Stonewall Insurance Company v. Asbestos Claims Management Corporation

National Gypsum Company (NGC) (plaintiff) manufactured construction products containing asbestos for over 50 years. Approximately 100,000 claimants and the owners of several thousand buildings brought asbestos-related claims against NGC. NGC carried liability insurance with multiple insurers with increasing amounts of excess coverage until 1985, when insurers explicitly excluded asbestos-related claims in NGC’s policies. Before that, NGC’s policies used various formulations to exclude coverage for bodily injuries that NGC expected or intended. For example, a typical policy covered liability for injuries caused by an occurrence, defined as any accident or exposure that resulted in injury, property damage, or liability “neither expected nor intended from the standpoint of the insured.” NGC and several of its insurers, including Stonewall Insurance Company (plaintiff), brought a declaratory action against Asbestos Claims Management Corporation (defendant) asking the court to clarify NGC’s right to indemnification for asbestos-related claims. The insurers argued that NGC knew about the likelihood of asbestos-related injuries from its products, meaning it expected or intended those injuries, excluding them from coverage. The trial judges and juries found NGC did not subjectively expect or intend those injuries based on the testimony of a 36-year employee who served as records custodian and spoke with many other employees. Several insurers raised the known-loss defense, but the court rejected it except for claims already filed or stated in a demand letter before NGC purchased particular coverage. Multiple insurers appealed, arguing the court used the wrong burden of proof; applied a subjective instead of objective test as to whether NGC expected or intended injury; erred in requiring insurers to prove that element on a product-by-product basis; should not have allowed the NGC employee to testify; and misapplied the known-loss defense. The appellate court consolidated the appeals and cross-appeals and ruled on multiple issues together.