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General Refractories Co. v. First State Insurance Co.

United States Court of Appeals, Third Circuit

April 21, 2017

GENERAL REFRACTORIES COMPANY
v.
FIRST STATE INSURANCE CO.; WESTPORT INSURANCE CORPORATION, Successor to, or, f/k/a Puritan Insurance Company; LEXINGTON INSURANCE COMPANY; CENTENNIAL INSURANCE COMPANY; HARTFORD ACCIDENT And INDEMNITY CO.; GOVERNMENT EMPLOYEES INSURANCE CO.; REPUBLIC INSURANCE COMPANY; SENTRY INSURANCE, Successor to, or, f/k/a Vanliner Insurance Company, f/k/a Great SW Fire Insurance Co.; AMERICAN INTERNATIONAL INS. CO.; AIU INSURANCE COMPANY; HARBOR INSURANCE COMPANY; TRAVELERS CASUALTY & SURETY CO., Successor to, or, f/k/a Aetna Casualty & Surety Company; AMERICAN EMPIRE INSURANCE CO; WESTCHESTER FIRE INSURANCE CO. Travelers Casualty and Surety Company (f/k/a The Aetna Casualty and Surety Company), Appellant

          Argued September 9, 2016

         On 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 Casualty Company

          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 Refractories Company

          Laura A. Foggan, Esq. CROWELL & MORING Counsel for Amicus Appellant American Insurance Association and Complex Insurance Claims Litigation Association

          John N. Ellison, Esq. REED SMITH Counsel for Amicus Appellant United Policyholders

          Before: JORDAN, VANASKIE and KRAUSE, Circuit Judges

          OPINION

          VANASKIE, Circuit Judge.

         Decades 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.

         The 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.

         I.

         Plaintiff-Appellee 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. 199.)

         GRC's 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

         Company, 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.

          GRC 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.

         Travelers' 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.[1] (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 ...


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