UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
July 31, 1990
HIGHLANDS INSURANCE COMPANY, et al., Plaintiffs,
THE CELOTEX CORPORATION, et al., Defendants
The opinion of the court was delivered by: PRATT
JOHN H. PRATT, UNITED STATES DISTRICT JUDGE
In this declaratory judgment action, see 28 U.S.C. § 2201(a) (1988), plaintiffs
seek a declaration that the upper layer excess insurance policies they issued to defendants the Celotex Corporation and Carey Canada, Inc.,
between 1977 and 1983 exclude coverage for all asbestos-related disease claims. Shortly after filing their complaint, plaintiffs moved for summary judgment on the ground that a prior decision of this Court collaterally estops Celotex and Carey Canada from arguing that the asbestos-related exclusions in these policies have a narrower scope. The motion has been fully briefed.
A. The Earlier Litigation
Carey Canada, an asbestos mining company, is a wholly-owned subsidiary of Celotex, an asbestos manufacturing company, which in turn is a wholly-owned subsidiary of its Florida-based parent, Jim Walter Corporation. In 1983 and 1986, respectively, Carey Canada and Celotex brought declaratory judgment actions against several insurance companies that had issued lower level excess policies to Jim Walter in 1977 and 1978.
Those actions, which were consolidated and tried before this Court in February 1989, were the "flip side" of the present action. In them, Carey Canada and Celotex sought a declaration that the policies' asbestos-related exclusions barred only those claims based on the narrowly defined, medical condition known as asbestosis.
The exclusions at issue in that case [hereinafter "Exclusions (1), (2) and (3)"] read as follows:
(1) This policy shall not apply to claims made against the insured arising out of Asbestosis or any similar condition caused by Asbestos;
(2) It is understood and agreed that any bodily injury or property damage claim or claims arising out of all asbestosis operations is excluded from the policy;
(3) This policy shall not apply to any liability imposed upon the insured arising out of ASBESTOSIS.
Early on in the litigation, this Court held that the meaning of the word "asbestosis," as used in the policies, was ambiguous. See Carey Canada, Inc. v. California Union Insurance Co., 83-1105, Mem. Op. at 9-10 (May 7, 1985) (Pratt, J.). Accordingly, the parties engaged in lengthy and voluminous discovery concerning their understanding of this term at the time the contracts were made, and the Court heard and received extensive evidence on this issue during a seven-day trial.
On June 1, 1989, we granted judgment for the defendant insurance companies. See Carey Canada, Inc. v. California Union Insurance Co., 720 F. Supp. 1018, 1026 (D.D.C. 1989) (Pratt, J.). We found "by clear and convincing evidence that all parties to [the policies] understood and interpreted them to exclude all asbestos-related disease claims, not just the single disease asbestosis." Id. at 1026. Specifically, we found that, "in using the term 'asbestosis,'" the parties "objectively intended" to exclude "'all asbestos-related disease claims.'" Id. at 1025. Our conclusion that Carey Canada and Celotex shared this understanding was based on specific findings of fact concerning: (1) their treatment of loss data during the years 1978-1982;
(2) their interpretation of the Aetna exclusion, which they read to exclude all asbestos-related disease claims as of October 1977; (3) their notice practices from October 1977 until April 1983;
(4) their 1980 and 1981 Annual Reports to Stockholders;
and (5) the understanding and use of the term "asbestosis" by their exclusive retail broker, Rollins Burdick Hunter ("RBH"). See id. at 1022-24.
B. The Present Litigation
The fourteen exclusion clauses at issue in the present case are similar or identical to Exclusions (1), (2), and (3) set out above. See supra slip op. pp. 2-3. National Union policy no. 1189778 (effective 10/1/77-10/1/78) contains an exclusion clause identical to Exclusion (2). The exclusion clauses in National Union policy nos. 1226062 (effective 10/1/80-10/1/81), 1185371 (effective 10/1/81-10/1/82), and 1185372 (effective 10/1/81-10/1/82) and Highlands policy no. SR40746 (effective 10/1/81-10/1/82) are identical to Exclusion (3). Eight of the remaining nine policies at issue contain exclusion clauses very similar to Exclusion (3).
