Travelers' Asbestos Exclusion Is Enforceable, 3rd Circ. Says
Law360, Los Angeles (April 21, 2017, 1:30 PM EDT) -- The Third Circuit ruled Friday that an exclusion for asbestos-related claims in a Travelers insurance policy is unambiguous and therefore enforceable, overturning a $36 million judgment holding the insurer responsible for some of policyholder General Refractories' $120 million worth of asbestos liabilities.In a unanimous decision, a panel of the appellate court reversed a Pennsylvania district court's decision that Travelers Surety & Casualty Co. cannot enforce a policy exclusion for claims "arising out of asbestos" to deny coverage to General Refractories Co. for scores of lawsuits.============
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 15-3409
_____________
GENERAL REFRACTORIES COMPANY
v.
FIRST STATE INSURANCE CO; WESTPORT
INSURANCE CORPORATION,
Successor to, or, f/k/a Puritan Insurance Company;
LEXINGTON INSURANCE COMPANY; CENTENNIAL
INSURANCE COMPANY; HARTFORD ACCIDENT And
INDEMNITY CO; GOVERNMENT EMPLOYEES
INSURANCE CO; REPUBLIC INSURANCE COMPANY;
SENTRY INSURANCE, Successor to, or,
f/k/a Vanliner Insurance Company, f/k/a Great SW Fire
Insurance Co; AMERICAN INTERNATIONAL INS. CO;
AIU INSURANCE COMPANY; HARBOR INSURANCE
COMPANY; TRAVELERS CASUALTY & SURETY CO,
Successor to, or, f/k/a Aetna Casualty & Surety Company;
AMERICAN EMPIRE INSURANCE CO;
WESTCHESTER FIRE INSURANCE CO
Travelers Casualty and Surety Company
(f/k/a The Aetna Casualty and Surety Company),
Appellant
_____________
2
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
District Judge: Honorable L. Felipe Restrepo
D.C. No. 2:04-cv-03509
______________
Argued September 9, 2016
______________
Before: JORDAN, VANASKIE and KRAUSE, Circuit
Judges
(Opinion Filed: April 21, 2017)
Theodore J. Boutrous, Jr. [ARGUED]
Richard J. Doren
Blaine H. Evanson
GIBSON, DUNN & CRUTCHER
333 South Grand Avenue
Los Angeles, CA 90071
Samuel J. Arena, Jr.
Daniel T. Fitch
William T. Mandia
STRADLEY, RONON, STEVENS & YOUNG
2005 Market Street, Suite 2600
Philadelphia, PA 19103
Counsel for Appellant, Travelers Surety and Casualty
Company
Michael Conley [ARGUED]
Meghan Finnerty
Mark. E. Gottlieb
William H. Pillsbury
OFFIT KURMAN
1801 Market Street, 23rd Floor
Ten Penn Center
Philadelphia, PA 19103
Howard J. Bashman
Law Offices of Howard J. Bashman
2300 Computer Avenue
Suite G-22
Willow Grove, PA 19090
Counsel for Appellee, General Refractories Company
Laura A. Foggan, Esq.
CROWELL & MORING
1001 Pennsylvania Avenue, N.W.
Washington, DC 20004
Counsel for Amicus Appellant American Insurance
Association and Complex Insurance Claims
Litigation Association
John N. Ellison, Esq.
REED SMITH
1717 Arch Street
Three Logan Square, Suite 3100
Philadelphia, PA 19103
Counsel for Amicus Appellant United Policyholders
4
________________
OPINION
________________
VANASKIE, Circuit Judge.
Decades of litigation over the effects of pervasive
asbestos use have yielded a financial burden borne across an
array of industries. Today we must decide which of two
companies will bear costs associated with a staggering
number of asbestos claims. These companies—a historical
manufacturer of asbestos-containing products and its
insurer—dispute the rightful allocation of asbestos-related
losses under thirty-year-old excess insurance policies. While
the policies are dated, the consequences of our interpretation
are immediate both to the parties at hand and to those insurers
and insureds whose relationships are similarly governed.
The chief issue on appeal is whether a policy exclusion
that disclaims losses “arising out of asbestos” will prevent a
manufacturer from obtaining indemnification for thousands of
negotiated settlements with plaintiffs who have suffered
adverse health effects from exposure to its asbestos-containing
products. The answer hinges on whether the
language of the exclusion is ambiguous. After a bench trial,
the District Court found that the phrase “arising out of
asbestos” contained latent ambiguity because the exclusion
could reasonably be read to exclude only losses related to raw
asbestos, as opposed to losses related to asbestos-containing
products. We disagree. The phrase “arising out of,” when
used in a Pennsylvania insurance exclusion, unambiguously
requires “but for” causation. Because the losses relating to
the underlying asbestos suits would not have occurred but for
asbestos, raw or within finished products, we will reverse the
judgment of the District Court.
I.
Plaintiff-Appellee General Refractories Company
(“GRC”) is a manufacturer and supplier of refractory
products that are designed to retain their strength when
exposed to extreme heat. To serve this purpose, GRC
previously included asbestos in some of its products. GRC’s
use of asbestos brought about approximately 31,440 lawsuits
alleging injuries from “exposure to asbestos-containing
products manufactured, sold, and distributed by GRC” dating
back to 1978. (J.A. 199.)
GRC’s insurers initially fielded these claims. During
the 1970s and ‘80s, GRC had entered into primary liability
insurance policies with a number of different insurers. GRC
also secured additional excess insurance policies to provide
liability coverage beyond the limits of its primary insurance
policies, including several excess policies issued by
Defendant-Appellant Travelers Surety and Casualty
Company, formerly known as the Aetna Casualty and Surety
Company. As the number of asbestos-related injury claims
against GRC began to grow, the primary insurers continued to
defend and indemnify GRC. But this arrangement came to a
halt in 1994 when GRC’s liabilities from thousands of settled
claims far exceeded the limits of its primary insurance
coverage. In 2002, after years of continued settlements, GRC
tendered the underlying claims to its excess insurance
carriers, including Travelers, all of whom denied coverage on
the basis of exclusions for asbestos claims.
GRC commenced this action against its excess insurers
seeking a declaration of coverage for losses related to the
underlying asbestos claims, as well as breach of contract
damages. Gen. Refractories Co. v. First State Ins. Co., 94 F.
Supp. 3d 649, 652 n.1 (E.D. Pa. 2015). GRC eventually
settled with all of the excess insurance defendants—except
Travelers—by means of a stipulated dismissal with prejudice.
Id. Travelers is the only excess insurer remaining in this
litigation.
Travelers’ contractual relationship with GRC is
governed by two substantively identical excess insurance
policies providing coverage from 1985 to 1986. Each policy
obliges Travelers to indemnify GRC “against EXCESS NET
LOSS arising out of an accident or occurrence during the
policy period” subject to the stated limits of liability and
additional terms.1 (J.A. 370, 381.) In maintaining that it need
not compensate GRC for losses related to the underlying
asbestos claims, Travelers relies on an “Asbestos Exclusion”
contained within the excess insurance contracts, which reads:
----------------------------------------------------------------------
1 Both Travelers policies define “EXCESS NET
LOSS” as “that part of the total of all sums which the
INSURED becomes legally obligated to pay or has paid, as
damages on account of any one accident or occurrence, and
which would be covered by the terms of the Controlling
Underlying Insurance, if written without any limit of liability,
less realized recoveries and salvages, which is in excess of
any self-insured retention and the total of the applicable limits
of liability of all policies described in [the] Schedule of
Underlying Insurance; whether or not such policies are in
force.” (J.A. 370, 381.)
--------------------------------------------------------------------
It is agreed that this policy does not apply to
EXCESS NET LOSS arising out of asbestos,
including but not limited to bodily injury arising
out of asbestosis or related diseases or to
property damage.
