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June 21, 1999


The opinion of the court was delivered by: Mukasey, District Judge.


This diversity suit concerns liability insurance coverage for personal injury claims arising from exposure to asbestos. Defendant and third-party plaintiff Treadwell Corporation ("Treadwell") installed and otherwise handled products containing asbestos between the 1940s and the 1980s, during some of which time Treadwell was covered by primary and excess liability insurance. In 1994, Treadwell and several of its liability insurers sought declaratory relief clarifying the extent to which Treadwell was entitled to indemnification for claims arising out of its asbestos-related activities (the "Asbestos Claims"). In 1997, however, Treadwell and all parties other than the United States Fire Insurance Company ("U.S.Fire") and the Home Insurance Company ("Home Insurance") settled their disputes. Treadwell's third-party claims against U.S. Fire and its cross-claims against Home Insurance are the only disputes remaining.

Both Treadwell and U.S. Fire now move for summary judgment pursuant to Fed. R.Civ.P. 56. By stipulation, the parties agree for the purposes of these motions that to the extent a person asserting a claim against Treadwell was injured by exposure to asbestos, he was injured at all points in time from initial exposure through the date his claim was filed or he died. (Stip. ¶ 3)*fn1 Thus, the parties agree that some of those making claims against Treadwell (the "Asbestos Claimants") might have suffered injury continuously from the 1940s, when Treadwell's asbestos-related activities began, through the 1990s, when the most recent Asbestos Claimants filed suit — a span that includes a period of more than 20 years when Treadwell did not have insurance as well as a period of 20 years in which it was insured under both primary and excess policies.

U.S. Fire provided Treadwell excess insurance from 1970 through 1972. By the terms of its policies, U.S. Fire agreed to assume coverage responsibility upon exhaustion of Treadwell's primary insurance policies for these years, which were issued by the American Mutual Liability Insurance Company ("AMLIC"). AMLIC is now insolvent, however, so Treadwell assumed in the 1997 settlement some of the liability that might otherwise have been borne by AMLIC. As discussed below, the principal question before the court, therefore, is whether this liability assumed by Treadwell can be allocated entirely to the AMLIC policy years, which would exhaust the AMLIC policies and trigger U.S. Fire's coverage. Resolving this question, however, requires consideration of several subsidiary questions, including: (1) whether this court has authority to order allocation of Treadwell's liability for the Asbestos Claims among all potentially liable parties; (2) whether Treadwell itself must assume some share of the liability for the years in which it was uninsured; and (3) what effects, if any, Treadwell's settlements with its other insurers have on U.S. Fire's liability. Whether, and to what extent, U.S. Fire is obligated to defend or indemnify Treadwell for any of the Asbestos Claims turns on the answers to these questions.

For the reasons stated below, I conclude that the primary insurance polices underlying U.S. Fire's policies likely are not yet exhausted and, therefore, that U.S. Fire has no present obligation to defend or indemnify Treadwell. Accordingly, U.S. Fire's motion for summary judgment will be granted, and Treadwell's denied, subject to confirmation of that likelihood through examination of the individual Asbestos Claims in conformity with the rulings below.


The following relevant facts are undisputed, unless otherwise noted. Treadwell, a privately held corporation organized under Delaware law with its principal place of business in Connecticut, manufactures, repairs and maintains oxygen generators used on nuclear submarines. (Compl. ¶ 4; 9/16/98 Johnson Aff. ¶ 4)*fn2 From sometime in the 1940s to sometime in the 1980s, however, Treadwell served also as a contractor or subcontractor, primarily at utility powerhouse sites in the New York metropolitan area. (9/16/98 Johnson Aff. ¶ 4) As part of this work, Treadwell installed and otherwise handled material containing asbestos. (Id.; see Stip. ¶ 1) At no point did Treadwell manufacture, sell or distribute asbestos or asbestos-containing products. (Stip. ¶ 1)

