Federal-Mogul U.S. Asbestos Personal Injury Trust v. Continental Casualty Co.

Citation:
6th Cir. Case No. 10-1290; 2011 WL 2652232
Tag(s):
Ruling:
District Court's dismissal of Complaint affirmed. Pursuant to the clear language of the umbrella insurance policy, the insurer's duty to defend was not triggered because the underlying insurance policies had not yet been exhausted.
Procedural context:
Appeal of District Court for the Eastern District of Michigan's grant of Defendant-Appellee's Motion to Dismiss
Facts:
Plaintiff-Appellant Federal Mogul U.S. Asbestos Personal Injury Trust (the "Trust") is a trust created by the Chapter 11 bankruptcy plan of the Federal-Mogul Corporation. The Vellmoid Company was a division of the Federal-Mogul Corporation that manufactured and sold automotive products containing asbestos from 1965 to 1981. Numerous lawsuits were filed against the Federal-Mogul Corporation for asbestos-related injuries arising from Vellumoid's products ("Vellumoid claims"). Federal Mogul's bankruptcy plan established that the Trust bears liability for the Vellumoid claims. The Trust holds three primary-level general insurance policies covering liability and defense costs arising out of the Vellumoid claims. The Trust also holds an umbrella policy through Continential Insurance Company ("Continental"). The Trust filed a Complaint seeking a declaratory judgment that Continental was under a duty to defend the Vellumoid claims because its coverage under one of its primary level insurance policies, the one through Travelers Indemnity Company, had been exhausted. Continental moved to dismiss the Complaint arguing that based on the governing language of the insurance policy, it had no duty to defend until all three underlying insurance policies had been exhausted. The district court agreed and granted the motion to dismiss. The Trust appealed. The Sixth Circuit, applying general rules of contractual interpretation, agreed with the district court's determination that Continental had no duty to defend the Vellumoid claims until all three underlying policies were exhausted. Its decision was based on the clear and unambiguous language of the insurance policy. The Continental policy contains a schedule listing the Travelers policy as a policy covering the defense of Vellumoid claims but did not list the other two policies. The Defense, Settlement, Supplementary Payments Insuring Agreement ("DSSP") provision of the Continental policy provides as follows: "When underlying insurance exists, the company shall have the right but not the obligation to participate at any time in the defense of any suit against the insured." "When an occurrence is not covered by the underlying insurance listed in the underlying insurance schedule or any other underlying insurance collectible by the insured, but covered by the terms of this policy, without regard to the retained limit contained herein, the company in addition to the applicable limits of liability shall: (a) defend any suit against the insured..." Because the first paragraph of the DSSP provision provided that Continental was not obligated to defend actions where underlying insurance exists, and because the second paragraph of the DSSP provision specifically referenced "any other underlying insurance", the court held that all underlying primary level insurance policies must be exhausted prior to the duty to defend in the umbrella policy was invoked. The Court also rejected the Trust's argument that a separate provision of the policy required Continental to take on the duties of an underlying insurer because that provision also contained a prerequisite requiring that all underlying policies be exhausted.

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