DAVIS, District Judge.
This is an insurance coverage action involving the applicability of two insurance companies' policies to the third-party, asbestos-related, bodily injury liability claims pending and likely to be brought against Porter Hayden Company ("Porter Hayden"), the insured. National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union") and American
I. Facts and Procedural History
Porter Hayden's predecessors (H.W. Porter Company, a New Jersey corporation, and Reid-Hayden, Inc., a Maryland corporation) commenced operations in the mid-1920s. Shortly thereafter, H.W. Porter acquired Reid-Hayden and operated it as a subsidiary. The two corporations merged in 1966 and became Porter Hayden Company, a Maryland corporation, which has maintained its headquarters continuously in Baltimore.
From inception, Porter Hayden and its predecessors conducted operations intimately connected with asbestos. Porter Hayden and its predecessors installed insulation containing asbestos from the 1920s until approximately 1973. In or about 1973, Porter Hayden ceased using insulation materials that, to its knowledge, contained asbestos. After it ceased installing new insulation containing asbestos, Porter Hayden may have continued to remove or work with pre-existing insulation containing asbestos in connection with the installation of replacement non-asbestos insulation, through the 1980s.
By the mid-1950s, Porter Hayden had developed a separate line of business in which it "sold, handled, or distributed" (as that phrase is used in the insurance policies) asbestos-containing insulation materials manufactured by third parties, and other products, without associated installation operations. As with its installation operations, Porter Hayden ceased selling, handling, and distributing asbestos-containing insulation in or about 1973.
Porter Hayden stopped accepting new insulation installation contracts in about 1989 and, since about 1992, has had no ongoing operations as an installer of insulation.
Since 1976, Porter Hayden has been sued by thousands of persons alleging bodily injury caused by exposure to asbestos. In December 2000, Porter Hayden brought a declaratory judgment action in the Circuit Court for Baltimore City seeking a declaration as to the meaning of certain provisions in two insurance policies issued by National Union to Porter Hayden in the mid-1980s (in effect from April 1, 1984 to April 1, 1986) with regard to the third-party, asbestos-related, bodily injury liability claims pending and expected to be brought against it.
The seven insurance policies at issue include four primary comprehensive general liability ("CGL") policies issued by National Union to Porter Hayden from April 1, 1984 to April 1, 1988.
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
A. bodily injury . . .
to which this insurance applies, caused by an occurrence[.] "Bodily injury" and "occurrence" are defined in the policies as follows:
Bodily Injury means bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom.
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Occurrence means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.
The primary policies provide $1,000,000 per occurrence. Claims falling under the "completed operations hazard" are subject to an aggregate limit of $1,000,000. The completed operations hazard is defined in the policies as follows:
"Completed operations hazard" includes bodily injury and property damage arising out of operations or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to the named insured. "Operations" include materials, parts or equipment furnished in connection therewith.
The policies provide that operations shall be deemed complete at the earliest of three points:
(1) when all operations to be performed by or on behalf of the named insured under the contract have been completed,
(3) when the portion of the work out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project.
In addition, "[o]perations which may require further service or maintenance work, or correction, repair or replacement because of any defect or deficiency, but which are otherwise complete, shall be deemed completed." Among other exceptions to the completed operations hazard, such hazard does not include bodily injury arising out of "the existence of tools, uninstalled equipment, or abandoned or unused materials."
National Union and American Home also issued to Porter Hayden three excess policies covering the policy periods from July 11, 1975 to January 1, 1978.
II. Summary Judgment Standard
Pursuant to Fed.R.Civ.P. 56(c), summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In considering a motion for summary judgment, the facts, as well as the inferences to be drawn therefrom, must be viewed in the light most favorable to the nonmovant. Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A party moving for summary judgment is entitled to a grant of summary judgment only if no issues of material fact remain for the trier of fact to determine at trial. Id. at 587, 106 S.Ct. 1348. A fact is material for purposes of summary judgment, if when applied to the substantive law, it affects the outcome of the litigation. Anderson, 477 U.S. at 248, 106 S.Ct. 2505. "Summary judgment is not appropriate when there is an issue of fact for a jury to determine at trial, which is the case when there is sufficient evidence favoring the non-moving party upon which a jury can return for that party." Shealy v. Winston, 929 F.2d 1009, 1012 (4th Cir.1991).