(J.A. 377, 388.) The policies do not define the terms “arising
out of” or “asbestos.” Gen. Refractories Co., 94 F. Supp. 3d
at 654.
At its core, the parties dispute the meaning of four
words within the Asbestos Exclusion: “arising out of
asbestos.” (J.A. 377, 388.) The District Court held a one-day
bench trial specifically to interpret this language. GRC took
the position that at the time the policies were drafted “arising
out of asbestos” had a separate meaning than “arising out of
asbestos-containing products.” Gen. Refractories Co., 94 F.
Supp. 3d at 653. In GRC’s view, the term “asbestos” plainly
referred to the raw asbestos mineral that is “mined, milled,
processed, produced, or manufactured for sale in its raw
form.” Id. There is no dispute that GRC made and sold
refractory products that sometimes contained asbestos
components. But the parties also agree that GRC “never
mined, milled, processed, produced, or manufactured raw
mineral asbestos.” Id. at 654. Thus, GRC argued that the
exclusion did not encompass claims based on exposure to its
finished asbestos-containing products.
To support its narrow interpretation of the Asbestos
Exclusion, GRC presented several types of extrinsic evidence,
including:
examples of comparable insurance policies
that other insurers had issued in the late
1970s through 1985, which explicitly
excluded “asbestos” and products containing
asbestos;
examples of comparable insurance policies
that explicitly defined the term “asbestos”
broadly as “the mineral asbestos in any
form”;
six consecutive policies sold by Travelers
(as Aetna Casualty) to other policyholders
from 1978 to 1985 which contained a more
comprehensive and explicit asbestos
exclusion2 than the one included in the two
policies sold to GRC;
the Wellington Agreement,3 which defined
“Asbestos-Related Claims” as “any claims
----------------------------------------------------------------------
2 The broader asbestos exclusion read: “[T]his
insurance does not apply to bodily injury which arises in
whole or in part, either directly or indirectly, out of asbestos,
whether or not the asbestos is airborne as a fiber or particle,
contained in a product, carried on clothing, or transmitted in
any fashion whatsoever.” Gen. Refractories Co., 94 F. Supp.
3d at 655.
3 In the early 1980s, meetings between the plaintiffs’
bar, target defendants in asbestos-related litigation, and six
major insurance carriers (including Aetna Casualty) were
moderated by Harry Wellington, Dean of Yale Law School.
As a result, a settlement process emerged which came to be
------------------------------------------------------------------------
or lawsuits . . . alleged to have been caused
in whole or in part by any asbestos or
asbestos-containing product”;
the expert testimony of Gene Locks, a
lawyer who represented over 15,000
asbestos claimants and was the lead
negotiator at the Wellington meetings, in
which Locks explained that the terms
“asbestos” and “asbestos-containing
product” had distinct meanings to the parties
involved in asbestos litigation during the
relevant timeframe.
Id. at 654–57.
On the other hand, Travelers contended that the only
reasonable interpretation of the Asbestos Exclusion is that
claims for injuries related to asbestos in any form were
excluded. Travelers asserted that this is the “natural, plain,
and ordinary meaning of the terms, ‘arising out of asbestos.’”
Id. at 652–53. Thus, Travelers asserted that GRC’s losses
associated with the underlying asbestos claims were
precluded by the Asbestos Exclusion. For support, Travelers
presented “GRC’s corporate records, as well [as] its
communications with Travelers and its own insurance
broker,” as evidence of “the parties’ intent to exclude—or
their awareness, belief, or knowledge that the purchased
insurance did exclude—all injuries related to asbestos in any
form.” Id. at 656–57.
---------------------------------------
known as the Wellington Agreement. Gen. Refractories Co.,
94 F. Supp. 3d at 656.
After weighing the evidence and arguments, the
District Court issued a memorandum and order concluding
that the Asbestos Exclusion contained a latent ambiguity
“because the terms [were] reasonably capable of being
understood in more than one sense.” Id. at 660. The District
Court agreed that GRC’s interpretation of “asbestos” as
referring only to the raw mineral asbestos rather than other
finished products containing asbestos was “consistent with
the plain meaning of the written policy,” and therefore
“objectively reasonable,” and that Travelers had not met its
burden of showing that GRC’s interpretation was
unreasonable. Id.
Having found ambiguity, the District Court observed
that GRC’s industry custom and trade usage evidence
supported the assertion that “[d]uring the relevant era,
industry participants used the phrase to denote losses arising
from mining, milling, producing, processing, or
manufacturing the raw mineral,” not from “finished
products.” Id. at 663. The District Court found no evidence
in the record contradicting this interpretation, and further
rejected Travelers’ characterization of its course of
performance evidence. Id. at 663–664. Ultimately, the
District Court concluded that Travelers had failed to “show
not only that its interpretation is reasonable, but also that
GRC’s interpretation is not reasonable.” Id. at 664.
Accordingly, the District Court deemed the Asbestos
Exclusion unenforceable to preclude indemnification to GRC
for its losses in the underlying asbestos-related lawsuits, and
issued a memorandum and order to this effect. The parties
subsequently stipulated that, under the District Court’s
interpretation of the exclusion, Travelers must cover
$21,000,000 of GRC’s losses—the combined limit of the two
excess insurance policies. The District Court accepted this
stipulation, awarded GRC an additional $15,273,705 in
prejudgment interest, and entered final judgment for GRC.
Travelers now appeals the District Court’s interpretation of
the Asbestos Exclusion.
matter under 28 U.S.C. § 1332. We have appellate
jurisdiction under 28 U.S.C. § 1291. Pennsylvania contract
law governs. See Erie R.R. Co. v. Tompkins, 304 U.S. 64,
78–80 (1938). In Pennsylvania, “[t]he interpretation of an
insurance contract is a question of law.” Donegal Mut. Ins.
Co. v. Baumhammers, 938 A.2d 286, 290 (Pa. 2007) (quoting
Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial
Union Ins. Co., 908 A.2d 888, 893 (Pa. 2006)). Thus, we
engage in plenary review of the District Court’s
determination. Kroblin Refrigerated Xpress, Inc. v. Pitterich,
805 F.2d 96, 101 (3d Cir. 1986). In the first instance, the
insured bears the burden of demonstrating that its claim falls
within the policy’s affirmative grant of coverage. Koppers
Co. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1446 (3d Cir.
1996); Miller v. Boston Ins. Co., 218 A.2d 275, 277 (Pa.
1966). Where an insurer seeks to disclaim coverage on the
basis of a policy exclusion—as Travelers does here—the
insurer bears the burden of proving the applicability of the
exclusion as an affirmative defense. Madison Constr. Co. v.
Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999).
the Asbestos Exclusion. In doing so, we must “ascertain the
intent of the parties as manifested by the language of the
written instrument.” Id. (quoting Gene & Harvey Builders v.
Pa. Mfrs. Ass’n, 517 A.2d 910, 913 (Pa. 1986)). Thus, the
language of the contract must be the “polestar” of our inquiry.
Id. When the language is clear and unambiguous, we give
effect to that language. Id. But when the language is
ambiguous, the provision should “be construed in favor of the
insured and against the insurer.” Id.
Asbestos Exclusion is ambiguous. Pac. Emp’rs Ins. Co. v.
Glob. Reinsurance Corp. of Am., 693 F.3d 417, 426 (3d Cir.
2012) (citing Hutchison v. Sunbeam Coal Corp., 519 A.2d
385, 390 (Pa. 1986)). Ambiguity exists where the language
of the contract is “reasonably susceptible of different
constructions and capable of being understood in more than
one sense.” Madison Constr. Co., 735 A.2d at 106 (quoting
Hutchison, 735 A.2d at 390). After a bench trial, the District
Court found the language of the Asbestos Exclusion to
contain latent ambiguity. We disagree with the District
Court’s penultimate conclusion because the Court’s analysis
overlooked the phrase “arising out of,” which has an
established, unambiguous meaning under Pennsylvania
insurance law.
