Appendix — Froude v. Eagle-Picher Industries, Inc.

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UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 81-1761

EAGLE-PICHER INDUSTRIES, INC.,

Plaintiff, Appellant,

v.

LIBERTY MUTUAL INSURANCE COMPANY, ET AL.,

Defendants, Appellees.

No. 81-1762

EAGLE-PICHER INDUSTRIES, INC.,

Plaintiff, Appellee,

Vv.

LIBERTY MUTUAL INSURANCE COMPANY, ET AL.,

Defendants, Appellees.

PHILIP ALAN FROUDE, ET AL.,

Defendants, Appellants

No. 81-1763

EAGLE-PICHER INDUSTRIES, INC.,

Plaintiff, Appellee,

v.

LIBERTY MUTUAL INSURANCE COMPANY, ET AL.,

Defendants, Appellees.

AMERICAN MOTORISTS INSURANCE COMPANY,

Defendant Appellant.

Before COFFIN, Chief Judge,

CAMPBELL and BOWNES*, Circuit Judges.

ORDER OF COURT

Entered September 1, 1982

The requests for rehearing en banc are hereby denied.

By the Court:

/s/ DANA H. GALLUP

Clerk.

[cc: Messrs. Parrott, Bousquet, Mansfield, Moriarty & Rosow. }

* Circuit Judge Breyer has recused himself from this case.

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UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 81-1761.

EAGLE-PICHER INDUSTRIES, INC.,

Plaintiff, Appellant,

v.

LIBERTY MUTUAL INSURANCE COMPANY, ET AL.,

Defendants, Appellees.

No. 81-1762.

EAGLE-PICHER INDUSTRIES, INC..,

Plaintiff, Appellee,

v.

LIBERTY MUTUAL INSURANCE COMPANY, ET AL.,

Defendants, Appellees.

PHILIP ALAN FROUDE, ET AL.,

Defendants, Appellants.

No. 81-1763

EAGLE-PICHER INDUSTRIES, INC.,

v.

LIBERTY MUTUAL INSURANCE COMPANY, ET AL.,

Defendants, Appellees.

AMERICAN MOTORISTS INSURANCE COMPANY,

Defendant Appellant.

Before COFFIN, Chief Judge,

CAMPBELL and BOWNES, Circuit Judges.

ORDER OF COURT

Entered August 30, 1982

It is ordered that the petitions for rehearing filed in these

cases on July 29, 1982 be, and the same hereby are, denied.

By the Court:

/s DANA H. GALLUP

Clerk.

[ce: Messrs. Parrott, Bousquet, Mansfield, Moriarty and Rosow]

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UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 81-1761.

EAGLE-PICHER INDUSTRIES, INC.,

Plaintiff, Appellant,

v.

LIBERTY MUTUAL INSURANCE COMPANY, ET AL.,

Defendants, Appellees.

No. 81-1762.

EAGLE-PICHER INDUSTRIES, INC.,

Plaintiff, Appellee,

v.

LIBERTY MUTUAL INSURANCE COMPANY, ET AL.,

Defendants, Appellees,

PHILIP ALAN FROUDE, ET AL.,

Defendants, Appellants.

No. 81-1763. ,

EAGLE-PICHER INDUSTRIES, INC..,

Plaintiff, Appellee,

v.

LIBERTY MUTUAL INSURANCE COMPANY, ET AL.,

Defendants, Appellees,

AMERICAN MOTORISTS INSURANCE COMPANY,

Defendant, Appellant.

JUDGMENT

Entered: June 30, 1982

These causes came on to be heard on appeals from the United

States District Court for the District of Massachusetts, and were

argued by counsel.

Upon consideration whereof, It is now here ordered, ad-

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judged, and decreed as follows: The judgment of the District

Court is modified to read as follows:

It is declared that the operative date for determining which

of the several policies at issue here apply to a given claim or

lawsuit in which damages are sought from plaintiff, Eagle-Picher

Industries, Inc. is the date when the asbestos-related disease

became reasonably capable of medical diagnosis; and

As so modified, the judgment of the District Court is af-

firmed.

Liberty Mutual and the Bird defendants are to recover their

costs as appellees in all three appeals.

Froude is to recover its costs as appellee in No. 81-1761.

Eagle-Picher is to recover its costs as appellee in Nos. 81-

1762 and 81-1763 only.

By the Court:

/s/ DANA H. GALLUP

Clerk.

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UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 81-1761

EAGLE-PICHER INDUSTRIES, INC.,

Plaintiff, Appellant,

v.

LIBERTY MUTUAL INSURANCE COMPANY, et al.,

Defendants, Appellees.

No. 81-1762

EAGLE-PICHER INDUSTRIES, INC..,

Plaintiff, Appellee,

v.

LIBERTY MUTUAL INSURANCE COMPANY, et al.,

Defendants, Appellees.

PHILIP ALAN FROUDE, et al.,

Defendants, Appellants.

No. 81-1763

EAGLE-PICHER INDUSTRIES, INC.,

Plaintiff, Appellee,

Vv.

LIBERTY MUTUAL INSURANCE COMPANY, et al.,

Defendants, Appellees,

AMERICAN MOTORISTS INSURANCE COMPANY,

Defendant, Appellant.

Appeals from the United States District Court

For the District of Massachusetts

{[Hon. Rya W. Zobel, U.S. District Judge]

Before Coffin, Chief Judge,

Campbell and Bownes, Circuit Judges.*

Malcolm B. Rosow, with whom Lewis Herman, Arthur Lied-

* Aldrich, J., a member of the panel hearing argument, later recused

himself and was replaced by Campbell, J.

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erman, Standard, Weisberg, Heckerling & Rosow, Erik Lund,

Robert T. Harrington, David J]. Hatem, and Posternak, Blank-

stein & Lund were on brief, for Philip Alan Froude, et al.

Francis ]. Bousquet, with whom Frank A. Smith, IIl., T. Mark

Herlihy, and Herlihy & O'Brien were on brief, for American

Motorists Insurance Company.

Charles R. Parrott, with whom Andrew J. McElaney, Jr.,

Brian T. Kenner, Robert S. Brintz, and Nutter, McClennen &

Fish were on brief, for Eagle-Picher Industries, Inc.

Christopher C. Mansfield, with whom Lawrence A. Podolski,

Robert C. Macaulay, Nancy A. Froude, Candace L. Sutcliffe,

Gerald V. Weigle, Jr., and Dinsmore, Shohl, Coates & Deupree

were on brief, for Liberty Mutual Insurance Company.

George Marshall Moriarty, with whom John M. Harrington,

Jr., Kenneth W. Erickson, and Ropes & Gray were on brief, for

The Manifestation Companies and Underwriters in the London

Market.

Charles A. Lynberg, Jeff Carlisle, and Lynberg & Nelsen on

brief, for American Home Assurance Company, et al., amicus

curiae.

Stephen McReavy, Jeffrey Kaufman, Stephen Dennis, Wal-

lace Tice-Wallner, and Hall, Henry, Oliver & McReavy, on brief

for Fireman's Fund Insurance Company, et al., amici curiae.

F. Lee Bailey, Kenneth J. Fishman, and Law Offices of F. Lee

Bailey on brief, for Commercial Union Insurance Companies,

amicus curiae.