III. Applicable Law
The parties agree that Maryland law governs the construction of the insurance policies at issue.
A. Trigger of Coverage
The first area of dispute between the parties is the so-called "trigger of coverage," i.e., what it is that must happen during the policy period in order to trigger the insurance company's duty to defend and indemnify the insured. Courts faced with insurance coverage disputes in asbestos-related bodily injury cases have identified at least four theories for determining when coverage is triggered under standard form policies: (1) the exposure theory;
Under the exposure theory, a policy is triggered if it is in effect during a claimant's exposure to asbestos fibers. Under the manifestation theory, a policy is triggered if it is on the risk when the asbestos-related disease first manifests, which is considered to be the earlier of when the claimant has actual or constructive knowledge of the disease or when the disease is diagnosed. Under the injury-infact theory, a policy is triggered when an injury exists, regardless of the time of exposure or discovery.
The Court of Appeals of Maryland considered the trigger-of-coverage issue in the context of asbestos-related bodily injury claims in Lloyd E. Mitchell, Inc. v. Maryland Casualty Company, 324 Md. 44, 595 A.2d 469 (1991). Lloyd E. Mitchell, Inc. ("Mitchell") was a mechanical contractor engaged in the sale, distribution, and installation of asbestos-containing products. Mitchell ceased all business operations in 1976. Between 1955 and 1977,
In a declaratory judgment action, Maryland Casualty moved for summary judgment, contending that it was obligated to provide coverage only for bodily injuries caused by an "occurrence" and that an "occurrence" is the date when injury first manifests. Mitchell, 324 Md. at 48, 595 A.2d 469. Mitchell also moved for partial summary judgment, asserting that Maryland Casualty had the duty to defend and indemnify it in connection with all asbestos-related personal injury suits "where the claimants allegedly were exposed to allegedly asbestos containing products supplied by Mitchell, wherein the exposure or
Mitchell expanded its argument before the Court of Appeals, asserting that the court should, "as a matter of policy, and in order to promote uniformity of decisions nationally," adopt as broad a theory of coverage as the continuous trigger theory. Mitchell conceded that "the record in this case does not dictate adopting such a third trigger," Br. of Appellant, at 29-30, presumably because Mitchell's medical expert failed to opine explicitly that injuries continue after exposure to asbestos ceases, or possibly because an exposure trigger was sufficient to provide coverage for all of the underlying claims.
After examining the policy language and surveying the approaches taken by courts in other jurisdictions with regard to the trigger of insurance coverage in asbestos-related bodily injury cases, the Court of Appeals concluded that the trial court's adoption of the manifestation theory as the sole trigger of coverage is "an interpretation at odds with the policy language and the clear weight of authority in the country." Id. at 58, 595 A.2d 469. The court observed that "a number of courts . . . have concluded that `bodily injury' occurs when asbestos is inhaled into the lung, and that, at a minimum, coverage under [a standard form CGL] policy is triggered by exposure to the insured's asbestos products during the policy period." Id. (emphasis in original) (citing cases adopting an exposure trigger, a continuous trigger, and an injury-in-fact trigger). The court in essence adopted Mitchell's argument that, at a minimum, exposure triggers coverage. Specifically, the court stated:
Considering the plain meaning of the term "bodily injury," as used in the policy, and in light of the medical evidence concerning the development of asbestos-related diseases, we align ourselves with the overwhelming weight of authority in the country and conclude that "bodily injury" occurs when asbestos is inhaled and retained in the lungs. In this regard, for purposes of policy coverage, it
Id. at 62, 595 A.2d 469. The court vacated the trial court's ruling and remanded the case with directions that the trial court enter a declaratory judgment, "as sought by the insured, that at a minimum coverage under the policy is triggered upon exposure to and inhalation of asbestos fibers during the policy period by a person who suffers bodily injury as a result of that exposure." Id. at 63, 595 A.2d 469. The lower court's judgment also was to contain a declaration, inter alia, that Maryland Casualty provide a defense for Mitchell against all personal injury asbestos-related suits brought by plaintiffs allegedly exposed to Mitchell's asbestos products during the policy period, regardless of when the injuries became manifest. Id.
