CNA Avoids Annualized Limits And Establishes Exhaustion By Paying Single Occurrence Limit In Multi-Year Policies.

An Illinois circuit court, applying Illinois law, ruled that Continental Casualty Co. (“CNA”) only had to satisfy the single occurrence limit in multi-year umbrella policies that it issued to Borg-Warner Corp. (“BWC”), rejecting the argument that the policies had annualized limits equaling an additional $70 million in total occurrence limits according to the opinion.

In 2004, CNA filed suit seeking declarations regarding its obligations to cover asbestos claims against BWC and its successors.  Prior to the latest decision, the circuit court held that CNA exhausted the single-occurrence limits of its two primary policies issued to BWC.  The court based its ruling on documentation which showed that CNA paid $12.8 million in indemnity for asbestos bodily injury claims.  After CNA exhausted its primary policies, it made defense and indemnity payments under its umbrella policies for claims by BWC’s successors: BorgWarner / Morse TEC, York International, and Flowserve Corporation.

The specific issue before the circuit court was whether four umbrella policies that CNA issued to BWC were exhausted.  CNA issued several multi-year umbrella policies to BWC.  CNA argued that the policies did not have annualized limits, thereby limiting its liability to the per occurrence limits in each multi-year policy.  York, Flowserve and certain excess insurers argued that the limits of the policies applied on an annual basis.  The court examined the policy language and agreed with CNA.  Among other reasons, the court relied upon policy language providing that “[i]n no event” shall CNA be liable for an amount in excess of that set forth in the Declarations.  The amount reflected on the declaration pages was the per occurrence limit, and the declaration page did not indicate that the multi-year policies had annualized limits.

The excess insurers claimed that, even if the multi-year policies did not have annualized limits, CNA still did not establish exhaustion.  Specifically, they claimed that CNA was required to prove that coverage was triggered on a claim-by-claim basis.  The court disagreed and held that CNA’s $94.3 million in payments under the umbrella policies were reasonable and exhausted the limits.  The circuit court found that CNA had fulfilled its burden of showing that its payments were for potentially covered claims.  The court also found that it was not against Illinois law for the insurers to allocate payments on a pro rata basis.

The parties also disputed whether CNA’s $4.3 million payments for a claim relating to a plant explosion eroded the aggregate limits of one of the policies.  However, the court agreed with CNA, and held that the payments were for claims for personal injuries that fell within the “products hazard” definition and, therefore, the payments eroded the aggregate limit and the four umbrella policies in question were exhausted.  Continental Cas. Co. v. BorgWarner Inc., 04 CH01708 Cook County, Ill. (Oct. 8, 2015).

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