New York Court Finds No Coverage Owed for Asbestos Losses Because Insured Failed to Prove Material Terms

Marianne Bradley and Gregory Capps | White and Williams

In the long-tail insurance context, it is not unusual to have issues arise addressing “lost” or “missing” policies. In an opinion issued on January 22, 2021, a New York court ruled that an insurer did not owe coverage to its insured for underlying asbestos claims because the insured had failed to establish the material terms of a “lost” policy under which it sought coverage for the underlying claims. The lawsuit, Cosmopolitan Shipping Company, Inc. v. Continental Insurance Company,[1] arose out of a coverage dispute between Plaintiff Cosmopolitan Shipping Co., Inc. (Cosmopolitan) and its insurance carrier, Continental Insurance Company (CIC), in connection with bodily injury claims arising out of asbestos exposure. The case provides a good analysis of what an insured must do to establish coverage under a “lost” or “missing” policy.

During and after World War II, Cosmopolitan chartered and operated a number of shipping vessels on behalf of United Nations Relief and Rehabilitation Administration (UNRRA). In the 1980s, seamen who had worked on board Cosmopolitan’s vessels between 1946 and 1948 filed lawsuits against Cosmopolitan seeking damages for injuries arising out of alleged exposure to asbestos on Cosmopolitan’s vessels. Cosmopolitan sought coverage from CIC for the claims, alleging that CIC had insured Cosmopolitan’s vessels during the relevant time period under a protection and indemnity policy issued to the UNRAA (the P&I Policy).

Except for three endorsements, the P&I Policy could not be located, and CIC denied coverage on that basis. Cosmopolitan filed a declaratory judgment action, and the court held an evidentiary hearing at which both parties relied upon expert and lay witness testimony to support their respective positions.

After the hearing, Cosmopolitan filed affidavits to establish that it had conducted a sufficiently diligent search for the relevant insurance policies. New York law provides that, where an insured demonstrates it has made a “diligent but unsuccessful search and inquiry for the missing policy,” the insured may rely on secondary evidence to prove the existence and terms of the policy.

Cosmopolitan submitted evidence that it had: (1) asked its former broker to search for policies from the relevant time period; (2) conducted a thorough search of its own internal records; (3) issued subpoenas to other insurance entities permitted to provide P&I coverage for UNRRA vessels during the relevant time frame; and (4) searched various archives for insurance policies issued to Cosmopolitan and the UNRRA. The court determined that such efforts constituted a “sufficiently diligent” search, and Cosmopolitan was accordingly permitted to introduce on secondary evidence.

New York law is unclear as to whether a party using secondary evidence to establish coverage under a “lost policy” must prove the existence and terms of the lost policy by a preponderance of the evidence or by clear and convincing evidence. However, determination of the proper standard was unnecessary in this case because – although Cosmopolitan had proven by clear and convincing evidence that CIC provided insurance to the UNRRA – Cosmopolitan had nevertheless “failed to prove even by a preponderance of the evidence” the terms of the P&I Policy.

The clear and convincing evidence establishing that CIC provided coverage to the UNRRA during the relevant time period included: (1) the three endorsements identified by Cosmopolitan – one of which included language stating that it should be attached to the P&I Policy “of Continental Insurance Company and issued to the UNRRA”; (2) the dates on the three endorsements, which showed coverage from at least May of 1946 to August of 1947; and (3) Cosmopolitan’s witness’ testimony, which established that only four insurance carriers, including CIC, were writing P&I insurance during the relevant time frame.

Although Cosmopolitan established the existence of the P&I Policy, the court still found that CIC did not owe coverage. To create a binding contract, there must be evidence of a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms. In this case, Cosmopolitan failed to establish one of the most critical terms of the contract: the limits of the policy. Without knowing the policy limits, the court was unable to determine how much insurance was available to Cosmopolitan for each eligible asbestos plaintiff under the Policy. Accordingly, because the use of secondary evidence did not establish the material terms of the P&I Policy, CIC was not obligated to provide coverage for the underlying asbestos claims.