The District Court properly began its analysis by
determining whether the text of the Asbestos Exclusion,
which precludes indemnification for “EXCESS NET LOSS
arising out of asbestos,” was ambiguous. GRC had asserted
that “asbestos” refers only to mineral asbestos in its raw,
unprocessed form. Travelers, on the other hand, maintained
that “asbestos” is a purposefully broad term which
encompasses both asbestos in its raw form and products
which contain asbestos—such as those manufactured and sold
by GRC.
Driven by the parties’ arguments, the District Court
largely focused on whether the word “asbestos” was
reasonably susceptible of differing interpretations. After
examining various dictionary definitions and grammatical
uses of “asbestos,” it concluded that the term’s common
usage “reveal[ed] a latent ambiguity as to what it denotes.”
Gen. Refractories Co., 94 F. Supp. 3d at 658–59. Without
deciding which of the parties’ views was more reasonable, the
District Court found that both were consistent with the plain
meaning of the language and objectively reasonable. Because
“asbestos” was “reasonably capable of being understood in
more than one sense,” the District Court held that the
exclusion was ambiguous. Id. at 660.
While the District Court engaged in a thorough
analysis of the breadth of the term “asbestos,” its focus was
misplaced. The rest of the language at issue—“arising out
of”—has an unambiguous legal meaning that renders any
uncertainty concerning the meaning of the word “asbestos”
immaterial. Pennsylvania courts have long construed the
phrase “arising out of”—when used in the context of an
insurance exclusion—to “[m]ean[] causally connected with,
not proximately caused by.” McCabe v. Old Republic Ins.
Co., 228 A.2d 901, 903 (1967); Forum Ins. Co. v. Allied Sec.,
Inc., 866 F.2d 80, 82 (3d Cir. 1989). A policy provision
containing the phrase “arising out of” is satisfied by “‘[b]ut
for’ causation, i.e., a cause and result relationship.” Mfrs.
Cas. Ins. Co. v. Goodville Mut. Cas. Co., 170 A.2d 571, 573
(Pa. 1961).
Recognizing that Pennsylvania courts consistently
interpret “arising out of” to require “but for” causation, we
have previously observed that this formulation is “wellsettled,”
having been applied in numerous insurance law
contexts. Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d
388, 391–92 (3d Cir. 2012). This understanding of the phrase
is entrenched in Pennsylvania jurisprudence. See, e.g., Forum
Ins. Co., 866 F.2d at 82 (holding that “arising out of” requires
“but for” causation in the context of an exclusion for injury or
death arising in the course of employment); Smith v. United
Servs. Auto. Ass’n, 572 A.2d 785, 787 (Pa. Super. Ct. 1990)
(requiring “but for” causation in interpreting an uninsured
motorist provision); Erie Ins. Exch. v. Eisenhuth, 451 A.2d
1024, 1025 (Pa. Super. Ct. 1982) (no-fault automobile
insurance policy); Tuscarora Wayne Mut. Ins. Co. v.
Kadlubosky, 889 A.2d 557, 563 (Pa. Super. Ct. 2005)
(commercial general liability insurance policy); Roman
Mosaic & Tile Co. v. Aetna Cas. & Sur. Co., 704 A.2d 665,
669 (Pa. Super. Ct. 1997) (same). Not only have courts
applying Pennsylvania law interpreted “arising out of” to
require “but for” causation, they have also held that the
phrase is unambiguous. See Madison Constr. Co., 735 A.2d
at 110 (finding that “arising out of” language was not
ambiguous); McCabe, 228 A.2d at 903 (same); see also
Forum Ins. Co., 866 F.2d at 82 (relying on McCabe in
rejecting an argument that a policy exclusion containing the
phrase “arising out of . . . his employment” was ambiguous).
With this consistent interpretation in mind, we find
that the plain language of the Asbestos Exclusion, disclaiming
“EXCESS NET LOSS arising out of asbestos,” is
unambiguous on its face and is not “reasonably susceptible of
different constructions.” Madison Constr. Co., 735 A.2d at
106. The provision plainly encompasses losses that would
not have occurred but for asbestos or which are causally
connected to asbestos. Pennsylvania law permits no other
interpretation.
on its face, our inquiry does not immediately end when the
plain meaning of the provision is unambiguous. Evidence of
industry custom or trade usage “is always relevant and
admissible in construing commercial contracts,” and does not
depend on the existence of ambiguity in the contractual
language. Sunbeam Corp. v. Liberty Mut. Ins. Co., 781 A.2d
1189, 1193 (Pa. 2001). Where it can be shown that words
have a special meaning or usage in a particular industry,
“members of that industry are presumed to use the words in
that special way, whatever the words mean in common usage
and regardless of whether there appears to be any ambiguity
in the words.” Id.
In the course of arguing that “asbestos” had a separate
and distinct meaning from “asbestos-containing products,”
GRC presented industry custom and trade usage evidence
which was ultimately credited by the District Court as
supporting GRC’s narrow interpretation of the exclusion.
Gen. Refractories Co., 94 F. Supp. 3d at 654–57. While
GRC’s evidence may bear on the ambiguity of the word
“asbestos,” it does not cloud the meaning of the phrase
“arising out of.”4 GRC even agrees that “arising out of”
requires “but for” causation. In its brief, GRC explains that
its proffered “interpretation of the Asbestos Exclusion itself
utilizes a ‘but for’ causation standard.” (Appellee Br. at 32.)
GRC clarifies that its argument has been that the Asbestos
Exclusion “excludes losses related to (or ‘but for’) the
mineral asbestos, as opposed to losses related to or ‘but for’
GRC’s asbestos-containing products.” (Appellee Br. at 32.)
This argument by GRC incorrectly presumes that the
meaning attached to “asbestos” would have a material effect
on the outcome of this coverage dispute. But assigning “but
for” causation to the phrase “arising out of” carries the
important consequence of negating any material ambiguity
that the term “asbestos” may introduce into the clause. Even
the narrowest interpretation of “asbestos”—as referring only
to raw mineral asbestos—leads to the conclusion that
coverage for losses associated with the claims against GRC is
disclaimed by the Asbestos Exclusion. While we express no
opinion about whether the term “asbestos” is ambiguous here,
if we were to credit GRC’s theory that “asbestos” only
referred to mineral asbestos in its raw, unprocessed form—as
the District Court did—the asbestos claims against GRC
would still fall within the Asbestos Exclusion.
The application of “but for” causation compels the
conclusion that GRC’s losses are excluded under the policy as
a matter of law. “But for” causation “requires the plaintiff to
show ‘that the harm would not have occurred’ in the absence
of—that is, but for—the defendant’s conduct.” Univ. of Tex.
Sw. Med. Ctr. v. Nassar, 133 S. Ct. 2517, 2525 (2013) (citing
Restatement (First) of Torts § 431 cmt. a (1934)); see also
Robertson v. Allied Signal, Inc., 914 F.2d 360, 366 (3d Cir.
1990) (noting that “[c]ause in fact or ‘but for’ causation
requires proof that the harmful result would not have come
about but for the conduct of the defendant”); First v. Zem
Zem Temple, 686 A.2d 18, 21 n.2 (Pa. Super. Ct. 1996)
(quoting E.J. Stewart, Inc. v. Aitken Prods., Inc., 607 F. Supp.
883, 889 (E.D. Pa. 1985)) (“Cause in fact or ‘but for’
causation provides that if the harmful result would not have
come about but for the negligent conduct then there is a direct
causal connection between the negligence and the injury.”).
“But for” causation “is a de minimis standard of causation,
under which even the most remote and insignificant force
may be considered the cause of an occurrence.” Takach v.