John G. Niles, Ira M. Feinberg, Martin S. Checov, and

O'Melveny & Myers, on brief for Insurance Company of North

America, amicus curiae.

Robert N. Sayler, Elizabeth W.M. Teel, John E. Heintz, Scott

D. Gilbert, Covington & Burling, John J. Curtin, Jr., A. Van

C. Lanckton, Bingham, Dana & Gould, Curtis M. Caton, Rob-

ert S. Venning, Stephen N. Goldberg, Heller, Ehrman, White

& McAuliffe, Gael Mahony, Hill & Barlow, E. Judge Elderkin,

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William R. Irwin, Brobeck, Phleger & Harrison, William P.

Manning, Jr., Wright, Manning & Sagendorph, James A. Young,

James M. White, Obermayer, Rebmann, Maxwell & Hippel,

Thomas C. MacDonald, Jr., Charles P. Schropp, Shackleford,

Farrior, Stallings & Evans, Robert R. Reeder, Cozen, Begier &

O'Connor, David A. Welte, and Polsinelli, White & Schulte, on

brief for Armstrong World Industries, Inc., et al., amici curiae.

June 30, 1982

CorFin, Chief Judge. Eagle-Picher Industries, Inc., manufac-

tured a variety of industrial insulation products containing as-

bestos. Beginning in the late 1960's, and accelerating rapidly in

the mid-1970's, Eagle-Picher has been named as a defendant in

lawsuits in which plaintiffs allege personal injury or wrongful

death resulting from the inhalation of asbestos from Eagle-

Picher’s products. Between 1968 and 1980, Eagle-Picher was

covered by numerous insurance policies provided by several

different carriers. In 1977, Eagle-Picher's primary insurer, Lib-

erty Mutual Insurance Co., notified Eagle-Picher that the policy

limits for 1974 and 1975 were about to be reached. Eagle-Picher

sent this notice to its excess insurers, American Motorists Insur-

ance Co. and various underwriters in the London Market.

American Motorists responded, arguing that Liberty Mutual

had been construing its policy incorrectly and implying that

Liberty Mutual's coverage would not be exhausted under a

proper interpretation. The London Market sent a reservation of

rights letter to Eagle-Picher. pending resolution of the correct

theory of insurability. Eagle-Picher subsequently brought this

action, seeking a declaration of the rights and liabilities of its

various insurers pursuant to the applicable policies.

Two theories of insurance coverage were presented to the

district court. Eagle-Picher, Liberty Mutual, and various Lon-

don Market underwriters referred to as the “Bird” underwriters

arg»ed for a “manifestation” theory: those insurers on the risk at

th ‘time the asbestos-related disease first manifested itself by

way of medically diagnosable symptoms must provide coverage.

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American Motorists, and other London Market insurers known

as the “Froude” underwriters, argued for an “exposure” theory:

those insurers on the risk at the time of exposure to asbestos

must indemnify Eagle-Picher for a pro-rata share of its liability,

the proportion to be determine? by the ratio of the number of

years the insurer was on the risk to the total number of years of

the case. The fact that Liberty Mutual and Eagle-Picher agreed about the

underlying basis of is no reason to dismiss Liberty Mutual from the

action. See, ¢.g., Shamrock Corp. v. Lumbermens Mutual Casualty

Co., 416 F.2d 707 (7th Cir. 1969)

Ag

For the reasons that follow, we agree with mosi of the district

court's thoughtful opinion but modify its judgment in part.

Eagle-Picher was uninsured for liability resulting from expo-

sure to its asbestos products prior to 1968. Between January 1,

1968, and January 1, 1980, Liberty Mutual provided Eagle-

Picher with primary comprehensive liability insurance. From

June 1, 1973, until October 1975, American Motorists provided

Eagle-Picher with first layer excess umbrella coverage; from

October 1975 through January 1, 1979, the London Market

provided Eagle-Picher with first layer excess coverage. Each of

these policies contains independent coverage clauses and defi-

nitions. In addition, the London Market provided Eag'e-Picher

with second layer excess coverage from September 1, 1973, to

January 1, 1979, these policies incorporate by reference the

terms of the underlying first layer excess policies. The excess

One of these insurers apparently provided first-layer excess coverage between

1968 and 1973, others provided additional umbrella coverage between 1973

and 1979. Eagle-Picher responded that it was entirely speculative whether

these additional policies would ever be triggered. Without addressing the

merits of this assertion, we note that our disposition of this case cannot be

legally binding on non-parties. See, e.g.. State Farm Mutual Automobile Ins.

Co. v. Mid-Continent Casualty Co., 518 F.2d 292, 295 (10th Cir. 1975);

Diamond Shamrock, supra. In any case, no motion to join these parties to the

action was made, nor was there a showing that would destroy diversity

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injury.” “Bodily injury” is defined as “bodily injury, sickness or

disease.” It is clear from this language that each occurrence is

made up of two components, the exposure and the resulting

bodily injury; and it is the resulting injury, not the

exposure, which must take place “during the period.” 523

F. Supp. at 114; see also Keene, supra, F.

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American Motorists Ins. Co. v. E.R. Squibb & Sons,

Misc.2d 222, 406 N.Y.S.2d 658, 659-60 (Sup. Ct.

American Motorists policy states that the insurer shall

nify the insured for liability due to “personal in

. . . an occurrence which takes place during the

(Emphasis added.) The definition of “occurrence”, however

substantially identical to that in the other policies, as is

definition of “personal injury” as “bodily injury, . . . sickness or

disease.”

The principal issue in this case is whether asbestosis “results”

soon after initial and subsequent exposure to asbestos, or whether

the disease “results” when it becomes clinically evident or man-

ifest. Secondarily, we must decide when an “occurrence .. .

takes place” under the terms of the American Motorists policy.

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apt

All

construction given to the language by the parties and of the

customary usage of persons in the same commercial setting is

normally admissible. If the meaning of the policy terms remains

unclear, the policy is generally construed in favor of the insured

in order to promote the policy's objective of providing coverage.

See generally Pavlik v. Consolidation Coal Co., 456 F.2d 378,

380-81 (6th Cir. 1972) (Ohio Law); Bright v. Ohio Casualty Ins.

Co., 444 F.2d 1341 (6th Cir. 1971)(Ohio law); Olmstead v.

Lumbermens Mutual Ins. Co., 22 Ohio St.2d 212, 259 N.E.2d

123, 126 (1970); Construction Advancement Program v. A. Bent-

ley & Sons Co., 45 Ohio App.2d 13, 340 N.E.2d 849, 853 (1975);

Zelinsky v. Associated Aviation Underwriters, 478 F.2d 832,

834 (7th Cir. 1973)(Ilinois law); Universal Underwriters Ins.

Co. v. Northwestern Nat'l Ins. Co., 306 F. Supp. 437, 439 (S.D.

Ill. 1969)(Ilinois law); Olipra v. Zambelli, 1 ll. App.3d 607, 274

N.E.2d 877, 879 (1971); 13 J. Appleman & J. Appleman, Insur-

ance Law and Practice §§ 7381, 7384, 7385, 7388, 7401 (1976).

