Travelers Casualty & Surety Co. v. Certain Underwriters at Lloyd’s of London

Travelers Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s of London, 96 N.Y.2d 583, 760 N.E.2d 319 (2001)

Court: Court of Appeals of New York

Issue Decided: Whether insurer could aggregate losses from multiple environmental injury claims arising from decades of commercial activities at numerous industrial waste disposal sites.

Travelers Casualty v. Certain Underwriters at Lloyd’s was the consolidated appeal of two cases arising from losses on policies issued to chemical companies. The first case involved primary, excess, and umbrella general liability policies issued to the Koppers Company, a chemical manufacturer in operation at locations throughout the United States since the early 1900s. Travelers issued the policies to Koppers from 1960 to 1972, and purchased various types of reinsurance from the defendant Reinsurers.

Beginning in the early 1980s, government entities and private parties commenced environmental actions directed at more than 150 of Koppers’ chemical plants and disposal sites, many of which had been in operation for over 60 years. Koppers sought defense and indemnification from Travelers, and eventually settled with Travelers for about $140 million.

Travelers apportioned its settlement payment amongst the sites, treating each as a separate occurrence, and later ceded about $61.5 million of the settlement to its facultative reinsurers, treating the entire settlement as a single casualty and apportioning approximately $13 million of the settlement to defendant Reinsurers. In doing so, Travelers reasoned that the many occurrences resulted from a “common origin” because they were all traceable to Koppers’ company-wide waste disposal practice.

The second case arose from claims under excess and umbrella policies issued to DuPont from 1967 to 1985, backed by reinsurance policies from various entities including defendant Reinsurers. In 1989, DuPont sued Travelers, seeking a declaration of insurance coverage for pollution-related claims arising from contamination at multiple hazardous waste sites. Travelers eventually paid DuPont $72.5 million to settle the claims, apportioned the settlement between two direct insurance policies with DuPont, and then sought reimbursement from its various reinsurers, including $7.4 million from defendant Reinsurers.

As with the Koppers claims, Travelers calculated this amount by treating all the DuPont claims as a single loss, asserting that they all shared a “common origin,” namely DuPont’s failure to implement and enforce its own environmental policy. As it had in the Koppers matter, Travelers then sued defendant Reinsurers, seeking monetary damages and declaratory relief.

In both cases, Reinsurers moved for summary judgment, arguing that Travelers’ “single loss” approach was inconsistent with the language of the insurance treaties. In both cases, the district courts granted Reinsurers’ motions, and in both cases the intermediate appellate courts affirmed.

The Court of Appeals also affirmed. The court’s analysis began by noting that the parties’ dispute centered on the interpretation of language common to the reinsurance treaties on both cases. Specifically, the issue was whether Travelers’ single allocation of its losses was encompassed by the term “disaster and/or casualty,” which included “all loss resulting from a series of accidents, occurrences and/or causative incidents having a common origin and/or being traceable to the same act, omission, error and/or mistake.”

The court held that Travelers’ broad interpretation of “disaster and/or casualty” would effectively excise the words “a series of” from the language of the treaty, violating the principle that all terms of the contract must be given effect. The court held that these terms could be harmonized by an interpretation under which the “disaster and/or casualty” provision would allow the reinsured to aggregate claims traced to “accidents, occurrences and/or causative incidents” having a special or temporal relationship and a “common origin.” The same interpretation could disallow aggregation of claims that lack such relationships.

The court ultimately concluded, as a matter of law, that Travelers’ allocation of its settlements with Koppers and DuPont did not fall within the ambit of “disaster and/or casualty” in the reinsurance treaties.

Hartford Accident Indemnity Co. v. Ace American Reinsurance Co.

Hartford Acc. & Indem. Co. v. Ace Am. Reinsurance Co., 284 Conn. 744, 936 A.2d 224 (2007)

Court: Supreme Court of Connecticut

Issue Decided: Whether a unique “common cause” provision in a reinsurance treaty could permit aggregation of asbestos claims.

The primary issue in this appeal was the proper construction of the phrase “any one accident” as it was used in a series of reinsurance contracts. More specifically, the issue was whether the phrase allowed aggregation of liability claims against an asbestos manufacturer.

From 1967 through 1975, Hartford issued general liability policies to MacArthur Company, which manufactured, distributed, and installed asbestos products throughout northern California and the Midwest. To protect itself against large losses, Hartford entered into a series of reinsurance treaties with Ace American Reinsurance and other reinsurers specifying that the reinsurers would be liable for losses, above a specific threshold and below a specified limit, incurred by Hartford “by reason of any one accident.” The treaties defined “any one accident” to include “any one, or more than one, accident, happening or occurrence which the available evidence shows to be the probable common cause or causes of more than one claim under a policy, or policies . . . .” The court dubbed the provision, “the common cause” provision.

