An Exclusion Insurers Can Rely Upon In Asbestos Coverage Litigation?

Many believed the years of court decisions on insurance coverage issues associated with asbestos related claims exhausted the list. However, a recent decision by the U.S. District Court for the Eastern District of Pennsylvania illustrated asbestos coverage litigation is not finished. At issue was the application of a named “asbestosis exclusion.” See, Asten Johnson v. Columbia Casualty Co., et al., — F.Supp.2d –, 2007 WL 1056819 (E.D. PA 2007), March 30, 2007 (Civil Action No. 03-1552).

Asten historically manufactured a product containing asbestos and had been frequently named defendant in lawsuits around the country involving asbestos litigation. Columbia Casualty Co. and American Insurance Co. provided Asten with general liability coverage in 1981 and 1982. In 2001, Asten tendered the defense of the asbestos lawsuits and requested coverage from Columbia. Both Columbia and American subsequently denied coverage for all underlying asbestos-related bodily injury claims, relying upon “asbestosis exclusions” in their policies: “It is agreed that this policy does not apply to any claim alleging an exposure to or the contracting of asbestosis or any liability resulting therefrom.”

Asten sought a declaration that the asbestosis exclusion did not bar coverage for all asbestosis-related bodily-injury claims, but merely claims where the alleged diagnosis is asbestosis for the underlying plaintiff. Alternatively, the insurers’ position was that the asbestosis exclusion should be interpreted as barring all asbestos-related claims, regardless of specific diagnosis.

In arriving at its decision, the court closely scrutinized the facts leading to the underwriting and issuance of the policies at issue, as well as Asten’s pursuit of coverage for the underlying asbestos claims. Fundamentally, the court had trouble with the application of exclusion, as interpreted by Asten. The court specifically noted a person cannot be “exposed to asbestosis” because it is not a contagious disease. In turn, the court found that the exclusion was meant to exclude coverage for claims involving injury due to exposure to Asten’s asbestos-containing products. Since a person can be exposed to asbestos, the result may include a diagnosis of asbestosis, as well as several other related illnesses.

In finding the asbestosis exclusion meant to exclude coverage from all bodily injury claims arising from exposure to asbestos, the court focused on: (1) the understanding and intent of the parties as demonstrated by the conduct of the parties during the underwriting and placement of the policies at issue; (2) the industry custom and practice with respect to the use and understanding of the term “asbestosis” during the relevant period and its often understood meaning to include all asbestos-related diseases; and (3) the course of performance of Asten with respect to the asbestos claims, where Asten sought coverage from insurers with “asbestosis” exclusions after other available insurance coverage was nearing exhaustion.

The insurers were able to support their positions with specific evidence including documents, fact witnesses, and expert opinion. The court noted the evidence demonstrated a significant number of important players used or understood the term, “asbestosis” or “asbestosis-claims” to refer to all asbestos-related claims during the relevant time period including: (1) professionals involved in asbestos claims and coverage; (2) high-level personnel at Fireman’s Fund Insurance Company; (3) various Columbia Casualty Company personnel involved in underwriting the subject policies; (4) several Asten employees; (5) counsel for several of Asten’s primary carriers; and (6) several insurance companies, as identified by experts advanced by the insurers involved in the case.

While the use of “asbestosis” exclusions may not have been widespread, the decision is important on many levels. While insurers and policyholders had not fully litigated the application of “asbestosis” related exclusions, the exclusions were definitely a topic of discussions in settlement negotiations. Based upon the decision in Asten, many insurers may place greater weight on the exclusion when discussing settlement. Correspondingly, more insurers may be inclined to litigate the issue with the hope of minimizing or eliminating coverage for asbestos related claims under policies with “asbestosis” exclusions. The Asten decision also provides an excellent blueprint for the types of factual evidence that may be necessary to support the argument that an “asbestosis” exclusion restricts coverage for asbestosis bodily injury claims, regardless of specific medical diagnosis. Reinsurers will certainly closely monitor how their cedents have approached the handling of policies that include “asbestosis” exclusions, with the potential for additional litigation or arbitration of the issue.

Andrew S. Boris is a partner in the Chicago office of Tressler Soderstrom Maloney & Priess, LLP. His practice is focused on litigation and arbitration of insurance coverage and reinsurance matters throughout the country, including general coverage, professional liability, environmental, and asbestos cases. Questions and responses to this article are welcome at aboris@tsmp.com.