0`7-2230 - Supreme Court

IN THE SUPREME COURT OF OHIO
ACE PROPERTY & CASUALTY
INSURANCE COMPANY,
Appellant,
V.
THE CINCINNATI INSURANCE
COMPANY,
Appellee.
0'7-2230
) On Appeal from the Hamilton County
) Court of Appeals, First Appellate District
)
) Court of Appeals
) Case Nos. C-060384
C-060385
)
)
)
MEMORANDUM IN SUPPORT OF JURISDICTION OF
APPELLANT ACE PROPERTY & CASUALTY INSURANCE COMPANY
Gregory A. Harrison (0029814)
Counsel ofRecord
Dinsmore & Shohl LLP
255 East 5th Street, Suite 1900
Cincinnati, Ohio 45202
(T) (513) 977-8314
(F) (513) 977-8141
[email protected]
William M. Cohn
Brian C. Coffey
Erin E. O'Brien
Cohn, Baughman & Martin
333 West Wacker Drive, Suite 900
Chicago, Illinois 60603
(T) (312) 753-6600
(F) (312) 753-6601
[email protected]
[email protected]
[email protected]
Counsel for Appellant, ACE Property &
Casualty hisurance Company
K. Roger Schoeni (0004812)
Counsel ofRecord
Kimberly A. Kyle (0072574)
201 East Sth Street, Suite 800
Cincinnati, Ohio 45202
(T) (513) 381-0656
(F)(513)381-5823
[email protected]
[email protected]
Counsel for Appellee, The Cincinnati
Insurance Company
TABLE OF CONTENTS
Pa e
1. EXPLANATION AS TO WHY THIS CASE IS OF
PUBLIC OR GREAT GENERAL INTEREST . . . . . . . . . . . . . . . . . . . . . . 1
II. STATEMENT OF THE CASE AND FACTS . . . . . . . . . . . . . . . . . . . . . . . 4
III. ARGUMENTS IN SUPPORT OF THE PROPOSITIONS OF LAW ..... 7
Proposition of Law No. 1: In a case involving underlying claims
for alleged asbestos-related injuries arising from the manufacture
and sale of defective dust masks, where a general liability insurance
policy defines "occurrence" as "an accident, including injurious
exposure to conditions, which results, during the policy period, in
bodily injury . . . ", a court should find that the underlying asbestosclaims constitute a single occurrence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Proposition of Law No. 2: In a case involving underlying claims
for alleged asbestos-related injuries arising from the manufacture and
sale of defective dust masks, where a general liability insurance policy
contains a "deemer clause" stating that "all bodily injury ... arising out
of a continuous or repeated exposure to substantially the same general
conditions shall be considered as arising out of one occurrence," a court
should find that the underlying asbestos claims constitute a single
occurrence ....................................................11
IV. CONCLUSION ...............................................14
APPENDIX
Annx.
Tab
Opinion of the Hamilton County Court of Appeals, First Appellate District of Ohio
(October 19, 2007) ................................................... A
Entry Overruling Motion for Reconsideration of the Hamilton County Court of
Appeals Opinion, First Appellate District of Ohio (November 15, 2007) ......... B
ii
EXPLANATION AS TO WHY THIS CASE IS OF
PUBLIC OR GREAT GENERAL INTEREST
This case raises two critical issues of public and great general interest under Ohio
law: (1) whether application of the "number of occurrences" language in general liability
insurance policies in asbestos-related cases should be based on policy language; and (2)
whether a "deemer" clause limits liability under general liability policies in asbestosrelated cases.
In this case, the Appellate Court's decision finding that the policyholder's
manufacture and sale of defective dust masks constituted multiple occurrences ignored
the plain language of the ACE Property & Casualty Insurance Company, f/k/a CIGNA
Property & Casualty Insurance Company, f/k/a Aetna Insurance Company ("ACE P&C")
policies at issue.
(App. A, ¶ 52). In doing so, the Court confused the "number of
occurrences" issue in Ohio by misinterpreting two federal cases applying Ohio law:
Babcock & Wilcox Co. v. Arkwright-Boston Mfg. Mut. Ins. Co. (C.A.6, 1995), 53 F. 3d
762, and International Surplus Lines Ins. Co. v. Certain Underwriters and Underwriting
Syndicates at Lloyd's ofLondon (S.D. Ohio 1994), 868 F. Supp. 917.
Further, in finding that the "deemer clause" in the ACE P&C occurrence policies,
which provides that "all bodily injury ... arising out of continuous or repeated exposure
to substantially the same general conditions shall be considered as arising out of one
occurrence," did not limit ACE P&C's liability, the Appellate Court ignored the vast
majority of case law and created an internal conflict in Ohio and between Ohio cases and
cases from other jurisdictions. (App. A, ¶¶ 53-55).
Ohio courts are frequently challenged to interpret and apply insurance policy
language in asbestos-related cases. Thus, it is important for rulings to be consistent and
I
clear. In Babcock & Wilcox, a case involving exposure to asbestos from boilers, the Sixth
Circuit interpreted the following "occurrence" definition: "`any happening or series of
happenings, arising out of or due to one event taking place during the terms of this
contract in respect to all the Assured's operations.' " 53 F. 3d at 765 (emphasis added).
The Court concluded that the specific policy language mandated a finding that the cause
of the asbestos bodily injury, i.e. the event taking place during the tenns of the contract,
was each worker's exposure to asbestos in boilers. Thus, the relevant event under the
policy language resulted in multiple occurrences under the insurance policy.
In contrast, in International Surplus Lines, 868 F. Supp. at 919, the federal court
examined language defining "occurrence" as: "`[A]n accident, event or happening
including continuous or repeated exposure to conditions which results during the policy
period, in personal injury . . .' " Notably, the definition did not contain the "event"
language found in the Babcock & Wilcox policy. In International Surplus Lines, the Ohio
District Court for the Southern District found that the policy language supported a
conclusion that the manufacture, distribution, and sale of insulation products containing
asbestos constituted a single occurrence. Id. at 921.
Here, the ACE P&C policies define "occurrence" as follows: "[A]n accident,
including injurious exposure to conditions, which results, during the policy period, in
bodily injury ... neither expected nor intended from the standpoint of the insured." As in
International Surplus Lines, the definition does not include the "event" language.
However, instead of applying International Surplus Lines, the Appellate Court relied on
Babcock v. Wilcox, where the "occurrence" definition is drastically different from the one
at issue in the case at bar. The Appellate Court purported to base its conclusion that the
2
underlying defective dust mask claims "constituted a separate accident or occurrence" on
"the [ACE P&C] policies' express language." (App. A, ¶ 52). However, in truth, the
Court ignored or at least misinterpreted the plain language of the ACE P&C policies,
disregarding a case "on all fours" (International Surplus Lines) in favor of fitting the case
at bar into Babcock & Wilcox and, in effect, attempted to place a round peg into a square
hole. As a result, the published opinion has or will create confusion in the Ohio courts
regarding the application of the number of occurrence language in insurance policies.
The Ohio Supreme Court must clarify the law in this area in order to prevent a precedent
that diminishes the relevance of and misinterprets specific policy language.
Further, the Appellate Court ignored the majority of decisions from across the
country when it determined that the deemer clause, contained in certain of the ACE P&C
policies, did not limit liability under those policies. As stated, the clause provides that:
"[A]ll bodily injury ... arising out of continuous or repeated exposure to substantially the
same general conditions shall be considered as arising out of one occurrence." The
Appellate Court correctly recognized that, in most asbestos cases, the deemer clause
limits liability "where a company has been sued for manufacturing a product containing
asbestos . . ." However, in contravention of this precedent, the Court found that, unlike
products containing asbestos, the defective dust masks at issue in the underlying cases
were not "intrinsically harmful" because they did not actually contain asbestos, but,
rather, only failed to protect workers from exposure to asbestos fibers. (App. A, ¶ 54).
