Even the eight corner rule cannot stretch a policy to provide coverage
The asbestos claimants ran out of viable insurance companies
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Brilliant National Services, Inc. (“Brilliant”) appealed from a summary judgment entered in favor of the defendant, Lexington Insurance Company (“Lexington”), which dismissed all of Brilliant’s claims against Lexington with prejudice and declared Lexington to have no duty to defend or indemnify Coastal Chemical Company, LLC (“CCC, LLC”).
IN Brilliant National Services, Inc. v. The Travelers Indemnity Company and Lexington Insurance Companyno. 2021 CA 1471, Court of Appeals of Louisiana, First Circuit (September 7, 2022) resolved the Louisiana Court of Appeals coverage dispute.
Brilliant sued Lexington (among other defendants) seeking relief for the costs of defending CCC, LLC in a number of asbestos exposure personal injury lawsuits filed in various state courts in Louisiana, beginning in 2011. Brilliant alleged that Lexington issued general liability insurance to its insureds for the period August 20, 1986 through August 20, 1987 (“Lexington policy”).
Brilliant alleged that certain plaintiffs in the asbestos lawsuits claimed that CCC, LLC was the successor in title to an insured entity under the Lexington policy that was alleged to have manufactured, distributed, marketed or sold products containing asbestos. Brilliant argued that if CCC, LLC was found to be the successor in title to an insured entity under that Lexington policy, then the insured entity’s rights under the policy were transferred to CCC, LLC by operation of law. Brilliant further argued that regardless of whether CCC, LLC was the successor in title to an entity insured under the policy, Lexington owed CCC, LLC a duty to defend based on the allegations raised in the asbestos lawsuits and the terms of the Lexington policy.
Brilliant sought declaratory judgment that Lexington was obligated to defend CCC, LLC in the asbestos lawsuits. Brilliant also sought judgment in its favor and against Lexington for 1/7 of all attorneys’ fees and costs paid by Brilliant in defense of CCC, LLC in the asbestos lawsuits, together with legal interest, costs and any other relief Brilliant may receive. entitled.
Lexington answered, raising several affirmative defenses and moving for summary judgment, seeking judgment in its favor declaring that CCC, LLC has no rights under Lexington’s policy; disapprove the claims asserted by Brilliant; and granting judgment in favor of Lexington on its motion against Brilliant and CCC, LLC. Brilliant and CCC, LLC opposed the motion. The district court granted Lexington’s motion for summary judgment; dismissed all of Brilliant’s claims against Lexington with prejudice; and declared that Lexington has no obligation to defend or indemnify CCC, LLC.
SUMMARY JUDGMENT ON INSURANCE COVERAGE
Summary judgment declaring a lack of coverage under an insurance policy may not be granted unless there is no reasonable interpretation under which coverage may be granted when applied to the undisputed material facts shown by the evidence supporting the motion. If the facts are undisputed and the issue is a purely legal one, summary judgment is appropriate.
An insurer’s obligation to defend its insured arises only pursuant to contract. Generally speaking, the insurer’s duty to defend against its insured is broader than its liability for damage claims. An insurer’s duty to defend its insured is determined by the allegations in the plaintiff’s petition, with the insurer required to provide a defense unless it appears from the petition that the policy unequivocally excludes coverage. An insurer’s duty to defend suits on behalf of an insured constitutes a separate and distinct inquiry from the insurer’s duty to indemnify a covered claim after judgment against the insured in the underlying liability case.
In moving for summary judgment, Lexington argued that it had no duty to defend or indemnify CCC, LLC, nor its subrogate, Brilliant, because CCC, LLC is not and has never been one of Lexington’s “insureds.”
The Lexington Policy defined “named insured” as: “named insured” means the person or organization named in paragraph 1 of the declarations of this policy[.]” Police list the “named insureds” as Coastal, Inc. and Coastal Chemical Co.
