ZURN INDUSTRIES, LLC v. ALLSTATE INSURANCE COMPANY

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

ZURN INDUSTRIES, LLC, )

as Successor in Interest to )

Zurn Industries, Inc., )

)

Plaintiff, )

)

Vv. ) Case No. 1:18-cv-299-SPB

)

ALLSTATE INSURANCE COMPANY, )

individually and as successor in interest)

to Northbrook Excess and Surplus )

Insurance Company (formerly )

Northbrook Insurance Company), et al., )

)

Defendants. )

MEMORANDUM OPINION ADDRESSING RULE 56 MOTIONS

FILED AT ECF NOS. 218, 237, 239, 240, 246

I. INTRODUCTION

Pending before the Court in the above-captioned case are a series of motions filed by the

parties seeking partial summary judgment on various legal issues that are material to a resolution

of this case. In this Memorandum Opinion, the Court addresses, in whole or in part, the

following motions:

1. Zurn’s Motion for Partial Summary Judgment as to Counts III, VI, VU, and VUI of its

Amended Complaint, ECF No. 218;

2. American Home Assurance Company’s Motion for Partial Summary Judgment on the

Issue of Defense and Defense Costs, ECF No. 237;

3. Allstate Insurance Company’s Motion for Partial summary Judgment Regarding the

Limit of Liability of Northbrook Policy No. 63 004 463, ECF No. 239;

4, The Hartford Defendants’ Motion for Partial Summary Judgment that the Other Insurers

Must Pay Defense Costs in Addition to Limits Under Certain Policies, ECF No. 240; and

5. Allstate’s Motion for Partial Summary Judgment Regarding Allocation of Defense Costs,

ECF No. 246.

Because the Court is writing primarily for the parties who are extremely familiar with the

history of this litigation and all pertinent issues, the Court will not discuss the procedural or

historical facts of this case, except as they relate to the rulings set forth herein. For present

purposes, it will suffice to note that the parties have been engaged in protracted negotiations over

disputed coverage issues relative to Zurn’s liability for asbestos-related personal injury claims.

The parties have reached an impasse in negotiations over issues that are purely legal in nature —

issues that primarily revolve around interpretation of the subject insurance policies. Because of

the number of issues involved, the parties’ familiarity with the underlying record, and the

expectation that a timely resolution of the disputed issues will aid in settlement discussions, the

Court’s discussion and analysis herein will be relatively succinct.

This opinion will address questions as to whether certain insurers have a contractual duty

to reimburse Zurn for the costs of defending asbestos personal injury lawsuits, whether such

defense costs erode relevant policy limits, and whether certain policies are excess to others. The

policies that are at issue for present purposes include the following:

e American Home’s Policy No. SCLE 80-65386, covering the time period December 17,

1974 through December 17, 1977 (hereafter, “American Home 1974-1977”);

e Granite State’s Policy No. SCLD 80-93353 covering the time period December 17, 1977

to April 1, 1979 (“Granite State 1977-1979”);

e Granite State’s Quota Share Policy No. 6485-6210 covering the time period April 1, 1985

to April 1, 1986 (“Granite State 1985”);

e Northbrook Insurance Company’s Policy No. 63-004-463 for policy period April 1, 1978

to April 1, 1979 (Northbrook 1978”);

e Northbrook Policy No. 63-005-622 covering the time period April 1, 1979 to April 1,

1980 (“Northbrook 1979”);

e Northbrook Policy No. 63-006-579 for policy period April 1, 1980 to April 1, 1981

(“Northbrook 1980”);

e Northbrook Policy No. 63-007-775 for policy period April 1, 1981 to April 1, 1982

(“Northbrook 1981”);

e Northbrook Policy No. 63-008-633 for policy period April 1, 1982 to April 1, 1983

(“Northbrook 1982”);

e Aetna Casualty and Surety Company Policy No. 01 XN 673 WCA, issued for the policy

period December 17, 1974 to December 17, 1977 (“Aetna 1974-1977”);

e Aetna Policy No. 01 XN 5183 WCA, covering the policy period April 1, 1985 to April 1,

1986 (“Aetna 1985”);

e Royal Indemnity Company Policy No. RED 102439, issued for the policy period April 1,

1983 to April 1, 1984 (‘Royal 1983”); and

e New England Insurance Company Policy No. NE 000057, issued for the period April 1,

1984 to April 1, 1985 (“New England 1984”).

The Court’s standard of review and analysis follows.

Il. STANDARD OF REVIEW

A federal court sitting in diversity applies the relevant state law to insurance contract

interpretation. Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d 388, 390 (3d Cir. 2012).

Under Pennsylvania law, which all parties agree governs this dispute, the interpretation of an

insurance policy is a question of law. Hanover Ins. Co. v. Urban Outfitters, Inc., 806 F.3d 761,

764-65 (3d Cir. 2015) (quoting Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial

Union Ins. Co., 908 A.2d 888, 897 (Pa. 2006)). The task of interpreting an insurance policy is to

“ascertain the intent of the parties as manifested by the terms used in the written insurance

policy.” Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d 388, 390 (3d Cir. 2012).

Consequently, when interpreting an insurance policy under Pennsylvania law, courts must look

to the language and terms of the policy, while construing any ambiguities in favor of the insured.

Indalex Inc. v. Nat'l Union Fire Ins. Co., 83 A.3d 418, 420-21 (Pa. Super. Ct. 2013).

“When the policy language is clear and unambiguous, the court must give effect to the

language of the contract.” Riccio v. Am. Republic Ins. Co., 705 A.2d 422, 426 (Pa. 1997).

“However, if the policy provision is ambiguous, the policy provision must be construed in favor

of the insured and against the insurer as the drafter of the instrument.” Jd. Terms are ambiguous

“if they are subject to more than one reasonable interpretation when applied to a particular set of

facts,” but courts “will not... distort the meaning of the language or resort to a strained

contrivance in order to find an ambiguity.” Madison Const. Co. v. Harleysville Mut. Ins. Co., 735

A.2d 100, 106 (Pa. 1999). “Moreover, an insurance policy, like every other written contract,

must be read in its entirety and the intent of the policy is gathered from consideration of the

entire instrument.” Riccio, 705 A.2d at 426.

Tl. WHETHER, UNDER CERTAIN NORTHBROOK POLICIES, DEFENSE

COSTS ERODE LIABILITY LIMITS (ECF Nos. 218, 239, and 240)

Allstate has filed a motion for summary judgment, ECF No. 239, seeking a declaration

that Northbrook Insurance Company’s Policy No. 63-004-463, covering the period April 1, 1978

to April 1, 1979 (“Northbrook 1978”), pays defense costs only within the policy’s $9 million

liability limit. ECF No. 239. Zurn and Hartford oppose this motion. They have also filed

separate cross-motions for summary judgment in which they each seek a declaration that the

Northbrook 1978 Policy, and certain other Northbrook policies, pay defense costs outside of the

applicable policy limits. ECF Nos. 218, 240. We consider the relevant policies in turn.

A. Northbrook 1978

Northbrook 1978 is an excess policy that lies directly above, and is excess to, Liberty

Mutual primary policy no. LG1-181-014745-168 (“Liberty Mutual Primary 1978”). It is

undisputed that Liberty Mutual Primary 1978 paid Zurn’s defense costs in addition to the

policy’s $9 million liability limit. Liberty Mutual has claimed that the limits of Primary 1978

and other relevant primary policies are now exhausted. In November 2018, Allstate began

paying defense costs and indemnity costs for certain asbestos personal injury claims under

Northbrook 1978, subject to a reservation of rights.

Under Northbrook 1978’s “Coverage” provision, the insurer “agrees, subject to the

limitations, terms and conditions hereinafter mentioned to indemnify the insured all sums which

the insured shall be obligated to pay by reason of the liability ... imposed... by lawor ...

assumed [by Zurn] under contract or agreement . . . [f]or damages on account of . . . Personal

Injuries . . . caused by or arising out of each occurrence... .” ECF No. 219-3 at 31. Northbrook

is “only . . . liable for the Ultimate Net Loss” in excess of the limits of underlying insurance or

the applicable retained limit, up to $9 million for each occurrence, and subject to an aggregate

limit of $9 million. Jd. “Ultimate Net Loss” is defined to include sums that Zurn is “obligated to

pay .. . through adjudication or compromise” and “shall also include” certain enumerated

expenses, including defense costs. Jd. at 33. Under the policy’s “Supplemental Defense”

provision, Northbrook agreed to defend Zurn and pay related expenses, and “the amounts so

incurred” are included in “Ultimate Net Loss in computing the limit of the [insurer’s] liability

but shall not be payable in addition to the [liability limit].” Jd. at 32.

Based upon the foregoing language, Allstate contends that its payments for Zurn’s

defense costs erode the $9 million liability limit of Northbrook 1978. Allstate presently

maintains that it has paid amounts sufficient to exhaust the $9 million limit and, therefore, it has

no further duty to pay for Zurn’s asbestos-related losses under the policy.

Zurn and Hartford dispute Allstate’s assertion. They point to “Endorsement No. 5” in the

Northbrook policy, which states:

It is hereby understood and agreed that in the event the insured suffers a loss which

is covered under the policies of the underlying insurances as set out in the schedule

attached to this policy, the excess of which would be payable under this policy,

except for terms and conditions of this policy which are not consistent with the

underlying insurance, then notwithstanding anything contained in this policy to the

contrary this policy shall be amended to follow and be subject to the terms and

conditions of such underlying insurance in respect of such paid loss.

ECE No. 219-3 at 8. According to Zurn and Hartford, this endorsement overrides the pre-printed

provisions of Northbrook 1978 and requires Allstate to abide by the conflicting terms of the

underlying primary policy as they relate to the payment of defense costs. Because the underlyin

policy (Liberty Mutual Primary 1978) paid Zurn’s defense costs in addition to liability limits,

Zurn and Hartford contend that Northbrook 1978 must follow suit and do the same.

Allstate disagrees. It insists that Endorsement No. 5 merely broadens the scope of

covered claims to match the scope of losses covered by the underlying Liberty Mutual primary

policy. Based on this interpretation, Allstate concludes that Endorsement No. 5 is facially

inapplicable to the asbestos claims at issue here, because both Zurn’s asbestos indemnity

payments and associated defense costs are already covered by Northbrook 1978. Having fully

considered the arguments offered by Allstate, Zurn, and Hartford, the Court finds Allstate’s

position to be more persuasive.

