The opinion of the court was delivered by: GILES
GILES, J., District Judge.
Numerous lawsuits alleging asbestos-related injuries have been brought against the Pittsburgh Corning Corporation ("Pittsburgh Corning"), a manufacturer of asbestos products. The parties in the instant declaratory judgment action asbestos-product manufacturers, their primary insurers, and their excess insurers. Resolution of certain pending motions for summary judgment will determine which party must bear the expense of defending the thousands of asbestos suits pending against Pittsburgh Corning, and which must pay for any liability incurred.
These important issues are presented by two sets of motions. The first (the "Defense Motions") seeks a declaration whether Pittsburgh Corning's insurance contract with Travelers Indemnity Company ("Travelers") requires the insurer to continue to defend suits even though the monetary limits of its policy are exhausted. The second set (the "Coverage Motions") seeks a declaration whether insurance written by Commercial Union Insurance Company ("Commercial Union") covers asbestos injuries (1) resulting from exposure to asbestos during the policy period, as opposed to (2) manifesting themselves during the policy period. For the reasons which follow, the court decides that Travelers must continue to defend despite exhaustion of monetary limits, and that Commercial Union's policies apply to injuries resulting from exposure during the policy period.
The parties to this litigation are the insured, Pittsburgh Corning; its co-owners, PPG Industries, Inc. ("PPG"), and Corning Glass Works ("Corning"); the insured's primary insurance carriers, Travelers Indemnity Company ("Travelers"), Insurance Company of North America ("INA"), and Lumbermans Mutual Casualty Company ("Lumbermans"); and the insured's excess carrier, Commercial Union Insurance Company ("Commercial Union").
The case was brought as a declaratory judgment by the excess carrier alleging that the other parties acted to improperly exhaust the primary liability limits, thus prematurely calling on the excess carrier to fulfill its obligations. The insured counterclaimed against the excess carrier,
asking for a declaration that the excess coverage covers injuries caused by exposure to asbestos during the policy period. The insured also cross-claims against its primary carrier, Travelers,
asking for a declaration that the primary insurer owes a continuing duty to defend despite exhaustion of the primary liability limits.
Cross motions for summary judgment require an adjudication of the primary insurer's obligation to defend its insured despite exhaustion of the liability limits. In a motion for partial summary judgment, the insured contends that the insurer must continue to defend asbestos suits, and in a cross-motion, the insurer contends that it has no duty to defend once its liability limits are exhausted.
The insured cites three bases for a continuing duty to defend: the insurance contract, an agreement among the primary carriers ("Intercompany Agreement"), and equity. First, the insured contends that the contract creates separate duties to indemnify and defend. Arguing that the contact is unambiguous, the insured states that Pennsylvania law and a line of cases starting with Anchor Casualty Co. v. McCaleb, 178 F.2d 322, 325 (5th Cir. 1949), support the proposition that the policy creates a continuing duty to defend. Alternatively, if the policy is ambiguous, it argues that Pennsylvania law requires construction in favor of the insured, with the same result. Second, the insured relies on the statement in the Intercompany Agreement that cases pending on January 1, 1979, will continue to be handled to their conclusion by the carriers. The insured argues that the Intercompany Agreement constitutes an enforceable voluntary agreement to defend it. Finally, the insured contends that it would be unfairly prejudiced if its insurer were allowed to withdraw in mid-course from the investigation, administration, and defense of the thousands of outstanding claims against Pittsburgh Corning.
While claiming that the policy is unambiguous, the insurer, on the other hand, gives it exactly the opposite meaning as the insured. The insurer also relies on a contrary line of case authority, starting with Lumbermen's Mutual Casualty Co. v. McCarthy, 90 N.H. 320, 8 A.2d 750 (1939). Alternatively, the insured argues that if the policy is ambiguous, Pennsylvania law requires interpretation like that of any other contract -- in accord with the objective intent of all parties -- and that the parties objectively intended no continuing duty to defend. The insurer points out that the insured was not a party to the Intercompany Agreement, and because the insured is neither an explicit nor intended beneficiary, ...