U.S. Fidelity & Guaranty Co. v. Treadwell Corp.

58 F.Supp.2d 77

UNITED STATES FIDELITY & GUARANTY COMPANY, Plaintiff, v. TREADWELL CORPORATION, Commercial Union Insurance Company, the Travelers Companies, and the Home Insurance Company, Defendants.

Treadwell Corporation, Defendant and Third-Party Plaintiff, v. The Travelers Insurance Companies, Cigna Property & Casualty Insurance Company, United States Fire Insurance Company and Edward J. Muhl, New York State Superintendent of Insurance, as Administrator of the New York State Property/Casualty Insurance Security Fund, Third-Party Defendants.

No. 94 Civ. 4392(MBM).

United States District Court, S.D. New York.

June 21, 1999.

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Martin Mensch, Dornbush Mensch Mandelstam & Schaeffer, LLP, New York City, for Defendant and Third-Party Plaintiff Treadwell Corporation.

Irene C. Warshauer, Anderson Kill & Olick, P.C., New York City, for Defendant and Third-Party Plaintiff Treadwell Corporation.

Vincent E. Reilly, Robert J. Kelly, Justin N. Kinney, McElroy Deutsch & Mulvaney, Morristown, NJ, for Third-Party Defendant U.S. Fire Insurance Company.

OPINION AND ORDER

MUKASEY, District Judge.

This diversity suit concerns liability insurance coverage for personal injury claims arising from exposure to asbestos. Defendant and third-party plaintiff Treadwell Corporation ("Treadwell") installed and otherwise handled products containing asbestos between the 1940s and the 1980s, during some of which time Treadwell was covered by primary and excess liability insurance. In 1994, Treadwell and several of its liability insurers sought declaratory relief clarifying the extent to which Treadwell was entitled to indemnification for claims arising out of its asbestos-related activities (the "Asbestos Claims"). In 1997, however, Treadwell and all parties other than the United States Fire Insurance Company ("U.S.Fire") and the Home Insurance Company ("Home Insurance") settled their disputes. Treadwell's third-party claims against U.S. Fire and its cross-claims against Home Insurance are the only disputes remaining.

Both Treadwell and U.S. Fire now move for summary judgment pursuant to Fed. R.Civ.P. 56. By stipulation, the parties agree for the purposes of these motions that to the extent a person asserting a claim against Treadwell was injured by exposure to asbestos, he was injured at all points in time from initial exposure through the date his claim was filed or he died. (Stip.¶ 3)¹ Thus, the parties agree that some of those making claims against Treadwell (the "Asbestos Claimants") might have suffered injury continuously from the 1940s, when Treadwell's asbestos-related activities began, through the 1990s, when the most recent Asbestos Claimants filed suit — a span that includes a period of more than 20 years when Treadwell did not have insurance as well as a period of 20 years in which it was insured under both primary and excess policies.

U.S. Fire provided Treadwell excess insurance from 1970 through 1972. By the terms of its policies, U.S. Fire agreed to assume coverage responsibility upon exhaustion of Treadwell's primary insurance policies for these years, which were issued by the American Mutual Liability Insurance Company ("AMLIC"). AMLIC is now insolvent, however, so Treadwell assumed in the 1997 settlement some of the liability that might otherwise have been borne by AMLIC. As discussed below, the principal question before the court, therefore, is whether this liability assumed by Treadwell can be allocated entirely to the AMLIC policy years, which would exhaust the AMLIC policies and trigger U.S. Fire's coverage. Resolving this question, however, requires consideration of several subsidiary questions, including: (1) whether this court has authority to order allocation of Treadwell's liability for the Asbestos Claims among all potentially liable parties; (2) whether Treadwell itself must assume some share of the liability for the years in which it was uninsured; and (3) what effects, if any, Treadwell's settlements with its other insurers have on U.S. Fire's liability. Whether, and to what extent, U.S. Fire is obligated to defend or indemnify Treadwell for any of the Asbestos Claims turns on the answers to these questions.

For the reasons stated below, I conclude that the primary insurance polices underlying U.S. Fire's policies likely are not yet exhausted and, therefore, that U.S. Fire has no present obligation to defend or indemnify Treadwell. Accordingly, U.S. Fire's motion for summary judgment will be granted, and Treadwell's denied, subject to confirmation of that likelihood through examination of the individual Asbestos Claims in conformity with the rulings below.

I.