The cornerstone of the Court’s analysis is the language of the policy itself. Westminster

Am. Ins. Co. v. Sec. Nat'l Ins. Co., No. CV 20-2195, 2021 WL 3630464, at *4 (E.D. Pa. Aug. 16,

2021) (“In interpreting a policy, the court's primary consideration is ‘to ascertain the intent of the

parties as manifested by the language of the written instrument.’”) (quoting Standard Venetian

Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983)). To that end, the Court notes

that Hartford construes Endorsement No. 5 as a generic “broad as primary” provision, pursuant

to which Northbrook 1978 essentially provides coverage which is just as broad as the coverage

afforded by Liberty Mutual Primary 1978. Under Hartford’s reasoning, the Liberty Mutual

ptimary policy provides coverage for defense costs in addition to the policy limits, so

Northbrook must do the same.

The language of Endorsement 5 is more nuanced than Hartford represents, however. In

order for Endorsement No. 5 to have effect, the following conditions must be met: (i) Zurn must

suffer a “loss,” (ii) which is covered by the underlying policy, (iii) Northbrook 1978 must be

triggered by exhaustion of the underlying policy limits such that the excess portion of the loss is

potentially “payable” under Northbrook 1978, and (iv) there must be an inconsistency between

the terms and conditions of Northbrook 1978 and the underlying policy which prevents

Northbrook 1978 from paying the excess portion of Zurn’s loss. The term “loss” is not

specifically defined in Endorsement No. 5, but the pre-preprinted insurance contract defines

“Ultimate Net Loss” to include defense costs; thus, it is reasonable to assume that Zurn’s defense

costs constitute a “loss” for purposes of Endorsement No. 5. But as Allstate points out, both

Zurn’s asbestos indemnity payments and its related defense costs are covered under Northbrook

1978, so both types of “losses” will be (and have been) paid by Allstate under Northbrook 1978.

On its face, Endorsement No. 5 is inapplicable to the situation presented here.

Zurn interprets the Endorsement differently, construing “loss” as a subset of defense

costs that will not be covered by Northbrook 1978 if Allstate’s prior defense payments erode

policy limits. Zurn insists that, under its interpretation, Allstate’s limit of liability remain the

same -- $9 million. According to Zurn, what changes is that certain payments (namely, defense

costs) do not count against and erode that limit. Zurn insists that this change is in no way

unreasonable or unfair but is instead the bargained-for result of enforcing the plain language of

Endorsement No. 5, to which Allstate agreed.

The Court is not persuaded. To pursue Zurn’s theory, a “loss” (in the form of defense

costs) only becomes non-payable under Northbrook 1978 when the limits of the policy have bee

exhausted by combined indemnity and defense-related payments. Up until that point, the “loss”

is fully payable under Northbrook 1978, and Endorsement No. 5 is facially inapplicable. Stated

differently, it is only when Northbrook 1978’s policy limits have been paid in full, in accordance

with the policy’s express terms, that the differing policy terms concerning erosion of policy

limits results in the non-payment of Zurn’s defense costs. Of course, once policy limits are

exhausted, Allstate can have no further legal obligations under Northbrook 1978. The Court

therefore finds the proposed interpretation proffered by Zurn to be unreasonable and contrary to

the plain language of the policy.

Instead, the Court construes Endorsement No. 5 as explained above. Based upon that

interpretation, the types of “losses” that would trigger Endorsement No. 5 cannot include legal

expenses or costs of defense, which are payable under Northbrook 1978 in the first instance.

Construing the endorsement in this fashion allows the Court to give effect to the policy’s other

provisions, including those pertaining to “Coverage,” “Limit of Liability,” “Supplemental

Defense,” and “Ultimate Net Loss.” Riccio, 705 A.2d at 426 (an insurance policy must be read

in its entirety, and the policy’s intent is “gathered from consideration of the entire instrument”);

Hillmer v. Esurance Prop. & Cas. Ins. Co., No. CV 21-2182, 2021 WL 4132301, at *6 (E.D. Pa.

Sept. 10, 2021) (courts “must interpret an insurance policy to avoid ambiguities and give effect

to all policy provisions’).

The Court’s interpretation also accounts for the fact that Northbrook 1978 and Liberty

Mutual Primary 1978 each have their own terms, conditions, definitions, exclusions, and

endorsements. As each policy has its own set of terms and conditions, situations may arise

where a loss is covered by the Liberty Mutual primary policy, while the excess of that loss is not

covered by Northbrook 1978 because of a particular exclusion or other condition. Where such

circumstances exist, the endorsement ensures that Northbrook 1978 will cover the excess loss,

thereby preventing any gap in coverage relative to the types of losses that will be paid.

The Court will therefore grant Allstate’s motion for partial summary judgment regarding

the limit of liability of Northbrook 1978. The Court will deny the cross-motions of Zurn and

Hartford to the extent those motions request a declaration that Allstate must pay defense costs

under Northbrook 1978 separate and apart from the $9 million policy limit.

B. Northbrook 1979

The parties also dispute Allstate’s defense cost obligations under another Northbrook

policy covering the period April 1, 1979 to April 1, 1980 (“Northbrook 1979”). This policy has

a $20 million limit and sits directly excess of Liberty Mutual Umbrella Policy No. 181-0280088-

149 “Liberty Mutual Umbrella 1979”).

The coverage provision of Northbrook 1979 states that the insurer

agrees, subject to the limitations, terms and conditions hereinafter mentioned, to

indemnify [Zurn] for all sums which [Zurn] shall be obliged to pay by reason of the

liability imposed upon [Zurn] by law, or assumed under contract or agreement by

[Zurn] for damages, direct or consequential and expenses on account of: . . .

Personal Injuries . . . caused by or arising out of each occurrence . . . and arising

out of the hazards covered by and as defined in the Underlying Umbrella Policies .

ECF No. 240-16 at 3. Upon exhaustion of the underlying policy’s limits, Allstate’s liability

under Northbrook 1979 attaches, and the insurer will pay up to “$20,000,000 ultimate net loss in

respect of each occurrence - subject to a limit of . . . $20,000,000 in the aggregate for each

annual period... .” Jd. Unlike Northbrook 1978, Northbrook 1979 neither capitalizes nor

defines the term “ultimate net loss.” Among the conditions contained in Northbrook 1979 is

“Maintenance of Underlying Umbrella Insurance,” which states:

This policy is subject to the same terms, definitions, exclusions and conditions

(except as regards the premium, the amount and limits of liability and except as

otherwise provided herein) as are contained in or as may be added to the Underlying

Umbrella Policies listed in Item 7 of the Declarations and referred to in Insuring

Agreement 1 prior to the happening of an occurrence for which claim is made

hereunder....

Td. at 4.

Zurn argues that the term “ultimate net loss,” as used in Northbrook 1979’s “Limit of

Liability” provision, is ambiguous as to whether or not it includes defense costs, because the

term is not specifically defined in either Northbrook 1979 or Liberty Mutual Umbrella 1979. As

result, Zurn argues, “ultimate net loss” should be construed in Zurn’s favor and against

Allstate, such that “ultimate net loss” excludes defense costs. Construing the policy in this

manner would mean that Allstate must pay defense costs in addition to “ultimate net loss.” Zurn

contends that this proposed construction is supported by the terms of Liberty Mutual Umbrella

1979 which, Zurn claims, are incorporated into the Northbrook policy through the “Maintenance

of Underlying Umbrella Insurance” provision. ECF No. 218-7. Zurn notes that, under Liberty

Mutual Umbrella 1979, the insurer will “defend any suit against the insured” and “pay all

expenses incurred . . . in any suit defended by [the insurer],” and “the amounts so incurred,

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except settlement of claims and suits, . . . are payable by [the insurer] in addition to the

applicable limits of liability of this policy.” ECF No. 313, 938; ECF No. 219-23 at 3, {12 and id.

at 12-13. Because Northbrook 1979 is “subject to” the foregoing terms, Zurn argues, the term

“ultimate net loss” cannot include defense costs.

Like Zurn, Hartford contends that Allstate’s payment of defense costs under Northbrook.

1979 does not erode the policy’s limits. Hartford views the “Maintenance of Underlying

Umbrella Insurance” provision in Northbrook 1979 as a “follow-form provision that incorporates

the terms and conditions of Liberty Mutual Umbrella 1979 as they relate to the payment of

defense costs. See ECF No. 242 at 8 (“Because [Northbrook 1979] does not contain any

language that otherwise specifically addresses the manner in which defense costs are treated, it

will treat defense costs the same way as the underlying umbrella policy treats defense costs.”).

Hartford further posits that Liberty Mutual Umbrella 1979 contains a “broad as underlying”

provision! that incorporates the underlying primary policy’s duty to pay Zurn’s defense costs

outside of the policy’s liability limit.

Thus, Zurn and Hartford both insist that Allstate must similarly pay defense costs

separate from Northbrook 1979’s $20 million limit. They have each filed motions for partial

summary judgment seeking a declaration to that effect.

! This provision states:

“Underlying Policy” Notwithstanding anything contained herein to the contrary, it is hereby

understood and agreed that where underlying policies are written under terms and conditions

providing greater protection or indemnity to the insured than the terms and conditions of this policy,

this insurance shall indemnify the insured upon the same terms, conditions and limitations of the

applicable underlying insurance.

ECF No. 240-17 at 41, 7.

il

Allstate disputes Zurn’s and Hartford’s interpretation of the “Maintenance of Underlying

Umbrella Insurance” condition vis-a-vis other relevant policy provisions. Allstate argues that,

under the “Coverage” section of Northbrook 1979, Northbrook agreed to indemnify Zurn for

damages and expenses, collectively, up to the policy’s clearly stated limitation of “$20,000,000

each occurrence and in the aggregate.” To the extent Zurn views the term “ultimate net loss” as

ambiguous, Allstate maintains that Zurn is manufacturing an ambiguity by considering the

phrase in isolation, rather than interpreting the policy as a whole. Allstate also contends that

Zurn and Hartford misconstrue the “following form” language in the “Maintenance of

Underlying Umbrella Insurance” provision. Allstate notes that the provision “does not include a

wholesale deletion of Northbrook’s policy language in favor of that contained in the underlying

policies.” ECF No. 305 at 12. Instead, the provision “excepts from adoption terms and

conditions regarding ‘the amount and limits of liability,’ as well as the many other terms,

conditions, definitions, and exclusions” set forth in the pre-printed form. Jd. To the extent Zurn

cites its own “reasonable expectation” of uniform coverage as a factor supporting its proffered

interpretation of Northbrook 1979, Allstate argues that the “reasonable expectations” doctrine

has no application in the context of sophisticated commercial entities. And, in any event,

Allstate asserts that this line of argument is inherently fact based and inapposite to the

circumstances present in this case.

Based on its review of the subject policies, the Court agrees with Allstate that the defense

costs available to Zurn under Northbrook 1979 must be included within the policy limits. Two

provisions are key to the Court’s analysis. First, the “Coverage” section makes clear that,

“subject to” the policy’s “limitations, terms and conditions,” Allstate will indemnify “all sums”

that Zurn is “obliged to pay... for damages... and expenses on account of . . . Personal

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Injuries... .” ECF No. 240-16 at 3. The clear intent of this language is to include “expenses”

within the $20 million policy cap. Thus, like payments made for Zurn’s settlements and

judgments, defense costs and legal expenses erode the policy limits.

