ASSOCIATED INTERNATIONAL INSURANCE COMPANY, Plaintiff and Appellant, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, et al., Defendants and Appellants, Old Republic Insurance Co., et al., Defendants and Respondents.
In this case we are asked to decide a single narrowly focused issue relating to the respective duties of insurance carriers to pay claims involving continuous or progressive injury. The trial court ruled that Associated International Insurance Company (hereafter, Associated), an excess insurer, was not obligated to contribute to payment of silicosis claims against the insured until all primary insurance at risk for those claims was exhausted, even though the primary carriers covered the insured for different policy periods than Associated. After careful reflection, we conclude the trial court erred and accordingly reverse the judgment.
The trial court's ruling was based on stipulated facts. The insured, E. D. Bullard Company (hereafter, Bullard), manufactures industrial safety equipment, including masks and respiratory systems used by construction workers for sandblasting. Bullard is a defendant in numerous complaints by workers who allege they have acquired silicosis as a result of using defective masks and respiratory equipment manufactured by Bullard over an extended period of time. Between 1952 and 1983, Bullard held successive policies of liability insurance by the carriers in this action. Associated provided second-level excess coverage between October 1978 and October 1979. Both the primary insurer for this period, National Union Fire Insurance Company of Pittsburgh (hereafter, National Union), and the first-level excess carrier, Motor Vehicle Casualty Company (hereafter, Motor Vehicle), had exhausted their policy limits in the settlement of an unrelated construction accident case.
Associated filed an action for declaratory relief in superior court, seeking a ruling that it need not contribute to payment of specified silicosis claims against Bullard until “all underlying [primary] coverage over the full period of exposure and manifestation has been exhausted by payment of policy limits.” The matter was assigned to a special master, who determined the issue to be as follows: “If there is applicable underlying insurance on the risk (on whatever occurrence trigger applies), does the excess policy of Associated International drop down to a primary level?”
After receiving written and oral argument from counsel, the trial court ruled: “With respect to those claims which are the subject of this action ․ Associated International Insurance Company does not have a duty ․ to afford any insurance coverage, including defense costs or indemnification against settlement or judgment, until all applicable coverage under all of the applicable primary policies of insurance which are the subject of this action and which were issued by defendant in this action has been exhausted by payment of policy limits․” The court reasoned: “In this court's opinion the Olympic [ (Olympic Ins. Co. v. Employers Surplus Lines Ins. Co. (1981) 126 Cal.App.3d 593, 178 Cal.Rptr. 908) ] holding is consistent with the contractual holdings the various carriers have undertaken. Since ‘occurrences' in a silicosis case may be difficult to pinpoint, carriers who undertake both defense and indemnity should foresee a clear risk in defending against claims which arise both in and out of their policy periods. Premiums may be adjusted accordingly. An excess carrier may consciously choose to avoid this risk in limiting its contractual liability and in formulating the cost of the excess.”
The primary insurers for years other than 1978–1979, the year covered by Associated, appeal.1 Associated cross-appeals, contending the court's ruling should have encompassed pending and future silicosis claims against Bullard not specifically listed in the complaint.2
The parties have emphasized throughout the course of this appeal that they are concerned only with the narrow issue presented to the trial court, that of the excess insurer's duty to participate in payment of claims while primary insurance covering other years is still available. A number of interesting issues are raised by their contentions, but it is unnecessary to decide them here.3 Accordingly, we will confine our discussion to the specific question posed by the parties to the action.
The primary insurers, led by Hartford Accident & Indemnity Company (hereafter, Hartford), contend that the trial court erroneously “transferred” Associated's risk to the primary carriers, who had never agreed to provide coverage for bodily injury occurring during Associated's policy period. Instead, they urge: “[t]he bodily injury claims attributable to a particular policy period must be borne by the primary insurance for that period or, if that primary insurance is properly exhausted, the excess insurance covering that period.”
Associated responds that this argument “ignores the fundamental difference between primary and excess insurance.” Relying, as did the trial court, on Olympic Insurance Company v. Employers Surplus Lines Insurance Company, supra, 126 Cal.App.3d 593, 178 Cal.Rptr. 908, Associated points out that excess coverage by definition attaches only after underlying primary insurance has been fully exhausted.
Here, however, the underlying primary insurance was exhausted. Associated maintains nevertheless that it need not “step down” into the position of its underlying carrier because its policy contained a provision allowing it to avoid payment of claims as long as “other insurance” was available.