This purported distinction is without a difference. The fact remains that the underlying
bodily injury arose out of substantially the same general conditions, namely the
policyholder's manufacture, sale, and distribution of allegedly defective dust masks. As
3
a result of its holding, the Appellate Court has set Ohio apart from the majority of cases
interpreting deemer clauses. For this reason, the Ohio Supreme Court should examine
this issue of great public and general interest.
STATEMENT OF THE CASE AND FACTS
ACE P&C issued the following three, 3-year primary general liability policies to
its policyholder, Flexo Products, Inc. ("Flexo"):
Policy Number
Policy Period
Policy Limits
MP 84 33 20
8/29/63 - 8/29/66
$300,000 each accident
CBP 65 37 52
8/29/66 - 8/29/69
$300,000 a e ate products
$300,000 per occurrence
$300,000 aggregate
CBP 00 00 69
8/29/69 - 8/29/72
$300,000 per occurrence
$300,000 aggregate
Westfield Insurance Company ("Westfield") also provided primary insurance to
Flexo for the period of 1972 to 1986, while the Cincinnati Insurance Company ("CIC")
issued excess policies to Flexo from 1967 to 1986.
ACE P&C Policy No. CBP 00 00 69, which was a renewal of ACE P&C Policy
No. CBP 65 37 52,1 contains a "Limits of Liability" clause, stating as follows:
"Coverage A - The limit of bodily injury liability stated in the declarations as applicable
to `each person' is the limit of the company's liability for all damages because of bodily
injury sustained by one person as the result of any one occurrence; but subject to the
provision respecting `each person', :the total liability of the company for all damages
because of bodily injury sustained by two or more persons as the result of any one
Although Policy No. CBP 65 37 52 was originally written on an "accident" basis,
it was amended during the policy period to apply on an "occurrence" basis. The policy
contains the same language as Policy No. CBP 00 00 69 regarding liability for one
occurrence.
4
occurrence shall not exceed the limit of bodily injury liability stated in the declarations as
applicable to `each occurrence.' ... Coverages A and B - For the purpose of determining
the limit of the company's liability, all bodily injury and property damage arising out of
continuous or repeated exposure to substantially the same general conditions shall be
considered as arising out of one occurrence." Further, the policy defines "occurrence" as
"an accident, including injurious exposure to conditions, which results, during the policy
period, in bodily injury ... neither expected nor intended from the standpoint of the
insured."
Flexo was in the business of manufacturing and selling protective dust masks,
which were intended to filter out harmful particles such as asbestos fibers and silica.
Flexo first submitted a claim arising from its manufacture and sale of a defective dust
mask to ACE P&C in approximately August 1982. At the same time, Flexo submitted
dust mask claims to Westfield, its other primary insurer. ACE P&C and Westfield
together defended and indemnified Flexo against the underlying dust mask claims until
2004. In March 2004, ACE P&C exhausted its combined $900,000 indemnity limits
under its three policies and notified Flexo, Westfield, and CIC of this fact.2 Thereafter,
Westfield continued to defend and indemnify Flexo until it gave notice in March 2006
that its policy limits were also exhausted.3
On September 14, 2004, CIC, Flexo's excess carrier, filed a declaratory judgment
action against ACE P&C in the Ohio Court of Common Pleas, Hamilton County. CIC
2
Neither Flexo nor Westfield challenged ACE P&C's exhaustion.
3 After CIC challenged ACE P&C's exhaustion, ACE P&C continued to protect the
interests of its policyholder by resuming its defense and indemnity payments upon the
exhaustion of Westfield's primary coverage, subject to a right to recoup the payments
from CIC once the exhaustion issue has been resolved.
5
alleged that the ACE P&C primary policies had not exhausted because the policies
provide $300,000 in coverage on an annual basis (for a total of $2,700,000 in coverage),
rather than $300,000 in coverage on a term basis (for a total of $900,000 in coverage).
CIC also alleged that ACE P&C acted in bad faith by claiming exhaustion. In response,
ACE P&C explained that, not only were the policies written on a term basis and,
therefore, exhausted after ACE P&C paid $900,000 in indemnity payments, the defective
dust mask claims against Flexo constituted a single accident/occurrence under each
policy. Due to this fact, ACE P&C's liability was limited to $900,000, i.e. $300,000 for
each "accident" or "occun•ence" under each three-year policy.
In the trial court, both parties filed cross-motions for summary judgment. Upon
review of the issues, the trial court held that: (1) the ACE P&C policies provided
coverage on an annual rather than a term basis; (2) the underlying dust mask claims
involve multiple accidents/occurrences under the ACE P&C policies; and (3) ACE
P&C's conduct in interpreting the policies did not constitute bad faith. ACE P&C filed a
motion for clarification and/or reconsideration of the trial court's decision regarding the
number of occurrences, and CIC filed a motion for reconsideration of the trial court's
decision dismissing its bad faith claim. The trial court denied both motions.
The parties then filed cross-appeals on the same issues to the Hamilton County
Court of Appeals. On October 19, 2007, the Court of Appeals affirmed the trial court's
judgment and found that: (1) the ACE P&C policies' aggregate limits applied on an
annual basis;4 (2) the underlying defective dust mask claims constituted multiple
accidents or occurrences; (3) the deemer clause did not limit ACE P&C's liability under
4 The Appellate. Court based its holding on this issue, in part, on extrinsic evidence.
ACE P&C does not appeal this portion of the Appellate Court's ruling.
6
the policies; and (4) ACE P&C's interpretation of the policies did not constitute bad faitli.
(App. A).
On October 29, 2007, ACE P&C filed a motion for reconsideration in the
Appellate Court on issues two and three. The Appellate Court denied the motion on
November 15, 2007. (App. B).
ARGUMENTS IN SUPPORT OF THE PROPOSITIONS OF LAW
Proposition of Law No. 1: In a case involving underlying claims for
alleged asbestos-related injuries arising from the manufacture and
sale of defective dust masks, where a general liability insurance policy
defines "occurrence" as "an accident, including injurious exposure to
conditions, which results, during the policy period, in bodily injury. ..
.", a court should find that the underlying asbestos-claims constitute a
single occurrence.
In Babcock & Wilcox, the Sixth Circuit examined the number of occurrences
question in the context of asbestos lawsuits alleging exposure to asbestos from boilers
manufactured by The Babcock & Wilcox Company and its successors. The insurance
policy at issue provided excess coverage that was triggered after damages for each
occurrence exceeded a specified minimum amount. The policy defined "occurrence" as
"any happening or series of happenings, arising out of or due to one event taking place
during the terms of this contract in respect to all the Assured's operations." Babcock &
Wilcox, 53 F. 3d at 765 (emphasis added). The Court first determined that, under the
policy language, the relevant "event" for purposes of an "occurrence" must take place
during the term of the contract.
Id. at 766. The Court then examined whether the
relevant "event" was Babcock & Wilcox's decision to use asbestos in its boilers or each
worker's exposure to the asbestos in the boilers. Ultimately, the Court concluded that
there was insufficient evidence to demonstrate that Babcock & Wilcox decided or
7
fonnally reconsidered its decision to use asbestos in its boilers during the policy period,
making it impossible to conclude that Babcock's decision to use asbestos in its boilers
constituted the "event taking place during the terms" of the contract. The Court also
rejected Babcock's "continuing decision" and "continuing exposure" theories.
