argues that all policies on the risk during the continuous
bodily injury process, from first exposure to asbestos through
manifestation of the asbestos-related disease, must pay in
full Grace's legal liability for all asbestos-related bodily
injury claims and lawsuits against Grace. In Keene, the court
rejected the manifestation theory, which requires manifestation
of injury during the policy period, as the only trigger of
coverage in delayed manifestation cases. Id. at 1046.
Inhalation exposure (exposure to asbestos dust) and exposure in
residence (the subsequent development of the disease) also
trigger coverage, the Keene court found. Id. The Keene
court concluded that once triggered, each policy on the risk
covered the insured's liability. Id. at 1048.
In American Home Products Corp. v. Liberty Mutual Ins. Co.,
565 F. Supp. 1485 (S.D.N.Y. 1983), aff'd as modified,
748 F.2d 760 (2d Cir. 1984) ("AHP"), however, Judge Sofaer, applying New
York law,*fn6 rejected the conclusions reached in Keene.
Instead, Judge Sofaer determined that actual injury triggers
coverage. Id. at 1489. Grace argues that AHP does not
apply here because that case involved six different
pharmaceutical products, not asbestos. See AHP, supra, 565
F. Supp. at 1490 n. 1. If any doubt existed as to AHP's
applicability to asbestos in New York, Abex Corp. v. Maryland
Casualty Co., 790 F.2d 119, 124-25 (D.C. Cir. 1986), put it to
rest. The same court that decided Keene, after examining the
applicable New York case law applied AHP to asbestos. Id. at
125. The court also noted that Keene did not purport to apply
New York law. Id. at 124. Not only that, the Abex court's own
reading of the policy language, which it termed unambiguous,
agreed with the result in AHP. Still, Grace contends that Abex
should have relied on New York state cases, and not on AHP.
Grace makes much of National Casualty Ins. Co. v. City of
Mount Vernon, 128 A.D.2d 332, 515 N.Y.S.2d 267 (2d Dep't 1987),
decided after Abex. Mount Vernon, Grace says, applied a
continuous trigger, citing Keene. In Mount Vernon, a dispute
about coverage, the underlying action concerned a suit against
the city for false arrest and false imprisonment. The insurance
company in that case denied coverage to the city because the
arrest at issue occurred about a year and a half before the
policy's effective date of January 1, 1983. The court found,
however, that the insurance company had a duty to defend and
indemnify the city for the damages sustained by the claimant in
the underlying suit as a result of his incarceration on and
after January 1, 1983 until his release, some seven days later.
515 N.Y.S.2d at 271. This finding by the Appellate Division
modified the lower court's ruling that required the insurance
company to defend and indemnify without regard to the policy
date. What is more, the Appellate Division said: "the operative
event triggering exposure, and thus resulting in coverage under
the policy, is the sustaining of a specified injury during the
policy period." Id. at 270.
The principal dispute in Mount Vernon concerned the meaning
of the term "occurrence." The Appellate Division rejected the
insurance company's position that the term refers to the
precipitating event — the arrest — that gave rise to the
injury. 515 N.Y.S.2d at 270. The Mount Vernon policy language,
like the language here, said that occurrence means an event
that results in personal injury sustained during the policy
period. Id. Therefore, the court was not concerned with whether
event happened before or during the policy period.
Id. The policy did not require that the injury resulting from
that event occur at one fixed time. Id. Nor did the policy
distinguish between injuries that are continuous and the more
common type of injuries that are not. Id. See also Keene, 667
F.2d at 1049. The Appellate Division cited Keene — with a
"cf." — for the proposition that the failure to distinguish
between continuous and non-continuous injury has particular
significance because of express policy language that injury can
be caused by "`continuous or repeated exposure to conditions.'"
Mount Vernon, 515 N.Y.S.2d at 270 (quoting policy); see also
Keene, 667 F.2d at 1049 n. 31.
Thus, we do not read Mount Vernon's reference to Keene as an
adoption of its continuous trigger theory. Moreover, Mount
Vernon, as noted, held that a specified injury during the
policy period triggers coverage, see W.R. Grace & Co. v.
