JACOBS, Circuit Judge:
The Trustee of a shipping line in bankruptcy, Prudential Lines, Inc., sued Prudential's insurer, American Steamship Owners Mutual Protection and Indemnity Association ("American Club"), seeking declaratory relief clarifying American Club's indemnity obligations for asbestos-related bodily injury claims asserted against Prudential; the asbestosis claimants (the "Claimants") intervened. The issues contested on this appeal arise under the pay first provision; the deductible provision; and the clauses governing indemnity and other insurance.
As to each issue, we affirm the judgment of the district court.
BACKGROUND
American Club is a nonprofit mutual insurance association of shipowners that writes protection and indemnity ("P & I") insurance for its shipowner members. Prudential was a member of American Club and a policy-holder from 1940 to 1970 and from 1975 to 1986. In early 1986, Prudential filed a bankruptcy petition under Chapter 11.
Over the past 15 years, approximately 5,000 Claimants have alleged that they suffered asbestos-related bodily injuries by exposure to asbestos while working aboard Prudential's ships, and have sought damages from Prudential for negligence under the Jones Act, 46 U.S.C. § 688 et seq., and for unseaworthiness under the general maritime law.
Each P & I contract is written for a one-year policy period, and provides in the indemnity clause (in pertinent part) that American Club will
(emphasis added). The import of the emphasized wording is that Prudential must first pay any claims or judgments against it before obtaining indemnification from American Club. The lack of sufficient funds on hand at the time of Prudential's bankruptcy made outright payment of the claims impossible, so
The Second Amended Joint Plan of Reorganization (the "Plan"), confirmed in 1990, creates a Prudential Disbursement Trust to resolve asbestos-related claims and to enforce the trust's interests against Prudential's insurers. Section 4.05.07 of the Plan sets aside $300,000 to be used by the Trustee to engage in certain loan arrangements for the replenishment of deductibles:
(emphasis added).
In December 1990, the Prudential Trustee commenced this suit against American Club, seeking a declaration of Prudential's rights under the American Club policies; the Claimants intervened. The bankruptcy court determined that the action was a core proceeding. Prudential I, 148 B.R. at 735. In December 1992, in response to cross-motions for summary judgment, the bankruptcy court decided the deductible and allocation issues. American Club appealed those decisions to the district court.
In March 1993, the Prudential Trustee and the Claimants agreed inter se to a Stipulation and Settlement Agreement determining Prudential's liability to the Claimants and authorizing an arrangement for recycling Prudential's $300,000 cash fund as required to satisfy the claims. Under this arrangement, the Trustee would pay Claimant A in cash from the $300,000 set aside under the Plan, and Claimant A immediately would loan the funds back to the bankrupt estate via a non-recourse loan. The replenished fund would then be used to compensate Claimant B, and so on.
The bankruptcy court "so ordered" the Stipulation and Settlement Agreement on March 9, 1993, and the Trustee recycled the $300,000 over and over until the Trustee owed $13 million to the Claimants on non-recourse loans. On August 4, 1993, the bankruptcy court ordered American Club to indemnify Prudential for the $13 million. The wheels continued turning, and on September 27, 1993, the bankruptcy court entered a partial judgment requiring that American Club indemnify Prudential for $66.16 million in such claims. American Club appealed those orders. (The bankruptcy
On July 29, 1994, the district court (i) reversed the bankruptcy court, holding that the recycling did not satisfy the pay first provision of American Club's policy; (ii) reversed the bankruptcy court's determination on the deductible issue, holding that the term "occurrence," as used in relation to the policy deductible, was ambiguous, and remanding to the bankruptcy court to determine whether extrinsic evidence of practical construction supplied meaning to that term; and (iii) affirmed the bankruptcy court on the allocation issue. American Club then appealed the deductible and allocation issues to this Court, claiming that these issues were ripe for appeal. In addition, the Claimants moved for an interlocutory appeal of the pay first issue pursuant to 28 U.S.C. § 1292(b).
On December 6, 1994 — before the appeal was heard in this Court — the bankruptcy court issued an order vacating the Stipulation and Settlement Agreement in light of the district court's rejection of the recycling arrangement.
On June 26, 1995, we dismissed American Club's appeal, and denied the Claimants' motion for interlocutory appeal, finding that: (i) the appeals on the deductible and allocation issues were not ripe because they did not amount to final orders or judgments in light of the district court's remand of the deductible issue; and (ii) the appeal of the pay first issue, although certified by the district court, was better heard at the completion of the bankruptcy proceedings. See In re Prudential Lines, Inc., 59 F.3d 327, 332 (2d Cir. 1995).
Pursuant to the terms of the remand, the bankruptcy court conducted an evidentiary hearing on the parties' practical construction (if any) of the deductible provision. On November 5, 1996, the bankruptcy court found that American Club had failed to prove that Prudential acquiesced to American Club's practice of applying a single deductible per asbestosis claim per policy. In June 1997, the district court concluded that this finding was clearly erroneous, and reversed.
DISCUSSION
The Claimants appeal the district court's ruling on the pay first and deductible issues; American Club cross-appeals the district court's ruling on the allocation issue.
There are two threshold issues.
1. American Club argues that: (i) the Claimants failed to appeal the bankruptcy court's December 6, 1994 order vacating the 1993 Stipulation and Settlement Agreement (which created the recycling arrangement); (ii) this order vacated the Stipulation and Settlement Agreement for reasons other than the district court's ruling on the recycling; and (iii) therefore there is no viable recycling arrangement that could be implemented even if we were to reverse.
A declaratory judgment action presents an actual controversy if "the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941). Where the contingent event upon which the controversy rests is unlikely to occur, the controversy lacks "sufficient immediacy and reality" to warrant declaratory relief. See, e.g., Certain Underwriters at Lloyd's v. St. Joe Minerals Corp., 90 F.3d 671, 675 (2d Cir.1996) (finding declaratory judgment action relating to excess insurance coverage not ripe when, inter alia, there was no practical likelihood that liability would reach excess insurance layers).
We think that the pay first issue continues to present a controversy that is immediate and real. The second premise of American Club's argument is wrong; the bankruptcy court vacated the Stipulation and Settlement Agreement solely because of the district court's decision on the pay first issue, not for other reasons, and therefore a decision favorable to the Claimants on the pay first issue could realistically lead to reinstatement of
2. The conclusion we reach infra on the pay first issue means that the recycling arrangement created by the Stipulation and Settlement Agreement cannot be used to trigger American Club's indemnification obligations. We must therefore consider whether this opinion need decide the remaining issues concerning the deductible and the allocation of damages among triggered policies. The answer turns on whether a payment mechanism other than the recycling arrangement is available which renders these issues of sufficient immediacy and reality so as to justify declaratory relief.
At oral argument, the parties agreed that there are other available mechanisms (albeit less efficient) for triggering American Club's indemnification obligations. The Claimants suggested specifically that the $300,000 set aside to fund the recycling could be used to settle individual claims. American Club did not contest the availability of those funds for this purpose, and we do not read the reorganization plan to preclude such use. See Plan, § 4.05.07(a)(i) ("[T]he bankruptcy court upon proper motion may authorize the use of such funds for other purposes in connection with efforts to liquidate Personal Injury Claims ...."); see also id. § 4.05.07(v). Given the availability of other payment mechanisms, the deductible issue and the allocation issue are of sufficient immediacy and reality to warrant declaratory judgment.