Id. at
767. This determination led to the Court's holding that the relevant "event" or cause of
the asbestos bodily injuries for purposes of the specific policy language was each
worker's exposure to asbestos in the boilers, which resulted in multiple occurrences
under the policy. Id. at 767-68.
Essential to the Sixth Circuit's holding in Babcock & Wilcox finding multiple
occurrences was the specific definition of "occurrence" in the policy as "one event taking
place during the terms of this contract . . ." Id. at 767. The Court focused on the policy
language and relied on other cases with substantially similar "occurrence" definitions that
included and interpreted the "event" language. Id. at 767-68, citing Norfolk & Western
Ry. Co. v. Accident & Cas. Ins. Co. of Winterthur (W.D. Va. 1992), 796 F. Supp. 929,
aff'd in part and dismissed in part (C.A.4 1994), 41 F.3d 928; Pittsburgh Corning Corp.
v. Travelers Indem. Co. (E.D. Pa. Jan. 21, 1988), 1988 WL 5302 (insurance policy
defined "occurrence" as "`one happening or series of happenings arising out of or
resulting from one event taking place during the term of this policy' "); and Northern
Shipping Co. v. Arkwright Boston Mfrs. Mut. Ins. Co. (E.D. Pa. 1985), 617 F. Supp. 136,
aff'd (C.A.3), 774 F.2d 1152.
In contrast, the definition of "occurrence" under the ACE P&C policies does not
include the "event" language; rather, the policies define occurrence as "an accident,
including injurious exposure to conditions, which results, during the policy period,
8
in bodily injury or property damage neither expected nor intended from the
standpoint of the insured." Thus, in relying on the Babcock & Wilcox decision, the
Appellate Court inappropriately relied on policy language substantially dissimilar from
the policy language in the case at bar. In fact, the Sixth Circuit warned against this
approach when it refused to rely on cases cited by Babcock that turned on a definition of
"occurrence" different from the one in the policy at issue. Babcock & Wilcox, 53 F. 3d at
767.
Moreover, the Appellate Court ignored and/or disregarded several relevant Ohio
cases that examined an "occurrence" definition virtually identical to the one in the ACE
P&C policies. For example, in International Surplus Lines, 868 F. Supp. at 919, the
Court considered policies that defined "occurrence" as: "`[A]n accident, event or
happening including continuous or repeated exposure to conditions which results during
the policy period, in personal injury ... All such personal injury ... caused by one event
or by continuous or repeated exposure to substantially the same conditions shall be
deemed to result from one occurrence.' "
The Court found that the language of the definition focused on the underlying
circumstances which resulted in the claims for damages rather than on the individuals
sustaining injuries. Id. at 921. Specifically, the Court held that International Surplus
Lines' acceptance of its policyholder's position that the manufacture, distribution, and
sale of insulation products containing asbestos constituted a single occurrence was
reasonable. Id at 919, 921. In support of its decision, the Court cited several cases in
which other courts have held that the decision to manufacture and distribute asbestoscontaining products constituted a single occurrence, id. at 921-22, noting that: "These
9
precedents did not mark a sudden shift in the law. They are consistent with the long line
of decisions holding that manufacture or sale of an allegedly defective product constitutes
a single occurrence, regardless of the number of injured individuals. This overwhelming
weight of authority indicates that [International Surplus Lines'] 1992 coverage decision
must be deemed reasonable." Id. at 922. See also Morton Thiokol, Inc. v. Aetna Cas. &
Sur. Co. (Dec. 12, 1988), Ham Co. No. A-8603799, rev'd on other ground sub nom, (15t
Dist. Oct. 2, 1991), 1991 WL 201651 (manufacturers' corporate decision to manufacture
and distribute asbestos-containing components constituted a single occurrence out of
which the asbestos injury claims arose); Owens-Illinois, Inc. v. Aetna Cas. & Sur. Co.
(D.D.C. 1984), 597 F. Supp. 1515, 1527-28 (same; applying Ohio law).
In short, the Appellate Court's ruling has confused the number of occurrences
issue in Ohio and has rejected the holdings of a majority of federal and state courts.
Accordingly, this case raises an issue of great public and general interest, which the Ohio
Supreme Court should address.
10
Proposition of Law No. 2: In a case involving underlying claims for
alleged asbestos-related injuries arising from the manufacture and
sale of defective dust masks, where a general liability insurance policy
contains a "deemer clause" stating that "all bodily injury ... arising
out of a continuous or repeated exposure to substantially the same
general conditions shall be considered as arising out of one
occurrence," a court should find that the underlying asbestos claims
constitute a single occurrence.
ACE P&C Policy Nos. CBP 00 00 69 and CBP 65 37 52,5 contain the following
language, which is referred to as the "deemer clause": "For the purpose of determining
the limit of the company's liability, all bodily injury and property damage arising out of
continuous or repeated exposure to substantially the same general conditions shall be
considered as arising out of one occurrence."
Numerous cases from across the country have relied on "deemer" clauses to find a
single occurrence under the policy language. For example, in Greene, Tweed & Co., Inc.
v. Hartford Accident & Indem. Co. (E.D. Pa. Apr. 21, 2006), 2006 WL 1050110, the
Court relied on a similar deemer clause to find that 60,000 asbestos claims constituted a
single occurrence. There, the relevant policies contained a clause stating that "`[a]Il such
exposure to substantially the same general conditions shall be deemed one occurrence.' "
Greene, Tweed, 2006 WL 1050110, at *6. Specifically, the Court stated that: "Under
this provision, damage which results from `substantially the same general conditions'
constitutes a single occurrence. Even though many different people allegedly were
injured by Greene Tweed products containing asbestos that were distributed at different
times and places, all liability resulted from exposure to substantially the same general
5 Policy No. CBP 65 37 52, effective August 29, 1966 to August 29, 1969, was
originally written on an "accident" basis but was amended during the policy period to
apply on an "occurrence" basis.
11
condition - the presence of asbestos in Greene Tweed's products. Thus, there was only
one occurrence under the terms of the ... policies." Id.
The Greene, Tweed decision supports a finding in the case at bar that the
underlying asbestos-related injuries resulted from substantially the same general
conditions, namely Flexo's manufacture and sale of allegedly defective dust masks,
which results in one occurrence under the ACE P&C policies. This conclusion is also
supported by Ohio case law and cases from across the country. See, e.g. Progressive
Preferred Ins. Co. v. Derby (6"' Dist. Jun. 15, 2001), 2001 WL 672177, at *6 (deemer
clause leads to only one conclusion - that an "accident" includes a situation involving
multiple injuries arising from a single cause); Liberty Mut. Ins. Co. v. Treesdale, Inc.
(C.A.3 2005), 418 F.3d 330, 336 (finding that deemer clause, which states that "`all
personal injury ... arising out of continuous or repeated exposure to substantially the
same general conditions . . . shall be considered as the result of one and the same
occurrence,' " along with the cause test, supports a single occurrence where the deemer
clause "unambiguously addresses the situation where ... many people allege personal
injuries in different years arising from one occurrence ... Any fair reading of the Limits
of Liability provision establishes that all injuries arising from the same source arise from
one occurrence."); Colt Industries, Inc. v. Aetna Cas. & Sur. Co. (E.D. Penn. Dec. 6,
1989), 1989 WL 147615, at *6 (relying on identical deemer clause and finding that
bodily injury arising out of the same general conditions, namely the manufacture of
gaskets containing asbestos, arises out of a single occurrence); Parker Hannifin Corp. v.