Continental Casualty Co., ("W.R. Grace & Co."), 896 F.2d 865,
876 (5th Cir.), reh'g. denied, (5th Cir. 1990) — a result
consistent with AHP's injury-in-fact trigger.
Grace also argues that other New York State cases support a
continuous trigger theory. Nevertheless, Abex considered most
of the cases Grace cites*fn7 and found that, though these
cases did not offer a "unambiguous embrace" of the
injury-in-fact theory, they were far more consistent with that
theory than with the continuous trigger. Abex, 790 F.2d at 126.
Similarly, the court in Aetna Casualty & Surety Co. v. Abbott
Laboratories, Inc., ("Abbott") 636 F. Supp. 546, 550 (D.Conn.
1986), a case involving the drug DES and some policies covered
by New York law, applied AHP's injury-in-fact trigger. More
recently, Judge Weinstein observed that the federal courts
applying New York law adopt the injury-in-fact theory under a
comprehensive general liability policy. Uniroyal, Inc. v. Home
Ins. Co., 707 F. Supp. 1368, 1387-88 (E.D.N.Y. 1988). And even
more recently, the Fifth Circuit noted that New York follows
the injury-in-fact theory. W.R. Grace & Co., 896 F.2d at
875-76. Accordingly, we find that injury-in-fact triggers
coverage in New York.
Grace argues, however, that extrinsic evidence is necessary
to interpret the policy language at issue. The disparate
constructions placed by courts on the same policy language,
according to Grace, shows ambiguity as a matter of law. Grace
further notes that it did not draft the disputed language.
Following Abex and AHP, however, we find the policy language is
unambiguous. Grace maintains that AHP did not involve asbestos.
Nevertheless, Abex involved asbestos and the court there said:
The plain language of the definition of
"occurrence" used in the CGL policy requires
exposure that "results, during the policy period,
in bodily injury" in order for an insurer to be
obligated to indemnify the insured. The unambiguous
meaning of these words is that an injury — and not
mere exposure — must result during the policy
790 F.2d at 127 (emphasis in original);*fn8 see also AHP, 748
F.2d at 765. Thus, extrinsic evidence need not be considered.
On the question of when injury in fact occurs, Grace argues
that the asbestos-related bodily injuries in the underlying
cases are inherently continuous, and, thus, even under
AHP, each carrier on the risk at any time between first
exposure and manifestation has the duty to indemnify. Maryland,
for its part, urges that we follow
Judge Sofaer's approach of establishing the timing of injury
in fact on a case-by-case basis in the underlying actions.
See AHP, 565 F. Supp. at 1509. We agree with Maryland. Though
Grace argues that the etiology of asbestos-induced diseases is
well known, the issue, according to the Abex court, has split
the circuits. Abex, 790 F.2d at 127 n. 36. Abex contrasted
Insurance Co. of N.Am v. Forty-Eight Insulations, Inc.,
633 F.2d 1212, 1218 (6th Cir. 1980), clarified, 657 F.2d 814,
(6th Cir. 1981) cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70
L.Ed.2d 650 (1981), which observed that injury, in the sense of
tissue damage, occurs shortly after the initial inhalation of
asbestos fibers, with the view of Eagle-Picher Indus., Inc. v.
Liberty Mut. Ins. Co., 682 F.2d 12, 19 (1st Cir. 1982), cert.
denied, 460 U.S. 1028, 103 S.Ct. 1279, 75 L.Ed.2d 500 (1983),
that even sub-clinical injury to the lung does not occur
simultaneously with the inhalation of asbestos. Id.
In AHP, Judge Sofaer also recognized the difficulty in
determining the onset date of asbestos injury. Commenting about
the usefulness of collateral estoppel on medical issues to
prove when injury occurred, Judge Sofaer excluded asbestos from
the operation of that doctrine. See 565 F. Supp. at 1509. He
said: "Unlike the variable manner in which injuries are caused
by asbestos fibres, other products may produce specific
consequences at particular times." Id. Accordingly, summary
judgment is inappropriate on this issue, the resolution of
which is better left to the underlying cases. See AHP, 565
F. Supp. at 1509; Abbott, Civil No. H-82-843 (JAC) slip op. at 2
(D.Conn. September 11, 1987); Abbott, 636 F. Supp. at 551. In
those cases the courts will likely address related factual
issues concerning the injuries at issue. Abbott, slip op. at 2.