That provision states: “The Company hereby indemnifies the insured against ultimate net loss in excess of and arising out of the hazards covered and as defined and in excess of the underlying insurance as shown in Item 3 of the Declarations․ [¶] [ ] 13. Ultimate net loss, as used herein, shall be understood to mean the sums paid in settlement of losses for which the Insured is liable after making deductions for all recoveries, salvages and other insurances (other than recoveries under the underlying insurance, policies of co-insurance, or policies specifically in excess hereof), whether recoverable or not, and shall exclude all ‘Costs'.” (Emphasis added.)
This provision, however, is in effect simply an “other insurance” clause. (Jefferson Ins., etc. v. Glens Falls Ins. (1982) 88 A.D.2d 925, 450 N.Y.S.2d 888, 889; Allstate Ins. Co. v. Employers Liability Assur. Corp. (5th Cir.1971) 445 F.2d 1278, 1283.) As Associated itself points out, “other insurance” clauses are not properly applied across levels of coverage. (See Olympic, supra, 126 Cal.App.3d at p. 598, 178 Cal.Rptr. 908; North River Ins. Co. v. American Home Assurance Co. (1989) 210 Cal.App.3d 108, 114, 257 Cal.Rptr. 129.) This provision is therefore of significance only if it is determined that Associated's liability has attached. In our view, it has. Once the specified underlying insurance was exhausted, Associated in effect “dropped down” to the level of its underlying carrier and the appealing primary insurers. The only question remaining is whether Associated's “ultimate net loss” provision exempts it from contributing along with those other insurers.4 We conclude it does not.
It is a fundamental principle of insurance law and practice that insurance policies are written to assume specified risks for well-defined policy periods. Indeed, the duration of the policy is considered an essential term of any insurance contract. (Ins.Code, § 381, subd. (e); see 3 Matthew Bender, Cal. Insurance Law & Practice (1989 Rev.) § 41.11.) Associated's policy itself explicitly states: “This Policy applies only to accidents or occurrences happening between the effective and expiration dates ․ unless otherwise cancelled.” In discussing liability among insurers in an asbestosis case, the Sixth Circuit explained: “Each insurer is liable for its pro rata share․ Accordingly, where an insurer can show that no exposure to asbestos manufactured by its insured took place during certain years, then that insurer cannot be liable for those years. The reason is simple: no bodily injury ․ took place during the years in question.” (Ins. Co. North America v. Forty–Eight Insulations (6th Cir.1980) 633 F.2d 1212, 1225.)
We find no legal basis for reading into the ultimate net loss provision an exception to this basic principle. The term “other insurance” in this clause therefore must be interpreted to refer only to other insurance within the policy period for which Associated has agreed to provide coverage.
Peerless Cas. Co. v. Continental Cas. Co. (1956) 144 Cal.App.2d 617, 301 P.2d 602, and Olympic Insurance Co. v. Employers Surplus Lines, supra, 126 Cal.App.3d 593, 178 Cal.Rptr. 908, do not suggest otherwise. In those cases, the primary insurers all provided coverage for the same policy period, the period in which the accident occurred. In that context it was appropriate to apply the principle that all primary insurance must be exhausted before liability attaches under a secondary policy (Olympic, supra, 126 Cal.App.3d at p. 600, 178 Cal.Rptr. 908), even if the total amount of primary coverage exceeds the amount contemplated in the excess policy. Here, we are confronted not with a discrete event occurring in only one policy period, but with a continuous or progressive injury spanning multiple policy periods. The Olympic and Peerless holdings are inapplicable under these circumstances.
Associated concedes that if bodily injury had occurred solely within its policy year it would be liable, since the specified underlying insurance is exhausted and no other insurer provided coverage during that period. The provisions of Associated's policy, including its ultimate net loss clause, pertain to injuries occurring in the 1978–1979 period. If there were in fact other policies that covered the same period in addition to the specified underlying insurance, Associated would not be obligated, under its ultimate net loss provision, until the policy limits of that coverage were exhausted. That is not the case here, however, as no “other insurance” existed during this period. We see no reason why an excess insurer should not be required to contribute for that portion of a continuous injury that occurs during its policy year. Conversely, neither an excess nor a primary insurer should be required to pay for the portion of injury attributable to a period outside the defined limits of its own coverage. Having been presented with no authority for Associated's assumption that the term “other insurance” refers to coverage outside the policy period, we must conclude the trial court's ruling was erroneous. Primary insurers in other policy periods need not exhaust their policy limits before excess insurers may be required to contribute to payment of claims.
The judgment is reversed. Costs on appeal are awarded to the primary insurer appellants. The appeal of General Accident Insurance Company is dismissed.
