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Commissioner of Insurance of State of New Jersey v. Integrity Insurance Co.

Superior Court of New Jersey, Appellate Division

September 26, 2013

COMMISSIONER OF INSURANCE OF THE STATE OF NEW JERSEY, Plaintiff-Respondent,
v.
INTEGRITY INSURANCE COMPANY, a stock insurance company of New Jersey, THE INTEGRITY FINANCIAL GROUP, INTEGRITY CREDIT CORPORATION, Defendants-Respondents, and THE OWENS CORNING/FIBREBOARD ASBESTOS PERSONAL INJURY TRUST, Defendant-Appellant

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 1, 2013

On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-7022-86.

Robert M. Horkovich of the New York bar, admitted pro hac vice, argued the cause for appellant (Anderson, Kill & Olick, P.C., attorneys; Mr. Horkovich, Robert Y. Chung of the New York bar, admitted pro hac vice, and Kenneth E. Sharperson, on the briefs).

Daniel Hargraves (Hargraves McConnell & Costigan, P.C.) of the New York bar, admitted pro hac vice, argued the cause for respondent Kenneth E. Kobylowski, Acting Commissioner of Banking and Insurance of the State of New Jersey in his capacity as Liquidator of Integrity Insurance Company (Golub & Isabel, P.C., and Mr. Hargraves, attorneys; Mr. Hargraves, on the brief).

Before Judges Simonelli, Koblitz and Accurso.

PER CURIAM.

The Liquidator of defendant Integrity Insurance Company (Integrity) disallowed asbestos-related non-products bodily injury claims made by defendant The Owens Corning/Fibreboard Asbestos Personal Injury Trust (Trust), as assignee for Owens Corning/Fibreboard (Owens Corning), against Integrity's excess insurance policies. Owens Corning had already received the full policy limits for asbestos-related products claims arising from its manufacture and distribution of asbestos products. The Trust sought a second policy limits recovery for Owens Corning's alleged non-products losses arising from Owens Corning's decision to operate a supply and contracting division that installed an insulation product containing asbestos at nationwide construction sites. The Special Master affirmed the Liquidator's decision. The Trust appeals from the liquidation court's November 9, 2011 order, which confirmed the Special Master's determination. We affirm.

Between 1948 and 1958, Owens-Illinois Incorporated (Owens- Illinois) manufactured and distributed Kaylo, a thermal insulation product containing asbestos. Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 442-43 (1994) (explaining the history of Kaylo manufacturing and distribution). In 1953, Owens Corning became one of the distributors of Kaylo. Strickland v. Owens Corning, 142 F.3d 353, 355 (6th Cir. 1998). In 1958, Owens Corning became the manufacturer of Kaylo when it purchased the Kaylo product line from Owens-Illinois. Ibid. Owens Corning ceased manufacturing Kaylo in 1973. During the underlying litigation in this matter, Owens Corning claimed that it also operated a supply and contracting division that installed Kaylo (the S&C Division). The record does not reveal when and how Owens Corning formed the S&C Division or when the division began or ceased installing Kaylo. Beginning in the 1980s, Owens Corning became a defendant in a multitude of asbestos lawsuits.

Between 1979 and 1984, Integrity issued comprehensive general liability policies that provided coverage for bodily injury and property damage (the underlying policies). With respect to claims for "personal injury, " the underlying policies protected Owens Corning from claims for asbestos-related injuries that occurred either away from the premises owned by or rented to Owens Corning after it relinquished physical possession of the product to others ("products hazard" coverage), or after an asbestos-related operation was completed or abandoned and occurred away from the premises owned or rented to Owens Corning ("completed operations hazard" coverage).[1] The underlying policies had a $100 to $150 million per "occurrence" limit of liability.

Integrity also issued several excess liability insurance policies that insured Owens Corning for bodily injury and property damage. Seven of those excess policies, with a combined "per occurrence" limit of $22 million, are at issue in this appeal (the excess policies). The excess policies were subject to and followed the terms of the underlying policies, and there were three levels of underlying coverage before any of the excess policies were reached on the fourth level. Integrity was not obligated to pay any loss under the excess policies until the limits of the underlying policies were exhausted.

In 1991, Owens Corning submitted a claim to the Ohio Insurance Guaranty Association (OIGA) for asbestos-related bodily injury losses covered by the excess policies and other non-Integrity insurance policies. Up until then, Owens Corning had categorized all of its asbestos-related claims as products claims falling within the products category and as arising from a single occurrence: its decision to manufacture and distribute asbestos products. See Travelers Cas. & Sur. Co. v. Gerling Global Reinsurance Corp. of Am., 419 F.3d 181, 184-85 (2d Cir. 2005).

Pursuant to a 1991 settlement with OIGA, Owens Corning received $4, 538, 192 from the excess policies for its "asbestos claims" (the OIGA settlement). The OIGA settlement agreement defined "asbestos claims" as follows:

[A]ny and all claims or lawsuits alleging any injury, damage or loss, including but not limited to personal injury, bodily injury, mental injury, mental anguish, shock, sickness, disease, disability, death, property damage or asbestos removal, asserted to have been caused in whole or in part by any asbestos or asbestos-containing products.

The settlement provided that $17, 461, 808 was the maximum claim Owens Corning could assert against Integrity and other insolvent insurers, which reflected the uncollected balance of all policy limits. The settlement also provided as follows:

The OIGA and [Owens Corning] agree to submit their respective claims to the various liquidators based upon the allocation of the proceeds from the SETTLEMENT AMOUNT contained in this Section VI of the Settlement Agreement. The OIGA shall submit its claims to the various liquidators based on the allocation amount contained in this section, and [Owens Corning's] claims to the various liquidators shall be based on the remainder of the POLICIES' limits.

Sometime thereafter, Owens Corning devised a new strategy in order to obtain more coverage. It now claimed that its asbestos claims arose from a dual occurrence: one for products liability arising from its decision to manufacture and distribute asbestos products, and the second for non-products liability arising from its decision to operate a supply and contracting insulation installation business. Owens Corning posited that to the extent a claimant was exposed to Kaylo during installation and before Owens Corning relinquished possession of the product and/or completed the installation, the claims did not fall within the definitions of "products hazard" and "completed operations hazard." Thus, a Kaylo-related claim was a separate and distinct non-products claim entitled to separate coverage and recovery under the excess policies as a separate occurrence.

To support its new strategy, in 1996, Owens Corning developed a "coding project" to classify its asbestos claims and identify the non-products claims that arose from a claimant's exposure to Kaylo during installation. Its criteria for identifying a non-products claim consisted of "capturing allegations of each claimant's work history and comparing that data to information regarding [the S&C Division's] activities." Owens Corning coded a claim a non-products claim where there was some evidence that a claimant had worked at a site at roughly the same time the S&C Division had performed activities there. Owens Corning used four codes to identify non-products claims:

Code 1: Claimant mentions [supply and contracting] - Work history, deposition, etc. state that the claimant worked for Owens Corning [supply and contracting] at this site, that the claimant saw [Owens Corning] at this site, or that [Owens Corning] was the insulation contractor at this site.
Code 2: Co-worker mentions [supply and contracting] - Affidavit, deposition, etc. of coworker states that he worked for [Owens Corning supply and contracting] at this site, he saw [Owens Corning supply and contracting] at this site, or that [Owens Corning] was the insulation contractor at this site.
Code 3: Sites and Dates Match – Work history site and dates match known [supply and contracting] sites with dates overlapping.
Code 4: Site Matches and Dates Matches w/in 1 yr. - Work history site matches known [supply and contracting] site, dates are within 1 year of ...

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