These well settled principles of construction are often easier

to state than to apply. Here, for example, all parties agreed that

the policy language was unambiguous. The exposure theorists

nevertheless urged the court to consider extrinsic evidence of

Eagle-Picher’s reasonable expectations in signing the policies,

not, apparently, to make clear what was unclear but to make

more clear what was already clear. There is some authority for

this position. Corbin suggests, in a passage apparently not

brought to the district court's attention, that evidence of such

surrounding circumstances should generally be admitted to en-

able the court to determine what the “plain and clear” meaning

of the contract is. 3 Corbin on Contracts § 542 (1960); see also 4

Williston on Contracts §§ 609, 629 (3d ed. 1961).

Given that the primary goal of contract interpretation is to

ascertain the intentions of the parties, see Appleman, supra,

§ 7385; Corbin, supra, § 538; Williston, supra, § 601, a district

judge, sitting without a jury, might be well advised to admit

provisionally all extrinsic evidence of the parties’ intent, unless

it is clearly inadmissible, privileged, or too time consuming, in

order to guard against reversal. See, e.g., United States ex rel.

Placek v. Illinois, 546 F.2d 1298, 1307 n.9 (7th Cir. 1976); Elkins

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v. Townsend, 296 F.2d 172, 177 (5th Cir. 1961), Builders Steel

Co. v. Commissioner of Internal Revenue, 179 F.2d 377, 379

(8th Cir. 1950); 10 Moore's Federal Practice §§ 103.21, 103.23

(1982); 1 Weinstein’s Evidence § 103[04] at 103-39 (1981). Where

there is adequate admissible evidence to support the findings of

the trial judge, any error in admitting other evidence will gen-

erally be deemed harmless. See, e.g., Trio Process Corp. v. L.

Goldstein's Sons, Inc., 461 F.2d 66, 71 n.11 (3d Cir.), cert.

denied, 409 U.S. 997 (1972); Baumel v. Travelers Ins. Co., 279

F.2d 780, 783 & n.4 (2d Cir. 1960). The district court here,

refused the invitation to consider extrinsic evidence of intent,

accepting only medical testimony bearing on the nature of as-

bestosis.

Based on this evidence, the district court found that asbestosis

is an injurious process which begins with the deposition of

asbestos fibers in the lung, causing tiny sub-clinical “insults” to

the lung tissue, and ends with the manifestation of clinically

evident disease after a period of as much as twenty years or

longer. The medical experts agreed that the sub-clinical injuries

do not occur simultaneously with initial exposure; rather, before

any “insults” to the lung occur, the asbestos fiber must travel

through a number of passageways in the throat and lungs and

evade the body's natural defense mechanisms which are de-

signed to prevent foreign substances from entering the body.

“Moreover, even when the fiber has become embedded in the

lung and the scarring process has begun, the end result, that is,

disabling disease or death, is by no means inevitable.” 523 F.

Supp. at 115. See also Insurance Co. of North America v. Forty-

Eight Insulations, Inc., 451 F. Supp. 1230, 1236-37 (E.D. Mich.

1978), aff'd, 633 F.2d 1212 (6th Cir. 1980), modified on reh’g,

657 F.2d 814, cert. denied, 102 S.Ct. 686 (1981). Finally, one

expert distinguished between the specialized meaning of “asbes-

tosis” to a research scientist—an injury mechanism which is

present soon after the first asbestos fiber is deposited in the

lung—and the ordinary meaning of the word to a treating phy-

sician or patient—a clinically evident disease.

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Even adopting the terminology of a medical expert, the policy

language does not support the exposure theory. The policies

clearly distinguish between the event which causes injury—the

accident or exposure—and the resulting injury or disease. Yet,

putting aside the American Motorists policy, it is the resulting

injury, not the exposure, which must take place “during the

policy period” in order to trigger coverage; and it is uncontested

that even sub-clinical injury to the lung does not occur simulta-

neously with the inhalation of asbestos.’ Nor is the existence of

sub-clinical injury an inevitable by-product of exposure, since

the body's natural mechanisms may remove the fibers before

they become embedded in the lungs. We would also observe

that, if a single exposure to asbestos was intended to trigger

coverage, the policy language would likely have reflected this

intent, rather than defining an “occurrence” in part as a “contin-

uous or repeated” exposure to conditions.

Moreover, we agree with the district court that the common,

ordinary meaning of the policy language supports the manifes-

tation theory. An individual with tiny sub-clinical insults to her

disease resulted when she had symptoms which impaired her

sense of well-being, or when a doctor was able to detect suffi-

* The fiction that bodily injury is contem with exposure to asbestos

seems to have even less factual basis respect to other asbestos-related

diseases, such as mesothelioma and broncheogenic carcinoma, than it does

Before Manifestation, 16 Forum 636 (Spring 1931). The district court

did not consider these diseases separately from asbestosis, but the parties

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and carcinoma under exposure theory in spite of contrary medical evidence).

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cient scarring to make a prognosis that the onset of manifested

disease was inevitable. “Injury” is defined by Webster‘ as “hurt,

damage, or loss sustained”; it is a broad term which covers the

“result of inflicting on a person or thing something that causes

loss, pain, distress, or impairment.” As sweeping as this defini-

tion is, it is difficult to consider sub-clinical insults to the lung

to constitute an “injury” when these insults do not cause “loss,

pain, distress, or impairment” until, if ever, they accumulate to

become clinically evident or manifest.

Finally, the policies distinguish between “bodily injury” and

“sickness or disease”. If the terms are to have any distinct

meaning, “bodily injury” is most easily thought of as an injury

caused by external violence or impact. See, e.g., Burns v. Em-

ployers’ Liability Assur. Corp., 134 Ohio St. 222, 16 N.E.2d

316, 320-21 (1938); Chase v. Business Men's Assur. Co., 51 F.2d

34, 36 (10th Cir. 1931). Asbestosis, by contrast, is normally

considered to be a disease, not a bodily injury. Webster defines

“asbestosis” as “a form of pneumoconiosis’, and this latter term

is identified as “a disease of the lungs”. “Disease”, in turn, is

defined as “an impairment of the normal state of the living

animal . . . or of any of its components that interrupts or modi-

ties the performance of the vital functions”. Every disease is

presumably preceded by the onset of sub-clinical changes in the

body. To state that the disease occurs when these sub-clinical

alterations take place, where, as here, the disease does not

inevitably or even usually result from the sub-clinical changes,

is to subvert the plain meaning of “disease” and to read the term

entirely out of the policy.

Our view of the plain meaning of the policy language is

reinforced by analogous cases involving the interpretation of

individual health insurance policies.’ These agreements often

* We note that the Ohio courts have relied on definitions in Webster's Third

New International Dictionary (1966) to determine the plain, ordinary meaning

of language in insurance policies. See, e.g., Fuerstenberg v. Mowell, 63 Ohio

App.2d 120, 409 N.E.2d 1035, 1036-37 (1978); Olmstead v. Lumbermens

Mutual Ins. Co., 23 Ohio App.2d 185, 261 N.E.2d 671, 674 (1969), aff'd, 22

Ohio St.2d 212, 259 N.E.2d 123, 126 (1970).

