Liberty Mutual Insurance v. Fairbanks Co.
170 F. Supp. 3d 634
S.D.N.Y.2016Background
- Fairbanks, a former New York valve manufacturer now domicili ary in Georgia, faced asbestos personal-injury suits arising from products made pre-1984; multiple insurers issued liability policies covering various years between 1974–1998.
- Two related actions were consolidated in the Southern District of New York: Liberty Mutual’s declaratory action (New York Action) and Fairbanks’s suit (originally in Georgia) against multiple insurers (Georgia Action), transferred here; court has diversity jurisdiction.
- The insurers and Fairbanks had an interim cost-sharing arrangement for defense and indemnity beginning after notice in 2002; Fairbanks stopped contributing in 2005 and insurers continued payments under reservations of rights.
- Lumbermens became insolvent in May 2013, producing a dispute over allocation of Lumbermens’ “orphan share” (who bears the insolvent carrier’s share).
- Central legal questions: (1) whether liability for progressive asbestos injuries is allocated under an "all sums" (joint-and-several) or a pro rata (time-on-the-risk) approach; (2) whether solvent insurers or Fairbanks must bear Lumbermens’ orphan share; (3) applicability of asbestos exclusions; and (4) choice-of-law for each insurer’s policies.
Issues
| Issue | Plaintiff's Argument (Fairbanks) | Defendant's Argument (Insurers / Liberty) | Held |
|---|---|---|---|
| Proper allocation method for Liberty policies (New York choice rules) | All sums / joint-and-several liability so any triggered insurer must cover full loss up to its limits | Pro rata (time-on-risk); policy language limits coverage to bodily injury occurring "during the policy period" | Pro rata applies to Liberty policies (Liberty SJ granted; Fairbanks SJ denied) |
| Who bears Lumbermens’ orphan share (as to Liberty under New York law) | Georgia insolvency statute should shift orphan share to solvent insurers, not insured | Under New York law, insured bears insolvent insurer’s share; Georgia statute does not alter result here | Lumbermens’ orphan share is prorated to Fairbanks for Liberty policies (Liberty not liable for orphan share) |
| Choice of law for other insurers (AXA, Hartford, National Union, Fireman’s Fund, Travelers) | Apply forum/insured-favorable law (Fairbanks asserts Georgia or California depending on delivery) to get all sums | Insurers rely on choice-of-law rules tying contract law to place of delivery/contract; where New York and Georgia law align, pro rata applies | Georgia choice-of-law governs policies issued/delivered in Georgia; where applied, courts find policy language unambiguous and require pro rata allocation; AXA delivery/California issue left unresolved because AXA policies appear exhausted |
| Liability for Lumbermens’ orphan share under Georgia insolvency statute (for insurers other than Liberty) | Georgia statute requires solvent insurers to be primary—thus they should bear orphan share (Fairbanks) | The statute requires overlap in coverage years to make a solvent insurer primary; absent overlap, orphan share falls to insured under pro rata approach | Georgia statute does not mandate shifting orphan share to solvent insurers unless coverage years overlap; Fairbanks has not shown overlap so orphan share remains with insured in most instances |
| Applicability of asbestos exclusion in Fireman’s Fund excess policies | Narrow reading: where complaints allege mixed causes, coverage remains | Broad exclusion excludes liability "arising in whole or in part out of or in any way related to asbestos" | Asbestos exclusions are unambiguous under Georgia law; Fireman’s Fund need not indemnify or defend on those excess policies (SJ granted as to exclusion) |
| Allocation of defense costs and equitable contribution claims | Fairbanks: insurers jointly/severally liable for defense costs; not Fairbanks’ burden | Insurers: defense costs should be allocated pro rata and depend on policy terms; equitable contribution issues require factual development | Court declined to resolve allocation of defense costs or equitable contribution on summary judgment due to unresolved factual issues (denials without prejudice or partial denials) |
Key Cases Cited
- In re Prudential Lines Inc., 158 F.3d 65 (2d Cir. 1998) (discusses progressive-injury exposure and allocation tensions)
- Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208 (N.Y. 2002) (interprets similar policy language to reject all sums and require limitations tied to policy period)
- Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178 (2d Cir. 1995) (endorses proration-to-insured in continuous-triggering contexts)
- Olin Corp. v. Ins. Co. of N. Am., 221 F.3d 307 (2d Cir. 2000) (allocation principle that insured bears risk of insurer insolvency)
- Roman Catholic Diocese of Brooklyn v. Nat'l Union Fire Ins. Co. of Pittsburgh, 21 N.Y.3d 139 (N.Y. 2013) (applies New York contract principles to similar policy language favoring proration)
- Farmers Mut. Fire Ins. Co. of Salem v. N.J. Prop.-Liab. Ins. Guar. Ass’n, 215 N.J. 522 (N.J. 2013) (discusses statutory amendment in New Jersey altering exhaustion/in solvency treatment and contrasts with Georgia statute)
- Viking Pump, Inc. v. Century Indem. Co., 2 A.3d 76 (Del. Ch. 2009) (Del. Chancery decision applying New York law and endorsing all sums; discussed but given limited persuasive weight here)