In the late 1980s, Treadwell began to be named as a defendant in lawsuits alleging bodily injury arising from exposure to asbestos. (Id.) A large number of these Asbestos Claims have been settled, dismissed or otherwise disposed of, but as of August 31, 1998, there were more than 6000 such cases still pending against Treadwell, predominantly in New York state court. (9/16/98 Johnson Aff. ¶ 15; see Antonucci Aff. ¶ 2; Stip. ¶ 1)*fn3 Nearly all the plaintiffs in these cases allege exposure to asbestos prior to January 1, 1970, the effective date of U.S. Fire's excess insurance policies. (Antonucci Aff. ¶ 4. But see U.S. Fire Local Rule 56.1 statement ¶ 9 (noting that there "were at least 39 Powerhouse Claimants who did not begin working at the powerhouses until 1970 or later and so could not have been first exposed to asbestos at the powerhouses prior to 1970"))

A. Treadwell's Insurance Coverage

Treadwell was uninsured prior to 1967.*fn4 (Reilly Aff. ¶ 46) However, from January 1, 1967 until July 1, 1986, a period Treadwell refers to as "the Coverage Block," the company was insured under several primary comprehensive general liability ("CGL") policies: From 1967 through 1969, and again from 1973 through June 20, 1983, Treadwell was insured under policies issued by CIGNA Property and Casualty Insurance Company, its subsidiaries and affiliates ("CIGNA"); from 1970 through 1972, the company was insured by AMLIC; and from June 20, 1983 through July 1, 1986, Treadwell was insured by the Travelers Insurance Companies ("Travelers"). (Treadwell Local Rule 56.1 Statement ¶ 33) For all of this period, Treadwell was insured also under excess CGL policies, triggered by exhaustion of the underlying primary insurance: From 1967 through 1969, and aggn from 1973 through June 20, 1985, Treadwell was insured under excess CGL policies issued by CIGNA; and from 1970 through 1972, Treadwell was insured under excess CGL policies issued by U.S. Fire.*fn5 (Id. ¶ 33) Thus, Treadwell's insurance coverage for the years relevant to these motions was as follows:


Treadwell's Insurance Coverage (1940s to present)

EXCESS        No       CIGNA   U.S. Fire  CIGNA     CIGNA      Insurance
INSURANCE   Insurance                                          Unavailable
PRIMARY       No       CIGNA   AMLIC      CIGNA     Travelers  Insurance
INSURANCE   Insurance                                          Unavailable
         1940s        1967    1970       1973      1983      1986   present

[] = Treadwell's "Coverage Block"

In addition to these insurance policies, which were purchased directly by Treadwell and which provided comprehensive coverage within their respective periods, Treadwell was a named insured on several policies purchased by utilities covering work done at their sites. The United States Fidelity & Guaranty Co. ("USF & G") and the Commercial Union Insurance Company ("CU") each issued primary insurance policies naming Treadwell as an insured. (9/16/98 Johnson Aff. ¶ 8(b)) Exhaustion of the USF & G policy triggered an excess policy issued by Home Insurance, which named Treadwell also as an insured. (Id.)

B. The U.S. Fire Policies

As noted, Treadwell purchased primary liability insurance from AMLIC for the years 1970, 1971 and 1972. For each of these three years, AMLIC's coverage was limited to $100,000 per person, $300,000 per occurrence and $300,000 in "products aggregate" for bodily injuries. (Stip. ¶ 7 & Ex. C) To insure against liability above these limits, Treadwell purchased two excess umbrella policies from U.S. Fire, which together covered the same period. (Id. ¶¶ 4-6)

The U.S. Fire policies, like Treadwell's other insurance policies, are CGL policies, standard-form industry contracts dating to the 1960s. See American Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F. Supp. 1485, 1500-03 (S.D.N.Y. 1983) (discussing the history and purpose of the CGL policies), aff'd as modified by 748 F.2d 760 (2d Cir. 1984). To the extent relevant here, those policies provide that U.S. Fire will indemnify Treadwell for "ultimate net loss" arising from personal injury or property damage in excess of the policy limits of the AMLIC policies, up to $10 million in the aggregate for each policy year and excluding "liability for contamination or pollution . . . or any injuries or damages resulting therefrom." (E.g., Stip. Ex. A at 1, 4-5) Additionally, the policies provide that U.S. Fire will "defend any suit" against Treadwell alleging a loss covered by the policies but "not covered" by the AMLIC policies or by "any other underlying insurance." (Id. at 1)

The policies define "ultimate net loss" as the total of the following sums "with respect to each occurrence":

  (1) All sums which the insured, or any company as his
      insurer, or both, become legally obligated to pay
      as damages, whether by reason of adjudication or
      settlement, because of personal injury . . . to
      which this policy applies, and
  (2) All expenses incurred by the insured in the
      investigation, negotiation, settlement and defense
      of any claim or suit seeking such damages. . . .