The insurers in the instant case contend that Mitchell is dispositive on the trigger of coverage issue in their favor. The insurers maintain that the Mitchell court adopted what might be termed an "exposure-only" theory, i.e., that an insurer is required to defend and indemnify its insured only for claims brought by plaintiffs exposed to the insured's asbestos products during the policy period. Plainly, however, this was not the holding of Mitchell. The court held simply that manifestation is not the sole trigger of coverage, and that, at a minimum, exposure triggers coverage. Id. at 62, 595 A.2d 469 As discussed supra, the court cited with approval cases adopting not only an exposure trigger, but injury-in-fact and continuous triggers as well. The Mitchell opinion thus does not compel, or even support, a conclusion as a matter of law that Maryland's Court of Appeals would adopt the theory urged by the insurers in this case.
The critical question for the Mitchell court, as it is for this court in determining the meaning of the policy language, was a determination of when, in the context of asbestos-related diseases, "bodily injury" occurs, as bodily injury during the policy period is what triggers insurance coverage.
The medical evidence in this case consists of the affidavit, submitted by Porter Hayden, of Dr. Edward Gabrielson, a pathologist and medical scientist. In his affidavit, Dr. Gabrielson discussed the etiology of asbestos-related diseases, specifically asbestosis, non-malignant pleural disease, bronchogenic carcinoma, and mesothelioma. He defined "injury" as "an event that leads to an adverse alteration of bodily structure or function."
Asbestos fibers, once they have been deposited within tissue, repeatedly cause injuries at the cellular and molecular level.
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Diseases caused by asbestos include asbestosis, non-malignant pleural diseases, and asbestos-caused cancers, and these diseases are all results of multiple and virtually continuous injuries. These injuries start shortly after inhalation of fibers, which is well before patients present with symptoms. These injuries continue throughout the life of affected individuals, even during periods when there is no additional inhalation of asbestos fibers, due to durable fibers retained in lung tissue.
Gabrielson Affidavit at 2. Regarding asbestosis and non-malignant diseases of the lungs and pleura, Dr. Gabrielson stated the following:
Asbestosis is a term that refers to diffuse, widespread fibrosis, or scarring, of the alveolar walls in the lungs caused by asbestos injury. This disease can occur at variable degrees of severity; when advanced, asbestosis decreases lung volumes and restricts lung function. Ultimately, in some patients, asbestosis causes respiratory failure and death.
The disease process that culminates in asbestosis is complex. The disease is initiated by specialized "caretaker" cells in the lungs, known as macrophages, ingesting asbestos fibers. The macrophages release oxygen free radicals and biologically active cytokines, such as platelet-derived growth factor (PDGF), in response to these ingested fibers.
Oxygen free radicals are chemically unstable molecules that are used by macrophages to kill microorganisms in the lungs. Experimental evidence indicates that oxygen free radical injury to normal cells contributes to the development of asbestosis.
The cytokines (e.g., PDGF) released by macrophages cause other cells in the lungs, known as fibroblasts, to aberrantly proliferate and produce collagen, the basic molecular component of scar tissue. Thus, cytokines also contribute to asbestos-induced injuries that can ultimately culminate in fibrosis (scarring) of the lungs.
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Asbestosis is characterized by diffuse, widespread pulmonary interstitial fibrosis that typically becomes more severe with time. Asbestosis is an essentially irreversible disease process. The fibrotic tissue that comprises this disease undergoes some modification and maturation with time, but does not resolve.
The probability of an individual developing clinically significant asbestosis, and the severity of asbestosis in that individual, generally correlates with the duration and intensity of exposure of that individual to asbestos. However it is important to recognize that asbestosis can progress in severity even after inhalation of new fibers by an individual has ceased, as a result of residual fibers in the lungs causing new injuries.
