If your company faces liability arising out of exposure to asbestos-containing products or materials, it may pay—a lot—to take a second look at your liability insurance policies containing asbestos exclusions. They may not exclude your loss after all. On March 3, 2015, a Pennsylvania federal district court ruled in General Refractories Co. v. First State Insurance Co. that an asbestos exclusion in two general liability policies is ambiguous, and does not bar coverage for a multitude of asbestos-related lawsuits against a manufacturer and supplier of asbestos-containing products.
Since approximately 1978, General Refractories Company (GRC), a manufacturer and supplier of heat-resistant products that contained asbestos, has been a defendant in asbestos-related lawsuits around the United States. GRC sought coverage for the suits under general liability policies issued by several insurers. At issue in the court’s March 3, 2015 decision were two policies issued in 1985 by Aetna Casualty & Surety Company (now Travelers Casualty & Surety Company).
The policy exclusion at issue barred coverage for loss “arising out of asbestos.” The issue before the court was, what does “arising out of asbestos” mean? GRC argued that the exclusion referred to asbestos in its pure mineral form, in contrast to asbestos contained in products such as those GRC sold. On the other hand, Travelers argued that the exclusion should be read broadly to exclude asbestos-related claims, period, regardless of whether the claims are based on exposure to asbestos as a raw mineral or asbestos-containing products.
The court, applying Pennsylvania law, ruled that the exclusion is ambiguous and thus construed it against Travelers, the drafter of the exclusion, and in favor of coverage. The court noted that dictionaries define “asbestos” in its mineral form. In addition, the court was persuaded by evidence that other insurers from the late 1970s to 1985 used exclusions that distinguished between asbestos and asbestos-containing products or materials. Indeed, at that time Travelers itself was issuing policies to other policyholders containing asbestos exclusions that expressly mentioned “asbestos . . . contained in a product.” Finally, the court was persuaded by other extrinsic evidence that, during the same time period, the insurance industry used the terms “asbestos” and “asbestos-containing products” with distinct, specialized meanings. The court observed: “Travelers chose not to define ‘asbestos’ in the policies sold to GRC. Also, more precise, broader exclusionary language could have been but was not used. On these facts, it is fair to interpret ‘asbestos’ in favor of coverage for the policyholder, GRC.”
Companies with liabilities relating to asbestos-containing products should review their liability policies carefully to determine how their specific asbestos exclusions are worded. If the language is broad or vague, as it was in General Refractories, you may really have coverage where you believed there was none.