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California court says each asbestos exposure an occurrence

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LOS ANGELES—Each claimant's injurious exposure to asbestos products constitutes a separate occurrence under a primary commercial general liability policy, a California appeals court has ruled.

The ruling last week in London Market Insurers vs. The Superior Court of Los Angeles County overturned a lower court decision that Kaiser Cement & Gypsum Corp.'s decision to manufacture and distribute products containing asbestos constituted a single annual occurrence under policies purchased from Truck Insurance Exchange, a unit of Los Angeles-based Farmers Group Inc.

Various state courts have diverged on the meaning of "occurrence" as it applies to asbestos injuries.

Several have held that, for the purposes of insurance coverage, the occurrence is the manufacturer's decision to incorporate asbestos into its products. Thus, those courts have concluded that all related asbestos injuries stem from a single occurrence. Others, though, have ruled that occurrence refers to a claimant's unique exposure and that, therefore, each exposure is a separate occurrence.

In the California case, "the meaning of 'occurrence' as it applies to asbestos injuries is an issue of first impression," the appeals court said in its ruling in the Kaiser case, in which thousands of plaintiffs have sued Kaiser alleging product liability-related injuries from three decades of making asbestos-containing materials.

After making more than $50 million in indemnity payments, Truck sought a declaratory judgment that its policy limits were exhausted. It also sought summary adjudication, arguing that Kaiser's decision to manufacture and distribute asbestos products was a single, annual occurrence for the purposes of its policies. Kaiser's policies for several years included per-occurrence limits but did not contain aggregate limits.

The trial court agreed, which prompted Kaiser's excess insurers to appeal.

The London market insurers argued that the trial court wrongly concluded that policy limits written by Truck were exhausted because the relevant occurrence was "injurious exposure to asbestos" and that each injury resulted from a separate occurrence.

California's 2nd District Court of Appeals sided with the excess insurers on the occurrence issue and vacated the lower court's summary judgment.

However, the appeals court said it could not determine whether Truck's policies were exhausted, as it could not determine the number of occurrences arising from more than 24,000 claims that had been filed.

Truck issued CGL policies to Kaiser from 1964 to 1983--using two major versions of the policy. The 1964 Truck policy included a Kaiser deductible of $5,000 per occurrence. Kaiser's deductible was eventually increased to $100,000 per occurrence effective with an April 1981 policy with Truck.

The cost to Kaiser could be significant, the appeals court stated in a footnote in the ruling. "Kaiser's share of the total asbestos liability increases as the number of occurrences increases. Additionally, although asbestos claims against Kaiser collectively exceed tens of millions of dollars, many individual claims apparently are within the applicable deductibles. Thus, if each claim is treated as a separate occurrence, Kaiser may have no coverage for a substantial number of claims."

Potential impact huge

The decision stands to affect many ongoing asbestos-related insurance cases in California, said Jeffrey S. Raskin, an insurance recovery attorney in the San Francisco office of Morgan Lewis & Bockius L.L.P.

The ruling is problematic for policyholders that have policies with a per occurrence deductible without an aggregate, said Larry A. Hobel, an insurance recovery expert in the San Francisco office of Heller Eherman L.L.P.

That is especially true with asbestos-related claims since they often are small, such as less than $5,000 in damages, he said.

While it appears that Kaiser CGL policies for much of the Truck-insured period contained a per-occurrence deductible without an aggregate limit, many policyholders have policies with aggregate deductibles, Mr. Hobel said.

London Market Insurers vs. The Superior Court of Los Angeles County, respondent; Truck Insurance Exchange et al., real parties in interest. 2nd District Court of Appeal in the State of California. B189000. Jan. 9, 2007.