Second, the “Maintenance of Underlying Umbrella Insurance” provision makes clear that

the “terms, definitions, exclusions and conditions” of the underlying Liberty Mutual Umbrella

policy cannot override the more specific terms of Northbrook 1979, pursuant to which damages

and expenses are collectively paid out of the $20 million policy limit. The “Maintenance of

Underlying Umbrella Insurance” condition expressly states that Northbrook 1979 follows form

to the underlying policy “except as regards the premium, the amount and limits of liability and

except as otherwise provided herein. .. .” ECF No. 240-16 at 4 (emphasis added). Thus, any

terms and conditions that are specifically spelled out in the Northbrook policy -- including those

pertaining to the amount and limits of liability -- take precedence over potentially conflicting

terms that might otherwise be incorporated from the underlying policy.

In light of the foregoing, the Court cannot agree that “ultimate net loss” is ambiguous

as to whether or not it includes defense costs. In this Court’s view, defense costs and other

“expenses” are plainly included within the ultimate net loss that Northbrook agreed to pay. Nor

does Northbrook 1979 “follow form” to the provisions in Liberty Mutual Umbrella 1979 that

require payment of defense costs outside of the liability limits. That particular term in the Liberty

Mutual umbrella policy cannot be incorporated into Northbrook 1979 because it conflicts with

the Northbrook policy’s express treatment of “expenses” as subject to the $20 million policy

limit and, as discussed, the Northbrook term takes precedence. Insofar as Zurn contends that it

has a “reasonable expectation” of achieving uniform coverage, the Court notes that it must

enforce the plain terms of the policy as they are written, not as Zurn may wish they were written.

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In light of the foregoing, the Court will deny the Rule 56 motions of Zurn and Hartford to

the extent those motions request a declaration that Allstate must pay defense costs under

Northbrook 1979 separate and apart from the $20 million policy limit.

C. Northbrook 1980-1983

Finally, the parties dispute Allstate’s defense cost obligations under a series of materially

identical Northbrook policies covering the periods April 1, 1980 to April 1, 1981 (“Northbrook

1980”), April 1, 1981 to April 1, 1982 (“Northbrook 1981”), and April 1, 1982 to April 1, 1983

(“Northbrook 1982”). Each of these policies (collectively referred to as the “Northbrook 1980-

1983 Policies”) has a $15 million limit and sits directly excess of Aetna Policy No. 03X$1787

SCA (“Aetna 1980-1983”).

Like Northbrook 1979, the Northbrook 1980-1983 Policies’ coverage provision states

that the insurer

agrees, subject to the limitations, terms and conditions hereinafter mentioned, to

indemnify [Zurn] for all sums which [Zurn] shall be obliged to pay by reason of the

liability imposed upon [Zurn] by law, or assumed under contract or agreement by

[Zurn] for damages, direct or consequential and expenses on account of: . . .

Personal Injuries . . . caused by or arising out of each occurrence . . . and arising

out of the hazards covered by and as defined in the Underlying Umbrella Policies .

See, e.g., ECF No. 240-19 at 3. Upon exhaustion of the underlying policy’s limits, Northbrook’s

liability under the Northbrook 1980-1983 Policies attaches, and the insurer will pay up to

“$15,000,000 ultimate net loss in respect of each occurrence - subject to a limit of ...

$15,000,000 in the aggregate where applicable for each annual period... .” Jd. Like

Northbrook 1979, the Northbrook 1980-1983 Policies do not capitalize or define the term

“ultimate net loss.” These policies also contain a “Maintenance of Underlying Umbrella

Insurance” condition that is very similar to the one set forth in Northbrook 1979, to wit:

14

This policy is subject to the same terms, definitions (except for those terms defined

in paragraph III), exclusions and conditions (except as regards the premium, the

amount and limits of liability and except as otherwise provided herein) as are

contained in or as may be added to the Underlying Umbrella Policies listed in

Section I. Coverage prior to the happening of an occurrence for which claim is

made under this policy ....

Id. at 4.

The parties’ respective positions concerning Allstate’s defense obligations under the

Northbrook 1980-1983 Policies are largely the same as previously discussed relative to

Northbrook 1978 and Northbrook 1979. There is no dispute that the underlying policy (Aetna

1980-1983) required the insurer to pay Zurn’s defense costs in addition to the policy’s liability

limits. Zurn and Hartford contend that the Northbrook 1980-1983 Policies follow form to those

underlying terms and conditions, requiring Allstate to also pay for Zurn’s defense costs separate

and apart from the limits of the Northbrook 1980-1983 Policies.

Zurn, however, points to one additional fact: Aetna 1980-1983, unlike Liberty Mutual

Umbrella 1979, does define the term “ultimate net loss,” and does so in a manner that expressly

excludes defense costs. See ECF No. 219-11 at 6 (“ultimate net loss” means the sum actually

paid or payable in cash in the settlement or satisfaction of any claim or suit for which the

insured is liable either by adjudication or settlement . . . after making proper deduction for all

recoveries and salvages collectible.”) (bold print in the original). Under Aetna 1980-1983, the

insurer pays defense-related expenses in addition to ultimate net loss. See id. at 4 (§2.3(b))

(stating the insurer “will pay with respect to any suit defended . . . in addition to the amount of

ultimate net loss payable . . . all expenses incurred by [the insurer], all costs taxed against the

insured in any such suit and all interest on the entire amount of the judgment therein... .”). A

separate provision makes clear that liability limits apply only to “ultimate net loss,” not defense

costs. Id. at 5 (Section 4.1). According to Zurn, each of the Northbrook 1980-1983 policies

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“unambiguously incorporate[s] all of these ‘same terms, definitions, exclusions and conditions”

from Aetna 1980-1983, including Aetna’s definition of “ultimate net loss,” which excludes

defense costs. Thereby, Zurn argues, Allstate acquired the obligation to pay Zurn’s defense costs

outside of the Northbrook policy limits.

For the same reasons previously discussed with respect to Northbrook 1979, the Court

concludes that Zurn’s and Hartford’s arguments lack merit. The plain language of the

“Coverage” provision of Northbrook 1980-1983, like that of Northbrook 1979, shows that

defense costs are subject to the policies’ $15 million limits. Under the “Coverage” provision,

Northbrook agreed to indemnify Zurn for “all sums” that Zurn would be “obliged to pay” for

damages “and expenses” on account of asbestos-related personal injuries. See ECF No. 240-19

at 3, 240-20 at 3, and 240-21 at 3. This agreement to pay is “subject to the limitations, terms,

and conditions hereinafter mentioned,” including the policy’s $15 million limit. Jd.

Moreover, the “Maintenance of Underlying Umbrella Insurance” condition is materially

identical to the version in Northbrook 1979. The Northbrook 1980-1983 Policies incorporate the

terms, definitions, exclusions and conditions of Aetna 1980-1983, except as regards . . . the

amount and limits of liability and except as otherwise provided herein... .” ECF No. 240-19 at

4, 240-20 at 4, and 240-21 at 4. As the Court has stated previously, the original Northbrook

policy terms are intended to take precedence over the incorporated underlying terms to the

extend those terms conflict or relate to the “amount and limits of liability.” In this Court’s view,

the Northbrook 1980-1983 Policies express a clear intent that Zurn’s defense-related “expenses”

should be deducted from the available policy limits. This policy term must be given effect, as it

overrides the conflicting terms in the underlying Aetna umbrella policy, which require that

defense costs be paid outside of the umbrella policy’s liability limits. Accordingly, the Court

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will deny Hartford’s and Zurn’s respective motions for partial summary judgment insofar as they

seek declarations that any defense costs paid under the Northbrook 1980-1983 Policies do not

erode the relevant policy limits.

IV. WHETHER AIG AND TRAVELERS HAVE A DUTY TO PAY ZURN’S

DEFENSE COSTS OUTSIDE OF POLICY LIMITS PURSUANT TO

CERTAIN POLICIES (ECF NOS. 218, 237 and 240)

The next disputed issue is whether Travelers Casualty and Surety Company

(“Travelers”)” and two AIG subsidiaries -- American Home Assurance Company (“American

Home”) and Granite State Insurance Company (‘Granite State”) -- have a duty to pay defense

costs under the terms of certain excess insurance policies. The two policies pertaining to

Traveler’s contractual obligations are Aetna 1974-1977 and Aetna 1985. The two AIG policies

presently at issue are American Home 1974-1977 and Granite State 1977-19793

A. American Home 1974-1977

The Court first considers the provisions of American Home 1974-1977. This excess

policy lies above a series of Liberty Mutual umbrella policies spanning the periods April 1, 1974

to April 1, 1975 (“Liberty Mutual Umbrella 1974”), April 1, 1975 to April 1, 1976 (“Liberty

2 For purposes of this litigation, Travelers is proceeding in its own individual capacity and also as

successor in interest to Aetna Casualty and Surety Company.

3 The Court notes that there is a third policy -- Granite State’s Quota Share Policy No. 6485-6210

(“Granite State 1985”), under which AIG agrees that Zurn has the right to payment of its defense

costs in addition to the policy’s limit for the subject asbestos claims; however, AIG asserts that

nothing is owed to Zurn at the present time because Zurn has not yet tendered any claims to

Granite State under the 1985 policy. Because there is no dispute concerning the meaning of the

terms of Granite State 1985 as it relates to Granite State’s duty to pay defense costs outside of

the policy limits, the Court will enter judgment in favor of Zurn and Hartford to the extent they

seek a declaration construing the policy’s terms.

17

Mutual Umbrella 1975”), April 1, 1976 to April 1, 1977 (“Liberty Mutual Umbrella 1976”),

and April 1, 1977 to April 1, 1978 (“Liberty Mutual Umbrella 1977”). All of these umbrella

policies (collectively referred to as the “Liberty Mutual Umbrella Policies”) contain materially

identical terms and have a $9 million policy limit. Each of the umbrella policies lies above a

Liberty Mutual primary policy spanning the same time period (April 1, 1974 to April 1, 1975,

April 1, 1975 to April 1, 1976, and so on). There is no genuine dispute that each of the Liberty

Mutual primary policies paid Zurn’s defense costs separate and apart from the $1,000,000

liability limit. See ECF No. 316, 13, 14.

At issue is whether the American Home 1974-1977 policy pays defense costs in a simila

fashion. Several contractual provisions are potentially relevant to the Court’s analysis.