With regard to those cases that have settled, the court
hearing the coverage dispute — this court — should determine
the date of the injury in fact. Abbott, 636 F. Supp. at 551-52.
In Abbott, the court directed the parties confer to develop a
procedure for resolution of the settled cases. Id. at 551. The
present parties should do the same. The fact of settlement,
though, does not create coverage. In other words, an insurer
has no duty to indemnify a settled claim excluded by the
policy. Uniroyal, 707 F. Supp. at 1379. The duty to indemnify
requires a covered loss under the policy. Servidone
Construction Corp. v. Security Insurance Co., 64 N.Y.2d 419,
423, 488 N.Y.S.2d 139, 143, 477 N.E.2d 441, 445 (1985); see
W.R. Grace & Co., 896 F.2d at 874 (citing Servidone); Uniroyal,
707 F. Supp. at 1379 (citing Servidone). In determining whether
a settled claim involves a covered loss — from the actual
facts, not the pleadings — the burden rests with the insurer
to show that the claim was not within the policy coverage.
Servidone, 488 N.Y.S.2d at 143, 477 N.E.2d 445; Burroughs
Wellcome Co. v. Commercial Union Ins. Co., 713 F. Supp. 694, 699
(S.D.N.Y. 1989). An argument can be made that placing the
burden on the insurer only applies to cases, like Servidone,
involving a policy exclusion. 488 N.Y.S.2d at 143, 477 N.E.2d
at 445. But the first paragraph of the Servidone opinion, which
summarizes the court's holding, imposes no such limitation. 488
N YS.2d at 140, 477 N.E.2d at 442. Burroughs Wellcome, too,
did not limit its finding. 713 F. Supp. at 699; see also
Uniroyal (Servidone "never held that an otherwise covered
claim, once settled, must be proven anew by the insured.") 707
F. Supp. at 1379.
On the duty to defend, the insured's burden is not great.
Grace is entitled to a defense if the complaints in the
underlying actions "'permit proof' of the facts establishing
coverage, or if the complaints do not exclude the possibility
that injury-in-fact occurred during the policy period. Only if
the insurers establish, `as a matter of law, that there is no
possible factual or legal basis on which the insurer might
eventually be obligated to indemnify,' would they escape their
duty defend [Grace]." Abex, 790 F.2d at 129 (footnotes omitted)
(emphasis in original); see also Avondale Indus. Inc. v.
Travelers Indemn. Co., 887 F.2d 1200, 1205 (2d Cir. 1989),
reh'g denied, 894 F.2d 498 (2d Cir.)
(per curiam), cert. denied, 496 U.S. 906, 110 S.Ct. 2588, 110
L.Ed.2d 269 (1990). Thus, the insurers must satisfy their
obligation to defend Grace. Id. "This obligation will continue
until the insurers establish that, as a matter of law, there is
no possibility that they will have to indemnify [Grace]." Id.
For those policies, then, that Grace has proven, or will prove,
Maryland must provide a defense, see Abex Corp. v. Maryland
Casualty Co., No 82-2098, slip op. at 2 (D.D.C. April 6, 1990),
provided those policies have been triggered applying the injury
in fact trigger.
As for allocating defense costs among the insurers, which
Maryland urges, those costs should be apportioned equally.
Federal Insurance Co. v. Cablevision Systems Development Co.,
836 F.2d 54, 57 (2d Cir. 1987); Abex Corp. v. Maryland Casualty
Co., No. 82-2098, slip op. at 3 (D.D.C. April 5, 1990).
Nonetheless, summary judgment appears premature because the
existence of coverage concerning all the insurers remains an
open issue. See Proof of Existence of Terms of Polices, infra.
