United States District Court, W.D. Pennsylvania
JOY FLOWERS CONTI, Chief District Judge.
The Goodyear Tire & Rubber Company ("Goodyear") sued Travelers Casualty and Surety Company ("Travelers Casualty") and Travelers Indemnity Company ("Travelers Indemnity", and together with Travelers Casualty, "Travelers" or "Defendants") for breach of contract with respect to certain primary liability and umbrella policies. Goodyear seeks damages and declaratory judgments pertaining to Travelers' duties to defend and indemnify Goodyear with respect to certain asbestos-related claims filed against it. (ECF No. 9). Presently pending before the court are cross-motions for "Partial Summary Judgment on Threshold Issues, " pursuant to Rule 56 of the Federal Rules of Civil Procedure, filed by Travelers, (ECF No. 92), and Goodyear, (ECF No. 96). Upon consideration of the parties' submissions and the applicable law, the court finds, as a matter of law, that certain umbrella insurance policies were only clarified by subsequent "No Drop Down" endorsements. The "No Drop Down" endorsements did not modify or change any provision of the relevant umbrella policies and had no effect on Goodyear's right under the umbrella policies to file individual claims which each encompass the covered damages of multiple individuals that arise out of a single occurrence. Goodyear's motion will be granted, and Travelers' motion will be denied.
II. Factual Background and Procedural History
The relationship between Travelers as insurer and Goodyear as insured reaches back several decades. Relevant to the present inquiry, Travelers Indemnity issued a series of policies which generally insured Goodyear at the primary level, without interruption, from January 1, 1971, through January 1, 1977. (ECF Nos. 98, ¶¶ 12-15; 20-1). In addition to this primary liability coverage, Travelers Indemnity issued three "catastrophe umbrella policies" ("T-CUPs"), which consecutively provided coverage to Goodyear for certain liabilities in excess of the limits specified by underlying primary policies from July 1, 1973, through July 1, 1980. Goodyear's insurance broker throughout the existence of the T-CUPs was Alexander & Alexander ("A&A"). (ECF No. 94, ¶ 35). During this timeframe, the exposure of individuals to asbestos-containing products either produced by Goodyear or utilized at Goodyear's premises led to a considerable number of lawsuits being filed against Goodyear for the allegedly resulting injuries of those individuals. (ECF No. 9, ¶¶ 9, 14). The parties dispute the extent to which Travelers must defend or indemnify Goodyear in these suits pursuant to the terms of the T-CUPs and based on their course of conduct, both with respect to the T-CUPs themselves and the underlying primary liability policies.
By their own terms, the T-CUPs are intended
[t]o indemnify the insured for all sums which the insured shall become obligated to pay by reason of the liability imposed by law upon the insured, or assumed by the insured under any contract, for damages in excess of the retained limit because of bodily injury, personal injury, malpractice injury, advertising injury or property damage to which this policy applies.
(ECF No. 95-2A, at 3). The "retained limit" is defined to be "the greater of (1) the total amount of the applicable limits of liability of any underlying insurance or (2) the deductible amount stated in Item 4 of the declarations." (ECF No. 95-2A, at 10). The 1973 T-CUP identifies as underlying insurance the Travelers policy number TR-NSLO-951700 and any renewals and replacements thereof, which had specified limits for claims related to bodily injury of $300, 000 "each person, " $1, 000, 000 "each occurrence, " and $6, 000, 000 "aggregate." (ECF No. 95-2A, at 16). As each of these specified thresholds is higher than the generally applicable deductible of $100, 000 specified in Item 4 of the declarations, this deductible was irrelevant to the determination of coverage for asbestos-related damages under the 1973 T-CUP. (ECF No. 95-2A, at 19).