The first is the “follow form” provision of American Home 1974-1977, which states that,

“subject to all the terms and conditions set forth below . . . the insurance afforded by this policy

shall follow all the terms and conditions of [Liberty Mutual Umbrella 1974*], including all

renewals and rewrites thereof.” ECF No. 219-12 at 1.° The American Home policy also

contains a “broad as underlying” endorsement (“Endorsement No. 1”), which states, in relevant

part:

Notwithstanding anything contained herein to the contrary, it is hereby understood

and agreed that where the policies listed as underlying are written under terms and

conditions providing greater protection or indemnity to the insured than the terms

and conditions of this policy, this insurance shall indemnify the insured upon the

same terms, conditions and limitations of the applicable underlying insurance.

eK Ak

4 See Liberty Mutual Umbrella Policy No. LE1-181-014745-174. ECF No. 219-13.

> Insurance contract provisions that appear in all-capital letters in the subject policy will be

reprinted herein in normal typeface for the purpose of enhanced readability. Similarly, where

insurance policies use boldface type to indicate that a particular term is defined elsewhere in the

policy, the boldface will be omitted unless otherwise indicated.

18

Nothing herein contained shall be held to vary, alter, waive or change any of the

terms, limits or conditions of the Policy, except as hereinabove set forth.

ECF No. 219-12 at 4.

Liberty Mutual Umbrella 1974, in turn, contains a “coverage” clause whereby the insurer

agrees “to pay on behalf of the insured all sums in excess of the retained limit which the insured

shall become legally obligated to pay, or with the consent of the company, agrees to pay, as

damages, direct or consequential, because of: (a) personal injury, (b) property damages, or (c)

advertising injury or damages . . . caused by an occurrence.” ECF No. 219-13 at 66. The policy

also includes a section entitled “Investigation, Defense, Settlement, Assistance and

Cooperation,” which provides: .

With respect to personal injury, property damage or advertising injury or

damages covered under this policy (or which would be covered but for the insured’s

retention as stated in the declarations), but not covered under any underlying policy

or other insurance, the company will

(1) defend any suit against the insured seeking damages on account thereof, even if

such suit is groundless, false or fraudulent; but the company may make such

investigation and settlement of any claim or suit as it deems expedient; .. .

(4) pay all reasonable expenses incurred by the insured at the company’s request in

assisting the company in the investigation or defense of any claim or suit, .. .

and the amounts so incurred, except settlement of claims and suits, are not subject

to the insured’s retention as stated in the declarations and are payable by the

company in addition to the applicable limits of liability of this policy.

Id. (bolded print omitted). Finally, Liberty Mutual Umbrella 1974 contains an amendatory

endorsement (“Endorsement No. 3 (“Underlying Policy”)), which is identical to Endorsement

No. 1 to American Home 1974-1977. ECF No. 219-13 at 51, 62. Because Liberty Mutual

Umbrella 1974 is materially identical to the other Liberty Mutual Umbrella Policies that were

subsequently issued between 1975 and 1977, the latter policies include all of the foregoing

provisions.

19

I. The Parties’ Positions

Although the parties agree that American Home 1974-1977 “follows form” to the

underlying Liberty Mutual umbrella policies, that is essentially where their agreement ends.

Fundamentally, the parties disagree about whether, pursuant to the terms of the Liberty Mutual

Umbrella Policies, Zurn is owed defense costs in the underlying asbestos cases.

AIG argues that a “plain reading” of the coverage grant in Liberty Mutual Umbrella

1974-1975 (and its renewals) compels the conclusion that the policy does not provide a defense

or reimbursement of defense costs, because the coverage grant expressly indemnifies the insured

only when Zurn is “legally obligated” to pay “damages.” AIG reasons that, by definition,

“damages” owed to third parties does not include defense costs; therefore, “where there is no

legal obligation to pay damages, and/or there are no damages to pay, and/or there is no

occurrence as defined by the policy, there is no insuring obligation at all under the American

Home policy.” ECF No. 320 at 9. AIG maintains that this interpretation is supported by the

language in the American Home Policy’s Endorsement No. 1, because the “broad as underlying”

clause in the endorsement speaks to the insurance company’s promise to “indemnify” Zurn upon

the same terms, conditions and limitations set forth in the underlying policy. According to AIG,

the term “indemnify” reflects the parties’ intent to restrict the insurer’s obligations to repayment

of settlement and judgment amounts only, not defense costs.

Hartford, on the other hand, argues that American Home is bound to pay defense costs, in

addition to policy limits, by virtue of the “follow form” provision in its policy, along with the

“broad as underlying” endorsement in American Home 1974-1977, and the identical “broad as

underlying” endorsement in the underlying Liberty Mutual umbrella policies. Hartford reasons

that: (i) the Liberty Mutual primary policies indisputably pay defense costs in addition to policy

20

limits; (ii) the Liberty Mutual umbrella policies promise to provide “protection or indemnity” as

broad as that afforded by the underlying primary policies and, thus, the umbrella policies

incorporate the duty to pay defense costs outside of policy limits; and (iii) the American Home

policy “follows form” to the Liberty Mutual umbrella policies and promises to provide

“protection or indemnity” as broad as those policies. Hartford points out that, consistent with this

interpretation, Liberty Mutual paid defense costs for years under its various umbrella policies,

separate and apart from the relevant policy limits.

Like Hartford, Zurn contends that American Home has a duty to pay defense costs in

addition to the limits of its 1974-1977 excess policy. Zurn, however, relies (in part) on the

“Investigation, Defense, Settlement, Assistance and Cooperation” section in the underlying

Liberty Mutual Umbrella Policies. Zurn interprets this provision as an express promise by the

insurer to “defend any [personal injury] suit against the insured” and “pay all expenses incurred

by the company . . . in any suit defended by the company” “in addition to the applicable limits of

liability.’ ECF No. 220 at 16; CSMF 9949-50. Because the American Home excess policy

“follows form” to the Liberty Mutual Umbrella Policies -- and thereby incorporates their

“Investigation, Defense, Settlement, Assistance and Cooperation” clause, Zurn concludes that

American Home also has a duty to pay defense costs in addition to policy limits.

AIG maintains that the positions of Hartford and Zurn are unfounded. AIG argues that

Hartford misconstrues the so-called “broad as underlying” language in the identical Liberty

Mutual and the American Home endorsements. According to AIG, the endorsement “clearly

states that ‘this insurance shall indemnify the insured’; it does not state that the umbrella policy

must defend the insured, as the underlying primary policy must.” ECF No. 320 at 24 (emphasis

in the original). Further, AIG views Liberty Mutual’s history of paying for defense costs as: (a)

21

irrelevant to matters of contract interpretation, and (b) a factual issue that has not yet been fully

explored through discovery.

AIG also insists that Zurn’s reliance on the “Investigation, Defense, Settlement,

Assistance and Cooperation” provision in Liberty Mutual Umbrella 1974 is misplaced. AIG

asserts that the provision, “by its unambiguous terms, applies only to claims ‘not covered under

any underlying policy or any other insurance.’” ECF No. 320 at 23 (emphasis in the original).

AIG maintains that the subject asbestos claims are, in fact, “covered” by other insurance,

because “Zurn has been afforded both defense and indemnity for many decades from its primary

and other insurers, and continues to be so defended and indemnified to this day.” Jd. Thus, AIG

argues, the “Investigation, Defense, Settlement, Assistance and Cooperation” clause has no

applicability in this instance.

Zurn counters that AIG has misconstrued the “Investigation, Defense, Settlement,

Assistance and Cooperation” clause. According to Zurn, the phrase “‘not covered’ under any

underlying policy or any other insurance” refers to injury or damage as to which no collectible

insurance proceeds are available due to, e.g., the exhaustion of the underlying policy’s limits.

Because the underlying Liberty Mutual primary and umbrella policies have all been exhausted,

Zurn contends that its injuries are “not covered” by any underlying policies. In support of its

position, Zurn points to the “Coverage” section of Liberty Mutual Umbrella 1974-1975. There,

the insurer agrees to pay “all sums in excess of the retained limit,” which is further defined to

include only “valid and collectible insurance . . . available to the insured.” ECF No. 219-13 at 66,

68 (boldface in original; italics added). In Zurn’s view, the “Coverage” section “confirms that

injuries are ‘covered’ by the umbrella policies where other insurance is not ‘collectible.”” ECF

No. 283 at 9.

22

Zurn concedes that its “other” unexhausted excess policies might technically “cover” the

subject asbestos injuries. But Zurn asserts that each unexhausted policy includes an “other

insurance” provision -- like the one in the “Investigation, Defense, Settlement, Assistance and

Cooperation” section of the underlying Liberty Mutual Umbrella Policies -- whereby the insurer

purports to make its own policy excess to “any other valid and collectible insurance available to

the insured.” Zurn contends that these “provisions are mutually repugnant and must be

disregarded, leaving American Home to share in paying defense costs with Zurn’s other

insurers.” ECF No. 283 at 8. .

To the extent that AIG’s interpretation of the “Investigation, Defense, Settlement,

Assistance and Cooperation” clause prevails, Zurn argues that the “broad as underlying”

endorsement in the American Home and Liberty Mutual umbrella policies still triggers a duty on

the part of American Home to pay defense costs outside of the policy limits. Zurn reasons that,

if AIG’s interpretation of the “Investigation, Defense, Settlement, Assistance and Cooperation”

clause is correct -- and no defense is available under the umbrella policy’s terms, then the

Liberty Mutual primary policies plainly provide “greater protection” to Zurn. The Liberty

Mutual umbrella policies would then be deemed to incorporate this “greater protection” through

the “broad as underlying” endorsement. American Home 1974-1977 “follows form” to the

Liberty Mutual umbrella policies, and also includes the same “broad as underlying

endorsement.” Therefore, Zurn concludes, American Home must pay defense costs outside of

policy limits.

2. Analysis

Having fully reviewed the subject insurance policies, as well as the parties’ filings and

cited authorities, the Court agrees with the positions articulated by Zurn and Hartford. As noted,

23

the American Home policy follows form to the underlying Liberty Mutual Umbrella Policies,

thereby incorporating “all [their] terms and conditions.” ECF No. 219-12 at 1. Turning then to

the terms and conditions of the Liberty Mutual Umbrella Policies, the Court finds that they

require American Home to indemnify Zurn’s defense costs relative to any claims as to which

American Home was on risk during the policy period. Moreover, these costs must be paid in

addition to the policy limits.

First, the Court agrees with Zurn that America Home must assume defense costs pursuant

to the “Investigation, Defense, Settlement, Assistance and Cooperation” provision. Under that

provision, defense obligations arise as to personal injuries “covered under this policy . . . but not

covered under any underlying policy or any other insurance... .” ECF No. 219-13 at 66.