* Courts have also adopted a manifestation approach in areas of the law other

than liability and health insurance. See, e.g., Urie v. Thompson, 337 U.S. 163

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require that illness or disease originate after a certain date in

order for coverage to be provided. The courts, relying on the

common meaning of the relevant language, have consistently

held that the disease does not result until it becomes “manifest

or active”; coverage is not defeated by a showing that the disease

previously lay dormant in the body. See, e.g., Broccolo v.

Horace Mann Mutual Casualty Co., 37 Ill. App.2d 493, 186

N.E.2d 89, 91 (1962); Cohen v. North American Life & Casualty

Co., 150 Minn. 507, 185 N.W. 939 (1921); Reiser v. Metropoli-

tan Life Ins. Co., 262 A.D. 171, 28 N.Y.S.2d 283, 286 (App.

Div. 1941), aff'd per curiam, 289 N.Y. 561, 43 N.E.2d 534

(1942); Wilkins v. Grays Harbor Community Hosp. , 71 Wash.2d

178, 427 P.2d 7165, 719 (1967). As one oft-quoted commentator

has summarized the law, the provisions requiring disease to

originate after a specified time “are strictly construed against

the insurer, and the illness, disease, or disability will ordinarily

be deemed to have its inception when it first becomes manifest

or active, or when there is a distinct symptom or condition from

disease manifests itself, in spite of cumulative nature of disease); Clutter v.

Johns-Manville Sales Corp., 646 F.2d 1151 (6th Cir. 1981) (under Ohio law,

statute of limitations for asbestos-related disease does not begin to run until

disease manifests itself); Grain Handling Co. v. Sweeney, 102 F.2d 464, 466

(2d Cir.) (L. Hand, J.), cert. denied, 308 U.S. 570 (1939) (under Longshore-

men’s Act, an industrial disease “is no disease until it manifests itself”).

Although these and similar cases can be distinguished on various grounds, see,

e.g., Keene, supra, 667 F.2d at 1043 & n.17; Forty-Eight, supra, 633 F.2d at

1220-22, they still support the argument that the manifestation theory is a

reasonable to determining when disease results and that it comports

with the common meaning of the language. J Hand's discussion, though

admittedly in a different context, is instructive:

future troubles are not already planted; and it is a common place that

health is a constant warfare between the body and its enemies: an infec-

tion mastered, though latent, is no longer a disease, industrially speaking,

until the individual's resistance is again so far lowered that he succumbs.”

Sweeney, supra, at 466.

Moreover, we note that both the Keene and Forty-Eight courts acknowl-

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diagnose the disease.” 10 Couch on Insurance § 41:814 at 639

(2d ed. 1962 and 1981 Supp.).

The exposure theorists, of course, dispute this characteriza-

tion of the policy language and of the medical evidence. In their

view, sub-clinical insults to the lung clearly constitute “bodily

injury”. See Forty-Eight, supra, 633 F.2d at 1218-19; Commer-

cial Union Ins. Co. v. Pittsburgh Corning Corp., Civil Action

No. 81-2129, slip op. at 22-25 (E.D. Pa. Dec. 4, 1981). More-

over, they argue that evidence erroneously excluded by the

district court would have demonstrated that “prior to the initial

issuance of the London Market and American Motorists insur-

ance contracts, in 1973, Eagle-Picher knew or reasonably should

have expected that coverage under these contracts would be

afforded on an exposure basis.” They further argue that the fact

that Eagle-Picher and Liberty Mutual negotiated a special

agreement on April 6, 1972, which provided that all asbestosis

claims would be handled on a manifestation basis, shows that

Eagle-Picher could not have expected such coverage under the

standard policy language in the absence of a special agreement.

In reviewing the action of the district court, it is important to

note how the issue was raised below. Had it been argued that

the policy language was ambiguous and that therefore, under

the traditional rule, parol evidence should be admitted to shed

light on the meaning of terms, we would have a different and

more compelling case. Should we then have determined, con-

trary to the district court, that the policy language was ambi.

gious as a matter of law, see, e.g., Keene, supra, 667 F.2d at

1043; Forty-Eight, supra, 633 F.2d at 1222, the exclusion of

extrinsic evidence would have constituted error. But the issue

of ambiguity was not raised below and has not been urged on

appeal, and we therefore do not consider it as a basis for error.

The offer of proof specifically recited that, except for medical

evidence, “no extrinsic evidence is necessary . . . to ascertain

the intention of the parties.” The offer was put in these terms:

“[A] court may, if it wishes to do so, consider objective evidence

of some of the circumstances surrounding the making of the

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agreement . . . in order to aid in its interpretation.”

The precise question before us, therefore, is whether the

district court committed either an error of law or abuse of

discretion in excluding the evidence offered for the purpose

indicated, and whether any such error was harmless. Even

Corbin, who was perhaps the principal critic of conventional

analysis and advocated the reception of extrinsic evidence to aid

in interpretation of even a “plain and clear” contract, Corbin,

supra, §§ 542, 579, realized that “[j)ust when the court should

quit listening to testimony that white is black and that a dollar

is fifty cents is a matter for sound judicial discretion and common

sense.” Id. § 579 at 420. Assuming arguendo that courts should

be more flexible in receiving extrinsic evidence such as anteced-

ent communications to help in interpreting legally plain and

clear agreements, we review only for abuse of discretion.

He? ne ate ear nyhemhr pein teow: Bega neha Boa

dence of Eagle-Picher's insurance sophistication and bargaining power should

have been admitted to rebut the presumption that the policies were contracts

of adhesion. The court rejected the offer of evidence for this purpose, conclud-

ing that whether or not the policies were contracts of adhesion could be

determined simply by reading the policies. Although the relative bargaining

ambiguous language

policy, compare Commercial Ins. Co. of Newark v. Gonzalez, 512 F.2d 1307,

1313 n.11 (Ist Cir.), cert. denied, 423 U.S. 838 (1975), with Marston v.

American Employers Ins. Co., 439 F.2d 1035, 1038-39 (Ist Cir. 1971), we

have not been pointed to any Ohio or Illinois cases which have abandoned

entirely or even weakened the presumption of construing ambigious language

in favor of the insured upon a finding that the insured had significant bargain-

ing power.

The proffered evidence does not demonstrate that Eagle-Picher had unusual

sophistication with respect to liability insurance, or that its small corporate

insurance department allowed it to bargain as an equal with insurance industry

representatives. Certainly the offer of proof does not show that Eagle-Picher

“had so actively participated in drafting [the policies} that it should be denied

the benefit of the usual rule” of construction, in favor of the insured. First

Nat'l Bank of Decatur v. Insurance Co. of North America, 424 F.2d 312, 317

(7th Cir.) ( law), cert. denied, 398 U.S. 939 (1970). In any case, the

district court relied on the policy of liberal construction in favor of the insured

only as an “additional strand of support”, not as the pillar, for its holding. The

court committed no mistake in construing the policies as it did, and any error

in excluding evidence of Eagle-Picher's bargaining power was harmless. Fed.