Steadfast Ins. Co. (N.D. Ohio 2006), 445 F. Supp. 2d 827, 832 (finding single occurrence
under policy with similar deemer clause in case involving numerous defective expansion
12
chamber gaskets by focusing on the underlying circumstances resulting in personal injury
and claims for damages rather than each individual claimant's injury).
In finding that the deemer clause did not limit ACE P&C's liability under the
occurrence policies, the Appellate Court again ignored the vast majority of case law and
created an intemal conflict in Ohio and between Ohio cases and cases from other
jurisdictions. In fact, the Appellate Court even noted that "[i]n most asbestos-related
cases, courts have considered and upheld similar deemer clauses under a scenario where a
company has been sued for manufacturing a product containing asbestos ..." (App. A, ¶
54). The Court based it's decision not to apply the "deemer" clause on a purported
factual distinction, concluding that, unlike products containing asbestos, Flexo's masks
were not "intrinsically harmful;" rather, they failed to protect and that failure led to
various injuries. Id. This is a distinction without a difference. The fact remains that the
underlying bodily injury arose out of substantially the same general conditions, i.e.
Flexo's manufacture, sale, and distribution of allegedly defective dust masks. The
defective masks, although not asbestos-containing products per se, led to the asbestos
injuries by failing to protect individuals from inhaling asbestos fibers. The underlying
cases fall directly under the deemer clause of the ACE P&C occurrence policies and
result in a single occurrence under the policies.
The Appellate Court has set Ohio apart from the majority of cases interpreting
deemer clauses in insurance contracts. For this reason, the Ohio Supreme Court should
examine this issue of great public and general interest.
13
CONCLUSION
For the reasons stated above, this case involves matters of public and great
general interest. Accordingly, ACE Property & Casualty Insurance Company requests
that this Court accept jurisdiction in this matter.
Respectfully submitted,
Gregory ^ ison (0029814
Dinsm re ohl LLP
255 East 5`h treet, Suite 1900
Cincinnati, Ohio 45202
(T) (513) 977-8314
(F) (513) 977-8141
[email protected]
Counsel for Appellant, ACE
Property & Casualty Insurance
Company
OF COUNSEL:
William M. Cohn
Brian C. Coffey
Erin E. O'Brien
Cohn, Baughman & Martin
333 West Wacker Drive, Suite 900
Chicago, Illinois 60603
(T) (312) 753-6600
(F) (312) 753-6601
[email protected]
[email protected]
[email protected]
14
Certificate of Service
I certify that a copy of this Memorandum in Support of Jurisdiction of Appellant
ACE Property & Casualty Insurance Company was sent by ordinary U.S. mail to counsel
for Appellee, K. Roger Schoeni, Kimberly A. Kyle, 201 East 5th Street, Suite 800,
Cincinnati, Ohio 45202, on December 3, 2007,
COUNSEL FOR APPELLANT,
ACE PROPERTY & CASUALTY
INSURANCE COMPANY
15
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
OCT 19 2667
HAMILTON COUNTY, OHIO
THE CINCINNATI INSURANCE
COMPANY,
Plaintiff-Appella nt/ CrossAppellee,
APPEAL NOS. C-o6o384
C-o6o385
TRIAL NO. A-o4o7394
JUDGMENTENTRY.
vs.
ACE INA HOLDINGS, INC.,
Defendant-Appellee/CrossAppellant,
1 11111111I
D75583693
and
WESTFIELD INSURANCE COMPANY
and
FLEXO PRODUCTS, INC.,
Defendants.
This cause was heard upon the appeal, the record, the briefs, and arguments.
The judgment of the trial court is affirmed for the reasons set forth in the
Opinion filed this date.
Further, the court holds that there were reasonable grounds for this appeal,
allows no penalty and orders that costs are taxed under App. R. 24.
The court further orders that i} a copy of this Judgment with a copy of the
Opinion attached constitutes the mandate, and 2) the mandate be sent to the trial
court for execution under App. R. 27.
To The Clerk:
Enter upon the Journal of the Court on October 19,2007 per Order of the Court.
By:
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
THE CINCINNATI INSURANCE : APPEAL NOS. C-o6o384
COMPANY, C-o6o385
Plaintiff-Appellant/CrossAppellee,
TRIAL NO. A-o4o7394
OPINION.
vs.
ACE INA HOLDINGS, INC.,
Defendant-Appellee/CrossAppellant,
PRESENTED TO THE CLERK
OF COURTS FOR FILING
and
WESTFIELD INSURANCE COMPANY
f1f.T T. 9 2007
COURT OF APPEALS
and
FLEXO PRODUCTS, INC.,
Defendants.
Civil Appeals From: Hamilton County Common Pleas Court
Judgment Appealed From Is: Affirmed
Date of Judgment Entry on Appeal: October 19, 2007
K. Roger Schoeni, Kimberly A. Zaniary, and Louis C. Schneider, for PlaintiffAppellant/Cross-Appellee,
Jason C. Gruber, and McCaslin, Imbus, & McCaslin, and Patrick Shine and Cohn,
Baughman &Martin, for Defendant-Appellee/Cross-Appellant.
Please note: This case has been removed from the accelerated calendar.
OHIO FIRST DISTRICT COURT OF APPF.AL3
MARK P. PAINTER, Presiding Judge.
{¶1} We address a lost-policy insurance-coverage quarrel. We have to
admit struggling with the issues-we even had one issue rebriefed by the parties.
After much gnashing of teeth, we affirm. The aggregate policy limits applied
annually; and the "deemer" clause was ineffective to limit liability on these facts.
1. The Panies and the Policies
{¶2} An excess insurer, plaintiff-appellant/cross-appellee The Cincinnati
Insurance Company ("CIC"), sued the primary insurer, defendant-appellee/crossappellant ACE INA Holdings (f.k.a. CIGNA Property & Casualty Insurance
Company, f.k.a. Aetna Property & Casualty Insurance Company) in a declaratoryjudgment action seeking an additional $1,8oo,ooo to cover asbestos claims against
their insured, defendant Flexo Products, Inc. (For clarity, we use "ACE"
interchangeably with its predecessors, "CIGNA" and "AETNA," throughout this
decision.)
{13} Flexo manufactured and sold protective masks that purportedly
filtered and protected against harmful particles like silica. ACE insured Flexo
under three different and consecutive primary insurance policies. The three
consecutive policies ran from 1963 to 1966 ("Policy I"), from 1966 to 1969 ("Policy
2"), and from 1969 to 1972 ("Policy 3"). CIC issued excess policies to Flexo from
t967to t986.
{94) Defendant Westfield Insurance Company also provided primary
insurance to Flexo but has been dismissed from this case. CIC and ACE provided
separate layers of insurance coverage to Flexo. ACE was the primary insurer, and
2
OHIO FIR3T DI3TRICr COURT OF APPF.AIS
CIC provided an excess layer of coverage. When ACE notified CIC that its primary
coverage had been exhausted, this declaratory judgment action followed.
(¶5) CIC alleged that ACE owed an additional $i,8oo,ooo in primary
coverage based on three multi-year policies. The three successive multi-year
policies each spanned three years, for nine years of total coverage. The policies in
the record are incomplete, but the available documents reveal that ACE's potential
liability was $300,000 "aggregate." The $i.8-million question was whether the
word "aggregate" meant that the $300,000 limit applied per year or per term.
{16} The parties do not contest the trial court's decision declaring that
the limit of Policy i was $9oo,ooo. But if the contracting parties contemplated an
"annual aggregate," then, under Policies 2 and 3, ACE owed for six years at
$300,000 per year, totaling $1,8oo,ooo. But if a "term aggregate" was meant, then
ACE owed for two terms at $300,000 per term, totaling $6oo,ooo. Both parties
moved for summary judgment in the trial court.