Because the parties disagree about the meaning of the phrase “not covered,” the Court refers to

the policy’s “Coverage” section. The “Coverage” grant states that “coverage” is afforded for “all

sums in excess of the retained limit” that Zurn is obligated to pay as damages for personal

injuries “to which this policy applies and caused by an occurrence.” Jd. The “retained limit” is

essentially defined as (i) the applicable limits in an underlying policy (to the extent the limits are

not exhausted); (ii) “all amounts payable under other insurance” (meaning “valid and collectible

insurance” that is “available” to Zurn); and (iii) at a minimum, the insured’s retention amount.

Id. at 6. A personal injury is thus “covered” under the Liberty Mutual Umbrella Policies when

the insured has exhausted the limits of any underlying policy and has collected all available

“other insurance,” but still must pay damages in excess of those amounts. Viewing the term

“covered” in this light supports Zurn’s interpretation that, for purposes of the “Investigation,

Defense, Settlement, Assistance and Cooperation” provision, a personal injury claim is “not

24

covered” by underlying insurance or by “other insurance” if the policy’s limit has been

exhausted.

Still, this begs the question whether American Home has defense payment obligations in

the subject asbestos cases where, notwithstanding the apparent exhaustion of American Home’s

underlying primary and umbrella policies,° Zurn’s other excess policies have not yet been

exhausted. In this Court’s view, the question turns primarily on the meaning of “other

insurance,” rather than the term “covered.”

The pre-printed umbrella policy form language states only that, “[flor the purpose of

determining the retained limit, “other insurance” means any other valid and collectible insurance

(except under an underlying policy) which is available to the insured, or would be available to

the insured in the absence of this policy, it being the intention that this policy shall not apply

under or contribute with such other insurance unless the company’s agreement thereto is

endorsed hereon.” ECF No. 219-13 at 68. An endorsement providing “Additional and Amended

Definitions” states, with respect to “Other Insurance”:

It is agreed that this insurance . . . shall not duplicate or apply concurrently with

other forms of property damage insurance available to the named insured such as,

but not limited to, Fire and Extended Coverage, Builders Risk coverage or

Installation Risk coverage and... shall not inure to the benefit of any insurer

issuing any such other forms of insurance to the named insured.

ECF No. 29-13 at 52. If “other insurance” is defined only in terms of “other forms of property

damage insurance,” then the subject personal injury claims are “not covered” by such “other

insurance,” and American Home’s defense obligations are thereby triggered.

6 The Court notes that Allstate has assumed payment for Zurn’s defense, with a reservation of rights, under

Northbrook Policy No. 63-004-463. However, Allstate represents that it has satisfied the limits of that policy. See

ECF No. 239 at 3.

25

On the other hand, both AIG and Zurn appear to assume that “other insurance” might

include Zurn’s other excess insurance policies that were issued for subsequent policy periods.

But if this construction is adopted, it does not change the Court’s conclusion that American

Home is liable for defense costs. When the coverage provision of the Liberty Mutual Umbrella

Policies is read in conjunction with the related definition of “retained limit,” and the pre-printed

definition of “other insurance,” the effect of these provisions is to make the Liberty Mutual

Umbrella Policies excess to all “other (collectable) insurance.” American Home would

essentially be a payor of last resort and any claim “covered” by the Liberty Mutual terms would,

by definition, not be “covered” by any other insurance. And, because the policies’ defense

obligations apply only with respect to “covered” injury or damage, those defense obligations also

would be excess to other insurers’ obligations. But requiring the insured to horizontally exhaust

all other extant policies in this fashion is contrary to the rule of J. H. France Refractories Co. v.

Allstate Ins. Co., 626 A.2d 502, 507 (Pa. 1993), whereby “a policy which promises to pay ‘all

sums’ must provide for full coverage once triggered, without regard for such ‘other insurance’

clauses.” Koppers Co., Inc. v. Aetna Cas. and Sur. Co., 98 F.3d 1440 (3d Cir. 1996). As the U.S.

Court of Appeals for the Third Circuit observed in Koppers:

The [Pennsylvania Supreme Court] held [in .H. France] that it was irrelevant

whether other policies were also triggered, concluding that, “The insurer in question

must bear potential liability for the entire claim.” [626 A.2d] at 508. Here, the

London Insurers agreed to pay “all sums’! in excess of the specified limits of the

directly underlying policies. Once the directly underlying coverage has been

exhausted, then, each excess policy must indemnify the insured for the full excess

loss up to policy limits. Under J.H. France, the insured gets indemnified first

(pursuant to the insuring agreements) and then the insurers may seek to redistribute

the burden among themselves. It is only at this latter stage that the “other

insurance” clauses become relevant, so the London Insurers’ exhaustion argument

based on the “other insurance” clauses must be rejected.

26

98 F.3d at 1454 (footnote omitted). Thus, the “other insurance” language in the Liberty Mutual

Umbrella Policies can not be applied in a manner that would frustrate Zurn’s efforts to vertically

exhaust its otherwise triggered excess insurance coverage.

There is a second basis for disregarding the “other insurance” language in the Liberty

Mutual Umbrella Policies. Namely, Zurn asserts that each of its unexhausted insurance policies

contains an “other insurance” provision that purports to make the subject policy excess to others

in similar fashion. ECF No. 283 at 8. That is plainly true with respect to the various Northbrook

excess policies spanning the period April 1, 1979 through April 1, 1983. See ECF Nos. 219-3,

240-16, 240-19, 240-20, 240-21; see also ECF No. 249 at 2 (Allstate arguing that the Northbroo

policies “each contain a true ‘excess’ other insurance clause, which explicitly states that the

coverage applies only in excess of other insurance”). And, as discussed in more detail below, it is

also true with respect to the Royal and New England policies that are the subject of Allstate’s

Rule 56 motion concerning allocation of defense costs. The Court’s perusal of the other

unexhausted insurance policies of record appears to confirm Zurn’s representation. Under

Pennsylvania law, however, insurance policy clauses that purport to make competing policies

“excess” to one another must be disregarded and deemed stricken if they are “mutually

repugnant.” St. Paul Fire & Marine Ins. Co. v. Pennsylvania Nat'l Mut. Cas. Ins. Co., No. 2:19-

CV-05471-JDW, 2021 WL 859407, at *5 (E.D. Pa. Mar. 8, 2021). Excess clauses are mutually

repugnant where “‘following the express dictates of one policy . . . would be in direct conflict

with the dictates of the other.’” Jd. (quoting Am. Case. Co. of Reading, Pa. v. PHICO Ins. Co.,

702 A.2d 1051, 1054 (Pa. 1997)). Here, the “other insurance provisions” in the Liberty Mutual

Umbrella Policies are in direct conflict with the excess provisions in the other policies of record;

27

consequently, any language in the Liberty Mutual policies purporting to make the insurance

excess to other indemnity or defense insurance must be disregarded.’

As noted, AIG advocates a different interpretation of injury “covered under this policy . .

. but not covered under any underlying policy or any other insurance.” Under AIG’s

interpretation, the term “covered” refers to the scope of coverage, i.e., whether the subject injury

involves the type of risk covered by the policy in question. Thus, in AIG’s view, the asbestos

claims at issue in this litigation were covered by the underlying policies and are presently

covered by the other policies currently paying such claims. If this interpretation is adopted, then

the “Investigation, Defense, Settlement, Assistance and Cooperation” clause in Liberty Mutual

Umbrella Policies does not apply. But American Home still incurs defense costs under this line

of analysis by virtue of the endorsements in the American Home and Liberty Mutual Umbrella

Policies which provide “protection or indemnity” as broad as their underlying policies.

As discussed, the underlying primary policies in effect from April 1, 1974 through April

1, 1978 all provided Zurn a defense and/or reimbursement of defense costs, separate and apart

from the policy limits, and no party appears to contend otherwise.’ Amendatory Endorsement

7 As the Court discusses infra in connection with the Court’s consideration of Allstate’s motion

for summary judgment on the allocation of defense costs, it is not even clear that “other

insurance” clauses can validly be applied to policies that cover a subsequent risk period.

However, the Court need not address that question because, even if the Liberty Mutual Umbrella

Policies could theoretically be excess to other, subsequent insurance policies, the “other

insurance” clauses are mutually repugnant and must be disregarded.

5’ The primary policies state:

The company will pay on behalf of the insured all sums which the insured shall

become legally obligated to pay as damages because of

Coverage A: bodily injury

Coverage B: property damages

28

No. 3 in the Liberty Mutual Umbrella Policies states that, “[nJotwithstanding anything contained

herein to the contrary, .. . where policies listed as underlying are written under terms and

conditions providing greater protection or indemnity to the insured than the terms and conditions

of this policy, this insurance shall indemnify the insured upon the same terms, conditions and

limitations of the applicable underlying insurance.” ECF No. 219-13 at 52. To the extent the

preprinted terms of the Liberty Mutual Umbrella Policies can be construed as denying Zurn

defense costs for the underlying asbestos claims, the overriding endorsement requires that the

policy be read to indemnify Zurn upon the “same terms, conditions and limitations of the

applicable underlying insurance.” Jd.

AIG insists that the amendatory endorsement was intended only to indemnify Zurn for

liabilities related to settlements and judgments. It maintains that the phrase “shall indemnify”

necessarily relates to the insurer’s promise to pay “all sums” that Zurn “shall become legally

obligated to pay” -- meaning settlement and judgments -- under the initial coverage grant.

According to AIG, nothing in the endorsement states or implies that the policies will also defend

the insured.

AIG’s argument is not persuasive. The endorsement speaks not just to situations where

the underlying primary policy provides greater “indemnity”; rather, it applies to situations where

to which this policies applies, caused by an occurrence, and the company shall

have the right and duty to defend any suit against the insured seeking damages on

account of such bodily injury or property damage[.]

In a separate provision entitled “Supplementary Payments,” Liberty Mutual agreed “[to] pay, in

addition to the applicable limit of liability: all expenses incurred by the company, all costs taxed

against the insured in any suit defended by the company and all interest on the entire amount of

any judgment therein[.]” See ECF No. 316, (913-14; see also ECF No. 240-4 at 122-123.

29

the primary policy provides “greater protection or indemnity.” These terms are not defined in

the policy, but under Pennsylvania law, “[w]ords of ‘common usage’ in an insurance policy are

to be construed in their natural, plain, and ordinary sense, and a court may inform its

understanding of these terms by considering their dictionary definitions.” Wall Rose Mut. Ins.

Co. v. Manross, 939 A.2d 958, 962 (Pa. Super. Ct. 2007). To that end, the Court notes that the

term “protect” means “to cover or shield from exposure, injury, damage or destruction,” to

“ouard” or “defend,” “to maintain the status or integrity of especially through financial or legal

guarantees: such as . . . to save from contingent financial loss.” See https://www.merriam-

webster.com/dictionary/protect. The term “indemnify” means “to secure against hurt, loss, or

damage” or “make compensation to for incurred hurt, loss or damage.” See

https://www.merriam-webster.com/dictionary/indemnify. “Indemnity” is commonly defined as

“security against hurt, loss, or damage” or “exemption from incurred penalties or liabilities.” See

https://www.merriam-webster.com/dictionary/indemnity.

