Foster Wheeler L.L.C. v Affiliated FM Ins. Co.

[*1] Foster Wheeler L.L.C. v Affiliated FM Ins. Co. 2010 NY Slip Op 50849(U) [27 Misc 3d 1223(A)] Decided on March 16, 2010 Supreme Court, New York County Kapnick, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through June 8, 2010; it will not be published in the printed Official Reports.

Decided on March 16, 2010
Supreme Court, New York County

Foster Wheeler L.L.C. (as successor in interest to Foster Wheeler Corporation), Plaintiff,

against

Affiliated FM Insurance Co., et al., Defendants.



600777/01



Plaintiff was represented by: Anna P. Engh, Esq., Covington & Burling LLP, 1201 Pennsylvania Avenue NW, Washington, DC 20004; (202) 662-6000.

COUNSEL FOR AFFILIATED FM INSURANCE CO.:

Patrick J. Dwyer, Esq.

Smith, Stratton, Wise, Heher & Brennan, LLP

2 Research Way

Princeton, New Jersey 08540

(609) 734-6186 Phone

(609) 987-6651 Fax

Scott M. Seaman, Esq.

Julie L. Trester, Esq.

Meckler Bulger & Tilson

123 N. Wacker Dr., Suite 1800

Chicago, IL 60606

(312) 474-7900 Phone

(312) 474-7898 Fax

COUNSEL FOR MUNICH REINSURANCE AMERICA, INC. (formerly known as

AMERICAN RE-INSURANCE COMPANY and as successor-in-interest to

AMERICAN EXCESS INSURANCE CO.):

Stefano V. Calogero, Esq.

Cuyler Burk, P.c.

Four Century Plaza

Parsippany, NJ 07054

(973) 734-3200 Phone

(973) 734-3201 Fax Maria G. Enriquez, Esq.

Bates & Carey LLP

191 N. Wacker Dr., Suite 2400

Chicago, IL 60606

(312) 762-3100 Phone

(312) 762-3200 Fax

COUNSEL FOR ARGONAUT INSURANCE CO.:

Dan E. LaBelle, Esq.

Halloran & Sage, LLP

315 Post Road West

Westport, CT 06880

(203) 227-2855 Phone

(203) 227-6992 Fax

Theresa W. Hajost, Esq.

Halloran & Sage, LLP

1730 Pennsylvania Avenue, NW, Suite 800

Washington, DC 20006

(202) 263-4971 Phone

(202) 496-9279 Fax

COUNSEL FOR CENTENNIAL INSURANCE COMPANY:

Kevin E. Wolff, Esq.

Julia Talarick, Esq.

Coughlin Duffy, LLP

350 Mt. Kemble Avenue

P.O. Box 1917

Morristown, NJ 07962

(973) 267-0058 Phone

(973) 267-6442 Fax

Leor J. Kaplan, Esq.

Coughlin Duffy, LLP

Wall Street Plaza

88 Pine Street, 5th Floor

New York, New York 10005

(212) 612-4981 Phone

(212) 480-3899 Fax

COUNSEL FOR CENTURY INDEMNITY CO. (as successor in interest to CIGNA

SPECIALTY INSURANCE CO., flkla CALIFORNIA UNION INSURANCE CO.) and

CENTURY INDEMNITY CO. (as successor in interest to INSURANCE COMPANY OF NORTH AMERICA):

Paul W. Kalish, Esq.

Jonathan Pittman, Esq.

Kathryn A. Underhill, Esq.

Amy E. Owens, Esq.

Crowell & Moring

1001 Permsylvania A venue, NW

Washington, DC 20004

(202) 624-2500 Phone

(202) 628-5116 Fax

Frank Esposito, Esq.

Crowell & Moring

153 East 53rd Street, 31st Floor

New York, NY 10022-4611

(212) 223-4000 Phone

(212) 223-4134 Fax

COUNSEL FOR NORTHWESTERN NATIONAL INSURANCE CO. (as successor in

interest to BELLEFONTE INSURANCE CO'):

Stephen D. Straus, Esq.

Gerard Benvenuto, Esq.

Traub Lieberman Straus &

Shrewsberry LLP

Mid Westchester Executive Park

Seven Skyline Drive

Hawthorne, NY 10532

(914) 347-2600 Phone

(914) 347-8898 Fax

Barbara R. Kapnick, J.

