Court Rules Insurer Has Duty to Pay Defense and Indemnification Costs of Asbestos Claims

Liberty Mutual had a duty to pay defense and indemnity costs for a variety of asbestos-related cases filed nationwide against its insured, York International Corporation, and York Corporation, the insured’s predecessor. Liberty Mutual had elected not to defend the underlying lawsuits or file a declaratory judgment action regarding coverage, and the underlying suits were settled by the insured. The insured then submitted the complaints in the underlying cases and invoices for defense and indemnity costs to Liberty Mutual. In this case, the court ruled on Liberty Mutual’s objections to paying the invoices. Liberty Mutual paid a heavy penalty for its decision not to defend or contest coverage in a declaratory judgment action.

The court held that Liberty Mutual had a duty to pay defense costs even where invoices submitted for payment included time spent on discovery and even though some invoices demonstrated that liability for the underlying injury fell outside the scope of the policies at issue.

The court further held that Liberty Mutual was required to indemnify its insured for settlement costs for certain of the underlying lawsuits even though the settlements related in part to parties not covered under the relevant policies. Liberty Mutual had not sought a declaratory judgment regarding coverage prior to settlement of the underlying cases, which included both covered and non-covered claims. Thus, under Pennsylvania law, Liberty Mutual was required to pay the entire settlement amount.

The court further held that applicable Pennsylvania law uses an “all sums” approach to asbestos-related cases rather than a “pro rata” approach. Thus, Liberty Mutual was required to bear the liability for the entirety of the underlying claims rather than paying merely its pro rata share based on the amount of time it was on the risk.

The court also overruled Liberty Mutual’s objection based on the plaintiff’s failure to provide timely notice because Liberty Mutual was not prejudiced by the late notice.

Finally, Liberty Mutual objected to defense costs in a certain underlying case because they did not represent meaningful defense work. The court overruled the objection because Liberty Mutual had elected not to defend its insured, thereby forfeiting the opportunity to object to the reasonableness of defense invoices.

Read the full decision here.