I. THE PAY FIRST PROVISION
We agree with Judge Haight's conclusion that the recycling arrangement did not amount to payment under American Club's policy and thus failed to satisfy the policy's pay first provision. The American Club policies require it to "indemnify [Prudential] against any loss, damage or expense which [Prudential] shall become liable to pay and shall pay." Because the American Club policy mandates payment prior to triggering the insurer's indemnification obligations, it is an indemnity policy.
Federal maritime law, which applies to this essentially maritime contract, does not speak to the issue of what constitutes payment under an indemnity policy. See Liman v. American Steamship Owners Mut. Protection and Indem. Ass'n, 299 F.Supp. 106, 108 (S.D.N.Y.1969), aff'd, 417 F.2d 627 (2d Cir. 1969) (per curiam). Because we see no need for a uniform federal rule (and because the parties have agreed that New York law governs), we apply New York law.
A. Liman v. American Steamship Owners
The recycling arrangement is patterned after a similar device approved by this court in Liman, which involved an identical American Club policy. In Liman, approximately 120 claims were presented by seamen and longshoremen against a bankrupt shipping company. Although the shipping company had sufficient funds to pay the claims, and although there was no reason to doubt that the company would be indemnified eventually by the insurer (net of the deductible), the Government (the bankrupt's chief creditor) opposed payment of the claims as illegal preferences because "the estate would be diminished to the extent of the $1000 deductible which would be attributed to each of the claims to be defended." Liman, 299 F.Supp. at 107.
Id. at 108. The insurer objected that "in order to be indemnified under the policies the estate must show that it actually `absorbed' the $1,000 deductible." Id.
Liman summarized New York law on what constitutes payment under an indemnity policy (an interpretation which we adopted in our per curiam opinion affirming on the district court's opinion): "[T]he test in New York is whether the assured has actually in good faith sustained the loss for which reimbursement is sought, and the insurer's obligation to indemnify may not be avoided because of the assured's insolvency." Id. at 109. Thus, an indemnifiable payment entails (i) satisfaction of the claim and (ii) the absorption of some loss thereby by the insured, (iii) both in good faith. See also Ahmed v. American Steamship Mut. Protection & Indem. Ass'n, 640 F.2d 993, 995 (9th Cir.1981) (noting that under New York law an insurer's obligation to pay under an indemnity
In holding that the deductible financing arrangement amounted to payment under this standard, the Liman court focused on the use of the challenged arrangement only to finance the deductible, the rest of each claim representing a cash loss out of pocket. Liman, 299 F.Supp. at 109-10. The court reasoned that: (i) the purpose of the deductible is "to enable the insurer to avoid responsibility for small claims which are usually both numerous and costly" and this purpose was not undermined by the arrangement; (ii) the source of the funds for paying the deductible is of no concern to the insurer because the insurer is not required to reimburse the policyholder for the deductible; (iii) other than the financing of the deductible, "the Trustee would satisfy each judgment against the estate and actually pay out of the estate to the claimant all funds for which reimbursement will be sought from defendant," id. at 110; and (iv) given these factors, a failure to find that the insured had paid the claims would permit the insurer to reap a windfall and "to take advantage of the financial status of its insured and deprive the ultimate beneficiary claimant of his judgment," id. at 109. Thus the court found that the purpose of the deductible in that case would be served, and that "the Trustee would be seeking reimbursement only for losses actually sustained by the estate." Id. The court distinguished cases in which recovery on an indemnity policy was denied because in such cases "there was neither a bona fide settlement of judgment obtained by the claimant against the assured nor a payment made by the assured of the amount for which reimbursement was claimed." Id. at 110.
Here, Prudential seeks to use the recycling arrangement to finance the whole of the claims, not the deductibles alone. This case thus differs from Liman in the essential respect that indemnity is sought for a loss that the policyholder has not incurred. See Ahmed v. American Steamship Owners Mut. Protection & Indem. Ass'n, 444 F.Supp. 569, 572 (N.D.Cal.1978) (distinguishing Liman by noting that "the insured has never paid any of the claims against it or arranged to finance such payments"), aff'd in part, remanded in part, 640 F.2d 993, 995 (9th Cir. 1981).
B. Applying New York Law
As Liman notes, "the test in New York is whether the assured has actually in good faith sustained the loss for which reimbursement is sought." 299 F.Supp. at 109. The only detriment assumed by Prudential vis-à-vis each Claimant is a wholly non-recourse debt, which in financial terms is — and is intended to be — nothing.
The Fifth Circuit has concluded that "Liman does not stand for the proposition that `payment' can be made by the use of a promissory note worthless from the day it is executed." Conoco, Inc. v. Republic Ins. Co., 819 F.2d 120, 122 (5th Cir.1987). Conoco had paid the salvage cost of raising a vessel that sank while on charter from the shipowner, Bonanza. Conoco was unable to recover the salvage cost directly from an insurer that had issued a policy protecting the ship and naming both Bonanza and Conoco as assureds because (as the Fifth Circuit held sitting in banc in a prior case) Conoco had no obligation to perform the salvage operation. Trying again, Conoco arranged for Bonanza (which presumably was obliged to pay the salvage costs of its vessel) to execute a demand promissory note in Conoco's favor for the salvage costs, secured by an assignment of any policy proceeds recovered from the insurer. Bonanza sought indemnification from the insurer on the theory that the note was payment under the policy. Id. at 121. However, "[a]t the time [the loan] documents were signed, [Conoco] assured Bonanza's president that it would not attempt to collect the promissory note." Id. The court held that the bankrupt's satisfaction of the claim with a non-recourse note did not amount to payment under the indemnification policy:
Id. at 122-23.
Prudential is blocked by the same obstacle in this suit. The underlying claims were satisfied with non-recourse notes that entail for Prudential no actual loss incurred in good faith. The only difference between the present case and Conoco is that here Prudential issues boomerang payments from the $300,000 account. But as these funds immediately came home, the Asbestosis Claimants received nothing of value from Prudential, and Prudential sustained no true loss. We do not think that this sham transaction triggered an indemnification obligation under New York law.
C. Direct Actions by Claimants Against Marine Indemnity Insurers
It is obvious for reasons previously stated that the Claimants are the only parties with an interest in the indemnification from American Club. Our holding is therefore independently supported by the doctrine of New York law that bars direct actions by claimants against marine indemnity insurers. See Ahmed, 444 F.Supp. at 572 ("Under New York common law, an insurer under an indemnity insurance policy is not liable to an injured person who has obtained a judgment against the insured even though the insured is insolvent and cannot pay the judgment."). Although New York has broadly altered this common law rule by statute, the statute expressly preserves application of the common law rule to marine insurance contracts, such as P & I policies. See N.Y. Insur. Law § 3420(i) (McKinney 1985) (referencing § 2117(b)(3) which incorporates marine insurance contracts); Ahmed, 640 F.2d at 995-96. "The exception was consciously made by the New York legislature to eliminate a perceived competitive disadvantage to which New York's marine insurers were placed by the direct action statute." Miller v. American Steamship Owners Mut. Protection and Indem. Co., 509 F.Supp. 1047, 1049 (S.D.N.Y. 1981).