R. Civ. P. 61.

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The proffered evidence, summarized in detail in the margin,

consisted mainly of an exchange of correspondence between

Eagle-Picher’s corporate insurance manager and the claims su-

pervising personnel of Liberty Mutual concerning three asbes-

tos-related claims between 1969 and 1971.’ Two of these, the

Antholtz and McDaniel claims, seem to be cases where both

exposure and manifestation had occurred prior to the issuance

of the first Liberty Mutual policy on January 1, 1968. The

exchanges made several references to exposure but without

reflecting any established, inflexible philosophy. While some

* The Borel claim: Letters from Eagle-Picher forwarding the complaint to

insurers in 1969 recognized the possibility of no coverage. Liberty Mutual, in

a February, 1970, letter to Eagle-Picher indicated that it would cease to handle

the claim if it determined there was no exposure during coverage. In June,

1971, Liberty Mutual acknowledged receiving Eagle-Picher’s demand that

Liberty Mutual assume total responsibilty in a settlement; it refused and

agreed to pay only 20% of the settlement. Eagle-Picher indicated in Septem-

ber, 1971, that the case settled for $5000, plus “the proportionate part of the

compensation lien,” and reserved its right to litigate the issue of coverage. In

would indicate exposure after the effective date of coverage.” (In fact, Gave

Alg

letters from both parties intimated a possible lack of coverage

because of dates of exposure, others reflected uncertainty on

the part of both. Still others revealed a conflict of views, and

contributions to the one settlement that pre-dated the April 6,

1972, agreement (Borel) represented what was obviously a com-

promise.

Certainly the proffered evidence reveals nothing approaching

a clear “course of dealing”, in a Uniform Commercial Code

sense, between the parties. See, e.g., Chase Manhattan Bank

v. First Marion Bank, 437 F.2d 1040, 1045-46 (5th Cir. 1971).

Nor was there ever offered, despite an expressed intention to

offer, evidence of any widespread insurance industry “usage of

trade” favoring the exposure theory and rejecting the manifes-

tation theory.* Id. What was offered was a limited series of

exchanges reflecting uncertainty, tentative positions, and com-

promise. Assuming that a Corbin approach should be encour-

aged, we are not convinced that the district court abused its

discretion in rejecting this material. We have been pointed to

no case where a judgment has been set aside because a court

refused to admit extrinsic evidence offered in like circumstan-

ces. Moreover, having reviewed the offer of proof, we are con-

vinced that it cannot reasonably be construed to establish the

exposure theory as the proper interpretation of the Liberty

Mutual policies or of the other policies agreed to later. Any

error by the district court in excluding the evidence was there-

fore harmless, and cannot be the basis for modifying or vacating

the court's judgment. Fed. R. Civ. P. 61; see, e.g., Hallmark

estas otdanan of tan Geching kteensy of ten hendanttond Wohi

here. See, e.g., Dobb v. Baker, 505 F.2d 1041, 1044 (ist Cir. 1974). For it is

the duty uf counsel in the first instance to determine whether there is material

$0 to be known throughout the industry and by the parties that it should

be proffered to the court.

A20

Industry v. Reynolds Metals Co., 489 F.2d 8, 14 (9th Cir. 1973),

cert. denied, 417 U.S. 932 (1974).

Although in our view the medical testimony and the plain

meaning of the policy language strongly support the manifesta-

tion approach any remaining doubts about interpretation of the

policies are properly resolved in favor of the insured, in order

to effectuate the policies’ purpose of providing coverage. Here,

Eagle-Picher was uninsured prior to 1968, the period in which

most of the injury-producing exposure took place. Yet Eagle-

Picher purchased general liability insurance in 1968, and contin-

ued to purchase it in increasing amounts throughout the 1970's,

even though it ceased to manufacture products containing as-

bestos in 1971 or 1972. Although, contrary to the district court's

assertion, it is reasonable to assume that exposure to Eagle-

Picher's products was continuing throughout the 1970's, see

Forty-Eight, supra, 451 F. Supp. at 1233, such exposure was

undoubtedly declining and not increasing. Coverage based on

manifestation was certainly more desirable than coverage based

on exposure, given that Eagle-Picher was uninsured during the

longest period of exposure and that the number of claims was

accelerating during the period of coverage. That Eagle-Picher

and Liberty Mutual agreed to interpret their policies on a man-

ifestation basis in April, 1972, also shows that Eagle-Picher

intended such an approach once the issue of manifestation ver-

sus exposure had been considered. We therefore agree with the

district court that, in this case, the public policy underpinnings

of insurance law support the manifestation result.

On appeal, Eagle-Picher relies heavily on the policy of con-

struing insurance contracts in favor of the insured to argue that

all insurers on the risk from the period of initial exposure to the

time of manifestation must provide coverage. This was the po-

sition recently adopted by Judge Bazelon for the court in Keene,

supra. Although we agree with the Keene court that ambiguity

must be resolved in favor of the insured, we believe that the

court's primary objective in these cases should be to ascertain

the intentions of the parties. To state that a court must first

“give effect to the policies’ dominant purpose of indemnity”, id.

at 1041, is to weight too heavily a presumed intention to maxi-

A2l

mize coverage. But, given Eagle-Picher’s stance in the district

court, the rationale and holding of Keene are unavailing for

another reason. In Keene, the court construed the policies in

order to fulfill the “reasonable expectations of [the insured]

when it purchased the policies.” Id. at 1041, 1044-46. Whatever

the expectations of the insured in that case, it is clear that Eagle-

Picher had no similar expectations here, or it would certainly

have argued such a theory in the court below.

We are also unable to agree with the analysis of the policy

language and the medical evidence in Forty-Eight, supra, for

the reasons outlined above. We note additionally, however, that

there are factual differences between that case and this one. The

extrinsic evidence in that case tended to show that the parties

advocating the manifestation theory had previously adopted an

exposure approach in handling early claims. Thus the manifes-

tation approach was contradicted by the parties’ prior construc-

tion of the policies.* Although we disagree with the Forty-Eight

court as to the implications of the medical evidence and the

Our construction of the contract language requiring bodily

injury to “ ” during the policy period is fully applicable to

the identical language in the American Motorists agreement.

coverage clause of the American Motorists policy,

other , also refers to an “occurrence during

the policy period”, the definition of occurrence is identical to

that in the other agreements, requiring the resulting injury, not

the exposure, to take place during the policy period.

There are two plausible readings of the policy language. First,

* In addition, unlike the present case, the manufacturer in Forty-Eight was

insured beginning in 1955, and carried insurance during a substantial period

A22

the requirement of an “occurrence during the policy period”

might be intended simply to emphasize that the accident or

Motorists would severely restrict coverage. Only in relatively

few cases would a plaintiff be exposed and injured during a one

year policy period. Given the identical definition of “occur-

rence” as in the other policies, and the absence of any extrinsic

523 F. Supp. at 115, but held that “the date of actual diagnosis”

or the date of death triggers coverage under the policies, 523 F.