The exclusion clause in the remaining policy, Old Republic no. OZX11577 (effective 10/1/81-10/1/82), reads:
The company shall not indemnify the insured for any sum which the insured shall be obligated to pay by reason of any liability for bodily injury, personal injury or property damage caused by or arising out of asbestosis . . . .
All of these policies were negotiated on behalf of Jim Walter by RBH, its exclusive retail broker in securing excess liability coverage.
See Carey Canada v. California Union, 720 F. Supp. at 1020. Moreover, one of the National Union policies, no. 1189778, was negotiated on behalf of National Union by Kandis Pinkstaff in the same year that she negotiated policy no. 118977, which was at issue in the earlier litigation and contained an identical asbestos-related exclusion clause. Finally, ten of the fourteen policies were issued prior to April 1983.
Having set out the relevant facts, we turn now to the merits of the present motion.
Under the doctrine of collateral estoppel, or issue preclusion, "once a court has decided an issue of fact or law necessary to its judgment, that decision is conclusive in a subsequent suit based on a different cause of action involving a party to the prior litigation." United States v. Mendoza, 464 U.S. 154, 158, 104 S. Ct. 568, 78 L. Ed. 2d 379 (1984) (citation omitted). The doctrine "serves to 'relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication.'" Id. at 158, (quoting Allen v. McCurry, 449 U.S. 90, 94, 101 S. Ct. 411, 66 L. Ed. 2d 308 (1980)). Thus, it not only recognizes earlier findings as conclusive, but also precludes "a party . . . from attempting a second time to prove a fact that he sought unsuccessfully to prove in a prior action." Yates v. United States, 354 U.S. 298, 336, 77 S. Ct. 1064, 1 L. Ed. 2d 1356 (1957) (citation omitted).
Three conditions must be satisfied in order for the doctrine to apply: (1) the issue must have been contested by the parties and submitted for determination by the court; (2) the issue must have been "actually and necessarily determined" by the court; and (3) preclusion must not work an unfairness. Jack Faucett Associates v. American Telephone & Telegraph Co., 240 App. D.C. 103, 744 F.2d 118, 125 (D.C. Cir. 1984) (citations omitted), cert. denied, 469 U.S. 1196, 105 S. Ct. 980, 83 L. Ed. 2d 982 (1985). Plaintiffs argue that these conditions have been met with respect to every issue essential to their case. With the exception of National Union policy no. 1189778, we disagree. However, we do agree with plaintiffs that certain facts pertinent to this action were conclusively established in Carey Canada v. California Union, and that Celotex and Carey Canada are precluded from relitigating those issues here.
As we held in the earlier litigation, the asbestos-related exclusions at issue "are ambiguous on their face." Carey Canada, Inc. v. California Union Insurance Co., 708 F. Supp. 1, 4 (D.D.C. 1989) (Pratt, J.). Therefore, resort to extrinsic evidence of the parties' intent is required. See id. at 5. With the exception of National Union policy no. 1189778, the intent of plaintiff insurers with respect to the exclusion clauses presently at issue was not addressed in the earlier litigation, see generally Carey Canada v. California Union, 720 F. Supp. 1018, and there is no evidence of plaintiff insurers' intent before us now. Accordingly, except with respect to National Union policy no. 1189778, summary judgment is not possible at this time. See Commissioner v. Sunnen, 333 U.S. 591, 598, 68 S. Ct. 715, 92 L. Ed. 898 (1948) (parties are free to litigate points not at issue in first proceeding); cf. National Savings & Trust Co. v. Rosendorf, 182 App. D.C. 216, 559 F.2d 837, 840 (D.C. Cir. 1977) (where court in first action did not consider issue essential to resolution of second action, summary judgment could not be granted on basis of collateral estoppel).