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Asbestosis and benign pleural disease are possible consequences of the macrophage-mediated injury to the lungs. These diseases develop over a period of many years as a result of multiple and cumulative injuries, which begin shortly after initial inhalation of asbestos and long before the clinical manifestation of disease. These injuries continue throughout the life of affected individuals, even during periods when there is no additional inhalation of asbestos fibers, due to durable fibers retained in lung tissue.
Id. at 4-8, 16 (emphasis added) (footnotes omitted). Regarding the development of asbestos-linked lung cancer and mesothelioma, Dr. Gabrielson said the following:
In addition to causing fibrosis (or scarring) of lungs and pleura, asbestos is well recognized to be an important cause of cancer. Most notably, asbestos is a cause of mesothelioma and lung cancer. The progenitor cells for these types of cancer — bronchial epithelial cells for lung cancer and mesothelial cells for mesothelioma — are exposed to asbestos fibers shortly after inhalation.
Cancers caused by asbestos present with clinical symptoms only after they have grown to a considerable size and long after the asbestos fibers initiated the carcinogenic process with cellular and molecular injuries.
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Asbestos produces critical genetic changes required for carcinogenesis by physically and chemically injuring chromosomes. This injury results in chromosomal breaks and rearrangements.
Asbestos injury also contributes to the carcinogenesis process by functioning as a tumor promoter. Asbestos functions as a tumor promoter by at least two mechanisms. First, asbestos stimulates cells, including the genetically altered cells, to replicate. In addition, asbestos injury results in cytotoxicity (cell killing) to some cells, with a greater cytotoxic effect on normal cells than on cells with genetic alterations related to cancer.
The net result of these two mechanisms — stimulation and selective cytotoxicity — is an expansion of the cell population that has the cancer-related genetic changes.
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Injury to an individual with cancer does not cease when a malignant cell arises from the carcinogenesis process. In fact, as a cancer grows and invades surrounding normal tissue, additional injuries occur.
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Lung cancer and mesothelioma are possible consequences of injuries to chromosomes and of injuries that lead to proliferation of genetically altered cells. These cancers develop well before clinical manifestations and over a period of many years as a result of multiple and virtually continuous injuries.
Id. at 9, 12-13, 15-16.
The insurers submitted no expert medical testimony to rebut that of Dr. Gabrielson, relying solely on their contention, which I have rejected, that Mitchell controls the disposition of the instant case. The Mitchell court acknowledged that "bodily injury" is what gives rise to an insurer's obligation to extend coverage. 324 Md. at 60, 595 A.2d 469. The court also made clear that while the policy definition of "bodily injury" includes sickness and disease, "bodily injury" also includes damage to the body which may be detectable only on a subclinical or microscopic level. See id. at 60-61, 595 A.2d 469 (citing cases for the proposition that "nothing in the policy language expressly requires that the injury be diagnosed or identified within [the policy] period, or that the injury manifest itself or progress to sickness or disease during the policy period").
The undisputed medical evidence in this case establishes that exposure to and inhalation of asbestos fibers begins a cumulative process in which the body suffers virtually continuous injuries. The insurance policies in this case obligate the insurers to "pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury . . . to which this insurance applies." In light of the medical evidence of the pathogenesis of asbestos-related diseases and the policy language, coverage under the policies, obligating the insurers to afford a defense to and potential indemnification of Porter Hayden, is triggered upon exposure, exposure-in-residence, and manifestation. As bodily injury occurs almost immediately upon inhalation and continues until the manifestation of an asbestos-related disease, every policy in effect from the date of exposure until the date of manifestation is triggered.