Defendants Century Indemnity Company, Affiliated FM Insurance Company, Munich Reinsurance America, Inc. formerly known as American Re-Insurance Company and as successor-in-interest to American Excess Insurance Company, Argonaut Insurance Company, and Northwestern National Insurance Co. (as successor-in-interest to Bellefonte Insurance Company) jointly move for an order pursuant to CPLR § 3212 declaring that the allocation period for any covered asbestos claim ends no earlier than October 1, 1985.

Background

Hundreds of thousands of asbestos related personal injury claims have been asserted in jurisdictions throughout the United States since in or about 1976 based on allegations that the claimants or their decedents were exposed to asbestos contained in boilers and other steam-[*2]generating equipment designed and built for industrial customers by plaintiff Foster Wheeler L.L.C.'s predecessor, Foster Wheeler Corporation, and/or its subsidiary, Foster Wheeler Energy Corp.[FN1]

Pursuant to an interim agreement, certain primary and first-layer excess carriers shared the cost of defending and indemnifying Foster Wheeler against these claims, until 2001. One of these insurers, Certain Underwriters at Lloyd's, London ("Lloyd's"), commenced this action in February 2001 against Foster Wheeler, Foster Wheeler's primary insurance carriers, and Foster Wheeler's umbrella and excess insurers, seeking a declaration of the parties' respective rights and obligations to indemnify Foster Wheeler for asbestos-related bodily injury losses.

Foster Wheeler subsequently entered into a settlement agreement with Lloyd's, and by Order of this Court dated May 19, 2005, this case was realigned to name Foster Wheeler as the plaintiff and the remaining insurers as defendants.

On February 16, 2006, Foster Wheeler filed the Second Amended Complaint. Three claims sounding in breach of contract which were asserted against certain low-level primary and umbrella insurers were subsequently settled. The only remaining cause of action, Count IV, seeks declaratory relief against the defendants regarding their defense and indemnity obligations with respect to the asbestos-related bodily injury claims under the policies.[FN2]

In connection with this determination, this Court must determine the period of time over which the costs associated with any covered claims must be spread, i.e., the allocation period.

Foster Wheeler contends the allocation period for any covered asbestos claim should end no later than October 1, 1982. The moving defendants, on the other hand, contend that the allocation period should extend until at least October 1, 1985, because Foster Wheeler's excess policies in effect from October 1, 1982 through October 1, 1985 did not contain any exclusions for asbestos-related liabilities.[FN3]

Discussion [*3] Fixing the date of an injurious occurrence is crucial to determining which of the several insurers in a company's history must bear the liability for an environmental incident. Injuries from toxic wastes usually evolve slowly, and thus it is difficult to define the date on which an occurrence triggers liability for insurance purposes. Many years may pass from the time a toxin enters the body until the time the toxin's presence manifests itself in the form of a disease. The word occurrence' itself is ambiguous because the injury process is not a definite, discrete event. Courts have set the time of occurrence in three ways: at the date of exposure, at the date of manifestation, and over the continuous period from exposure to manifestation (the continuous trigger' rule).

Owens-Illinois, Inc. v United Insurance Co., 138 NJ 437, 450 (1994).

The New Jersey Supreme Court has held that "when progressive indivisible injury or damage results from exposure to injurious conditions for which civil liability may be imposed, courts may reasonably treat the progressive injury or damage as an occurrence within each of the years of a CGL [comprehensive general liability] policy. That is the continuous-trigger theory for activating the insurers' obligation to respond under the policies." Owens-Illinois, Inc. v United Insurance Co., supra at 478-479. See also, Stonewall Insurance Co. v Asbestos Claims Management Corp., 73 F3d 1178 (2nd Cir. 1995), pet. for rehearing denied, 85 F3d 49 (2nd Cir. 1996). Because multiple policies of insurance are triggered under the continuous-trigger theory, it becomes necessary to determine the extent to which each triggered policy shall provide indemnity... A fair method of allocation appears to be one that is related to both the time on the risk and the degree of risk assumed. When periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable [emphasis supplied].

Owens-Illinois, Inc. v United Insurance Co., supra at 479. See also, Carter-Wallace, Inc. v Admiral Ins. Co., 154 NJ 312 (1998).

