Continental Casualty Co. v. Indian Head Industries, Inc., 666 F. App'x 456

Background

In 1984 Indian Head acquired Detroit Gasket and expressly assumed its liabilities in a written acquisition agreement; Indian Head purchased CGL policies from Continental covering April 1984–April 1987.
The policies promised to pay "all sums" for bodily injury caused by an "occurrence" but defined coverage to injuries "which occur during the policy period" and contained Exclusion A: no coverage for liability "assumed by the insured under any contract" except for limited "incidental contract" liabilities that did not preexist the contract.
Detroit Gasket/Indian Head manufactured asbestos-containing gaskets; thousands of exposure suits were tendered to Continental from the 1980s onward. Continental defended and indemnified claims for ~9 years without reservation of rights.
In 2005 Continental reserved rights and notified Indian Head it would only pay a pro rata share and might seek reimbursement for excess payments; Continental then sued for declaratory relief. The district court adopted pro rata (time-on-the-risk) allocation, held Exclusion A precluded assumed liabilities that preexisted the 1984 Agreement, and ordered Indian Head to reimburse Continental for excess payments after the reservation of rights.
On appeal the Sixth Circuit affirmed pro rata allocation and the reimbursement ruling, but remanded to allow the district court to consider coverage for liabilities assumed by the 1984 Agreement to the extent injuries were ongoing (continuous exposure) and therefore continued to "occur" after the 1984 Agreement.

Issues

Issue	Continental's Argument	Indian Head's Argument	Held
Does Exclusion A bar liabilities Indian Head assumed in the 1984 acquisition agreement?	Exclusion A bars liability assumed under any contract except incidental contracts; thus assumed liabilities are excluded.	The 1984 Agreement is an "incidental contract" (relating to Indian Head's business) so Exclusion A does not apply.	Exclusion A is plain; the 1984 Agreement can be an incidental contract, but Exclusion A still bars coverage for injuries that occurred before the agreement; remand required to determine coverage for ongoing injuries that continued after the agreement.
Whether injuries must "occur" during the policy period to trigger coverage	Policies limit coverage to bodily injury "which occurs during the policy period"; thus only the portion of continuous injuries attributable to the policy period is covered.	Argued "all sums" language requires joint-and-several (all-sums) allocation across policies.	Held that the policy’s limitation to injuries occurring during the policy period supports pro rata (time-on-the-risk) allocation.
Proper method to allocate indemnity and defense costs among successive insurers (pro rata vs. all-sums)	Pro rata allocation is appropriate because coverage is limited to injuries during the policy period and Michigan courts favor time-on-the-risk for continuous injuries.	Indian Head urged all-sums/joint-and-several allocation based on the "all sums" phrase and duty-to-defend breadth.	Court adopted pro rata allocation for both indemnity and readily-apportionable defense costs; defense costs here were apportionable because already incurred and stipulated.
Whether Continental may recover reimbursement for excess payments despite no express policy provision	Continental may recover under implied-in-fact or implied-in-law contract where it timely reserved rights, notified insured of reimbursement intent, and allowed insured control over defense.	Indian Head argued reimbursement impermissible absent an express policy term and that implied contract cannot coexist with an express contract.	Held Continental entitled to reimbursement for claims tendered after its timely reservation of rights; implied-contract doctrine permitted reimbursement under Michigan law as applied.

Key Cases Cited

Gelman Scis., Inc. v. Fidelity and Cas. Co. of N.Y., 456 Mich. 305 (Mich. 1998) (coverage determined by policy language as applied to facts; ambiguities construed for insured)
Arco Indus. Corp. v. Am. Motorists Ins. Co., 232 Mich. App. 146 (Mich. Ct. App. 1998) (applied pro rata allocation for continuous injuries)
United Nat’l Ins. Co. v. SST Fitness Corp., 309 F.3d 914 (6th Cir. 2002) (insurer may recover reimbursement via implied-in-fact contract if rights timely reserved and notice given)
Travelers Prop. Cas. Co. of Am. v. Hillerich & Bradsby Co., Inc., 598 F.3d 257 (6th Cir. 2010) (framework for implied-in-law reimbursement: timely reservation, notice, and insured control of defense)
Ray Indus., Inc. v. Liberty Mut. Ins. Co., 974 F.2d 754 (6th Cir. 1992) (duty to defend analysis; difficulties in prorating future defense costs)