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

• Decision Date: 22 December 1994
• Docket Number: INC,OWENS-ILLINOI
• Citation: 650 A.2d 974,138 N.J. 437
• Parties: , a corporation duly organized under the laws of the State of Ohio, Plaintiff-Respondent, v. UNITED INSURANCE CO., a corporation duly organized under the laws of the British West Indies; Owens Insurance Limited, a corporation duly organized under the laws of Bermuda; and General Reinsurance Corporation, a corporation duly organized under the laws of Delaware, Defendants-Appellants, and American Risk Management, Inc., a corporation duly organized under the laws of Bermuda; International Risk Management Ltd., a corporation duly organized under the laws of Bermuda; and Armrisk, Inc., a corporation duly organized under the laws of Bermuda, Defendants, and Allstate Insurance Company and American Re-Insurance Company, Intervenors-Appellants, and Cigna Reinsurance Company (formerly INA Reinsurance Company), Intervenor.
• Court: New Jersey Supreme Court

Page 437

138 N.J. 437

650 A.2d 974

OWENS-ILLINOIS, INC., a corporation duly organized under the laws of the State of Ohio, Plaintiff-Respondent, v. UNITED INSURANCE CO., a corporation duly organized under the laws of the British West Indies; Owens Insurance Limited, a corporation duly organized under the laws of Bermuda; and General Reinsurance Corporation, a corporation duly organized under the laws of Delaware, Defendants-Appellants and American Risk Management, Inc., a corporation duly organized under the laws of Bermuda; International Risk Management Ltd., a corporation duly organized under the laws of Bermuda; and Armrisk, Inc., a corporation duly organized under the laws of Bermuda, Defendants and Allstate Insurance Company and American Re-Insurance Company, Intervenors-Appellants and Cigna Reinsurance Company (formerly INA Reinsurance Company), Intervenor.

Supreme Court of New Jersey.

Argued Sept. 26, 1994.

Decided Dec. 22, 1994.

Stephen D. Cuyler, for appellant United Ins. Co. (Cuyler, Burk & Matthews, attorneys; Allen E. Molnar, of counsel; Mr. Molnar and Gregg S. Sodini, on the briefs).

David R. Gross, for appellant Gen. Reinsurance Corp. (Budd Larner Gross Rosenbaum Greenberg & Sade, attorneys; Mr. Gross, Joseph J. Schiavone, Donald P. Jacobs, Vincent J. Proto, and Elda Beylerian, on the briefs).

David J. D'Aloia, for intervenor-appellant Allstate Ins. Co. (Saiber Schlesinger Satz & Goldstein, attorneys; Mr. D'Aloia, Sean R. Kelly, and Michael J. Geraghty, on the briefs).

William J. Brennan, III, submitted a brief on behalf of intervenor-appellant American Re-Insurance Co. (Smith, Stratton, Wise, Heher & Brennan, attorneys; Mr. Brennan and Wendy L. Mager, on the briefs).

Bertram E. Busch submitted briefs on behalf of appellant Owens Ins. Ltd. (Busch and Busch, attorneys; Mr. Busch and Kenneth A. Levine, on the briefs).

Andrew T. Berry, for respondent Owens-Illinois, Inc. (McCarter & English, attorneys; Mr. Berry, Gita F. Rothschild, and John L. McGoldrick, of counsel; Mr. Berry, Ms. Rothschild, Anthony Bartell, Teresa L. Moore, Rosanne C. Baxter, and Anthony J. Del Piano, on the briefs).

Gerald A. Hughes submitted a brief on behalf of amicus curiae Ins. Environmental Litigation Ass'n (Hughes & Hendrix, attorneys).

Paul E. Breene and John A. MacDonald submitted a brief on behalf of amici curiae New Jersey Public Risk Managers Ass'n Tp. of West Milford, Air Products and Chemicals, Inc., A.P. Green Industries, Inc., Allied Signal Inc., American Tel. and Tel. Co., Inc., Armstrong World Industries, Inc., Asarco Inc., Asbestos Claims Management Corp., The BOC Group, Inc., C.E. Thurston & Sons, Inc., Columbia Gas Transmission Corp., Combustion Engineering, Inc., Dana Corp., Dow Corning Corp., Ferodo America, Inc., Flexitallic, Inc., Ford Motor Co., HM Holdings, Inc., ICI Americas Inc., Intern. Business Machines Corp., J.T. Baker, Inc., Lac D'Amiante Du Quebec, LTEE, Maremont Corp., Nat. Service Industries, Inc., Pfizer Inc., Public Service Elec. & Gas Co., Rohm & Haas Co., Schering-Plough Corp., Shook & Fletcher Insulation Co., T & N PLC, Union Carbide Chemicals and Plastics Co., Inc., U.S. Gypsum Co., United States Mineral Products Co., Warner-Lambert Co., Westinghouse Elec. Corp., Wheeling Pittsburgh Steel Corp., and Witco Corp. (Anderson Kill Olick & Oshinsky, Lowenstein, Sandler, Kohl, Fisher & Boylan, attorneys for Westinghouse Elec. Corp.; Callahan, Delany & O'Brien, attorneys for Combustion Engineering, Inc.; Hannoch Weisman, attorneys for HM Holdings, Inc.; Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, attorneys for Witco Corp., and Rudolph J. Sanson, attorney for U.S. Mineral Products Company).

