Ohio Court Finds Multiple "Occurrences" For Silica Claims
After much "gnashing of teeth," a panel of the Ohio Court of Appeals has affirmed a lower court's ruling that the aggregate limits contained in various missing three year policies issued back in the 1960s and 1970 by Aetna Property & Casualty (now ACE) are ambiguous and therefore apply on a "per year" basis. The court also rejected ACE's argument that these claims were subject to the "deemer" clause in its policies so as to arose out of a single "occurrence."
Cincinnati Ins. Co. v. ACE INA Holdings involved a dispute between an excess insurer (Cincinatti) and the primary insurer (ACE) of Flexo Manufacturing, which faces silicosis liabilities around the country due to its manufacture of masks used in sand blasting operations. Each of the ACE policies, insofar as could be determined given their incomplete nature, contained a $300,000 aggregate for bodily injury claims. However, the policies (or whatever was left of them) did not contain an "annualization" clause or any other language declaring whether the aggregate applied on a "per policy" or "per year" basis.
ACE, having paid three $300,000 limits to settle silica cases against Flexo, claimed exhaustion and attempted to pass the baton to Cincinatti. The excess insurer demurred and sued ACE for bad faith, claiming that it owed another $1.8 million. The Hamilton Country trial court agreed and, on appeal, so did the First Appellate District.
As a preliminary matter, the Ohio Court of Appeals ruled that the ACE policies were ambiguous because, in the absence of an annualization clause or other clarifying clause, "aggregate" could be applied "per policy" or "per year." As a result, the court held that the trial court had not erred in considering extrinsic evidence to clarify the issue (as with New York and a handful of other states, Ohio follows the rule that ambiguity will not automatically be construed against the drafter if it can be clarified by resort to extrinsic evidence). In this case, the court held that the extrinsic evidence supported the excess insurer's contention that the aggregate limit applied annually. In particular, the court took note of the fact that Aetna Property & Casualty had been a "Bureau company" and that during this pre-ISO period, the IRB policy manual provided that aggregate limits in multi-year policies apply annually.
The Court of Appeals also rejected ACE's argument that these claims all arose out a single "occurrence," that being the insured's manufacture and sale of a defective product. The court observed that, unlike asbestos cases, there was nothing intrinsically harmful about a mask: the mask did not harm anyone, it merely failed to protect them against silica exposures. Far from accepting ACE's reliance on the "deemer" clause in its policies, the Court of Appeals ruled that the exposure to conditions language required that each claim be treated separately. The court cautioned against the "blanket judicial application" of tests for numbering "occurrences," however.
While ruling in favor of Cincinatti, the court refused to find that ACE's coverage positions were adopted in bad faith given (while archly observing that it was "feckless").
This case illustrates the interesting interplay between "occurrence" and aggregate wordings. Most later ISO CGL forms contain language stating that the aggregate applies on an annual basis but are silent with respect to whether the same is true of the "occurrence" limit. For the most part, courts have ruled that this reflects an intention to have the "per occurrence" limit apply to the policy as a whole.
This ruling is seemingly at odds with the view of most other courts that have addressed this issue. For the most part, courts have ruled that in the absence of an "annualization" clause, limits apply once per policy, not once per year. See Society of Roman Catholic Church of Diocese of Lafayette, Inc. v. Interstate Fire and Cas. Co., 126 F.3d 727, 742 (5th Cir. 1997); Diamond Shamrock Chemicals Company v. Aetna Cas. & Sur. Co., 609 A.2d 440 (N.J. App. 1992); Hercules, Inc. v. Aetna Cas. & Sur. Co., 748 A.2d 481, 495 (Del. 2001) and CSX Transportation, Inc. v. Commercial Union Ins. Co., 82 F.3d 478, 483 (D.C. Cir. 1996). But see, Chemical Lehman Tank Lines v. Aetna Cas. & Sur. Co., 978 F. Supp. 589, 606 (D.N.J. 1997), rev'd on other grounds, 177 F.3d 210 (3d Cir. 1999).
This case is an interesting illustration of the dilemma that insurers face in missing policy cases wherein the very absence of policy documentation may rob the insurer of the ability to raise otherwise viable policy defenses based on exclusions or limitations to coverage. If you can't prove what the limits of coverage are, how do you ever exhaust? Nevertheless, some courts continue to hold that it is the insurer's burden in a missing policy case to prove the existence of exclusions or other limitations to coverage.
Finally, what's with all the crankiness ("gnashing of teeth"??) about having to decide hard cases. Only two weeks ago, Justice Willets of the Texas Supreme Court grumbled in a concurring opinion in Mid-Continent v. Liberty Mutual about all the "fiendishly difficult" high stakes insurance issues that the Fifth Circuit was saddling them with. This stuff must be harder than we thought. I'm asking for a raise.
