March 4, 2009
Written by Attorneys Michael A. Hamilton and Diane Fazzolari
Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
In Plastics Engineering Company v. Liberty Mutual Insurance Company, 759 N.W.2d 613 (Wis. 2009), the Wisconsin Supreme Court became the most recent state high court to decide insurance coverage issues concerning asbestos-related claims. The court ruled that each individual's exposure to products containing asbestos constituted a separate occurrence. Furthermore, the court adopted an "all sums" method of allocation, meaning that each insurer must fully defend and indemnify for all sums up to the policy limits.
From approximately 1950 until 1983, the plaintiff Plastics Engineering Company manufactured and sold various asbestos-containing products. Plenco was sued by individuals suffering from asbestos-related diseases. Plenco filed a declaratory judgment in federal district court, seeking coverage for the claims under a Liberty Mutual Insurance Company policy. After a ruling in December 2006, mostly in favor of Plenco, both parties appealed to the Seventh Circuit. The Seventh Circuit certified three questions to the Wisconsin Supreme Court: (1) what constitutes an "occurrence" in asbestos-related claims; (2) whether Wisconsin Statute § 631.43(1) governing allocation of insurance coverage applies to successive insurance policies; and (3) whether liability for asbestos-related claims is subject to an "all sums" or pro rata allocation.
Number of Occurrences
Liberty Mutual argued that Plenco's decision to manufacturer and sell asbestos-containing products was one occurrence regardless of the number of individual claimants. In contrast, Plenco argued that each individual claimant constituted a separate occurrence under the policy. The Wisconsin Supreme Court held that each claimant's repeated exposure to asbestos was one occurrence. The decision appears to follow jurisdictions that adopt the "effect test," in lieu of the "cause test." The effect test relates occurrences to the number of claimants, and the occurrence is the individual claimant's exposure to asbestos. The cause test requires that the occurrence is based on the underlying cause of the damage, which many courts hold is the decision to manufacture and sell asbestos-containing products.
Liberty Mutual further contended that the policy mandated that asbestos claims be treated as a single occurrence, relying on the clause providing that "all bodily injury and property damage arising out of continuous or repeated exposure to substantially the same general harmful conditions shall be considered as arising out of one occurrence." The court rejected this argument, holding that the "related claim" language functions to "preclude a claimant from asserting that each time he or she was exposed to an asbestos-containing product, a new occurrence arose."
Statutory Allocation Application to Successive Insurers
Under Wisconsin Statute § 631.43(1), "[w]hen 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 can define who is primary and excess, but if they are inconsistent, coverage will be joint and several among the insurers. The Wisconsin Supreme Court held that § 631.43(1) did not apply to Liberty Mutual's successive policies. Rather, the statute only addresses polices in effect during the same time period which indemnify against the same loss.
All Sums Allocation
The parties disputed the scope of Liberty Mutual's duty to indemnify and defend under the policies. Plenco argued for an "all sums allocation," so that Liberty Mutual would fully defend and indemnify for all sums up to the policy limits. Liberty Mutual advocated a "pro rata" allocation based on the time it was on risk.
The Wisconsin Supreme Court held that once the policy was triggered, Liberty Mutual "must fully defend the lawsuit in its entirety and pay for all sums up to the policy limits that Plastics Engineering Company (Plenco) is obligated to pay because of the injury." The court refused to adopt a pro rata allocation, noting that nothing in the policy allowed Liberty Mutual to limit its liability to a pro rata share. Further, the all sums allocation comported with Wisconsin's continuous trigger theory, which required that "all policies are triggered from exposure until manifestation." The court also applied the all sums approach to Liberty Mutual's duty to defend. This case will shape the future of coverage litigation in Wisconsin and how long tail exposure claims are handled in the state. Importantly, the court did not address other issues inherent in these claims, such as the right of contribution against other insurers.
