NY / Asbestos Claims Constitute Multiple Occurrences

Litigation insurer liable for defense expenses for WTC claims after policy exhausted.

The New York Supreme Court, applying New York law, held that thousands of asbestos-related personal injury claims arising from exposure to asbestos during the construction of the original World Trade Center site (the “WTC”) triggered coverage under a “litigation insurance” policy issued by American Home Assurance Co. (“American Home”).  The court held: (1) the policy was triggered because the alleged injuries arose out of the construction of the WTC, as required by the policy; (2) the WTC fireproofing asbestos claims did not constitute a single occurrence; and (3) American Home’s duty to defend did not terminate upon the exhaustion of the liability limit.

American Home insured The Port of Authority of New York and New Jersey (the “Port Authority”) for the construction of the original WTC.  Since the 1980s, the Port Authority and its general contractors and subcontractors (collectively the “Insureds”) have been sued for asbestos-related personal injury claims stemming from the construction of the WTC.  For more than 25 years, American Home defended and settled the WTC asbestos claims, but then, in 2012, American Home sought a declaration that it had no further obligation to defend or indemnify the Insureds for the WTC asbestos claims.

American Home moved for partial summary judgment on two grounds, the first of which was that certain claims are not covered because the claimants’ alleged injuries did not occur during the policy period.  The American Home policy applied to “Premises-Operation Hazard: Personal injury or property damage which arises out of the premises-operation hazard, during the policy period, anywhere.”  The policy defines “Premises-Operation Hazard” as “all operations, including operations completed, by or for the insured during the policy period in connection with the construction of the Project.”  American Home argued that an actual diagnosable disease needed to exist during the policy period to trigger coverage.  The court disagreed: “Indeed, under the plain language of the Policy, coverage is triggered if the injury ‘arises out of’ construction of the Project, regardless of when the injury itself began.”  According to the court, the policy language was clear that “it is the Insureds’ operations, not a plaintiff’s injury, which must occur ‘during the policy period’ to trigger coverage.”

Secondly, American Home claimed that the applicable $10,000,000 policy limit was exhausted because the claims premised on alleged exposure to asbestos-containing spray-on fireproofing material arose from a single “occurrence.”  The American Home policy has a per occurrence limit of $10,000,000.  However, the policy the does not define “occurrence.”  Under New York law, when “occurrence” is not defined by an insurance policy, the court should apply the two-prong “unfortunate-event” test.  First, the court must identify the “operative incident or occasion giving rise to liability,” and second, the court must “analyze the temporal and spatial relationships between the incidents and the extent to which they were part of an undisputed continuum to determine whether they can nonetheless, be viewed as a single unfortunate event – a single occurrence.”  The court determined that the WTC fireproofing asbestos claims varied considerably regarding the nature, timing and location of each exposure, and thus, lacked the requisite temporal and spatial relationship to constitute a single unfortunate event.

The Insureds also sought a declaration that American Home’s duty to defend under the policy did not terminate upon the exhaustion of the policy’s liability limit.  The court agreed, finding that American Home sold the Insureds “litigation insurance,” which was evidenced by the following facts: (1) the policy expressly provided that American Home “shall … defend any suit the insured alleging … personal injury”; (2) the policy expressly provided that defense costs are “payable … in addition to the applicable limit of liability;” and (3) the policy did not include any language expressly limiting the duty to defend upon exhaustion. Am. Home Assurance Co. v. The Port of Auth. of New York and New Jersey, No. 651096/2012 (N.Y. Sup. Ct. Nov. 29, 2017).