Penn National Can’t Avoid Asbestos Coverage Payout, South Carolina Supreme Court Rules

Pennsylvania National Mutual Casualty Insurance Co. cannot escape the long tail of asbestos, and must cover part of the litigation losses for an asbestos installation company that went out of business more than 30 years ago, the South Carolina Supreme Court decided this week.

The justices upheld lower courts’ rulings in favor of Covil Corp. and its receiver, with some minor modifications.

The insurer had denied full payment on the claim, arguing that Covil, a subcontractor that installed and removed asbestos in South Carolina for four decades, and its receiver waited more than a year to notify Penn National that a lawsuit had been filed in 2019. The subcontractor’s insurance policy required it to “immediately forward” the information about the lawsuit brought by former worker David Rollins, who had been diagnosed with mesothelioma.

The receiver noted that, under previous South Carolina court rulings, the timely notice provision applies only if the insurer had been prejudiced by not knowing about the pending litigation. But Penn National attorneys countered that the prejudice rule does not apply unless the rights of an innocent third party were harmed.

In this case, Rollins, the victim, had already been compensated and thus was not harmed by the delay, the Supreme Court found, overruling the lower courts on that point.

“In this case, the ‘driving force’ has no force at all because no innocent third party’s rights are implicated. The underlying plaintiff—Rollins—has already been paid the full amount of his settlement by Covil and other insurers,” Justice John Cannon Few wrote for the majority.

But the justices said the failure to give timely notice was not fatal to the insurance claim for another reason: Case law has established that the failure must constitute a material breach. Covil’s late notice to Penn did not harm anyone, the justices found.

“The point that is important to analyzing the ‘benefit . . . reasonably expected’ … is not whether Penn National’s interests were protected but whether Covil’s interests were,” the July 24 opinion reads. “Penn National was not deprived of this benefit because Covil was represented by counsel hired by other insurers from the very beginning of the case. Those attorneys timely answered the complaint, conducted discovery, and handled other pretrial matters they deemed necessary to protect Covil.”

Policy exclusions also did not apply, the justices said. The court modified the lower courts’ ruling on other points, but upheld them in substance. The opinion can be seen here. Justice John Kittredge dissented on the finding that the breach of the notice provision was immaterial.