There is no dispute that the umbrella and excess policies purchased by Foster Wheeler for the period October 1, 1982 through October 1, 1985, i.e., American Insurance Underwriters ("AIU") Policy No. 75-102217 (October 1, 1982 - October 1, 1983); AIU Policy No. 75-103116 (October 1, 1983 - October 1, 1984); and Wausau Insurance Company ("Wausau") Policy No. 5727-00-100879 (October 1, 1984 - October 1, 1987), were issued without exclusions for claims against Foster Wheeler arising out of exposure to asbestos. [*4]

The moving defendants argue that the absence of such exclusions conclusively establishes that coverage for asbestos-related risks was not only made available to Foster Wheeler, but that Foster Wheeler actually purchased that coverage, i.e., that Foster Wheeler decided not to assume or retain the risk.

There is no dispute that Foster Wheeler has, to date, elected not to pursue coverage under the 1982 through 1985 umbrella policies issued by AIU and Wausau with respect to that risk.[FN4]

The moving defendants argue that the costs associated with the asbestos claims against Foster Wheeler must nonetheless be allocated for the period covered by those policies, i.e., October 1, 1982 through at least October 1, 1985.

Foster Wheeler, however, argues that the text of the umbrella policies is not dispositive. It contends that there are material questions of fact as to whether any asbestos coverage seemingly provided by Foster Wheeler's 1982-1985 excess policies is illusory and uncollectible.

Specifically, Foster Wheeler contends that if it were to seek coverage under these policies, which it has not, the insurers who issued the policies would likely deny coverage on the ground that a material concealment had occurred during the application process; namely, that Foster Wheeler had represented to the umbrella policies' brokers that the primary policies issued by Liberty Mutual for the same period covered asbestos claims, when in fact the Liberty Mutual policies contained an asbestos exclusion.

Liberty Mutual advised Foster Wheeler in November 1981 that it would continue to provide asbestos coverage for only another 90 days, and that an asbestos exclusion would be added to the primary policy effective February 1, 1982.[FN5] Foster Wheeler contends that Liberty Mutual proceeded to add an asbestos exclusion to the Foster Wheeler primary policy that took effect on February 1, 1982. At the same time, Liberty Mutual deleted a $100,000.00 per claim deductible from the policies.

There is no dispute, however, that the schedules of underlying insurance that Foster Wheeler and its broker submitted in connection with the renewal application for each of the post-1982 [*5]umbrella policies represented that the terms of the primary policies had not changed. Foster Wheeler contends that any misrepresentation about the exclusions in the Liberty Mutual policies or any other changes in the policies, including the deletion of the deductible which was clearly to Foster Wheeler's benefit, was unintentional.

However, Foster Wheeler contends that had it fully disclosed the exclusions in the Liberty Mutual policies to Peter Wilson, who was then the managing director of H.S. Weavers, Foster Wheeler's lead underwriter, similar exclusions would have been included in the umbrella policies, as evidenced by a telex message sent to Foster Wheeler on April 1, 1982. The telex, which was issued by a London broker, Willis, Faber & Dumas, Ltd. ("Willis") used by Foster Wheeler's American broker, Johnson & Higgins, related to negotiations concerning the renewal of Foster Wheeler's umbrella policy with Mr. Wilson. The message states, in relevant part, as follows: REYRTEL MAR 31 MAINTENANCE OF UNDERLYING CLAUSE DOES NOT SATISFY WILSON AS HE ONLY INTENDS TO GIVE UMBRELLA COVERAGE INSOFAR AS COVERAGE IS AVAILABLE IN THE UNDERLYING POLICY [emphasis supplied] THEREFORE SHOULD UNDERLYING SCHEDULED POLICY HAEE E [sic.] HAVE ANY RESTRICTIONS AND/OR EXCLUSIONS THEN IT IS WILSONS [sic.] INTENTION THAT UMBRELLA COVERAGE WILL FOLLOW FORM ON THOSE PRIMARY RESTRICTIONS/EXCLUSIONS STOP MAINTENANCE, OF UNDERLYING CLAUSE WILL IN NO WAY EFFECT THIS SITUATION STOP WE WILLING REDISCUSS DELETION OF THIS FOLLOWING FORM LIMITATION HOWEVER HISTORICALLY WILSON HAS MADD E E [sic.] MADE IT CLEAR THAT HE DOES NOT WANT TO PROVIDE ANY UNINSURED PRIMARY COVERAGES OVER DLRS25,000 FOR THIS EXPOSURE STOP WILL CALL YOU TO DISCUSS FURTHER

