The court in Fulton Boiler Works, Inc. v. American Motorists Ins. Co., 5:06-CV-1117, 2010 U.S. Dist. LEXIS 28756 (N.D.N.Y March 25, 2010), held that two CGL insurers were obligated to pay for the entire cost of defending thousands of underlying asbestos bodily injury claims, without any contribution from their mutual insured, because they could not prove that the underlying claims involved “‘occurrences’ solely during self-insured periods, and that there is thus no possible factual or legal basis for finding liability covered by the policy.” Id. at **22-23.
The insured, Fulton Boiler Works, Inc. (“Fulton”), manufactured asbestos-containing boilers. Beginning in the early 1990s, Fulton was sued in thousands of lawsuits in which the claimants alleged that they had suffered bodily injury as a result of exposure to asbestos fibers in Fulton’s boilers (the “Asbestos Claims”). Id. at *6.
The underlying Asbestos Claims in Fulton are typical of the thousands of asbestos bodily injury lawsuits brought against manufacturers and premises owners across the country each year. As the Fulton court explained, “asbestos cases typically share certain characteristics. For example, an underlying asbestos plaintiff generally sues dozens of parties that, he or she alleges, manufactured asbestos containing products to which he or she was exposed. The underlying complaints, however, usually contain only general allegations. They do not allege specific exposure dates to specific products.” Id. at *8. T he Fulton court also noted that, “[t]o date, of all of the lawsuits against Plaintiff in connection with alleged asbestos exposure, fourteen have settled and none have gone to trial. There has never been a finding against Plaintiff by any judge or jury in any court in any jurisdiction in connection with allegations of exposure to asbestos from one of Plaintiff’s boilers.” Id. at *9.
When Fulton first began receiving the Asbestos Claims, it requested a defense from Kemper and OneBeacon, two of its historic CGL insurers. Through December 2005, Kemper and OneBeacon jointly defended Fulton in the Asbestos Claims and did not request that Fulton pay any defense costs. Id. at **4-5. In 2005, however, Kemper and OneBeacon informed Fulton that if it did not contribute to the cost of its defense, they would revoke coverage. Id. at *5.
In 2006, Fulton sued Kemper and OneBeacon, seeking a declaratory judgment that Kemper and OneBeacon had a “collective obligation” to pay 100% of Fulton’s defense costs for the Asbestos Claims and that Fulton was entitled to breach of contract damages based on their failure to pay all of Fulton’s past defense costs. Id. at *7. Kemper and OneBeacon asserted counterclaims against Fulton seeking a declaration that Fulton was obligated to pay its “pro-rata share” of the costs of defense and indemnity incurred in the Asbestos Claims. Id.
The court ruled in favor of Fulton and held that Kemper and OneBeacon were obligated to pay 100% of Fulton’s defense costs for all of the Asbestos Claims, without any contribution from Fulton. Explaining its holding, the Fulton court first stated that an insurer’s duty to defend is “extremely broad” and exists “whenever the four corners of the complaint suggest . . . a reasonable possibility of coverage.” Id. at *15. “If any of the claims against the insured arguably arise from covered events, the insurer is required to defend the entire action.” Id. at *17. The Fulton court next stated that, “an insurer owes its insured no duty of defense if it can be concluded as a matter of law that there is no possible factual or legal basis on which the insurer will be obligated to indemnify the insured . . . . The insurer thus bears a heavy burden to show that the allegations of the complaint cast the pleadings wholly within the exclusions and that there is no possible factual or legal basis for finding liability covered by the policy . . . .” Id. at *22-*23 (internal punctuation and citations omitted).
Applying these standards to the Asbestos Claims, the Fulton court held that Fulton was entitled to a ruling as a matter of law that Kemper and OneBeacon were obligated to pay all defense costs in the Asbestos Claims because: (1) the allegations in the Asbestos Claims, as set forth in Fulton’s complaint for declaratory judgment, “plausibly suggest[] a reasonable possibility of coverage;” and (2) neither Kemper nor OneBeacon presented “at least some admissible record evidence from which a rational fact finder could conclude that the underlying lawsuits involve ‘occurrences’ solely during self-insured periods, and that there is thus no possible factual or legal basis for finding liability covered by the policy.” Id. at *22-*23. The court further held that, “with regard to future defense costs in the underlying lawsuits, again, so long as the allegations in a case could conceivably result in liability covered by a policy at issue, [the insurers] must defend.” Id. at **23-24 (internal punctuation omitted).
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