When the 1976 T-CUP went into effect, the limits of the underlying Travelers general liability policy it referenced had increased across the board. (ECF No. 95-2B, at 18). The "each person" limit was increased to $750, 000 and the "each occurrence" limit was raised to $1, 500, 000. Id . The limit for all claims in the aggregate grew to $20, 000, 000. Id . These "each person" and "each occurrence" coverage attachment points continued to be in effect during the term of the 1979 T-CUP, (ECF No. 95-2C, at 17), although Goodyear's decision to discontinue the underlying Travelers general liability policy and instead to be self-insured for the period beginning January 1, 1977, and ending July 1, 1980, resulted in there being no "aggregate" limit relevant to the 1979 T-CUP. (ECF Nos. 104, ¶¶ 21-22; 95-2C, at 16). Deductibles under the 1976 and 1979 T-CUPs continued to be of no consequence to the determination of coverage for asbestos-related suits because the amounts of the relevant deductibles never exceeded underlying coverage limits. (ECF Nos. 95-2B, at 21; 95-2C, at 15).
All three of the T-CUPs were, at least in part, based on Travelers' umbrella form No. I-4815-2 8-73 (the "Specimen Form"). (ECF Nos. 104, ¶ 7; 94, ¶ 19). The parties disagree about both the degree to which the T-CUPs deviated from the Specimen Form and the extent to which Goodyear was responsible for those deviations. Goodyear asserts that the T-CUPs were written by Travelers based largely on language in the Specimen Form. (ECF No. 104, ¶ 7). Travelers counters by arguing that Goodyear "communicated specific demands regarding its insurance program, and obtained tailored policies in response to these demands, " (ECF No. 94, ¶ 85), and that the T-CUPs "were customized to meet Goodyear's specific insurance needs, " (ECF No. 94, ¶ 17).
One of the ways that the T-CUPs differ from the Specimen Form is in their respective "Maintenance of Underlying Insurance" ("MOUI") clauses. This clause, condition number 3 in both the 1973 and 1976 T-CUPs, provides that
[i]t is a condition precedent to liability of [Travelers] under this policy that [Goodyear] shall maintain in full effect during the policy period all the underlying insurance policies described in the declarations (or renewals or replacements thereof) without reduction of coverage or limits. Failure of [Goodyear] to comply with the foregoing shall not invalidate this policy but in the event of such failure [Travelers] shall be liable hereunder only to the extent that it would have been liable had [Goodyear] complied therewith.
(ECF Nos. 95-2A, at 12; 95-2B, at 14). While this paragraph is substantively identical between the Specimen Form and the T-CUPs, the Specimen Form's MOUI clause contained a second paragraph that was omitted from the T-CUPs. This second paragraph provides that
[i]n any event of reduction or exhaustion of any aggregate limit of liability stated in the underlying policy solely by payment of losses, such insurance as is afforded by this policy shall apply in excess of the reduced underlying limit or as primary insurance, if such underlying limit is exhausted, and the deductible amount stated in Item 6 of the declarations shall not apply to such insurance.
(ECF No. 95-7, at 8). The parties agree that this second paragraph would have the effect of causing an umbrella policy to "drop down, " i.e., begin paying claims as if it was primary insurance in the event that the underlying insurance is reduced or exhausted. (ECF Nos. 93, at 7; 118, at 6). Each of the two umbrella policies in place for Goodyear prior to Travelers issuing the 1973 T-CUP, like the relevant umbrella policies, also did not "drop down." (ECF Nos. 95-11, at 11; 95-12, at 28).
In early 1978, although the T-CUPs did not contain language that would require them to provide "drop down" coverage, certain reinsurers of the T-CUPs expressed concerns that the language was not clear enough on this point. (ECF Nos. 94, ¶ 48; 95-9, at 1). In a letter sent on May 5, 1978, Robert Carroll ("Carroll"), the lead Travelers underwriter on the Goodyear account, explained to William Greening ("Greening") of A&A that, although he believed an endorsement "specifically stating there is no drop down on exhaustion of aggregate" was unnecessary, Travelers would "be happy to review any suggested wording that will make the reinsurers more comfortable." (ECF No. 95-9, at 1). Following these discussions, Travelers issued a responsive endorsement (the "No Drop Down Endorsement") to the 1973 T-CUP on November 15, 1978. (ECF No. 94, ¶ 52). On November 20, 1978, the No Drop Down Endorsement was issued to similarly affect the 1976 T-CUP. (ECF No. 94, ¶ 54). Because the 1979 T-CUP had yet to issue at this point, no such endorsement was necessary, and instead its condition number 3 was directly altered to reflect the language of the No Drop Down Endorsement. (ECF No. 94, ¶ 65).
