O’Melveny Scores a Victory for ACE in Phase III of Asbestos LitigationFebruary 01, 2013
O’Melveny & Myers LLP
NEW YORK -- FEBRUARY 1, 2013 - O’Melveny & Myers LLP represented Ace Fire Underwriters Insurance Company and Ace Property & Casualty (together, “ACE”) in a long-running coverage action between Plant Insulation Company (“Plant”) and several of its insurers. This morning, Judge John E. Munter issued a decision in Phase III of Plant Insulation Co. v. Fireman’s Fund Insurance Co., et al., a declaratory relief action in the Superior Court of California in San Francisco. Phase III dealt with various subsidiary issues submitted to the Court for resolution in declaratory relief form. Phase III was tried in two segments: Phase III.A, where parties presented evidence in May 2012, and Phase III.B, which took place in late July and early August 2012.
For more than 30 years, Plant distributed and installed insulation products, some of which contained asbestos. Plant has since filed for bankruptcy and a Plan of Reorganization became effective in November 2012. The issues addressed by today’s decision are summarized below.
The Court sided with ACE and the other insurers in a dispute over the interpretation of two key policy provisions: the completed operations provision and the products hazard provision. When applicable, these provisions impose aggregate limits to the insurance companies’ liability for all damages for bodily injury or property damage which fall under the two policy provisions.
Plant argued that the definitions of the provisions were ambiguous and would apply where the source or cause of the injury occurred after operations had been completed or possession of the products had been relinquished. Plant’s construction of the policies would sharply limit the application of the aggregate liability cap. By contrast, the insurers contended that “the completed operations hazard applies where bodily injury during the policy period occurs after Plant’s operations have been completed” or “its possession of the products has been relinquished.” The Court firmly rejected Plant’s interpretation and adopted the insurers’ interpretation of the policies:
“The flaw in Plant’s argument is that it completely ignores the definition of ‘bodily injury’ in the policies’. . . the plain and unambiguous language of the policies expressly provides that the completed operations hazard applies when the bodily injury that takes place during the policy period occurs after the insured’s operations have been completed or abandoned.”
The Court applied a similar analysis to the products hazard provision and again, held that the insurers’ interpretation of their policies was accurate and therefore, claims brought under a products hazard provision are capped by the aggregate limits of the policy. The Court concluded that a claim for bodily injury falls within the product hazard provision if: (1) it arises out of the Named Insured’s Products (here, Plant); (2) the bodily injury that occurs during the policy period occurs away from premises owned or rented by the named insured; and (3) such bodily injury occurs after physical possession of products was relinquished to others. In its analysis, the Court also agreed with the insurers and instructed that Plant, as the insured, has the burden of proof regarding the applicability of the completed operations and products hazard provisions. Going forward, an insured may only overcome the burden of proof by demonstrating that the asbestos bodily injury claim asserted against it is not subject to the aggregate limits.
The Court also issued a decision on a variety of other matters, including when coverage is triggered under the various policies’ definition of “bodily injury” for asbestos-related disease. Following California precedent, Judge Munter agreed with Plant and held that “bodily injury” for individuals suffering from asbestos-related diseases occurs upon exposure to asbestos, and not, as the insurers contended, when the immune system is overwhelmed.
“The decision should serve as a guidepost to other courts struggling with the issue,” according to partner Tanc Schiavoni. “By delivering certainty, this decision should significantly reduce coverage actions in an area that historically has been very litigious.”
Tancred Schiavoni, Megan Keller Smith, and Patrick McKegney of O’Melveny & Myers, along with Brandt Wolkin of Wolkin Curran, LLP, served as trial counsel for Phase III of the case for ACE Fire and ACE P&C.
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