(Id. at 2) In turn, the policies define "occurrence" as "a continuous or repeated exposure to conditions which unexpectedly and unintentionally causes injury to persons or tangible property during the policy period. All damages arising out of such exposure to substantially the same general conditions shall be considered as arising out of one occurrence." (Id. at 5)

Finally, to the extent relevant here, the U.S. Fire policies both contain "other insurance" clauses. Those clauses read in relevant part: "If other collectible insurance with any other insurer is available to the insured covering a loss also covered hereunder . . . the insurance hereunder shall be in excess of, and not contribute with, such other insurance." (Id. at 3)

C.  Early Negotiations, the Interim Agreement and the Commencement of

Soon after the Asbestos Claims were initiated, Treadwell provided notice and sought reimbursement for defense and indemnity against its principal primary insurers — CIGNA, Travelers and AMLIC. (9/16/98 Johnson Aff. ¶ 6) After initially disclaiming coverage, AMLIC declared insolvency and went into liquidation. (Id.) As a result, New York State Superintendent of Insurance Edward Muhl (the "Superintendent") was appointed ancillary receiver for AMLIC. (Id.)

With AMLIC in receivership, Treadwell, CIGNA and Travelers negotiated over defense and indemnification for the Asbestos Claims. (Id. ¶¶ 6-7) In December 1991, the three companies reached an agreement (the "Interim Agreement") dividing the relevant costs. (Id. ¶ 7 & Ex. 2) First, CIGNA and Travelers agreed to assume two-thirds and one-third, respectively, of defense costs retroactive to May 7, 1991. (Id.) Second, with Treadwell substituting for AMLIC — presumably due to the latter's insolvency — the three companies agreed to assume the following proportions of responsibility for indemnification: CIGNA, 71.4%; Treadwell, 17.2%; and Travelers, 11.4%. (Id.) According to Treadwell, this allocation of indemnification responsibility was based on the proportion of years CIGNA, AMLIC and Travelers, respectively, were each "on the risk" during the so-called Coverage Block — that is, between January 1, 1967 and July 1 1986, or the period of time in which Treadwell had insurance coverage. (Treadwell Local Rule 56.1 Statement ¶ 30) The letter memorializing the Interim Agreement, however, does not specify the basis for the parties' allocation.*fn6 (9/16/98 Johnson Aff. Ex. 2)

Notwithstanding the Interim Agreement, Treadwell pressed to obtain coverage for its losses as the number of Asbestos Claims against it multiplied. (Id. ¶ 8) First, the company asserted claims in the AMLIC liquidation proceedings. (Id. ¶ 8(a)) Second, it provided notice and asserted claims for defense and indemnity against USF & G, CU and Home Insurance. (Id. ¶ 8(b)) Finally, by letter dated February 7, 1992 from its insurance broker, Treadwell notified U.S Fire about its "potential asbestos liabiity" and requested the carrier's "immediate atttention" to the mntter. (Reilly Aff. Ex. D; see 9/16/98 Johnson Aff. ¶ 9)

U.S. Fire responded with a letter of its own, dated August 12, 1992. (Reilly Aff. Ex. E) In that letter, U.S. Fire rejected "any present duties" to indemnify or defend Treadwell, citing several grounds. (Id. at 4) First, noting its duty to indemnify only upon exhaustion of the underlying primary insurance, U.S. Fire contended that "there is no indication that underlying limits are at or near exhaustion." (Id.) Second, acknowledging a duty to defend any suit alleging a covered loss not covered by other insurance, the carrier argued that "there is no indication that the alleged injury is not covered by underlying insurance." (Id.) Finally, citing the "other insurance" provision in each of its policies, U.S. Fire asserted that, "until all underlying insurance is paid, no duties can arise under the U.S. Fire policies." (Id.)

