Oct. 30, 2013 – The excess liability insurers for a Coca-Cola subsidiary named in more than 200,000 asbestos-related lawsuits since the 1980s must pay defense and indemnity costs “simultaneously,” not in sequence, a state appeals court has ruled.
Circuit court judgments in 2005 and 2007 triggered this complex insurance case. The judgments concluded that three insurance companies – AIU Insurance, National Union Fire Insurance, and Lexington Insurance – had “joint and several liability” for the legal defense and indemnity costs associated with the subsidiary’s asbestos litigation.
The insurance companies wanted to pay these costs in sequence.
That is, once one insurer was done indemnifying the company under policy limits (and correspondingly, done defending) the next insurer’s duties to defend and indemnify the insured company would kick in. The insurers argued that “joint and several” liability does not require “simultaneous” liability, even if that is the desire of the insured.
But a three-judge panel for the District I Court of Appeals in Cleaver Brooks v. AUI Insurance Co., 2013AP203 (Oct. 29, 2013) disagreed, a decision that prevents two insurers from accelerating the exhaustion of indemnity limits under their policies.
Between 1972 and 1982, Cleaver-Brooks Inc. was a Coca-Cola subsidiary that manufactured and packaged boilers, some containing asbestos.
For the past three decades, plaintiffs have been suing Cleaver-Brooks – and continue to sue the company – seeking damages for bodily injury and wrongful death. Plaintiffs exposed to asbestos in the years 1979 and 1980 triggered the insurance policies.
In those two years, Cleaver-Brooks had three business liability insurance policies covering liability claims up to $15 million for each year. Cleaver-Brooks also had excess liability insurance coverage. When the underlying limits were exhausted for a given year, three separate excess liability policies covered up to $35 million.
Though generally similar, the insurance policies differed in one respect.
Two policies imposed a duty to defend and a duty to indemnify. One policy imposed a duty to indemnify, but no duty to defend. At the time of the 2007 order, underlying insurance policy limits had not been exhausted. In 2010, however, litigation involving Cleaver-Brooks was exhausting underlying policy limits, triggering excess policies.
The insurers informed Cleaver-Brooks that defense and indemnity payments would be “sequenced.” That is, only one insurer would pay settlements or judgments at a time; the insurers would not share the costs associated with defending and indemnifying.
And since one of the insurers had no duty to defend, Cleaver-Brooks would have no defense coverage once coverage limits on the other policies were exhausted.
“The practical effect of the Insurers’ position is that it accelerates exhaustion of the National Union and AIU indemnity limits by paying those limits first, and thereby reducing those policies’ corresponding payments for defense costs in addition to the indemnity limits,” wrote Judge Kitty Brennan for the three-judge panel.
Instead, the panel ruled that joint and several liability lets Cleaver-Brooks choose “more than one of the Insurers at a time to indemnify it for a given claim, such that the insurers’ payments are proportional to their liability and will exhaust at the same time.”
The circuit court orders allow for simultaneous payment of policy limits if Cleaver-Brooks wants, the panel noted, and that conclusion is not contrary to the language of the insurance policies or Wisconsin case law.
“The Insurers have cited no cases that suggest that joint and several liability cannot require them to simultaneously make payments to Cleaver-Brooks,” Brennan wrote.