Wisconsin Supreme Court Issues Decision in Plastics Engineering Co. v. Liberty Mutual Ins. Co.January 30, 2009
With today's opinion, the Wisconsin Supreme Court addresses several important issues for the insurance industry in asbestos and other long-tail liability cases. The court's holdings are as follows:
1. Each claimant's exposure to asbestos-containing products constitutes a separate occurrence under the typical CGL definition of that term;
2. Section 631.43(1), relating to "other insurance" clauses in liability insurance policies, does not apply to successive insurance policies and does not negate a non-cumulation of limits provision in liability policies;
3. Wisconsin adopts the "all sums" approach to policy allocation, requiring an insurer whose policy is triggered to pay all sums that the insured is obligated to pay as damages, up to its policy limits, even when bodily injuries occur partly within and party outside of its policy period.
Plastics Engineering Company (Plenco) is a Wisconsin-based manufacturer of plastic molding compounds and industrial resins. Continuing into the 1980s, many of the compounds it manufactured contained asbestos. Plenco subsequently became a target defendant for plaintiffs alleging injury from exposure to Plenco's products. Most of the plaintiffs are former employees of companies who purchased molding compounds from Plenco. Plaintiffs typically argue that they were injured by their first exposure to asbestos, but that their injuries did not manifest until long thereafter.
Liberty Mutual issued primary general liability policies to Plenco from 1957 to 1989. Save for a two-year period from 1984 and 1986, Liberty Mutual also issued umbrella liability policies from 1970 to 1988. The limits of these policies ranged from $500,000 to $10 million.
The policies in effect from 1957 to 1968 did not insure for, or excluded coverage for, bodily injury claims arising out of its products. Beginning in 1988, the policies contained an exclusion barring coverage for bodily injury claims caused by asbestos.
Liberty Mutual defended Plenco in the asbestos suits and has paid over $14.3 million in settlements and judgments on its behalf. However, Liberty Mutual contended that it was only obligated to pay its share of defense costs, and would not pay defense costs for the time Plenco was uninsured for bodily injury claims arising from asbestos or its products.
Liberty Mutual also took the position that the injuries suffered by asbestos plaintiffs were the result of one occurrence, namely, Plenco's conduct in manufacturing asbestos-containing products and its failure to warn of those products. In response, Plenco filed suit against Liberty Mutual in the U.S. District Court for the Eastern District of Wisconsin.
The district court found that, under the language of Liberty Mutual's policies, an occurrence took place when a plaintiff was exposed to an asbestos-containing product. It also decided that Wisconsin would apply an "all sums" approach to allocating responsibility for paying defense and indemnity costs, and that a Wisconsin statute did not outlaw the non-cumulation provision in Liberty Mutual's policies. After both parties appealed to the U.S. Court of Appeals for the Seventh Circuit, that court certified three questions to the Wisconsin Supreme Court for resolution.
Questions Certified to Wisconsin Supreme Court
The Wisconsin Supreme Court was asked to answer the following three questions:
1. What constitutes an "occurrence" in an insurance contract when exposure injuries are sustained by numerous individuals at varying geographical locations over many years?
2. Does Wisconsin Statute sec. 631.43(1) apply to successive insurance policies?
3. Whether Wisconsin should adopt an "all sums" or pro rata allocation approach to determining liability when an injury spans multiple successive insurance policies.
Issue No. 1: What Constitutes An "Occurrence" in Asbestos or Toxic Tort Cases?
The Wisconsin Supreme Court, in a decision authored by Justice Ziegler, noted that the policies define "occurrence" as an:
Accident, including continuous or repeated exposure to conditions, which results in bodily injury neither expected nor intended from the standpoint of the insured.
On appeal, Liberty Mutual asserted that what constitutes an occurrence is determined by reference to the insured's conduct. Here, that conduct is one continuous course of conduct in manufacturing and selling asbestos-containing products and, therefore, one occurrence.
The Court rejected Liberty Mutual's arguments and adopted Plenco's position that each individual plaintiff's exposure to asbestos-containing products constitutes an occurrence. The Court relied on the policy definition of "occurrence," which includes "continuous or repeated exposure to conditions, which results in bodily injury...." The Court concluded that "the claimants were allegedly injured by continuous and repeated exposure to asbestos fibers from Plenco's asbestos-containing products" and that without exposure, "no bodily injury takes place." Accordingly, the Court concluded that an occurrence takes place when an individual is exposed to asbestos.
