One Occurrence—No Stacking
September 2005
Applying Pennsylvania law, the Third Circuit
Court of Appeals held that asbestos-related personal injury claims constitute
a single occurrence, and that a noncumulation clause in the policies precluded
stacking of limits in Liberty Mut. Ins. Co. v. Treesdale,
Inc. (3d Cir. Aug. 15, 2005).
by Kevin
Merriman
Goldberg
Segalla LLP
From 1966 to 1975, the insured allegedly manufactured and sold asbestos-containing
products. Workers exposed to the product had filed several thousand asbestos
exposure claims against the company. Liberty Mutual, which issued primary liability
policies to the insured from 1975 to 1985, defended and indemnified the insured
until the primary policies had been exhausted. The subject of this dispute was
excess liability coverage issued by Liberty during the same period.
Each excess policy provided policy limits of $2 million per occurrence and
in the aggregate. The policies issued from 1983 to 1985 provided $5 million
limits. The Limits of Liability section of the policies provided:
-
Regardless of the number of insureds under this policy or the number
of persons or organizations who sustain personal injury, property damage,
or advertising injury or damage, the company's liability is limited as follows:
-
Each Occurrence—The limit of liability stated in the declarations as
applicable to "each occurrence" is the limit of the company's liability
for all damages, direct and consequential, because of all personal injury,
property damage, or advertising injury or damage sustained by one or more
persons or organizations as the result of any one occurrence.
* * *
-
For the purpose of determining the limits of the company's liability:
-
(1) all personal injury and property damage arising out of continuous
or repeated exposure to substantially the same general conditions … shall
be considered as the result of one and the same occurrence.
Liberty maintained that it had no duty to defend or indemnify its insured
once it paid $5 million, which was the highest limit available under any one
policy, on the theory that the asbestos claims arose from a single occurrence.
The insured argued that that the asbestos claims arose from multiple occurrences
based on each claimant's exposure to asbestos and that Liberty was therefore
obligated to provide coverage under each and every policy until the limit of
each policy was reached, for a total of $26 million in coverage.
Applying Pennsylvania law, the court concluded that the asbestos claimants'
injuries stemmed from a common source—the manufacture and sale of the asbestos-containing
products. Thus, the claims arose from a single occurrence. The court reasoned
that the Limits of Liability language referred to limits on a per occurrence
basis, not a per claim or per person basis. Moreover, the language unambiguously
addressed the situation where many people alleged injuries indifferent years
arising from one occurrence.
In so holding, the court acknowledged that its decision was at odds with
other jurisdictions, which have held that each individual claimant's exposure
to asbestos was a separate occurrence (citing Metropolitan
Life Ins. Co. v. Aetna Cas. & Sur. Co., 765 A.2d 981 (Conn. 2001); In re Prudential Lines, Inc., 158 F.3d 65 (2d
Cir. 1998); Babcock & Wilcox Co. v. Arkwright-Boston
Mfg. Mut. Ins. Co., 53 F.3d 762 (6th Cir. 1995).) The court relied on
its own precedent, Appalachian Ins. Co. v. Liberty Mut.
Ins. Co., 676 F.2d 56 (3d Cir. 1982), and applied the "cause of loss"
test to determine the number of occurrences, pursuant to which there is a single
occurrence if the injuries resulted from one proximate, uninterrupted and continuing
cause, regardless of the number of injuries or their magnitude.
The court also concluded that the noncumulation clause precluded stacking
policy limits of triggered policies, thus limiting Liberty's coverage to $5
million. The clause provided:
- No-Cumulation of Liability—Same Occurrence—If the same occurrence gives
rise to personal injury, property damage or advertising injury or damage
which occurs partly before and partly within any annual period of this policy,
each occurrence limit and the applicable aggregate limit or limits of the
policy shall be reduced by the amount of each payment made by the company
with respect to each occurrence, either under a previous policy or policies
of which this policy is a replacement, or under this policy with respect
to previous annual periods thereof.
Liberty argued that the clause was intended to prevent cumulation of policy
limits of the consecutive excess policies that applied to the same occurrence,
i.e., "that the clause ensures that if an occurrence has been covered by one
policy in a line of successive policies, then only one occurrence limit will
apply." The insured argued that the clause did not apply, since the insured
could access the policies in reverse chronological order, (by demonstrating
that each policy had been triggered and selecting which polices would respond
to the claims), such that there would never be a "payment made … under a previous policy."
The court rejected the insured's argument, concluding that noncumulation
provisions are enforceable in Pennsylvania, and that the insured's "alchemistic
manipulation of the relevant chronology" violated the clause's purpose and was
an illogical and tortured reading of the provision. The court also rejected
the insured's argument that the noncumulation clause was in essence an unenforceable
escape clause. The court concluded that the provision sought only to limit,
not preclude, coverage for the claims. Thus, the available excess coverage was
limited to $5 million.
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