Security Ins. Co. of Hartford v. Lumbermens Mutual Casualty Co.

• Court: Connecticut Supreme Court
• Writing for the Court: SULLIVAN, C.J.
• Citation: Security Ins. Co. of Hartford v. Lumbermens Mutual Casualty Co., 264 Conn. 688, 826 A.2d 107 (Conn. 2003)
• Decision Date: 22 July 2003
• Docket Number: (SC 16716)
• Parties: SECURITY INSURANCE COMPANY OF HARTFORD v. LUMBERMENS MUTUAL CASUALTY COMPANY ET AL.

264 Conn. 688

826 A.2d 107

SECURITY INSURANCE COMPANY OF HARTFORD v. LUMBERMENS MUTUAL CASUALTY COMPANY ET AL.

(SC 16716)

Supreme Court of Connecticut.

Argued November 25, 2002.

Officially released July 22, 2003.

Sullivan, C. J., and Norcott, Palmer, Vertefeuille and Zarella, Js. John W. Lemega, with whom were Ralph W. Johnson III and, on the brief, John B. Farley, for the appellant (defendant ACMAT Corporation).

Thomas J. Groark, with whom was Mario R. Borelli, for the appellee (plaintiff).

C. William Tanzi, Eugene R. Anderson, pro hac vice, Mark Garbowski, pro hac vice, Brian T. Valery, law clerk, and Amy Bach, pro hac vice, filed a brief for United Policyholders as amicus curiae.

Andrew J. McDonald, Peter S. Olson, Laura A. Foggan, pro hac vice, and John C. Yang, pro hac vice, filed a brief for the Insurance Environmental Litigation Association as amicus curiae.

Opinion

SULLIVAN, C.J.

The defendant, ACMAT Corporation (ACMAT),¹ appeals from the trial court's grant of summary judgment on one claim and judgment on a second claim in favor of the plaintiff, Security Insurance Company of Hartford (Security). This appeal involves a dispute over the proper allocation of defense costs in cases involving long latency loss claims that implicate multiple insurance policies. The trial court concluded that the defense costs should be prorated among the insurers with respect to periods covered by their respective policies and the insured with respect to periods for which the insured had lost or destroyed its policies or assumed the obligations of an insurer. Accordingly, the trial court ordered ACMAT, as the insured, to contribute its pro rata share of the defense costs and to reimburse both party and nonparty insurers for its share of such costs previously expended. We affirm the trial court's ruling that pro rata allocation of defense costs applies in the circumstances of this case, but we reverse its order to ACMAT as it applies to nonparty insurers.

The record reveals the following facts. ACMAT is a Connecticut corporation that was incorporated on March 16, 1951.² ACMAT is engaged in the business of construction and renovation and at various times used a fireproofing spray that contained asbestos. On May 1, 1996, more than 100 plaintiffs instituted litigation against ACMAT³ for bodily injuries allegedly resulting from the inhalation of asbestos (Bridgeport asbestos litigation).⁴ See In re Bridgeport Asbestos Litigation, Superior Court, judicial district of Fairfield, Docket No. 332364. The plaintiffs in the Bridgeport asbestos litigation did not allege the precise time that the alleged injuries occurred. The parties agree, however, that ACMAT is potentially liable to the Bridgeport asbestos litigation plaintiffs for bodily injury during the period from March 16, 1951, through May 1, 1996.

During the period for which ACMAT is potentially liable to the Bridgeport asbestos litigation plaintiffs, it purchased several occurrence based comprehensive general liability policies⁵ from several different insurance companies. From March 16, 1951, through April 22, 1959, ACMAT had asbestos related insurance coverage, but it either lost or destroyed the insurance policies. ACMAT does not know who the insurers were for this period, and it has made no demand on any insurance carrier for this period to provide it with a defense or to pay any portion of the defense costs in the Bridgeport asbestos litigation. ACMAT alleges that Liberty Mutual Insurance Company (Liberty) provided ACMAT with asbestos related coverage from April 22, 1961, through January 1, 1964. ACMAT, however, has either lost or destroyed the Liberty policies for that period. ACMAT has demanded that Liberty provide it with a defense or pay a portion of the defense costs for the Bridgeport asbestos litigation, but Liberty has refused, claiming that it never issued such policies to ACMAT. ACMAT alleges that Greater New York Insurance Company (Greater New York) provided ACMAT with asbestos related coverage from January 1, 1964, through January 1, 1968. ACMAT, however, has either lost or destroyed the Greater New York policies as well. ACMAT has demanded that Greater New York provide it with a defense or pay a portion of the defense costs of the Bridgeport asbestos litigation, but Greater New York refused, claiming that it had never issued such policies to ACMAT.⁶ From January 1, 1968, through January 1, 1972, ACMAT was insured by Travelers Insurance Company (Travelers), formerly known as Aetna Casualty and Surety Company; from January 1, 1972, through January 1, 1976, ACMAT was insured by Security; from January 1, 1976, through January 1, 1979, ACMAT was insured by Liberty; from January 1, 1979, through April 15, 1981, ACMAT was insured by Lumbermens Mutual Casualty Company (Lumbermens); and from April 15, 1981, through April 15, 1985, ACMAT was insured by CIGNA Corporation (CIGNA).⁷ All of those policies were substantially the same in their coverage of "bodily injuries."⁸

