Motors Liquidation Co. DIP Lenders Trust v. Allstate Insurance Co.

Citation: Not availableDocket: 381, 2017

Court: Supreme Court of Delaware; July 10, 2018; Delaware; State Supreme Court

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The case before the Delaware Supreme Court involves Motors Liquidation Company DIP Lenders Trust as the appellant against Allstate Insurance Company and other insurers as appellees, concerning insurance coverage for asbestos-related and environmental claims against General Motors (GM). The excess general liability policies in question were purchased by GM from the late 1960s to the mid-1980s, with rights to proceeds assigned to the Trust following GM's 2009 bankruptcy.

The Superior Court previously ruled that the excess policies do not provide coverage for the claims, granting summary judgment to the insurers. The Supreme Court affirmed this decision based on the Superior Court's reasoning.

General Motors had a long-standing relationship with Royal Insurance Company for comprehensive products liability insurance, transitioning from occurrence-based to claims-made coverage after 1971 through Endorsement 15. The excess policies, which were layered above Royal’s coverage, varied in terms, amounts, and timeframes. Some pre-1972 excess policies followed the Royal policy terms, while post-1971 policies included differing triggering language.

Starting in 1977, GM faced thousands of claims from individuals alleging personal injury due to asbestos exposure from GM products, with nearly 2,000 asbestos suits filed between 1977 and 1993 when the Royal program ended. Royal managed these claims on a claims-made basis, addressing claims only for the years they were received. The asbestos claims relevant to the current action arose after the Royal policies had expired, as GM submitted a significant number of claims in 2004 that were never reported during the coverage periods.

Royal Insurance denied coverage and initiated a declaratory judgment action in Delaware on January 26, 2005, to ascertain its obligations to General Motors regarding asbestos-related and environmental claims under pre-1972 and post-1971 policies. On the same day, General Motors filed a similar action in Michigan, focusing only on the pre-1972 policies and seeking a dismissal or stay of the Delaware action, which was ultimately stayed in favor of the Michigan case. This Michigan action progressed to a settlement in 2008, which released Royal from any further liability under both sets of policies. Notably, excess general liability carriers were not involved in either action or the settlement.

In 2009, General Motors entered bankruptcy and was renamed Motors Liquidation Corp., which subsequently filed a new action on December 1, 2011. Shortly thereafter, it assigned its rights to proceeds from pre-1986 excess general liability policies to a Trust as part of its bankruptcy reorganization plan. The first Superior Court ruling on December 31, 2013, addressed two motions for partial summary judgment from the Trust, which claimed all asbestos-related claims constituted a single occurrence warranting an "all sums" allocation under pre-1972 policies. The court determined that allocation method depended on the applicable law, which required further discovery to ascertain, and indicated that if Michigan law were applied, a pro rata allocation would be mandated.

The second Superior Court ruling, dated November 25, 2015, evaluated motions regarding the post-1971 policies. The court concluded that the asbestos-related claims were not covered by the post-1971 Royal claims-made policies, as none were reported during their effective periods, and hence were not covered under the corresponding post-1971 excess policies. Additionally, the court granted a motion from Munich Reinsurance America declaring that the Trust was judicially estopped from asserting claims against the post-1971 excess policies.

The 2015 opinion granted summary judgment to all post-1971 insurers, while the 2017 Superior Court opinion addressed seven motions, focusing on a defense motion for pro rata allocation under Michigan law. The court ruled in favor of pro rata allocation, resulting in summary judgment for all pre-1972 excess insurers. The combined rulings from 2015 and 2017 effectively granted summary judgment to all defendants.

On appeal, the Trust claims five errors, primarily contesting the Superior Court's finding that Michigan law mandates pro rata allocation for pre-1972 excess policies instead of “all sums” allocation. The 2013 opinion referenced the case Arco Industries Corp. v. American Motorists Insurance Co., which established the precedent for rejecting “all sums” allocation in favor of “time on the risk” proration in cases of continuous property damage across successive insurance policies. The Michigan Supreme Court affirmed Arco, and a federal court also indicated that the state court would adopt the pro rata method. The Trust argues that a conflicting appellate decision, Dow Corning Co. v. Continental Casualty Company, supported “all sums” allocation, but that decision lacks precedential value as it is unpublished. The Michigan Supreme Court's affirmation of Arco further solidifies the Superior Court's ruling on pro rata allocation, which aligns with the court's analysis in both the 2013 and 2017 opinions.

Michigan applies sums allocation based on specific policy language, opting for pro rata allocation in cases with similar policy terms as those in the current matter. Judicial estoppel was invoked against the Trust based on prior statements made by General Motors (GM) in litigation against the underlying insurer, Royal, regarding post-1971 coverage. The Superior Court highlighted GM's assertion in 2005 that it would not seek coverage from Royal for post-1971 policies concerning asbestos-related and environmental claims. GM's representations in both Delaware and Michigan courts indicated it would not file claims under those policies, leading to the conclusion that GM was bound by its admissions.

Judicial estoppel applies when a litigant's current position contradicts a previously adopted position that influenced a court's ruling. The Trust contended that GM's earlier statements were not relied upon by the Superior Court, but the court found that GM's assurances contributed to its decision to grant a stay. Therefore, the Trust was estopped from arguing that the post-1971 Royal policies provided coverage for the claims involved, which were classified as claims-made policies, thus preventing any claims from triggering coverage under these policies.

The Delaware action also involved post-1971 insurance policies. The Trust contended that the Superior Court incorrectly applied judicial estoppel, which it claimed prevented the triggering of underlying Royal policies, thereby affecting coverage under post-1971 excess insurance policies. The Superior Court clarified that judicial estoppel was not the only factor; it also concluded that Endorsement 15 transformed the Royal policies from occurrence-based to claims-made policies. This determination was supported by General Motors' consistent treatment of asbestos-related claims as separate occurrences based on their reporting year. The Superior Court found that since no claims were made against General Motors or Royal during the relevant post-1971 policy periods, there was no coverage under those policies.

Furthermore, the Superior Court examined the structure of the excess policies, noting that they were designed as excess insurance contingent upon the existence of underlying insurance. It highlighted a net loss provision in the Aetna policies, indicating that excess insurance was only liable for amounts covered by the primary policy. The court concluded that the excess policies did not need to respond to claims that did not trigger coverage under the primary policies.

The Trust's argument that the Superior Court overlooked express triggering language in several post-1971 excess policies, which it claimed should take precedence over the underlying Royal policies, was also considered. However, the Trust failed to provide specific language demonstrating that excess policies were required to respond to claims excluded from primary policy coverage. This issue was previously addressed in the Superior Court's 2015 opinion.

The Superior Court's 2015 opinion primarily addressed the inconsistency between the triggers of coverage in primary and excess insurance policies, specifically comparing the primary policy's narrow, claims-made trigger with the excess policies' broader, occurrence-based language. The Court concluded that excess policies are not obligated to respond to claims that are not triggered by the primary policy, emphasizing that any requirement for excess policies to cover such claims must be clearly defined, which was not the case here. 

The Court also rejected the Trust’s argument that the first asbestos-related claim reported in the 1977 policy year triggered full coverage under excess policies that reference occurrences reported during the policy period. This argument was deemed flawed for the same reasons as previous contentions, as claims excluded under the post-1971 Royal policies are also excluded from the excess policies. 

Additionally, the cross-appeal filed by OneBeacon Insurance Company and Continental Casualty Company was not addressed, given the affirmation of the Superior Court's judgment. The final order upheld the Superior Court's decision without further need for discussion on the cross-appeal.