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Asbestos exclusion shields Travelers unit from liability

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A Travelers Cos. Inc. unit is not obligated to pay more than $36 million in indemnification and prejudgment interest to a manufacturing company because of an asbestos exclusion in its excess policies, says a federal appeals court, overturning a lower court ruling.

Bala Cynwyd, Pennsylvania-based General Refractories Co. manufactures and supplies refractory products designed to retain their strength when exposed to extreme heat, according to Friday’s ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in General Refractories Co. v. First State Insurance Co. et al.

GRC’s products previously included asbestos in some of its products, which led to about 31,440 lawsuits charging asbestos-related injuries dating back to 1978, according to the ruling.

“GRC’s insurers initially fielded these claims,” said the ruling. During the 1970s and 1980s, GRC had entered into primary liability insurance policies with a number of different insurers and also secured additional excess policies to provide additional coverage, said the ruling.

“As the number of asbestos-related injury claims against GRC began to grow, the primary insurers continued to defend and indemnify GRC. But this arrangement came to a halt in 1994 when GRC’s liabilities from thousands of settled claims far exceeded the limits of its primary insurance coverage,” said the ruling.

In 2002, GRC tendered the underlying claims to excess insurers including Travelers Casualty & Surety Co., formerly the Aetna Casualty & Surety Co., all of whom denied coverage on the basis of exclusions for asbestos claims, the ruling said.

GRC filed suit against its excess insurers in 2015. All except Travelers eventually settled with GRC, “leaving Travelers as the only excess insurer remaining in this litigation,” said the ruling.

Travelers’ two excess policies, which provided coverage from 1985 to 1986, included an asbestos exclusion that said the policy does not apply to claims “arising out of” asbestos.

The U.S. District Court in Philadelphia agreed with GRC that the exclusion is ambiguous, and could be read to apply only to asbestos material that is “mined, milled, processed, produced or manufactured for sale in its raw form,” none of which GRC, which only included asbestos in its finished products, did.

It held Travelers must cover $21 million of GRC’s losses, representing the combined limit of its two excess policies, and awarded the company an additional $15.3 million in prejudgment interest. Travelers appealed the ruling.

A unanimous three-judge appeals court panel agreed with Travelers’ argument that the exclusion related to asbestos in any form. The phrase “arising out of” has an “established unambiguous meaning under Pennsylvania insurance law,” said the ruling.

“Were we to ignore the consistent and explicit meaning assigned to the phrase in Pennsylvania insurance exclusions, we would cast doubt on a tradition of interpretation that many parties have relied upon in defining their contractual obligations,” said the appeals panel in reversing the lower court’s ruling.