In addition to providing these three reasons for rejecting "any present duties" under its policies, U.S. Fire raised several "additional serious questions of coverage" in its letter as follows:

    To the extent "personal injury" as defined by the
  policy did not take place there would be no coverage
  for the claims. Further, to the extent "personal
  injury" as defined by the policy took place but was
  not within our policy period, there would be no
  coverage for the claim. We reserve the right to deny
  coverage on this basis.
    . . . . Further, to the extent an "occurrence" as
  defined by the policies took place but was not within
  our policy period, there would be no coverage for the
  claims. We reserve the right to deny coverage on this
    In addition, both policies contain a contamination
  and pollution exclusion. . . . To the extent the
  damage alleged falls within the purview of this
  exclusion there would be no coverage for the claim. We
  reserve the right to deny coverage on this basis.

(Id. at 4-5) Further, U.S. Fire explicitly reserved "the right to assert any and all policy defenses including those discussed above and any not mentioned herein." (Id.) In addition, the carrier asked Treadwell to keep it informed "if underlying limits are approaching exhaustion." (Id.)

USF & G, CU and Home Insurance declined coverage of Treadwell's claims also. (9/16/98 Johnson Aff. ¶ 10) Thereafter, USF & G commenced this action, naming Treadwell, CU and Home Insurance as defendants and seeking a declaratory judgment as to the nature and extent of its obligations to Treadwell. Treadwell filed an answer, counterclaims and cross-claims, in essence seeking a declaratory judgment regarding the carriers' obligations to defend and indemnify and seeking also damages for breach of contract.

In May 1996, Treadwell impleaded Travelers, CIGNA, U.S. Fire and the Superintendent — the last as ancillary receiver for AMLIC — seeking a declaratory judgment as to the carriers' obligations and, with respect to Travelers and CIGNA, seeking damages for breach of contract. To the extent relevant here, Treadwell's initial third-party complaint acknowledged that "the limits of the underlying coverage for the excess policies" issued by U.S. Fire had "not yet been exhausted." (1996 Compl. ¶¶ 56, 127)*fn7 Nevertheless, Treadwell sought "a judicial declaration that upon the exhaustion of the underlying coverage . . . U.S. Fire is required to indemnify Treadwell." (Id. ¶ 130)

D. Settlement with the Other Insurers

Following commencement of the third-party action, Treadwell entered into settlement negotiations with several of its insurance carriers. (E.g., 9/16/98 Mensch Aff. Exs. A1-A4) These negotiations led, in April and May 1997, to two settlement agreements. First, Treadwell and the Superintendent agreed to settle all of Treadwell's claims with respect to AMLIC (the "AMLIC Agreement"). (Stip. ¶ 9 & Ex. E) Pursuant to this agreement, the Superintendent agreed to pay Treadwell $475,000 from the New York Property/Casualty Insurance Security Fund (the "New York Insurance Fund"). (Stip. Ex. E ¶ 1) In exchange, Treadwell gave the Superintendent and all other relevant parties a general release "from any liability for any past, present or future claim whatsoever arising under any and all insurance policies which may have been issued by [AMLIC] to Treadwell, known or unknown" — including the policies in effect — from 1970 through 1972. (Id. ¶ 2)

Second, Treadwell entered into a "Settlement and Claims Handling Agreement" (the "Settlement Agreement") with USF & G, CU, Travelers and CIGNA. (Stip. ¶ 11 & Ex. F ("Agrmt.")) To the extent relevant here, the Settlement Agreement allocates responsibility for payment of defense and indemnity costs arising from the Asbestos Claims among Treadwell, USF & G, CU, Travelers and CIGNA.*fn8 The Settlement Agreement specifies, first, that defense costs are to be allocated among the four settling insurers, with CIGNA assuming roughly three-quarters of the costs; Travelers, approximately 15%; and USE & G and CU, about 6% each. (Agrmt. at 10-14) Additionally, the Settlement Agreement desiguates CIGNA as the "Lead Insurer" and authorizes CIGNA, in that capacity, to manage the defense and disposition of the Asbestos Claims on behalf of the other parties. (Id. at 29-32)

