London Market Insurers v. Superior Court (Truck Ins. Exchange)
(2007) ___ Cal.App.4th ____, 07 C.D.O.S. ______

"Occurrence" Means Injurious Exposure To Asbestos and Multiple Asbestos Bodily Claims Do Not Constitute One Occurrence Under the Policies At Issue

In a case of first impression, the California Court of Appeal for the Second District reversed a trial court's grant of summary adjudication in favor of Truck Insurance Exchange concluding "occurrence" means injurious exposure to asbestos, not the manufacture and distribution of the products containing asbestos. The court also held the aggregation provisions in the Truck policies do not permit thousands of asbestos exposures to be deemed a single "occurrence."

Truck issued primary CGL policies to Kaiser Cement & Gypsum Corp. ("Kaiser") between 1964 and 1983. Kaiser manufactured a variety of asbestos products from 1944 through the 1970's at ten different facilities at various times. By 2004, more than 24,000 claimants had filed products liability suits against Kaiser alleging bodily injury as a result of exposure to Kaiser's asbestos-containing products. Kaiser tendered these claims to Truck, which accepted the tender. By October 2004, Truck's indemnity payments for asbestos bodily injury claims exceeded $50 million.

The Truck CGL policy in effect from 1964 to 1973 limited Truck's liability for bodily injury to a $300,000 annual aggregate for damages arising out of the "products hazard." On January 30, 1971, the parties eliminated the aggregate product liability limit. On April 1, 1980, the parties restored the aggregate limit for products claims. Thus, between January 30, 1971 and April 1, 1980, the Truck policies were not subject to aggregate limits for asbestos claims alleging damages involving Kaiser's products. The only limit on claims involving the products hazard was the $500,000 "per-occurrence" limit.

Truck filed an insurance coverage action concerning its obligations and moved for summary adjudication contending all of its policies had been exhausted and it had no further duty to defend or indemnify Kaiser. Truck's motion was based upon the "per-occurrence" liability limitation in its policies, which capped Truck's exposure for bodily injuries resulting from "any one occurrence." According to Truck, all asbestos-related claims in any given year arose from a single "occurrence" because all had the same underlying cause: "the design, manufacture and distribution by Kaiser and its subsidiaries of asbestos-bearing products." Truck argued its liability for asbestos bodily injury claims for all policy years was limited to $8.3 million and its policies were exhausted as of January 1999.

London Market Insurers ("LMI"), one of Kaiser's excess insurers and a cross-defendant in the coverage action, opposed Truck's motion. LMI contended the trial court could not conclude as a matter of law that all asbestos bodily injury claims resulted from a single annual occurrence or that Truck's policies had been exhausted. LMI argued each asbestos claim represented a separate occurrence.

After initially denying Truck's motion, the trial court reconsidered its decision and granted summary adjudication to Truck. The court examined out of state decisions and determined that in asbestos cases, the national trend is to apply an "underlying cause test" which mandates a finding that either the manufacture and sale of asbestos-containing products or the failure to warn of such products was the single occurrence. Accordingly, the trial court held "the manufacture and decision to place asbestos into products" by Kaiser constituted a single occurrence under the Truck policies. LMI filed a petition for writ of mandate.

The appellate court granted the writ and reversed. It held "occurrence" as defined in the Truck policies means injurious exposure to asbestos. The court further concluded that all asbestos exposures could not be treated as a single "occurrence" under the aggregation provisions of the policies. The court could not determine from the record how many occurrences were responsible for the thousands of claims against Kaiser and remanded to the trial court for further proceedings.

In reaching its decision, the court first examined the Truck policy definition of "occurrence." Truck defined this term as "an event or continuous or repeated exposure to conditions." The court held Kaiser's manufacture and distribution of asbestos products was not an "event" or "exposure to conditions," rejecting Truck's contention that the term "event" is broad and includes "anything that happens." The court noted the plain meaning of "event" is a discreet happening that occurs at a specific point in time. The manufacturing of asbestos products over 30 years can not be an "event" because it is not a single episode.

