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July 31, 1985

LAC D'AMIANTE DU QUEBEC, LTEE., a corporation of the State of Delaware, Plaintiff
AMERICAN HOME ASSURANCE CO., a corporation of the State of New York, and HIGHLANDS INSURANCE COMPANY, a corporation of the State of Texas, and MIDLAND INSURANCE COMPANY, a corporation of the State of New York, Defendants

The opinion of the court was delivered by: BARRY

 Thousands upon thousands of claims arising out of asbestos related diseases which have become manifest are currently pending in federal and state courts with new filings increasing dramatically. Total liability projections between the years 1980 and 2015 range from $7.6 billion to $87.1 billion *fn1" with aggregate judgments and settlements over the next thirty years expected to reach $38 billion and the costs of defending such suits over the same time period estimated conservatively at $25 to $30 billion. *fn2" Indeed, the claims currently pending represent only a small percentage of the total number of potential claimants.

 The vast number of cases, and the concomitant potential for tort liability of staggering proportions, has spawned yet additional litigation seeking to determine whether and when asbestos manufacturers or sellers or their insurers must ultimately bear the costs of defending these suits and compensating asbestos victims. At least five United States Courts of Appeals and numerous district courts have considered the issue of asbestos insurer liability. While all have held for the insureds, most commonly in declaratory judgment actions seeking to clarify the parties' rights and obligations under Comprehensive General Liability (CGL) policies, the courts have offered conflicting interpretations of the manner in which virtually identical policies allocate liability between successive insurers and between insurers and insureds.

 In part, these differing interpretations are a result of the insidious progression of asbestos related diseases over many years which renders the concept of "injury" so difficult to define. Clearly, "injury" might refer to the tissue damage which is the immediate result of the initial exposure to or inhalation of asbestos fibers. It might as well describe the continuing presence of these fibers in the body even though exposure and inhalation may have ceased and even though disease cannot yet be detected. Or perhaps "injury" is simply the outward manifestation of an asbestos related disease. Difficulty in determining which occurrence or set of occurrences during the lengthy developmental process constitutes the injury leads to different conclusions as to time of injury. This in turn leads to different conclusions as to the specific coverage period (or period in which the asbestos producer is uninsured) to which that injury or disease should be assigned.

 The differing interpretations are also due, in part, to the desire of some courts to maximize coverage even when to do so requires judicial sleight of hand. One should not dwell too long, however, on the apparent inequity inherent in this result-oriented approach. Given the considerable potential liability for asbestos claims and the insurance industry's refusal either to afford coverage altogether or to make such coverage affordable, such an approach is at least understandable.

 The issues before those courts and now before this court have been described as "difficult" by one, "impossible" by another, and, in Judge Troutman's words, issues which "will perplex both district and circuit courts until they are resolved by the ultimate appellate authority." ACandS, Inc. v. Aetna Casualty and Surety Co., 576 F. Supp. 936, 943 (E.D.Pa. 1983). *fn3" Meanwhile, we press on, here prodded by a plaintiff against whom over 4500 claims alleging injury due to direct exposure to asbestos had been filed by the end of 1983, at which time its liability for personal injury settlements totalled nearly $4,500,000 and the costs of defending such claims exceeded $11,000,000. Six claims for property damage, a new area of asbestos litigation, had also been filed by that point, with more than $163,000 in costs of defense attributable to those claims.


 Plaintiff Lac d'Amiante du Quebec, Ltee. ("LAQ"), a Delaware corporation with its principal place of business in Quebec, Canada, and a wholly owned subsidiary of the American Smelting and Refining Co. (ASARCO), has been engaged since 1958 in the business of mining and selling asbestos which is thereafter used by other companies as a component or constituent of various products manufactured for their use or for sale to third parties. Until February 1, 1962, LAQ was insured by the Employers Liability Insurance Corporation of Canada for an annual aggregate of $50,000. From February 1, 1962 until November 21, 1972, LAQ's coverage, in the same amount, was continued by Canadian General Insurance Company. From November 21, 1972 until February 1, 1974, LAQ increased its coverage with Canadian General to $100,000 annually and, from February 1, 1974 to February 15, 1976, increased this coverage to $300,000. *fn4" Neither the Employers Liability Insurance Corporation of Canada nor the Canadian General Insurance Company are named as defendants in this action, and LAQ seeks protection only under its liability insurance coverage extending from 1975 to 1984.