Second, and more significant for these motions, the Settlement Agreement allocates responsibility among Treadwell and the four settling insurers for indemnity payments. Specifically, the Settlement Agreement provides that CIGNA will assume 71.4% of the relevant liability; Travelers, 13.4%; and Treadwell, 15.2%, with USF & G and CU contributing toward that figure with respect to claims arising from the specific sites covered by their policies. (Id. at 16-18) The Settlement Agreement specifies also that upon exhaustion of any primary insurer's liability, "Treadwell and/or Treadwell's excess and/or umbrella insurers" will assume that insurer's liability prospectively. (Id. at 20-21, 23) Finally, the Settlement Agreement notes that any funds received by Treadwell through settlement with the Superintendent or U.S. Fire are "for the sole benefit of Treadwell," unless such funds exceed Treadwell's obligations under the Settlement Agreement, in which case the excess is to be allocated "solely or for the benefit of the Insurers." (Id. at 27-28)

The Settlement Agreement specifies that the parties' liability for both defense costs and indemnity is several. (Id. at 10, 16) However, it does not state explicitly the basis for its allocation of liability among the parties. Nevertheless, the Settlement Agreement include as an exhibit a schedule listing the policies provided by the settling insurers to Treadwel1 (id. Ex. A), and from this list — along with provisions in the Settlement Agreement governing adjustments to the parties' respective liabilities (e.g., id. at 20) — an allocation formula can be inferred: The shares of the indemnification payments assumed by CIGNA, Travelers and Treadwell under the Settlement Agreement correspond roughly to the proportion of time between January 1, 1967 and July 1, 1986 — the so-called Coverage Block — that each of CIGNA, Travelers and AMLIC provided primary coverage to Treadwell*fn9 (See also Treadwell Local Rule 56.1 Statement ¶¶ 30-31)

E.  Correspondence Between Treadwell and U.S. Fire

In the months leading up to the Settlement Agreement, Treadwell notified U.S. Fire several times, directly and indirectly, about the ongoing negotiations with the other carriers, and invited U.S. Fire to join the developing agreement or to negotiate its own. (9/16/98 Mensch Aff. Exs. A1-A9) Following these invitations, representatives of U.S. Fire communicated with representative's of Treadwell — in person, by telephone and by letter — requesting details regarding the Settlement Agreement and other information, including the liability limits of Treadwell's primary insurance policies and the total payments made by Treadwell itself in connection with the Asbestos Claims. (E.g., id. Ex. A5) Treadwell provided this information, including, on March 19, 1997, "a chart reflecting Treadwell's insurance coverage for the years 1967-1986, the years contained in the coverage block agreed among Treadwell, [CIGNA, Travelers, USF & G and CU]." (Id. Ex. A7; see also id. Exs. A6, A8)

On April 10, 1997, Treadwell's counsel, Martin Mensch, Esq., wrote to, U.S. Fire's counsel, Vincent Reilly, Esq., questioning the support for "two separate positions" which Reilly had indicated in a previous conversation U.S. Fire "may take . . . in attempt to avoid its obligations under the excess policies issued to Treadwell": first, that U.S. Fire was not obligated to "drop down" and cover the Asbestos Claims until all of Treadwell's primary insurance coverage was exhausted; and second, that the "so called [sic] pollution exclusion applies." (Reilly Aff. Ex. AA) By letter dated May 20, 1997, Reilly replied, Pointing to "the `Other Insurance' clause of the policies" as support for U.S. Fire's exhaustion argument, and opining that the pollution exclusion clause "speaks for itself." (Id. Ex. BB)

F. The Parties' Arguments for Summary Judgment

As noted, Treadwell purchased primary liability insurance from AMLIC for the years 1970, 1971 and 1972, up to a limit of $300,000 in "products aggregate" for bodily injury claims. As of September 1998, Treadwell had paid or agreed to pay an aggregate of $944,984 in indemnity payments, allegedly pursuant to the Settlement Agreement. (11/17/98 Johnson Aff. ¶ 4; see also 9/16/98 Johnson Aff. ¶ 20; 11/2/98 Mensch Aff. ¶ 10)*fn10 Contending that this payment represents the amount it has paid in lieu of AMLIC for the three years that AMLIC provided primary coverage, Treadwell seeks a declaration that the AMLIC policies are now exhausted and, thus, that U.S. Fire must "drop down" to indemnify and defend the Asbestos Claims.*fn11 (Compl. ¶¶ 34, 39)

In support of its summary judgment motion and in response to U.S. Fire's motion, Treadwell raises the following arguments:

  (1) that U.S. Fire is barred by operation of various
  doctrines including waiver, equitable estoppel,
  judicial estoppel and collateral estoppel from arguing
  that Treadwell's payments ...

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