Supp. at 118. This holding was designed “not only to reflect the

” The district court, in reaching this same conclusion, also relied on Amer-

ican Motorists Ins. Co. v. E.R. Squibb & Sons, Inc., 95 Misc.2d 222, 406

N.Y.S.2d 658, nor a Ct. 1978). Although that case involved an Ameri-

A23

manifestation concept, but also to ensure that coverage is cer-

tain, and (that) the availability of coverage is easily ascertained

and easily demonstrated.” Id. But administrative convenience,

however desirable, cannot override the principles of construc-

that exposure result in bodily injury during the policy period,

not that the injury be medically diagnosed during the policy

period. The existence of clinically evident, diagnossble disease

is in no way dependent upon actual diagnosis. "'

Courts and commentators which have interpreted analogous

health insurance policies have reached a similar conclusion: a

disease results “when there is a distinct symptom or condition

from which one learned in medicine can with reasonable accu-

racy diagnose the disease.” See, e.g., Malone v. Continental Life

and A ccident Co., 89 Idaho 77, 403 P.2d 225, 228 (1965); Broc-

colo, supra; Dowdall v. Commercial Travelers Mutual Accident

Ass'n, 344 Mass. 71, 181 N.E.2d 594, 596 (1962) (“Knowledge

of the existence of the disease on the part of the plaintiff was not

required [to trigger coverage]; it was sufficient if the disease had

in fact originated prior to the effective date of the policy.” Held,

disease had originated prior to coverage even though definitive

medical diagnosis was not made until after policy was in force. );

Wilkins, supra; Couch on Insurance, supra, at 639. Cf. Carda-

poy Allstate Ins. Co., 49 Ill. App. 3d 435, 364 N.E.2d 460,

462-63 (1977) (construing policy requiring that disease “first

We therefore hold that a disease “results” under the policies

when it becomes clinically evident, that is, when it becomes

" Although the 1972 letter signed by Eagle-Picher and Liberty Mutual

A24

reasonably capable of medical diagnosis." Accordingly, the

judgment of the district court is modified to read:

It is declared that the operative date for determin-

ing which of the several policies at issue here apply to

a given claim or lawsuit in which damages are sought

from plaintiff, Eagle-Picher Industries, Inc. is the

date when the asbestos-related disease became rea-

sonably capable of medical diagnosis.

As modified, the judgment below is affirmed.

it

HAT

ARLES

Hila

Bl

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

CIVIL ACTION 78-2739-Z

EAGLE-PICHER INDUSTRIES, INC.

vs.

LIBERTY MUTUAL iNSURANCE COMPANY

AMERICAN MOTORISTS INSURANCE COMPANY,

WALBROOK INSURANCE COMPANY, LTD..,

WINTERTHUR SWISS INSURANCE COMPANY,

SOUTHERN AMERICAN INSURANCE COMPANY,

MUTUAL REINSURANCE COMPANY, LTD.,

ST. KATHERINE INSURANCE COMPANY, LTD.,

LONDON & EDINBURGH GENERAL INSURANCE

COMPANY, LTD.,

BERMUDA FIRE & MARINE INSURANCE COMPANY,

LTD.,

DOMINION INSURANCE COMPANY, LTD.,

YASUDA FIRE and MARINE INSURANCE COMPANY

(U.K.), LTD.,

BELLEFONTE INSURANCE COMPANY,

TUREGUM INSURANCE COMPANY, LTD.,

MENTOR INSURANCE COMPANY, (U.K.), LTD.,

ASSICURAZIONI GENERALI LONDON,

STRONGHOLD INSURANCE COMPANY, LTD.,

EXCESS INSURANCE COMPANY,

LONDON & EDINBURGH INSURANCE COMPANY,

NATIONAL CASUALTY COMPANY OF AMERICA, LTD.,

ACCIDENT & CASUALTY INSURANCE COMPANY,

ARGONAUT NORTHWEST INSURANCE COMPANY,

SLATER, WALKER INSURANCE COMPANY, LTD.,

JOHN BASIL THOMAS BIRD, a representative underwriter,

and

PHILIP ALAN FROUDE, a representative underwriter.

B2

JUDGMENT

ZOBEL, D.J.

In accordance with the Memorandum of Decision dated Au-

gust 14, 1981.

It is declared that the operative date for determining which

of the several policies in suit apply to a given claim or lawsuit in

which damages are sought from plaintiff, Eagle-Picher Indus-

tries, Inc. is the date of actual diagnosis of the asbestos-related

disease or, with respect to those cases in which no diagnosis was

made prior to death, the date of death.

August 14, 1981 Rya W. Zobel

DISTRICT JUDGE

Rya W. Zobel

B3

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

CIVIL ACTION 78-2739-Z

EAGLE-PICHER INDUSTRIES, INC.

vs.

LIBERTY MUTUAL INSURANCE COMPANY

AMERICAN MOTORISTS INSURANCE COMPANY,

WALBROOK INSURANCE COMPANY, LTD.,

WINTERTHUR SWISS INSURANCE COMPANY,

SOUTHERN AMERICAN INSURANCE COMPANY,

MUTUAL REINSURANCE COMPANY, LTD.,

ST. KATHERINE INSURANCE COMPANY, LTD.,

LONDON & EDINBURGH GENERAL INSURANCE

COMPANY, LTD..,

BERMUDA FIRE & MARINE INSURANCE COMPANY,

LTD.,

DOMINION INSURANCE COMPANY, LTD.,

YASUDA FIRE AND MARINE INSURANCE COMPANY

(U.K.), LTD.,

BELLEFONTE INSURANCE COMPANY,

TUREGUM INSURANCE COMPANY, LTD.,

MENTOR INSURANCE COMPANY, (U.K.), LTD.,

ASSICURAZIONI GENERALI LONDON,

STRONGHOLD INSURANCE COMPANY, LTD.,

EXCESS INSURANCE COMPANY,

LONDON & EDINBURGH INSURANCE COMPANY,

NATIONAL CASUALTY COMPANY OF AMERICA, LTD.,

ACCIDENT & CASUALTY INSURANCE COMPANY,

ARGONAUT NORTHWEST INSURANCE COMPANY,

SLATER, WALKER INSURANCE COMPANY, LTD.,

JOHN BASIL THOMAS BIRD, a representative underwriter,

and

PHILIP ALAN FROUDE, a representative underwriter.

MEMORANDUM OF DECISION

ZOBEL, D.J.

This is a declaratory judgment action in which Eagle-Picher

Industries, Inc. (“Eagle-Picher”) requests a declaration of the

B4

rights, liabilities and obligations of the parties to certain insur-

ance contracts. The defendants are insurance companies which

had provided Eagle-Picher with primary comprehensive general

liability insurance and with first and second layer excess insur-

ance during the years 1968-1979. The questions of interpreta-

tion arise because Eagle-Picher has been named as a defendant

in approximately 5,500 lawsuits in which the plaintiffs allege

that they contacted certain asbestos-related diseases as a result

of contact with asbestos-containing products manufactured by

Eagle-Picher between 1931] and 1971. The basic question the

Court must determine is whether insurance coverage is trig-

gered as of the time or times the claimant was exposed to the

asbestos-containing product (“Exposure Theory”), or whether

such coverage is triggered when the asbestos-related disease

first manifests itself by discoverable and diagnosable signs or

symptoms, typically as much as twenty years after the initial

exposure (“Manifestation Theory”). Whichever insurance com-

pany was “on the risk” at what is determined to be the triggering

time or times must provide coverage, including payment of

damages and provision of legal defense. The Court's interpreta-

tion of the policies will determine which insurance company or

companies, if any, must defend against and pay any damages for

the increasingly numerous underlying claims against Eagle-

Picher. Plaintiff, Liberty Mutual Insurance Company and cer-

tain companies and underwriters in the London Market, known

in these proceedings as the Bird Defendants', espouse the man-

ifestation theory. American Motorists Insurance Company

(“American Motorists”) and certain other named members of the

' Walbrook Insurance Company, Ltd., Winterthur Swiss Insurance Com-

pany, Ltd., St. Katherine Insurance Company, Ltd., London & Edinburgh

General Insurance Company, Ltd., Bermuda Fire and Marine Insurance

Company (U.K.), Ltd., Dominion Insurance Company, Ltd., Yasuda Fire and

B5

London Market, the so-called Froude Defendants’, maintain

that only policies in effect at the time of exposure provide

coverage.