The opinion of the Court was delivered by

O'HERN, J.

This appeal involves two aspects of a dispute between a manufacturer of an asbestos product and its insurers concerning the coverage afforded to the manufacturer under its liability insurance policies. First is the "trigger of coverage" issue, a shorthand expression for identifying the events that must occur during a policy period to require coverage for losses sustained by the policyholder. Second is the "allocation issue," which involves the scope of coverage afforded under a triggered policy. One question for example, in the case of gradually-inflicted injury or property damage triggering a number of successive policies is whether the policyholder may recover the sum of all the policies or some allocated portion of each policy. The case is complicated by the fact that the plaintiff-manufacturer used a "captive insurance company" to manage its risks and to acquire the subject policies. That captive company, a wholly-owned subsidiary of the manufacturer, was in form a shell that reinsured the risks with the various defendant insurance companies.

The Appellate Division has ordered a hearing, 264 N.J.Super. 460, 522, 625 A.2d 1 (1993), on issues of fraud related to the issuance of the policies in that officers of the manufacturing company or the captive company, interlocked as they were, may have failed to disclose fully the underwriting risks for which the manufacturer sought coverage. The court below also believed that "further airing" was necessary to resolve whether the manufacturer expected or intended that its product would cause injury. Id. at 515, 625 A.2d 1. Those and other issues decided by the Appellate Division are not part of this appeal.

I Background

The facts of the case are set forth fully in the Appellate Division opinion. We recite only those facts necessary to our disposition. Because the issues of coverage arose on cross-motions for summary judgment, we may accept as true in this appeal of defendants all the evidence supporting plaintiff's position, as well as all legitimate inferences that may be deduced therefrom. Boyer v. Anchor Disposal, 135 N.J. 86, 88, 638 A.2d 135 (1994). For purposes of this appeal, then, we adopt generally the factual version of the case set forth in the briefs of the plaintiff-manufacturer, Owens-Illinois (O-I).

A.

The most salient feature of this case is that it concerns a decades-old manufacturing activity. From 1948 to 1958, O-I manufactured and distributed Kaylo, a thermal insulation product containing approximately fifteen percent asbestos. Between 1948 and 1963, O-I was self-insured; it maintained no insurance to cover its products-liability losses but bore that risk itself. Products-liability law was at that time in its early stages. From September 1, 1963, to September 1, 1977, O-I was insured under excess indemnity (umbrella) insurance policies issued by the Aetna Casualty and Surety Company (Aetna). Owens-Illinois, Inc. v. Aetna Casualty & Sur. Co., 597 F.Supp. 1515, 1517 (D.D.C.1984). Those Aetna policies contained a deductible, or "self-insured retention" (SIR), for each occurrence resulting in personal injury or property damage. The SIR was $100,000 from 1963 to 1970, and $250,000 from 1971 to 1977. Above the deductible amount, the policies provided that Aetna would cover O-I's "ultimate net loss" (defense costs and indemnity) up to the "aggregate annual" and "per occurrence" limits of the policies. The aggregate annual and per-occurrence limits, which were the same within each policy, ranged from $20 million to $50 million over the period of the insurance. Id. at 1517 n. 6.

In the mid-1970s, defendant American Risk Management, Inc., offered to develop a new program of insurance for O-I involving a captive insurance company. The captive company would be a subsidiary of O-I. For a fee, American Risk Management would manage the subsidiary and arrange to reinsure the policies with companies in the United States and abroad. In 1975, Owens Insurance Limited (OIL) was established as the captive insurance company and began providing O-I with a fire and extended peril reinsurance program and loss prevention services. In 1976, American Risk Management proposed that OIL also provide O-I's casualty insurance, including products-liability coverage.

In June 1977, O-I invited quotes from various sources, including American Risk Management, to replace its Aetna insurance coverage, which would expire September 1, 1977. The bid package solicited a comprehensive general liability (CGL) policy covering general and products liability. After receiving various proposals, O-I accepted American Risk Management's proposal to provide a comprehensive liability insurance package. The scheme of coverage was for an SIR of $250,000 per occurrence; primary coverage above the SIR up to $1 million per occurrence; and excess umbrella coverage of $50 million. The excess umbrella policy limits increased from $50 million to $150 million during the period between 1977 and 1985. Defendant United Insurance Company (United) provided the primary coverage. OIL issued the excess umbrella policy and reinsured with various companies, including United and other defendants. We shall refer to the management company and the insurers and reinsurers collectively as the Insurance Companies. We do not decide any issues regarding the status of the individual companies.

B.

Toward the end of 1977, O-I's in-house legal department became aware of a number of asbestos-related lawsuits involving the Kaylo product. Early in 1978, O-I gave notice of those claims to Aetna, its carrier from September 1, 1963, to September 1, 1977. Aetna took the position, with which O-I originally agreed, that the cases should be reported on a manifestation basis, that is, the policy in effect when the disease manifested itself should respond to the claim. Because most statutes of limitations were of at least several years in duration, O-I assumed that Aetna would be the responsible carrier. As a precaution, O-I also informed the Insurance Companies of the asbestos claims.

Aetna rejected the claims submitted to it because it insisted that the $250,000 SIR was a per-claim figure. It thus estimated that none of the claims could...