The following relevant facts are undisputed, unless otherwise noted. Treadwell, a privately held corporation organized under Delaware law with its principal place of business in Connecticut, manufactures, repairs and maintains oxygen generators used on nuclear submarines. (Compl. ¶ 4; 9/16/98 Johnson Aff. ¶ 4)² From sometime in the 1940s to sometime in the 1980s, however, Treadwell served also as a contractor or subcontractor, primarily at utility powerhouse sites in the New York metropolitan area. (9/16/98 Johnson Aff. ¶ 4) As part of this work, Treadwell installed and otherwise handled material containing asbestos. (Id.; see Stip. ¶ 1) At no point did Treadwell manufacture, sell or distribute asbestos or asbestos-containing products. (Stip.¶ 1)

In the late 1980s, Treadwell began to be named as a defendant in lawsuits alleging bodily injury arising from exposure to asbestos. (Id.) A large number of these Asbestos Claims have been settled, dismissed or otherwise disposed of, but as of August 31, 1998, there were more than 6000 such cases still pending against Treadwell, predominantly in New York state court. (9/16/98 Johnson Aff. ¶ 15; see Antonucci Aff. ¶ 2; Stip. ¶ 1)³ Nearly all the plaintiffs in these cases allege exposure to asbestos prior to January 1, 1970, the effective date of U.S. Fire's excess insurance policies. (Antonucci Aff. ¶ 4. But see U.S. Fire Local Rule 56.1 Statement ¶ 9 (noting that there "were at least 39 Powerhouse Claimants who did not begin working at the powerhouses until 1970 or later and so could not have been first exposed to asbestos at the powerhouses prior to 1970"))

A. Treadwell's Insurance Coverage

Treadwell was uninsured prior to 1967.⁴ (Reilly Aff. ¶ 46) However, from January 1, 1967 until July 1, 1986, a period Treadwell refers to as "the Coverage Block," the company was insured under several primary comprehensive general liability ("CGL") policies: From 1967 through 1969, and again from 1973 through June 20, 1983, Treadwell was insured under policies issued by CIGNA Property and Casualty Insurance Company, its subsidiaries and affiliates ("CIGNA"); from 1970 through 1972, the company was insured by AMLIC; and from June 20, 1983 through July 1, 1986, Treadwell was insured by the Travelers Insurance Companies ("Travelers"). (Treadwell Local Rule 56.1 Statement ¶ 33) For all of this period, Treadwell was insured also under excess CGL policies, triggered by exhaustion of the underlying primary insurance: From 1967 through 1969, and again from 1973 through June 20, 1985, Treadwell was insured under excess CGL policies issued by CIGNA; and from 1970 through 1972, Treadwell was insured under excess CGL policies issued by U.S. Fire.⁵ (Id. ¶ 33) Thus, Treadwell's insurance coverage for the years relevant to these motions was as follows:

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In addition to these insurance policies, which were purchased directly by Treadwell and which provided comprehensive coverage within their respective periods, Treadwell was a named insured on several policies purchased by utilities covering work done at their sites. The United States Fidelity & Guaranty Co. ("USF & G") and the Commercial Union Insurance Company ("CU") each issued primary insurance policies naming Treadwell as an insured. (9/16/98 Johnson Aff. ¶ 8(b)) Exhaustion of the USF & G policy triggered an excess policy issued by Home Insurance, which named Treadwell also as an insured. (Id.)

B. The U.S. Fire Policies

As noted, Treadwell purchased primary liability insurance from AMLIC for the years 1970, 1971 and 1972. For each of these three years, AMLIC's coverage was limited to $100,000 per person, $300,000 per occurrence and $300,000 in "products aggregate" for bodily injuries. (Stip. ¶ 7 & Ex. C) To insure against liability above these limits, Treadwell purchased two excess umbrella policies from U.S. Fire, which together covered the same period. (Id. ¶¶ 4-6)

The U.S. Fire policies, like Treadwell's other insurance policies, are CGL policies, standard-form industry contracts dating to the 1960s. See American Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F.Supp. 1485, 1500-03 (S.D.N.Y.1983) (discussing the history and purpose of the CGL policies), aff'd as modified by 748 F.2d 760 (2d Cir.1984). To the extent relevant here, those policies provide that U.S. Fire will indemnify Treadwell for "ultimate net loss" arising from personal injury or property damage in excess of the policy limits of the AMLIC policies, up to $10 million in the aggregate for each policy year and excluding "liability for contamination or pollution ... or any injuries or damages resulting therefrom." (E.g., Stip. Ex. A at 1, 4-5) Additionally, the policies provide that U.S. Fire will "defend any suit" against Treadwell alleging a loss covered by the policies but "not covered" by the AMLIC policies or by "any other underlying insurance." (Id. at 1)

The policies define "ultimate net loss" as the total of the following sums "with respect to each occurrence":

(1) All sums which the insured, or any company as his insurer, or both, become legally obligated to pay as damages, whether by reason of adjudication or settlement, because of personal...