The court also rejected Kaiser's contention the manufacture of asbestos products is a "continuous or repeated exposure to conditions" and thus an "occurrence" under the policies. The court found the "conditions" to which the claimants were exposed were the asbestos fibers released from Kaiser's products, not the manufacture of the products. Since the manufacture and distribution of asbestos products cannot be characterized as either an "event" or an "exposure to conditions," it could not be an "occurrence" under the policy.

The court examined other provisions in the Truck policies. For example, the "products hazard" clause applied to goods sold or distributed by Kaiser if the occurrence or accident occurs after possession of the goods has been relinquished by the insured. Neither manufacture nor distribution can be an "occurrence" because both necessarily occur before-not after-a product is relinquished by the manufacturer.

The "products hazard" definition also stated an occurrence shall be deemed to have taken place at the time of the injury or damage to the claimant and not at the time of the act of the insured giving rise to liability. The court noted this clause is unintelligible if the "occurrence" is the manufacture of the injury-causing product because the manufacture could take place "at the time of the injury only if the injury happened during the manufacturing process." However, manufacturing injuries are excluded from the "products hazard" definition, which required an injury away from the insured's premises after the goods have been relinquished.

The court also examined a timing clause in the Truck policies which stated the policy applied "only to occurrences during the policy period" that "result[ed] in personal injury or property damage during the policy period." This clause permitted coverage only where both the occurrence and the injury occurred in the same policy period. If the manufacture of asbestos products was an occurrence, there would be significant coverage gaps if the injury, which results from the exposure to the products, occurs in a later policy period. Such gaps are inconsistent with a "comprehensive" liability policy.

The notice clause and assistance and cooperation clause in the Truck policy also supported the court's finding. Under the notice clause, the insured must provide notice to Truck when it has knowledge of an event or occurrence which is likely to result in a claim. The court held it would be nonsensical to require Kaiser to provide notice of its business decision to sell asbestos-containing products. Moreover, the insured would not be able to determine if the manufacturing of a product would be likely to result in a claim under a particular policy. Similarly, the assistance and cooperation clause required the insured to not voluntarily assume any obligation except for emergency medical and surgical relief to others at the time of an occurrence. Implicit in this clause is the parties' expectation that an "occurrence" may cause injuries requiring medical attention, reinforcing the conclusion the parties understood "occurrence" to mean an injury-producing event, not routine manufacture or distribution.

In the second part of its opinion, the appellate court held the aggregation provisions in the Truck policies do not permit the thousands of individual asbestos exposures to be deemed a single "occurrence." The Truck policies issued prior to 1974 contained a "one lot" provision. Pursuant to this provision, multiple injuries are treated as resulting from a single occurrence if the injuries arose out of one lot of goods or products prepared by the insured. Although the court acknowledged this provision was designed to limit products claims, there was no evidence all asbestos claims against Kaiser derived from a single lot of products.

The court arrived at a similar conclusion with respect to the aggregation provision in the 1974 Truck policy, which stated "[a]ll . . . exposure to substantially the same general conditions existing at or emanating from each premises location shall be deemed one occurrence." Since the Kaiser products at issue were manufactured at ten different facilities at various times, the court could not conclude they "emanated from" a single premises location. The court rejected Truck's argument the aggregation clause was not exclusive and therefore permitted multiple claims to be treated as resulting from a single occurrence even if they do not fit within the clause.

The court cautioned the parties it was not concluding the number of occurrences necessarily is equal to the number of asbestos claimants. The actual number of occurrences turns on the meaning of the two aggregation clauses in the Truck policies, which the court did not resolve, and their application to the facts.

This opinion is not final. It may be depublished, modified on rehearing, or review could be granted. This events would render this decision unavailable for use as legal authority.

Click here for opinion.

This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at www.gordonrees.com.