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Pep Boys wins partial victory in asbestos coverage appeal

Pep Boys

Auto and tire services company Pep Boys is not barred from claiming two annual aggregate limits on two excess policies from the 1980s that were extended a few months past their original expiration date, a California appeals court ruled.

The  Court of Appeal of the State of California, First Appellate District in San Francisco, ruled Dec. 28 that the insurers’ policy wordings were ambiguous in overturning a trial court’s summary judgment in favor of Old Republic Insurance Co. and Fireman’s Fund Insurance Co.

A third excess policy, issued by American Excess Insurance Exchange unambiguously limited coverage to one policy limit, the court ruled in The Pep Boys Manny Moe & Jack of California et al. v. Old Republic Insurance Co. et al.

The dispute stemmed from claims filed alleging harm from asbestos in Pep Boys products. In 2004, the company sought coverage under general and excess liability policies it bought that provided coverage between Feb. 1, 1981, and July 1, 1982. The policies had originally been for one year, but Pep Boys extended them to align the coverage period with its financial year, court papers say.

The primary insurer on the coverage tower agreed to pay two aggregate annual limits and Pep Boys later settled with the umbrella insurer, but the three excess insurers argued that they each owed only one aggregate annual limit.

Old Republic’s policy provided $10 million per occurrence and $10 million “in the aggregate for each annual period during the currency of this policy,” court papers say. The insurer argued that the policy period of 17 months required it to pay $10 million, but Pep Boys read the policy as covering two annual periods.

“Both parties ask us to apply ‘annual period’ to terms more than or less than a year: 17 months, in Old Republic’s view, or 5 months, under Pep Boys’ approach. As a textual matter, neither reading accords with the literal meaning of ‘annual,’ and neither is more reasonable than the other,” the ruling states.

In insurance disputes, ambiguities in policy language are generally interpreted in favor of the policyholder.

The Fireman’s Fund policy, which provided $15 million in aggregate limits, also used the phrase “annual period”. The American Excess policy, however, stated that its $5 million in coverage applies “with respect to loss excess of the Underlying Insurance which occurs during the term of this Certificate,” unambiguously limiting coverage to one limit, the court ruled.

Lawyers for Old Republic and Fireman’s Fund did not immediately respond to requests for comment.