The Cosmopolitan case provides insurers with guidance when addressing “lost” or “missing” policy issues, which should be considered for spotting issues to assist in defending these types of coverage claims. The decision reflects that the insured has a significant burden and insurers should be aware of that burden and hold the insured to their proofs.


[1] 2020 U.S. Dist. LEXIS 241310 (S.D.N.Y., Dec. 22, 2020)

Breaking News: Connecticut Supreme Court Decides Significant Coverage Issues in R.T. Vanderbilt

Patricia B. Santelle and Ciaran B. Way | White and Williams

On October 4, 2019 (almost two years after granting certification), the Connecticut Supreme Court affirmed the Appellate Court’s rulings on four key coverage issues in R.T. Vanderbilt Company v. Hartford Accident & Indemnity Company, et al. The coverage dispute in Vanderbilt concerns underlying actions alleging that talc and silica mined and sold by the insured contained asbestos and/or caused asbestos-related disease. The case has been proceeding in phases, two of which have been tried to date, resulting in the matter on appeal.

(1) “Continuous Trigger” Theory of Coverage Applies: The Court affirmed and adopted the Appellate Court’s opinion applying a “continuous trigger” for the underlying claims at issue, and agreed that the trial court properly excluded testimony from medical experts the insurers had proffered to prove that the asbestos disease process did not support a continuous trigger.

(2) The “Unavailability of Insurance” Exception to Time-on-Risk Pro Rata Allocation Applies: The Court affirmed and adopted the Appellate Court’s ruling that (a) damages and defense costs should not be allocated to any period in which insurance was “unavailable” in the market, (b) the insurers bear the burden of proving that coverage for asbestos liabilities was available to the policyholder after the date asbestos exclusions were added to the policies and (c) the insured bears the burden of proving that it was unable to obtain asbestos coverage prior to 1986 (when such insurance was generally available). The Appellate Court recognized that, in certain circumstances, there could be an “equitable exception” to the unavailability rule if the insured continued to manufacture products containing asbestos after 1986 with the knowledge that such products were hazardous and uninsurable (circumstances which the court found were not present in this case).

(3) The “Sudden and Accidental” and “Absolute” Pollution Exclusions Are Only Applicable to Claims Arising From “Traditional” Environmental Pollution and Not Occupational Disease Caused by Exposure to Asbestos: The Court affirmed and adopted the Appellate Court’s conclusion that the pollution exclusions were intended to apply only to “traditional environmental pollution” and not to disease caused by exposure to asbestos. 

(4) Occupational Disease Exclusions Precludes Coverage for Claims of Occupational Disease, Regardless of Whether the Claimant Was Employed by the Policyholder or a Third Party: Noting that this is an issue of first impression nationally, the Court affirmed the Appellate Court’s ruling that the occupational disease exclusions contained in certain excess policies applied to the underlying asbestos-related claims, which the parties stipulated were brought by non-employees. The Court agreed with the insurers’ argument that “occupational disease” has a plain meaning that is broader than the workers’ compensation context.

This is the first occasion in which the Connecticut Supreme Court has ruled definitively on the application of a “continuous trigger,” the “unavailability” rule and the application of pollution exclusions in the context of asbestos-related claims. As noted above, the occupational disease exclusion issue was one which the Court noted is of first impression nationally.

The 98-page Appellate Court decision in Vanderbilt can be found at R.T. Vanderbilt Company, Inc. v. Hartford Accident and Indemnity Company, 171 Conn. App. 61 (Conn. App. Ct. March 7, 2017). The Supreme Court decision will be officially released shortly.

Connecticut Supreme Court Affirms Continuous Trigger and Unavailability Exception, Makes First-In-The-Nation Law Regarding Occupational Disease Exclusion

Paul C. Fuener | K&L Gates | October 28, 2019

Introduction

Earlier this month, the Connecticut Supreme Court (the “Supreme Court”) finally issued its long-anticipated ruling regarding the Connecticut Appellate Court’s (the “Appellate Court”) landmark 2017 decision in R.T. Vanderbilt v. Hartford Accident and Indemnity Co. (the “2017 Appellate Court Decision”). [1] The Supreme Court adopted in its entirety the Appellate Court’s policyholder-favorable decisions regarding the application of the continuous trigger theory to long-tail asbestos-related bodily injury claims, the application of the unavailability-of-insurance rule to allocation of liability for such claims, and the inapplicability of the qualified pollution exclusion to asbestos-related bodily injury claims.