We have previously barred a suit by an insured's judgment creditor against a marine policy on the ground that the suit closely resembled a direct action. See Wabco Trade Co. v. S.S. Inger Skou, 663 F.2d 369, 371 (2d Cir.1981) (holding that N.Y. C.P.L.R. § 5201(a), which provides for a money judgment against "any debt," affords no basis for maintaining a direct action against a marine insurer of a judgment debtor); see also Cowan v. Continental Ins. Co., 86 A.D.2d 646, 647, 446 N.Y.S.2d 412, 414 (2d Dep't 1982) (noting that judgment creditor of insured could not bring declaratory judgment against insured's insurer). We will not permit the Claimants, who are the only parties in interest, to evade this bar via an illusory transaction that is of no financial consequence or interest to Prudential as the supposed insured.
New York's approach to insolvent insureds under the common law rule barring direct actions is quite categorical and firm in terms of the type of actual loss required to trigger an indemnification obligation:
Jackson v. Citizens Cas. Co., 277 N.Y. 385, 389, 14 N.E.2d 446 (1938); see 175 East 74th Corp. v. Hartford Accident & Indem. Co., 51 N.Y.2d 585, 591, 435 N.Y.S.2d 584, 586, 416 N.E.2d 584 (1980) ("The insolvency or bankruptcy of an insured, which prevented payment, necessarily relieved the insurer of any obligation to the insured and the injured party was left without a source of recovery."); see also In re F.O. Baroff Co., 555 F.2d 38, 41 (2d Cir.1977) (noting that prior to the enactment of the direct action statute,
D. The Authorities Cited by the Claimants
The several New York cases upon which claimants rely either support our conclusion or are distinguishable. In Campbell v. London & Lancashire Indemnity Co., 168 N.Y.S. 300 (N.Y.Sup. 1917), the insured under an indemnity policy, being insolvent, paid a claim with funds borrowed for that purpose from a third party, secured initially by a promissory note, and later (after the funds were used to pay the claimant) by an assignment of the insurance claim for indemnification. The court found that this arrangement satisfied the pay first provision of the policy, but added: "It must be admitted that, if there had been no payment of the judgments to the judgment creditor, but the moneys were to be held by the judgment creditor to await the result of this action, such a pretended payment would be in bad faith, and would defeat plaintiff's right of recovery." Id. at 301. In Campbell, the funds were actually transferred to the claimant as a bona fide payment of the claim and the party that had been assigned the indemnity right had actually paid the claim and sustained a monetary loss in good faith. That transaction was no doubt facilitated by the permissibility of an assignment of indemnity rights under the policy. The American Club policy prohibits such assignment.
Finally, Feldman v. New York City Health & Hospitals Corp., 107 Misc.2d 145, 437 N.Y.S.2d 491, 496 (N.Y.Sup. 1981), rev'd, 84 A.D.2d 166, 445 N.Y.S.2d 555 (2d Dep't 1981), rev'd, 56 N.Y.2d 1011, 453 N.Y.S.2d 683, 439 N.E.2d 398 (1982) (adopting New York State Supreme Court opinion), a case having nothing to do with insurance, held efficacious a financial arrangement by which a tort plaintiff financed the payment by a tort defendant. The tort defendant was found 10% liable for the injury, while the third-party defendant was found 54% liable. Under the rule announced in Klinger v. Dudley, 41 N.Y.2d 362, 393 N.Y.S.2d 323, 361 N.E.2d 974 (1977), the plaintiff could not recover directly from the third-party defendant, and was in a bind because the defendant was largely insolvent and could not afford a 64% payment. The plaintiff therefore arranged for a lender to finance the defendant's payment of the 64%, and to take in return (i) an assignment of the defendant's contribution rights from the third-party defendant, (ii) a demand note from the defendant guaranteed by the plaintiff without prior recourse to the (insolvent) defendant, and (iii) 25% of any recovery from the third-party defendant as the lender's reward. Feldman, 437 N.Y.S.2d at 494. In finding that the arrangement satisfied Klinger and triggered the third-party defendant's contribution obligation, the court ruled that: (i) no disservice would be done to the limited policy behind Klinger, i.e., to avoid the defendant simply keeping the contribution funds it receives from the third-party defendant without paying the plaintiff, id. at 495; (ii) both the plaintiff and the defendant would be harmed by application of the Klinger rule in the circumstances, id. at 495-96; and (iii) the defendant's payment to the plaintiff had been financed through a bona fide loan, the proceeds of which were used to fully pay and satisfy the plaintiff's judgment, id. at 496.
As the Claimants in the present appeal point out, the Feldman court deemed the
Claimants invoke New York's general policy of preventing an insurer from taking advantage of an insured's bankruptcy; but we cannot find that the recycling arrangement adopted by Prudential and the Claimants amounts to payment of the claims under New York law. Accordingly, we hold that the pay first provision of American Club's policy is not satisfied, and affirm the district court.
* * *
The parties' remaining disputes concern principally the number and amount of the deductibles properly payable for each claim. Claimants argue that the presence of asbestos on a particular ship is a single occurrence triggering a single deductible under each policy for all Claimants whose asbestosis injuries arose from their work on that ship. American Club argues not only that each Claimant's injury triggers payment of a separate deductible but also that each claim must be allocated between the various policies in effect during the period of a particular seamen's exposure, thus triggering multiple deductibles. For the reasons discussed infra, we find that the answer lies between these two views.
II. THE DEDUCTIBLE PROVISION
The deductible provision in each American Club policy provides (with an inapplicable exception) that personal injury claims "are subject to a deduction" in a stated amount "with respect to each accident or occurrence." In the 1940s and 1950s, the deductibles varied from $250 to $1,000 per accident or occurrence; in the 1960s, 1970s, and 1980s, they varied from $2,500 to $50,000 (reaching $100,000 in one year). The terms "accident" and "occurrence" are not defined in the policies.
The parties dispute the proper application of the deductible provision in the circumstances of this case. The Claimants argue that the presence of asbestos on each Prudential vessel constituted a single occurrence, and that a single deductible applies to all bodily injury claims resulting from asbestos exposure aboard a particular ship within each policy year. American Club argues that each Claimant's initial exposure to asbestos within a policy year constituted a separate occurrence. Under this interpretation, each claim would be subject to a full deductible.
The bankruptcy court concluded that "the occurrence was the presence of asbestos on each [Prudential] vessel during each triggered policy period," and that "each P & I policy obligated to indemnify will be able to claim one deductible, irrespective of the number of claims filed against an individual policy." Prudential I, 148 B.R. at 747. The district court reversed and remanded, finding first that the term "occurrence" is ambiguous: "In the broadest sense of its commonly understood definition, therefore, `occurrence' suggests the presence of the asbestos on board the ships. Under a narrower reading, `occurrence' might mean each individual mariner's exposure to asbestos." Prudential II, 170 B.R. at 237. The district court noted that the parties had presented some extrinsic evidence of a practical construction of the deductible provision and remanded to the
The bankruptcy court conducted an evidentiary hearing on American Club's practice in interpreting the term "occurrences." The court concluded that "[t]he preponderance of the proffered evidence does demonstrate that American Club's policy for asbestosis claims resulting from exposure prior to 1989 has been to apply a deductible for each policy year in which a particular seaman worked." Prudential III, 202 B.R. at 19. However, it concluded that Prudential had not acquiesced in this policy. Id. The district court reversed, finding that the bankruptcy court's determination that Prudential had failed to acquiesce in American Club's deductible practice was clearly erroneous. Prudential IV, 209 B.R. at 623, 626.
