Texas Federal Court Ruled Primary Carrier Was Entitled to Reimbursement for Settlement Payments But Not Defense Costs in Connection with Underlying Asbestos Cases U.S. Disctrict Court, Eastern District of Texas, October 12, 2015
LGS Technologies, LP v. U.S. Fire Ins. Co., No. 2:07-CV-399, 2015 U.S. Dist. LEXIS 139085 (E.D. Tex. Aug 14, 2015)
On October 12, 2015, the district court from the Eastern District of Texas filed an order, accepting the report and recommendation of the Special Master in connection with an asbestos insurance coverage dispute between a variety of primary and excess carriers. LGS Technologies, LP (LGS), a gasket company, had both primary policies from 1980-83 with ACE, primary policies from 1983-1993 and excess policies from 1986-1993 with Trinity, and umbrella policies from 1979-1986 with U.S. Fire. LGS was sued in thousands of asbestos lawsuits, incurring defense costs and settling claims over the years. “The issue in this lawsuit, in part, has been where to allocate the settlements and defense costs in terms of the various primary and excess/umbrella insurance policies issued to LGS over the years.” In this particular ruling, the district court held that Trinity was entitled to reimbursement from U.S. Fire for settlement payments made above its policy limits and and for post-exhaustion defense costs.
Trinity sought reimbursement from U.S. Fire for settlement payments above its policy limits. The Special Master rejected U.S. Fire’s argument that Trinity’s payments were made voluntarily: “Here, Trinity was not acting ‘voluntarily’ when defending its insured and paying claims. Trinity had a legal duty to LGS. In addition, US Fire knew as far back as 2001 that LGS considered the ACE policy to have been exhausted and US Fire’s excess layer in play. Yet US Fire refused to participate in any way in the defense and negotiation of ongoing asbestos claims.” The court also rejected U.S Fire’s unclean hands argument and engaged in a vertical exhaustion analysis in holding Trinity was entitled to reimbursement.
The court also ruled that U.S. Fire, as the umbrella carrier, had a duty to defend, which it described as follows: “US Fire may optionally defend its insured when what is at issue is the same occurrence that exhausted the primary policy; but US Fire must defend its insured when what is at issue is a different occurrence than the one that exhausted primary coverage. This construction not only harmonizes all of the policy terms, it is also the construction that avoids leaving the insured without a defense. In the first occurrence, the primary insurer would be obligated to defend its insured for the entire occurrence, even after exhaustion.” However, the court determined that under this different occurrence standard, Trinity could not establish entitlement to reimbursement: “To avail itself of US Fire’s duty to defend Trinity must establish that under the ‘eight corners’ rule in Texas, the pleadings on file, liberally construed and accepted as true, facially contain a claim within the policy’s coverage; and that the legal fees incurred were for a different occurrence than the occurrence which exhausted Trinity’s primary coverage. . . . While Trinity then argues it has successfully ‘connected the dots to show occurrence dates,’ the eight corners rule is not satisfied by connecting dots. It is not satisfied by imagined factual scenarios or matters outside the pleadings, or reading facts into them. Thus, Trinity’s inability to supplement the record with the requisite showing, and its admission that it cannot because the pleadings–on their own–simply do not satisfy the eight corners rule is the end of the inquiry.”