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OWENS-ILLINOIS, INC. v. AETNA CAS. & SUR. CO.

November 21, 1984

OWENS-ILLINOIS, INC., Plaintiff
v.
AETNA CASUALTY AND SURETY COMPANY, Defendant



The opinion of the court was delivered by: HOGAN

 This declaratory judgment action involves a dispute between Owens-Illinois, Inc. ("O-I") and its excess indemnity insurer, Aetna Casualty and Surety Company ("Aetna"), concerning whether Aetna is obligated to indemnify O-I for asbestos-related claims brought against it and, if so, to what extent. Two issues are before the Court on separate motions for partial summary judgment:

 
(1) The "Keene" Issue: Whether this Circuit's holding in Keene Corp. v. Insurance Company of North America, 215 U.S. App. D.C. 156, 667 F.2d 1034 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007, 71 L. Ed. 2d 875, 102 S. Ct. 1644, reh'g denied, 456 U.S. 951, 72 L. Ed. 2d 476, 102 S. Ct. 2023 (1982) is dispositive of the interpretation of the policies' coverage provisions; and
 
(2) The "Per Occurrence" Issue: What constitutes an "occurrence" for purposes of the policies' retained limit, or deductible, provisions?

 I. STATEMENT OF FACTS

 O-I is an Ohio corporation with its principal place of business in Toledo, Ohio. It is engaged in the manufacture and sale of a diversified line of products fabricated from various substances including glass, paper and plastic materials. (First Amended Complaint, para. 1.) Between the years 1948 and 1958 O-I manufactured and sold a thermal insulation product, "Kaylo," that contained asbestos. (Affidavit of Lawrence Fitzpatrick in support of O-I's motion for partial summary judgment, Keene issue [hereinafter cited as "Fitzpatrick Affidavit"] para. 2; Aetna's Statement of Material Facts Not in Dispute [hereinafter cited as "Aetna I"] para. 2.) *fn1" As a result, O-I has been named in thousands of lawsuits alleging injury or wrongful death caused by exposure to the asbestos in O-I's Kaylo product. (Fitzpatrick Affidavit, supra, para. 3, Aetna I, para. 3.) The majority of these claims allege exposure to asbestos in the late 1940s through 1958, with "manifestation" of the injuries alleged to have occurred in the mid to late 1970s and early 1980s. (Fitzpatrick Affidavit, supra, para. 4.) Thus, the time period between the claimants' initial exposure and the alleged actual knowledge of bodily injury typically exceeds 20 years. (Id.)

 From September 1, 1963 through September 1, 1977, O-I was continuously insured by Aetna for products liability claims under excess indemnity, or "umbrella" policies, the premiums of which have been fully paid. *fn2" (Affidavit of R. S. Johnson in support of O-I's motion for partial summary judgment, Keene issue, [hereinafter cited as "Johnson Affidavit"], para. 4 and Exhibits 4-14; Affidavit of Stephen L. Nightingale in support of Aetna's motion for partial summary judgment, "Per Occurrence" issue, para. 2 and Exhibit A.) Although the language of these policies varied slightly over the years, the coverage provided was similar in all relevant respects. *fn3"

 Under these policies, O-I was self-insured for each occurrence resulting in personal injury up to the "retained limit" or "per occurrence deductible" set forth in the policies. *fn4" Between September 1, 1963 and September 1, 1971, the per occurrence deductible was $100,000. From September 1, 1971 through September 1, 1977 the deductible was $250,000. Above the deductible amount, the policies provided that Aetna would cover O-I's "ultimate net loss" *fn5" up to the "aggregate annual" and "per occurrence" limits set in the policies. *fn6"