The Supreme Court’s opinion also contained a potentially problematic ruling for policyholders. Ruling on an issue of national first impression, the Supreme Court held that an occupational disease exclusion in certain of the policyholder’s policies applied not only to claims brought by the policyholder’s own employees but also to all underlying claimants alleging that they suffer from an occupational disease, even if they were employed by others.

The Supreme Court’s Vanderbilt Decision

The Connecticut Supreme Court considered four issues on appeal from the 2017 Appellate Court Decision. [2] Three of those issues were raised by the defendant insurers: (1) whether the continuous trigger theory was properly applied to long-tail asbestos claims under Connecticut law, (2) whether the unavailability-of-insurance rule should be applied to allocation of liability under Connecticut law for long-tail liability claims, and (3) whether under Connecticut law the pollution exclusion applied only to traditional environmental pollution or more broadly to asbestos bodily injury claims. [3]

The policyholder raised the final issue on appeal: whether the occupational disease exclusion was limited to claims brought by the policyholder’s own employees or had broader application. [4]

Trigger, Allocation, and the Qualified Pollution Exclusion

In its 2017 Appellate Court Decision, the Appellate Court placed Connecticut among those jurisdictions that apply the continuous trigger theory to long-tail claims. The Appellate Court’s decision reasoned that this theory best reflected the medical particularities of long-tail asbestos claims and was therefore the most fair and efficient way to distribute costs. [5]

The Appellate Court also adopted the “unavailability-of-coverage” rule to augment Connecticut’s pro rata allocation theory for long-tail claims. Under this rule, no amounts are allocated to a policyholder for years when the policyholder was unable to purchase insurance for third-party asbestos-related bodily injury claims because such insurance was unavailable in the market. [6] In adopting the “unavailability-of-coverage” rule, the Appellate Court rejected the insurers’ attempt to include an “equitable exception” to the rule that would have made the rule inapplicable to periods during which a policyholder sold allegedly asbestos-containing products. It also rejected the insurers’ suggestion that the alleged availability of coverage for asbestos liabilities under “claims-made” policies should be factored into the question of whether coverage for asbestos-related bodily injury claims was “available” in the market. [7]

Finally, the Appellate Court held that the so-called “qualified” pollution exclusion (also referred to as the “sudden and accidental” pollution exclusion) only applied to traditional environmental pollution. [8] The Appellate Court reasoned that the meaning of “environmental pollution” was clear at the time the insurers drafted the exclusion and referred to traditional methods of environmental pollution, such as unintentional migration of a pollutant through a water source. [9] The Appellate Court held, therefore, that this exclusion does not apply to asbestos-related bodily injury claims. [10]

On appeal, the Supreme Court agreed with the Appellate Court’s reasoning and conclusions with respect to these three issues and adopted in full the Appellate Court’s discussion of them without further elaboration. [11]

The Occupational Disease Exclusion

In considering the scope of the occupational disease exclusion, the Supreme Court, after summarizing the discussion of the issue below, began by making an independent inquiry into the plain meaning of the term “occupational disease.” [12]

Looking first to the language of the exclusion in the relevant policies, the Supreme Court noted that neither defined the term “occupational disease,” thus requiring the court to turn to the plain meaning of the term when the policies were written. [13]

Citing an array of dictionaries and cases, the court found definitions such as “[a] disease caused by the condition or hazards of a particular occupation” [14] and “an illness caused by factors arising from one’s occupation.” [15] In light of these broad definitions, the Supreme Court rejected the policyholder’s argument that the term “occupational disease” belonged to the workers compensation domain and should therefore only apply in a workers compensation context to claims brought by the policyholder’s own employees. [16] The Supreme Court acknowledged that “the relationship between occupational disease and workers’ compensation is now a matter of black letter law….” [17] However, it found that:

the definitions on which Vanderbilt relies — including the definition in Black’s Law Dictionary — [do not] suggest[] in any way that the phrase “occupational disease” is a construct devoid of meaning outside the law of workers’ compensation, notwithstanding its obvious significance within that area of the law. Instead, we read those definitions only to highlight the availability of workers’ compensation as a common, legal remedy for claims arising from the underlying condition. [18]

