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Member, Beacon International Group, Ltd.
CINCINNATI—An excess insurer does not have to pay asbestos-related claims until all the relevant primary policies have been exhausted, a federal appeals court ruled.
In Federal-Mogul U.S. Asbestos Personal Injury Trust vs. Continental Casualty Co. et al., a three-judge panel of the 6th U.S. Circuit Court of Appeals in Cincinnati ruled that umbrella coverage provided by a unit of CNA Insurance Co. does not kick in until all three primary insurers have paid out their limits.
Southfield, Mich.-based Federal-Mogul filed for Chapter 11 protection in 2001 after it was overwhelmed with asbestos-related injury claims.
The Federal-Mogul U.S. Asbestos Personal Injury Trust was created to bear liability for the claims under the bankruptcy plan. The trust holds three primary liability policies with insurers Travelers Indemnity Co., Globe Indemnity Co. and Liberty Mutual Insurance Co., according to court documents.
Federal-Mogul sought a declaratory judgment from a federal judge in Detroit, arguing that its umbrella policy with Continental requires the insurer to defend the trust against asbestos claims after the policy through Travelers had been exhausted, which was the only primary policy named in the umbrella policy's coverage schedule.
However, the federal judge rejected Federal-Mogul's argument and dismissed the suit. In a ruling last week, a three-judge panel of the 6th U.S. Circuit Court of Appeals in Cincinnati agreed.
The appeals court panel ruled that Continental had no duty to defend the trust because under its “defense, settlement, supplementary payments insuring agreement,” the policy was not triggered since coverage remained under two other primary insurance policies.
For the umbrella policy to be triggered, the “claims must not be covered by either Travelers or any other underlying insurance collectible by the trust,” the appeals court panel ruled.