B.M. Root Co., 420 A.2d 1084, 1086 (Pa. Super. Ct. 1980).
The claims that underlie this litigation stem from
exposure to the asbestos incorporated into the finished
products that GRC manufactured or sold. GRC “only paid
settlements and incurred damages when the underlying
claimants alleged exposure to GRC’s asbestos-containing
products.” (Appellee Br. at 37; J.A. 36.) For each such
settlement, a claimant was required to produce “sworn
evidence of exposure to a GRC asbestos-containing product”
and “medical verification of an asbestos-related disease.”
(Appellee Br. at 5; J.A. 36.) GRC’s own expert, Gene Locks,
testified that asbestos exposure is a necessary precursor to
asbestos-related disease. (J.A. 316:18–21.) Locks further
agreed that “[w]hatever disease [the asbestos plaintiffs] had
would have been caused by whatever asbestos fiber they were
exposed to, whether it came from the raw asbestos . . . or it
was in the end product.” (J.A. 302:7–20.) This is true both of
plaintiffs working in a profession that required exposure to
raw asbestos—such as a miner or miller—and those who
were exposed to asbestos-containing products. (Id.) Locks
also testified that the fiber released from a product containing
asbestos is “[t]he same fiber that’s ultimately milled.” (J.A.
303:6–9; see also id. at 302:21–303:5; 304:3–5; 304:18–20;
317:12–22 (stating that asbestos is contained within the end
product).)
It is clear that there is an appropriate causal connection
between asbestos and the losses GRC suffered in asbestos
litigation, and applying GRC’s narrow interpretation of
“asbestos” as referring only to raw mineral asbestos does not
affect the outcome. Even setting aside Lock’s testimony,
there is no dispute that some of GRC’s products contain
asbestos, that the plaintiffs in the underlying asbestos lawsuits
were exposed to GRC’s asbestos-containing products, and
that these plaintiffs allege injuries from asbestos-related
diseases. These facts alone compel the conclusion that
asbestos in its raw mineral form is causally connected to the
losses GRC has incurred as a result of these lawsuits. But for
the inclusion of asbestos in GRC’s products—which was
originally mined or milled as a raw mineral—the plaintiffs
exposed to those products would not have contracted
asbestos-related diseases. In order to find that losses relating
to exposure to asbestos-containing products are not causally
connected to raw asbestos, we would need to assign a
different standard of causation to the phrase “arising out of,”
which is inconsistent with the plain meaning of the language
in this Pennsylvania insurance exclusion.
GRC finally contends that Travelers waived the
causation argument by not raising it before the District Court.
Appellate courts will generally refuse to consider issues that
the parties did not raise below. Freeman v. Pittsburgh Glass
Works, LLC, 709 F.3d 240, 249 (3d Cir. 2013) (citing
Singleton v. Wulff, 428 U.S. 106, 120 (1976)). To preserve an
argument, a party must “unequivocally put its position before
the trial court at a point and in a manner that permits the court
to consider its merits.” Shell Petroleum, Inc. v. United States,
182 F.3d 212, 218 (3d Cir. 1999). But while parties may not
raise new arguments, they may “place greater emphasis” on
an argument or “more fully explain an argument on appeal.”
United States v. Joseph, 730 F.3d 336, 341 (3d Cir. 2013).
The parties may even “reframe” their argument “within the
bounds of reason.” Id.
Travelers has argued throughout this litigation that
GRC’s losses associated with asbestos claims “arise out of
asbestos” because the claims were caused by exposure to the
asbestos in GRC’s products. (See, e.g., Travelers’ Post-Trial
Br. at 8, E.D. Pa. Docket No. 631; Travelers’ Proposed
Findings of Fact at 9, E.D. Pa. Docket No. 630; Travelers’
Mot. for Summ. J. at 10–11, E.D. Pa. Docket No. 338;
Travelers’ Reply Br. on Mot. for Summ. J. at 2, E.D. Pa.
Docket No. 397.) The causal connection between the claims
for which GRC seeks indemnification and asbestos in
whatever form has been an integral part of Travelers’
argument as to why the Asbestos Exclusion is applicable.
While Travelers has focused on this argument with greater
specificity on appeal, the causation analysis required by the
Asbestos Exclusion has always been at issue. GRC is correct
that Travelers had never before specified that “arising out of”
is legally synonymous with “but for” causation, but GRC also
acknowledged that this theory is the “latest iteration of
[Travelers’] argument that the claims are excluded by the
‘plain meaning’ of the Asbestos Exclusion.” (Appellee Br. at
20.) In GRC’s own words, Travelers has consistently
“maintained that the ‘plain-meaning’ of the exclusion has
only one reasonable interpretation to exclude claims relating
to asbestos in any form.” (Appellee Br. at 22.) Travelers’
plain-meaning theory has always hinged on whether the
underlying lawsuits were caused by asbestos.
But even if Travelers’ argument had not been placed
before the District Court, we would nonetheless consider it in
reaching our conclusion. In “exceptional circumstances,” the
“public interest can require that the issue be heard.” Walton
v. Mental Health Ass'n of Se. Pa., 168 F.3d 661, 671 (3d Cir.
1999). This is just such an occasion. The language found
within this exclusion is prevalent in insurance contracts, and
our interpretation may affect a wide range of insurers and
insureds beyond the immediate parties to the suit. See
Selected Risks Ins. Co. v. Bruno, 718 F.2d 67, 69–70 (3d Cir.
1983) (holding that exceptional circumstances were present
where proper application of Pennsylvania public policies with
respect to insurance contracts would affect “every inhabitant
. . . and the insurance companies that serve them”).
The language in Travelers’ policies is far from unique;
it is found in numerous Pennsylvania insurance policies that
have been issued in the fifty years since the decision in
Goodville established the meaning of “arising out of.” Were
we to ignore the consistent and explicit meaning assigned to
the phrase in Pennsylvania insurance exclusions, we would
cast doubt on a tradition of interpretation that many parties
have relied upon in defining their contractual obligations.
Parties to an insurance contract must be able to place faith in
consistent interpretations of common language when drafting
their policies if they are to properly allocate the risks
involved. While future parties may present evidence
demonstrating a meaning of “arising out of” that is unique to
their contract, the phrase is not ambiguous on its face when
used in a Pennsylvania insurance contract.
Court’s judgment and remand with instructions to enter
judgment in favor of Travelers.
NOTES:
4 GRC explains that it “has offered custom and trade
usage evidence to support its assertion that ‘asbestos’ and
‘asbestos-containing products’ were distinct terms and that
‘asbestos’ was not used to unambiguously subsume ‘asbestos-containing
products.’” (Appellee Br. at 43 n.5, 44–45.) No
mention is made of how the evidence bears on the meaning of
“arising out of.”
=====================
What's at Stake
The Third Circuit has been asked to review a Pennsylvania district court's decision that Travelers Surety & Casualty Co. cannot enforce a policy exclusion for claims "arising out of asbestos" to deny coverage to policyholder General Refractories Co. for scores of lawsuits brought by plaintiffs who allege they were injured by exposure to asbestos contained in the company's fire-resistant industrial products.
The lower court held that the exclusion was ambiguous, and therefore unenforceable, because GRC had reasonably argued that the language of the exclusion applies only to asbestos in its raw form, not products incorporating the mineral.
A pair of insurance industry groups, the American Insurance Association and Complex Insurance Claims Litigation Association, warned in an amicus brief that the district court's ruling flouts the commonly accepted meaning of the term "asbestos" and could unfairly put insurers on the hook for asbestos injury claims that they clearly meant to exclude from coverage.
Moreover, the groups said, a decision by the Third Circuit affirming the lower court could give policyholders a foothold to challenge the enforcement of other unambiguous exclusions for risks tied to harmful substances.