Coastal, Inc. and Coastal Chemical Co. were “insured” under the Lexington policy. The parties do not dispute that the Lexington Policy expired prior to the formation of CCC, LLC’s predecessor, the other Coastal Chemical Co., Inc., which was incorporated on December 8, 1987. Because neither CCC, LLC nor its predecessor was a party to the Lexington- policy, CCC, LLC cannot be a “name insured” under the Lexington policy. In addition, neither CCC, LLC nor its predecessors fall within the definition of “insured persons” under the Lexington Policy.
Liability of successors
Lexington argued that CCC, LLC could only be entitled to defense and indemnification under the Lexington policy if CCC, LLC or its predecessor acquired the named insureds-Coastal, Inc. or Coastal Chemical Co.-rights and interests in the Lexington policy. Lexington explained that its policy has never been transferred to CCC, LLC or its predecessors. In 1987, Coastal Chemical Co., Inc. acquired the chemical distribution business of Lexington’s insured, Coastal, Inc. Brilliant and CCC, LLC identified the 1987 Assignment Agreement as the only documents by which Lexington’s policy could have been conveyed, sold, or otherwise transferred from Lexington’s insured to Coastal Chemical Co., Inc. The documents of the 1987 asset transfer agreement show a list of transferred assets and Lexington’s policy is not listed or referred to in the asset transfer agreement.
Lexington contends that because its policy was not transferred from its insured to Coastal Chemical Co., Inc. in the 1987 assignment agreement, CCC, LLC never acquired the policy or any rights under it from its predecessor. Accordingly, Lexington asserted that it has no duty to defend or indemnify CCC, LLC or its subrogate, Brilliant.
The most important thing is whether the successor is actually a “continuation” of the predecessor. The threshold requirement to trigger an assessment of whether successor liability applies under the “continuation” exception is that one company must have purchased all or substantially all of the assets of another. In the instant case, CCC, LLC concedes that Coastal Chemical Co., Inc. did not purchase all of the assets of Coastal, Inc., only all of the assets “necessary to operate a chemical distribution business.” There is no dispute that Coastal, Inc. retained assets and remained in business after the 1987 asset transfer.
Since the 1987 Asset Transfer Agreement, Lexington’s policy has been excluded from the list of assets acquired by CCC, LLC’s predecessor from Lexington’s insureds. To conclude that CCC, LLC acquired the Lexington policy, the appellate court must disregard the parties’ contract.
The Eight corner rule
Lexington argued that the appellants could not point to any factual allegations made by the plaintiffs in the underlying asbestos lawsuits that, if true, would turn CCC, LLC into an “insured person” under Lexington’s policy.
Cases applying the “eight participants” rule hold that an insurer is required to defend if, assuming the factual allegations are true, there would be both (1) coverage under the policy and (2) liability to the plaintiff.
The allegations in the petition are liberally construed in determining whether they contain grounds that bring the claims within the purview of the insurer’s duty to defend. An insurer’s duty to defend arises whenever the pleadings against the insured reveal even a possibility of liability under the policy. Even if the allegations in the petition may ultimately prove to be false or untrue, the insurer would still be required to provide a defense.
Although the asbestos plaintiffs allege that CCC, LLC “negligently and defectively designed, manufactured, marketed, distributed, delivered, sold and used” the “asbestos products,” these allegations do not trigger coverage under the four prongs of the Lexington policy. The relevant Lexington policy provision clearly defines “insured” and includes only specific individuals. None of the asbestos plaintiffs’ allegations, even if proven, would transform CCC, LLC into an individual defined as an “insured person” under the Lexington policy.i.e. an executive officer, director or stockholder of the “named insured” Coastal, Inc. or Coastal Chemical Co.
The Court of Appeal upheld the district court’s judgment.
Asbestos claims have destroyed or bankrupted several insurance companies. As a result, the insurers that remain viable, like Lexington in this case, are targets for defendants seeking defense and indemnification for asbestos exposure injury claims. In this case, the Louisiana Court of Appeals could find no coverage because there was no way they could stretch the language of the policy to make the plaintiffs fit within the definition of “insured” in the Lexington policy. No stranger to liability insurance can be allowed defense or indemnification.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and email@example.com.
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