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Eaton Corp. v. Westport Insurance Co.

United States District Court, E.D. Wisconsin

June 10, 2019

EATON CORPORATION, Plaintiff,
v.
WESTPORT INSURANCE COMPANY, et al. Defendants, AIU INSURANCE COMPANY, et al., Third-Party Plaintiffs
v.
ALLSTATE INSURANCE CO., et al. Third-Party Defendants.

          DECISION AND ORDER

          Lynn Adelman District Judge.

         Eaton Corporation seeks a declaration of its rights under insurance policies that, according to Eaton, cover asbestos claims relating to products sold by Cutler-Hammer, Inc., and by Eaton in the continuation of Cutler-Hammer's business. Before me now is Eaton's motion for partial summary judgment against defendants AIU Insurance Company, Granite State Insurance Company, New Hampshire Insurance Company, and North River Insurance Company. (References to “the defendants” in this opinion mean these four insurers.) Eaton's motion focuses on three issues: (1) whether Wisconsin law, rather than Ohio law, applies to the defendants' policies; (2) whether the “continuous trigger” theory applies to the defendants' policies; and (3) whether the “all sums” method for allocating coverage among triggered policies applies to the defendants' policies.

         I. BACKGROUND

         Cutler-Hammer, Inc., was a Wisconsin company that had its headquarters in Milwaukee from 1899 to 1979. On March 30, 1979, Cutler-Hammer merged into Eaton, with Eaton being the surviving entity. Since before the time of the merger, Eaton has been headquartered in Ohio.

         From the early 1920s until the late 1970s or early 1980s, Cutler-Hammer's business included the sale of products with asbestos-containing components. These products were manufactured at plants located in Milwaukee, Wisconsin and Bowling Green, Kentucky. Many personal-injury suits have been filed against Cutler-Hammer and Eaton alleging injuries caused by exposure to the asbestos in these products. Most of the products at issue were manufactured by Cutler-Hammer before 1979, and over 99% of the personal-injury claims allege that the injured party was exposed to asbestos before 1979.

         Prior to the 1979 merger, defendants AIU Insurance Company, Granite State Insurance Company, and New Hampshire Insurance Company issued liability insurance policies to Cutler-Hammer. These policies were procured by a broker in Wisconsin and were issued to Cutler-Hammer in Wisconsin. After the 1979 merger, defendant North River Insurance Company issued liability policies to Eaton. North River's policies were procured by a broker in Ohio and issued to Eaton in Ohio.

         The defendants' policies are excess policies, by which I mean that they provide coverage only after the limits of underlying policies have been exhausted. The defendants' policies incorporate the terms and conditions of their respective underlying policies, and thus the policy terms and conditions relevant to Eaton's motion appear in the underlying policies. Although the relevant terms are not the same in every underlying policy, the parties do not contend that differences in policy language matter to the outcome of Eaton's motion. For this reason, I will take representative language from a single policy and assume that the same result would obtain under the language of the other policies. The representative policy language, which appears in a policy issued by Harbor Insurance Company (which is one of the policies that underlies Granite State Insurance Company's excess policy), appears below:

The Company hereby agrees . . . to indemnify the Insured for all sums which the Insured shall be obligated to pay by reason of the liability . . . imposed upon the Insured by law . . . for damages on account of . . . Personal Injuries . . . caused by or arising out of each occurrence happening anywhere in the world during the policy period.
The term “Personal Injuries” . . . means . . . bodily injury, sickness, disease, disability or shock, including death arising therefrom, or, if arising out of the foregoing, mental anguish and mental injury . . . .

ECF No. 120-4 at 4.

         In this suit, Eaton claims that it has exhausted the limits of the underlying policies and that the defendants must now provide coverage to Eaton in the asbestos personal-injury cases. To prove that this is so, Eaton will eventually have to prove which asbestos claims fall within the scope of the defendants' policies (and the underlying policies to which they are excess). In other words, Eaton will have to prove which asbestos claims “trigger” the policies. Generally, a covered injury that occurs during the policy period will trigger a policy. However, in cases involving ongoing exposure to a harmful substance, such as asbestos cases, the exact date of the injury is often uncertain, and the harm potentially accrues over several policy periods. In asbestos cases, for example, a person may have been exposed to the insured's asbestos over a period of many years, and a diagnosable disease might not manifest itself until decades after exposure. Many different liability insurance policies may have been in force during the years between first exposure and manifestation. The issue of “trigger” asks which of these policies should be deemed to cover the eventual asbestos claim. To deal with this issue, courts have adopted four different theories. See, e.g., Society Ins. v. Town of Franklin, 233 Wis.2d 207, 214 (Ct. App. 2000). Only two of these theories are relevant to Eaton's motion: (1) the “continuous trigger” theory, which provides that a claim triggers all policies in force from the time of the claimant's first exposure to asbestos through the time of manifestation of the claimant's disease; and (2) the “injury in fact” theory, which provides that the only policy triggered is the one in force at the time when the effects of the claimant's exposure resulted in an actual and compensable injury. See id.

         A second issue-allocation of coverage-addresses how to allocate coverage to a triggered policy when a claimed injury does not occur entirely within the policy period. Again, this problem arises because asbestos injuries develop over long periods of time. The harm occurs over many years, including years in which the triggered policy was not in force. Allocation asks whether, once a policy is triggered, the insurer must pay for all damage caused by the claim even though the injury occurred partly within and partly outside the coverage period. Courts have generally taken one of two approaches to this issue. One approach is to allocate damages to the insurer pro rata based on the number of years its policy was in force. The other approach is the “all sums” approach, under which the insurer must pay for all damages resulting from an injury (up to the policy limit) so long as the injury triggered the policy.

         Wisconsin has adopted both the “continuous trigger” theory and the “all sums” allocation method. See Plastics Eng'g Co. v. Liberty Mut. Ins. Co., 315 Wis.2d 556, 583-85 (2009). Eaton contends that Wisconsin law applies to the defendants' policies and that therefore I should find that they are subject to both the continuous-trigger theory and the all-sums allocation method. The defendants, however, contend that their policies are governed by Ohio law. Like Wisconsin, Ohio has adopted the all-sums allocation method. See Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 769 N.E.2d 835, 840 (Ohio 2002). But no Ohio appellate court has adopted a theory of “trigger” for asbestos cases or other cases involving injuries that potentially accrue over time. The defendants contend that, if called upon to decide the question, the Ohio Supreme Court would adopt the injury-in-fact theory.

         Although both Wisconsin and Ohio have adopted the all-sums allocation method, the defendants contend that Eaton has waived its right to use that allocation method by entering into a settlement with other insurance companies in which it allocated losses for asbestos claims pro rata. One of the defendants' codefendants, Westport Insurance Corporation, raised this same argument in response to Eaton's prior motion for summary judgment, in which Eaton sought to establish that the all-sums allocation method applied to Westport's policy. In deciding the prior motion, I concluded that Eaton had not waived its right to use ...


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