{117} CIC argued that the $300,000 applied annually, totaling
$i,8oo,ooo in coverage and that ACE had denied coverage in bad faith. ACE
countered that the clear language of the policies showed that the $300,000 limit
applied per term, for a total coverage of $6oo,ooo, and that the asbestos claims
constituted a single accident or occurrence and, therefore, that the limits had been
exhausted on that basis as well. Clearly an annual aggregate limit would drastically
expand ACE's liability exposure.
lI. The Trial Court's Decision and the Appeal
{¶8} The trial court granted in part and denied in part both parties'
summary-judgment motions, concluding that because the complete contents of the
3
OHIO FIRST DI3TRICI' COURT OF APPF.AI S
multi-year policies were not available, (I) the term "aggregate" was ambiguous as it
related to whether the limit applied per year or per policy; (2) extrinsic evidence
was admissible; (3) the extrinsic evidence showed that the contracting parties
contemplated that the $300,000 limit would apply per year, for nine years, for a
total of $2,700,000 in coverage; (4) the underlying asbestos claims constituted
multiple accidents and occurrences; and (5) ACE did not lack good faith in denying
coverage.
{¶9} Both parties now appeal.
{¶lO} CIC assigns error to the trial court's entry denying summary
judgment on its claim that ACE lacked good faith. ACE cross-appeals, contesting
the trial court's conclusions that aggregate meant annual aggregates, and that the
underlying asbestos claims constituted multiple occurrences.
{911} We hold that extrinsic evidence was properly considered; that the
evidence showed that the aggregates applied annually; that for purposes of
determining ACE's coverage there were multiple occurrences; and that ACE did not
lack good faith in denying the higher coverage levels. In affirming the trial court's
judgment, we address both parties' assignments of error, pausing first to more fully
recite the facts.
lll. Flexo and the Incomplete Three-Year Policies
{112} Other than two certificates of insurance, ACE could not locate Policy
1. It had originated more than 40 years, and a few different company names,
earlier. The certificates contained only basic information about the named insured
and the effective coverage date. But ACE is not contesting the trial court's decision
4
OHIO FIR3T DISTRICr COURT OFAPPE.4I..S
that Policy r contained an annual-aggregate limit-the policy provided a limit of
"$300,000 each accident" for a total of $9oo,ooo.
{1(13} ACE was able to locate two certificates of insurance that vvere part of
Policy 2. But Policy 2 was incomplete as well.
{¶14} Regarding Policy 3, ACE had located parts of that policy, but Policy 3
also remained incomplete. One form, submitted as part of Policy 3, was called the
Comprehensive General Liability Form ("the CGL Form"). The CGL Form stated
that it had been amended in 1967. The parties agree that the CGL Form was a part
of Policy 3, but dispute whether the CGL Form was incorporated into Policy 2.
Policy 2 was effective in 1966, and the CGL Form presented by ACE had been
amended in 1967. CIC claim's that the CGL Form was a sample form and coidd not
have been a part of Policy 2 because, as amended, it did not exist at the time Policy
2 became effective. Policy 3 purported to be a renewal of Policy 2, and ACE claims
that, because renewal policies are presumed to be renewed on the same terms, the
CGL Form was also part of Policy 2.
IV. Ffexo's Liability and the Parties' Duties to Defend
{915} In the mid-198os, multiple asbestos claims were filed against Flexo
based on allegations that the masks it had manufactured were defective. As Flexo's
primary insurer, ACE acknowledged its defense and indemnification
responsibilities under the three policies.
(¶16) ACE and its predecessors originally treated the policies as annual
aggregates rather than term aggregates. Then, in the late 199os, ACE notified CIC that
its policies were term aggregates and that the policy limits were nearing exhaustion. In
2002, CIC objected and requested copies of the policies. ACE provided the partial
5
OHIO 1' IRST DISTRIGT (_.'oUAT OF APPEAIS
policies and continued to stand by its term-aggregate position, noting that the express
policy provisions and case law supported term, not annual, aggregates.
{¶17} ACE had paid $9oo,ooo in indemnity payments in 2004, at which
time it asserted that the policies had been exhausted, and that it had no further
responsibility to defend or indemnify Flexo. CIC filed this declaratory-judgment
action in 2004, and shortly after Westfield was dismissed.
{118} ACE argued that the CGL Form, in combination with the declaration
page for Policy 3, proved that Policy 2 and Policy 3 were term aggregates. The CGL
Form defines the limits of Policy 3 in this manner;
{¶19} "Coverage A... total liability of the company for all damages because
of bodily injury sustained by two or more persons as a result of any one occurrence
shall not exceed the limit of bodily injury liability stated in the declarations as
applicable to 'each occurrence.'
{120} "Subject to the above provisions respecting 'each person' and 'each
occurrence,' the total liability of the company for all damages because of (i) all
bodily injury included within the completed. operations hazard and (2) all bodily
injury included within the products hazard shall not exceed the limit of bodily
injury liability stated in the declarations as `aggregate.' "
{¶21} On the declarations page for Policy 3, the limits are described as follows:
LIMITS OF LIABILITY
COVERAGES
Each Person
A-Bodily Injury Liability
'
$300,000
B-Property Damage Liability
6
Each Occurrence
Aggregate
$300,000
$300,000
$300,000
$300,000
OH fO FIRST DISTRICT COURT OF APPEALS
(¶22) ACE argued that the declarations page for Policy 3, in combination
with the CGL Form, limited its liability to $300,000 per term. ACE's rationale was
that, because no document referred to the $300,ooo aggregate as an annual
aggregate, the aggregate limits applied on a term basis.
{123] CIC claimed that Policies 2 and 3 were incomplete, silent on the
issue, and ambiguous, and that any ambiguity should be construed in favor of
coverage. We initially note that the interpretation of an insurance policy and the
issue of ambiguity are matters of law.r And summary-judgment decisions are
reviewed de novo?
V. The Lost Policies
(¶24) The trial court concluded that the meaning of the word "aggregate"
was ambiguous when "the [c]ourt does not have the document at issue." And
because "aggregate" was ambiguous, extrinsic evidence was necessary for a fair and
jttst resolution. We agree, and for the following reasons we hold that extrinsic
evidence was properly considered.
(¶25) ACE argued that the word "aggregate" was unambiguous, that the
absence of "annualization" language did not render the policy ambiguous, and that
the absence of such language actually meant that the coverage limit applied on a
term basis. ACE advanced this position despite the fact that at least one ACE
employee conceded that the policy was silent on the issue whether the limits
applied per term or per year: "We are taking the position that limits apply to tertn.
,See Sharonuitte u. Am. Employers. Ins. Co., to9 Ohio St.3d 186, 2oo6-Ohio-2180, 846 N.E.2d
833, at 116, citing Alexander v. Buckeye Pipe Line Co. ( 1998), 5 3 Ohio St.2d 241, 374 N.E.2d 146,
paragraph one of the syllabus. See, also, Stote ex rel. Fisher• u. Okum's Furniture & Appliance
Co., Inc. (Sept. 27, 1995), tn Dist. No. C-94o254.
q See Doe v. Shaffer, 90 Ohio St.3d 388, 390, 2ooo-Ohio-t86, 738 N.E.2d 1243•
7
OHIo FIR3T DISTRICT COURT OF APPEALS
Policy language is silent on this issue." Likewise, our review of the partial multiyear policies does not reveal whether the limits applied per year or per term, and in
this respect, we emphasize that only portions of the multi-year policies have been
produced.