The Supreme Court also found it significant that the relevant exclusions themselves, like the general definitions of “occupational disease” that it had considered, did not contain an express limitation to the policyholder’s own employees. [19] The Supreme Court contrasted the language of the relevant exclusions with that of certain other exclusions contained in the relevant policies that did expressly limit the exclusion’s scope, noting that “when the drafters of the policy desired to limit the application of an exclusion to a certain group of individuals, they did so.” [20]

The Supreme Court then rejected the policyholder’s argument that the relevant exclusions were ambiguous in the absence of limiting language. [21] It also held that the policyholder’s preferred interpretation would require adding nonexistent limiting language in violation of bedrock principles of contract interpretation. [22]

The Supreme Court also disagreed with the policyholder’s argument that a reference to “occupational diseases sustained by any employee of the assured” in the body of one of the relevant policies limited the scope of the occupational disease exclusion in that policy, which was found in an endorsement. [23] The Supreme Court held that this reference did not constitute a generally applicable definition of “occupational disease” and so was irrelevant to interpreting the scope of the exclusion found in an endorsement. [24]

Finally, the Supreme Court addressed the policyholder’s argument that interpreting the occupational disease exclusion without an own-employees limitation would render the relevant policies’ liability coverage meaningless. [25] The Supreme Court found this argument “tempting” but ultimately held that the facts in the record undercut its applicability to the case at bar. [26] In Vanderbilt, the parties had stipulated below that the underlying claims were all brought entirely by claimants who were not the policyholder’s own employees, and those claims could be classified into three categories: claims arising from workplace exposure, claims arising from both workplace and nonworkplace exposure, and entirely nonworkplace exposure claims. [27] The Supreme Court held that its interpretation of the occupational disease exclusion did not render the relevant policies’ liability coverage meaningless in these circumstances, since that interpretation did not affect coverage for claims in the second and third category. [28] Moreover, the Supreme Court noted that even a significant exclusion limiting available coverage does not mean that the insured did not get the coverage for which it bargained or that the “insurance policies are rendered meaningless by virtue of the denial of coverage.” [29]

In light of all these reasons, the Supreme Court concluded that the occupational disease exclusion was clear and unambiguous, and it applies to occupational disease claims brought by both a policyholder’s own employees and other individuals who contract occupational disease in the course of work for other employers. [30]

Notably, in explaining the import of is decision, the Supreme Court did acknowledge that although a “disease might well have been contracted during [the underlying claimant’s] employment, that fact does not, without more, render it occupational in nature.” [31] Although the Supreme Court did not describe in detail what was needed to render a disease “occupational in nature,” it did suggest that the relevant employment had to be in “an industry that had peculiar incidence of diseases occasioned by exposure to [whatever the underlying claimant was allegedly exposed to].” [32]

Conclusion

Policyholders facing third-party long-tail liabilities whose general liability policies may be governed by Connecticut law should take heart that Connecticut has now joined those jurisdictions applying the continuous trigger theory and the unavailability-of-coverage rule. The Supreme Court’s Vanderbilt opinion also brings Connecticut into the majority of jurisdictions that properly interpret the qualified pollution exclusion as having no application outside the realm of traditional environmental pollution.

However, policyholders also should carefully review their policies for any “occupational disease” exclusionary language, particularly if those policies may be governed by Connecticut law. Policyholders that are uncertain as to whether Connecticut law may apply to the interpretation of their policies may wish to seek advice from coverage counsel regarding the applicable choice of law and the potential implications of Vanderbilt to their general liability insurance program. While a general “occupational disease” exclusion of the kind at issue in Vanderbilt may not be widely found in general liability policies, Vanderbilt may embolden insurers nationally whose policies contain similar provisions to attempt to raise new coverage defenses to escape their coverage obligations for toxic tort claims. Policyholders should carefully evaluate any attempts by their insurers to raise previously unasserted “occupational disease” exclusions.