A plethora of cases from around the country support this result. See, e.g., Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178, 1197 (2d Cir. 1995) (predicting that New York and Texas will rule that, at least where the medical evidence establishes that successive injuries are recurring, all policies in effect at any time during the period between exposure and date of claim or death are triggered); Keene Corp. v. Ins. Co. of North America, 667 F.2d 1034, 1047 (D.C.Cir. 1981) (holding that insurance coverage in the context of asbestos-related diseases is triggered by exposure, exposure in residence, and manifestation); Montrose Chemical Corp. of California v. Admiral Ins. Co., 10 Ca1.4th 645, 689, 42 Cal.Rptr.2d 324, 913 P.2d 878 (Ca1.1995) (holding that the continuous injury trigger of coverage should be applied to third party claims of continuous or progressively deteriorating bodily injury or property damage); Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 478-79, 650 A.2d 974 (N.J.1994) (adopting the continuous-trigger
B. Allocation and Completed Operations
Two other issues are in dispute. The first, the "allocation" issue, concerns the method by which coverage must be allocated among triggered policies. Under "all sums" or joint and several allocation, each triggered policy is liable in full for all damages, whether or not some portion of the bodily injury continues past the policy period, with the insurers relegated to bringing claims among themselves for contribution. Porter Hayden asserts that coverage must be allocated on an "all sums" basis. Porter Hayden maintains that the drafting history of the policies at issue supports this view. The insurers contend that allocation among multiple triggered policies must be done by application of a pro rata, time on the risk formulation, by which each insurer is liable only for its proportionate share of the total liability. The insurers contend that such a result is compelled by Maryland law and by the decision of the United States Court of Appeals for the Fourth Circuit addressing this issue under Maryland law in In re The Wallace & Gale Company, 385 F.3d 820 (4th Cir.2004) ("Wallace & Gale").
The second issue, the "completed operations" issue, concerns whether any aggregate limits of a triggered policy will apply. The policies provide a single aggregate limit of $1,000,000 for damages payable because of bodily injury included within the "completed operations hazard." Specifically, the policies provide:
Subject to the above provision respecting "each occurrence," the total liability of the company for all damages because of (1) bodily injury included within the completed operations hazard and (2) all bodily injury included within the products hazard shall not exceed the limit of bodily injury liability stated in the schedule as "aggregate."
The policies define the "completed operations hazard" in relevant part as follows:
"[C]ompleted operations hazard" includes bodily injury . . . arising out of operations . . . but only if the bodily injury . . . occurs after such operations have been completed or abandoned and
Porter Hayden argues that whether an injury falls within the completed operations hazard turns strictly on the cause of the injury, and to the extent that a claimant was exposed to asbestos during Porter Hayden's ongoing operations, that claimant was never "in hazard" from Porter Hayden's completed operations and thus the claim does not fall within the completed operations hazard. In other words, Porter Hayden asserts that even if a claimant suffered ongoing progressive injuries during policy periods when operations were complete, the injuries must be deemed to have occurred while Porter Hayden was conducting operations, because the injuries arose out of exposure to asbestos while Porter Hayden was still conducting operations.
The facts of Wallace & Gale are virtually identical to those of the instant case. Wallace & Gale, Inc., an insulation contractor, ended its operations in the early 1970s and later filed for bankruptcy due to the large number of asbestos-related bodily injury claims filed against it. Wallace & Gale had purchased comprehensive general liability policies and excess policies from numerous insurers during the decades it installed asbestos-containing insulation materials. In 1994, Travelers Insurance Company brought a declaratory judgment action, as an adversary proceeding within the bankruptcy case, seeking a judicial determination of the applicability and extent of coverage of the insurance policies purchased by Wallace & Gale. A number of persons having bodily injury claims against Wallace & Gale intervened in the adversary proceeding, raising the issues of allocation and completed operations. As Porter Hayden and the Committee have argued in the present action, the intervenors argued that each triggered policy was liable for "all sums" and that no injuries were subject to the aggregate limits of the policies under the completed operations hazard clauses. The Wallace & Gale insurers argued in response that they would be liable only for a pro rata portion of the bodily injury that occurred during the time each insurer's policy was in place and that the aggregate limits of the completed operations coverage of their policies would apply to injuries that occurred after Wallace & Gale completed its installation work.