A. Insurance Policy Interpretation Under New York Law
As noted above, although the P & I policy is essentially a maritime contract, its interpretation is governed in this case by New York law. Under New York law, an insurance policy is a contract that is construed to effectuate the intent of the parties as expressed by their words and purposes. See American Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F.Supp. 1485, 1492 (S.D.N.Y.1983), aff'd as modified, 748 F.2d 760 (2d Cir.1984). "[U]nambiguous terms are to be given their `plain and ordinary' meaning." State of New York v. Blank, 27 F.3d 783, 792 (2d Cir.1994). "As with contracts generally, a provision in an insurance policy is ambiguous when it is reasonably susceptible to more than one reading." Haber v. St. Paul Guardian Ins. Co., 137 F.3d 691, 695 (2d Cir.1998) (internal quotation marks and citations omitted). The determination of whether an insurance policy is ambiguous is a matter of law for the court to decide. See Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, 136 F.3d 82, 86 (2d Cir.1998).
If the policy is ambiguous, extrinsic evidence may be introduced to support a particular interpretation. Kinek v. Paramount Communications, Inc., 22 F.3d 503, 509 (2d Cir.1994). If the extrinsic evidence presents issues of credibility or a choice among reasonable inferences, the decision on the intent of the parties is a job for the trier of fact. See Uniroyal, Inc. v. Home Ins. Co., 707 F.Supp. 1368, 1374-75 (E.D.N.Y.1988).
Ordinarily, if an "ambiguity arises that cannot be resolved by examining the parties' intentions, ... the ambiguous language should be construed in accordance with the reasonable expectations of the insured when he entered into the contract." Haber, 137 F.3d at 697. Courts in such situations often apply the contra proferentem rule and interpret a policy against the insurer. See, e.g., Westchester Resco Co. v. New England Reins. Corp., 818 F.2d 2, 3 (2d Cir.1987) (per curiam). Here, however, Prudential was both an insured and an insurer, see Firma C-Trade S.A. v. Newcastle Protection and Indem. Ass'n, [1991] 2 App. Cas. 1 (H.L.1990) ("P & I clubs operate on a system of mutual insurance under which the successful claim of one member is paid out of the contributions of, and the calls made on, all the members including himself. Each member is accordingly both an insurer and an insured."), and the contra-insurer rule does not apply in actions by one insurer against another, see United States Fire Ins. Co. v. General Reins. Corp., 949 F.2d 569, 573-74 (2d Cir.1991) (dispute between two insurance companies); Loblaw, Inc. v. Employers' Liability Assurance Corp., 85 A.D.2d 880, 881, 446 N.Y.S.2d 743, 745 (4th Dep't 1981) (dispute between self-insured entity and excess insurer), aff'd, 57 N.Y.2d 872, 456 N.Y.S.2d 40, 442 N.E.2d 438 (1982).
After concluding that in the absence of a definition of the term "occurrence," the deductible provision was ambiguous as applied to this case, the district court based its interpretation of the deductible provision on extrinsic evidence of the parties' practical construction. Because the bankruptcy court's finding that Prudential had failed to acquiesce in American Club's practice was a finding of fact, it could be rejected only if clearly erroneous. See In re Prudential Lines, Inc., 928 F.2d 565, 569 (2d Cir.1991).
In rejecting the finding, the district court focused on two facts: (i) Prudential's failure to object to American Club's practice while Prudential was a member of American Club's board of directors; and (ii) Prudential's acceptance of the Club's reimbursement of the Graham claim, which applied multiple deductibles.
Under New York law, "[i]f ambiguity exists, to show a practicable construction ... there must have been conduct by the one party expressly or inferentially claiming as of right under the doubtful provision, coupled with knowledge thereof and acquiescence therein, express or implied, by the other." Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 651, 593 N.Y.S.2d 966, 971, 609 N.E.2d 506 (1993) (internal quotation marks and citation omitted). Neither of the facts cited by the district court compels a finding that Prudential acquiesced in American Club's practice as a matter of law, and therefore the bankruptcy court's finding was not clear error.
As to Prudential's failure to object to the policy during American Club's board meetings, the question of the proper deductible was not discussed by the board until after Prudential left the club in 1986. Up to that time, Prudential submitted very few asbestos claims, and when it did claim indemnification for asbestos loss, it applied a single deductible for each claim, not American Club's practice of applying one deductible for each triggered policy. As Thomas McGowan, American Club's secretary, noted in a September 16, 1987 memorandum to the Board of Directors relating to the deductible practice: "Clearly the past [asbestos-related] settlements are insignificant either from the members' or the Association's point of view." Under the district court's analysis, Prudential would be considered to have acquiesced in all American Club practices, even those never discussed by the board; this is implausible. It was not clear error for the bankruptcy court as the trier of fact to infer that Prudential's silence at board meetings did not amount to acquiescence in American Club's deductible policy.
As to Prudential's failure to sue American Club over the Graham claim, the district court relied on Continental Casualty, but the case law relied on in Continental Casualty seems to suggest that finding a practical construction ordinarily requires the implementation of the supposed practice on more than one occasion. See, e.g., City of New York v. New York City Ry. Co., 193 N.Y. 543, 548, 86 N.E. 565 (1908) ("When the parties to a contract of doubtful meaning, guided by self-interest, enforce it for a long time by a consistent and uniform course of conduct, so as to give it a practical meaning, the courts will treat it as having that meaning, even if as an original proposition they might have given it a different one.") (emphasis added); see also Miller v. Clary, 147 A.D. 255, 127 N.Y.S. 897, 901-02 (N.Y.Sup.Ct 1911) (finding practical construction from practice and acquiescence over 17 years), aff'd, 147 A.D. 255, 131 N.Y.S. 1129 (4th Dep't 1911), aff'd as modified, 210 N.Y. 127, 103 N.E. 1114 (1913); Restatement (Second) of Contracts § 202(4)
C. The Intent of the Parties
Notwithstanding our disagreement with the district court's analysis on the factual issue of practical construction, we think that the parties to the American Club policies at issue intended to apply the interpretation advanced by American Club in this litigation, i.e., to treat each initial exposure by a Claimant to asbestos during a policy period as a separate occurrence. That conclusion is based on: (i) the wording of the policies, (ii) the contracting parties' actions prior to the commencement of litigation, and (iii) New York law on the interpretation of the word "occurrence."
First, we are not convinced that the deductible provision is ambiguous. Claimants' proposed interpretation is inconsistent with the plain and ordinary meaning of the term "occurrence." In Newmont Mines Ltd. v. Hanover Ins. Co., 784 F.2d 127 (2d Cir.1986), we noted that "[t]he term `occurrence' ordinarily is understood to denote `something that takes place,' especially `something that happens unexpectedly and without design.'" Id. at 135 (quoting Webster's Third New International Dictionary 1561 (unabridged ed.1981)). The presence of asbestos aboard a vessel cannot be said to take place, any more than in a slip and fall aboard ship the slippery deck can be said to be happening. The presence of asbestos aboard a ship is a condition that from the point of view of the ship, is in some respects a benefit. The unfortunate event causing personal injury is the exposure of people. The Claimants' construction of the term "occurrence" therefore contradicts the ordinary meaning of the word.
