Travelers Casualty and Surety Company (“Travelers”) dodged a bullet when a $36 million judgment entered against it was unanimously overturned by a recent Third Circuit ruling in General Refractories Co. v. First State Ins. Co., 2017 WL 1416364 (3d. Circ. 2017). Significantly, the Third Circuit held that Travelers had no obligation to indemnify its policyholder, General Refractories Company (“GRC”), for any losses associated with underlying asbestos-related lawsuits based on a policy exclusion for losses “arising out of asbestos.” The crux of the Court’s decision is hinged on the interpretation of the language that shaped the asbestos exclusion in Travelers’ insurance policy, which provided:
“It is agreed that this policy does not apply to EXCESS NET LOSS arising out of asbestos, including but not limited to bodily injury arising out of asbestosis or related diseases or to property damage.”
By way of background, GRC was a manufacturer and supplier of refractory products, some of which contained asbestos. The historical use of asbestos in some of GRC’s products resulted in over 30,000 lawsuits alleging injuries from exposure to asbestos starting in the late 1970s. While GRC’s primary liability insurers handled these claims, it also obtained excess insurance policies for additional coverage from a number of insurers, including Travelers. GRC began tendering the claims to its excess insurers in 2002, after its liabilities had far exceeded the limits of its primary insurance coverage, and the primary insurers could no longer defend and indemnify the company for these claims. All of GRC’s excess insurers, including Travelers, denied coverage based on their policies’ asbestos exclusions. As such, GRC initiated a lawsuit in the Eastern District of Pennsylvania, Gen. Refractories Co. v. First State Ins. Co., 234 F.R.D. 99, 100 (E.D. Pa. 2005), seeking to recover its losses from the underlying asbestos matters against its excess insurers, alleging that the asbestos exclusion did not preclude it from recovering under the policies. Through the course of the litigation, all of the excess insurers, with the exception of Travelers, resolved with GRC.
The District Court endeavored to interpret Travelers’ asbestos exclusion with a one-day bench trial, and considered argument and evidence from both parties. GRC held strong with its narrow interpretation of the asbestos exclusion, arguing that it only applied to raw mineral asbestos, not asbestos-containing products. In support of its position, GRC presented evidence of: (1) comparable insurance policies that clearly stated asbestos-containing products were excluded; (2) comparable insurance policies with definitions of “asbestos” that failed to include asbestos-containing products; (3) Travelers’ consecutive policies containing less ambiguous language; (4) the definition of asbestos-related claims from outside sources; and (5) expert testimony distinguishing between asbestos and asbestos-containing products. Travelers’ interpretation, however, was much broader, asserting that all asbestos-related claims were precluded under the asbestos exclusion.
The District Court agreed with GRC’s narrow interpretation of the word “asbestos” -- concluding that it should be interpreted to mean raw mineral asbestos only. The Court explained that its interpretation was supported by GRC’s evidence of industry custom at the time, and that Travelers failed to show otherwise. Consequently, it considered the asbestos exclusion to be riddled with a latent ambiguity and deemed it “ambiguous” and “unenforceable.” Accordingly, a judgment was entered against Travelers for $36,273,705.00 to indemnify GRC for its losses in the underlying asbestos lawsuits.
On appeal, the Third Circuit unanimously reversed the District Court, when it held that Travelers’ asbestos exclusion was “unambiguous” and “enforceable” as a matter of law. To reach this monumental decision, the Court interpreted the language in the asbestos exclusion, and determined that any debate over the meaning of the word “asbestos” was completely nullified by the preceding phrase “arising out of” in the exclusion. In fact, U.S. Circuit Judge Thomas I. Vanaskie, in writing for the panel, notably stated “[t]he phrase ‘arising out of,’ when used in a Pennsylvania insurance exclusion, unambiguously requires ‘but for’ causation.” (emphasis added). And, then explained that “[b]ecause the losses relating to the underlying asbestos suits would not have occurred but for asbestos, raw or within finished products, [the Court] reverse[s] the judgment of the district court.” Simply put, the phrase “arising out of” in effect broadens the asbestos exclusion to include any injuries caused by asbestos and asbestos-containing products.
Lastly, even if GRC’s narrow interpretation was correct, the Court states that its decision would not be any different. Rather, the Court purposefully points out that GRC’s claims would still be excluded, because it could not overlook the blatant fact that the fiber released from asbestos-containing products is the same as that from raw mineral asbestos, and that the plaintiffs in the underlying asbestos lawsuits were exposed to GRC’s asbestos-containing products.
Ultimately, there is no question that this broad interpretation will have far-reaching effects on other similarly situated manufacturers and/or suppliers of asbestos-containing products, like GRC. The Court even acknowledged the widespread implications of it decision, which U.S. Circuit Judge Thomas I. Vanaskie predicted to have “immediate” significance “to the parties at hand and those insurers and insureds” with policies like Travelers. In fact, he even went so far as to call the Court’s decision “PRECEDENTIAL”- leaving asbestos defendants, particularly manufacturers and suppliers of asbestos-containing products, in a vulnerable situation.