Foster Wheeler claims that when Mr. Wilson finally learned about the exclusions in the primary policies, Mr. Wilson did, in fact, consider that fact to be a material change in information, as evidenced by another telex dated July 19, 1985, which was sent following a meeting between a representative of Foster Wheeler and Mr. Wilson. The telex states, in relevant part, as follows:

DURING YOUR VISIT THE ASSURED MENTIONED THAT THE PRIMARY POLICIES AT 1ST OCT 1984 EXCLUDED COVERAGE FOR ANY ASBESTOS AND WILSON STATES THAT AS THIS IS A CHANGE IN MATERIAL INFORMATION HE HAS IMPOSED AN ADDITIONAL ABSOLUTE EXCLUSION WITH EFFECT FROM 1ST OCTOBER 1984 ON POLICY UU 32931 5 MLN XS PMY...

Foster Wheeler argues that a jury thus could reasonably conclude that the umbrella insurers [*6]would deny coverage based on a material concealment by Foster Wheeler during the application process and that Foster Wheeler would, therefore, not be able to recover for asbestos related claims under the 1982 through 1985 policies.

Mr. Wilson testified at his deposition that had the Liberty Mutual exclusions been disclosed, he might not have insisted on an asbestos exclusion under certain circumstances, e.g., if Foster Wheeler had replaced Liberty Mutual with another company willing to issue a primary policy without an asbestos exclusion, or if Foster Wheeler had self-insured to the same extent as the Liberty Mutual coverage. However, Foster Wheeler argues that a jury could still reasonably determine that Foster Wheeler could not have obtained coverage for asbestos liability from any liability insurer after October 1, 1982, if the asbestos exclusions in the Liberty Mutual primary policies had been fully disclosed.

The moving defendants argue in reply that the factual issues raised by Foster Wheeler are immaterial. They contend that the relevant inquiry is whether the coverage for the risk was actually purchased, not whether or not Foster Wheeler may ultimately collect insurance proceeds under the October 1, 1982 through October 1, 1985 policies. See, Benjamin Moore & Co. v Aetna Cas. & Sur. Co., 179 NJ 87, 99 (2004), which held that under the allocation scheme, insurers are allocated losses based on their undertakings, the insured is required to pay its "aliquot" share of both defense and indemnification on account of years in which it is uninsured or self-insured, and the insured also is responsible for years in which coverage is exhausted or its insurer bankrupt. [emphasis supplied; citations omitted]. Once a policy is triggered and the loss for that period is determined, recovery is dependent upon the basic provisions of the insurance contract including "limits and exclusions." [citation omitted].

Here there is no dispute that the 1982 through 1985 umbrella policies were issued without exclusions for asbestos related personal injury claims. Thus, those policies were, as the moving defendants contend, triggered and must be included in the allocation of costs, as would policies by a bankrupt insurer, regardless of whether or not the insurance proceeds from those policies will ever be collected by Foster Wheeler.

Accordingly, based on the papers submitted and the oral argument held on the record, the moving defendants' motion is granted and it is hereby

ORDERED and DECLARED that the allocation period for any covered asbestos claim ends no earlier than October 1, 1985. [*7]

This constitutes the decision and order of this Court.

Dated:March, 2010________________________BARBARA R. KAPNICK

J.S.C. Footnotes

Footnote 1:The Foster Wheeler entities shall be collectively referred to herein as "Foster Wheeler."

Footnote 2:The Appellate Division, First Department, has determined that New Jersey law governs in this case (36 AD3d 17).

Footnote 3:There is no dispute that after 1985, it became very difficult to obtain asbestos exposure coverage.

Footnote 4:The claims asserted by Foster Wheeler in this action are based solely on pre-1982 policies. Foster Wheeler has settled the claims asserted herein against AIU.

Footnote 5:According to Foster Wheeler, asbestos liability was perceived by 1981 to be a serious growing problem for the insurance industry. Thus, by the early 1980s, the insurance industry had dramatically curtailed asbestos coverage.