{¶26} When an insurance policy has been lost or destroyed, coverage may
be proved by evidence other than the policy itself when the loss or destruction is not
attributable to bad faith on the part of the proponent of the document.3 Contract
terms are to be given their plain and ordinary meaning.4 If a court concludes that a
provision is susceptible to more than one reasonable interpretation, then it is entitled
to resort to extrinsic evidence to determine the provision's meaning.5 And "[wlhere
provisions of a contract of insurance are reasonably susceptible of more than one
interpretation, they will be construed strictly against the insurer and liberally in
favor of the insured."6 Moreover contract terms and provisions are liberally
interpreted in favor of the nondrafting party.7
(127) We are convinced that "aggregate" as used in the partial multi-year
policies was ambiguous and that extrinsic evidence had to be used to decipher the
contracting parties' intent.
{¶28} In multi-year insurance policies where the policies are incomplete,
the very absence of a limiting modifier is precisely what makes the word
"aggregate" ambiguous as to how the limits should be applied.
3 See Sharonville u. Am. Employers. Ins. Co., 1o9 Ohio St.3d 186, 2oo6-Ohio-218o, 846 N.E.2d
833, at ¶t9, citing Evid.R. 1004.
4 See Gomolka u. State Auto. Mut. Ins. Co. (1982),70 Ohio St.2d 166, 167-168, 436 N.E.2d 1347•
5 See Ruehl u. AIR/PRO, Ine.,1^ Dist. Nos. C-o4o339 and C-o4o350, 2oo5-Ohio-1184, at ¶9.
6 See United States Fid. & Guar. Co. v. Lightning Rod Mut. Ins. Co. (1997), 80 Ol1io St.3d 584,
586, 687 N.E.2d 717, citing King u. Nationwide Ins. Co. (1988), 35 Ohio St.3d 208, 519 N.E.2d
138o,syllabus.
7 See Farmer's Nati. Bank u. Delaware Ins. Co. (1911), 83 Ohio St. 309,94 N.E. 834.
8
OHIO FIRST DISTRIGT COURT OF APPEAIS
{129} An aggregate limit is "the maximum limit of coverage available
under a liability policy during a specified period of time * * * regardless of the
number of claims that may be made."a Where a multi-year policy is incomplete and
is without language specifying a period of time, "aggregate" is reasonably
susceptible to either modifier, and is semantically ambiguous as it relates to the
policy liinits.
{¶30} The ambiguity is especially apparent when there are, as here, a
series of multi-year policies. The very existence of multi-year policies likewise cuts
against the argument that "aggregate" standing alone (without adding annual or
term) is unambiguous as to the policy limits.
{¶31} Policy 2 and Policy 3 are incomplete or partially lost. Our review of
the available secondary evidence helps little in determining whether "aggregate"
refers to term aggregate or annual aggregate. Four factors contribute to the
permissibility of extrinsic evidence: (i) these were multi-year policies, (2) the policies
were incomplete, (3) aggregate was not defined, and (4) the available segments were
ambiguous and unclear as to whether "aggregate" was contemplated to mean annual
aggregate or term aggregate. Said otherwise, in these incomplete multi-year policies,
in the context of the four corners of the available documents, the noun "aggregate" is
equally susceptible to either a term or an annual modifier. Had these policies been
single-year, rather than multi-year, the meaning of "aggregate" would have been
unambiguous-but that was not the case. In this instance, the trial court correctly
admitted extrinsic evidence to clarify the ambiguity.
e See Rupp, Insurance and Risk Management Glossary (i)91) 19; see, also, Cincinnati Ins. Co. v.
Television F.ngineering Corp.(E.D.Mo.2oo2),26g F.Supp.2d 1078,108i.
9
OHIO FIR6T DISTRICr COURT OF APPEALS
Vl. The Extrinsic Evidence Favored CIC
{¶32) In support of its contention that the aggregate litnit applied
annually, CIC presented explanatory evidence showing that (1) ACE and its
predecessors had treated the policies as annual aggregates; (2) standard industry
practice was to treat aggregates in multi-year policies as annual, not term,
aggregates; and (3) the premiums paid by Flexo indicated annual aggregates. We
discuss CIC's extrinsic evidence in turn.
Vll. Performance after Formation
{133} CIC asserted that ACE's claims handlers had treated the limits as
annual aggregates for over a decade. When an ambiguity exists, the court may
consider the parties' course of performance in determining their intent.9 If the
words used in a contract are susceptible to more than one meaning, and the
signatories in carrying out the contract have by subsequent acts placed their own
interpretation on the meaning of the words, courts may adopt the interpretation
that the signatories to the contract have themselves made.10 An insurer's course of
performance in carrying out its policy is instructive on the contracting parties'
intent: "If a court is genuinely interested in what the parties to a contract meant,
there is no surer way to find out * * * than to see what they have done."" We are
mindful that neither appealing party was present when the policies were created,
but they stand in the shoes of their predecessors-and we believe that both ACE
and its predecessors' subsequent performance is helpful.
9 See Gammelt u. StrategicMtye. Serus. (Dec. 31, 1997), 2^d Dist. No. 16531.
'° See Courtright u. Scrimger (192q), »o Ohio St. 547,144 N.E. 294.
^, See An:. Honie Prod. Corp. u. Liberty Mut. Ins. Co. (S.D.N.Y.1983), 565 F.Supp. 1485, 1503
(internal citations and quotations omitted).
10
OHIO FIRST DISTRICT COURT OF APPEALS
{¶341 In an asbestos-account report dated December 31, 1989, ACE's
predecessor AETNA listed nine years of annual aggregates for a total of $2.7
million in coverage. We note that AETNA was a party to the original policy, so, in
the interpretation of the policy, its subsequent performance is given greater weight
than its successors. In an interoffice memo dated November 11, 1992, ACE's
predecessor CIGNA noted that the limit of the Flexo policies was a total of $2.7
million: "CIGNA has nine years of coverage on this account with $300,000 per
year for a total of $2,700,000. Indemnity payments total $144,752, leaving
available limits of $2,555,248 on CIGNA's part." And finally ACE records showed
nine different entries into its computer system (one per year of coverage), each
having its own aggregate total.
{¶35) The foregoing reflects only a small sample of the evidence presented
by CIC showing that ACE and its predecessors had treated the aggregates as
annual. It was their original interpretation, it makes sense, and we think they
should stick to it.
{¶36} In rebuttal, ACE claimed that the entries reflecting annual
aggregates were mistakes. ACE treated the policies as annual aggregates until
about the mid-199os. In 1994, Ann Mooney ivas assigned to the Flexo account. At
the time, she was not a claims adjustor and had no formal training, professional
certificatious, or licenses. Several years later, Mooney was promoted to claims
adjustor, and she then decided that the policies contained term limits-thereby
reducing ACE's exposure by $i,8oo,ooo. Mooney concluded that the internal
reporting systems used by ACE's predecessor had been incorrectly treating the
policies as annual aggregates rather than term aggregates. Based on this
11
OHIO FIRST DISTRICT COURT OF APPEALS
conclusion, Mooney corrected the "erroneous svstem entries." Mooney asked for
no legal opinion and consulted no experts-she just decided on her own to save the
company $i,8oo,ooo in coverage and about $lo million in defense costs. Again,
ACE defended its modified position by classifying the various statements,
documents, and entries presented by CIC as "mere mistakes."
VifL Insurance Industry Norms
{¶37} CIC also presented evidence that the insurance industry treated
multi-year policies as annual aggregates, not term aggregates. ACE's predecessor
AETNA had been a member of the Insurance Ratings Board ("IRB") since at least
1967. At the time, the CGL Form had not included a temporal element for
aggregates because one-year policies, not multi-year policies, were the industry
standard.