I agree that the dispositive issue is the interpretation of the words “other insurances” in Associated's definition of “ultimate net loss.” However, I believe that in this particular case, the issue cannot be decided fully until a determination has been made of the “trigger of coverage” and the extent of coverage owed by a primary insurer once its policy has been triggered. On the present record, which contains neither evidence, stipulation, nor finding as to the nature of the silicosis disease or injury suffered by the underlying plaintiffs, we ought not to determine broadly, as the majority does, that Associated must contribute before the exhaustion of limits of all primary insurance for other years.
1. Reasons For Reversal
I agree with the majority that the judgment must be reversed but I would limit the ground to the following: if (1) silicosis is a progressive and cumulative disease like asbestosis (see Clemco Industries v. Commercial Union Ins. Co. (N.D.Cal.1987) 665 F.Supp. 816, aff'd. without opinion (9th Cir.1988) 848 F.2d 1242), and if (2) California were to adopt an exposure theory of the trigger of coverage (see, e.g., Ins. Co. North America v. Forty–Eight Insulations (6th Cir.1980) 633 F.2d 1212, mod. (1981) 657 F.2d 814; Porter v. American Optical Corp. (5th Cir.1981) 641 F.2d 1128), and if (3) the extent of the liability of each insurer to the insured were measured by the damages attributable to the “increment” or “portion” of the injury in those years for which that insurer was on the risk, perhaps because each “increment” or “portion” is a separate bodily injury for insurance purposes (Glacier General Assur. Co. v. Continental Cas. Co. (D.D.C.1985) 605 F.Supp. 126; Ducre v. Mine Safety Appliances Co. (E.D.La.1986) 645 F.Supp. 708, aff'd. (5th Cir.1987) 833 F.2d 588), then the words “other insurances” in the definition of “ultimate net loss” would naturally be read to refer only to other insurance applicable to the same “increment” or “portion” of the loss, and that would not include the primary insurance written for other policy periods. On conditions (1) through (3), Associated, whose liability has attached as a result of the proper exhaustion of the underlying insurance, would be obliged to contribute (in accordance with some as yet undetermined formula) even though the limits of the primary policies for other years are not exhausted.
Since the present record does not exclude the possibility that conditions (1) through (3) hold, the judgment in favor of Associated cannot stand. Associated did not carry its burden of proof as plaintiff.
2. Reasons For Disagreement With Majority
There is no stipulation as to condition (1) and no record upon which such a determination can be made. Nor are conditions (2) and (3) established points of California law. In other jurisdictions, different theories of the trigger of coverage have been adopted. (E.g., Eagle–Picher Industries Inc. v. Liberty Mut. Ins. Co. (1st Cir.1982) 682 F.2d 12 [manifestation theory]; Keene Corp. v. Ins. Co. of North America (D.C.Cir.1981) 667 F.2d 1034 [triple trigger]. Cf. American Home Products Corp. v. Liberty Mut. Ins. (2d. Cir.1984) 748 F.2d 760 [point of actual bodily injury determined case by case].) Nor is there universal acceptance of the Ducre theory that a silicosis claim can be split into separate bodily injuries or separate occurrences. (E.g., Keene Corp. v. Ins. Co. of North America, supra [when multiple policies are triggered, a single policy may be required to pay the entire loss (up to applicable limits) and not just that portion of the loss attributable to a portion or increment of bodily injury in its policy period].) Indeed, the decision of the Ducre court was heavily fact dependent. On the facts of that case, the damages to each claimant “arose out of more than one occurrence or event” and the injury to each could not be said to be caused by “a single condition.” (Ducre v. Mine Safety Appliances Co., supra, 645 F.Supp. at p. 713.) There were “separate bodily injuries to claimants allegedly arising from different construction and repair jobs.” (Ibid.)
The majority opinion assumes that silicosis is a “continuous or progressive injury spanning multiple policy periods.” (P. 488. See also pp. 488–89.) It assumes without discussion or citation of any authority, that, for purposes of determining rights and obligations between insurers, such a bodily injury should be divided into separate “portions.” In the absence of a “compelling equitable consideration” to the contrary, obligations between insurers are inferred from the contracts between the insurers and their mutual insured. (Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal.3d 359, 369, 165 Cal.Rptr. 799, 612 P.2d 889.) The majority does not explain whether its conclusion as to obligations between insurers is based upon the Ducre theory that the contractual obligation of each insurer to its insured is for a “portion” of the total bodily injury, or upon some (unspecified) compelling equitable consideration special to progressive and continuous injuries, or upon some other reason. The conclusions of the majority may be correct but cannot be drawn on the present record.
