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CHESAPEAKE & OHIO RY. CO. v. CERTAIN UNDERWRITERS

August 30, 1993

THE CHESAPEAKE & OHIO RAILWAY COMPANY, et al., Plaintiffs,
v.
CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, AND LONDON MARKET INSURANCE COMPANIES, et al., Defendants. WESTERN MARYLAND RAILROAD COMPANY, Plaintiff, v. HARBOR INSURANCE COMPANY, et al., Defendants.



The opinion of the court was delivered by: HARRIS

 On October 9, 1985, plaintiffs filed this declaratory judgment action against a large number of liability insurers. *fn1" Plaintiffs seek a declaration as to the various insurers' defense and indemnity obligations for asbestos-related claims brought against plaintiffs by present and former employees under the Federal Employers Liability Act ("FELA"), 45 U.S.C. §§ 51-60. *fn2"

 As of this date, the claims against most of the original defendants have been settled and dismissed with prejudice. The remaining defendants are Falcon Insurance Company (as successor to Employers Surplus Lines Insurance Company) ("Employers Surplus"), American Re-Insurance Company ("American Re"), American Casualty Company of Reading ("American Casualty"), Continental Casualty Company ("Continental Casualty"), and Pacific Insurance Company ("Pacific").

 Presently before the Court are various motions for partial summary judgment brought by the remaining defendants -- including motions concerning the timeliness of notice of occurrence, the duty to defend, the applicable trigger of coverage, the number of "per occurrence" limits in multi-year policies, and the meaning of certain exclusionary clauses. *fn3" Also before the Court are plaintiffs' motions for summary judgment on certain of defendants' affirmative defenses. Summary judgment is appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56. Although "findings of fact and conclusions of law are unnecessary on decisions of motions under Rule 12 or 56," the Court nonetheless sets forth its analysis, in part because the case survives the rulings herein. See Fed. R. Civ. P. 52(a).

 Late Notice of Occurrence to Employers Surplus

 Employers Surplus moves for summary judgment based on plaintiffs' failure to provide timely notice of occurrence. Employers Surplus argues that plaintiffs' late notice of occurrence constituted a breach of the applicable insurance contracts and relieved it of any indemnification obligation due to plaintiffs. *fn4" The Court agrees.

 It is undisputed that compliance with the policy requirement of timely notice is a condition precedent to coverage. See, e.g., Norfolk & W. Ry. Co. v. Accident & Casualty Ins. Co., 796 F. Supp. 925, 928 (W.D. Va. 1992). *fn5" The language of the notice of occurrence provisions in the applicable insurance policies differ slightly, but not materially. See Employers Surplus's Statement of Material Facts at PP 14-15. *fn6" Courts consistently interpret this language to mean that an insured's duty to give notice of occurrence to an excess carrier accrues when, viewed objectively, the facts and circumstances known to the insured would have suggested to a reasonable person the possibility of a claim likely to trigger the excess insurer's coverage. See, e.g., Greyhound Corp. v. Excess Ins. Co., 233 F.2d 630, 635 (5th Cir. 1956); Olin Corp. v. Ins. Co. of N. Am., 743 F. Supp. 1044, 1053 (S.D.N.Y. 1990), aff'd, 929 F.2d 62 (2d Cir. 1991); Dan River, Inc. v. Commercial Union Ins. Co., 227 Va. 485, 317 S.E.2d 485, 487 (Va. 1984) (interpreting provision that triggered notice "when an occurrence takes place which, in the opinion of the insured, involves or may involve liability on the part of the company" to require notification "whenever, from an objective standpoint, it should reasonably appear to the insured that the policy may be involved"). *fn7"

 Whether notice is timely may be decided as a matter of law where the facts are undisputed. See, e.g., Norfolk & W. Ry. Co., 796 F. Supp. at 928. The Court finds that here, notice was untimely as a matter of law. Plaintiffs' employees began to file asbestos-related FELA suits seeking damage amounts in excess of Employers Surplus's policy triggers in 1979. The damage requests in these suits, in conjunction with available information about the hazards of asbestos and the presence of asbestos in plaintiffs' operations, would have suggested to a reasonable person the likelihood of liability that might implicate the Employers Surplus excess policies. *fn8" See Atlanta Int'l Ins. Co. v. Yellow Cab Co., Inc., 962 F.2d 657, 659 (7th Cir. 1992) (finding that ad damnum requesting damages in excess of primary coverage made notice to excess insurer necessary). *fn9" Plaintiffs notified Employers Surplus of the asbestos-related bodily injury claims filed against CSXT in November, 1984. See Plaintiffs' Statement of Material Facts at P 20. Therefore, the Court finds that plaintiffs' notice, which was given more than five years after the first claims were filed, was untimely as a matter of law. *fn10"

