September 9, 2016
Appeal from the United States District Court for the Eastern
District of Pennsylvania District Judge: Honorable L. Felipe
Restrepo D.C. No. 2:04-cv-03509
Theodore J. Boutrous, Jr. [ARGUED] Richard J. Doren Blaine H.
Evanson GIBSON, DUNN & CRUTCHER Samuel J. Arena, Jr.
Daniel T. Fitch William T. Mandia STRADLEY, RONON, STEVENS
& YOUNG Counsel for Appellant, Travelers Surety and
Michael Conley [ARGUED] Meghan Finnerty Mark. E. Gottlieb
William H. Pillsbury OFFIT KURMAN Howard J. Bashman Law
Offices of Howard J. Bashman Counsel for Appellee, General
A. Foggan, Esq. CROWELL & MORING Counsel for Amicus
Appellant American Insurance Association and Complex
Insurance Claims Litigation Association
N. Ellison, Esq. REED SMITH Counsel for Amicus Appellant
Before: JORDAN, VANASKIE and KRAUSE, Circuit Judges
VANASKIE, Circuit Judge.
of litigation over the effects of pervasive asbestos use have
yielded a financial burden borne across an array of
industries. Today we must decide which of two companies will
bear costs associated with a staggering number of asbestos
claims. These companies-a historical manufacturer of
asbestos-containing products and its insurer-dispute the
rightful allocation of asbestos-related losses under
thirty-year-old excess insurance policies. While the policies
are dated, the consequences of our interpretation are
immediate both to the parties at hand and to those insurers
and insureds whose relationships are similarly governed.
chief issue on appeal is whether a policy exclusion that
disclaims losses "arising out of asbestos" will
prevent a manufacturer from obtaining indemnification for
thousands of negotiated settlements with plaintiffs who have
suffered adverse health effects from exposure to its
asbestos-containing products. The answer hinges on whether
the language of the exclusion is ambiguous. After a bench
trial, the District Court found that the phrase "arising
out of asbestos" contained latent ambiguity because the
exclusion could reasonably be read to exclude only losses
related to raw asbestos, as opposed to losses related to
asbestos-containing products. We disagree. The phrase
"arising out of, " when used in a Pennsylvania
insurance exclusion, unambiguously requires "but
for" causation. Because the losses relating to the
underlying asbestos suits would not have occurred but for
asbestos, raw or within finished products, we will reverse
the judgment of the District Court.
General Refractories Company ("GRC") is a
manufacturer and supplier of refractory products that are
designed to retain their strength when exposed to extreme
heat. To serve this purpose, GRC previously included asbestos
in some of its products. GRC's use of asbestos brought
about approximately 31, 440 lawsuits alleging injuries from
"exposure to asbestos-containing products manufactured,
sold, and distributed by GRC" dating back to 1978. (J.A.
insurers initially fielded these claims. During the 1970s and
'80s, GRC had entered into primary liability insurance
policies with a number of different insurers. GRC also
secured additional excess insurance policies to provide
liability coverage beyond the limits of its primary insurance
policies, including several excess policies issued by
Defendant-Appellant Travelers Surety and Casualty
formerly known as the Aetna Casualty and Surety Company. As
the number of asbestos-related injury claims against GRC
began to grow, the primary insurers continued to defend and
indemnify GRC. But this arrangement came to a halt in 1994
when GRC's liabilities from thousands of settled claims
far exceeded the limits of its primary insurance coverage. In
2002, after years of continued settlements, GRC tendered the
underlying claims to its excess insurance carriers, including
Travelers, all of whom denied coverage on the basis of
exclusions for asbestos claims.
commenced this action against its excess insurers seeking a
declaration of coverage for losses related to the underlying
asbestos claims, as well as breach of contract damages.
Gen. Refractories Co. v. First State Ins. Co., 94
F.Supp.3d 649, 652 n.1 (E.D. Pa. 2015). GRC eventually
settled with all of the excess insurance defendants-except
Travelers-by means of a stipulated dismissal with prejudice.
Id. Travelers is the only excess insurer remaining
in this litigation.
contractual relationship with GRC is governed by two
substantively identical excess insurance policies providing
coverage from 1985 to 1986. Each policy obliges Travelers to
indemnify GRC "against EXCESS NET LOSS arising out of an
accident or occurrence during the policy period" subject
to the stated limits of liability and additional
terms. (J.A. 370, 381.) In maintaining that it
need not compensate GRC for losses related to the underlying
asbestos claims, Travelers relies on an "Asbestos
Exclusion" contained within the excess insurance
contracts, which reads:
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.
(J.A. 377, 388.) The policies do not define the terms
"arising out of or "asbestos." Gen.
Refractories Co., 94 ...