Beginning in the late 1970s, numerous asbestos-related claims were brought against MacArthur for injuries caused by exposure to asbestos dust released into the air during transportation and installation of MacArthur products. Hartford defended the claims until the early 1990s, when it determined MacArthur had exhausted its coverage. MacArthur then sued Hartford, seeking coverage for thousands of additional claims, and the parties reached a settlement under which Hartford paid about $1.5 billion into a trust for the benefit of asbestos claimants.

Pursuant to the reinsurance treaty, Hartford billed its reinsurers approximately $150 million, including $51 million billed to Ace. Ace refused to pay, asserting that Hartford’s losses in its settlement with MacArthur could not be aggregated under the common cause provision. Hartford brought a declaratory judgment action seeking a judgment that it was entitled to recover from Ace. Ace moved for summary judgment, arguing (among other things) that the MacArthur claims could not be aggregated as “any one accident” because they did not have a “common cause or causes.”

The trial court granted Ace’s summary judgment motion. Interpreting an earlier Supreme Court of Connecticut decision, Metropolitan Life Ins. Co. v. Aetna Casualty & Surety Co., 255 Conn. 295, 765 A.2d 891 (2001), the trial court concluded that the word “occurrence” as used in the underlying MacArthur policies meant each individual claimant’s initial exposure to asbestos, or, at most, the exposure of multiple claimants at the same place and roughly the same time. The court held that because Hartford had not presented, and could not present, evidence that all the claims were caused by the exposure of one claimant, or by the exposure of all claimants at a single place and time, the losses could not be aggregated under the “common cause” provision.

The Supreme Court reversed and remanded, holding that the trial court had, in effect, improperly determined that there was no genuine issue of material fact as to whether the MacArthur claims had a common cause or causes within the meaning of the treaty’s “any one accident” clause. The Supreme Court also took issue with the trial court’s application of Metropolitan Life, and noted the unique language of the reinsurance treaty providing for the accumulation of liability arising from a common cause.

Ultimately, the Supreme Court reversed and remanded because it concluded that (1) the common cause provision was ambiguous, and could reasonably be interpreted as Hartford sought to interpret it, (2) the meaning of the common cause provision involved a genuine issue of material fact, and (3) the fact finder would, therefore, be required to determine, as a factual matter, the meaning of the common cause provision.

Hartford Accident and Indemnity Company, etal. v. ACE American Reinsurance Company

Issue: Number of occurrences

In Hartford Accident and Indemnity Company, et al. v. ACE American Reinsurance Company et al., the Supreme Court of Connecticut reversed the trial court’s grant of summary judgment in favor of the defendant reinsurers. The Supreme Court found that the meaning of “any one accident” in the reinsurance treaty as applied to 17,000 workers’ asbestos claims was ambiguous and must be addressed by the finder of fact.

Hartford brought a declaratory judgment action against Lloyd’s and its other reinsurers seeking reinsurance recovery after settling worker’s asbestos claims with its insured, MacArthur, in the amount of $1.15 billion. Hartford claimed that it was entitled to recover under its reinsurance contracts with the defendants for certain losses on general liability policies issued by Hartford to MacArthur arising from claims for injuries resulting from MacArthur’s production and use of products containing asbestos. The defendant reinsurers filed a counterclaim for declaratory relief claiming, inter alia, that Hartford was not entitled to recovery because the losses were not the result of “any one accident” under the reinsurance contracts and could not be aggregated under the common cause clause. Under the terms of the relevant reinsurance contract, reinsurance coverage only became available once a multimillion dollar threshold for “any one accident” was exceeded. The reinsurance contract defined “any one occurrence” as:

“any one, or more than one accident, happening or occurrence arising or resulting from any one event, casualty or catastrophe upon which liability is predicted, under one, or more than one, of the policies covered by this Agreement, and, as respects liability arising out of products manufactured, made, handled, distributed or sold by an assured, liability arising out of property damage or out of malpractice, said term shall also be deemed and construed to mean any one, or more than one accident, happening, or occurrence which the available evidence shows to be the probable common cause or causes of more than one claim under a policy, or policies or renewals thereof irrespective of the time of the presentation of such claims to the assured or the Hartford.”

