New York Law Review

Tag: Asbestos Litigation

  • Certain Underwriters at Lloyd’s, London v. Foster Wheeler Corp., 9 N.Y.3d 928 (2007): Application of the “Known Loss” Doctrine in Insurance Coverage

    9 N.Y.3d 928 (2007)

    The “known loss” doctrine precludes insurance coverage where the insured is aware of a loss before obtaining insurance that is substantially certain to occur.

    Summary

    This case addresses the application of the “known loss” doctrine in the context of insurance coverage for asbestos-related liabilities. The New York Court of Appeals affirmed the Appellate Division’s decision, holding that the known loss doctrine barred coverage for Foster Wheeler because it was aware of the likely asbestos liabilities before the relevant insurance policies were purchased. The court reasoned that the insured’s pre-policy awareness of a substantial probability, rather than mere possibility, of future losses triggered the doctrine.

    Facts

    Foster Wheeler manufactured and sold asbestos-containing products for many years. Before purchasing certain insurance policies, Foster Wheeler was already facing numerous asbestos-related lawsuits and had made significant payments to settle such claims. The insurance policies at issue were purchased after Foster Wheeler was aware of the existing asbestos liabilities. The insurers argued that the “known loss” doctrine should bar coverage because Foster Wheeler knew, before obtaining the insurance, that asbestos-related claims were substantially certain to occur.

    Procedural History

    The Supreme Court initially ruled in favor of Foster Wheeler, finding that the known loss doctrine did not apply. The Appellate Division reversed, holding that the known loss doctrine barred coverage. The New York Court of Appeals affirmed the Appellate Division’s decision, adopting the reasoning of the lower court.

    Issue(s)

    Whether the “known loss” doctrine bars insurance coverage when the insured is aware of a substantial probability of future losses before obtaining the insurance policy?

    Holding

    Yes, because the “known loss” doctrine precludes insurance coverage when the insured is aware of a loss before obtaining insurance that is substantially certain to occur. The Court of Appeals agreed with the Appellate Division that Foster Wheeler’s knowledge of existing asbestos claims and the substantial probability of future claims triggered the application of the known loss doctrine, thus barring insurance coverage.

    Court’s Reasoning

    The Court of Appeals adopted the reasoning of the Appellate Division, which emphasized the principle that insurance is intended to cover fortuitous events, not certainties. The Appellate Division noted that the known loss doctrine prevents using insurance to cover a loss that the insured knows has already occurred or is substantially certain to occur. The court distinguished between a mere possibility of future losses and a substantial probability, holding that the latter triggers the known loss doctrine. The court emphasized that Foster Wheeler’s prior payments and ongoing litigation regarding asbestos-related claims demonstrated a clear awareness of the substantial likelihood of future liabilities. "[W]here an insured is already aware of a loss at the time a policy is purchased, that loss cannot fairly be considered fortuitous, and, therefore, is uninsurable". The purpose of insurance is to protect against contingent or unknown risks of loss, not to provide coverage for known or probable liabilities.

  • Reynolds v. Amchem Products, Inc., 10 N.Y.3d 713 (2008): Duty to Disclose High-Low Agreements in Multi-Defendant Litigation

    Reynolds v. Amchem Products, Inc., 10 N.Y.3d 713 (2008)

    In multi-defendant litigation, when a plaintiff and one defendant enter into a high-low agreement that requires the agreeing defendant to remain in the litigation, the existence and terms of the agreement must be disclosed to the court and the non-agreeing defendant(s).

    Summary

    Reynolds sued multiple defendants, including Garlock and Niagara, alleging asbestos exposure. Unbeknownst to Garlock, Reynolds and Niagara entered into a high-low agreement two weeks before trial, limiting Niagara’s liability exposure. The trial court was aware of the agreement but did not disclose it to Garlock. The jury apportioned liability, and Garlock appealed, arguing that the non-disclosure prejudiced its right to a fair trial. The New York Court of Appeals held that the failure to disclose the high-low agreement warranted a new trial because Garlock was deprived of a fair determination of its rights and liabilities.

    Facts

    Donald Reynolds contracted mesothelioma, allegedly from asbestos exposure at the Ashland Oil Refinery. He and his wife sued multiple manufacturers and distributors, including Garlock (gaskets) and Niagara (insulation). Two weeks before trial, Reynolds and Niagara entered into a high-low agreement: Niagara would pay Reynolds a minimum of $155,000 even if found without fault, and its liability was capped at $185,000. Garlock was unaware of this agreement.

    Procedural History

    The trial court, aware of the agreement but not its specific terms, did not disclose it to Garlock. The jury found Garlock 60% liable and Niagara 40% liable, awarding damages. Garlock moved for a new trial, arguing prejudice due to the undisclosed agreement. The trial court denied the motion. The Appellate Division affirmed, finding no evidence of collusion detrimental to Garlock. The New York Court of Appeals reversed.

    Issue(s)

    Whether, in a multi-defendant action, the failure to disclose a high-low agreement between the plaintiff and one defendant to the non-agreeing defendant constitutes reversible error.

    Holding

    Yes, because the non-disclosure of the high-low agreement deprived the non-agreeing defendant of its right to a fair trial and a fair determination of its rights and liabilities.

