Federal Court Upholds Umbrella Insurer in Asbestos Coverage Dispute

A federal appeals court has agreed that Continental Insurance Co. did not have a duty to defend asbestos injury claims against the automotive supplier Federal–Mogul Corp. as its umbrella carrier because the primary coverage provided by three other insurers had not been exhausted.

The Federal–Mogul U.S. Asbestos Personal Injury Trust, established by the Michigan company’s Chapter 11 bankruptcy plan, brought its duty-to-defend case against Continental in U.S. District Court for the Eastern District of Michigan.

In a complaint for declaratory relief, the trust claimed that after its policy through Travelers Indemnity Co. had been exhausted, the trust’s umbrella policy from Continental Insurance began coverage of injury claims arising from asbestos-containing products made by Federal-Mogul unit Vellumoid from 1965 to 1981.

Travelers Indemnity was one of three primary liability carriers to the trust. The other active policies were issued by Globe Indemnity Co. and Liberty Mutual Insurance Co.

Siding with the trial court’s finding for Continental, a three-judge panel of the United States Court of Appeals for the Sixth Circuit in Detroit affirmed a district court’s decision to dismiss the trust’s September 2008 lawsuit.

Continental, the judges agreed, had no duty to defend the trust because its policy had not been triggered since the trust’s other two primary insurance policies were still providing coverage of claims against Vellumoid.

For Continental’s duty to defend to arise, “the Vellumoid claims must not be covered by either Travelers or any other underlying insurance collectible by the Trust,” the appeals court ruled.

The Continental Insurance policy’s Defense, Settlement, Supplementary Payments (DSSP) Insuring Agreement provides for the defense of claims against the trust when “an occurrence is not covered by the underlying insurance listed in the underlying insurance schedule or any other underlying insurance collectible by the insured, but covered by the terms of this policy, without regard to the retained limit contained herein.”

Continental moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). At a hearing, the district court orally granted Continental’s motion to dismiss for failure to state a claim.

The Southfield, Mich.-based company sought Chapter 11 bankruptcy protection in October 2001, amid hundreds of millions of dollars in asbestos claims. The company emerged from Chapter 11 bankruptcy protection in December 2007.

The case is Federal-Mogul U.S. Asbestos Personal Injury Trust v. Continental Casualty Company et al., 6th Cir., No. 10–1290.