{¶38} CIC also produced testimony that the contracting parties intended
to, and did, follow the IRB rules when drafting policies. The IRB manual stated
that a three-year policy applied separately to each annual period in the same
manner as a one-year policy. In fact, ACE's own expert testified that ACE's
predecessors followed the IRB, axid that the IRB applied aggregate limits on an
annual, rather than on a term, basis where multi-year policies were involved. This
too suggested that the aggregates were meant to be annual rather than term.
IX. The Premiums
{¶39) CIC also argued that the premiums charged by ACE were consistent
with $3oo,ooo annual aggregate limits when compared to the premiums charged
12
OHIO FIRST DISTRICT COURT OF APPEALS
by West6eld. Evidence of premiums can be probative of how the parties construed
the insurance contracts.12
{¶40} CIC introduced evidence showing that the subsequent Westfield
insurance premiums mirrored ACE's premiums almost exactly. The Westfield
premium was $2289, whereas ACE's earlier premium was $2394-a difference of
$105. But Flexo's Westfield policy explicitly provided for a $300,000 limit that
applied annually for three years, totaling $9oo,ooo. But if we are to believe ACE,
Flexo paid $io5 tnore for an ACE multi-year policy that only provided coverage
totaling $300,000. Common sense seems to dictate that Flexo would not have paid
$io5 more for an ACE policy that provided one-third of the coverage. We are, of
course, mindful that courts should be cautious when comparing insurance
premiums to ascertain the contracting parties' intent.
{¶41} We hold that the subsequent performance of the parties, industry
norms, and the premiums paid all strongly suggest that the parties intended for
Policy 2 and Policy 3 to apply annual-aggregate limits. And without having found
clear and unambiguous language to the contrary, we hold that the parties intended
Policy 2 and Policy 3 to provide annual-aggregate coverage totaling $i,8oo,ooo.
We note that this holding does not contradict any of the terms of the partial multiyear policies that are available for review. Of course, if the policies are
ambiguous-which they are-they should be construed against the drafter in any
event. The persuasive evidence offered by CIC serves to ice the cake.
{¶42} But even if total coverage was $1,8oo,ooo, that total amount may be
reduced by the policies' accident or occurrence limitations.
12 See Am. Honre Prod. Corp., 565 F.Supp. at 1So6.
13
OH IO FIRST DI9TRICI' COURT OF APPEAIS
X. The Asbestos Claims-Single or Muitiple Accidents or Occurrences?
{143) According to ACE, under the cause test, Flexo's manufacture and
sale of the defective masks constituted the single accident or occurrence giving rise
to the asbestos suits, and its liability had been exhausted under the singleaccident/occurrence terms of the policies. Conversely, CIC argued that the injuries
resulting from asbestos exposure resulted from multiple accidents or occurrences.
The trial court agreed rvith CIC in concluding there were multiple accidents or
occurrences under the policies.
{¶44) Again, ACE's CGL Form stated that the "total liability of the company
for all damages because of bodily injury sustained by two or more persons as a result
of any one occurrence shall not exceed the limit of bodily injury liability stated in the
declarations as applicable to `each occurrence.' " And the declarations page limited
liability to $300,000 for each occurrence. An occurrence was defined as "an
accident, including injurious exposure to conditions, which results, during the policy
period, in bodily injury * * * neither expected nor intended from the standpoint of
the insured." "Bodily injury" was defined as "bodily injury, sickness or disease
sustained by any person." In short, the policies' definition of occurrence was an
accident that resulted in injury to any person.
(¶45) Both ACE and CIC have cited multiple cases in support of their
divergent positions on the number of occurrences. In arguing that Ohio courts
determine the number of "accidents" or "occurrences" by using the "cause test," ACE
cites Progressive Preferred Ins. Co. v. Derby.13 Under the cause test, the number of
occurrences is determined by reference to the cause or causes of the damage or
'a See Progressiue Preferred Ins. v. Derby (June 15, 2001), b« Dist. No. oo-CV-oooo15.
14
DHIO FIRsT DISTRICT COURT OF APPEALS
injury, rather than by the number of individual claims.'4 In Progressive, a driver ran
over a woman rivice within seconds, and the court held that, under the definition of
the word "accident" in the commercial-motor-vehicle policy, hitting the plaintiff
thvice constituted one accident, not two.
{¶46} But the Progressive case illustrated the typical situation where a
single car accident results in multiple claims. Norfolk & Western Ry. Co. v. Ace. &
Cas. Ins. Co. is instructive in this regard.15 In that case, a railroad sued its excess
insurer to pay for claims arising out of noise-induced hearing loss. The railroad
argued that only one "event" had occurred under the policy-the railroad's failure to
protect its employees from excessive noise. The court, in rejecting the railroad's
argument, concluded that strict application of the cause test could lead to an illogical
outcome: "The difficulty that the court has with [the cause test] is that it leads to a
result which would defy common sense. The typical single occurrence giving rise to
multiple claims is the automobile accident which gives rise to a chain of events which
results in injury to several parties * * * . In this case, a wide variety of machines in a
number of different locations created a variety of sounds over the course of a number
of years. Railroad employees working near these machines suffered injury to their
hearing as a resttlt of exposure to these sounds ***. While the railroad's negligence
may indeed have been a cause of the injuries, calling that negligence the single
occurrence out of which the claims arose is nonsensical."t6
{¶47} This case concerns neither a car accident nor motor-coverage
insurance. Rather this case involves comprehensive general liability policies. And
'Q See Internatt. Surplus Lines, Co. u. Certain Underwriters & Underwriting Syndicates at
Ltoyd's of London (S.D.Ohio 1994), 868 F.Supp. 917.
'e (W.D.Va.1992), 796 F.Supp. 929.
'6 See Babcock & Wilcox Co. v. Arkwright-Boston Mfg. Mut1. Ins. Co. (C.A.6, 1995), 53 F.3d 762,
quoting Noifolk & Western Ry. Co. v. Acc. & Cas. Ins. Co., supra.
15
OHIO FIRST DI$TRICT COURT OFAPPEALS
those policies covered multiple asbestos claims spanning many years, over a broad
geographic area, under a multitude of unrelated circumstances, and the injuries were
caused by a plethora of different asbestos-related exposures. 'rhe Progressive case is
factually inapposite.
E¶481 ACE also cites Internatl. Surplus Lines, Co. u. Certain Underwriters
& Underwriting Syndicates at Lloyd's of London in arguing that the number of
occurrences is determined by reference to the cause or causes of the damage or
injury.17 The InternatL Surplus court held that numerous product-liability suits
involved one "occurrence" for purposes of a$i-million deductible. In this case, we
interpret "occurrence" not for the purpose of deciphering a deductible, but rather to
determine the scope of ACE's liability.
(¶49) The policy interpreted in Internatl. Surplus defined "occurrence" as
"[a]n accident, event or happening including continuous or repeated exposure to
conditions which results, during the policy period, in personal injury * * * . All such
personal injury *** caused by one event or by continuous or repeated exposure to
substantially the same conditions shall be deemed to result from one occurrence."
To reiterate, the policies at issue here define an occurrence as "an accident, including
injurious exposure to conditions, Nvhich results, during the policy period, in bodily
injury * * * neither expected nor intended from the standpoint of the insured." We
note that the definition of occurrence here differs drastically from that in Internatl.