"Asbestos exclusions are not the only exclusions that are tied to a known harmful substance. Such exclusions are designed to broadly bar coverage for all harms associated with that substance," the insurance groups argued. "A decision by this court indicating that this is not the case could have seriously troubling implications for numerous other insurance provisions."
On the other hand, nonprofit policyholder advocacy group United Policyholders said in its own amicus brief that the lower court's decision was consistent with precedent requiring courts to resolve any ambiguities in policy language in favor of the insured.
"It is not for this court now — or for any court — to rewrite these policies to contain an exclusion (i.e., an asbestos-containing products exclusion) which was available to Travelers but which Travelers chose not to incorporate in the policies," United Policyholders contended.
An attorney for GRC and a Travelers spokesman did not immediately respond to requests for comment.
How We Got Here
GRC has been locked in a decadelong battle to obtain coverage from Travelers and its other insurance carriers for tens of thousands of claims brought by plaintiffs who say they were injured after being exposed to the company's asbestos-containing products. The company previously settled with all the other insurers involved in the litigation.
The asbestos exclusion in the Travelers policies eliminates coverage for amounts that GRC becomes legally obligated to pay for injuries or loss arising out of asbestos.
Travelers contended that the exclusion is subject to only one reasonable interpretation — that claims for injuries related to asbestos in any form are excluded from coverage. GRC countered that the term "asbestos" plainly connotes the physical substance in its raw form, which the company did not produce.
During a November 2014 bench trial before U.S. District Judge L. Felipe Restrepo, GRC presented evidence indicating that it was standard practice in the insurance industry between the late 1970s and 1985 to distinguish between claims stemming from direct exposure to asbestos fibers and exposure to asbestos-containing products.
From 1978 to 1985, Travelers itself used a different asbestos exclusion in policies sold to other insureds, GRC asserted. That exclusion barred coverage for bodily injury arising out of asbestos, "whether or not the asbestos is airborne as a fiber or particle, contained in a product, carried on clothing or transmitted in any fashion whatsoever," according to court papers.
In March 2015, Judge Restrepo found that GRC had set forth a reasonable interpretation of the asbestos exclusion, without ruling on which party's interpretation was more reasonable. As such, the judge determined that the exclusion is ambiguous and must be construed in GRC's favor.
After the district judge issued his ruling, GRC and Travelers decided to forgo a trial over damages and stipulated to cap the insurer's potential payout at $21 million. Judge Restrepo tacked on an additional $15.3 million to that sum in September 2015, and Travelers appealed to the Third Circuit the following month.
Travelers' Stance
The insurer contended in briefs filed with the appellate court that Judge Restrepo erred in applying a strict causation requirement between raw mineral asbestos and the injuries alleged in the suits against GRC.
Instead, Travelers said, Third Circuit and Pennsylvania Supreme Court precedent have firmly established that the phrase "arising out of" calls for the looser "but-for" causation standard. Applying that standard to GRC's case, it is impossible to say that the underlying claims did not result from the inhalation of asbestos fibers in the company's products, according to the insurer.
Furthermore, the lower court impermissibly narrowed the "unambiguously broad" term "asbestos" to encompass only the raw, relatively unprocessed form of the mineral, Travelers said.
"The Travelers exclusion precludes coverage for all injuries 'arising out of asbestos,' and does not further limit the term 'asbestos,'" the insurer argued. "It was error for the district court to nonetheless interpret the exclusion to apply only to asbestos fibers released during the process of milling, mining and manufacturing raw mineral asbestos."
GRC's Stance
GRC shot back that its outside evidence of insurance industry customs and practices showed that asbestos exclusions broader than the one included in the Travelers policies existed in the marketplace back in the late 1970s and early 1980s.
According to GRC, if Travelers had intended to exclude coverage for claims related to all risks involving asbestos, including those "arising from asbestos-containing products," the insurer would have included language to that effect in its policies.
"Because, under Pennsylvania law, Travelers was required but has failed to establish that its exclusion was clear, exact and unambiguous for the exclusion to be given effect, this court should affirm the district court's ruling," GRC contended.
Counsel
General Refractories is represented by Michael Conley and Meghan Finnerty of Offit Kurman and Howard J. Bashman of Law Offices of Howard J. Bashman.
Travelers is represented by Samuel Arena Jr., Daniel Fitch and William Mandia of Stradley Ronon Stevens & Young LLP and Theodore Boutrous Jr., Richard Doren, Blaine Evanson and Cameron Kistler of Gibson Dunn.
United Policyholders is represented by John N. Ellison and Lisa A. Szymanski of Reed Smith LLP and in-house counsel Amy Bach.
The insurance industry amici are represented by Laura Foggan of Wiley Rein LLP.
The case is General Refractories Co. v. First State Insurance Co., case number 15-3409, in the U.S. Court of Appeals for the Third Circuit.
--Editing Katherine Rautenberg and Catherine Sum.
negotiator at the Wellington meetings, in
which Locks explained that the terms
“asbestos” and “asbestos-containing
product” had distinct meanings to the parties
involved in asbestos litigation during the
relevant timeframe.
Id. at 654–57.
On the other hand, Travelers contended that the only
reasonable interpretation of the Asbestos Exclusion is that
claims for injuries related to asbestos in any form were
excluded. Travelers asserted that this is the “natural, plain,
and ordinary meaning of the terms, ‘arising out of asbestos.’”
Id. at 652–53. Thus, Travelers asserted that GRC’s losses
associated with the underlying asbestos claims were
precluded by the Asbestos Exclusion. For support, Travelers
presented “GRC’s corporate records, as well [as] its
communications with Travelers and its own insurance
broker,” as evidence of “the parties’ intent to exclude—or
their awareness, belief, or knowledge that the purchased
insurance did exclude—all injuries related to asbestos in any
form.” Id. at 656–57.
---------------------------------------
known as the Wellington Agreement. Gen. Refractories Co.,
94 F. Supp. 3d at 656.
After weighing the evidence and arguments, the
District Court issued a memorandum and order concluding
that the Asbestos Exclusion contained a latent ambiguity
“because the terms [were] reasonably capable of being
understood in more than one sense.” Id. at 660. The District
Court agreed that GRC’s interpretation of “asbestos” as
referring only to the raw mineral asbestos rather than other
finished products containing asbestos was “consistent with
the plain meaning of the written policy,” and therefore
“objectively reasonable,” and that Travelers had not met its
burden of showing that GRC’s interpretation was
unreasonable. Id.
Having found ambiguity, the District Court observed
that GRC’s industry custom and trade usage evidence
supported the assertion that “[d]uring the relevant era,
industry participants used the phrase to denote losses arising
from mining, milling, producing, processing, or
manufacturing the raw mineral,” not from “finished
products.” Id. at 663. The District Court found no evidence
in the record contradicting this interpretation, and further
rejected Travelers’ characterization of its course of
performance evidence. Id. at 663–664. Ultimately, the
District Court concluded that Travelers had failed to “show
not only that its interpretation is reasonable, but also that
GRC’s interpretation is not reasonable.” Id. at 664.
Accordingly, the District Court deemed the Asbestos
Exclusion unenforceable to preclude indemnification to GRC
for its losses in the underlying asbestos-related lawsuits, and
issued a memorandum and order to this effect. The parties
subsequently stipulated that, under the District Court’s
interpretation of the exclusion, Travelers must cover
$21,000,000 of GRC’s losses—the combined limit of the two
excess insurance policies. The District Court accepted this
stipulation, awarded GRC an additional $15,273,705 in
prejudgment interest, and entered final judgment for GRC.
Travelers now appeals the District Court’s interpretation of
the Asbestos Exclusion.
II.