Asbestos/Duty of Care: Connecticut Court Addresses Construction Project/Liability Issues

Mitchell, Williams, Selig, Gates & Woodyard | October 25, 2019

The Superior Court of Connecticut (Judicial District of Hartford) (“Court”) addressed in a September 30th opinion certain issues arising in an asbestos exposure case. See Julian Poce, et al., v. O&G Industries, Inc., et al., 2019 WL 5295545.

The Court addressed Summary Judgment Motions arguing certain project contractors did not owe mason laborers a duty of care.

Several mason laborers (collectively “Plaintiffs”) were employed by Connecticut Mason Contractors, Inc. to work at certain points on a building project at a high school in Connecticut. They alleged that while working on the building project they were exposed to asbestos.

Plaintiffs filed an action against Southern Middlesex Industries, Inc. (“SMI”) and O&G Industries, Inc. (“O&G”) for negligent infliction of emotional distress in regards to both O&G and SMI. They alleged repeated exposure to asbestos from working in areas of the building project designated by O&G as the project manager. Asbestos was stated to have been disturbed that was present in the floors, walls, and ceilings.

O&G was argued to have had actual or constructive notice of dangerous site conditions/defects, including the presence of asbestos and PCBs. It is stated to have supervised all phases of work along with exercising possession and control of the project. Plaintiffs claimed that even though O&G controlled (or had the ability to control) the means and method of work, the relevant areas were not sampled, remediated or tested for asbestos prior to the Plaintiffs’ exposure. This is alleged to have resulted in asbestos being inhaled by Plaintiffs.

O&G was allegedly aware of the exposure. Further, it was alleged that such exposure was allowed to occur despite an agreement signed with the Town of Wethersfield requiring O&G to observe safety protocols and procedures.

SMI was alleged to have performed demolition work involving asbestos remediation at the site. Plaintiffs claimed that SMI did not properly section off regulated work areas to ensure plaintiffs were not exposed to materials being remediated. This is alleged to have contributed to a lack of adequate testing and sampling of materials including an absence of advance warning to the Plaintiffs.

Both O&G and SMI filed Motions for Summary Judgment arguing that they owed Plaintiffs no duty of care.

Various AIA contract documents along with deposition transcripts were filed in support of the Defendant’s Motion for Summary Judgment.

O&G argued that it owed no duty to the Plaintiffs because issues related to hazardous materials were specifically excluded in its contract from its scope of work. The Plaintiffs responded that legal duty is a question of fact, noting that:

  • O&G supervised safety at the worksite
  • O&G had a duty of care to third parties because it was in control of the site
  • O&G had a duty of care under the Occupational Safety and Health Act Regulations

O&G replied that its contract provided it did not have control over construction means or safety precautions at the site. Further, it claimed that there was no duty under the common law or Occupational and Safety Health Act regulations.

The Court addressed each of these three arguments and granted Summary Judgment concluding that O&G did not owe the Plaintiffs a duty of care with regard to the discovery and removal of asbestos.

SMI argued in support of its Motion for Summary Judgment that it owed no duty of care because it was not hired to identify asbestos. Instead, it argued that the obligation was to remove hazardous materials that had already identified by their contractors.

Plaintiffs responded that an analysis of legal duty ordinarily leads to a question of fact and that SMI was in the best position to ensure their safety. It was argued to have performed its work in such a way as to create hazardous situations and that the company owed a duty of care under Connecticut common law along with the Occupational and Safety Health Act regulations.

SMI replied it had no duty to perform work that was beyond the scope of its contract.

The Court concluded it was evident that SMI was not hired for the specific purpose of identifying and locating hazardous materials. However, it determined this did not establish that it bore no responsibility whatsoever for the identification and discovery of asbestos on the worksite while it performed its demolition or remediation duties. Questions of fact were held to remain regarding SMI’s capacity to identify any previously undiscovered hazardous materials to which the Plaintiffs alleged they were exposed.