 At issue here are ten policies underwritten by defendant American Home Assurance Co., four policies issued by defendant Midland Insurance Co., and one policy issued by defendant Highland Insurance Co. *fn5" On March 15, 1975 and continuing until March 15, 1984, LAQ was covered by an excess indemnity or "umbrella" liability policy issued by defendant American Home Assurance Co. in an annual aggregate amount of $3,000,000 with the sole exception being the policy period of 1976-77, when LAQ's umbrella coverage from American Home was $4,000,000, coverage excess to a $1,000,000 self-insured retention. From March 15, 1977 to March 15, 1982, the American Home policies were written in excess of a $2,500,000 self-insured retention and from March 15, 1982 through March 15, 1984, the American Home policies were issued in excess of a $3,000,000 self-insured retention.

 On March 15, 1975, LAQ obtained coverage in the amount of $20,000,000 in excess of American Home's umbrella coverage from defendant Highlands Insurance Co. When Highlands left the risk a month and a half later on April 29, 1975, LAQ obtained virtually the same coverage supplied by Highlands from defendant Midland Insurance Co. from April 1975 until March 15, 1976 and then until March 15, 1977. During the policy term 1976-1977, LAQ obtained an additional $10,000,000 excess coverage from Midland. From March 15, 1977 to March 15, 1978, Midland's coverage was $5,000,000 over the primary umbrella policy issued by American Home and a $2,500,000 self-insured retention.

 Thus, from 1958 to 1972, LAQ maintained an aggregate of $50,000 in products liability insurance annually, increasing to $100,000 in 1972, to $300,000 in 1974, to $23,000,000 in 1975, *fn6" and to $34,000,000 in 1976. Nine of the American Home policies are umbrella policies, and the Highlands policy, the Midland policies, and the remaining American Home policy are form following excess policies, with coverage above that of the American Home umbrella policies for the period March 15, 1975 through March 15, 1978.

 The policies that defendants issued to plaintiff are identical in all relevant respects, and the parties have stipulated that the operative provisions are the same. It also has been stipulated that each form following policy incorporates and follows the operative terms and conditions of the umbrella policy that underlies it, that each excess policy is wholly governed by the underlying umbrella policy, and that the operative coverage provisions in the American Home umbrella policies do not differ in any significant respect from those in the standard Comprehensive General Liability policies widely used in the insurance industry.

to pay on behalf of the Insured that portion of the ultimate net loss in excess of the retained limit as hereinafter defined, which the Insured shall become legally obligated to pay as damages for liability imposed upon the Insured by law, or liability assumed by the Insured under contract because of (i) personal injury, [or] (ii) property damage, . . . as defined herein caused by an occurrence.

 The term "occurrence" is defined as:

an event, including continuous or repeated exposure to conditions, which result in Personal Injury or Property Damage during the policy period. . . .

 "Personal injury" is defined as:

bodily injury, sickness, disease, including death anytime resulting therefrom . . . which occurs during the policy period.

 "Property damage" includes:

physical injury to or destruction of tangible property, which occurs during the policy period, including loss of use thereof at any time resulting therefrom. . . .

 "Ultimate net loss" is defined as:

the total sum which the Insured . . . becomes obligated to pay by reason of personal injury [or] property damage . . . claims, either through adjudication or compromise, and shall also include . . . all sums paid or payable . . . for . . . defense of claims. . . .

 Under the "Defense, Settlement, Supplementary Payments" provision the insurer undertakes to:

defend any suit against the Insured alleging liability insured under the provisions of this policy and seeking recovery for damages on account thereof even if such suit is groundless, false or fraudulent. . . .


 In cross-motions for summary judgment based on the policy language and their respective theories of coverage, the parties seek resolution by the court of various issues regarding the application of the insurance policies issued by the defendants to asbestos related personal injury claims and asbestos related property damage claims. Stated broadly, the question for resolution is who bears the risk and how far does that risk extend? More specifically, the following issues are posed:

 1. The trigger of indemnity coverage : Under a liability insurance policy, is coverage for an asbestos-related settlement or judgment triggered only if exposure to or installation of asbestos occurred during the policy period, or is such coverage triggered if any part of the ...

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