The District Court had diversity jurisdiction over this
matter under 28 U.S.C. § 1332. We have appellate
jurisdiction under 28 U.S.C. § 1291. Pennsylvania contract
law governs. See Erie R.R. Co. v. Tompkins, 304 U.S. 64,
78–80 (1938). In Pennsylvania, “[t]he interpretation of an
insurance contract is a question of law.” Donegal Mut. Ins.
Co. v. Baumhammers, 938 A.2d 286, 290 (Pa. 2007) (quoting
Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial
Union Ins. Co., 908 A.2d 888, 893 (Pa. 2006)). Thus, we
engage in plenary review of the District Court’s
determination. Kroblin Refrigerated Xpress, Inc. v. Pitterich,
805 F.2d 96, 101 (3d Cir. 1986). In the first instance, the
insured bears the burden of demonstrating that its claim falls
within the policy’s affirmative grant of coverage. Koppers
Co. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1446 (3d Cir.
1996); Miller v. Boston Ins. Co., 218 A.2d 275, 277 (Pa.
1966). Where an insurer seeks to disclaim coverage on the
basis of a policy exclusion—as Travelers does here—the
insurer bears the burden of proving the applicability of the
exclusion as an affirmative defense. Madison Constr. Co. v.
Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999).
III.
We now review the District Court’s interpretation of
the Asbestos Exclusion. In doing so, we must “ascertain the
intent of the parties as manifested by the language of the
written instrument.” Id. (quoting Gene & Harvey Builders v.
Pa. Mfrs. Ass’n, 517 A.2d 910, 913 (Pa. 1986)). Thus, the
language of the contract must be the “polestar” of our inquiry.
Id. When the language is clear and unambiguous, we give
effect to that language. Id. But when the language is
ambiguous, the provision should “be construed in favor of the
insured and against the insurer.” Id.
A.
We begin by deciding whether the language of the
Asbestos Exclusion is ambiguous. Pac. Emp’rs Ins. Co. v.
Glob. Reinsurance Corp. of Am., 693 F.3d 417, 426 (3d Cir.
2012) (citing Hutchison v. Sunbeam Coal Corp., 519 A.2d
385, 390 (Pa. 1986)). Ambiguity exists where the language
of the contract is “reasonably susceptible of different
constructions and capable of being understood in more than
one sense.” Madison Constr. Co., 735 A.2d at 106 (quoting
Hutchison, 735 A.2d at 390). After a bench trial, the District
Court found the language of the Asbestos Exclusion to
contain latent ambiguity. We disagree with the District
Court’s penultimate conclusion because the Court’s analysis
overlooked the phrase “arising out of,” which has an
established, unambiguous meaning under Pennsylvania
insurance law.
The District Court properly began its analysis by
determining whether the text of the Asbestos Exclusion,
which precludes indemnification for “EXCESS NET LOSS
arising out of asbestos,” was ambiguous. GRC had asserted
that “asbestos” refers only to mineral asbestos in its raw,
unprocessed form. Travelers, on the other hand, maintained
that “asbestos” is a purposefully broad term which
encompasses both asbestos in its raw form and products
which contain asbestos—such as those manufactured and sold
by GRC.
Driven by the parties’ arguments, the District Court
largely focused on whether the word “asbestos” was
reasonably susceptible of differing interpretations. After
examining various dictionary definitions and grammatical
uses of “asbestos,” it concluded that the term’s common
usage “reveal[ed] a latent ambiguity as to what it denotes.”
Gen. Refractories Co., 94 F. Supp. 3d at 658–59. Without
deciding which of the parties’ views was more reasonable, the
District Court found that both were consistent with the plain
meaning of the language and objectively reasonable. Because
“asbestos” was “reasonably capable of being understood in
more than one sense,” the District Court held that the
exclusion was ambiguous. Id. at 660.
While the District Court engaged in a thorough
analysis of the breadth of the term “asbestos,” its focus was
misplaced. The rest of the language at issue—“arising out
of”—has an unambiguous legal meaning that renders any
uncertainty concerning the meaning of the word “asbestos”
immaterial. Pennsylvania courts have long construed the
phrase “arising out of”—when used in the context of an
insurance exclusion—to “[m]ean[] causally connected with,
not proximately caused by.” McCabe v. Old Republic Ins.
Co., 228 A.2d 901, 903 (1967); Forum Ins. Co. v. Allied Sec.,
Inc., 866 F.2d 80, 82 (3d Cir. 1989). A policy provision
containing the phrase “arising out of” is satisfied by “‘[b]ut
for’ causation, i.e., a cause and result relationship.” Mfrs.
Cas. Ins. Co. v. Goodville Mut. Cas. Co., 170 A.2d 571, 573
(Pa. 1961).
Recognizing that Pennsylvania courts consistently
interpret “arising out of” to require “but for” causation, we
have previously observed that this formulation is “wellsettled,”
having been applied in numerous insurance law
contexts. Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d
388, 391–92 (3d Cir. 2012). This understanding of the phrase
is entrenched in Pennsylvania jurisprudence. See, e.g., Forum
Ins. Co., 866 F.2d at 82 (holding that “arising out of” requires
“but for” causation in the context of an exclusion for injury or
death arising in the course of employment); Smith v. United
Servs. Auto. Ass’n, 572 A.2d 785, 787 (Pa. Super. Ct. 1990)
(requiring “but for” causation in interpreting an uninsured
motorist provision); Erie Ins. Exch. v. Eisenhuth, 451 A.2d
1024, 1025 (Pa. Super. Ct. 1982) (no-fault automobile
insurance policy); Tuscarora Wayne Mut. Ins. Co. v.
Kadlubosky, 889 A.2d 557, 563 (Pa. Super. Ct. 2005)
(commercial general liability insurance policy); Roman
Mosaic & Tile Co. v. Aetna Cas. & Sur. Co., 704 A.2d 665,
669 (Pa. Super. Ct. 1997) (same). Not only have courts
applying Pennsylvania law interpreted “arising out of” to
require “but for” causation, they have also held that the
phrase is unambiguous. See Madison Constr. Co., 735 A.2d
at 110 (finding that “arising out of” language was not
ambiguous); McCabe, 228 A.2d at 903 (same); see also
Forum Ins. Co., 866 F.2d at 82 (relying on McCabe in
rejecting an argument that a policy exclusion containing the
phrase “arising out of . . . his employment” was ambiguous).
With this consistent interpretation in mind, we find
that the plain language of the Asbestos Exclusion, disclaiming
“EXCESS NET LOSS arising out of asbestos,” is
unambiguous on its face and is not “reasonably susceptible of
different constructions.” Madison Constr. Co., 735 A.2d at
106. The provision plainly encompasses losses that would
not have occurred but for asbestos or which are causally
connected to asbestos. Pennsylvania law permits no other
interpretation.
B.
Although we find the language of the policy to be clear
on its face, our inquiry does not immediately end when the
plain meaning of the provision is unambiguous. Evidence of
industry custom or trade usage “is always relevant and
admissible in construing commercial contracts,” and does not
depend on the existence of ambiguity in the contractual
language. Sunbeam Corp. v. Liberty Mut. Ins. Co., 781 A.2d
1189, 1193 (Pa. 2001). Where it can be shown that words
have a special meaning or usage in a particular industry,
“members of that industry are presumed to use the words in
that special way, whatever the words mean in common usage
and regardless of whether there appears to be any ambiguity
in the words.” Id.
In the course of arguing that “asbestos” had a separate
and distinct meaning from “asbestos-containing products,”
GRC presented industry custom and trade usage evidence
which was ultimately credited by the District Court as
supporting GRC’s narrow interpretation of the exclusion.
Gen. Refractories Co., 94 F. Supp. 3d at 654–57. While
GRC’s evidence may bear on the ambiguity of the word
“asbestos,” it does not cloud the meaning of the phrase
“arising out of.”4 GRC even agrees that “arising out of”
requires “but for” causation. In its brief, GRC explains that
its proffered “interpretation of the Asbestos Exclusion itself
utilizes a ‘but for’ causation standard.” (Appellee Br. at 32.)
