Highlands Ins. Co. v. Celotex Corp.

743 F. Supp. 28

HIGHLANDS INSURANCE COMPANY, et al., Plaintiffs, v. The CELOTEX CORPORATION, et al., Defendants.

Civ. A. No. 89-2258.

United States District Court, District of Columbia.

July 31, 1990.

Daniel C. Sauls, Steptoe & Johnson, Christine Angeline Nykiel, James Patrick Schaller, Jackson & Campbell, P.C., Washington, D.C., for plaintiffs.

Karen Lee Bush, Susan Scharfstein, Jerold Oshinsky, Anderson, Kill, Olick & Oshinsky, James Wilson Greene, William E. Nowakowski, Bromley, Brown & Walsh, Washington, D.C., for defendants.

MEMORANDUM OPINION

JOHN H. PRATT, District Judge.

I. Introduction

In this declaratory judgment action, see 28 U.S.C. § 2201(a) (1988), plaintiffs¹ seek a declaration that the upper layer excess insurance policies they issued to defendants the Celotex Corporation and Carey Canada, Inc.,² between 1977 and 1983 exclude coverage for all asbestos-related disease claims. Shortly after filing their complaint, plaintiffs moved for summary judgment on the ground that a prior decision of this Court collaterally estops Celotex and Carey Canada from arguing that the asbestos-related exclusions in these policies have a narrower scope. The motion has been fully briefed.³

II. Background

A. The Earlier Litigation

Carey Canada, an asbestos mining company, is a wholly-owned subsidiary of Celotex, an asbestos manufacturing company, which in turn is a wholly-owned subsidiary of its Florida-based parent, Jim Walter Corporation. In 1983 and 1986, respectively, Carey Canada and Celotex brought declaratory judgment actions against several insurance companies that had issued lower level excess policies to Jim Walter in 1977 and 1978.⁴ Those actions, which were consolidated and tried before this Court in February 1989, were the "flip side" of the present action. In them, Carey Canada and Celotex sought a declaration that the policies' asbestos-related exclusions barred only those claims based on the narrowly defined, medical condition known as asbestosis.

The exclusions at issue in that case hereinafter "Exclusions (1), (2) and (3)" read as follows:

(1) This policy shall not apply to claims made against the insured arising out of Asbestosis or any similar condition caused by Asbestos;⁵

(2) It is understood and agreed that any bodily injury or property damage claim or claims arising out of all asbestosis operations is excluded from the policy;⁶ and (3) This policy shall not apply to any liability imposed upon the insured arising out of ASBESTOSIS.⁷

Early on in the litigation, this Court held that the meaning of the word "asbestosis," as used in the policies, was ambiguous. See Carey Canada, Inc. v. California Union Insurance Co., 83-1105, Mem. Op. at 9-10 (May 7, 1985) (Pratt, J.). Accordingly, the parties engaged in lengthy and voluminous discovery concerning their understanding of this term at the time the contracts were made, and the Court heard and received extensive evidence on this issue during a seven-day trial.⁸

On June 1, 1989, we granted judgment for the defendant insurance companies. See Carey Canada, Inc. v. California Union Insurance Co., 720 F.Supp. 1018, 1026 (D.D.C.1989) (Pratt, J.). We found "by clear and convincing evidence that all parties to the policies understood and interpreted them to exclude all asbestos-related disease claims, not just the single disease asbestosis." Id. at 1026. Specifically, we found that, "in using the term `asbestosis,'" the parties "objectively intended" to exclude "`all asbestos-related disease claims.'" Id. at 1025. Our conclusion that Carey Canada and Celotex shared this understanding was based on specific findings of fact concerning: (1) their treatment of loss data during the years 1978-1982;⁹ (2) their interpretation of the Aetna exclusion, which they read to exclude all asbestos-related disease claims as of October 1977; (3) their notice practices from October 1977 until April 1983;¹⁰ (4) their 1980 and 1981 Annual Reports to Stockholders;¹¹ and (5) the understanding and use of the term "asbestosis" by their exclusive retail broker, Rollins Burdick Hunter ("RBH"). See id. at 1022-24.

B. The Present Litigation

The fourteen exclusion clauses at issue in the present case are similar or identical to Exclusions (1), (2), and (3) set out above. See supra pp. 29-30. National Union policy no. 1189778 (effective 10/1/77-10/1/78) contains an exclusion clause identical to Exclusion (2). The exclusion clauses in National Union policy nos. 1226062 (effective 10/1/80-10/1/81), 1185371 (effective 10/1/81-10/1/82), and 1185372 (effective 10/1/81-10/1/82) and Highlands policy no. SR40746 (effective 10/1/81-10/1/82) are identical to Exclusion (3). Eight of the remaining nine policies at issue contain exclusion clauses very similar to Exclusion (3).¹² The exclusion clause in the remaining policy, Old Republic no. OZX11577 (effective 10/1/81-10/1/82), reads:

The company shall not indemnify the insured for any sum which the insured shall be obligated to pay by reason of any liability for bodily injury, personal injury or property damage caused by or arising out of asbestosis....

