insulation product containing asbestos. At present, claims against O-I for bodily injury and property damage caused by its asbestos products approach one billion dollars. O-I instituted suit in the Chancery Division, seeking a declaration of its right to indemnification and defense costs under its policies. The Chancery Division granted O-I's motion for summary judgment. In an oral opinion, the Chancery Division determined that O-I's claims were covered under various insuring agreements, and that the insurers and reinsurers had waived any defense based upon fraud or concealment.

We agree with the Chancery Division's interpretation of the insurance policies in question. We are also in accord with the court's adoption of the continuous trigger theory which provides that the date of occurrence of an injury process which is not a definite, discrete event encompasses the period from exposure to manifestation of injury or damage. We further hold that the liability of the insurers and reinsurers should be joint and several and that allocation of damages on a prorated basis is not feasible in light of the indivisible nature of the injury and damage sustained. However, we are obliged to reverse other parts of the Chancery Division's judgment and remand for a plenary trial. Specifically, we find genuine issues of material fact regarding (1) whether O-I's losses were "expected or intended," (2) whether the insurers and reinsurers waived their fraud defenses, and (3) whether the policies were issued by reason of a misrepresentation or concealment of material facts pertaining to potential asbestos liability.

I.

A. THE PARTIES

We begin by introducing the principal parties. O-I is a large Fortune 500 company which produces and sells various products, including shipping containers, bottles, cups, tubs, lids and stretch film fabricated from materials such as glass, paper, plastic and wood. As of 1989, it was the largest manufacturer in the United States of building materials, with annual sales of 3.6 billion dollars.

American Risk Management (American Risk), International Risk Management, Ltd. (IRML) and Armrisk, Inc. (Armrisk) are three separate but affiliated companies of the Fred Reiss Group, an international organization which provides insurance and reinsurance brokerage, consulting and management services to companies desiring to create captive insurers. A captive insurer is a corporation organized for the purpose of insuring the liability of its owner. See Clougherty Packing Co. v. Commissioner, 811 F.2d 1297, 1298 n. 1 (9th Cir.1987). Although there may be other permutations, generally the insured is both the sole shareholder and the only customer of the captive insurer. Ibid. American Risk is the parent of the Fred Reiss Group's captive management companies in the United States. IRML is the Bermuda office. Armrisk conducts its insurance brokerage business in New Jersey. For convenience, we denominate American Risk, IRML and Armrisk as the ARMS defendants. Other companies in the Fred Reiss Group include European Risk Management (ERML), which provides brokerage services in Europe, and ARM International, the brokerage affiliate for American Risk.

OIL is a captive insurance company which O-I created in 1975. ARMS was instrumental in organizing OIL. Under an umbrella insurance policy, OIL covered O-I for certain liabilities in excess of the insured's deductible and its primary policy issued by United. In reality, OIL is a mere skeleton which, as we mentioned previously, passed off 100% of its liability to reinsurers. IRML solicited reinsurance for OIL's umbrella liability policies and performed claim management services. O-I owns 99.99% of OIL's stock, and several of its corporate officers were also employees of OIL. Richard Johnson, O-I's Director of Risk Management between 1977 and 1985, was also variously a director, vice president and president of OIL during that same period.

United was formed as part of the Fred Reiss Group to write both direct casualty insurance and casualty reinsurance for ARMS clients. All United employees are also employees of the Fred Reiss Group. United is owned by a group of captive insurance companies, one of which is OIL. United was the primary insurer of O-I and one of the reinsurers of OIL between 1977 and 1985.

General Reinsurance Corporation (General) is the largest reinsurance company in the United States and was the lead reinsurer of OIL between 1977 and 1982. Allstate Insurance Company (Allstate) is a major insurance underwriter and reinsured a portion of OIL's liability. CIGNA Reinsurance Company, the successor to INA Reinsurance Company, reinsured OIL between 1977 and 1985, and reinsured a portion of O-I's umbrella policy issued by Aetna Casualty and Surety Company (Aetna). American Reinsurance Company (American) is a subsidiary of Aetna and reinsured a portion of OIL's liability from 1977 to 1985.

B. THE DANGERS OF ASBESTOS

In 1943, O-I's predecessor, the Owens-Illinois Glass Company, developed a new industrial product known as Kaylo, which could be used as a thermal insulating material. Before Kaylo was used commercially, O-I conducted an investigation through the Saranac Laboratory and the Trudeau Foundation to determine whether dust liberated from the product during the fabrication process would be likely to pose a respiratory hazard to exposed individuals. Tests were performed between 1943 and 1952. Several of the reports from those tests indicated that Kaylo could cause asbestosis and pulmonary disease in animals and should be handled industrially as a hazardous dust. For example, on March 12, 1943, Leroy U. Gardner, a director of the laboratory, wrote that the use of Kaylo, and more particularly the mixture of quartz and asbestos, "suggested that [the company had] all the ingredients for a first class hazard." More alarming was a letter sent by Arthur J. Vorwald, another director, on November 16, 1948. In the letter, Vorwald rejected prior tentative reports which indicated that Kaylo failed to produce significant pulmonary damage when inhaled. Instead, Vorwald reported that a "definite indication of tissue reaction appeared in the lungs of animals inhaling Kaylo dust." Moreover, prolonged exposure to the product, more than 30 months, resulted in "unmistakable evidence" of asbestosis. On May 31, 1944, Gardner wrote that further studies disclosed "a pulmonary disease simulating asbestosis" was produced by...