United States: New York High Court Links Number Of Occurrences To Individual Asbestos Exposure, Not Remote Causes

In Appalachian Ins. Co. v. General Electric Co., ___ N.Y. 2d __ (Feb. 15, 2007), New York’s Court of Appeals rejected arguments by General Electric Company ("GE") that all claims arising out of exposure to any particular asbestos-containing product GE manufactured should be deemed a single "occurrence" for liability insurance purposes. The Court instead ruled that under its "unfortunate event" test, the "occurrence" must be determined with reference to the circumstances surrounding each plaintiff’s exposure to GE’s asbestos-containing products and that, in light of the highly individualized exposure histories of each plaintiff, each claim constituted a separate occurrence.

Under its pre-1986 insurance program, GE essentially self-insured, through a retroactive premium arrangement, for the first $5 million of any occurrence and for most years the policies contained no aggregate products limit of liability. Although GE had initially treated each individual claim as an occurrence, in 1991 it entered into an agreement with its primary insurer to treat all claims arising from each asbestos-containing product as one occurrence. GE’s excess insurers objected to this arrangement and commenced a declaratory judgment action.

Both the trial court and the Appellate Division (First Department) of the Supreme Court ruled that under the "unfortunate event" test established in Arthur A. Johnson Corp. v. Indemnity Ins. Co. of N. Am., 7 N.Y. 2d 222 (1959), the exposure of each plaintiff to GE’s asbestos was the liability-causing unfortunate event, and therefore the occurrence for insurance purposes. The Court of Appeals affirmed. Noting that Johnson had rejected the sole-proximate-cause test, the Court ruled that the lack of any "spatial or News Concerning Recent Insurance Coverage Issues temporal relationship" among the circumstances of the exposure to asbestos of hundreds of thousands of plaintiffs at tens of thousands of sites over a period of decades doomed GE’s arguments for a single occurrence per product. In so ruling, the Court noted its agreement with the Second Circuit’s opinions in Prudential Lines v. American Steamship Owners Mutual Protection and Indem. Assoc., 158 F.3d 65 (2d Cir. 1998) and Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp, 73 F.3d 1178 (2d Cir. 1995), mod. on other grounds 85 F.3d 49 (1996).

GE sought to aggregate many thousands of asbestos-related personal injury claims on the theory that virtually all arose from claimed exposures to asbestos-containing insulation on steam turbines and that its corporate failure to warn of the hazards of asbestos constituted the sole occurrence. GE also argued that Johnson was not controlling because it interpreted the term "accident" instead of "occurrence." The Court, however, rejected this purported distinction, ruling that the terms "accident" and "occurrence" are synonymous unless the policy language provides otherwise. Here, the policies defined occurrence as "an accident, event, happening or continuous or repeated exposure to conditions which unintentionally results in injury or damage during the policy period." The Court did observe that the parties were free to contract around the Johnson rule by, for example, using policy language that provided for aggregation of claims into a single occurrence, but had not done so in this case.

The Court’s reaffirmation of the vitality of Johnson’s "unfortunate event" is welcome news for excess liability carriers in latent injury mass tort litigation, but will not likely assist insureds with large self-insured retentions and primary carriers whose policies do not contain aggregate limits. It remains to be seen how New York’s courts will treat other policies with differing definitions of "occurrence."