The Wallace & Gale intervenors and insurers filed cross-motions for summary judgment. Judge Messitte issued an initial opinion in February 2002. See Aetna Cas. & Sur. Co. v. Wallace & Gale Co., 275 B.R. 223 (D.Md.2002). Noting that both the insurers and the plaintiffs presented reasonable arguments with respect to the allocation issue and that Maryland had "yet to speak definitively to the question," Judge Messitte held that the "tie" must go in favor of the insured, meaning each insurer would be liable for "all sums." With respect to the completed operations issue, Judge Messitte granted Travelers' motion for summary judgment, holding that the insurers who issued policies to Wallace & Gale for time periods wholly after Wallace
Several months later, on July 2, 2002, the Court of Special Appeals of Maryland issued its ruling in Mayor and City Council of Baltimore v. Utica Mutual Insurance Company, 145 Md.App. 256, 802 A.2d 1070 (2002), adopting as Maryland law the pro rata allocation theory.
The United States Court of Appeals for the Fourth Circuit affirmed the district court's order on allocation and completed operations. In re Wallace & Gale Company, 385 F.3d 820 (4th Cir.2004). The Fourth Circuit concluded that pro rata allocation is the settled law of Maryland, which federal courts are obliged to follow. Id. at 832. The Fourth Circuit rejected the intervenors' assertions, including their objection to the adoption of Utica Mutual on the ground that the Maryland Court of Appeals had granted a petition for certiorari in that case, but the parties settled the case prior to decision. The Fourth Circuit observed that "a federal court can depart from an intermediate state court's fully reasoned holding as to state law only if `convinced' that the State's highest court would not follow that holding." Id. at 831 (citing Assicurazioni Generali, S.p.A. v. Neil, 160 F.3d 997 (4th Cir.1998)). The Fourth Circuit was not persuaded that the Court of Appeals would decide the allocation issue differently than did the Court of Special Appeals in Utica Mutual. Id. at 832. As to the completed operations issue, the Fourth Circuit quoted from the district court's original opinion and affirmed its ruling:
If a claimant's initial exposure occurred while Wallace & Gale was still conducting operations, policies in effect at that time will not be subject to any aggregate limit. If, however, initial exposure is shown to have occurred after operations were concluded or if exposure that began during operations continued after operations were complete, then the aggregate limits of any policy that came into effect after operations were complete will apply. Where a given claimant falls within this framework will have to be considered on a case-by-case basis.
The Fourth Circuit and Judge Messitte applied principles of contract interpretation and settled Maryland law to new facts and reached sound conclusions within the dictates of the law. The facts of the instant case are for all relevant purposes directly analogous to the facts of Wallace & Gale, and the Fourth Circuit's decision is binding on this court.
Porter Hayden contends that there is a dispute regarding whether its operations were "completed" during the insurers' policy periods. Porter Hayden asserts that, even after it ceased installing asbestos-containing litigation, Porter Hayden continued to conduct "tie-ins"
On this record, genuine issues of material fact remain as to whether Porter Hayden's operations were "completed" during the relevant policy periods and which if any of the claims triggering the policies necessarily fall within the completed operations hazard. Nevertheless, as a matter of law, any portion of bodily injury that occurs after completed operations will be subject to the aggregate limits of any policies that were in effect after Porter Hayden's operations were completed.
It remains true that asbestos-related injury can occur at any time from exposure onward and that it cannot be said with certainty when or to what extent it actually occurs. But whatever injury — theoretical or real — is assumed to have occurred after Wallace and Gale's operations were completed will always — by definition — be covered by the completed operations clause. The injury occurs after operations were completed. Nor does it matter whether an injury is viewed as occurring both upon initial exposure before operations are completed as well as thereafter. The portion of the injury extending beyond completion would still, by definition, occur post-operations and thus remain subject to the completed operations hazard aggregate limit. By the same token — to the extent that injuries, beginning with exposure, may be considered as occurring before operations were completed they would, by definition, be excluded from the completed operations clause. There would be no aggregate limit under the policies then in effect.
Id. at 238-39.