A.W. Chesterton v. Mass. Insurers Insolv.

• Decision Date: 12 December 2005
• Citation: 445 Mass. 502,838 N.E.2d 1237
• Parties: A.W. CHESTERTON COMPANY v. MASSACHUSETTS INSURERS INSOLVENCY FUND.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

838 N.E.2d 1237

445 Mass. 502

A.W. CHESTERTON COMPANY v.MASSACHUSETTS INSURERS INSOLVENCY FUND.

Supreme Judicial Court of Massachusetts, Middlesex.

Argued October 6, 2005.

Decided December 12, 2005.

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Martin F. Gaynor, III(Nicholas D. Stellakis, Boston, with him) for the plaintiff.

Joseph C. Tanski & Gregory P. Deschenes, Boston (Gregg A. Rubenstein & Christine Vargas Suthoff with them) for the defendant.

The following submitted briefs for amici curiae:

Laura A. Foggan & Alicia C. Ritter, of the District of Columbia, & Michael R. Coppock for Complex Insurance Claims Litigation Association.

David L. Elkind, Washington, DC, Elizabeth A. Sherwin, & John A. Gibbons, New York, NY, Martin C. Pentz, Boston, Karen L. Crocker, Michael P. Angelini, & Vincent F. O'Rourke, Jr., Framingham, for Massachusetts Electric Company & another.

Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, COWIN, & CORDY, JJ.

GREANEY, J.

This case(here on direct appellate review) concerns the liability of the Massachusetts Insurers Insolvency Fund (Fund) on excess indemnity policies issued by Midland Insurance Company(Midland) to A.W. Chesterton Company(Chesterton) covering asbestos-related liability claims involving Chesterton products.Although other insurers were involved in the case, the only parties to this appeal are Chesterton and the Fund.We confine ourselves to the issues raised by these parties, which concern conclusions of a judge in the Superior Court that:

(1) The Fund is not barred by laches in raising the issue of misrepresentation by Chesterton in its applications for four Midland policies;

(2) Chesterton had not made misrepresentations (as defined by G.L. c. 175, § 186) in its applications for three of the Midland policies, but had made misrepresentations on the application for the fourth policy that voided the policy;

(3) the trigger of coverage on the valid Midland policies is bodily injury occurring during the policy period;

(4) the Fund has no obligation to indemnify Chesterton until the limits of all solvent excess coverage providing for indemnification have been exhausted; and

(5) applicable law does not require that Chesterton exhaust all "ultimate net loss" coverages before the Fund is obligated to defend Chesterton.

We agree with the judge on the misrepresentation and laches issues.We also agree with the judge's conclusions with respect to the extent of the Fund's obligations to defend or indemnify Chesterton on Midland's covered claims.In our view, however, plain language contained in two of the valid Midland policies requires that coverage under those policies be triggered by asbestos exposure or inhalation, and not by bodily injury, during the policy period.We modify that part of the judgment to read accordingly.

1.We first summarize the general background of the case.Chesterton, a company with headquarters in Stoneham, manufactures and distributes products that for many decades contained asbestos.During the years relevant to this appeal Chesterton maintained primary comprehensive general liability insurance policies and multiple layers of excess indemnity policies with coverage for asbestos-related liabilities.In January, 1980, the first claim alleging bodily injury caused by the inhalation of asbestos was asserted against Chesterton.By the time of trial, over 300,000 such claims had been asserted against Chesterton, alleging bodily injury, or death, due to exposure to asbestos fibers.Chesterton initially sought to have the claims defended, and, if necessary, indemnity paid, by its primary general liability insurers.When Chesterton perceived that the indemnity limits of its primary coverages had been exhausted, it demanded that insurers that had issued it excess insurance coverage provide indemnity and defense in accordance with the terms of those excess policies.A significant number of those insurers declined to provide Chesterton with a defense to, or indemnification for, remaining underlying claims against it.In August, 1996, Chesterton filed a complaint in the Superior Court alleging breach of contract and seeking a declaration of the scope of the obligations of certain of its excess carriers with respect to their duties to defend and to indemnify the company on the underlying claims against it.

