LA judge addresses ‘every major insurance defense’ to asbestos liability coverage

Morgan Lewis & Bockius client ITT Inc. has prevailed in the final stage of an 18-year, nearly $2 billion insurance coverage dispute with a Los Angeles judge commenting that the case provided a "road map" resolving essentially every insurance coverage issue presented by "long tail" suits.

Commenting Friday, Morgan Lewis Washington D.C. partner Gerald P. Konkel said the nearly 600-page judgment entered by Los Angeles County Superior Court Judge Ann I. Jones and the case itself addressed essentially every major insurance company defense to policyholders seeking asbestos liability coverage.

"For policyholders that are facing massive product liability losses that are going to stretch for decades, this coverage action flushed out every major or significant defense that carriers have had in an asbestos coverage case and how a comprehensive insurance program is going to respond to those losses," he said.

ITT, a worldwide manufacturing company based in Stamford, Connecticut, obtained liability insurance coverage from a number of companies from 1959 through 1986, allegedly spending millions of dollars in premium payments to acquire commercial insurance to protect itself against products-related risks including asbestos liabilities.

In 2017, Morgan Lewis prevailed in stage three of the litigation, when Jones first agreed with ITT's argument that the liability policies at issue are triggered when a claimant is initially exposed to asbestos and continues into the future when disease manifests. The defendant insurance companies had argued bodily injury doesn't occur until someone is diagnosed with cancer or asbestosis.

Jones also found that the holdings in the New York case In Re Viking Pump Inc., dictated the allocation methodology to be applied in the case. Jones found the policy language inconsistent with a pro rata allocation system and accordingly, as with Viking Pump, ITT's losses in the case were to be allocated based on an all sums methodology. Viking Pump, 27 N.Y. 3d at 255.

"Under this methodology, the insured can 'collect its total liability ... under a policy in effect during the periods that the damage occurred, up to the policy limits," Jones wrote.

The ITT litigation included 34 active or defunct insurance companies. Along with defining how "bodily injury" triggers coverage, and how to allocate losses, the case also addressed to what extent a loss must be allocated to insolvent insurance companies' umbrella policies. ITT's subsidiary, ITT Cannon Inc., was also a named plaintiff. ITT Cannon Inc. v. Ace Property & Casualty Insurance, BC290354 (L.A. Sup. Ct., filed Feb. 13, 2003).

Jones called its lengthy judgment a "tapestry of judicial determinations form[ing] a coherent and comprehensive road map" that resolved almost every insurance coverage issue presented by "long tail" suits covered under insurance policies issued over several decades.

Commenting Friday, Los Angeles partner David Cox of Morgan Lewis, said, "Of course it's a trial court opinion, and so it's not formally precedential, but I think it will be in its own way pretty influential."