Asbestos Exclusion – 3rd Cir

Heard Argument On Whether “Arising Out Of Asbestos” In Exclusion Only Applies To Raw Asbestos And Not Products.

Last week, the U. S. Court of Appeals for the Third Circuit heard oral arguments surrounding the interpretation of an asbestos exclusion found in Travelers Surety & Casualty Co.’s (“Travelers”) insurance policies.  The case is on appeal from the United States District Court for the Eastern District of Pennsylvania which, in 2015, applying Pennsylvania law, held the asbestos exclusion was ambiguous and therefore must be interpreted in favor of the policyholder, General Refractories Company (“GRC”).

GRC manufactured and supplied refractory products that at times contained asbestos.  Since about 1978 it has been named a defendant in many asbestos-related lawsuits.  The 2015 ruling stemmed from GRC’s lawsuit against its insurance carriers for a declaration of excess insurance coverage for asbestos-related lawsuits and for breach of insurance contract.

The asbestos exclusion at issue states, in part: “It is agreed that this policy does not apply to the EXCESS NET LOSS arising out of asbestos, including but not limited to bodily injury arising out of asbestosis or related disease or to property damage.”  At the District Court, Travelers argued the exclusion was subject to one reasonable interpretation: “claims for injuries related to asbestos in any form are excluded.”  GRC took the position that when the policies were written “arising out of asbestos” did not mean the same thing as “arising out of asbestos containing products.”  GRC maintained that “asbestos” plainly meant “‘a mineral’ – that is, a physical substance mined, milled, processed, produced, or manufactured for sale in its raw form.”   GRC did not produce asbestos in its raw form.  It made refractory products that at times contained some asbestos components.  The court found GRC’s interpretation of “arising out of asbestos” to be reasonable and found Travelers had not met its burden of showing to the contrary.  Therefore, the court held that “[b]ecause the exclusionary terms are reasonably capable of being understood in more than one sense, the Exclusion is ambiguous.”   The court also found GRC’s interpretation of “arising out of asbestos” was supported by evidence of insurance industry custom and trade usage.  Ultimately, the court ruled that “the exclusion is to be construed to protect the policyholder, GRC, against liability claims for injuries to others caused by the refractory products that GRC made.”

Travelers appealed the ruling to the Third Circuit.  The parties briefed the issue and oral argument was held on September 9, 2016.   General Refractories Co. v. First State Ins. Co., No. 04-3509 (E.D. Pa. Mar. 3, 2015); General Refractories Co. v. First State Ins. Co., No. 15-3409 in the U.S. Court of Appeals for the Third Circuit.

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