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.”