 II. PROCEDURAL HISTORY

 O-I filed the first motion for partial summary judgment in this case, concerning whether the insurance policies in dispute provide any coverage for asbestos claims brought against O-I. O-I asserts that this Circuit's decision in Keene Corp. v. Insurance Company of North America, 215 U.S. App. D.C. 156, 667 F.2d 1034 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007, 71 L. Ed. 2d 875, 102 S. Ct. 1644, reh'g denied, 456 U.S. 951, 72 L. Ed. 2d 476, 102 S. Ct. 2023 (1982), is controlling on this issue. Under that decision O-I asserts that the "trigger" of coverage, the events or conditions that determined that the insurance policies apply to the asbestos claims, were the exposure of the claimants to asbestos fibers, or the continuing development of the disease after exposure, or manifestation of the injury. Consequently, O-I argues that since it was insured by Aetna at the time of exposure, or during some period of development of the disease, Aetna may be held liable under the policies even if the injury did not manifest itself during a policy term. *fn7"

 Aetna strenuously opposes O-I's motion, arguing that Ohio law, rather than the Keene decision, is controlling. Aetna asserts that a material issue of fact exists under Ohio law as to whether O-I's subjective construction of the policies was that manifestation of the injury was necessary to trigger coverage. Aetna argues, therefore, that summary judgment on this issue is precluded.

 After O-I filed its motion on the Keene issue, Aetna moved for partial summary judgment on a separate issue. Aetna argues that even if coverage under the policies was triggered by an event prior to manifestation on the injury, the retained limit provisions of the policies are clear and unambiguous, and require O-I to pay a deductible "per occurrence." Aetna asserts that, under the terms of the policies, each asbestos claimant's injury was a separate occurrence. Therefore, Aetna argues that O-I must pay a deductible on each asbestos claimant's lawsuit before Aetna is obligated to indemnify O-I. As a practical matter, Aetna's position on this "per occurrence" issue would effectively deny O-I coverage since the deductibles set in the policies are larger than the amount of any claim yet successfully brought against O-I.

 O-I subsequently filed a cross-motion for partial summary judgment on the "per occurrence" issue. O-I asserts that, rather than each claimant's exposure to asbestos constituting an occurrence, the overall injury caused by the exposure of these claimants to O-I was the result of a single occurrence, the manufacture and sale of an asbestos-containing product. O-I argues that to the extent the policies are ambiguous as to what constitutes an occurrence, the provision must be construed in favor of O-I as the insured. Therefore, O-I contends that it should be liable only for a single deductible on the total of the claims brought against it for asbestos injury.

 Aetna's opposition to O-I's cross-motion for partial summary judgment on the per occurrence issue argues that resolution of the "per occurrence" dispute requires further discovery to develop a factual framework of the conditions that asbestos claimants were exposed to, and O-I's "business purpose" in purchasing insurance. In effect, therefore, Aetna has retreated from its initial position asserting the absence of disputed material facts and seeking partial summary judgment on the per occurrence issue, and Aetna now opposes summary judgment on both the Keene and "per occurrence" issues. Nevertheless, the Court finds this matter ripe for summary judgment.

 III. DISCUSSION

 Summary judgment is proper if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ. P. 56. The issues before this Court concern the proper construction of excess indemnity policies. As a general rule, the construction and effect of a written contract of insurance is a matter of law to be determined by the Court. See 2 G. COUCH, INSURANCE 2d ยง 15.3, at 116 (1984). Where the Court decides that, as a matter of law, extrinsic evidence is inadmissible, a case is appropriately resolved by summary procedure. See Douglas Equipment Co. v. Hartford Accident & Indemnity Co., 435 F.2d 1024, 1028 (7th Cir. 1970); McKeithen v. S.S. Frosta, 430 F. Supp. 899, 901 n.2 (E.D. La. 1977).

 Although the Court is mindful that extrinsic evidence is often admissible to aid the Court in construing policy language, this Circuit's decision in Keene v. Insurance Company of North America, 215 U.S. App. D.C. 156, 667 F.2d 1034 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007, 102 S. Ct. 1644, 71 L. Ed. 2d 875, reh'g denied, 456 U.S. 951, 72 L. Ed. 2d 476, 102 S. Ct. 2023 (1982), makes it clear that the construction of an insurance policy with respect to coverage of asbestos-related diseases is based on the terms of the policy, the principles embodied therein, and the expectations that the insured could have reasonably formed as an objective matter on the basis of the policy's language. Keene, 667 F.2d at 1038 n.3, 1041-42 and n.12. Accord AC&S v. Aetna Casualty & Surety Co., 576 F. Supp. 936, 940-41 (E.D. Pa. 1983); Commercial Union Insurance Co. v. Pittsburgh Corning Corp., 553 F. Supp. 425, 433 (E.D. Pa. 1981). Accordingly, the issues before this Court are purely legal.

