The Wisconsin Supreme Court recently rendered a decision that will have a significant impact on the availability and amount of insurance coverage afforded to policyholders in long-term toxic exposure cases, such as asbestos personal injury claims. In the case, Plastics Engineering Co. v. Liberty Mutual Insurance Co., 2009 WI 13, the Court addressed the following three issues certified from the United States Court of Appeals for the Seventh Circuit: (1) what constitutes an ”occurrence” in an insurance contract when exposure injuries are sustained by numerous individuals, at varying geographical locations, over many years; (2) whether Wisconsin Statute Section 631.43(1) applies to successive insurance policies; and (3) whether Wisconsin courts would adopt an “all sums” or “pro rata” allocation approach to determining liability when an injury spans multiple, successive insurance policies.

The underlying personal injury claims were typical of those normally encountered by a company with a history of manufacturing or distributing asbestos containing products. Plastics Engineering (Plenco), manufactured and sold certain products containing asbestos from approximately 1950-1983. It was consequently sued in numerous asbestos personal injury lawsuits by individuals claiming long-term exposure to Plenco’s products. The exposures occurred at different times and at different locations. During the exposure periods, the insurer, Liberty, provided general liability coverage to Plenco. The policy terms differed and as a result, Plenco had products coverage for its asbestos exposure for some of the years of exposure. In other years the Liberty policies, due to Plenco’s business decision not to purchase products coverage or policy exclusions, did not provide coverage. Depending on the year of coverage, the policies had different occurrence and aggregate limits.

Addressing issue (1) as detailed above, the Court concluded that under the language of the insurance policy and the facts of the case, each claimant’s repeated exposure to asbestos fiber was one occurrence. This ruling is important for policyholders faced with numerous claims involving asbestos exposures during the same policy year. Because policy limits apply to each occurrence, each individual claim would be covered up to the occurrence limit, subject to the aggregate limit of the policy. For example, assume AAsbest Co. is faced with three separate personal injury claims involving exposure to asbestos fiber that occurred in 1976. Its liability policy for that year had $1 million per occurrence limits and $2 million aggregate. Pursuant to the Court’s holding, AAsbest Co. has coverage up to $1 million for each claim subject to total coverage for all three claims up to the $2 million aggregate limit. As Wisconsin law provides for a continuous trigger in long-term exposure cases, the amount of coverage available for each claim is compounded by the occurrence limits provided by each policy in force during the period each claimant was exposed to the policyholder’s product.

Liberty, like many insurers, attempted to limit the impact of the continuous trigger by including non-cumulation provisions in their primary and excess policies. These provisions clearly limit an insurer’s coverage to a single occurrence limit where an injury occurs over successive policy terms of policies issued by the same insurer. Plenco contended that those provisions were prohibited by Wisconsin’s other insurance statute, Wisconsin Statute Section 631.43.(1). The Court disagreed, holding that that statute did not apply to successive insurance policies. This holding becomes significant only where a policyholder purchases insurance from the same insurer over multiple policy terms. Non-cumulation provisions generally do not apply to policies issued by different insurers.

Finally, and most importantly, the Supreme Court adopted what is commonly referred to the “all sums” approach in addressing the allocation issue. The “allocation” issue involves the determination of how an insured’s liability for damages because of bodily injury that occurs over an extended period of time should be allocated among multiple triggered insurance policies and periods of no insurance. The Court concluded that once a policy is triggered, the insurer must fully defend the lawsuit in its entirety. Under the triggered policy, an insurer is responsible for "all sums," up to the policy limits, even where the compensation is for asbestos exposure that occurs "partly before and partly within the policy period."

The impact for policyholders of the “all sums” approach adopted by the Supreme Court is illustrated by Plenco’s historical insurance purchases. In several years, Plenco decided not to purchase product liability coverage for its asbestos containing products. Although the majority of a particular claimant’s exposure history occurred during the period of no coverage, as long as that individual also established exposure to Plenco’s asbestos-containing product during one day of a covered year, Plenco would be entitled to a complete defense and indemnity up to the occurrence policy limit of the triggered policy. The same rule applies under circumstances where policy limits in particular years are exhausted by the payment of similar claims or are otherwise no longer available due to lost policies or insurer insolvencies. As long as the policyholder can establish a claimant’s exposure during a covered policy year, the subject insurance policy must provide a defense and indemnity.

Because this case involved a single insurer, the Supreme Court did not address the issue of whether an insurer whose policy has been triggered has contribution rights for defense and indemnity costs paid against other insurers whose coverage has also been triggered by exposure during their respective policy periods. It is likely that the Court will allow insurers contribution relief against another insurer under these circumstances.

Although Plastics Engineering involved asbestos, its rational will apply to any long-term toxic exposure personal injury case. Policyholders faced with these types of claims need to carefully document and establish the periods of each claimant’s exposure in order to maximize their available insurance coverage. 

For further information, please contact Craig T. Liljestrand or Thomas R. Schrimpf or your regular Hinshaw attorney.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.