All of these policies were negotiated on behalf of Jim Walter by RBH, its exclusive retail broker in securing excess liability coverage.¹³ See Carey Canada v. California Union, 720 F.Supp. at 1020. Moreover, one of the National Union policies, no. 1189778, was negotiated on behalf of National Union by Kandis Pinkstaff in the same year that she negotiated policy no. 118977, which was at issue in the earlier litigation and contained an identical asbestos-related exclusion clause. Finally, ten of the fourteen policies were issued prior to April 1983.¹⁴ Having set out the relevant facts, we turn now to the merits of the present motion.

III. Discussion

A.

Under the doctrine of collateral estoppel, or issue preclusion, "once a court has decided an issue of fact or law necessary to its judgment, that decision is conclusive in a subsequent suit based on a different cause of action involving a party to the prior litigation." United States v. Mendoza, 464 U.S. 154, 158, 104 S.Ct. 568, 571, 78 L.Ed.2d 379 (1984) (citation omitted). The doctrine "serves to `relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication.'" Id. at 158, 104 S.Ct. at 571 (quoting Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 414, 66 L.Ed.2d 308 (1980)). Thus, it not only recognizes earlier findings as conclusive, but also precludes "a party ... from attempting a second time to prove a fact that he sought unsuccessfully to prove in a prior action." Yates v. United States, 354 U.S. 298, 336, 77 S.Ct. 1064, 1085, 1 L.Ed.2d 1356 (1957) (citation omitted).

Three conditions must be satisfied in order for the doctrine to apply: (1) the issue must have been contested by the parties and submitted for determination by the court; (2) the issue must have been "actually and necessarily determined" by the court; and (3) preclusion must not work an unfairness. Jack Faucett Associates v. American Telephone & Telegraph Co., 744 F.2d 118, 125 (D.C.Cir.1984) (citations omitted), cert. denied, 469 U.S. 1196, 105 S.Ct. 980, 83 L.Ed.2d 982 (1985). Plaintiffs argue that these conditions have been met with respect to every issue essential to their case. With the exception of National Union policy no. 1189778, we disagree. However, we do agree with plaintiffs that certain facts pertinent to this action were conclusively established in Carey Canada v. California Union, and that Celotex and Carey Canada are precluded from relitigating those issues here.

B.

As we held in the earlier litigation, the asbestos-related exclusions at issue "are ambiguous on their face." Carey Canada, Inc. v. California Union Insurance Co., 708 F.Supp. 1, 4 (D.D.C.1989) (Pratt, J.). Therefore, resort to extrinsic evidence of the parties' intent is required. See id. at 5. With the exception of National Union policy no. 1189778, the intent of plaintiff insurers with respect to the exclusion clauses presently at issue was not addressed in the earlier litigation, see generally Carey Canada v. California Union, 720 F.Supp. 1018, and there is no evidence of plaintiff insurers' intent before us now. Accordingly, except with respect to National Union policy no. 1189778, summary judgment is not possible at this time. See Commissioner v. Sunnen, 333 U.S. 591, 598, 68 S.Ct. 715, 719, 92 L.Ed. 898 (1948) (parties are free to litigate points not at issue in first proceeding); cf. National Savings & Trust Co. v. Rosendorf, 559 F.2d 837, 840 (D.C.Cir.1977) (where court in first action did not consider issue essential to resolution of second action, summary judgment could not be granted on basis of collateral estoppel).

C.

We agree with plaintiffs, however, that Celotex and Carey Canada are precluded from contesting that, from October 1, 1977, through April 5, 1983, they understood the asbestos-related exclusions in plaintiffs' policies to exclude all asbestos-related disease claims. We found in the earlier action, "by clear and convincing evidence," that these defendants believed that coverage for asbestos-related diseases had been excluded from their insurance policies beginning October 1, 1977. See Carey Canada v. California Union, 720 F.Supp. at 1023, 1025. It was not until April 6, 1983, just a few days before Carey Canada v. California Union was filed, that these defendants began asserting that exclusion clauses such as those in plaintiffs' policies excluded only those claims based on asbestosis alone. Id. at 1023. These and other findings on this issue¹⁵ apply with equal force in this case, and we will not permit these defendants to challenge or contradict them now. Based on these findings, we conclude, as we did in Carey Canada v. California Union, that Celotex and Carey Canada understood the pre-April 6, 1983 exclusion clauses in plaintiffs' policies...