General Electric Company received a legal blow recently in its dispute with its excess coverage insurers over asbestos-related negligence cases.

The company tried unsuccessfully in the New York State Court of Appeals to shift a greater portion of its financial liability for lawsuits stemming from its failure to protect employees while they worked on asbestos-containing GE turbines between 1966 and 1986.

The cases hinged on the intricacies of the companys agreements with primary and excess insurers during the years in question. GEs original arrangement, forged in the 1950s, with its general liability insurer, Electric Mutual Liability Insurance Company (EMLICO), was such that GE was responsible for the first $5 million of liability per each occurrence of negligence. Coverage from excess insurers, including Appalachian Insurance Company, the lead plaintiff in the current case, was for the amount of claims for each occurrence, as defined by the underlying EMLICO agreement that exceeded $5 million.

Claims Skyrocket

But in 1991, when it became apparent that the number of asbestos-related individual filings that were below the $5 million trigger point for GEs coverage was skyrocketing, particularly those related to GEs turbine production, the company renegotiated with EMLICO to redefine occurrence. The original interpretation of the phrase was that it pertained to each individual claim. After the negotiations, which did not include GEs excess insurers that relied on the EMLICO agreement in their own agreements with GE, the phrase occurrence had a much broader meaning.

The Claims Handling Agreement, which grew out of the negotiations, stipulated that claims were to be grouped around products, such as turbines, without regard for the dates of the injuries within the time frame or for the specifications of each individual product. The resulting groups, including one that covered all turbine-related claims, were to be considered a single occurrence for insurance purposes. The amounts of all claims brought by individuals were to be aggregated. EMLICO, and subsequently the excess insurers, would pick up the tab for the total amount exceeding $5 million. This was to be instead of GE picking up the first $5 million of each individual claim, which had resulted in GE paying for its total liability out of pocket because no single claim on its own exceeded that figure.

Courts Reject Agreement

GEs excess insurers would have faced substantially increased exposure to asbestos-related claims had this renegotiation been upheld. But, in 1996, the court ruled that GE could not apply new definitions of occurrence to its excess insurance policies retroactively. So GE switched tactics. The company appealed and challenged the way EMLICO had always been interpreting the word occurrence when it made coverage decisions regarding asbestos-related claims. GE argued that EMLICO had been wrong to treat each individual claim as a separate occurrence.

But the courts again ruled against GE. The turbines were custom-designed, based on individual customer needs, resulting in a variety of types and amounts of asbestos included in each model. And individuals levels of exposure varied greatly over two decades at more than 22,000 worksites. The details of each individual claim, therefore, were found to be too varied for GE to group them together for insurance purposes.

Court of Appeals Affirms

The case at hand represents an appeal of this earlier ruling. In her ruling for the case, Victoria A. Graffeo, associate judge of the Court of Appeals, upheld the earlier judgment: It appears that the incidents share few, if any, commonalities, differing in terms of when and where exposure occurred, whether the exposure was prolonged and for how long, and whether one or more GE turbine sites was involved. Under the circumstances, there were unquestionably multiple occurrences and the excess insurers were entitled to a declaration to that effect.

Graffeo also wrote that this finding is not to suggest that claims cannot be grouped for insurance purposes in the future, but the cases must share sufficient similarities to justify such a classification and must be evaluated on a case-by-case basis.