In relying on Metropolitan Life Ins. Co. va. Aetna Casualty & Surety Co, 255 Conn. 295, 765 A. 2d 891 (2001), the trial court assumed that while there was a genuine issue of material fact as to the meaning of the definition of “any one accident,” the word occurrence as used in the underlying policies meant each claimant’s initial exposure to asbestos or, at most, the exposure of multiple claimants to asbestos at the same place and roughly the same time. After examining whether an occurrence or occurrences form the common cause of more than one claim, the trial court rejected Hartford’s argument that, even if there were multiple occurrences, they had “sufficient commonality” to come within the meaning of the common clause language. The trial court ruled that in order to show that the occurrence was common to all, the exposure of one claimant to asbestos, or the exposure of multiple claimants at a single place and time, caused all the claims. The trial court found that Hartford failed to present such evidence and would not be able to do so. The Supreme Court reversed the trial court finding that the “arising out of products” language of the common cause provision is ambiguous and therefore involves factual questions concerning the intent of the parties. Specifically, the Supreme Court was persuaded that the common cause language is ambiguous as to whether it allows aggregation of claims that were “meaningfully related” and “arose out of the same pattern of events” as argued by Hartford or, as the defendants claim, it “incorporates spatial and temporal limitations” that preclude aggregation of claims that were incurred at hundreds of different locations and over decades.

The Supreme Court further considered the defendants’ alternative ground for affirmance of the trial court’s ruling, arguing that the contract’s common cause language does not apply to the MacArthur claims because they did not arise “out of products manufactured, made, handled, distributed or sold by an assured…” On this issue the Supreme Court found that the “arising out of products” portion of the common cause provision was ambiguous as to whether it refers to liability arising out of the products hazard provision of the underlying MacArthur policies, or, instead, refers to any claim arising out of a product, regardless of whether MacArthur had relinquished physical possession of the product at the time liability was incurred.

The Court did not reach the issue of the defendants’ claim that even if the claims arose from a common cause, they would have to be aggregated in one treaty year and subject to one retention by Hartford and one reinsurance limit and could not be aggregated on a per insured, per year basis.

The trial court’s judgment was reversed and the case remanded for further proceedings.

Sylvia Kaminsky is currently an ARIAS certified umpire and arbitrator as well as a consultant to the insurance/reinsurance industry. She is a lawyer licensed in New York. She was formerly General Counsel, Sr. V.P. and Corporate Secretary of Constitution Reinsurance Corporation and Sirius Reinsurance Corporation; Deputy General Counsel of Gerling and Sr. V.P. of ;Claims; and was in private legal practice for 15 years serving the industry.

Hartford Accident & Indem. Co. v. Ace Am. Reinsurance Co.

Issue Addressed: Number of occurrences

A Connecticut state trial court recently held that, where a cedent seeks to recover from its treaty reinsurers for a payment made to its insured to settle asbestos claims, each individual claimant’s exposure to asbestos constitutes a single occurrence. The court ruled that 17,000 workers’ asbestos claims do not constitute “one occurrence” as that term was used in the reinsurance treaties, granting Lloyd’s of London and other London-based reinsurers’ (“Lloyd’s”) summary judgment motion against their cedent Hartford Accident and Casualty Co. (“Hartford”).

Hartford brought the action against Lloyd’s and others after Hartford paid its insured MacArthur Company (“MacArthur”), an asbestos insulation installing company, $1.15 billion to settle workers’ asbestos claims. Under the terms of the relevant treaties, reinsurance coverage only became available once a multimillion dollar threshold for “any one accident” is exceeded. The treaties allowed claims to be aggregated for “one, or more than one, accident, happening or occurrence which the available evidence shows to be the probable common cause or causes of more than one claim under a policy, or policies, or renewals thereof . . . .”

In opposing Lloyd’s summary judgment motion, Hartford argued that the “occurrence” that led to the injury was caused either by “dusty conditions” at the MacArthur facilities or by MacArthur’s failure to warn its workers and customers. Hartford alternatively argued that the asbestos claims were a single occurrence per site under the common cause theory because the affected workers were injured at each job site at or around the same time.

The court relied heavily on a coverage case involving excess insurance, Metropolitan Life Insurance Company v. Aetna Casualty & Surety Company,255 Conn. 295 (2001), noting that both sides argued that Metropolitan Life supported their respective positions. The Connecticut Supreme Court inMetropolitan Life held that the term “occurrence” was not ambiguous and that each claimant’s exposure to asbestos constituted a single “occurrence,” not Metropolitan’s alleged failure to warn the claimants of the dangers of asbestos. Based on Metropolitan Life, the Hartford court held that the treaties between Hartford and Lloyd’s were unambiguous, requiring an examination of whether an occurrence or occurrences form the common cause of more than one claim. After analyzing this issue, the court concluded that, in the absence of any evidence provided by Hartford establishing that there was a common cause for the asbestos claims, each individual exposure constituted a single occurrence. Hartford has appealed the court’s ruling.
* Felton Newell is a senior litigation associate in the Los Angeles office of Milbank, Tweed, Hadley & McCloy LLP.