Coverage for Knowing Misconduct
Maryland seeks summary judgment declaring that it has no
duty to indemnify Grace for injuries that were not
unintentionally caused. Grace, on the other hand, seeks a
declaration that any triggered policy provides full and
complete defense and indemnity coverage, and that no portion
of this liability can be allocated to Grace. Maryland contends
that Grace has no coverage for losses due to Grace's knowing
misconduct. Thus, Maryland maintains that it has no duty to
indemnify Grace for expected injuries. Most liability
insurance policies provide coverage only for bodily injury or
property damage that the insured neither expects nor intends,
Maryland says. In regard to the Maryland policies, this
exclusion, set forth in special, hand-crafted endorsements,
provides in more categorical terms, Maryland argues, that
coverage is afforded only for injuries "unexpectedly,"
"unintentionally" or "accidentally" caused.*fn9
In particular, Maryland seeks summary judgment that it has
no duty to indemnify for any liability imposed upon Grace in
City of Greenville v. W.R. Grace & Co., No. 85-1693-14 (D.S.C.,
complaint filed June 21, 1985). After a jury trial in that
case, the court awarded $6.4 million in compensatory damages
and $2 million in punitive damages against Grace. In
Greenville, the court in an amended order, commented that Grace
knew of the hazard of asbestos in buildings when it sold its
asbestos products to the city. City of Greenville v. W.R. Grace
& Co., 640 F. Supp. 559, 566 (D.S.C. 1986), aff'd, 827 F.2d 975
(4th Cir. 1987), reh'g denied, 840 F.2d 219 (4th Cir. 1988).
Grace argues that the pre-1967 policies contains no
requirement that the property damage be accidental, unexpected
or unintentional. Grace refers to that portion of the
endorsement that defines "occurrence" to mean
either an accident in or a continuous or repeated
exposure to conditions which result during the
policy period in injury to or destruction of
(A) Property including the loss of use thereof
which is accidently (sic) caused and
(B) Tangible or physical property, including
the loss of use thereof.
Exh. B, tab 5 to Maryland's Memorandum of Law in Support of
Motion. Grace points out that sub-part B contains no
"accidental" qualification for any claim involving "tangible
or physical property" and that a building damaged by its
product is tangible or physical property. Maryland disputes
that the underlying claims concern "injury to or destruction
of . . . tangible or physical property." These claims, if
coverage exists at all, says Maryland, would fall under
sub-part A, which requires an accidentally caused loss of use.
Grace notes, though,
that the very endorsements provide for the deletion from the
insuring agreement of the words "caused by accident."
In any event, the endorsement also provides that "such
insurance as is afforded by this endorsement does not apply to
property damage caused intentionally by or at the direction of
the insured." Id. at tab 5 (emphasis added). Thus, these
policies do not provide coverage for intentional property
Turning to the 1967 to 1973 policies, Grace acknowledges
that they provide coverage when an occurrence "unintentionally
causes injury to or destruction of property." Id. at tab 6.
Nevertheless, Grace points to the "liberalization" clause in
these policies, which provides that when the provisions of the
later policies vary from the earlier policies, the insured has
the option to have the earlier terms and conditions apply.
Since the prior policies contain language providing coverage
for unintentional property damage, the liberalization clause
has no effect on this issue. Thus, the '67 to '73 policies,
like the earlier ones, do not provide coverage for intentional
property damage. Thus, Maryland is entitled to summary judgment
declaring that it has no duty to indemnify Grace for liability
for injuries that were not unintentionally caused.
Even if the policies provide no coverage for intentional
injury, Grace argues that Maryland ignores the distinction
made by the courts between an intentional act and an
intentional injury. See City of Johnstown, N.Y. v. Bankers
Standard Ins. Co., 877 F.2d 1146, 1152 (2d Cir. 1989). Maryland
argues that even under City of Johnstown, losses arising from
asbestos-related claims against Grace fall outside the coverage
because they were not accidental, unexpected or unintended. The
relevant issue, as Grace argues, is not whether the
policyholder willfully committed the act, but whether the
policyholder intended the resulting damage. Id. In other words:
It is not enough that an insured was warned that
damages might ensue from its actions, or that,
once warned, an insured decided to take a
calculated risk and proceed as before. Recovery
will be barred only if the insured intended the
damages, or if it can be said that the damages
were, in a broader sense, "intended" by the
insured because the insured knew that the damages
would flow directly and immediately from its
Id. at 1150 (citations omitted).