We agree with plaintiffs, however, that Celotex and Carey Canada are precluded from contesting that, from October 1, 1977, through April 5, 1983, they understood the asbestos-related exclusions in plaintiffs' policies to exclude all asbestos-related disease claims. We found in the earlier action, "by clear and convincing evidence," that these defendants believed that coverage for asbestos-related diseases had been excluded from their insurance policies beginning October 1, 1977. See Carey Canada v. California Union, 720 F. Supp. at 1023, 1025. It was not until April 6, 1983, just a few days before Carey Canada v. California Union was filed, that these defendants began asserting that exclusion clauses such as those in plaintiffs' policies excluded only those claims based on asbestosis alone. Id. at 1023. These and other findings on this issue
apply with equal force in this case, and we will not permit these defendants to challenge or contradict them now. Based on these findings, we conclude, as we did in Carey Canada v. California Union, that Celotex and Carey Canada understood the pre-April 6, 1983 exclusion clauses in plaintiffs' policies to exclude coverage for all asbestos-related disease claims. See Montana v. United States, 440 U.S. 147, 159-61, 99 S. Ct. 970, 59 L. Ed. 2d 210 (1979) (finding no "changes in fact essential to [first] judgment"); American Medical International, Inc. v. Secretary of Health, Education & Welfare, 219 App. D.C. 267, 677 F.2d 118, 120-21 (D.C. Cir. 1981) (finding that "first ruling had not been 'predicated' on facts peculiar to the contracts there in issue").
Application of the doctrine of collateral estoppel, or issue preclusion, is particularly appropriate in this context. Because the parties to the prior lawsuit actively contested Celotex and Carey Canada's understanding of the word "asbestosis," our findings on that issue "bear sufficient reliability to preclude subsequent inquiry; and re-litigation of the same issue would be wasteful of judicial resources." Stebbins v. Keystone Insurance Co., 156 App. D.C. 326, 481 F.2d 501, 508 (D.C. Cir. 1973); see also Commissioner v. Sunnen, 333 U.S. at 598; Synanon Church v. United States, 261 App. D.C. 13, 820 F.2d 421, 426 (D.C. Cir. 1987). Moreover, those findings were necessary to our holding that the insureds read the exclusions broadly. See Partmar Corp. v. Paramount Pictures Theatres Corp., 347 U.S. 89, 100, 74 S. Ct. 414, 98 L. Ed. 532 (1954); Synanon Church, 820 F.2d at 425. Finally, application of collateral estoppel would not be unfair. Our findings in the earlier case were made after "a full and fair proceeding." McLaughlin v. Bradlee, 256 App. D.C. 119, 803 F.2d 1197, 1204 (D.C. Cir. 1986). The stakes in that proceeding were quite high; each of the four policies at issue had a maximum exposure of five million dollars, Carey Canada v. California Union, 720 F. Supp. at 1019, and subsequent litigation involving upper layer excess carriers was foreseeable.
See 18 C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure, §§ 4423, 4424, at 221, 227 (1981) [hereinafter Federal Practice ]. Accordingly, Carey Canada and Celotex had a strong "incentive to," and did in fact for six years, "litigate vigorously." Id. § 4423, at 221. "Little good and much harm can come from allowing [them] to retry the same issues in exhausting fashion against successive [insurers]." McLaughlin v. Bradlee, 803 F.2d at 1204-05 (discussing rejection of "mutuality" restriction) (citation omitted).
An additional factor worth noting is that Celotex and Carey Canada themselves do not seriously contend that any genuine issue of fact exists as to their understanding of the asbestos-related exclusions. Instead, their opposition emphasizes that what prevents summary judgment is the lack of evidence concerning plaintiffs' understanding of these exclusions in policies not at issue in the prior case.
Thus, they essentially concede that our previous findings concerning them are controlling in this case. See Cutler v. Hayes, 260 App. D.C. 230, 818 F.2d 879, 890 & n. 88 (D.C. Cir. 1987); Federal Practice, supra, § 4417, at 160; Fed. R. Civ. P. 56(e) ("adverse party's response . . . must set forth specific facts showing that there is a genuine issue for trial").