In this Court’s view, a policy that imposes a duty on the insurer to defend or to pay

defense costs outside of policy limits provides “greater protection” to the insured than one that

does not impose defense obligations at all. And the umbrella policy’s promise that the insurer

“shall indemnify” Zurn “upon the same terms [and conditions]” set forth in the primary policy

logically means, in this context, that Liberty Mutual agreed to pay or reimburse Zurn for those

expenses covered in the primary policies, which included legal expenses and not simply

judgments or settlements. See, e.g., Siltronic Corp. v. Emps. Ins. Co. of Wausau, No. 3:11-CV-

1493-YY, 2017 WL 6943151, at *6 (D. Or. Dec. 29, 2017) (“Wausau's policies, which provide

for defense costs above and beyond policy limits, necessarily provide greater protection than

Granite State's policies, which provide only for defense costs limited by policy limits.”), report

30

and recommendation adopted, No. 3:11-CV-01493-BR, 2018 WL 1535474 (D. Or. Mar. 29,

2018)

Critically, the American Home policy follows form to the underlying Liberty Mutual

Umbrella Policies, subject to certain “terms and conditions” which consist solely of the named

insured, its address, the policy period, the type of coverage (“Excess Third Party Liability

Including Products”), the liability limits, and the premium amount. Nothing else in the policy’s

terms and conditions serves to qualify the “follow form” language. Thus, American Home 1974-

1977 follows the terms and conditions of the underlying Liberty Mutual Umbrella Policies,

which promise to indemnify Zurn in accordance with the more favorable terms in the underlying

primary policies, which terms include the insurer’s agreement to pay defense costs.

Moreover, Pennsylvania law requires that ambiguous policy provisions be construed in

favor of coverage, particularly when an amendatory endorsement favoring the insured conflicts

with less favorable language found in pre-existing policy language. See Air & Liquid Sys. Corp.

y. Allianz Underwriters Ins. Co., Civil Action No. 11-247, 2013 WL 5436934, at *33 (W.D. Pa.

Sept. 27, 2013) (holding that excess carrier’s defense obligations were coextensive with its

underlying policies, where amendatory endorsement “following form” to underlying policies was

ambiguous). Consequently, to the extent the Liberty Mutual “broad as underlying” endorsement

gives rise to an ambiguity, it must be construed in favor of broader coverage. This rule of

construction also supports the interpretation proffered by Zurn and Hartford.

Based upon the foregoing considerations, the Court concludes, as a matter of law, that

American Home has the duty to indemnify Zurn’s defense costs under the terms of American

Home 1974-1977. Moreover, the policy requires that defense costs be paid separate and apart

from the indemnity limits.

31

B. Granite State 1977-1979

When the American Home Policy expired on December 17, 1977, it was replaced by

Granite State Policy No. 80-93353, which covers the period December 17, 1977 to April 1, 1979.

This policy (hereafter, “Granite State 1977-1979”) provides Excess Liability Insurance up to a

limit of “$5,000,000 each occurrence subject to an aggregate of $5,000,000.” ECF No. 219-17

at 1.

Like the American Home policy which preceded it, Granite State 1977-1979 contains a

“following form” provision stating that, “subject to all the terms and conditions set forth below

... the insurance afforded by this policy shall follow all the terms and conditions” of the

underlying umbrella policy. ECF No. 219-17 at 1. The only “terms and conditions” to which th

following form language is “subject” are the insured’s name and address, the policy period, the

type of coverage (i.e., “Excess Liability Insurance”), the liability limits, the premium amount □□□□

the “flat charge” rate. Jd.

The underlying umbrella policy, Liberty Mutual Umbrella 1977, is materially identical to

the other Liberty Mutual Umbrella Policies that underlie American Home 1974-1977.

Accordingly, Granite State 1977-1979 incorporates all of the same umbrella policy provisions

that were incorporated into American Home 1974-1977. In addition, Granite State 1977-1979

contains a “broad-as-underlying” endorsement (“Endorsement No. 2”), which is identical to

Endorsement No. | in the American Home Policy. Thus, Granite State agreed,

[nJotwithstanding anything contained herein to the contrary, . . . that where policies

listed as underlying are written under terms and conditions providing greater

protection or indemnity to the Insured than the terms and conditions of this policy,

this insurance shall indemnify the insured upon the same terms, conditions and

limitations of the applicable underlying insurance.

ECF No. 219-17 at 3.

32

On April 1, 1978, three and a half months after the Granite State policy term began, Zurn

replaced the underlying Liberty Mutual umbrella insurance with Northbrook 1978. This change,

effective April 1, 1978, was noted in Endorsement No. 3 to the First Granite State Policy,

pursuant to which Granite State “agreed that the terms and conditions of this policy shall

conform to [Northbrook 1978].” ECF No. 219-17 at 4.

The parties’ arguments relative to defense costs under Granite State 1977-1979 largely

mirror their arguments concerning defense obligations under American Home 1974-1977 and

Northbrook 1978. Zurn and Hartford both contend that, because Granite State 1977-1979

follows form to Liberty Mutual Umbrella 1977, it incorporates the umbrella policy’s obligation

to pay defense costs outside of policy limits. Zurn focuses on the Liberty Mutual “Investigation,

Defense, Settlement, Assistance and Cooperation” provision, while Hartford focuses on the

identical “broad-as-underlying” endorsements in the Granite State and Liberty Mutual policies.

Both Zurn and Hartford argue that the amendments to Granite State 1977-1979 that were

effectuated by Endorsement No. 3 did not alter Granite State’s defense cost obligations. They

contend that, by virtue of the endorsement’s “follow form” language, Granite State 1977-1979

incorporated the defense cost obligations set forth in Northbrook 1978.

AIG disputes Granite State’s alleged defense obligations on the same grounds discussed

relative to the American Home policy. AIG contends that the Liberty Mutual “Investigation,

Defense, Settlement, Assistance, and Cooperation” provision has no application here by virtue of

the fact that the subject asbestos claims are “covered” by “other insurance.” AIG also contends

that the “broad-as-underlying” endorsements pertain only to indemnification for judgments and

settlements, and do not impose upon Granite State a duty to defend. To the extent Zurn and

Hartford point to Liberty Mutual’s practice of paying defense costs in addition to paying the

33

policy limits of its umbrella policies, AIG views this issue as an undeveloped factual issue that is

legally irrelevant to matters of contract interpretation. With respect to Zurn’s replacement of its

underlying umbrella policy, AIG maintains that there is no evidence that the contracting parties

intended this change to effect a transformation of that policy from one that provides no defense

to a policy that does. While Endorsement No. 3 states that Granite State 1977-1979 “shall

conform to” the new underlying policy (Northbrook 1978), AIG interprets this language as

indicating merely that the Granite State policy “conformed” to the extent necessary to provide

uninterrupted coverage consistent with the terms, limits and conditions as originally issued,

notwithstanding the change in underlying umbrella coverage.

Having considered the parties’ respective arguments and cited authorities, the Court

concludes that Granite State is obligated under the terms of the 1977-1979 policy to pay Zurn’s

defense costs. For the reasons previously discussed, Liberty Mutual Umbrella 1977 obligates the

insurer to pay defense costs outside of policy limits, while Northbrook 1978 obligates the insurer

to pay defense costs within policy limits. The “following form” language in Granite State 1977-

1979 demonstrates Granite State’s intent to be bound by all of the terms in the underlying

policies, including those pertaining to defense obligations. Moreover, the “broad-as-underlying”

language in Endorsement No. 3 demonstrates Granite State’s intent to provide as much

“protection” to Zurn as is afforded to Zurn under the Liberty Mutual and Northbrook umbrella

policies. In the Court’s view, this “protection” includes payment of defense costs. Consistent

with the Court’s prior rulings, however, Granite State is only obligated to pay defense costs

outside of policy limits relative to the policy period December 17, 1977 to April 1, 1978, during

which time it was excess of Liberty Mutual 1977. For the period April 1, 1978 through April 1,

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1979, Granite State is only obligated to pay defense costs within the policy limits, consistent

with the incorporated terms of Northbrook 1978.

C. Aetna 1974-1977

The Court next considers the provisions of Aetna 1974-1977, which lies directly above

American Home 1974-1977 and identifies the latter as an underlying policy. ECF No. 240-10.

Pursuant to this policy, Aetna agreed to pay Zurn’s “Excess Net Loss arising out of an...

occurrence during the policy period, subject to the limits of liability... and to all of the terms of

this policy.” ECF No. 240-10 at 3. “Excess Net Loss” is defined to mean

that part of the total of all sums which the INSURED becomes legally obligated to

pay or has paid, as damages on account of any one accident or occurrence, and

which would be covered by the terms of the Controlling Underlying Insurance, if

written without any limit of liability, less realized recoveries and salvages, which

is in excess of any self-insured retention and the total of the applicable limits of

liability of all [scheduled underlying insurance] whether or not such policies are in

force.

Id. Under the policy, “Loss shall not include any costs or expense in connection with the

investigation or defense of claims or suits, or interest on any judgment after entry of the

judgment.” Jd.

The “Conditions” of Aetna 1974-1977 state that the insurer “shall not be liable for more

than the amount of the limits stated . . . with respect to Excess Net Loss resulting from any one

accident or occurrence....” Jd. at 5. Moreover, “Aetna Casualty shall not be called upon to

assume charge of the settlement or defense” of any claims or suits against Zurn, but it is afforded

“the right” and “the opportunity” to “associate” with Zurn or its underlying insurers “in the

defense and control” of a claim or suit that “involves or appears reasonably likely to involve”

Aetna. Id.

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Notably, however, Aetna 1974-1977 also includes an endorsement amending the

definition of “Underlying Policy.” Like the broad-as-underlying endorsements in American

Home 1974-1977 and Liberty Mutual 1974, the amending endorsement in Aetna 1974-1977

states that:

Notwithstanding anything contained herein to the contrary, it is hereby understood

and agreed that where policies listed as underlying are written under terms and

conditions providing greater protection or indemnity to the insured than the terms

and conditions of this policy, this insurance shall indemnify the insured upon the

same terms, conditions and limitations of the applicable underlying insurance.

ECF No. 240-10 at 10. The endorsement clarifies, however, that “in no event shall this policy

provide any coverage for engineers or architects errors & omissions.” Id.

Hartford seeks a ruling from this Court declaring that Travelers must pay defense costs

in addition to the liability limits under the terms of Aetna 1974-1977. ECF No. 240. Hartford’s

rationale is straightforward. Based upon its assertion that underlying American Home and

Liberty Mutual Umbrella Policies provide defense costs in addition to policy limits, Hartford

reasons that Aetna Excess 1974-1977 does the same, since it conforms to any “greater protection

or indemnity” in the underlying policies.