Second, even if we were to conclude that the deductible provision is ambiguous, we would still find that the parties to the policy intended American Club's interpretation. Although the evidence cited by the district court does not compel a finding that Prudential acquiesced in American Club's interpretation, it does show something about Prudential's reasonable expectations and intentions under the policy. "The New York courts have frequently resorted to the conduct of the parties in determining a contract's meaning, and insurance contracts are no exception to this practice." See American Home Prods. Corp., 565 F.Supp. at 1503. The district court notes with force that no party to the American Club policy (at least prior to this litigation) has ever proposed the Claimants' interpretation of the term "occurrence," i.e., a single deductible for all asbestos-related bodily injuries aboard a particular ship. The record evidence reflects that American Club has sought to apply one deductible, per claim, per policy, while Prudential and Farrell Lines, two Club members, interpreted the policies to apply a single deductible to each claim. Thus, although the Claimants attempt to introduce their interpretation as one plausible reading of the policy, this cannot be said to be the expectation or intention of the contracting parties.
In dissent, Judge Lay advances spirited arguments on the doctrinal question of the definition of "occurrence" under New York law (with which we disagree, as explained below). The short answer is that although the contract language is less than clear, it has been illumined by conduct on the part of the signatories that reflects an understanding incompatible with the position urged in this case by the Claimants, who are strangers to the contract.
Third, New York law gives some guidance for ascertaining the reasonable expectations of an insured as to number of "occurrences." In Arthur A. Johnson Corp. v. Indemnity Ins. Co., 7 N.Y.2d 222, 196 N.Y.S.2d 678, 164 N.E.2d 704 (1959), the New York Court of Appeals sought to define the term "accident" as it would be understood by "the ordinary
The insurer claimed that the damage to the two buildings resulted from a single accident within the meaning of the policy, and that a single "per accident" limit of $50,000 applied. The Court of Appeals expressly considered and rejected two tests used by other jurisdictions in determining the number of "accidents," including the "negligent act or omission" test (a single occurrence for all injuries caused by the same negligent act or omission) and the "effects" test (one occurrence per each person or thing injured). Id. at 227-28, 196 N.Y.S.2d at 682-83, 164 N.E.2d 704. Instead, the court applied the "unfortunate event" test, holding that "the term [accident] is to be used in its common sense of an event of an unfortunate character that takes place without one's foresight or expectation .... an unexpected, unfortunate occurrence." Id. at 228, 196 N.Y.S.2d at 683, 164 N.E.2d 704 (internal quotation marks, citation, and emphasis omitted). The court's examples of the application of the "unfortunate event" test are indicative: a truck colliding with a freight train and damaging the road and 16 cars was a single occurrence, while an oil well fire that lasted 50 hours and hurled waste on some neighbors but not others, depending on the direction of the wind, was a series of events (important to this conclusion was the fact that the wind was a supervening force). Id. at 228-29, 196 N.Y.S.2d at 683, 164 N.E.2d 704.
In finding that the collapse of the two walls in Johnson constituted two accidents, the court stated:
Id. at 230, 196 N.Y.S.2d at 684, 164 N.E.2d 704.
In Hartford Accident & Indem. Co. v. Wesolowski, 33 N.Y.2d 169, 350 N.Y.S.2d 895, 305 N.E.2d 907 (1973), an insurance policy contained a per "occurrence" limit and left the word "occurrence" undefined. The Court of Appeals found no difference between the meaning of the words "accident" and "occurrence," and therefore used the "unfortunate event" test to conclude that a three-car accident amounted to a single "occurrence": "Unlike Johnson in which there was a 50-minute elapsed interval between the collapse of the first and the second cellar walls, the two collisions here occurred but an instant apart. The continuum between the two impacts was unbroken, with no intervening agent or operative factor." Id. at 174, 350 N.Y.S.2d at 899, 305 N.E.2d 907.
We have expressed the rule of these cases as follows:
Stonewall Ins. Co. v. Asbestos Claims Management Corp., 73 F.3d 1178, 1213 (2d Cir. 1995) (quoting Arthur A. Johnson Corp., 7 N.Y.2d at 228, 196 N.Y.S.2d at 683, 164 N.E.2d 704) (emphasis added), modified on denial of reh'g, 85 F.3d 49 (2d Cir.1996). In
Stonewall distinguished Champion Int'l Corp. v. Continental Cas. Co., 546 F.2d 502 (2d Cir.1976), in which we held that claims based on the installation of defective vinyl panels in more than a thousand vehicles arose from a single occurrence, i.e., the insured's delivery of the panels to the manufacturers of the vehicles. Id. at 506. Stonewall explained that the insured in Champion was the wholesaler of the defective product rather than the manufacturer, that the wholesaler was liable upon delivery of the defective product, and therefore that the proper focus was on the sale or delivery rather than the installation of the defective product:
Stonewall, 73 F.3d at 1214.
Under New York law, multiple injuries are grouped as a single "occurrence" when they arise out of the same event of unfortunate character and occur close in time with no intervening agent. Applying this test, we conclude that all asbestos-related bodily claims against Prudential resulting from exposure to asbestos on a particular ship cannot be attributed to a single occurrence. In Stonewall, we found that installation of the asbestos was the final link in the causal chain leading to a manufacturer's liability for property damage. Id. at 1213; see also Maryland Cas. Co. v. W.R. Grace and Co., 23 F.3d 617, 627 (2d Cir.1993) (holding that installation of asbestos results in immediate property damage). Claimants seek to hold Prudential liable for bodily injury and the last link in the causal chain leading to Prudential's liability for bodily injury was exposure to asbestos. Each Claimant was separately exposed to asbestos at different points in time. Therefore, the injuries arise from multiple occurrences.
This conclusion is consistent with the few cases that both (i) use an approach similar to New York's in defining "occurrence" and (ii)
Id. at 1210. The court followed the reasoning of Judge Brown in a California asbestos proceeding:
Id. at 1211 (quoting Asbestos Insurance Coverage Cases, Judicial Council Coordination Proceeding No. 1072, Statement of Decision Concerning Phase IV Issues, at 9-16 (Super. Ct. San Fran. Jan. 24, 1990), aff'd in part and reversed in part on other grounds sub nom. Armstrong World Indus. v. Aetna Cas. & Sur. Co., 26 Cal.Rptr.2d 35, 20 Cal.App.4th 296 (Ct.App.1993)); see also Babcock & Wilcox Co. v. Arkwright-Boston Mfg. Mut. Ins. Co., 53 F.3d 762, 767-68 (6th Cir.1995) (holding that policy defining "occurrence" as "any happening or series of happenings, arising out of ... one event" meant that each claimant's exposure to asbestos was a separate occurrence; rejecting insured's contention that decision to use asbestos in boilers was the single occurrence), cert. denied, 516 U.S. 1140, 116 S.Ct. 973, 133 L.Ed.2d 893 (1996).
It might be argued that if exposure is the occurrence, each period of exposure of each Claimant (or even each breath) is a separate occurrence. American Club does not make this argument and therefore does not seek to apply multiple deductibles to each Claimant in each policy period. In any event, liability attaches following the first exposure; each
We hold that each claim arose from a separate occurrence, and a single deductible is applicable to each claim.