The majority opinion speaks of “a fundamental principle of insurance law and practice that insurance policies are written to assume specified risks for well-defined policy periods.” (P. 488.) However, no matter how “well-defined” the policy period may be, in the case of an injury caused by a cumulative and progressive disease, a claim is covered if there was a triggering event or process in that period. All parties accept that the claims in dispute in this case are those where there was a triggering event or process within the policy period of one of the primary insurers as well as within the policy period of Associated. (That is why the claims “span” multiple policy periods.) A mere appeal to the “well-established rule” that insurance is written for a particular period is not sufficient to determine the outcome of this case in its present posture.
The majority position cannot be justified by a bare assertion that “other insurances” must mean other insurance written for the same policy period. While the most common application of “other insurance” provisions is to other insurance written for the same policy period—often insurance purchased by different persons and with different named insureds (see generally Appleman, Insurance Law and Practice § 4906 at pp. 341–342)—there are in fact some cases in which courts have construed the term “other insurance” to include insurance for overlapping periods (e.g., Jefferson Ins., etc. v. Glens Falls Ins. (App.Div.1982) 88 A.D.2d 925, 450 N.Y.S.2d 888) or insurance written for completely different periods (e.g., Employers Reinsurance Corp. v. Mission Equities Corp. (1977) 74 Cal.App.3d 826, 829, 141 Cal.Rptr. 727; Employers Reinsurance Corp. v. Phoenix Ins. Co. (1986) 186 Cal.App.3d 545, 230 Cal.Rptr. 792; Federal Ins. Co. v. Cablevision Systems Dev. Co. (2d Cir.1987) 836 F.2d 54 [New York law]; P.L. Kanter Agency, Inc. v. Continental Cas. Co. (6th Cir.1976) 541 F.2d 519 [Michigan law] ).
I thus cannot agree with the majority view that “[t]he term ‘other insurance’ ․ must be interpreted to refer only to other insurance within the policy period for which Associated has agreed to provide coverage.” (Maj. op. p. 488, emphasis in original.) A fuller evidentiary basis is needed to decide whether, in the context of a silicosis injury, “other insurance” or “other insurances” means something different from what I take to be its usual meaning—other insurance applicable to the same loss. The trial court seems to have relied in part on this construction of the term.
Diseases such as silicosis present difficult issues of insurance law that have not been decided in California and which are present in more than one case working its way through the court system. I think it unwise to attempt to give a sweepingly general answer to one “single narrowly focused issue” (maj. op. p. 486.) considered in isolation from closely connected issues and on a very slender and ambiguous stipulation of facts. Neither we nor the parties can explore all the possible ramifications of such a decision in cases with various fact patterns. While recognizing the practical need of the parties for guidance in how to share the costs of settling the claims of silicosis victims, I believe that a satisfactory reasoned determination of the issue posed in this case requires a fuller factual record and a prior determination of other undecided issues of insurance law.
1. Appellants are Hartford Accident and Indemnity Company (primary insurer between Jan. 30, 1952 and Dec. 15, 1970); St. Paul Fire & Marine Insurance Company (primary insurer between Jan. 20, 1971 and Jan. 20, 1975); General Accident Insurance Company (primary insurer between Jan. 20, 1975 and Jan. 20, 1977); and American Universal Insurance Company (primary insurer between April 9, 1978 and Oct. 1, 1978) appeal.The appeal of General Accident Insurance Company is dismissed, as it did not file a notice of appeal and filed its “joinder in notice of appeal” more than 60 days after the notice of entry of judgment (Cal. Rules of Court, rule 2(a)) and more than 20 days after notice of the first appeal in the case (Cal. Rules of Court, rule 3(c)).
2. Defendants Old Republic Insurance Company (first-layer excess insurer between Oct. 1, 1981 and Oct. 1, 1982) and Transcontinental Insurance Company (first-layer excess insurer between Oct. 1, 1980 and Oct. 1, 1981) joined in the appellate brief of Associated pursuant to California Rules of Court, rule 14.
3. We are not called upon, for example, to decide what “trigger of coverage” determines the occurrence of bodily injury in cases of continuous injury such as silicosis or asbestosis. Similarly, we are not asked to consider the proper formula for allocating liability among those required to pay the claims that are the subject of this action. It is also unnecessary to resolve issues typically arising in disputes between insurers and the insured, such as whether the liability of insurers is joint and several or individual and proportionate.
4. In an ongoing process involving the multiple claims, the at-risk carriers have agreed to share the risk on a pro-rata basis, i.e. damages will be paid on the basis of claims per policy period. Whether Associated can be compelled to participate in that agreement is not before this court, as the issue was not posed to the trial court. It may very well be mooted by Associated's position that it is responsible now for claims within its policy period.
PREMO, Associate Justice.
ELIA, J., concurs.