Travelers opposes Hartford’s motion on the grounds that Aetna 1974-1977 is clearly

structured as an “Excess Overlayer Indemnity Policy” that only pays for Zurn’s “Excess Net

Loss,” and “Excess Net Loss” is defined to include settlements or judgments, but not defense

costs. Moreover, Travelers insists that it has no obligation to pay more than the applicable limit

of liability for covered “Excess Net Loss.” Travelers denies that the amending endorsement is a

“follow form” endorsement. Instead, Travelers argues, the endorsement’s only effect is to

broaden the scope of the indemnity coverage provided by the policy.

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Thus, the central issue in dispute is whether the policy’s “broad as underlying”

endorsement evidences the contracting parties’ intent to impose defense cost obligations on the

insurer, notwithstanding the policy’s express exclusion of defense costs from any calculation of

the “excess net loss” that will be paid.

Although this question presents a closer call than in the context of the AIG policies, the

Court cannot say that Hartford’s (and Zurn’s) proposed construction of Aetna 1974-1977 is

unreasonable as a matter of law. The endorsement’s opening phrase “notwithstanding anything

contained herein to the contrary” clearly indicates that the endorsement overrides any conflicting

terms that are part of the standard insurance policy. And its reference to “anything contained

herein” is unequivocal. Thus, a fair reading of the endorsement suggests that its provisions take

precedence over the standard contractual provisions that precede it. The endorsement clearly

evidences an intention to provide “protection” to Zurn on par with any “protection” that is

provided in the “underlying policies.” The underlying policies include the Liberty Mutual

Umbrella and Primary policies, both of which pay defense costs outside of policy limits. And

the payment of defense costs outside of policy limits constitutes “greater protection” for Zurn

than mere indemnity payments alone. Moreover, a provision dealing with defense costs can

fairly be viewed as a “term or condition” of an insurance policy. In fact, Aetna 1974-1977’s

“Conditions” specifically address Aetna’s responsibilities vis-a-vis lawsuits and claims, but the

standard contract provides no defense obligation. The defense provisions in the underlying

policies can therefore be construed as “terms and conditions” which provide “greater protection

or indemnity” to Zurn than the “terms and conditions” of Aetna 1974-1977. Finally, the Court

notes that the endorsement specifically excludes any coverage for errors and omissions by

engineers or architects. Aetna could have written a more expansive exception to the endorsement

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in order to clarify that payment of defense costs was not among the terms it was importing into

Aetna 1974-1977; however, it did not do so. As Aetna did not clearly spell out its intent in this

regard, the policy is reasonably capable of being construed in more than one sense, and the Court

will therefore interpret the ambiguity in favor of more coverage. Riccio, 705 A.2d at 426

(ambiguous policy provisions must be construed in favor of the insured).

D. Aetna 1985

Hartford also requests a declaration that Travelers must pay defense costs in addition to

policy limits under Aetna Policy No. 01 XN 5183 WCA (“Aetna 1985”). This policy was issued

to Zurn as part of a quota share layer covering the period April 1, 1985 to April 1, 1986. Like

the 1974-1977 policy, Aetna 1985 states that the insurer “will indemnify [Zurn] against Excess

Net Loss arising out of an accident or occurrence during the policy period, subject to the limits o

liability .. . and to all of the terms of this policy.” ECF No. 240-25 at 3. Here again, “Excess

Net Loss” pertains to sums which the Insured must pay as damages,” and “Loss” expressly

excludes legal costs or expenses. Jd. The policy contains the same “Conditions” as are set forth

in Aetna 1974-1977 pertaining to the “Limits of Liability” and “Assistance and Cooperation”

with lawsuits. Thus, under Aetna 1985, “Aetna Casualty shall not be liable for more than the

amount of the limits stated . .. with respect to Excess Net Loss... .” ECF No. 240-25 at 5. In

addition, Aetna is not required to “assume charge of” the settlement or defense of a lawsuit, but

has the right and the opportunity to “associate” with Zurn or Zurn’s underlying insurers where a

claim appears “reasonably likely” to involve Aetna. Jd.

Like Aetna 1974-1977 the 1985 policy includes an amendatory endorsement. This

provision, styled as a “Follow Form Endorsement,” is slightly different from the endorsement

included in the 1974-1977 policy. It states that:

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Notwithstanding any provision in this policy to the contrary, the insurance afforded

by this policy shall follow the insuring agreement and coverage and is subject to

the same warranties, terms, definitions, conditions and other provisions as are

contained in the Controlling Insurance. It is agreed however that the foregoing

shall not apply as respects the following endorsements:

Endorsement No. 2 Pollution Liability Exclusion Form XN 13179-C.

ECF No. 240-25 at 10. The “Controlling Insurance” referred to in the Follow Form

Endorsement is Aetna Umbrella Policy No. 03 XS 1790 SCA (“Aetna Umbrella 1983-1985”).?

Aetna Umbrella 1983-1985, in turn, contains the same “broad as underlying” endorsement as is

contained in American Home 1974-1977, Aetna 1974-1977, Granite State 1977-1979, and the

Liberty Mutual 1974-1978 Umbrella Policies. See ECF No. 240-26 at 9.

The Court need not expound at length on the parties’ positions relative to Aetna 1985,

because they essentially mirror the arguments made with respect to Aetna 1974-1977. At

bottom, the parties dispute the meaning of the Follow Form Endorsement in Aetna 1985 and,

specifically, whether it overrides other terms in the policy relating to defense costs. Hartford

asserts (and Zurn agrees) that the endorsement incorporates obligations for the insurer to pay

defense costs because: (i) Aetna 1985 follows form to the underlying umbrella policy (which is

Aetna Umbrella 1983-1985 - the “Controlling Agreement”); (ii) the underlying umbrella policy

provides coverage as broad as the underlying primary policy, see ECF No. 240-26 at 9; and (iii)

the relevant primary policy (Aetna Policy No. 03 GL 1235 SRA) imposed a duty upon Zurn’s

insurer to pay defense costs in addition to the policy’s limits, see ECF No. 240-28 at 5.

° This umbrella policy had an original policy period of April 1, 1983 to April 1, 1986; however, the policy was

cancelled on April 1, 1985 and replaced as of that date with Aetna Policy No. 03-XS-1797-SCA (“Aetna Umbrella

1985”), which imposes a duty upon the insurer to pay defense costs outside of policy limits. See ECF No. 240-27 at

5.

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Travelers opposes Hartford’s motion on the same bases previously articulated. With

respect to the “Follow Form Endorsement” in Aetna 1985, Travelers notes that the endorsement

specifically references “the insurance afforded by this policy.” Travelers argues that it is “the

insurance afforded” under Aetna 1985 -- i.e., indemnity for settlements and judgments only --

that is subject to the endorsement; therefore, any “warranties, terms, definitions, conditions and

other provisions” incorporated from the “Controlling Insurance” must be viewed as part of an

indemnity only policy.

Given the strong similarities between Aetna 1974-1977 and Aetna 1985, the Court’s

analysis and finding of ambiguity remains the same. Travelers’ construction of the Follow Form

Endorsement is not unreasonable per se, but it is also not the only reasonable interpretation.

Rather, the endorsement can be fairly construed as overriding the provisions of the standard

policy and incorporating into Aetna 1985 the insurer’s obligation to pay defense costs outside of

policy limits, as set forth in Zurn’s 1983-1986 primary policy and as incorporated into the 1983-

1985 Travelers Umbrella Policy. Given this ambiguity in Aetna 1985, the Court will construe

the policy in Zurn’s favor. As a result, Hartford is entitled to a declaration that Travelers must

pay defense costs outside of policy limits pursuant to Aetna 1985.

V. WHETHER CERTAIN POLICIES ARE EXCESS TO THE ROYAL

AND NEW ENGLAND POLICIES WITH RESPECT TO DEFENSE

COSTS (ECF No. 246)

A. Allstate’s Motion for Partial Summary Judgment (ECF No. 246)

The Court will next address Allstate’s motion for partial summary judgment on the issue

of allocation of defense costs. ECF No. 246. At issue are six excess insurance policies issued by

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Northbrook, namely: Northbrook 1978, Northbrook 1979, Northbrook 1980, Northbrook 1981,

Northbrook 1982, and Northbrook 1983. See ECF Nos. 247-2 through 247-7. Allstate argues

that the Northbrook policies are excess to policies issued by Royal and New England, relative to

the insurers’ duty to defend and/or reimburse defense costs.

Each of the Northbrook policies promises, subject to specified “limitations, terms and

conditions,” to “indemnify the Insured for all sums which the Insured shall be obliged to pay by

reason of the liability imposed upon the Insured by law...for damages, direct or consequential

and expenses on account of: (a) Personal Injuries, including death at any time resulting

therefrom... .” ECF Nos. 247-2 through 247-7. In addition, Northbrook 1978 and 1979 contain

the following clause addressing “other insurance”:

If other valid and collectible insurance with any other Insurer is available to the

Insured covering a loss also covered by this policy, other than insurance that is in

excess of the insurance afforded by this policy, the insurance afforded by this policy

shall be in excess of and shall not contribute with such other insurance.

ECF Nos. 247-2 and 247-3. Northbrook 1980, 1981, 1982, and 1983 contain a slightly different

“other insurance” clause:

Except as respects coverage written specifically as contributing insurance with this

policy or to apply excess of this policy, this policy shall be excess insurance over

any other insurance available to the Insured with respect to an occurrence covered

hereunder.

ECF Nos. 247-4 through 247-7.

Allstate characterizes the latter two clauses as “true ‘excess’ other insurance” clauses.

ECF No. 249 at 2. It contrasts them with the “other insurance” clauses contained in two policies

issued by Hartford’s subsidiaries: Royal 1983-1984 and New England 1984-1985.

It is undisputed that, except with respect to limits of liability and premium amounts, both

the Royal and New England policies “follow form” to an underlying umbrella policy issued by

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Aetna for the time period April 1, 1980 through April 1, 1983 -- namely, Policy No.

03XS1790SCA" (at times, “Aetna Umbrella 1980-1983”). Relevant to the present

dispute are certain provisions of the Aetna Umbrella policy, which are incorporated into the

Royal and New England excess policies.

First, under Section 2.1 (entitled “Coverage”), Aetna Umbrella 1980-1983 states that,

subject to certain non-relevant exclusions, the insurer will “pay on behalf of the insured the

ultimate net loss in excess of the applicable underlying limit which the insured shall become

legally obligated to pay as damages because of .. . personal injury ... to which this policy

applies, caused by an occurrence... ." ECF No. 219-21 at 31 (original in capital letters).!!

