Cross appeals from an order of the Supreme Court, New York County (Richard F. Braun, J.), entered on or about June 11, 2007, insofar as it declared that the asbestos claims against insured Keasbey are not within the products liability coverage, and thus not subject to the policies' aggregate limits; that the defendant class is not subject to the affirmative defenses that plaintiffs may have had against Keasbey; that coverage for the defendant class is triggered by exposure and that each individual class member's exposure to conditions resulting in bodily injury constituted a separate occurrence; and that the aggregate limit of CNA's policy RDU 8047261 was not exhausted.
The opinion of the court was delivered by: Catterson, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Peter Tom, J.P., David H. Friedman, Eugene Nardelli and James M. Catterson, JJ.
In this declaratory judgment action, plaintiff insurance companies seek a declaration that they do not have a duty to indemnify the now-defunct insured, Robert A. Keasbey Co., in pending asbestos-related claims. Although the tort claims of the defendant class (hereinafter referred to as "the claimants") have not yet been adjudicated, and even though a judgment must be entered against Keasbey before an action could be brought under Insurance Law § 3420(a)(2) against the plaintiffs, the insurers seek the declaration that all the pending claims in the underlying complaints against Keasbey fall within the products hazard/completed operations coverage. Such coverage is subject to aggregate limits which indisputably were exhausted after the insurers paid out more than $110,000,000 in negotiated settlements on policies issued to Keasbey.
Continental Insurance Co. and American Casualty Co. (hereinafter referred to as "CNA") initiated this action first against its insured, Keasbey, as aggregate limits were being exhausted by lawsuits that had been brought against Keasbey as a manufacturer, seller and distributor of an inherently dangerous product, asbestos. In May 2001, counsel for about 20,000 claimants informed Keasbey and CNA that these claimants would be pursuing a new theory of liability (non-products or "operations" coverage), which was not subject to aggregate limits, and thus opened up Keasbey and its insurers to "perpetual coverage."
The record reflects that now-dissolved defendant Keasbey was an insulation contractor that installed, repaired, renovated and removed insulation at various sites in and around New York since the late 1800s. Keasbey distributed and installed insulation materials for industrial and commercial facilities including the powerhouses, Consolidated Edison and other utilities. Until about 1972 those insulation materials contained asbestos. Keasbey also mixed and distributed two asbestos-containing finishing cements.
Most of the litigation against Keasbey occurred as a result of the post-World War II construction boom in the 1950s and 1960s, and the need for new and upgraded powerhouses. The increase in construction activity also increased the use of asbestos-containing insulation in powerhouses and other commercial facilities.
By 1965, however, studies conducted by Dr. Irving Selikoff and his research team at Mt. Sinai Hospital revealed the potential dangers of asbestos. Dr. Selikoff's studies sparked concern among asbestos workers, other trades and their employers, about the use of asbestos.
As a result of these developments, ConEd directed, in 1971 and 1972, that asbestos no longer be used at ConEd sites; Keasbey complied with ConEd's directive. Keasbey management also issued a written directive in the early 1970s banning the use of asbestos-containing products.
The subject insurance policies are 17 primary level comprehensive general liability (hereinafter referred to as "CGL") policies that were issued by CNA to Keasbey between February 1970 and February 1987. None of the CNA policies issued to Keasbey during this time period contained asbestos-related exclusions.*fn1 The primary policies generally insured Keasbey against claims for "bodily injury" caused by an "occurrence."
The CNA policies have aggregate limits that apply only to claims that come within the definition of "products hazard" or "completed operations hazard." The products hazard aggregates range from $300,000 to $1,000,000 per policy, with combined aggregate limits of $8,700,000. Under the policies, "products hazard" "includes bodily injury [...] arising out of the named insured's products [...] but only if the bodily injury [...] occurs away from premises owned by or rented to the named insured and after physical possession of such products has been relinquished to others."
The completed operations hazard is defined as: "bodily injury and property damage arising out of operations [...] but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to [...] the named insured."
The CNA policies contain no aggregate limits for claims that are not products hazards, such as "operations" claims. The only limitation for such coverage is the per occurrence provision in each policy. Between 1972-78 CNA additionally issued Keasbey five excess policies with aggregate limits totaling $50 million.
Since 1986, thousands of individuals have brought tort claims against Keasbey for asbestos-related injuries. Most of the claimants are tradesmen and other individuals who worked for other companies and who were allegedly exposed to asbestos while working in the vicinity of Keasbey insulators.
In the early 1990s, New York state and federal judges consolidated hundreds of the asbestos claims in litigation known as the "Powerhouse Cases." Keasbey was a defendant in those consolidated actions. Claimants tried the cases against Keasbey on a strict products liability and negligent "failure to warn" theory emphasizing Keasbey's role as manufacturer and distributor of asbestos products.
None of the plaintiffs in the Powerhouse Cases ever presented any evidence of Keasbey's negligent installation. Until 2001 the insured, the insurers, primary and excess carriers, and the claimants all treated Keasbey claims as strict products liability claims based on the inherently dangerous nature of Keasbey's asbestos products.
While the Powerhouse Cases proceeded, CNA, among others, engaged in settlement discussions with counsel for the claimants. As CNA emphasizes, Keasbey pushed at that time to bring in its excess carriers because the claimed damages appeared to exceed the aggregate amounts of products coverage left under the subject primary policies. Keasbey accepted the excess carriers' contributing funds to the State Powerhouse Cases, and did not object to the cost-sharing agreement among the excess carriers, which expressly treated the asbestos claims as products hazard claims subject to the aggregate limit.
