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General Refractories Company v. First State Insurance Co.

January 27, 2012

GENERAL REFRACTORIES COMPANY
v.
FIRST STATE INSURANCE CO., ET AL.
(LEXINGTON INSURANCE COMPANY AND AIU INSURANCE COMPANY)



The opinion of the court was delivered by: Ludwig, J.

MEMORANDUM

Plaintiff General Refractories Company (GRC) and defendants Lexington Insurance Company and AIU insurance Company cross-move for partial summary judgment (doc. nos. 315, 360, 361 (sealed)). Fed. R. Civ. P. 56. Jurisdiction is diversity. 28 U.S.C. § 1332.

In 2004, plaintiff GRC sued its insurance carriers for a declaration of excess insurance coverage against asbestos-related claims. A manufacturer and supplier of asbestos-containing products, GRC is a defendant in numerous asbestos-related suits throughout the United States. Two of the insurance carriers are defendants Lexington and AIU.

As to each of these defendants, GRC moved for partial summary judgment (doc. nos. 277 and 278, respectively), because their policies of insurance did not contain an exclusion for asbestos products liability. Those motions were granted. (Orders and mem., June 20, 2011, doc. nos. 318-320.) Before those motions were ruled on, Lexington and AIU were permitted to amend their joint answer to add counterclaims for reformation and rescission of the policies. (Order, Mar. 24, 2011, doc. no. 304; Counterclaims, doc. no. 284 at 29-37.)

On June 8, 2011, GRC again moved for partial summary judgment, contending that the counterclaims should be dismissed (doc. no. 315).*fn1 On September 9, 2011, defendants cross-moved for partial summary judgment, contending the policies should be reformed to exclude asbestos- related claims or should be rescinded (doc. no. 360).

None of the policies or a policy endorsement contains an exclusion for claims related to asbestos products.*fn2 Both defendants concede as much, but assert the omission resulted from a series of mistakes by defendants' underwriters and that the intent of the parties to include such an exclusion can be shown by extrinsic evidence. (Counterclaims, ¶¶ 9, 16, 23.) That issue -- whether these policies should be reformed to include asbestos-related exclusions -- is presented in the pending cross-motions for partial summary judgment on these defendants' counterclaims. The issue of whether the policies cover the underlying asbestos-related claims is not decided. Today's order holds that reformation or rescission of the policies is not warranted. Plaintiff's motion for partial summary judgment will be granted, the counterclaims will be dismissed, and defendants' cross-motion will be denied.

Discovery has been completed, and the following facts are not in dispute. From 1982 to 1986, Jennifer Romano of Marsh & McLennan was GRC's broker for the procurement of policies. GRC received Romano's March 30, 1984 letter requesting authorization to approach umbrella and excess insurance carriers to obtain policies for the August 1, 1984-85 period. On July 2, 1984, Romano submitted GRC's insurance application to Michael Bruzzi, vice president of Pacific Starr of New York, a managing general agent with authority to bind policies for Granite State Insurance Company. In the cover letter, Romano stated: "The current Umbrella program excludes asbestos and warrants the underlying aggregates will not be impaired by asbestos. We expect this condition to be duplicated for the 1984-85 program." Doctors Aff. 9/9/11, Ex. 17, doc. no. 361. On July 19, 1984, Bruzzi sent Marsh a telex of Granite State's quote for umbrella coverage that stated: "Terms and Conditions: Exclude all claims arising out of asbestos and no aggregate impairment of asbestos products." Id., Ex. 23. An August 1, 1984 binder, prepared on Marsh letterhead and signed by Bruzzi, stated that Granite State agreed to issue GRC "$5 million excess of various primaries as submitted . . . Subject to: . . . Exclude claims arising out of asbestos; and warrant U/L aggregate not exhausted by asbestos." Id., Ex. 24.

Marsh also approached Lexington and AIU, which agreed to issue excess coverage for the August 1, 1984-85 period. Two binders were prepared on Marsh's letterhead and dated August 1, 1984 -- one signed by Didi Devane on behalf of Lexington and the other signed by Albertha Garrett on behalf of AIU. Each binder stated: "Subject to: Following all wordings and coverages of first layer Umbrella with Granite State Ins. Co., including but not limited to: . . . Exclude asbestos and warrant U/L aggregate not exhausted by aggregate." Doctors Aff. 9/9/11, Ex. 24. Romano testified that someone else was responsible for preparing the binders and it was "possible that information [contained in the binder] was provided by the carrier." Romano dep. 278:15-279:6, Nov. 11, 2009, Conley Aff. 9/23/11, Ex. Q, doc. no. 372-1.

By letter of August 23, 1984, Marsh forwarded these binders, along with binders for the other four excess liability carriers on the risk during the 1984-85 period,*fn3 to GRC's vice president, Joseph Mulvaney, who was responsible for the placement of general liability insurance. GRC received the binders. The letter covering the binders stated: "These will provide evidence of coverage until you receive the actual policies." Doctors Aff. 9/9/11, Ex. 24. The Lexington and AIU binders also stated: "Please notify the undersigned immediately of changes, if any, you wish to make in the above arrangements; otherwise, completing documents or premium statement will be prepared and sent to you." Id. Before Lexington issued its policy, Warren Berm of Midtown Risk Specialists, Inc., a broker involved in the underwriting of that policy, issued on August 4, 1984 a "Cover Note" that stated:

This cover note is based on cable and/or mail and/or telephone advices from the above insurer(s) [Lexington] and is subject to policy conditions, when, as and if issued and is issued by the undersigned without any liability whatsoever as insurer, being solely for the convenience of the insured and is to be automatically cancelled and superceded by the policy upon issuance.

Id., Ex. 27. The record does not reflect any objections to the binders.

AIU issued its policy on August 6, 1984, but the policy did not specify an underlying umbrella policy. The single page policy included preprinted follow-form language:

The company agrees with the Insured named below, in consideration of the premium paid and subject to all the terms and conditions set forth below of Policy No. TBA issued by including all renewals and rewrites thereof. Doctors Aff. 9/9/11, Ex. 30. On September 4, 1984, Lexington issued its policy. The policy referenced an underlying umbrella policy issued by "Century Indemnity" with the policy number to be advised, "TBA." Id., Ex. 31. The Lexington and AIU policies did not contain asbestos products liability exclusions. On September 10, 1984, Granite State issued its policy, which was sent to Marsh on September 24, 1984. Id., Ex. 28. That policy also did not contain an asbestos products liability exclusion. According to the record, none of the carriers, brokers, or agents took any action to endorse the policies with such an exclusion.

On May 2, 1985, Romano forwarded the Granite State, Lexington, and AIU policies to GRC, which GRC received. In the cover letter, Romano stated she had found "discrepancies" in the policies, including: "As you are well aware, asbestos is not covered in the Umbrella program, but Granite State omitted their exclusion." Doctors Aff. 9/9/11, Ex. 32. In regard to the AIU policy, Romano stated: "Should mention lead Umbrella carrier." Id. In regard to the Lexington policy, Romano stated: "Needs following form endorsement" and "[s]hows ...


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