Unavailability Exception in Asbestos Coverage Dispute Affirmed by New Jersey Supreme Court New Jersey Supreme Court, June 27, 2018

NEW JERSEY — The decision involved questions about the insurance coverage available to defendant Honeywell International, Inc. (Honeywell), a New Jersey based corporation, for thousands of bodily-injury claims premised on exposure to brake and clutch pads (friction products) containing asbestos.  The court first considered whether the law of New Jersey or Michigan (the headquarters location of Honeywell’s predecessor when the disputed excess insurance policies were issued) should control in the allocation of insurance liability among insurers for nationwide products-liability claims. Second, the court addressed whether to require the policyholder, Honeywell, to contribute in the allocation of insurance liability based on the time after which the relevant coverage became unavailable in the marketplace (that is, since 1987).

On the choice of law question, the court held that New Jersey law applied.  In the context of insurance claims where the insured risk was located in multiple states, New Jersey courts applied a “most significant relationship” test to determine which state’s law governs the dispute.  Here, New Jersey law applied.  The place of performance of the insurance contract, domicile, residence, and places of incorporation and business of the parties all pointed to New Jersey.

On the allocation question, the court upheld the unavailability exception to the state’s continuous-trigger method of allocation.  New Jersey applied the Owens-Illinois framework to allocation of long-tail injury costs among insurance policies.  That approach considered, among other things, the total damages, the number of years in the coverage block, and the amount of coverage available under each policy.  Responsibility for a share of costs may be attributed to an insured where the insured chose not to obtain coverage.  However, an insured was not forced to assume responsibility in that allocation during the insurance coverage block of policies for years in which insurance was not reasonably available for purchase.

Here, certain excess insurers argued that responsibility should be allocated to Honeywell for the period between April 1987, when excess coverage became unavailable for asbestos-related claims, and 2001, when Honeywell stopped producing friction products containing asbestos.  The insurers argued that Honeywell’s choice to continue manufacturing asbestos-containing products when coverage was unavailable constituted a choice to assume risk, and that Honeywell should bear responsibility for costs of asbestos claims during that period.  The court disagreed, applying the unavailability exception.  The court further held that Honeywell’s retention of cash reserves did not constitute self-insurance.  As a result, no responsibility was allocated to Honeywell for costs of claims for the period 1987-2001.

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