In Union Carbide Corporation v. Affiliated FM Insurance Company, Index No. 600804/04, 2012 N.Y. App. Div. LEXIS 8323 (N.Y. App. Div., Dec. 6, 2012), the Supreme Court of New York, Appellate Division, unanimously affirmed the trial court’s grant of summary judgment striking the insurer’s defense that coverage was barred because the insured “expected or intended the bodily injury claims that resulted from exposure to its asbestos products.” Having first found that the insured “met its burden of establishing that the damages at issue were the result of an ‘occurrence’,” the court held that coverage applied because the insurer failed to show that the policyholder “intended the damages.”
Union Carbide involved a claim for insurance coverage for hundreds of asbestos-related bodily injury claims arising from alleged exposure to products containing asbestos that Union Carbide mined and sold between 1963 and 1985. Union Carbide Corp. v. Affiliated FM Ins. Co., 2010 N.Y. Misc. LEXIS 4629, **1-2 (N.Y. Sup. Ct., Sept. 9, 2010) (Ramos, J.). The relevant insurance policies provided insurance for “‘ultimate net loss’ paid as a result of an ‘Occurrence’,” which was defined as “(a) an accident, or (b) an event . . . which unexpectedly results in [bodily] injury.” Id. at **2. The policies also excluded coverage for “bodily injury . . . caused intentionally by or at the direction of the insured.” Id. at **2-3.
The insurer argued that “coverage is not available to Union [Carbide] because it knew that asbestos caused disease, and that people were making claims as a result of the adverse effects of asbestos.” Id. at **3. The trial court rejected the insurer’s argument and held that coverage was not barred under any intentional acts exclusionary language or the fortuity/ known loss doctrine, and struck the insurer’s defenses in that regard.
A five-member panel of the Appellate Division unanimously affirmed the trial court’s order. 2012 N.Y. App. Div. LEXIS 8323, *1. In support of its decision, the Appellate Division noted that although the insured “was aware of some risk involved in the utilization of asbestos, . . . it believed that its asbestos could be used safely under the right conditions.” Id. at *2. Based on this, the Appellate Division held that the insured met its burden of establishing a covered “occurrence,” thus shifting the burden to the insured to show that the insured “intended the damages.” Id. (citing Consolidated Edison Co. v. Allstate Ins. Co., 98 NY2d 208, 220 (N.Y. App. Div. 2002)). The Appellate Division further held that the insurer could not carry its burden because the evidence showed that the insured was “merely aware that asbestos could cause injuries and that claims could be filed” against it. Id. at *3. Accordingly, the Appellate Division concluded that the insured’s “‘calculated risk’ in manufacturing and selling its products despite its awareness of possible injuries and claims does not amount to an expectation of damage.” Id.
The Union Carbide decision highlights the difficulties insurers face when attempting to rely on knowledge-based exclusionary language under New York law. As stated in the opinion, showing that an insured was “merely aware” that its products “could cause injuries and that claims could be filed” might not be sufficient to show that the insured expected or intended injuries or claims to occur.