This opinion constitutes both Findings of Fact and Conclu-

sions of Law.

Prior to 1968 Eagle-Picher was uninsured for the underlying

asbestosis and related claims. From January 1968 through 1978

Liberty Mutual provided primary insurance with varying limits.

From June 1973 to 1979 plaintiff was covered in addition by,

first one and later two layers of excess insurance.

The coverage provided by each excess layer goes into effect

only if the policy limits of the laver beneath become exhausted.

This three-layer coverage was achieved through the issuance of

many short-term policies, by each insurer, typically covering

one year at a time. Appendix A provides a graphic representa-

tion of the coverages in effect during the relevant period.

In 1977 Liberty Mutual sent to Eagle-Picher a warning notice

that the policy limits for 1974 and 1975 might be exhausted.

Eagle-Picher forwarded this notice to American Motorists and

the London Market. American Motorists acknowledged receipt

of the notice but indicated disagreement with Liberty Mutual's

assignment of claims to policy periods and its handling of claims

under the manifestation theory. By letter dated October 13,

1977 a New York law firm acting for the entire London Market

sent a reservation of rights letter to Eagle-Picher concerning the

underlying claims. The reservation of rights is based on the

issue whether liability is to be determined under the manifes-

tation or exposure theory. A genuine controversy exists between

the parties with regard to the defendants’ duties and obligations

under their respective policies in connection with the underly-

ing asbestos related claims.

All defendants with interests adverse to those of Eagle-Picher

are citizens of states or countries other than Ohio, the state of

*Turegum Insurance Company, Ltd.. Excess Insurance Company, and

Philip Alan Froude, a representative underwriter.

incorporation of Eagle-Picher and the state where its principal

place of business is located.

The insurance policies at issue all contain “coverage” clauses

defining in general terms the scope of the coverage. In addition,

the policies provide definitions of relevant terms. All are “occur-

rence-based”, that is, coverage is provided for personal injury

caused by an “occurrence” during the policy period. The poli-

cies, while quite similar, contain minor variations in language

and punctuation which do not, however, affect the determina-

tion of the question presented so as to produce different results

for different insurers. Before analyzing the policies, it is useful

to lay out the relevant language.

1. Between January 1, 1968 and January 1, 1978, Liberty

Mutual provided the plaintiff with primary comprehensive gen-

eral liability insurance. The fourteen separate policies contain .

no more than two variations of each relevant clause. With re-

spect to coverage, one variation, found primarily in policies

written during the early years, provides:

The Company will pay on behalf of the insured all

sums which the insured shall become legally —

to pay as damages because of . . . bodily injury .

to which this policy applies, caused by an occur-

rence.

The second variation, found in policies covering January 1,

1976 to January 1, 1978, provides:

The Company will pay on behalf of the insured all

sums which the insured shall become legally obligated

to pay as damages because of bodily injury due to

asbestos exposure caused by an occurrence if the bod-

ily injury is included within the products hazard . . .

The policies include two slightly different definitions of rele-

vant terms. The first provides:

Bodily injury means bodily injury, sickness or disease

sustained by any perscn.

Occurrence means an accident, including continuous

B7

and repeated expesure to conditions, which results,

during the policy period, in bodily injury or property

damage neither expected nor intended from the

standpoint of the insured.

The second provides:

Bodily injury means bodily injury, sickness or disease

sustained by any person, which occurs during the

policy period, including death at any time resulting

therefrom.

Occurrence means an accident, including continuous

or repeated exposure to conditions, which results in

bodily injury or property damage neither expected or

intended from the standpoint of the insured.

2. From June 1, 1973 to October 1975 American Motorists

provided the plaintiff with a first layer excess umbrella policy,

containing the following coverage clause:

The Company agrees to indemnify the insured for all

sums which the insured shall become obligated to pay

as damages, by reason of liability ... because of

personal injury . . . caused by or arising out of an

occurrence which takes place during the policy period

anywhere in the world.

The policy also contains the following definitions:

Personal injury means (a) bodily injury, shock, sick-

ness or disease (including death, mental anguish, and

mental injury resulting therefrom); . . .

Occurrence means an accident, or a continuous or

repeated exposure to conditions which results, during

the policy period, in personal injury, . . . property

damage or advertising liability neither expected nor

intended from the standpoint of the insured. . . .

3. From October 10, 1975 through January 1, 1979 the so-

called London Market provided plaintiff with first layer excess

umbrélla insurance, replacing American Motorist. The “London

Market” is a group of insurance underwriters, each of whom

underwrites a stated percentage of the total coverage provided

by a single policy. ‘The “coverage clause” of the London Market

policy provides:

Underwriters hereby agree . . . to indemnify the As-

sured for all sums which the Assured shall be obli-

gated to pay by reason of the liability . . . imposed

upon the Assured by law . . . for damages on account

of: Personal Injuries . . . caused by or arising out of

each occurrence happening anywhere in the

world. . . .

The policy also contains the following definitions:

The term personal injuries wherever used herein

means bodily injury (including death at any time re-

sulting therefrom,) mental injury, mental anguish,

shock, sickness, disease, disability. . . .

The term occurrence wherever used herein shall mean

an accident or happening or event or a continuous or

repeated exposure to conditions which unexpectedly

and unintentionally results in personal injury, prop-

erty damage or advertising liability during the policy

period. All such exposure to substantially the same

general conditions existing at or emanating from one

premises shall be deemed one occurrence.

4. The London Market also provided plaintiff with second

layer excess umbrella coverage from September 1, 1973 to Jan-

uary 1, 1979. These second layer policies contain no independ-

ent coverage clauses or definitions; instead, they incorporate by

reference the terms of the underlying policy. Each policy con-

tains a clause providing for payment of damages “caused by or

arising out of each occurrence . . . arising out of the hazards

covered by and defined in the underlying umbrella poli-

cies. . . .” Thus, between September 1, 1973 and October 10,

1975, the London Market sécond layer policies provided cover-

age in accordance with the terms of the underlying American

Motorists first layer policy; from October 10, 1975 to January 1,

B9

1979 the London Market second layer policies provided cover-

age as defined by the London Market's own first layer policies.

All parties to this dispute agree that the relevant policy lan-

guage is clear and unambiguous. They disagree as to the mean-

ing of the unambiguous language and the Court received certain

medical evidence in aid of interpretation.