GRC clarifies that its argument has been that the Asbestos
Exclusion “excludes losses related to (or ‘but for’) the
mineral asbestos, as opposed to losses related to or ‘but for’
GRC’s asbestos-containing products.” (Appellee Br. at 32.)
This argument by GRC incorrectly presumes that the
meaning attached to “asbestos” would have a material effect
on the outcome of this coverage dispute. But assigning “but
for” causation to the phrase “arising out of” carries the
important consequence of negating any material ambiguity
that the term “asbestos” may introduce into the clause. Even
the narrowest interpretation of “asbestos”—as referring only
to raw mineral asbestos—leads to the conclusion that
coverage for losses associated with the claims against GRC is
disclaimed by the Asbestos Exclusion. While we express no
opinion about whether the term “asbestos” is ambiguous here,
if we were to credit GRC’s theory that “asbestos” only
referred to mineral asbestos in its raw, unprocessed form—as
the District Court did—the asbestos claims against GRC
would still fall within the Asbestos Exclusion.
The application of “but for” causation compels the
conclusion that GRC’s losses are excluded under the policy as
a matter of law. “But for” causation “requires the plaintiff to
show ‘that the harm would not have occurred’ in the absence
of—that is, but for—the defendant’s conduct.” Univ. of Tex.
Sw. Med. Ctr. v. Nassar, 133 S. Ct. 2517, 2525 (2013) (citing
Restatement (First) of Torts § 431 cmt. a (1934)); see also
Robertson v. Allied Signal, Inc., 914 F.2d 360, 366 (3d Cir.
1990) (noting that “[c]ause in fact or ‘but for’ causation
requires proof that the harmful result would not have come
about but for the conduct of the defendant”); First v. Zem
Zem Temple, 686 A.2d 18, 21 n.2 (Pa. Super. Ct. 1996)
(quoting E.J. Stewart, Inc. v. Aitken Prods., Inc., 607 F. Supp.
883, 889 (E.D. Pa. 1985)) (“Cause in fact or ‘but for’
causation provides that if the harmful result would not have
come about but for the negligent conduct then there is a direct
causal connection between the negligence and the injury.”).
“But for” causation “is a de minimis standard of causation,
under which even the most remote and insignificant force
may be considered the cause of an occurrence.” Takach v.
B.M. Root Co., 420 A.2d 1084, 1086 (Pa. Super. Ct. 1980).
The claims that underlie this litigation stem from
exposure to the asbestos incorporated into the finished
products that GRC manufactured or sold. GRC “only paid
settlements and incurred damages when the underlying
claimants alleged exposure to GRC’s asbestos-containing
products.” (Appellee Br. at 37; J.A. 36.) For each such
settlement, a claimant was required to produce “sworn
evidence of exposure to a GRC asbestos-containing product”
and “medical verification of an asbestos-related disease.”
(Appellee Br. at 5; J.A. 36.) GRC’s own expert, Gene Locks,
testified that asbestos exposure is a necessary precursor to
asbestos-related disease. (J.A. 316:18–21.) Locks further
agreed that “[w]hatever disease [the asbestos plaintiffs] had
would have been caused by whatever asbestos fiber they were
exposed to, whether it came from the raw asbestos . . . or it
was in the end product.” (J.A. 302:7–20.) This is true both of
plaintiffs working in a profession that required exposure to
raw asbestos—such as a miner or miller—and those who
were exposed to asbestos-containing products. (Id.) Locks
also testified that the fiber released from a product containing
asbestos is “[t]he same fiber that’s ultimately milled.” (J.A.
303:6–9; see also id. at 302:21–303:5; 304:3–5; 304:18–20;
317:12–22 (stating that asbestos is contained within the end
product).)
It is clear that there is an appropriate causal connection
between asbestos and the losses GRC suffered in asbestos
litigation, and applying GRC’s narrow interpretation of
“asbestos” as referring only to raw mineral asbestos does not
affect the outcome. Even setting aside Lock’s testimony,
there is no dispute that some of GRC’s products contain
asbestos, that the plaintiffs in the underlying asbestos lawsuits
were exposed to GRC’s asbestos-containing products, and
that these plaintiffs allege injuries from asbestos-related
diseases. These facts alone compel the conclusion that
asbestos in its raw mineral form is causally connected to the
losses GRC has incurred as a result of these lawsuits. But for
the inclusion of asbestos in GRC’s products—which was
originally mined or milled as a raw mineral—the plaintiffs
exposed to those products would not have contracted
asbestos-related diseases. In order to find that losses relating
to exposure to asbestos-containing products are not causally
connected to raw asbestos, we would need to assign a
different standard of causation to the phrase “arising out of,”
which is inconsistent with the plain meaning of the language
in this Pennsylvania insurance exclusion.
C.
GRC finally contends that Travelers waived the
causation argument by not raising it before the District Court.
Appellate courts will generally refuse to consider issues that
the parties did not raise below. Freeman v. Pittsburgh Glass
Works, LLC, 709 F.3d 240, 249 (3d Cir. 2013) (citing
Singleton v. Wulff, 428 U.S. 106, 120 (1976)). To preserve an
argument, a party must “unequivocally put its position before
the trial court at a point and in a manner that permits the court
to consider its merits.” Shell Petroleum, Inc. v. United States,
182 F.3d 212, 218 (3d Cir. 1999). But while parties may not
raise new arguments, they may “place greater emphasis” on
an argument or “more fully explain an argument on appeal.”
United States v. Joseph, 730 F.3d 336, 341 (3d Cir. 2013).
The parties may even “reframe” their argument “within the
bounds of reason.” Id.
Travelers has argued throughout this litigation that
GRC’s losses associated with asbestos claims “arise out of
asbestos” because the claims were caused by exposure to the
asbestos in GRC’s products. (See, e.g., Travelers’ Post-Trial
Br. at 8, E.D. Pa. Docket No. 631; Travelers’ Proposed
Findings of Fact at 9, E.D. Pa. Docket No. 630; Travelers’
Mot. for Summ. J. at 10–11, E.D. Pa. Docket No. 338;
Travelers’ Reply Br. on Mot. for Summ. J. at 2, E.D. Pa.
Docket No. 397.) The causal connection between the claims
for which GRC seeks indemnification and asbestos in
whatever form has been an integral part of Travelers’
argument as to why the Asbestos Exclusion is applicable.
While Travelers has focused on this argument with greater
specificity on appeal, the causation analysis required by the
Asbestos Exclusion has always been at issue. GRC is correct
that Travelers had never before specified that “arising out of”
is legally synonymous with “but for” causation, but GRC also
acknowledged that this theory is the “latest iteration of
[Travelers’] argument that the claims are excluded by the
‘plain meaning’ of the Asbestos Exclusion.” (Appellee Br. at
20.) In GRC’s own words, Travelers has consistently
“maintained that the ‘plain-meaning’ of the exclusion has
only one reasonable interpretation to exclude claims relating
to asbestos in any form.” (Appellee Br. at 22.) Travelers’
plain-meaning theory has always hinged on whether the
underlying lawsuits were caused by asbestos.
But even if Travelers’ argument had not been placed
before the District Court, we would nonetheless consider it in
reaching our conclusion. In “exceptional circumstances,” the
“public interest can require that the issue be heard.” Walton
v. Mental Health Ass'n of Se. Pa., 168 F.3d 661, 671 (3d Cir.
1999). This is just such an occasion. The language found
within this exclusion is prevalent in insurance contracts, and
our interpretation may affect a wide range of insurers and
insureds beyond the immediate parties to the suit. See
Selected Risks Ins. Co. v. Bruno, 718 F.2d 67, 69–70 (3d Cir.