The Fund is a nonprofit unincorporated legal entity created by G.L. c. 175D, § 3, to pay covered claims¹ against an insolvent insurer (up to $300,000 a claim, see note 4, infra).²SeeClark Equip. Co. v. Massachusetts Insurers Insolvency Fund,423 Mass. 165, 166-167, 666 N.E.2d 1304(1996).It was named in Chesterton's complaint because four of the excess indemnity policies, covering the time span between February 1, 1980, and February 1, 1984, had been issued by Midland, an insurer that has become insolvent.Pursuant to G.L. c. 175D, § 5(1), the Fund is liable to the extent of Midland's obligation on the covered claims against Chesterton.SeeNorfolk & Dedham Mut. Fire Ins. Co. v. Quane,442 Mass. 704, 704-705 n. 2, 816 N.E.2d 521(2004).

A trial was held to determine whether Chesterton had in fact exhausted its primary policies.Prior to that trial, all of the parties(which, as has been indicated, included excess carriers that are no longer part of this appeal) stipulated to the nature of bodily injury caused by exposure to asbestos as follows:

"The parties hereby stipulate that with respect to each Underlying Claim at issue, bodily injury will be considered to have taken place continuously from the time that each Underlying Claimant was first exposed to asbestos until the date of diagnosis, death or the filing of the Underlying Claim, whichever occurs earliest."

Based on this stipulation, and on the language of the relevant policies, the judge concluded that each of Chesterton's primary policies had been triggered by bodily injury during the policy period and that the insurers that had issued the triggered policies were jointly and severally liable for the entirety of each covered claim against Chesterton, up to the policy limits.This ruling determined that the indemnity payments to the underlying claimants were to be allocated to all relevant primary policies in effect between (1) the time of a claimant's first exposure and (2) the date of diagnosis, death, or claim against Chesterton, whichever happened first.Neither Chesterton nor the Fund challenged this ruling and, therefore, the "all sums" method of allocation of liability has become the law of this case.³SeeKing v. Driscoll,424 Mass. 1, 7-8, 673 N.E.2d 859(1996).Based on the testimony of two expert witnesses, and documentary evidence, the judge concluded that Chesterton had met its burden in demonstrating that the limits of all relevant primary policies had been exhausted.

The judge then considered a series of motions for partial summary judgment filed by the Fund seeking declarations with respect to six issues regarding its duty to defend and indemnify Chesterton.The judge concluded that partial summary judgment should enter declaring, in effect, that (1) the Fund has no duty to defend actions against Chesterton, unless and until Chesterton establishes that it has exhausted the limits of duty to defend (but not the "ultimate net losses") coverages provided by solvent excess carriers; (2) the Fund has no obligation to make indemnity payments to Chesterton, unless and until Chesterton establishes that it has exhausted the limits of indemnity coverages provided by solvent carriers; (3) the Fund's duty to defend Chesterton is not limited to claims in which the claimant alleges inhalation of asbestos fibers during the policy period, but includes claims in which the claimant alleges that there was a Midland policy in existence during the period between the dates of first inhalation of asbestos fibers and the date of diagnosis, death, or claim; (4) the Fund's obligation to indemnify Chesterton is not limited to claims in which the claimant alleges inhalation of asbestos fibers during the policy period, but includes claims in which the claimant alleges that there was a Midland policy in existence during the period between the dates of first inhalation of asbestos fibers and the date of diagnosis, death, or claim; (5) the Fund's duty to defend Chesterton arises after Chesterton has exhausted the limits of duty to defend coverages provided by solvent carriers and is extinguished as to a specific underlying policy when the indemnity limits of that policy have been exhausted; (6) the Fund's obligation to indemnify Chesterton as to claims covered by valid Midland policies arises after Chesterton has exhausted the limits of the indemnity coverages provided by solvent excess carriers applicable to such claims and is extinguished as to a specific underlying policy when the indemnity limits of such policy have been exhausted.The judge also allowed the Fund's motion for partial summary judgment for a declaration that any obligation to indemnify Chesterton under the Midland policies is limited by G.L. c. 175D to an aggregate amount of $299,999 for each bodily injury claim, including consortium claims and derivative claims, and to $299,999 for fees and costs incurred in the defense of each bodily injury claim.⁴

2.Against this background, the judge held a trial to decide whether the Fund's obligations to indemnify or to defend could be avoided because of alleged misrepresentations made by Chesterton in its applications for coverage for four Midland policies that were in effect from February 1, 1980, to February 1, 1981(first policy); February 1, 1981, to February 1, 1982(second policy); February 1, 1982, to February 1, 1983(third policy); and February 1, 1983, to February 1, 1984(fourth policy).At trial, the Fund claimed that the absence of any reference, in Chesterton's applications for coverage during the four policy years, to either asbestos-containing products...