N.Y. Court Rules on Asbestos Defense Costs for Primary Insurer

November 23, 2011

A New York State court ruled last Friday that an asbestos defendant is entitled to full defense from its primary insurer for certain asbestos liabilities, with the primary insurer paying all defense costs for covered claims that are not paid by other insurers.

The case is Travelers Casualty and Surety Company v. Alfa Laval Inc. The New York’s Supreme Court, New York County, issued partial summary judgment in favor of Alfa Laval, a manufacturer of specialized products for handling chemical ingredients and fluids.

Judge Debra James ruled that Travelers owed a defense for asbestos claims for which Alfa is charged with direct liability under a “joint and several liability” standard.

The judge ruled that Alfa had not forfeited its right to seek a complete defense from Travelers by virtue of having sought coverage from other insurers.

According to New York-based law firm Anderson Kill & Olick, which counseled Alfa Laval during the litigation, the ruling addressed three issues: first, should responsibility for defense be assessed on a “joint and several liability” standard, under which multiple parties can be held liable for the same event and each may be responsible for all restitution required? Or should it be assessed on an “allocation” basis, under which each is responsible for only a portion, determined in advance?

Second issue was: did Alfa’s pursuit of coverage from other insurers affect that allocation question? Finally, since Alfa was seeking defense both for asbestos suits charging the company with direct liability and for suits against a predecessor company, how far did Travelers’ duty to defend extend?

On the first issue, the judge said the decision whether to apportion risk on a joint and several or allocation basis is fact-specific.

“It is up to the court to determine which of the two methods is the proper one in each case,” the judge stated.

In this case, “it would be highly impractical to allocate the insurer’s liability for defending Alfa in the plethora of pending suits against it…most of those 650 cases, which are scattered all over the country, allegedly involve different co-defendants and insurers, so Travelers’ pro rata share would be different in each one.”

As to whether Alfa’s pursuit of coverage from multiple insurers imposed a kind of de facto allocation standard, the judge found that “Alfa’s conduct does not relieve Travelers of its obligation to defend Alfa in the Hawkins case [in which Alfa was charged with direct liability]…Double recovery will be avoided by reducing Travelers’ liability for Alfa’s defense by the amounts obtained by Alfa from the other insurers.”

Finally, Alfa is seeking defense in two kinds of pending actions, represented by Hawkins v. Alfa Laval, in which plaintiffs directly charge Alfa with liability, and Stewart v Alfa Laval, in which part of the case against Alfa is based on its being the successor of Sharples, Inc.

The judge found that while Alfa need not provide defense where Alfa is a defendant solely because of its acquisition of Sharples, “where, as in Stewart, Alfa is charged with direct liability as well as vicarious, Travelers must provide it with a complete defense, subject to Travelers’ potential recoupment from contribution, if appropriate, after the conclusion of the underlying case.”

The judge ruled similarly with regard to a parallel motion by insurer OneBeacon, which also insured Alfa. The judge found that “OneBeacon shall provide Alfa with a full defense against those claims which fall primarily under its policies.”

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