1983) (holding that exceptional circumstances were present
where proper application of Pennsylvania public policies with
respect to insurance contracts would affect “every inhabitant
. . . and the insurance companies that serve them”).
The language in Travelers’ policies is far from unique;
it is found in numerous Pennsylvania insurance policies that
have been issued in the fifty years since the decision in
Goodville established the meaning of “arising out of.” Were
we to ignore the consistent and explicit meaning assigned to
the phrase in Pennsylvania insurance exclusions, we would
cast doubt on a tradition of interpretation that many parties
have relied upon in defining their contractual obligations.
Parties to an insurance contract must be able to place faith in
consistent interpretations of common language when drafting
their policies if they are to properly allocate the risks
involved. While future parties may present evidence
demonstrating a meaning of “arising out of” that is unique to
their contract, the phrase is not ambiguous on its face when
used in a Pennsylvania insurance contract.
IV.
For the foregoing reasons, we reverse the District
Court’s judgment and remand with instructions to enter
judgment in favor of Travelers.
NOTES:
4 GRC explains that it “has offered custom and trade
usage evidence to support its assertion that ‘asbestos’ and
‘asbestos-containing products’ were distinct terms and that
‘asbestos’ was not used to unambiguously subsume ‘asbestos-containing
products.’” (Appellee Br. at 43 n.5, 44–45.) No
mention is made of how the evidence bears on the meaning of
“arising out of.”
=====================
3rd Circ. Set To Decide If Asbestos Exclusion Is Enforceable
Law360, Los Angeles (September 8, 2016, 3:32 PM EDT) -- The Third Circuit is set to hear oral arguments Friday on whether a common exclusion for asbestos-related claims in a Travelers insurance policy is ambiguous and therefore unenforceable in a case that could have a broad impact on insurers' liabilities for litigation over the toxic mineral. Here, Law360 reviews the history of the case in advance of the hearing.What's at Stake
The Third Circuit has been asked to review a Pennsylvania district court's decision that Travelers Surety & Casualty Co. cannot enforce a policy exclusion for claims "arising out of asbestos" to deny coverage to policyholder General Refractories Co. for scores of lawsuits brought by plaintiffs who allege they were injured by exposure to asbestos contained in the company's fire-resistant industrial products.
The lower court held that the exclusion was ambiguous, and therefore unenforceable, because GRC had reasonably argued that the language of the exclusion applies only to asbestos in its raw form, not products incorporating the mineral.
A pair of insurance industry groups, the American Insurance Association and Complex Insurance Claims Litigation Association, warned in an amicus brief that the district court's ruling flouts the commonly accepted meaning of the term "asbestos" and could unfairly put insurers on the hook for asbestos injury claims that they clearly meant to exclude from coverage.
Moreover, the groups said, a decision by the Third Circuit affirming the lower court could give policyholders a foothold to challenge the enforcement of other unambiguous exclusions for risks tied to harmful substances.
"Asbestos exclusions are not the only exclusions that are tied to a known harmful substance. Such exclusions are designed to broadly bar coverage for all harms associated with that substance," the insurance groups argued. "A decision by this court indicating that this is not the case could have seriously troubling implications for numerous other insurance provisions."
On the other hand, nonprofit policyholder advocacy group United Policyholders said in its own amicus brief that the lower court's decision was consistent with precedent requiring courts to resolve any ambiguities in policy language in favor of the insured.
"It is not for this court now — or for any court — to rewrite these policies to contain an exclusion (i.e., an asbestos-containing products exclusion) which was available to Travelers but which Travelers chose not to incorporate in the policies," United Policyholders contended.
An attorney for GRC and a Travelers spokesman did not immediately respond to requests for comment.
How We Got Here
GRC has been locked in a decadelong battle to obtain coverage from Travelers and its other insurance carriers for tens of thousands of claims brought by plaintiffs who say they were injured after being exposed to the company's asbestos-containing products. The company previously settled with all the other insurers involved in the litigation.
The asbestos exclusion in the Travelers policies eliminates coverage for amounts that GRC becomes legally obligated to pay for injuries or loss arising out of asbestos.
Travelers contended that the exclusion is subject to only one reasonable interpretation — that claims for injuries related to asbestos in any form are excluded from coverage. GRC countered that the term "asbestos" plainly connotes the physical substance in its raw form, which the company did not produce.
During a November 2014 bench trial before U.S. District Judge L. Felipe Restrepo, GRC presented evidence indicating that it was standard practice in the insurance industry between the late 1970s and 1985 to distinguish between claims stemming from direct exposure to asbestos fibers and exposure to asbestos-containing products.
From 1978 to 1985, Travelers itself used a different asbestos exclusion in policies sold to other insureds, GRC asserted. That exclusion barred coverage for bodily injury arising out of asbestos, "whether or not the asbestos is airborne as a fiber or particle, contained in a product, carried on clothing or transmitted in any fashion whatsoever," according to court papers.
In March 2015, Judge Restrepo found that GRC had set forth a reasonable interpretation of the asbestos exclusion, without ruling on which party's interpretation was more reasonable. As such, the judge determined that the exclusion is ambiguous and must be construed in GRC's favor.
After the district judge issued his ruling, GRC and Travelers decided to forgo a trial over damages and stipulated to cap the insurer's potential payout at $21 million. Judge Restrepo tacked on an additional $15.3 million to that sum in September 2015, and Travelers appealed to the Third Circuit the following month.
Travelers' Stance
The insurer contended in briefs filed with the appellate court that Judge Restrepo erred in applying a strict causation requirement between raw mineral asbestos and the injuries alleged in the suits against GRC.
Instead, Travelers said, Third Circuit and Pennsylvania Supreme Court precedent have firmly established that the phrase "arising out of" calls for the looser "but-for" causation standard. Applying that standard to GRC's case, it is impossible to say that the underlying claims did not result from the inhalation of asbestos fibers in the company's products, according to the insurer.
Furthermore, the lower court impermissibly narrowed the "unambiguously broad" term "asbestos" to encompass only the raw, relatively unprocessed form of the mineral, Travelers said.
"The Travelers exclusion precludes coverage for all injuries 'arising out of asbestos,' and does not further limit the term 'asbestos,'" the insurer argued. "It was error for the district court to nonetheless interpret the exclusion to apply only to asbestos fibers released during the process of milling, mining and manufacturing raw mineral asbestos."
GRC's Stance
GRC shot back that its outside evidence of insurance industry customs and practices showed that asbestos exclusions broader than the one included in the Travelers policies existed in the marketplace back in the late 1970s and early 1980s.
According to GRC, if Travelers had intended to exclude coverage for claims related to all risks involving asbestos, including those "arising from asbestos-containing products," the insurer would have included language to that effect in its policies.
"Because, under Pennsylvania law, Travelers was required but has failed to establish that its exclusion was clear, exact and unambiguous for the exclusion to be given effect, this court should affirm the district court's ruling," GRC contended.
Counsel
General Refractories is represented by Michael Conley and Meghan Finnerty of Offit Kurman and Howard J. Bashman of Law Offices of Howard J. Bashman.
Travelers is represented by Samuel Arena Jr., Daniel Fitch and William Mandia of Stradley Ronon Stevens & Young LLP and Theodore Boutrous Jr., Richard Doren, Blaine Evanson and Cameron Kistler of Gibson Dunn.
United Policyholders is represented by John N. Ellison and Lisa A. Szymanski of Reed Smith LLP and in-house counsel Amy Bach.
The insurance industry amici are represented by Laura Foggan of Wiley Rein LLP.
The case is General Refractories Co. v. First State Insurance Co., case number 15-3409, in the U.S. Court of Appeals for the Third Circuit.
--Editing Katherine Rautenberg and Catherine Sum.