Court Holds Travelers’ Asbestos Exclusion Ambiguous And Not Enforceable

A federal court, applying Pennsylvania law, held that an asbestos exclusion was ambiguous and therefore must be construed in favor of insurance coverage. The exclusion at issue eliminated coverage for injuries or loss “arising out of asbestos.” The court found that the exclusion was ambiguous because the insured had presented a reasonable interpretation of the exclusion that differed from the insurer’s interpretation. The court then ruled that the asbestos exclusion was not enforceable and did not preclude coverage for the underlying claims.

General Refractories Company (“GRC”), a manufacturer and supplier of refractory products, is a defendant in many asbestos-related suits. GRC sued its insurance carriers for a declaration of excess insurance coverage for underlying asbestos-related lawsuits. Travelers Casualty and Surety Company, formerly known as the Aetna Casualty and Surety Company (“Travelers”), issued GRC two insurance policies from August 1, 1985 – August 1, 1986 which contained an asbestos exclusion. The exclusion eliminated coverage for sums that GRC becomes legally obligated to pay for injuries or loss “arising out of asbestos, including but not limited to bodily injury arising out of asbestosis or related diseases or to property damage.” The terms “arising out of” and “asbestos” were not defined in the policies.

Travelers maintained that the exclusion was subject to only one reasonable interpretation: claims for injuries related to asbestos in any form are excluded. GRC’s position was that from the late 1970s to 1985, “arising out of asbestos” did not mean the same thing as “arising out of asbestos-containing products.” According to GRC, “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 make raw mineral asbestos products, but rather, made refractory products that at times contained some asbestos components. At trial, GRC presented extrinsic evidence of insurance industry usage to back up its contention regarding the definition of asbestos. Travelers presented extrinsic evidence which it argued confirmed the parties’ intent to exclude all injuries related to asbestos in any form, including injuries arising from GRC’s refractory products. Travelers’ evidence did not shine any light on the meaning of “arising out of asbestos” or GRC’s interpretation of that phrase and, therefore, the court found that it failed to meet its burden of proving that GRC’s interpretation was not reasonable.

The court noted that there was no controlling decision by the state’s highest court interpreting the phrase “arising out of asbestos.” According to Pennsylvania law, “[a]n exclusion from liability must be clear and exact and unambiguous to be given effect.” The court first looked to the plain meaning of the asbestos exclusion and the words “arising out of asbestos.” According to the court, “[t]he common usage of the word “asbestos” reveals a latent ambiguity as to what it denotes.” Under Pennsylvania law, exclusions are to be strictly and narrowly interpreted to favor coverage for the insured.  General Refractories Co. v. First State Ins. Co., NO. 04-3509 (E.D. Pa. Mar. 3, 2015).