 Plaintiffs claim, however, that even if their notice was untimely, Employers Surplus must still indemnify them unless it can show that it was prejudiced by the late notice. A conflict exists among the laws of the potentially interested states regarding the issue of prejudice to the insurer as a component of the late notice defense. *fn11" Although numerous policies are at issue here, different states' laws on a particular question of law should not be applied to different insurance policies in a single action. See Carey Canada, Inc. v. Aetna Casualty & Sur. Co., Nos. 84-3113, 85-1640, 1988 U.S. Dist. LEXIS 8997, at *11 (March 30, 1988) (quoting Independent Petrochem. Corp. v. Aetna Casualty and Sur. Co., 654 F. Supp. 1334, 1356 (D.D.C. 1986) (application of various state laws to various insurance contracts would be "confusing, burdensome, [and] unfair to plaintiffs if it creates significant gaps in coverage")). Therefore, the Court must choose among the applicable laws. Employers Surplus asserts that the Court should apply Virginia law because Virginia is the only state through which all of the railroads insured by Employers Surplus operated their lines during the terms of the applicable policies. The Court adopts this choice of law analysis and applies Virginia law to this issue. *fn12" Virginia does not require an affirmative showing of prejudice due to late notice. See, e.g., Norfolk & W. Ry. Co., 796 F. Supp. at 927; State Farm Fire & Casualty Co. v. Scott, 236 Va. 116, 372 S.E.2d 383, 385 (Va. 1988). Accordingly, Employers Surplus's motion for summary judgment on the issue of late notice is granted.

 Employers Surplus's Duty To Defend

 Four types of policies are at issue. The first group of policies contains language that is the practical equivalent of language that this Court already has interpreted. The Court found that this language excludes an insurer's obligation to pay the cost of investigating and litigating claims, unless the insurer elects to participate in the settlement or defense of such claims. See Chesapeake & Ohio Ry. Co. v. Certain Underwriters at Lloyd's London, Nos. 85-3162, 85-3163, slip op. at 5 (D.D.C. Oct. 16, 1991). *fn13" It is undisputed that Employers Surplus has not elected to participate in the settlement or defense of the underlying claims. Therefore, Employers Surplus has no duty to pay defense costs under this group of policies.

 The other three groups of policies provide, in various language, that no legal costs or expenses shall be incurred without the consent of the insurer. *fn14" Under the plain and unambiguous language of these provisions, the duty to defend is conditioned on Employers Surplus's giving consent. See, e.g., Botany Bay Marina, Inc. v. Great Am. Ins. Co., 760 F. Supp. 88, 91 (D.S.C. 1991); Healy Tibbitts Constr. Co. v. Foremost Ins. Co., 482 F. Supp. 830 (N.D. Cal. 1979); Crown Center Redevelopment Corp. v. Occidental Fire & Casualty Co., 716 S.W.2d 348 (Mo. App. 1986). Because it is undisputed that Employers Surplus did not give such consent, it is under no obligation to incur defense costs. *fn15" Accordingly, Employers Surplus's motion for partial summary judgment on the duty to defend is granted.

 Trigger of Coverage

 Employers Surplus moves for partial summary judgment concerning the trigger of coverage applicable to the asbestos-related claims brought against plaintiffs by their employees pursuant to the FELA, 45 U.S.C. § 51-60 (1988). Employers Surplus argues that the "last injurious exposure" rule of both federal and state workmen's compensation cases is the applicable trigger of coverage. Under this rule:

 
The carrier who last insured the "liable" employer during the claimant's tenure of employment, prior to the date the claimant became aware of the fact that he was suffering from an occupational disease arising naturally out of his employment, should be held responsible for ...

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