III. THE ALLOCATION ISSUE
Prudential claims the contract right to designate any single policy to indemnify Prudential in full for any insurance claim arising out of injury that spans two or more policy periods. American Club argues that payment of each insurance claim should be allocated in the first instance among all triggered American Club policies (as opposed to such allocation as the Club and its members may accomplish through contribution or internal accounting).
American Club argues that two provisions of the policy compel allocation: (i) the indemnification clause, and (ii) the other insurance clause.
A. The Indemnification Clause
Each American Club policy covers a one-year period and provides that the Club will indemnify Prudential as
Applying New York law, the bankruptcy court held that "injury-in-fact during the policy period triggers coverage." Prudential I, 148 B.R. at 742. Thus, each policy provides coverage for all losses or damages for which Prudential is held liable resulting from injury occurring during the policy period.
In the context of asbestos-related injuries, the bankruptcy court found that "injury-in-fact in the form of tissue damage occurs simultaneously or soon after asbestos inhalation." Id. (citing Insurance Co. of N.A. v. Forty-Eight Insulations, Inc., 633 F.2d 1212, 1222 (6th Cir.1980), clarified and aff'd. on rehearing, 657 F.2d 814 (6th Cir.1981)). The court reasoned that "[i]f a seaman were exposed to asbestos on more than one ship during any of the ships' insurance years, then more than one P & I policy would be triggered for that individual claimant." Id. at
The answer is, it depends. When exposure, and therefore the cumulative injury, spans several policies, the harms resulting from exposure to asbestos cannot easily be assigned to a particular policy. See J.H. France Refractories Co. v. Allstate Ins. Co., 534 Pa. 29, 626 A.2d 502, 508 (Pa.1993) ("To apportion liability among the insurers on a strictly temporal basis in direct proportion to the length of time each insurer was on the risk, however, notwithstanding its surface attractiveness, assumes a linearity of disease progression which this record does not support."); Comment, Allocating Progressive Injury Liability Among Successive Insurance Policies, 64 U. Chi. L.Rev. 257, 261 (1997) (hereinafter "Allocating Liability") ("Theoretically, damages that occur in different policy periods are divisible. In practice, however, the harms are cumulative with, and thus indivisible from, harms suffered in earlier periods.").
Some courts dealing with similar coverage language have concluded that any single policy designated by the policyholder owes full coverage. In Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034 (D.C.Cir.1981), the court held that each triggered policy was jointly and severally liable for the insured's liability:
Id. at 1048. Under this approach, (i) the insured selects a single policy from which to seek indemnification, (ii) that insurer pays the claim, and (iii) then the insurer seeks contribution from other liable insurers under the "other insurance" provisions of the policies or under the common law doctrine of contribution. Id. at 1049-50 & n. 35; see also ACandS, Inc. v. Aetna Cas. & Sur. Co., 764 F.2d 968, 974 (3d Cir.1985); J.H. France Refractories Co., 626 A.2d at 509.
This approach has its shortcomings. One commentator has noted that "[s]hoehorning all damages into one policy period is `intuitively suspect' and inconsistent with the development of toxic tort jurisprudence. An insured purchases an insurance policy to indemnify it against injuries occurring within the policy period, not injuries occurring outside that period." Allocating Liability, supra, at 270; see Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 650 A.2d 974, 989 (N.J.1994). And adoption of the injury-in-fact trigger approach in these asbestos cases means that the cumulative injuries are attributable to multiple policies.
Some courts have adopted an approach which allocates liability among triggered policies based upon some seemingly objective factor, such as proportion of exposure occurring during the policy period, or time on the risk.
Both approaches allow allocation among policies at some transactional point, i.e., either when the loss is paid, or when it becomes the subject of contribution among policies and insurers. The courts that have endorsed allocation when the loss is paid have generally been motivated by considerations of equity and policy, rather than contract wording. First, these courts have sought to ensure that a single insurer underwriting a small proportion of the risk does not get saddled with the full loss, see Uniroyal, 707 F.Supp. at 1392; Owens-Illinois, 650 A.2d at 992-93, a loss that may prove uncollectible from other companies. Second, courts enforce allocation to require the insured to absorb losses for periods when it was self-insured. As the New Jersey Supreme Court noted, "The real difference between Keene and Forty-Eight Insulations is in their treatment of periods of self-insurance." Owens-Illinois, 650 A.2d at 989. Third, these courts see allocation as the most efficient way to assign liability among policies, reasoning that any contribution proceeding will involve many of the same issues that are raised in the initial liability proceeding, and that it is more efficient to deal with these issues in a single proceeding. See Lafarge Corp. v. National Union Fire Ins. Co., 935 F.Supp. 675, 688 (D.Md.1996) ("An equitable apportionment scheme should lessen or obviate the need for subsequent rounds of litigation.... [S]econd and third rounds of litigation can be expected to result in substantial additional litigation costs for the parties.").
Fortunately, a number of factors that often complicate the inquiry are absent here. Prudential had insurance coverage in each policy period implicated by the claims, and had no periods of self-insurance. In any event, no issue has been raised that a self-insured period existed, or arose by exhaustion of limits. And for virtually the entire span of years, American Club was Prudential's only insurer. In 1971-74, Prudential was insured by another club that is not a party to this litigation, though apparently there exists an understanding among the insured shipowners and P & I insurers providing for allocation of loss among themselves.
The financial significance of the allocation issue in this proceeding lies in its impact on the number of deductibles that will be applied to each claim. Under American Club's pro rata allocation approach, one deductible would apply per claim as well as per triggered policy, whereas under the Claimants' approach, all losses from any single claim would be recovered under a single policy and therefore a single deductible would apply to each claim. Given: (i) the policy's broad language covering "any loss [or] damage" which Prudential becomes liable to pay resulting — presumably even in part — from injuries occurring during the policy period; (ii) the absence of a contractual intent to require allocation of liability among policies in the first instance; and (iii) the lack of any compelling policy or equitable considerations favoring allocation, we decline to read the policies in a way that would have the (probably unintended) effect of multiplying the deductibles applicable to each claim.
We hold that, in the circumstances presented, Prudential has the right to demand that a policy pay full coverage for each insurance claim in which the underlying Claimant suffered asbestos exposure and therefore asbestos injury during the policy period.
B. The Other Insurance Clause
The other insurance clause does not compel allocation of liability among triggered American Club policies in the first instance: "The Association shall not be liable for any loss, damage or expense against which, but for the insurance herein provided, the Assured is or would be insured under existing insurance."
In construing this clause, we must determine the intent of the parties as expressed by the policy's words and purposes. See American Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F.Supp. 1485, 1492 (S.D.N.Y.1983), aff'd as modified, 748 F.2d 760 (2d Cir.1984). The wording says that the Association, i.e., American Club, will not be liable if there is other existing insurance that would cover the particular loss. The evident intent of this clause is to reduce American Club's liability when insurers other than American Club also insure against the same risk. This clause does not reduce liability or compel allocation in the first instance when more than one of American Club's own policies is triggered. Moreover, we will not infer from this clause an intent to allocate liability among American Club's own policies when the only consequence of such allocation would be to multiply the deductibles applicable to each claim.