Next, Section 2.3 sets forth a provision entitled “Defense of Suits Not Covered by Other

Insurance” which, by virtue of an amendatory endorsement, reads:

(A) the company shall defend any suit seeking damages which are not payable on

behalf of the insured under the terms of the policies of underlying insurance

described in section 1 or any other available insurance

(1) because such damages are not covered thereunder, or

(2) because of exhaustion of an underlying limits of liability by payment of

claims[ |

but which are payable under the terms of section 2.1 ... even if any of the

allegations of the suit are groundless, false o[r] fraudulent; but the company may

make such investigation and settlement of any claim or suit as it deems expedient.

However, the company shall not be obligated to pay any claim or judgment or to

defend any suit after the applicable limit of the company’s liability has been

exhausted by payments of judgments or settlements.

10 Although the New England policy’s initial endorsement followed form to Aetna “Policy No.

03XS1787SCA,” a subsequent endorsement corrected the policy number to read “Policy No.

03SX1790SCA.”

This language became effective April 1, 1984 through an amendatory endorsement. As

originally stated, Section 2.1 stated that “[t]he company will indemnify the insured for ultimate

net loss in excess of the applicable underlying limit... .” ECF No. 219-21 at 3 (omitting bold

print, indicating terms defined elsewhere in the policy).

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ECF No. 219-21 at 33 (all caps omitted).

Third, the Aetna Umbrella Policy contains the following “other insurance” clause:

6.7 Other Insurance. The insurance afforded by this policy shall be excess insurance

over any other valid and collectible insurance available to the insured and

applicable to any part of ultimate net loss, whether such other insurance is stated to

be primary, contributing, excess, contingent or otherwise, unless such other

insurance specifically applies as excess insurance over the limits of liability

provided in this policy.

ECF No. 219-21 at 5 (bold print, indicating defined terms, omitted). The policy defines

“ultimate net loss” as “the sum actually paid or payable in cash in the settlement or satisfaction

of any claim or suit for which the insured is liable either by adjudication or settlement with the

written consent of the company, after making proper deduction for all recoveries and salvages

collectible. Id. at 58 (bold print omitted).

I. The Parties’ Respective Positions

Allstate argues that, based upon a comparison of the Aetna and Northbrook “other

insurance” clauses, this Court should conclude that the Northbrook policies are excess policies to

the Royal and New England policies when it comes to paying defense costs. Allstate reasons

that the Aetna policy’s “other insurance” provision -- which is incorporated into the Royal and

New England policies -- pertains only to “ultimate net loss,” which includes indemnity costs

only and excludes defense costs. By contrast, Allstate argues, the Northbrook “other insurance”

clauses apply broadly to both indemnity and defense costs. As a result, Northbrook concludes,

the Northbrook Policies must be construed as “excess” of the Royal and New England policies

for purposes of allocating defense costs for the underlying asbestos claims.

Hartford opposes Allstate’s position on allocation of defense costs, except insofar as

Allstate’s motion relates to Northbrook 1983-1984. As to the latter policy, Hartford concedes

- 43

that Northbrook 1983-1984 is a fifth-layer excess policy, and thus inherently excess to the Royal

Policy, which is a second-layer excess policy. See ECF No. 285 at 4-5. Based on this

concession, Allstate’s motion will be granted insofar as it seeks a declaration that its defense cost

obligations under Northbrook 1983-1984 are excess to any payments Zurn may receive under the

Royal Policy.

As to the remaining Northbrook policies (i.e., those covering the time period April 1,

1978 through April 1, 1983), Hartford observes that these policies all predate the coverage perio

provided by Royal 1983-1984 and New England 1984-1985. As a result, Hartford argues, the

“other insurance” clauses in Northbrook 1978-79, 1979-80, 1980-81, 1981-82 and 1982-83 have

no application vis-a-vis the Royal and New England policies, because “other insurance” exists

only as among policies provide concurrent coverage. Beyond this, Hartford denies that the

“other insurance” clauses in the Royal and New England policies apply only to indemnity costs.

Rather, Hartford says, its “other insurance clauses” are properly understood as making the Royal

and New England policies excess to the 1978-1983 Northbrook policies in all respect. To the

extent the Northbrook and Hartford policies each purport to be excess of the other, Hartford

maintains that the policies are mutually repugnant under Pennsylvania law, and neither insurer’s

“other insurance” provisions are to be given any effect.

In its reply, Northbrook disputes that, under Pennsylvania law, “other insurance” clauses

must have concurrent effective periods in order to be applicable. Northbrook contends that its

position (that an “other insurance” clause can be effective as to a consecutive or non-concurrent

policy) is established by J.-H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502 (Pa.

1993) and Koppers Co. v. Aetna Cas. & Sur. Co., 98 F.3d 1440 (3d Cir. 1996). Northbrook also

cites Pac. Indem. Co. v. Linn, 766 F.2d 754, 767-68 (3d Cir. 1985), for the proposition that,

44

under Pennsylvania law, successive policies can be concurrent for purposes of applying other

insurance clauses.

2. Analysis

Presently, the Court need not resolve the parties’ dispute about whether “other insurance”

clauses are applicable vis-a-vis consecutive policies in the context of asbestos personal injury

cases. Even assuming for the moment that they are, the Court is not persuaded that the relevant

policy language establishes Northbrook’s defense obligations as excess to Hartford’s under the

Royal and New England policies.

Both sides appear to agree that the “other insurance” clauses in the various Northbrook

policies purport to render those policies excess to other “valid and collectible” or “available”

insurance. Their disagreement centers around their competing interpretations of the “other

insurance” clause set forth in Aetna Umbrella 1983-1985, to which both the Royal and New

England policies follow form. Although Allstate contends that the Aetna clause pertains only to

indemnity, not defense costs, the Court does not agree.

As noted, the relevant provision in the Aetna Umbrella policy states that

The insurance afforded by this policy shall be excess insurance over any other valid

and collectible insurance available to the insured and applicable to any part of

ultimate net loss, whether such other insurance is stated to be primary, contributory,

excess, contingent, or otherwise, unless such other insurance specifically applies as

excess insurance over the limits of liability provided in this policy.

ECE No. 219-21 at 5. Allstate focuses on the phrase “applicable to any part of ultimate net loss,”

as dispositive language; then, because “ultimate net loss” is defined in terms of “sums actually

paid or payable in cash in the settlement or satisfaction of any claim or suit” -- a definition that

does not include defense costs, Allstate assumes that the Aetna policy purports to be excess to

other insurance only as it relates to settlements or judgments. But the reference to “ultimate net

45

loss” merely establishes the prerequisite that there be an identity of covered risk in the competing

policies -- that is, the competing policies must both cover at least some “part of [the insured’s]

ultimate net loss.” The Court therefore agrees with Hartford’s view that referenced language

merely establishes the relevance of the competing “other” insurance by specifying that it covers

the claim against the insured; the Northbrook policies do the same thing by referring to other

insurance that ““‘cover[s] a loss also covered by this policy’” or other insurance “‘available to the

insured with respect to an occurrence covered hereunder.’” ECF No. 285 at 12. Assuming that

commonality, “[t]he insurance afforded” by the Hartford policies -- which includes defense costs

-- is “excess insurance” over other “insurance available to the insured.”

In sum, both the 1978-1983 Northbrook policies and Royal/ New England policies

purport to be excess over “other” available insurance with respect to payments made toward

judgments, settlements, and defense costs. Because the Northbrook and Hartford policies each

claim to be excess over the other, they are mutually repugnant, and the “other insurance” clauses

are ineffective. Each insurer must therefore share in the cost of Zurn’s defense as to asbestos

personal injury claims for which they are both on risk. Accordingly, Allstate’s motion seeking a

declaration that it is excess to the Hartford policies relative to defense costs will be denied.

B. AIG’s Joinder in Allstate’s Motion (ECF No. 230)

We reach the same conclusion with respect to the American Home and Granite State

1977-1979 policies. In its omnibus brief in opposition, AIG adopts the position advanced by

Allstate relative to allocation of defense costs. That is, AIG argues that any obligations that

American Home or Granite State may have relative to Zurn’s defense are excess to Hartford’s

obligations. As explained, the “other insurance” provision in the Royal and New England

policies is not narrower than the “other insurance” clauses in the Northbrook policies. That is,

46

the clause in the Hartford policies does not purport to make Royal and New England excess to

others only with respect to payments in satisfaction of personal injury claims. Instead, as

discussed, the intent is to make Hartford’s insurers excess with respect to defense costs as well.

To the extent the American Home and Granite State 1977-1979 policies purport to do the same,

they conflict with the competing “other insurance” clauses in the Hartford policies. Those

provisions therefore cancel each other out, as they are mutually repugnant, and each insurer must

share in the cost of defending Zurn where both the AIG and Hartford policies are on risk. To the

extent AIG joins in Allstate’s motion, AIG’s motion is denied.

VI. CONCLUSION

For the reasons set forth above, the Court will grant Zurn’s motion for partial summary

judgment to the extent Zurn seeks a declaration that defense costs must be paid in addition to

lability limits under American Home 1974-1977, Granite State 1977-1979 (but only for the time

period December 17, 1977 to April 1, 1978), and Granite State 1985. The Court will deny

Zurn’s motion for partial summary judgment insofar as Zurn seeks a declaration that defense

costs must be paid in addition to policy limits under the Northbrook policies covering the period

April 1, 1978 to April 1, 1983, and under Granite State 1977-1979 (for the period April 1, 1978

to April 1, 1979).

The Court will grant Hartford’s motion for partial summary judgment to the extent

Hartford seeks a declaration that defense costs must be paid in addition to policy limits under

American Home 1974-1977, Granite State 1977-1979 (but only for the time period December

17, 1977 to April 1, 1978), Granite State 1985, Aetna 1974 -1977, and Aetna 1985. The Court

will deny Hartford’s motion for partial summary judgment insofar as Hartford seeks a

47

declaration that defense costs must be paid in addition to policy limits under the Northbrook

policies covering the period April 1, 1978 to April 1, 1983, and under Granite State 1977-1979

(for the period April 1, 1978 to April 1, 1979).

The Court will deny American Home’s motion for partial summary judgment on the issue

of defense and defense costs.

The Court will grant Allstate’s motion for partial summary judgment regarding the limit

of liability of Northbrook 1978.

Finally, the Court will grant Allstate’s motion for partial summary judgment regarding

allocation of defense costs insofar as Allstate seeks a declaration that Northbrook Insurance

Company Policy No. 63-009-121, covering the period April 1, 1983 to April 1, 1984, is excess o

Royal Indemnity Company Policy No. RED 102439, issued for the same policy period; in all

other respects that motion will be denied.

Neetn Ltr abe

SUSAN PARADISE BAXTER

United States District Judge

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