Thus, by May 1992, CNA exhausted their aggregate limits of $8,700,000 in the State Powerhouse Cases. Between May 1992 and May 2001, the excess insurance carriers, including CNA, paid out more than $100,000,000 under their policies and, for all intents and purposes, CNA exhausted their excess policy limits also*fn2. Keasbey ceased doing business in 1995, and was dissolved in 2001.
By letter dated May 15, 2001, the attorneys for the majority of the remaining asbestos-injured claimants sent a letter to Keasbey's litigation counsel asserting that the remaining claims against Keasbey were "non-products" or "operations" hazard claims that were not subject to the products hazard aggregate limits.
The letter stated in relevant part:
"it is highly likely that the products/ completed operations aggregate limits do not apply to these so-called non-products' claims. As a result, the actual value of Keasbey's insurance asset appears to be vastly greater than is reflected [...] The claimants therefore wish to ensure [...] that Keasbey and the carriers do not [...] otherwise extinguish the insurers' obligations that, in many cases could be perpetual." (emphasis added).
The letter did not identify any particular claimant, lawsuit or insurer.
CNA did not issue a disclaimer of coverage in response to the May 15, 2001 letter; instead, it commenced this declaratory judgment action in October 2001 against Keasbey and added as of right the defendant class of asbestos claimants against Keasbey. CNA asked the court to declare that it owed no duty to indemnify Keasbey for any of the pending asbestos-related bodily injury claims because all of the remaining claims were within the definition of products liability/completed operations coverage in the primary level policies that CNA had issued to Keasbey, that the limits of the subject policies had been exhausted, and that CNA had other defenses to further obligations under the policies.
Following a transfer of venue from Westchester County to New York County, the case was certified as a class action against the defendant class in January 2004. After extensive discovery and motion practice, a non-jury trial began on July 13, 2005, and ended on October 28, 2005. Keasbey, which had already ceased operations, defaulted in the action.
The trial court concluded, inter alia, that CNA had failed to carry its burden in showing that pending asbestos claims fall within the "products aggregates" of the subject insurance policies for products hazard and completed operations coverage. Moreover, it determined that the claimants were entitled to coverage under the "operations" provision.
Second, the court decided that the defunct Keasbey was guilty of laches but that the claimants were not subject to the affirmative defenses that CNA may have had against Keasbey. The court observed that such defenses as timely notice of claim, laches, ratification, estoppel and judicial estoppel were based on Keasbey's conduct, and that any right of the members of the defendant class to sue CNA was not derived from Keasbey directly, but was derived from Insurance Law § 3420(a)(2). Thus, the court determined that the only defenses the insurer had against the injured claimants were those that "grow out of" the terms of the policy. The court also determined that CNA would nonetheless be precluded from asserting affirmative defenses, as it failed to timely disclaim coverage as to the class defendants.
Third, the court determined that coverage for asbestos-related injuries is triggered by exposure through inhalation and that each separate class member's exposure to conditions resulting in bodily injury constituted a separate occurrence under the subject insurance policy.
Further, the court held that CNA could not rely on the "expected or intentional" exclusion, nor on the pollutant exclusion under the primary policies; and that the aggregate limit of plaintiff's excess policy RDU 8047261 was not exhausted. Finally, the court determined that One Beacon's defense obligations extended only to claims arising out of an exposure to a Keasbey asbestos-containing product at the Indian Point Nuclear Power Plant Units #2 and #3.
On appeal, CNA asserts that the trial court erred in virtually every determination except the finding that Keasbey was guilty of laches. CNA argues that the "operations" provision is not applicable to the suits of the claimants because there is no evidence whatsoever that bodily injury in the plain meaning of the phrase was sustained while installation operations were ongoing or that it was incurred before the completion of any of the projects.
CNA also asserts that since Keasbey has defaulted, the claimants stand in the shoes of Keasbey, and thus the equitable affirmative defenses like laches, waiver and equitable estoppel may be used against them; that exposure/inhalation is not the trigger according to applicable policy provisions; and that the trial court was wrong about allocating the burden of proof to CNA. Additionally CNA asserts that its excess policies should be declared exhausted.
Defendant One Beacon America Insurance Company cross-appeals from that part of the order declaring that CNA's claims for reimbursement and contribution against One Beacon were not barred by CNA's failure to provide timely notice of the claims for which reimbursement and contributions were sought. Defendant Employers Insurance Company of Wausau also cross-appeals from the court's findings of fact and conclusions of law with respect to the obligations of CNA and One Beacon under their policies.
At the outset, we find that a disclaimer of coverage is not necessary in order for CNA to preserve its defenses under the policy. See Generali-U.S. Branch v. Rothschild, 295 A.D.2d 236, 237-238, 744 N.Y.S.2d 159, 161 (1st Dept. 2002) (commencement of a declaratory judgment action can constitute disclaimer); see also Travelers Ins. Co. v. Volmar Constr. Co., 300 A.D.2d 40, 45, 752 N.Y.S.2d 286, 290 (1st Dept. 2002) (insurer has duty to disclaim only after it receives demand for defense and indemnification).
Further, for the reasons set forth below, this Court finds that the trial court erred in denying CNA the declaration it sought. As a threshold matter, it is well established that CNA has the burden of proving that it is entitled to the declarations it seeks. Mount Vernon Fire Ins. Co. v. NIBA Constr., 195 A.D.2d 425, 427, 600 N.Y.S.2d 936, 937 (1st Dept. 1993) (Sullivan J., concurring). For CNA to obtain a declaratory judgment as to its obligation to indemnify in advance of trial, it must demonstrate as a matter of law that "there is no possible factual or legal basis on which the insurer may eventually be ...