On July 1, 1992, ACMAT and Lumbermens entered into a buy-back agreement and release of policies (buy-back agreement) pursuant to which, in return for $300,000, ACMAT released Lumbermens from its obligations under its insurance policies with ACMAT for the time period between January 1, 1979, through April 15, 1981.⁹ Under the buy-back agreement, ACMAT agreed that "any and all duties and obligations, of any kind or nature whatsoever, past, present, or future, that exist or might be deemed to exist under or in connection with the [Lumbermens] policies, are hereby satisfied, discharged, terminated, and released, and a complete extinguishment and termination of any such coverage under these policies is hereby effected. ACMAT acknowledges that as of the date of this Agreement, ACMAT has no further liability insurance coverage of any kind with [Lumbermens]."

Also included in the buy-back agreement is a section entitled "Indemnification," which provides in relevant part: "If any claimant, insurer or other person or entity, asserts a claim against [Lumbermens] under or in connection with the [Lumbermens] policies arising out of any alleged liability of ACMAT and where [Lumbermens'] obligation, if any, to defend or indemnify ACMAT with respect to such alleged liability has been released or extinguished by the Agreement, ACMAT shall indemnify [Lumbermens] and hold it harmless against any and all loss or liability incurred as a result of or in connection with any such claim. The obligation of ACMAT under this paragraph shall extend to and include any and all losses or expenses incurred by [Lumbermens] in the defense, payment, or handling of such claim, including, without limitation, reasonable legal fees and expenses, judgments, settlements, and the cost of complying with any equitable decrees...."

Four insurers, Travelers, Liberty, CIGNA and Security, have agreed to participate in the defense of the Bridgeport asbestos litigation. On August 26, 1996, Security filed a two count complaint¹⁰ against ACMAT and Lumbermens seeking a declaratory judgment establishing ACMAT's obligation to assume an equitable portion of the costs of defending the Bridgeport asbestos litigation.¹¹ In count one, Security alleged that ACMAT or Lumbermens or both should be held responsible for an equitable share of the defense costs attributable to the buy-back period. The trial court granted Lumbermens' motion for summary judgment as to count one. The propriety of this grant of summary judgment is not before us in this appeal. Security filed a cross motion for summary judgment against ACMAT. The trial court denied Security's cross motion for summary judgment, finding that an issue of material fact was in dispute. The trial court denied Security's renewed motion for summary judgment on procedural grounds, finding that Security had not given proper notice to nonparty insurers. Security filed a second renewed motion for summary judgment against ACMAT, and the trial court granted this motion, finding that "ACMAT is legally obligated to ... assume an equitable share of the costs of defending the Bridgeport [asbestos] litigation as a result of having released Lumbermens from the latter's obligation to defend."

On November 30, 1999, Security filed an amended complaint adding a third count against ACMAT. In the third count, Security sought a declaration that ACMAT was obligated to assume an equitable share of the cost of its defense proportionate to the lost policy period. Following a bench trial, on May 9, 2001, the trial court rendered judgment for Security, finding that "ACMAT is responsible to contribute an equitable share of the costs of defense for years in which no insurer was identified or for which ACMAT lost or destroyed the policies and the alleged insurer has refused coverage." The trial court first determined that the Bridgeport asbestos litigation involved a "continuous trigger situation such that all asbestos related injury policies issued during the extended exposure period have been triggered for coverage and all companies that issued such policies are responsible for defense costs related to the Bridgeport asbestos litigation."¹² The court, citing Stonewall Ins. Co. v. Asbestos Claims Management Corp., 73 F.3d 1178 (2d Cir. 1995), modified, 85 F.3d 49 (2d Cir. 1996), and Sacharko v. Center Equities Ltd. Partnership, 2 Conn. App. 439, 479 A.2d 1219 (1984), went on to conclude that "the pro rata allocation approach has been adopted by Connecticut courts and the Second Circuit, when complicating factors exist, as here." The trial court further found that ACMAT was responsible for paying a pro rata share of its defense costs in the Bridgeport asbestos litigation equal to 50.18 percent based upon its liability under counts one and three.¹³

ACMAT appealed from the trial court's judgment to the Appellate Court and we transferred the case to this court pursuant to General Statutes § 51-199 (c) and Practice Book §...