The Court then turned to the issue of the number of occurrences and held that "each individual's repeated and continuous exposure [to asbestos] constitutes an occurrence." In reaching its conclusion, the Court noted that Wisconsin has adopted the "cause theory" to determining the number of occurrences. Under that that theory, where a "single, uninterrupted cause results in all of the injuries and damages, there is but one" occurrence. Applying that test to the facts of this case, the Court held that a single claimant's continuous and repeated exposure to asbestos caused all his or her damages, mandating the conclusion that his or her exposure constitutes a single occurrence.
Issue No. 2: The Non-Cumulation of Limits Provisions
While defending Plenco, Liberty Mutual argued that its policies' "non-cumulation of limits" provisions acted to reduce the amount of insurance available to Plenco. The relevant portion of that provision states as follows:
Subject to the above provision respecting the total liability of the company ... if an occurrence gives rise to Bodily Injury and Property Damage which occurs partly before and partly within the policy period, the liability under this policy for such occurrence shall not exceed $500,000 minus the total of all payments made with respect to such occurrence under a previous policy or policies of which this policy is a replacement.
Plenco argued on appeal that this provision is contrary to the Wisconsin Insurance Code. Specifically, section 631.43(1) of the Wisconsin Statutes states as follows:
Other Insurance Provisions. (1) General. When 2 or more policies promise to indemnify an insured against the same loss, no "other insurance" provisions of the policy may reduce the aggregate protection of the insured below the lesser of the actual insured loss suffered by the insured or the total indemnification promised by the policies if there were no other insurance provisions. The policies may by their terms define the extent to which each is primary and each excess, but if the policies contain inconsistent terms on that point, the insurers shall be jointly and severally liable to the insured on any coverage where the terms are inconsistent, each to the full amount of coverage it provided. Settlement among the insurers shall not alter any rights of the insured.
The Wisconsin Supreme Court agreed with Liberty Mutual's position that this section does not apply to successive insurance policies, but instead only applies when two concurrent insurance policies cover the same loss.
In addition, the Court recognized that the issue in this case, as in all cases involving successive insurance policies, "is not which of two or more policies pays first because the Liberty Mutual policies are not concurrent policies between competing insurers that apply to the same time period." Accordingly, the Court also held that the statute does not apply to provisions such as Liberty Mutual's non-cumulation of limits provisions, but applies only to "other insurance" clauses within liability policies.
Issue No. 3: Wisconsin Adopts the "All Sums" Approach to Allocation.
In reaching its decision, the Wisconsin Supreme Court recognized that states typically adopt either the "pro rata" or "all sums" approach to allocation. The court's decision squarely adopts the "all sums" approach, holding that "once [its] policy is triggered, Liberty Mutual must fully defend that lawsuit in its entirety" and that it "is responsible for 'all sums,' up to its policy limits, whether the compensation is for damage that occurs 'partly before and partly within the policy period.'"
The Court rejected Liberty Mutual's position that responsibility for paying judgments and settlements, as well as defense costs, in asbestos cases should be allocated between itself and its insured, taking into account those periods of time that the insured did not have insurance coverage for such suits.
The Court also rejected Liberty Mutual's argument that the policy language stating that each policy applies only to bodily injury that takes place within the policy's coverage period requires a pro rata allocation. Instead, the Court stated that such language governs when a given policy is triggered, stating that a "policy is triggered when injury occurs during the policy period" and that once a policy is triggered "the policy requires Liberty Mutual to 'pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages'" due to bodily injury.
The Court also noted that Wisconsin follows the "continuous trigger" theory, mandating the conclusion that in long-tail cases all policies are triggered from a claimant's first exposure to manifestation of his or her injuries.
Chief Justice Shirley Abrahamson authored a separate concurring opinion which largely adopted the majority opinion's reasoning, but also took the position that the Court's decision should be applied beyond this case, consistent with the questions certified by the Seventh Circuit Court of Appeals.
Justice Gableman wrote a separate opinion, concurring with the majority opinion's holdings related to the number of occurrences and the non-application of Wis. Stats. 631.43(1) to successive insurance policies. Justice Gableman dissented, however, from the majority opinion's allocation holding, stating that he would have held that Liberty Mutual's policies do not apply to the portion of a claimant's bodily injury that occurred when Plenco did not purchase liability insurance.