Whether the other insurance clause reduces Prudential's liability for claims which are covered by Prudential's 1971-74 coverage is a different question. But it is inappropriate to resolve that issue at this stage because we do not know whether such claims exist and do not have before us the other club's policy. Moreover, cases following the approach which we adopt here have employed other insurance clauses to distribute liability in the contribution phase, not in the liability phase. See, e.g., Keene Corp., 667 F.2d at 1050; Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 45 Cal.App.4th 1, 52 Cal.Rptr.2d 690, 707-08 (Cal.App.1996); J.H. France Refractories Co. v. Allstate Ins. Co., 534 Pa. 29, 626 A.2d 502, 509 (1993). It may be that such an arrangement would be appropriate in this case as well.
Accordingly, we hold that the other insurance clause does not mandate allocation of liability among triggered American Club policies in the first instance. That is, Prudential may seek recovery under a single triggered policy of its choosing, and American Club presumably will allocate liability among the triggered policies as an internal accounting matter, or through claims for contribution, or not at all, as its board and internal governance
CONCLUSION
To summarize: (i) the recycling arrangement created by the Stipulation and Settlement Agreement does not satisfy the pay first provision of American Club's policy; (ii) each Claimant's asbestos-related injuries arose from a separate occurrence and therefore a single deductible will be applied to each claim; and (iii) liability will not be allocated in the first instance among triggered American Club policies.
The judgment of the district court is affirmed.
LAY, Circuit Judge, dissenting:
I.
The majority holds that "each claim arose from a separate occurrence, and a single deductible is applicable to each claim." I must respectfully disagree. Such a construction is not supported by the law of New York. The consequence of the majority's conclusion, based upon the idea that the exposure of the claimants is an "occurrence," is that each subsequent exposure would also count as a separate occurrence. The majority recognizes this possible consequence of its logic, but avoids it by simply stating that American Steamship Owners Mutual Protection and Indemnity Association ("American Club") does not make such an argument. The majority opinion stops short of this unavoidable and unreasonable conclusion and instead concludes that the intent of the parties was that "each claimant's first exposure in the policy period is the final unfortunate event which causes injury. ..."
The majority acknowledges that in Arthur A. Johnson Corp. v. Indemnity Ins. Co., 7 N.Y.2d 222, 228, 164 N.E.2d 704, 707, 196 N.Y.S.2d 678, 683 (1959), the term "accident" was defined by the "unfortunate event" test. In Hartford Accident & Indem. Co. v. Wesolowski, 33 N.Y.2d 169, 173, 305 N.E.2d 907, 910, 350 N.Y.S.2d 895, 899 (1973), the court of appeals used the unfortunate event test to define the term "occurrence." In these two cases, however, it was not necessary to determine whether occurrence and accident were intended to have different meanings.
In Uniroyal, Judge Weinstein observed that the policy at issue in the Agent Orange case read that occurrence was not identical to accident, but includes accident as well as "event," "happening," and "continuous or repeated exposure to conditions." Uniroyal, Inc. v. Home Ins. Co., 707 F.Supp. 1368 (E.D.N.Y.1988). Judge Weinstein then observed: "The insurance industry developed this newer `occurrence' definition in order to provide clearly for coverage of gradual, continuous, and prolonged events that might have been excluded by the instantaneous connotation of `accident.'" Id. The cases which he thereafter cites state that "occurrence provides broader coverage than `accident.'" Id. (citing Newmont Mines Ltd. v. Hanover Ins. Co., 784 F.2d 127, 135-36 (2d Cir.1986)).
The policy language of the American Club provides coverage for "accident or occurrence." Although the policy language in the instant case is not identical to that construed by Judge Weinstein in Uniroyal, it is similarly fundamental that the two terms in the policy at issue were not intended to mean the same thing because they are set forth in the disjunctive. In any event, relying on the definition in Webster's Third New Int'l Dictionary 1561 (unabridged ed.1981), the majority adheres to New York law and applies the "unfortunate event" test to define an occurrence. The majority opinion, however, thereafter equates both the event and injury as the definition of occurrence. It is at this juncture I must respectfully part company.
As Judge Weinstein observed:
Uniroyal, 707 F.Supp. at 1382. Judge Weinstein identified "interrelated casually contributing events" in the Agent Orange case and then goes on to say: "In this sense, the terms of the definition of `occurrence' are partly ambiguous: they identify a set of possible occurrences, but give little assistance in selecting the proper item from that set." Id.
In the present case, the majority summarily dismisses the Uniroyal analysis on the ground that the policy in Uniroyal specifically provided that the occurrence was defined not to be the injury; that the injury was stated to be the result of the occurrence.
Under these circumstances one could urge that the most favorable construction of the ambiguity should be resolved in favor of the insured, Prudential Lines, Inc. ("PLI").
Michigan Chemical, 728 F.2d at 379.
Under the majority's approach, the policy is triggered at the time of the injury (the exposure of a claimant) which is likewise construed to mean the occurrence. In common parlance, however, it is only logical that an event is separate from the damage it causes. The policy language in Uniroyal is nothing more than a re-statement of the common understanding of the relationship between "occurrence" and "injury." If one
The occurrence and the injury it produces need not have any relationship to each other in time or place. The time of the occurrence producing the ultimate injury is irrelevant to triggering the policy. The majority's argument that it is the immediate event (the exposure) rather than the remote cause of injury (the presence) merely states a principal of causation (proximate cause) which is intended to avoid but-for reasoning. But the immediate event created by PLI in this case is not a multiple accident but a continuous condition which ultimately could and did result in bodily injury to over 8,000 seamen. The individual exposures were not caused by the steamship line. They occurred through the acts of the seamen. The installation and presence of the asbestos on the ships, as the place of employment, was the last immediate and unfortunate event brought about by the PLI. The present case begs for the adoption of Judge Weinstein's reasoning in Uniroyal. Where there is an ongoing exposure by several claimants to a hazardous condition, some event other than the exposure should be the occurrence in order to avoid the injustice where a single condition causes hundreds of thousands of injuries constituting hundreds of thousands of occurrences.
In the present case, just as in Uniroyal, there are multiple events to choose from to define the occurrence. It could be the purchase of the asbestos by PLI, the overall presence of the asbestos on each ship, the overall presence of the asbestos on all ships, the initial exposure by each claimant, or the overall multiple exposure by each claimant. The latter two events equate the injury with the occurrence and should be rejected. Because the allocation of each policy per policy year requires a new deductible, it is only logical that the overall installation and presence on all ships should constitute a single occurrence.
In Uniroyal, Judge Weinstein recognized that finding a single continuous occurrence is especially appropriate in cases involving mass deliveries of hazardous products that impose damage on large numbers of people. Uniroyal, 707 F.Supp. at 1384. Similarly, in Champion Int'l Corp. v. Continental Cas. Co., 546 F.2d 502 (2d Cir.1976), the Second Circuit found that 1,400 installations of defective paneling constituted only one continuous and repeated occurrence. Although the Stonewall decision cited by the majority distinguishes Champion's single occurrence choice, Stonewall did hold that the installation of asbestos was the proper occurrence because it caused the asbestos exposure. Stonewall Ins. Co. v. Asbestos Claims Management Corp., 73 F.3d 1178, 1212-1213 (2d Cir.1995), modified on denial of reh'g, 85 F.3d 49 (2d Cir.1996). The Second Circuit in Stonewall and the majority reject Champion's analysis because Champion was the distributor of the defective product, whereas, Stonewall was the manufacturer and installer of the asbestos. Here, however, PLI was simply the provider of a place of employment where the asbestos was installed. PLI was not the manufacturer or the installer. In addition, Stonewall related to damage to property; property damage lies in a totally different context from bodily injury incurred by the individual claimants.