As a result, SMI’s Motion for Summary Judgment was denied.

A copy of the opinion can be downloaded here.

Inability to Confirm Coverage Supports Setting Aside Insured’s Default Judgment on Grounds of Extrinsic Mistake

Christopher Kendrick and Valerie A. Moore | Haight Brown & Bonesteel | December 17, 2018

In Mechling v. Asbestos Defendants (No. A150132, filed 12/11/18), a California appeals court affirmed the trial court’s grant of an insurer’s motion to set aside default judgments entered against its defunct insured pursuant to the trial court’s inherent, equitable power to set aside defaults on the ground of extrinsic mistake, thereby allowing the insurer to intervene and defend its own interests in the case.

In Mechling, Fireman’s Fund insured Associated Insulation of California, which was named as a defendant in asbestos litigation filed in 2009. Associated had ceased operating in 1974, but was somehow successfully served with the complaint and defaulted, leading to default judgments of several million dollars. Notice of the judgments was served on Associated but not Fireman’s Fund.

After entry of the default judgments, Fireman’s Fund located insurance policies it thought might cover Associated. Fireman’s Fund moved to set aside the defaults and default judgments on equitable grounds, arguing that the litigation presented a classic case of “extrinsic mistake” because service of the complaint on Associated did not provide notice to Fireman’s Fund, “resulting in a default judgment to a fault free party.” According to Fireman’s Fund, Associated was a suspended corporation and “could not and did not defend itself” and, as a result, Fireman’s Fund “never had the opportunity to participate in [the] lawsuit.”

Although the plaintiffs had given notice to Fireman’s Fund for two of the four lawsuits, they ignored the fact that Fireman’s Fund had responded by writing that it could not locate any policies covering Associated. Instead, the plaintiffs argued that Fireman’s Fund could not claim ignorance and seek equitable relief without any showing of extrinsic mistake or diligence.

The trial court granted Fireman’s Fund’s motion to set aside, and the appeals court agreed. The court said that a trial court has inherent power to vacate a default judgment on equitable grounds, including extrinsic mistake—which is when circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits. The court stated that:

“To qualify for equitable relief based on extrinsic mistake, the defendant must demonstrate: (1) a meritorious case; (2) a satisfactory excuse for not presenting a defense to the original action; and (3) diligence in seeking to set aside the default once the fraud or mistake had been discovered.” (Citing In re Marriage of Stevenot (1984) 154 Cal.App.3d 1051.)

The Mechling court said that a meritorious case does not require showing certainty of success, but only “facts indicating a sufficiently meritorious claim to entitle it to a fair adversary hearing.” And the court found that it was a reasonable inference from the facts that the plaintiffs’ damages award would have been impacted had Fireman’s Fund presented a defense and challenged plaintiffs’ proof of causation and damages.

The court rejected an argument that showing a meritorious case required attaching a proposed pleading in intervention or a declaration with “evidence” showing a meritorious defense. The court accepted Fireman’s Fund’s arguments as sufficient and stated that Fireman’s Fund would obviously file a responsive pleading if granted a set aside.

The Mechling court also found that Fireman’s Fund had articulated a satisfactory excuse for not presenting a defense to the lawsuits. It was not a named party and was not served with the complaints or other relevant pleadings. Although it had received notice, it had notified the plaintiffs that it had “searched all available records” and had “not located any reference or policies of insurance issued to Associated.” Fireman’s Fund had invited the plaintiffs to provide information showing Fireman’s Fund issued insurance policies to Associated, but they did not respond. The court found that Fireman’s Fund’s letter to the plaintiffs supported the conclusion that Fireman’s Fund had a satisfactory excuse for not defending the lawsuits: “It did not believe Associated was its insured.”

Thus, the court affirmed the order setting aside the default judgments, stating that: “In our view, this case presents exceptional circumstances warranting equitable relief. Fireman’s Fund was denied an opportunity to present its case in court because it was not served with any of the relevant pleadings, did not have notice of two of the lawsuits, and did not believe it had a duty to defend Associated. We conclude the trial court did not abuse its discretion by granting Fireman’s Fund’s motion for equitable relief.”

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