Asbestos Allocation / DE Supreme Ct. (MI Law)shoke2013
Pre-1972 Excess “Occurrence” Policies Pro Rata, Excess Post-1972 Claims-Made Coverage not triggered.
The Delaware Supreme Court, applying Michigan law, held that costs associated with General Motors Company’s (“GM”) asbestos claims were subject to pro rata allocation under GM’s pre-1972 excess level occurrence-based policies. The court also held there was no coverage under GM’s post-1972 excess level policies. Those policies were issued excess of primary level claims-made policies, and the excess policies could only be triggered where a claim was covered by the underlying primary policies. Because the claims at issue were brought after the last post-1972 claims-made policy period expired and therefore were not covered by the primary policies, the post-1972 excess policies had no coverage obligation.
In 2009, GM underwent a bankruptcy reorganization. As a result, any rights to the proceeds from GM’s historical policies were assigned to Motors Liquidation Company DIP Lenders Trust (“Trust”). The Trust sued GM’s excess insurers who issued coverage to GM prior to the mid-1980s seeking coverage for asbestos claims that had been brought against GM.
GM purchased primary level coverage from Royal Insurance Company (“Royal”) from the 1930s to the mid-1980s. The Royal primary policies issued through 1971 were occurrence-based, meaning the coverage could be triggered by a claim if it alleged bodily injury during the policy period – regardless of when the claim was filed. In contrast, the Royal primary policies after 1972 were issued on a claims-made basis, meaning the coverage could only be triggered for occurrences reported during the policy period.
The pre-1972 excess policies generally follow form to the underlying Royal primary policies. Some of the post-1972 excess policies follow form to the underlying Royal primary policies, while others do not.
More than 40,000 asbestos claims have been filed against GM. Royal generally covered the claims until 2004, when GM tendered a substantial number of claims at once. Royal denied coverage for those claims, and ultimately GM and Royal filed competing coverage actions. The parties settled their dispute in 2008. The excess insurers were not involved with the lawsuits or the settlement.
In 2011, after GM entered bankruptcy, the Trust pursued a cause of action against GM’s excess insurers seeking a declaration of the excess insurers’ rights and obligations under their pre-1986 policies regarding GM’s asbestos liabilities.
The trial court held: (1) Michigan law required pro rata allocation under the pre-1972 policies; and (2) there was no coverage under the post-1972 excess policies due to the claims-made nature of the post-1972 primary policies.
On appeal to the Delaware Supreme Court, the Trust argued that, under Michigan law, an all sums allocation must be applied to the pre-1972 policies. Under an all sums allocation, any insurer’s policy that is triggered is responsible for the entire loss, subject to policy limits. Under pro rata allocation, each insurer whose policy is triggered is only responsible for a pro rata portion of the entire loss. The Michigan Supreme Court has not published an opinion adopting either methodology. Thus, the Trust argued that the Dow Corning case (Michigan appellate court) requires an all sums allocation. The excess insurers argued that two cases – Arco (Michigan appellate court) and Stryker (Michigan federal court) requires a pro rata allocation. The Delaware Supreme Court sided with the excess insurers, because: Dow Corning relied heavily on policy language not present in the GM policies, while Arco and Stryker interpreted language similar to the language in the GM policies; Dow Corning was unpublished; and, the Michigan Supreme Court affirmed Arco after Dow Corning was decided.
Next, the Trust argued that there was coverage for the asbestos claims under the post-1972 excess policies, notwithstanding that those policies were issued in excess of claims-made primary policies. The Delaware Supreme Court disagreed. Among other reasons, certain post-1972 excess policies only provided coverage for claims “which would be covered by the terms of the [Royal primary policies]….” The court determined that, because the claims at issue were brought after the last post-1972 claims-made policy period expired, the claims were not covered by the terms of the Royal primary policies. Thus, the claims were not covered by the excess policies either. Motors Liquidation Co. DIP Lenders Trust v. Allstate Ins. Co., No. 381, 2017 (Del. July 10, 2018).