Two insurance carriers may have to pay additional asbestos-related claims on behalf of their policyholder, despite arguments that coverage limits were exhausted more than a decade ago, according to a May 8 court decision.

In the first part of a large non-jury trial, the Supreme Court of New York County ruled that claims filed with Continental Casualty Company and American Casualty Company of Reading, Penn. should not categorically be considered injuries covered under policy clauses that included coverage limits that were reached during earlier settlements in 1992, opening the carriers up to potentially $250 million or more in additional liabilities.

In American Casualty Company vs. Employers Liability Insurance Company n/k/a One Beacon America Insurance Company, Michael OReilly, and Robert A. Keasbey Company, the carriers sought to limit their exposure to liabilities that may result from a pending class action lawsuit against the policyholder, Keasbey.

Keasbey was a construction company that worked with asbestos in the 1970s, even after the dangers of asbestos became widely known. Some of the individuals who were exposed to asbestos have filed lawsuits against Keasbey, a company which was dissolved in 2001. Under the policy that covered Keasbey, there were two general types of injuries: product hazard and operations hazard. Product hazard claims were subject to an $8.7 million aggregate coverage limit, which was reached during lawsuits in the early 1990s.

In the current case, the carriers asked the court to declare that the claims involved in the class action suit against Keasbey were product hazard claims. The court found that, although there may be exceptions, for the most part the claims were not for product hazard injuries. Had the court found in favor of the carriers, the insurers would have been able to argue that their total liability was reached during the earlier lawsuits and therefore they would owe nothing now.

The court ruled against the carriers for two reasons. First, the insurers simply failed to convince the court that the injuries were product hazard. Second, during a 2002-2003 settlement, the carriers paid a total of $2,865,000 to individuals who sued Keasbey for asbestos injuries. These payments were made only after the carriers deliberately did not classify the injuries as product hazard so they could circumvent the exhausted product hazard coverage limit.

The carriers also argued unsuccessfully that the 2002-2003 payments should be applied toward the $5 million aggregate limit for the excess coverage policy that covered Keasbey. According to the court decision: Plaintiffs own representative, Michael Sehr, testified at his deposition that plaintiffs try to evaluate each claim individually based on the facts, law, and policy provisions, and that plaintiffs, as with most insurance companies, would likely not re-categorize claims that have been settled and paid. The court will declare that the aggregate limits of the excess policyare not exhausted.

The court did, however, find that the $5 million limit covered the entire period that the policy was in effect, February 15, 1977 through February 15, 1978, and was not multiplied by the various policy extensions that took place within that coverage period, as the defendants in the case tried to argue.

The court also decided several other points in the current ruling, including:

The court ruled that coverage for asbestos-related injuries is triggered by exposure to asbestos by inhaling it, with no distinction made for pleural injuries or for cancer claims. So long as an individual was exposed to asbestos during the policy periods, coverage is triggered;

The carriers asked the court to clarify the policys pollutant exclusion clause. Although the plaintiffs policy excludes gradual exposure to various pollutants over time from coverage, historically the plaintiff has not invoked this exclusion to deny claims and therefore would not be able to do so in the future;

The court also declared that each class defendants individual exposure to asbestos represented a separate occurrence. Therefore, each individuals payments for exposure to asbestos are limited separately by the per-occurrence limits outlined in the policy;

The carriers also did not prove that Keasbey knew or intended that individuals would be harmed by its practices and therefore cannot refuse coverage on those grounds, either;

The carriers will not be able to argue that Keasbey is not entitled to additional coverage because it violated the policies requirement that the company cooperate with the carriers defense of claims proceedings. The court found that the carriers did not properly notify Keasbey of its implied forfeiture of coverage for ignoring their requests for cooperation.

The case at hand has the potential to impact 20,000 injured workers who joined the class action suit against Keasbey, which is currently costing the carriers as much as $1 million per month to defend the former construction company.