 For the reasons that follow, the Court finds, first, that Keene is dispositive of the interpretation of the subject policies' coverage provisions. Hence, Aetna's duty to indemnify O-I for asbestos claims is triggered if a policy was in effect at any time between a claimant's initial exposure to asbestos and the manifestation of asbestos-related injury. Further, the Court finds O-I's manufacture and sale of Kaylo a single "occurrence" for purposes of the policies' retained limit, or deductible, provisions.

 A. The Keene Issue

 Asbestos manufacturers and their insurers are familiar litigants to the courts of this Circuit. *fn8" In Keene the Court of Appeals for this Circuit was called upon to adjudicate the rights and obligations of Keene Corporation, an asbestos manufacturer, and its primary insurance carriers under Comprehensive General Liability Policies (CGL's) with respect to Keene's liability for asbestos related injuries. The Keene Court held that the policies' "trigger" - the occurrence of injury - was a continuing process beginning with the inhalation of asbestos fibers, proceeding through the damage caused by fibers in residence in the lungs, and ending with the manifestation of an asbestos related disease. 667 F.2d at 1047. *fn9" Accordingly, the Court held in Keene that any policy in effect during any point in this process covered Keene's potential liability. Id. The Court further held that, once triggered, a policy covered Keene's entire liability up to its stated limits, subject to the policies' "other insurance" clauses. Id. In order to prevent the insured's "stacking" of limits, however, the Court held that only one policy could be applied to each injury, and that Keene was to select the policy under which it was to be indemnified. Id. at 1049-50.

 O-I argues that principles of stare decisis and collateral estoppel require this Court to follow the decision in Keene.10 Aetna counters that Ohio law, not Keene, controls the disposition of this case, and argues that under Ohio law, as enunciated in Eagle Picher Industries, Inc. v. Liberty Mutual Insurance Co., 682 F.2d 12 (1st Cir. 1982), cert. denied, 460 U.S. 1028, 75 L. Ed. 2d 500, 103 S. Ct. 1279 (1983), extrinsic evidence of the parties' subjective construction of the policies is admissible to assist the Court. In particular, Aetna argues that correspondence between the parties may demonstrate that O-I itself took the position that the manifestation of injury determines the trigger of coverage, rendering summary judgment on this issue inappropriate. For the reasons that follow, the Court finds Keene controlling.

 The doctrine of stare decisis compels district courts to adhere to a decision of the Court of Appeals of their Circuit until such time as the Court of Appeals or the Supreme Court of the United States sees fit to overrule the decision. See, e.g., Brewster v. Commissioner of Internal Revenue, 197 U.S. App. D.C. 184, 607 F.2d 1369, 1373 (D.C. Cir. 1979); Breakefield v. District of Columbia, 143 U.S. App. D.C. 203, 442 F.2d 1227, 1229-30 (D.C. Cir. 1970); 1B J. Moore, J. Lucas, T. Currier, MOORE'S FEDERAL PRACTICE para. 0.402[1], [2] (2 ed. 1983). District courts are not at liberty to resolve splits between Circuits no matter how egregiously in error they feel their Circuit to be. See Hasbrouck v. Texaco, 663 F.2d 930, 933 (9th Cir. 1981). Further, stare decisis requires that a court follow its own, or its Circuit's, earlier determination as to the law of a state in the absence of any subsequent change in the state law. Newell v. Harold Shaffer Leasing Co., 489 F.2d 103, 107 (5th Cir. 1974). Accord Sprinkle v. Farm Bureau Ins. Co., 492 F.2d 469, 471-72 (5th Cir. 1974).