    Court’s Reasoning

    The Court of Appeals emphasized that high-low agreements, while useful tools, can prejudice non-agreeing defendants in multi-defendant cases if kept secret. The court noted that “secretive agreements may result in prejudice to the nonagreeing defendant at trial, distort the true adversarial nature of the litigation process, and cast a cloud over the judicial system.” The court reasoned that the undisclosed agreement gave Reynolds an incentive to maximize Garlock’s liability while minimizing Niagara’s. This deprived Garlock of the opportunity to adjust its trial strategy, seek appropriate procedural and evidentiary rulings, and argue the agreement’s significance to the jury. The court held that disclosure is necessary to ensure fairness and allow non-agreeing defendants to meaningfully defend themselves. The court balanced the state’s interest in settlement with the need to ensure a fair trial. The determination of what effect, if any, the agreement will have at trial, including whether the jury should be informed, remains within the trial court’s discretion. As the court stated, “To ensure that all parties to a litigation are treated fairly, we hold that whenever a plaintiff and a defendant enter into a high-low agreement in a multi-defendant action which requires the agreeing defendant to remain a party to the litigation, the parties must disclose the existence of that agreement and its terms to the court and the nonagreeing defendant(s).”

  • Continental Casualty Co. v. Rapid-American Corp., 80 N.Y.2d 641 (1993): Scope of Duty to Defend in Asbestos Exposure Cases

    Continental Casualty Co. v. Rapid-American Corp., 80 N.Y.2d 641 (1993)

    Under a standard Comprehensive General Liability (CGL) policy, an insurer has a broad duty to defend its insured in asbestos-related bodily injury lawsuits where there is a reasonable possibility of coverage, even if the pollution exclusion clause exists, provided the underlying complaints allege an “occurrence” during the policy period.

    Summary

    Continental Casualty Company (CNA) sought a declaratory judgment that it had no duty to defend Rapid American Corporation in asbestos-related personal injury lawsuits. Rapid, as a successor to Philip Carey Manufacturing, faced numerous claims from individuals exposed to asbestos. The New York Court of Appeals held that CNA had a duty to defend Rapid because the complaints alleged an “occurrence” (bodily injury resulting from continuous exposure) during the policy period. The court found that the pollution exclusion clause was ambiguous as applied to asbestos exposure in enclosed spaces, and therefore did not negate CNA’s duty to defend. The court deferred the issue of contribution from other insurers or self-insured periods.

    Facts

    Rapid American Corporation, as a successor to Philip Carey Manufacturing Corporation, inherited asbestos-related liabilities. CNA issued four CGL policies to Rapid covering 1971-1980. These policies required CNA to defend and indemnify Rapid for bodily injury caused by an “occurrence.” From 1990 onward, Rapid faced numerous asbestos-related bodily injury lawsuits alleging injuries from sustained exposure to asbestos products from the 1950s through the 1980s. CNA disclaimed coverage, arguing no “occurrence” happened within the policy period and the pollution exclusion applied.

    Procedural History

    CNA initiated a declaratory judgment action seeking a ruling that it had no duty to defend Rapid. The Supreme Court granted summary judgment to CNA. The Appellate Division reversed, granting partial summary judgment to Rapid, declaring that CNA must defend Rapid in the underlying suits. The Court of Appeals affirmed the Appellate Division’s decision.

    Issue(s)

    1. Whether the underlying complaints allege an “occurrence” covered by the CNA policies, thus triggering CNA’s duty to defend?

    2. Whether the policies’ pollution exclusion clause negates CNA’s duty to defend in the asbestos-related lawsuits?

    Holding

    1. Yes, because the complaints allege personal injury and wrongful death suffered by contractors who worked with asbestos products for sustained periods of time, which can be considered a repeated exposure to conditions that unexpectedly and unintentionally results in bodily injury during the policy period.

    2. No, because the pollution exclusion clause is ambiguous as applied to asbestos-related bodily injury claims, and therefore, CNA cannot escape its duty to defend.

    Court’s Reasoning

    The court emphasized that the duty to defend is broader than the duty to indemnify, requiring an insurer to defend if there is a reasonable possibility of coverage based on the complaint’s allegations or the insurer’s knowledge of facts. The court rejected CNA’s argument that the asbestos injuries were not “unexpected or unintentional,” noting that intent to cause injury must be shown for the exclusion to apply. The court also rejected the argument that Rapid’s past insurance practices constituted a “practical construction” that coverage was triggered only upon manifestation of the disease, stating, “[t]he fact that Rapid called upon other insurance coverage issued [by National] or obtained indemnification elsewhere, cannot be considered a concession that would relieve CNA of their contractual responsibilities” (177 AD2d 61, 70).

    Regarding the pollution exclusion, the court found it ambiguous as applied to asbestos exposure in enclosed spaces. While asbestos could be considered an irritant or pollutant, the court questioned whether asbestos fibers inhaled by workers were “discharged into the ‘atmosphere’ as contemplated by the exclusion.” The court noted that the exclusion was intended to address environmental pollution and the terms used in the exclusion, such as “discharge” and “dispersal,” are terms of art in environmental law. The Court stated, “The crucial distinction, therefore, is not whether the asbestos products were launched into the stream of commerce or remained under the control of the manufacturer, but rather whether asbestos was placed into the environment.” Because the asbestos fibers could have been transmitted by direct contact, CNA did not meet its burden of proving that the exclusion applied and was subject to no other reasonable interpretation.

    The court deferred the issue of contribution from other insurers or self-insured periods, stating that the insured should not be denied initial recourse to a carrier merely because another carrier may also be responsible. It said, “That is the ‘litigation insurance’ the insured has purchased.”