Sur•plus. We reject ACE's assertion that Flexo's manufacture and sale of the defective
masks constituted the single accident or occurrence giving rise to the asbestos suits,
17 See Internatl. Surplus, supra, 868 F.Supp, at 922.
16
DHIO FIRST DISTRICF COURT OFAPPEAI S
and we adopt instead the analysis and conclusion of the United States Sixth Circuit
Court of Appeals in Babcock & Wilcox Co. v. Arkwright-Boston.'$
{150} In Babcock & Wilcox, the court concluded that each boilerworker's
exposure to asbestos was a separate occurrence and rejected the manufacturer's claim
that its decision to use asbestos in its boilers was the occurrence.'9 The court in Babcock
& Wilcox quoted and relied on Pittsburgh Corning Corp. v. Travelers Indemn. C0.20
Pittsburgh Corning was another asbestos case, where Pittsburgh Corning manufactured
a product called Unibestos. The policy defined "occurrence" as "one happening or a
series of happenings arising out of or resulting from one event taking place during the
term of this policy." Travelers argued that the cause of all injuries was Pittsburgh
Corning's manufacture and sale of asbestos. 'I'he court rejected that argument, stating
this: "Pittsburgh Corning is being sued by thousands of claimants alleging exposure to
Unibestos on hundreds of job sites, on thousands of different dates, and under a variety
of conditions over a period of six years. Not everyone exposed to asbestos is affected and
not all claimants were exposed under the same circumstances or to the same lot of
asbestos. I hold that the `cause' of the injuries in question is the exposure of each
individual to asbestos. That exposure constitutes an occurrence for the purposes of
determining the number of occurrences."21
{151j Perhaps most damning to ACE's argument that the manufacture and
sale of defective masks was the occurrence or accident is its own definition of
"occurrence." The policy explicitly provides that an occurrence includes "injurious
exposure to conditions" that causes bodily injury. Thus, under the explicit terms of
i8 See Babcock & Wilcox Co. v. Arkwright-Boston Mfg. Mut1. Ins. Co., supra.
'e See id.
(Jan. 21,1988), E.D.Pa. No. 84-3985•
See Babcock & Wilcox Co., 53 F.3d at 768.
17
OHIO FIRST DISTRICf COURT OF APPSAL.S
the policy, there had been multiple occurrences because there had been multiple
injurious exposures to conditions that had caused bodily injury. Under this
definition of occurrence, ACE's position that the occurrence or accident was Flexo
selling or manufacturing the defective masks is significantly weakened.
{¶52} In light of the policies' express language and the reasoning of the
Babcock &[Nitcox court, we likewise hold that each individual exposure to asbestos,
and the resulting injury, constituted a separate accident or occurrenee. And because
there have been multiple exposures and injuries under differing circumstances, there
were multiple accidents or occurrences.
{¶53} ACE also argues that its liability was limited by its deemer clause.
ACE's CGL Form contained a deemer clause that stated, "[A]l] bodily injury and
property damage arising out of continuous or repeated exposure to substantially the
same general conditions shall be considered as arising out of one occurrence." The
question we must answer is whether the multiple exposures constituted the "same
general conditions" under the deemer clause. We hold that they did not.
{¶54} In most asbestos-related cases, courts have considered and upheld
similar deemer clauses under a scenario where a company has been sued for
manufacturing a product containing asbestos-making the product intrinsically
harmfuI. But our case is factually distinguishable. Here, Flexo's masks were not
intrinsically harmful; they failed to protect, and that failure to protect led to a
multitude of physically and temporally distinct injuries under a multitude of
differing factual scenarios that did not constitute the "same general conditions"
contemplated under the plain language of the deemer clause.22 For example,
22 See, geuerally, Dow Chem. Co. a. Associated Indemn. Corp. (E.D.Mich.1989), 727 F.Supp. 1524,
1330.
18
OHIO FIRST DISTRICT COURT OF APPEALS
exposure occurred in myriad circumstances: exposure to differing levels and in
differing times, in many locations, and from many sources. Some undoubtedly
experienced a single exposure to a single continuous source. Others were injured
from repeated exposure to the same source, and yet others became ill from periodic
and frequent exposure to various separate sources.
{¶55} Moreover, even under the cause test, ACE is liable in full because
Flexo manufactured different kinds of defective masks and distributed the masks in
multiple shipments to multiple customers-if Flexo had not shipped the masks, no
liability could have been incurred because, as mentioned, the masks were not
intrinsically harmful.23 Under these countless factually distinguishable conditions,
we are convinced that the differing injuries did not occur under the "same general
conditions," and consequently the deemer clause does not limit Ace's liability-it
remains $i,8oo,ooo, just as ACE had originally asserted.
(156) We note that, in calculating the number of occurrences under an
insurance policy, blanket judicial application of any one test could frustrate the
contracting parties' intent. Courts must adhere to policy language in making a
determination whether the cause test applies. In this fact-specific case, our holding
is not in conflict with the express language of the available policies defining
occurrence, and it neither offends nor frustrates the parties' intent.
Xl. CIC's Bad-Faith Allegation
{¶57} Finally, CIC challenges the trial court's denial of its summaryjudgment motion on whether ACE had breached its duty to act in good faith in the
23 See, generally, Michigan Chera. Corp. u. Am. Home Assur. Co. (CA.6, 1984), 728 F.2d. 374, 376
and 383•
t9
OHIO FIRST DISTRICr COURT OF APPEAIS
processing of its claims.
The trial court concluded that ACE's interpretation of
"aggregate" in its policies and its assertion that the claims against Flexo constituted
one accident or occurrence did not meet the criteria to support CIC's bad-faith claim.
{1[58} Under Ohio Supreme Court precedent, an insurer "fails to act in good
faith in the processing of a claim of its insured where its refusal to pay the claim is
not predicated on circumstances that furnish reasonable justification therefore."24
{¶59} CIC argues that ACE had treated the aggregates as annual aggregates
until about the mid-i99os, when it unilaterally changed its treatment of the
aggregates to term aggregates. Our review of the record fails to reveal any lack of
good faith on the part of ACE. As we have already discussed ad nauseam, the
available policies were at least susceptible to interpretation; and neither ACE's
interpretation of aggregate nor its one-accident-or-occurrence argument, while
bordering on feckless, lacked good faith. And though an insurance company's lack of
due diligence in determining the limits of its policies could constitute a lack of good
faith-that was not the case here.
{¶60} Because the policies were incomplete, the partial multi-year policies
were ambiguous and required extrinsic evidence; the evidence revealed that the
contracting parties intended the aggregates to apply annually; and the limit of Policy 2
and PoIicy 3 is $i,8oo,ooo. The judgment of the trial court is, accordingly, affirmed.
Judgment affirmed.
HILDEBRANDT and SUNDERMANN, JJ., concur.
Please Note:
The court has recorded its own entry this date.
"See Zoppo v. Homestead Ins. Co., 71 Ohio St.3d 552, i994-Ohio-46i, 644 N.8.2d 391
20
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
THE CINCINNATI INSURANCE APPEAL NO. C-o6o384
COMPANY, C-o6o385
TRIAL NO. A-o4o7394
Appellant/Cross-Appellee,
ENTRY OVERRULING MOTION
FQR RECONSIDERATION
vs.
ACE INA HOLDINGS, INC.,
Appellee/Cross-Appellant.
This cause came on to be considered upon the motion of the
appellee/cross-appellant for recoinsideration and upon the. memorandum in
opposition.
The Court finds that the motion is not well taken and is overruled.
To, The Clerk:
Enter upon the Journal of the Court on NOV 15 20f3er order of the Court.
By:
)^L pL$^Presiding Jud
(Copies sent to all counsel)