 The Keene decision was issued against a backdrop of generally accepted principles of insurance interpretation that find their source in state law. In Keene the Court found it unnecessary to identify the applicable state law, finding that none of the potentially applicable state laws provided specific guidance in resolving the case, and that basic principles governing the interpretation of insurance policies were the same in each state. See Keene at 667 F.2d at 1041 & n.10, 215 U.S. App. D.C. 156. These principles of insurance policy interpretation are: (1) the objective in construing the policies' coverage of liability must be to give effect to the policies' dominant purpose of indemnity; (2) ambiguity in an insurance contract must be construed in favor of the insured; and (3) the Court should ordinarily strive to give effect to the objectively reasonable expectations of the insured. Id. at 1041.

 A searching review of Ohio law reveals that the Ohio courts have yet to decide the specific issues before this Court. *fn11" However, because the basic principles underlying the Keene decision find general acceptance in Ohio precedent, this Court finds that it is bound by the decision in Keene as to what these general principles mandate. Accordingly, this Court must hold that coverage was triggered if the claimant was exposed to asbestos during the term of the policy, or if the disease was developing during the term, or when manifestation occurred. *fn12"

 The Court rejects Aetna's attempt to establish inconsistencies between Ohio law and the basic precepts of insurance law that guided the court in Keene. As Judge Flannery's Order of May 30, 1982 makes clear, Ohio insurance law does not deviate from general insurance jurisprudence in any important respect or contain any nuances unique to that jurisdiction. Owens-Illinois v. Aetna Casualty and Surety Co., No. 82-89, slip op. at 2, (D.D.C. March 30, 1982). For example, the first principle embodied in Keene of construing coverage provisions to give effect to the policies' dominant purpose of indemnity is consistent with Ohio precedent. See, e.g., Bobier v. National Casualty Co., 143 Ohio St. 215, 219, 54 N.E.2d 798, 800 (1944) (contract of indemnity should be construed in light of the purpose to be accomplished); Moss v. Travelers Ins. Co., 9 Ohio Misc. 71, 221 N.E.2d 607, 611 (1965) (policy must be construed most favorably to the insured in order to effectuate its obvious purpose); Clements v. Aetna Casualty & Surety Co., 15 Ohio Misc. 252, 236 N.E.2d 799, 801-02 (1968) ("in accord with the presumed intention of the parties, the construction should not be such as to defeat, . . . the insured's claim to the indemnity which it was his object to secure and for which he paid a premium") (citing 30 Ohio Jur.2d Insurance para. 217).

 The second Keene principle, to construe ambiguities in favor of the insured, is also universally accepted in Ohio. See, e.g., Travelers Indemnity Co. v. Reddick, 37 Ohio St. 2d 119, 121, 308 N.E.2d 454, 455-56 (1974) (well settled that ambiguous insurance contract language to be strictly construed against insurer); Morfoot v. Stake, 174 Ohio St. 506, 507, 190 N.E.2d 573, 574 (1963) (policy open to different interpretations to be construed in favor of insured); Home Indemnity Co. v. Village of Plymouth, 146 Ohio St. 96, 101, 64 N.E.2d 248, 250 (1945) (same); Toms v. Hartford Fire Ins. Co., 146 Ohio St. 39, 42, 63 N.E.2d 909, 910-11 (1945) (well recognized in Ohio that insurance contract prepared by insurer to be liberally construed in favor of insured).

 Finally, Ohio courts also utilize the reasonable expectations doctrine embodied in Keene. See e.g., Sommer v. General Insurance Co., 22 Ohio App. 2d 149, 159, 259 N.E.2d 142, 146 (1970) (to deny insured right to adduce proof would defeat "the reasonable expectations of coverage of the purchaser"); Carpenter v. Gasper, 116 Ohio App. 45, 48, 186 N.E.2d 481, 484 (1962) (must consider what a reasonable person in the position of the insured would have expected); Brescoll v. Nationwide Mutual Insurance Co., 116 Ohio App. 537, 541, 189 N.E.2d 173, 175 (1961); Carter v. Bernard, 27 Ohio Misc. 165, 168, 269 N.E.2d 139, 141 (Ohio Com. Pl. 1971) (any doubtful language should be construed most strongly against the surety and in favor of the indemnity which the insured had reasonable ground to expect); Wagner v. Nationwide Mutual Insurance Co., 14 Ohio ...


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