In this case, however, applying the doctrine of most favorable construction for the insured makes the overall installation and presence the likely choice in the face of ambiguous policy language. Beyond this, it would seem that the common understanding, in the terms of the "average business man," supports this rule. Furthermore, this approach is more equitable and manageable.
Such a result would certainly fall within the reasonable expectations of both the insured and insurer. Furthermore, this analysis does not depend on fictional hypothesis but rather on the actual experience involved here. The occurrence in this case was the continuing presence of the asbestos and is clearly separate from the injury encountered by the claimants' exposure. In sum, common understanding of the term "occurrence" points to the underlying event rather than to the initial exposure (injury) by the worker.
II.
Plaintiffs' utilization of the $300,000 reserve fund to recycle all payments (set up and approved by the bankruptcy judge as a part of the reorganization plan) provided only a momentary loss, but it was a loss. In 1969, Judge Mansfield observed:
Liman v. American S.S. Owners Mut. Protection & Indem. Ass'n, 299 F.Supp. 106, 109 (S.D.N.Y.1969), aff'd, 417 F.2d 627 (2d Cir. 1969).
The majority rejects plaintiffs' plan of recycling payments to the claimants on the ground that plaintiffs' arrangement was to finance "the whole of the claims, not the deductible alone." The majority then reasons that "indemnity is sought for a loss that the policy holder has not incurred." (emphasis added). Thus, the majority finds that plaintiffs' non-recourse notes to the claimants is not a loss.
In all due respect, I fail to understand the proffered distinction. The payment of $300,000, the satisfaction of judgments, along with the proffer of the non-recourse notes to each claimant constitutes a loss to the estate. It has created a new obligation to pay from existing estate funds certain sums of money. For example in Liman, the estate was able to pay all but $1,000 to each claimant. If it had been required to pay all 147 deductibles, it would not have had sufficient funds to pay any claims. Thus, the promissory notes in Liman were directly related to the estate's ability to pay the various claimants. In addition in Liman, if all deductibles had been paid, the United States government would not have sufficient funds to protect its priority claims.
The majority reasons that "the insured's lack of assets to satisfy claims against the bankrupt estate typically leaves the insured unable to sustain the loss and pay the claim." The result of the majority's decision is wholly inequitable; it allows a windfall to the insurer and denies any hope of payment to the injured worker. The financial plan created by Liman followed by the bankrupt estate mitigates this inequity and provides some partial relief.
By reducing each claim to a money judgment, the estate must obtain satisfaction of the judgment by proffering up to $300,000 to each claimant. When it has done that, the fact that the judgment creditor loans the monies back to the estate in exchange for a non-recourse note is not a sham. True, it is a contrived plan, but it was contrived in good faith with approval of the court.
Under this plan, each claimant (note holder) as a general creditor will still not be paid in full — but in this case, partial payment is better than nothing. Furthermore, what happens to the monies Prudential paid out should be of little concern to the indemnitor. There is no case that holds the plan is wrong;
FootNotes
Then, on December 6, 1994, while the motion for interlocutory appeal was pending, the bankruptcy court vacated the Stipulation and Settlement Agreement as unfair because the district court's ruling (that the loan arrangement did not satisfy the pay first provision) prevented the funding of the settlement. See In re Prudential Lines, Inc., 59 F.3d at 330 ("The bankruptcy court concluded that, in light of the district court's rejection of the Liman recycling scheme incorporated therein, the Claimants could not be paid and the settlement therefore was not in their best interests."). The court said at a November 24, 1994 hearing:
(emphasis added). The bankruptcy court's citation was to Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968), which provides the general test for the fairness of settlements entered as part of a reorganization, see id. at 424-25, 88 S.Ct. at 1163 ("[T]he judge should form an educated estimate of the complexity, expense, and likely duration of such litigation, the possible difficulties of collecting on any judgment which might be obtained, and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise."); citation to that case did not introduce a different reason for the vacatur.
Prudential IV, 209 B.R. at 625.
It is worth noting that most Comprehensive General Liability ("CGL") policies contain the same clause as in Owens-Illinois, under which "all personal injury ... arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence." Our reading of the American Club policies (which contain no such clause) may have limited application to asbestos personal injury cases involving CGL policies.
With all respect, this is grossly overdrawn. And while the dissent's interpretation would increase the insurance yield under the particular policies at issue here, the insurance yield would decrease under that interpretation when claims arising out of a single continuous occurrence are presented under policies with low per occurrence limits but high (or no) aggregate limits. In any event, the dissent's analysis amounts to reasoning from result.
American Club's Reply Brief at 15-16 n. 3. We have no reason to believe that American Club and the club which insured Prudential from 1971 to 1974 have not reached a similar agreement, thus rendering inapplicable the policy considerations favoring allocation discussed above.
Id. at 395 (emphasis added).
The majority cites Ahmed for the proposition that it distinguishes Liman because the insured in Ahmed "never paid any of the claims against it or arranged to finance such payments." Ahmed, 444 F.Supp. at 572. Ahmed involved an attempt by an injured third party to maintain a direct action against a marine indemnity insurer after the insured shipping company became insolvent. The court held that New York law does not allow for such direct actions in the marine indemnity context. Ahmed, 444 F.Supp. at 572. It is obvious that when an injured third party attempts to directly sue the indemnity insurer that the insured will not have "paid any of the claims against it or arranged to finance such payments." See id. However, in the present case, the insured did "arrange to finance such payments" through the recycling agreement and did in fact "pay the claims against it." Therefore, the facts of the present case are not so easily distinguished from Liman as they are in the Ahmed decision.
The majority also cites Conoco in support of its proposition that the present case and Liman are distinguishable. In Conoco, an insolvent insured executed a demand promissory note, two years after its insolvency, in favor of the injured party claiming that the note was payment under the marine indemnity policy. Conoco, 819 F.2d at 121. The court held that the execution of the promissory note by the insured was not an actual expense and did not trigger the indemnity policy. Id. at 122-23. The facts of Conoco, however, are significantly different from the facts of the present case.
First, in Conoco, the injured party informed the insured that it would not attempt to collect on the promissory note. Id. at 121. There was no such assurance made by the claimants in this case. Second, the Conoco decision was supported by and decided under Texas law, not New York law. Id. at 123. Third, in Conoco, the insured was "completely bereft of assets" and "literally incapable of sustaining a loss." Id. at 122. The insured corporation was also dissolved. This is not true here. In addition, the insured in Conoco "offered no hope of eventually providing any value at all in exchange for the note." Id. at 123 (emphasis added). While Prudential may not have the assets to completely pay the full amount of claimants' judgments, Prudential does have some assets (as evidenced by the $300,000 used in the recycling agreement) and is capable of sustaining a loss. Prudential does offer hope of providing some value for the non-recourse notes.
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