Accordingly, Celotex and Carey Canada are precluded from relitigating the issue of their understanding of the asbestos-related exclusions decided against them in the prior litigation. They are bound by our findings regarding Jim Walter's post-September 1977 excess policies, which cover the following ten (10) policies: National Union policy nos. 1189778 (effective 10/1/77-10/1/78), 1226062 (effective 10/1/80-10/1/81), 1185371 (effective 10/1/81-10/1/82), 1185372 (effective 10/1/81-10/1/82), and 9602859 (effective 10/1/82-10/1/83); Highlands policy nos. SR40746 (effective 10/1/81-10/1/82) and SR40905 (effective 10/1/82-10/1/83); Granite State policy no. 6682-3764 (effective 10/1/82-10/1/83); AIU policy no. 75-101718 (effective 10/1/82-10/1/83); and Old Republic policy no. OZX11577 (effective 10/1/81-10/1/82). As for the remaining four (4) policies -- National Union no. 9605640 (effective 10/1/83-10/1/84), Highlands no. SR41122 (effective 10/1/83-10/1/84), Granite State no. 6683-4163 (effective 10/1/83-10/1/84), and AIU no. 75-103564 (effective 10/1/83-10/1/84) -- the parties may introduce post-April 5, 1983 evidence of Celotex and Carey Canada's understanding of the asbestos-related exclusions contained therein.
Finally, we hold that plaintiff National Union is entitled to summary judgment with respect to its liability for asbestos-related disease claims under policy no. 1189778. This policy's asbestos-related exclusion clause is identical to that contained in National Union policy no. 118977, a contemporaneous lower level excess policy at issue in Carey Canada v. California Union. Underwriter Kandis Pinkstaff negotiated both policies on behalf of National Union in 1977. At trial in the earlier case, Pinkstaff testified that "by excluding 'asbestosis operations' she intended to exclude Jim Walter's asbestos exposure." Carey Canada v. California Union, 720 F. Supp. at 1024-25. We gave "full credence" to this testimony, and, because the insureds' intent was the same, held that the policy excluded all asbestos-related disease claims. Id. at 1025, 1026. The same situation exists here. Pinkstaff's testimony is conclusive of National Union's intent with respect to policy no. 1189778, and, as we already have held, collateral estoppel precludes Celotex and Carey Canada from arguing that they read the exclusion more narrowly. See generally McLaughlin v. Bradlee, 803 F.2d at 1201-05.
Based on the foregoing, we hold that defendants Celotex and Carey Canada are collaterally estopped by our decision in Carey Canada v. California Union, 720 F. Supp. 1018, from contesting that they understood the asbestos-related exclusions in plaintiff's pre-April 6, 1983, policies to exclude all asbestos-related disease claims. We further hold that plaintiffs' motion for summary judgment is granted with respect to National Union policy 1189778. In all other respects, plaintiffs' motion is denied. An Order consistent with this Memorandum Opinion has been entered this day.
ORDER -- July 31, 1990, Filed
Upon consideration of plaintiffs' motion for summary judgment, the opposition thereto, plaintiffs' and defendant insurance companies' motion for a protective order, the opposition thereto, and the entire record herein, and for the reasons stated in an accompanying Memorandum Opinion entered this day, it is by the Court this 31st day of July, 1990,
ORDERED that plaintiffs' motion for summary judgment is granted in part and denied in part; it is
ORDERED that defendants Celotex and Carey Canada shall be precluded from contesting that they understood the asbestos-related exclusions in plaintiff's policies issued prior to April 6, 1983, to exclude all asbestos-related disease claims; it is
ORDERED that summary judgment is entered in favor of plaintiff National Union with respect to policy no. 1189778 (effective 10/1077-10/1/78) only; it is
ORDERED that in all other respects plaintiffs' motion for summary judgment is denied without prejudice; it is
ORDERED that plaintiffs' and defendant insurance companies' motion for a protective order is dismissed as moot; it is
ORDERED that counsel for the parties shall appear before the Court for a calendar call on this matter on September 12, 1990, at 9:00 a.m., and be prepared to discuss the future course of this litigation; and it is
FURTHER ORDERED that the parties shall proceed with discovery in the interim.