Court Of Appeals Rules That Asbestos Claims Are Separate Occurrences For Coverage Purposes
August, 2007
In Appalachian Ins. Co. v. General Electric Co., 8 N.Y.3d 162 (N.Y. 2007), the New York State Court of Appeals rejected General Electric’s position that an “occurrence” was not an individual asbestos claim against the company, but the aggregate of all claims arising out of exposure to any product containing asbestos that General Electric manufactured. The Court, applying the “unfortunate event” test established in the case of Arthur A. Johnson Corp. v. Indemnity Ins. Co. of N. Am., 7 N.Y.2d 222 (1959), held that the circumstances surrounding each plaintiff’s exposure to the asbestos must determine the occurrence. Under this test, given the unique histories of exposure of each plaintiff, each claim constituted a separate occurrence.
Between 1966 and 1986 General Electric was basically self-insured through EMLICO, an insurance company partly owned by General Electric and its employees. Premiums were calculated based upon a retrospective formula, with payment by General Electric based upon the previous year’s losses. Under this arrangement, there was a five million dollar limit per occurrence, but no aggregate limit of liability. EMLICO treated each claim against General Electric as a separate occurrence. Although most asbestos claims against General Electric did not reach the $5 million limit of liability, the number of claims rose dramatically in 1991, causing General Electric to object to EMLICO’s definition of occurrence.
General Electric and EMLICO resolved their dispute over the definition of “occurrence” in 1991 by entering into a “Claims Handling Agreement” without the participation of any of General Electric’s excess insurance carriers. According to the agreement, EMLICO would group asbestos claims by product type, instead of by individual occurrence. This greatly increased the excess carriers’ exposure, since individual claims were being grouped together as one occurrence.
The excess insurers objected to General Electric’s arrangement and commenced an action for declaratory judgment that each individual claim represented one occurrence. In particular, the focus was on a group of claims arising from exposure to asbestos-containing insulation used in turbines manufactured by General Electric. General Electric maintained that all asbestos litigations arising from General Electric’s turbine business, which constituted thousands of individual claims, were one occurrence because all the claims could be traced back to a single act of negligence. General Electric argued that the single act of negligence was its failure to warn of the dangers of exposure to asbestos insulation in its turbines.
The Court of Appeals upheld the decisions of the Supreme Court and Appellate Division, rejecting General Electric’s definition of “occurrence.” The Court applied the “unfortunate event” test espoused by the Johnson Court. This test states that in defining an accident, the focus should be on the event for which the insured is being held liable, not a point further back in the causal chain. The Court also stated that the application of this test was appropriate, even though Johnson used the term “accident” rather than “occurrence.” The Court held that these terms are synonymous absent Policy language to the contrary.
In applying the Johnson test, the Court determined that there was insufficient spatial or temporal proximity among the claims to unify them as one occurrence. Turbines were custom built based upon customer needs, so there was no uniformity to the types or amounts of asbestos insulation in the design. Further, exposure of individual claimants varied widely in duration and intensity at approximately 22,000 work sites. As a result, it was the exposure to the asbestos insulation, not the failure to warn, that was the unfortunate event leading to liability. Based upon this analysis, the Court held that the excess carriers were not responsible for the claims in excess of $5 million under General Electric’s Claims Handling Agreement.
Learning Point:
The Court’s decision reaffirms the importance of Johnson’s “unfortunate event” test in New York jurisprudence. This is a positive decision for excess liability carriers in mass tort litigation. This decision reduces the likelihood that policyholders will be able to group individual occurrences together to circumvent self-insured retentions and increase the liability of excess insurance carriers. It also further defines the term “occurrence” as it relates to latent injury mass tort claims.
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