In re Eagle-Picher Industries, Inc.

Citation: 134 B.R. 239Docket: Bankruptcy No. 1-91-00100

Court: United States Bankruptcy Court, S.D. Ohio; November 25, 1991; Us Bankruptcy; United States Bankruptcy Court

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Debtors have filed a motion to obtain insurance proceeds from A.I.G. Insurance and Lexington Insurance Companies, which offer coverage of up to $10 million for asbestos-related personal injury claims that occurred between February 1, 1978, and January 1, 1979. The Insurers are obligated to pay only after the debtors deplete $42.5 million in underlying insurance coverage. The Insurers have contested certain claims made by the debtors, arguing that settlements for some claims are not reimbursable because the only evidence supporting the injury's diagnosis within the relevant timeframe is found in the complaint, which the Insurers deem non-probative. Additionally, the Insurers claim that Liberty Mutual Service Fees and ACF surcharges are not reimbursable under the policy terms.

The court has jurisdiction over this matter as a core proceeding under 28 U.S.C. 1334(b) and General Order of Reference. Both parties concur that this court is the proper venue for resolving the insurance coverage dispute. Past litigation involving Eagle-Picher Industries has raised questions about the appropriate policy for asbestos claims. Eagle-Picher previously initiated declaratory judgment actions to clarify the rights and obligations under its insurance policies, leading to a settlement in 1984 with the Insurers. This settlement established that the interpretation of the Insurers’ policies would be governed by the precedent set in the Eagle-Picher litigation.

The settlement agreements specify that the date of occurrence for asbestos-related disease claims is five years prior to the first diagnosis. If the diagnosis date is unknown at the time of the claim, it defaults to five years before either the claim's receipt by Liberty Mutual or the date of death, whichever comes first. If a diagnosis date is later determined, the occurrence date will be adjusted accordingly.

To establish coverage under the Insurers' policies, evidence was required regarding the first date of diagnosis, the date Liberty Mutual received the claim, or the date of death. Liberty Mutual acted as Eagle-Picher's primary insurance carrier and continued to manage a significant number of asbestos claims through a separate claims-handling agreement after the initial coverage was exhausted. Under this agreement, Liberty Mutual received approximately $450 per case for its services. Following a confidential settlement in 1984, Eagle-Picher joined the Asbestos Claims Facility (ACF) in late 1985, created to centralize the administration and settlement of asbestos claims. Participants in the ACF shared costs based on a predetermined formula. Eagle-Picher requested reimbursement from the Insurers for costs related to Liberty Mutual's claim handling and ACF surcharges, which the Insurers declined. The agreements stipulate that Eagle-Picher's right to reimbursement for "ultimate net loss" is contingent on exhausting the aggregate limits of the underlying policies. The definition of "ultimate net loss" is specified in Policy No. 75-100102 from AIU and Policy No. 5512868 from Lexington Insurance Co., incorporating definitions from Lloyd's Policy No. 75-16280-3. "Ultimate Net Loss" includes all sums related to personal injuries, property damage, and related expenses, excluding salaries of permanent employees. Eagle-Picher submitted claims for asbestos-related injuries after exhausting $42.5 million of underlying coverage. The Insurers paid $4,600,933 following a court order but refused to cover claims of $853,074, Liberty Mutual’s service fees of $1,937,206, and ACF surcharges of $1,010,210.

Key points of the legal document excerpt include the following:

- Both parties acknowledge that there were 104 complaints alleging a specific "first date of the actual diagnosis" of a disease, which is critical for determining insurance coverage.
- Debtors assert that such allegations establish the known date of diagnosis, which should trigger the insurers' obligation to pay, referencing Ohio law that holds allegations in pleadings are adequate for an insurer's duty to defend (Willoughby Hills v. Cincinnati Insurance Co.).
- Insurers counter that the allegations regarding diagnosis dates fall outside the agreement's language, emphasizing that indemnification requires proof of actual facts rather than mere allegations (citing Cooper Laboratories, Inc. v. International Surplus Lines, Co. and Air Products and Chemicals, Inc. v. Hartford Accident and Indem. Co.).
- Insurers also argue that the duty to defend is broader than the duty to indemnify, making the cited authority regarding defense inapplicable to indemnification claims (Reliable Springs Co. v. St. Paul Fire, Marine Ins. Co. and Morton v. Safeco Ins. Co.).
- The court emphasizes its role in interpreting the parties' agreement, highlighting the intention behind the language used.
- The policies in question do not cover all asbestos-related claims but are limited to those occurring within a specified coverage period, which the parties agreed upon.
- A critical component of the agreement is the determination of claims within the coverage period, specifically that the onset of disease is presumed to be five years prior to the actual diagnosis.
- The court seeks to clarify what the parties intended by "actual diagnosis" and whether a formal medical opinion is required to substantiate claims, or if mere allegations in complaints are sufficient.

Debtors initially submitted 199 claims based solely on complaint allegations, which were subsequently denied by the Insurers. Following this, debtors obtained medical reports for 95 claims but failed to secure documentation for the remaining 104, yet they argue for indemnification without such support. The court determined that mere allegations concerning diagnosis dates are insufficient for indemnification, emphasizing that the agreements require documented medical opinions as evidence of "actual diagnosis." Furthermore, while debtors may face challenges in providing this evidence, the contract offers alternatives for recovery if they cannot demonstrate an actual diagnosis.

Regarding "Ultimate Net Loss," debtors assert that expenditures incurred for handling asbestos-related claims fall within their insurance coverage, as these costs include legal fees and other related expenses. They argue that their agreements with Liberty Mutual and ACF saved Insurers money compared to conventional legal representation costs. Additionally, they note that payments made by the London Market Insurers on similar claims validate their entitlement to recover these expenses.

Conversely, Insurers contend that administrative expenses are not covered by the policies and categorize Liberty Mutual’s service fees as costs of doing business, which are excluded from coverage. They reference case law to support their claim that only identifiable indemnity amounts or legal fees are reimbursable under the policy.

The definition of "ultimate net loss" in the insurance policies includes the total sum that debtors are obligated to pay due to personal injuries, property damage, or advertising liability claims, whether through adjudication or compromise. This broad definition encompasses the amounts paid to Liberty Mutual and ACF, as these payments arise from personal injuries, thereby contradicting the Insurers' narrow interpretation that limits coverage to indemnification and attorney fees. The policy’s language explicitly includes additional costs such as salaries and expenses for investigators, indicating a comprehensive intent of coverage, which supports the debtors' reasonable engagement of Liberty Mutual and ACF's services.

On the issue of prejudgment interest, state law, specifically Ohio Revised Code 1343.03(A), governs the determination of interest due on amounts arising from an insurance policy. Both parties agree on the applicable rules but disagree on their application. The Insurers argue that the claimed amounts are not liquidated or due and payable, while the debtors assert that the amounts were liquidated and due upon their demand on April 16, 1991. Citing relevant case law, the court finds that the dispute is primarily over liability, not the amount, which is largely undisputed except for a minimal difference regarding Liberty Mutual. The court concludes that the debtors are entitled to recover $1,937,206.00 for Liberty Mutual service fees and $1,010,210.00 for ACF surcharges, with interest at 10% per annum from April 16, 1991. Additionally, the court rules that the debtors cannot recover for claims based solely on a diagnosis date mentioned in the complaint.