Manufacturers with asbestos liabilities should pay attention to the March 7, 2017, ruling in R.T. Vanderbilt Company v. Hartford Accident and Indemnity Company by the Connecticut Appellate Court. While the court issued policyholder-friendly rulings on the issues of trigger of liability, allocation of liabilities, and the application of the pollution exclusion, the court ruled against policyholders on the application of the occupational disease exclusion.
The occupational disease holding is unprecedented and policyholders can expect to see insurers make a nationwide effort to extend this ruling.
The R.T. Vanderbilt Decision
The suit arose from thousands of claims against R.T. Vanderbilt Company claiming bodily injury caused by exposure to industrial talc, alleged to have contained asbestos. Vanderbilt filed suit against its insurers (Hartford Accident and Indemnity Company) seeking a declaration of its insurers' obligations to provide defense and indemnity coverage for the underlying liabilities and for breach of contract damages.
The trial court held: (i) a continuous trigger applied; (i) Vanderbilt was not responsible for indemnity costs after 1985 when coverage was unavailable (but would be responsible for defense costs for 14 years of that same period); (iii) the pollution exclusion does not bar coverage for claims of asbestos exposure; and (iv) the occupational disease exclusions in certain umbrella and excess policies apply only to claims arising from injuries to an insured's employees. Vanderbilt and the insurers filed interlocutory cross-appeals. On appeal, the appellate court reversed in part and affirmed in part.
First, the court joined the majority of jurisdictions in holding that the "efficient administration of justice" requires that the continuous trigger theory—whereby every insurance policy in effect from the date of first exposure through manifestation of asbestos-related disease is on the risk for defense and indemnity costs—apply as a matter of law to asbestos-related claims.
Second, the court reaffirmed that liabilities are required for long-tail insurance claims to be prorated based on the insurers' respective time on the risk. The policyholder will only assume responsibility for liabilities incurred during periods when the policyholder elects to be uninsured. As a matter of first impression in Connecticut, the court held that liabilities should not be allocated to the policyholder for those periods in which coverage was unavailable.
Third, on an issue of first impression in Connecticut, the appellate court held that the standard qualified pollution exclusion does not "apply to situations in which a commercial or industrial product is discovered to pose health threats to individuals who manufacture, apply, or are otherwise exposed to it in the ordinary course of business."
Finally, on an issue it described as "a question of first impression not only in Connecticut but also nationally," the court held that the "occupational disease exclusion" barred coverage not only for liabilities arising from occupational disease contracted by the insured's employees but also for liabilities arising from occupational disease contracted by third-party employees. The court recognized, but refused to limit, the exclusion's application to workers' compensation statutes.
Preparing to Respond
While the R.T. Vanderbilt decision is a win for policyholders on allocation and the interpretation of the pollution exclusion, its interpretation of the occupational disease exclusion has the potential to severely curtail the availability of insurance to provide coverage for asbestos liabilities. Insureds whose policies contain occupational disease exclusions can expect their insurers to attempt similar arguments in other jurisdictions. Accordingly, unless this holding is reversed by the Supreme Court of Connecticut, policyholders should be prepared to respond aggressively to insurers on the application of the occupational disease exclusion by arguing:
- The decision is an intermediate appellate court decision with no precedential authority outside of Connecticut;
- The decision fails to cite any authority in support of its interpretation of the occupational disease exclusion;
- The decision is entirely inconsistent with the most natural reading of the exclusion and the expectations of policyholders, who would reasonably understand the occupational disease exclusion as applying to claims for occupational disease compensable under workers' compensation statutes;
- Divorcing the phrase "occupational disease" from workers' compensation statutes renders the term ambiguous; and
- The decision is inconsistent with the purpose of the exclusion—namely, to ensure that the policy covers liabilities to the general public while preserving each state's respective workers' compensation scheme as the exclusive remedy for responding to injuries to an employee.
The Connecticut Appellate Court's decision gives policyholders much to celebrate. Those insureds whose policies include occupational disease exclusions should, however, be prepared to parry insurers' likely reliance on this erroneous holding.