The text of the No Drop Down Endorsement is as follows:
UNDERLYING AGGREGATE LIMIT NO "DROP DOWN"
THIS ENDORSEMENT IS ISSUED TO CLARIFY THE INTENT OF CONDITION 3. MAINTENANCE OF UNDERLYING INSURANCE AS FOUND IN THIS POLICY. SUBJECT TO ALL THE PROVISIONS OF THIS POLICY, SUCH CONDITION IS DEEMED TO PROVIDE THAT THE UNDERLYING INSURANCE POLICIES, INCLUDING RENEWALS OR REPLACEMENTS THEREOF, WILL REMAIN IN FULL EFFECT, WITHOUT REDUCTION OF COVERAGE OR LIMITS, DURING THE POLICY PERIOD, PROVIDED THAT WITH RESPECT TO ANY CLAIMS PENDING OR MADE AFTER THE APPLICABLE AGGREGATE LIMIT OF THE UNDERLYING POLICIES HAS BEEN EXHAUSTED, THIS POLICY APPLIES ONLY TO THE AMOUNT OF SUCH CLAIM WHICH EXCEEDS THE STATED LIMIT OF THE UNDERLYING POLICIES FOR EACH OCCURRENCE WHETHER SUCH LIMIT BE CALLED "EACH OCCURRENCE", "EACH PERSON" OR ANY OTHER LIMIT WHICH WOULD HAVE APPLIED.
(ECF No. 94, ¶ 53) (emphasis added). For the purposes of this litigation, Goodyear produced copies of the 1973 and 1976 T-CUPs, which include the No Drop Down Endorsement. (ECF Nos. 105-B5, 105-B6). The No Drop Down Endorsement provides that, a "claim" may be subject to either the "each person" or the "each occurrence" limit of the T-CUP. In an effort to distinguish between the two, the T-CUPs' "Limits of Liability" sections explain that "[f]or purposes of determining the limit of [Travelers'] liability and the retained limit, all damages arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence." (ECF No. 95-2A, at 11).
Despite this language, the parties dispute the way these "claims" mentioned by the No Drop Down Endorsement and elsewhere throughout the T-CUPs have been handled historically between them. Travelers asserts that it has paid out over $84 million for asbestos products claims under primary liability policies issued to Goodyear between 1961 and 1977. (ECF No. 94, ¶ 1). These claims, Travelers says, were submitted and paid separately for each injured individual with each accumulating against the primary policies' higher aggregate limits and were not bundled together and counted against the lower "each occurrence" maximums. (ECF Nos. 94, ¶ 86; 95-1A, at 1). Based on Travelers' calculations, because claims were handled in this way, Goodyear was paid between $45.3 million and $81.8 million more through the primary policies in addition to what it would have received if damages were bundled into one claim for "each occurrence." (ECF No. 142, ¶ 8). In a somewhat similar situation, Goodyear was one of several manufacturers that dealt with extensive product liability litigation in the late 1970s and early 1980s connected to vehicle wheels it produced using a "multi-piece rim assembly." (ECF No. 119, ¶¶ 90-92). Although at least eight of these suits against Goodyear were found to have "substantial common factual issues, " see In re Multi-Piece Rim Products Liability Litigation , 464 F.Supp. 969, 974 (J.P.M.L. 1979), claims resulting from these suits were handled on a claim-by-claim basis and were not bundled or measured collectively against an "each ...