While the United States Senate has expressed its willingness and commitment to solving the asbestos litigation problem facing the county, insurers remain under a siege of asbestos related claims.
While hope remains that a legislative solution will be enacted to address the problem, insurers have approached asbestos litigation with renewed vigor by implementing new strategies. Some insurers have sought to settle large groups of claims with both their insureds and underlying plaintiffs’ counsel in an attempt to reduce the expense of handling asbestos claims. Other insurers have clearly made the strategic decision to selectively pursue litigation against other insurers in an attempt to spread or share the costs associated with asbestos claims.
Notably, many insurers have also imposed “Documentation Requirements” or other evidentiary proof requirements that establish guidelines from the insurer as to the parameters of a compensible claim in the asbestos context. These guidelines often specifically address what medical proof is necessary to establish a “bodily injury” under the insurer’s policies.
This new effort by insurers and reinsurers to require specific proof of “bodily injury” before coverage will be provided has been the subject of litigation and private arbitration around the country. A recent Illinois state court’s decision adds to the questions raised concerning whether an insurer may impose documented proof of loss requirements that may not otherwise be clearly required by an insurance policy. In Everest Reinsurance Co. v. Maremont Corp., No. 03CH10905, Ill.Civ., Cook Co., the court ruled that an excess insurer could not question the exhaustion of underlying insurance by examining asbestos-related claims under newly devised documentation requirements.
Everest sought to audit Maremont’s asbestos-related claims under the documentation guidelines that Everest had developed internally. Everest’s intent in requesting the audit was to determine if the Maremont insurance policies underlying the Everest policies would be considered “exhausted” with use of the newly developed Everest guidelines. To support its audit request, Everest maintained that it was Maremont’s burden to demonstrate that the claims were covered losses under the Everest policies.
In response, Maremont maintained that both the Everest policies and the policies underlying the Everest policies failed to include policy language specifically requiring documentation of “bodily injury.” Instead, Maremont maintained that Everest’s review of the underlying claim information was confined to a determination of whether any reported settlements were based on fraud, collusion, or bad faith.
Of significance, Maremont also argued that industry-wide custom and practice supported its position that any investigation into Maremont’s underlying asbestos settlements should be narrowly tailored. In support, Maremont contended that if discovery proceeded in the action Maremont would be able to show that Everest paid claims submitted by other policyholders, under policies containing identical language, but without requiring those policyholders to prove their own liability to the underlying claimants.
Further, Maremont believed that it could support the industry and custom in the insurance industry for handling claims resolved by settlement by (1) testimony from insurance professionals not involved in the instant dispute that settlement of asbestos claims not satisfying Everest’s proposed internal guidelines are routinely paid and submitted without controversy; (2) testimony from the insurers providing coverage underlying the Everest policies; (3) testimony on industry custom and practice regarding standard-form liability policies’ coverage grant involving liability fixed by settlement; and (4) testimony from insurance professionals regarding insurance industry custom and practice to establish that Everest’s requirements are unreasonable as they would discourage settlements and expose policyholders to large verdicts.
After examining the various arguments presented by the parties, the Court ruled that Everest did not have the legal right to challenge the exhaustion of the underlying policies by substituting its own analysis or policy requirements for the settlement judgments of the insured. Further, the Court found that Everest was confined to (1) verifying that the total amounts paid in defense and settlement of the asbestos-related claims is at least equal to the products liability limits of the underlying insurance; and (2) verifying that the payments were made in response to claims for which Maremont was exposed to liability, and which alleged potentially covered bodily injury.
Although only a state district court opinion, insurers will pay particular attention to the tone and message of this decision. The case is instructive in that it supports a close reading of the insurance policies at issue. The asbestos litigation problem in the insurance coverage context is now, in some ways, most problematic for umbrella and excess liability insurers. Primary carriers for insureds have long recognized that their limits have been exposed for those insureds involved in asbestos litigation.
Seeking to protect policy limits, umbrella and excess insurers have become determined to investigate whether underlying settlements include claims made by unimpaired claimants. This Court’s decision reinforces the proposition that an insured merely needs to show that a settlement was made with reasonable anticipation of liability.
Since the stakes are high, we can continue to expect both insurers and reinsurers to question settlements involving large groups of asbestos claims until there is a more significant set of controlling cases addressing this issue.
Andrew S. Boris is a partner in the Chicago office of Tressler Soderstrom Maloney & Priess. His practice is focused on litigation and arbitration of insurance coverage and reinsurance matters throughout the country. Questions and responses to this article are welcome at email@example.com The Tip of the Month runs each month on claimsguides.com.
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