The coverage clauses, except that in the American Motorists

policies, provide indemnity for all sums for which the insured

shall become legally obligated to pay [liability imposed by law]

for “damages because [by reason or on account] of . . . bodily

[personal] injury . . . caused by [or arising out of] an occurrence

. . . American Motorists’ differ in that they agree to indemnify

with respect to “an occurrence during the policy period.”

The terms used in the policy are terms of art. Both “personal”

or “bodily injury” and “occurrence” are defined in each policy.

Each term of art is linked to the next by the use of causal

connectors such as “by reason of” “because of” and “caused by

or arising out of.” Liability is “caused” by injury, and injury in

turn is “caused” by an occurrence. This construction implies that

liability, injury, and occurrence, while necessarily connected,

are nevertheless distinguishable. It means further that each

element is expected to occur separately in time.

All policies except the later group of those written by Liberty

Mutual define occurrence as “an accident or a continuous or

repeated exposure to conditions which results, during the policy

period, in personal injury .. .” This definition is broad and

inclusive. Each “occurrence” is made up of two components,

initial exposure or accident and resulting injury; neither one

without the other would be sufficient. There can be no question

but that the aspect of the occurrence which must take place

within the policy period, however, is the “result”, that is, the

time when the accident or injurious exposure produces personal

injury. The time-limiting phrase “during the policy period” al-

ways follows the word “results” and frequently is set off by

commas, so that it can modify only the preceding verb “results”.

Thus, the definitional language explicitly focuses on the result

B10

rather than the cause as the component to which coverage is

linked. This is equally true of the American Motorists policies.

Even though their coverage clauses refer to “occurrence during

the policy period,” their definition of occurrence also links the

resulting injury, not the exposure to conditions, to the policy

period.*

The next question to be determined is what the policies mean

by “personal” or “bodily injury” given the diseases which gave

rise to the underlying claims. The exposure proponents main-

tain that “personal injury,” within the meaning of these policies,

occurs when the first sub-clinical cellular changes take place

within the lung. They argue that asbestosis is not a disease at

all, but a lengthy injurious process which begins with a series of

minute but definite “insults” to the lungs. These insults com-

prise a succession of separate, compensable personal injuries,

each of which, they say, meets the policy's requirement of

resulting injury.

The manifestation proponents, on the other hand, contend

that with respect to asbestosis, mesothelioma and broncogenic

carcinoma, the policy term “personal injury” refers neither to a

the manifestation rule in construing, with respect to claims for cervical cancer

Bll

depositioning of asbestos fibers in the lung, with its attendant

secretion of destructive enzymes, produces such significant in-

terference with lung function that the victim suffers perceptible,

measurable symptoms.

The exposure proponents bolster their arguments with so-

phisticated medical analyses of the fibrosing process from the

time of exposure to the time of disability or death; in fact, an

appreciation of these medical details is necessary in order to

understand the exposure proponents’ concept of minute “in-

sults” to the lung. The manifestation proponents, in contrast,

argue that the policy terms must be analyzed from a layman's

point of view. When this approach is taken, they say, no medical

evidence is necessary; instead, the Court need only look to the

common and everyday meaning of terms such as “disease” and

“injury”, in order to conclude that exposure results in injury

when it manifests itself through clinically evident disease.

Because these questions were unresolved at the time of trial,

and to aid in interpretation of the relevant language the Court

received expert medical testimony from Dr. Bernard Gee, a

research scientist and clinician with vast experience in the area

of asbestos-related disease, and from Dr. Edward Burger, a

researcher and administrator whose testimony was based on a

review of current literature in the field and not particularly

helpful. With minor exceptions, however, the testimony of the

experts was not inconsistent. After careful consideration of that

medical evidence, the insurance policy language, and the com-

mon meaning of the terms employed therein, | find that expo-

sure to asbestos does not “result” in “personal injury” so as to

trigger insurance coverage until such time as the accumulation

of asbestos fibers in the lungs produce signs and symptoms

capable of diagnosis as an asbestos-related “disease,” in the

commonly understood meaning of the term “disease.” This find-

ing is based on several considerations.

First, the testimony of both experts contradicted the central

contention of the exposure theory that exposure and injury

occur either simultaneously, or so nearly so that coverage for

injury can most reasonably be linked to the time of exposure.

Bl2

The testimony of the exposure proponents own expert, Dr.

Gee, made it clear not only that exposure to asbestos typically

does not produce clinically evident disease for as much as twenty

years, but also that the sub-clinical injuries to the lung produced

early in the destructive process do not occur simultaneously

with the exposure. Before even sub-clinical injury can occur,

the asbestos fiber must pass a number of dichotomously branch-

ing tubes in the nose and throat which get progressively nar-

rower, must reach the lung and become depositioned there, and

must be enveloped by a scavenger cell, an alveolar macrophage

which may then begin to produce destructive enzymes in a

futile attempt to destroy the indestructible asbestos fiber. Be-

cause the fiber is not biodegradable, the macrophage continues

to secrete enzymes which eventually destroy surrounding tissue

and produce scarring. These tiny lung scars are the “insults” to

which the exposure proponents refer. Along the way, nearly all

fibers are removed, either through expectoration, by means of

the physiological filters in the nose and throat, through being

carried back up and out by the mucociliary escalator, or some-

times by being taken away by an alveolor macrophage through

the lymphatic system or the mucociliary escalator.‘ Moreover,

even when the fiber has become embedded in the lung and the

scarring process has begun, the end result, that is, disabling

disease or death, is by no means inevitable. In fact, Dr. Gee

testified that over 90% of all urban city dwellers have some

asbestos-related scarring, but only a tiny percentage of those

exposed will ever develop clinical asbestosis. In short, exposure

to asbestos does not produce instantaneous sub-clinical cellular

changes; some amount of time necessarily passes before any

destructive process begins. Also, there is no inevitability to the

process—it may simply stop at any point along the way without

ever producing clinically evident disease. This being so, to

characterize as injury the minimal changes which occur in some

people some time after exposure is not a supportable use of the

word “injury” in the context of a liability insurance policy.

‘It is that such removal by a macrophage may, however, occur

after to the alveolar region of the lung from secretion of enzymes by the

same macrophage.

B13

To say that exposure to asbestos results immediately in per-

sonal injury, is unreasonable for another reason. It is a basic

tenet of insurance law that unambiguous contract terms are to

be given their common, popular and ordinary meaning, 13 J.

Appleman Insurance Law and Practice § 7384 (rev. ed. 1976),

43 Am. Jur. 2d Insurance, § 256.° Unless the insurance contract

explicitly draws upon a technical or scientific meaning of a term,

shared by both parties, the Court is to apply the meaning which

a non-specialist would understand. Lincoln Nat. Life Ins. Co. v.

Erickson, 42 F.2d 997, 1001 (8th Cir. 1930), Reiser v. Metro-

politan Life Ins. Co., 28 N.Y.S. 2d 283, 262 App. Div. 171

(1941) affd 289 N.Y. 561 43 N.E.2d 534 (1942). In this case,

while Eagle-Picher, a large manufacturer, might be expected to

have technical knowledge relating to its products and enter-

prises, it cannot be assumed to have had sophisticated medical

knowledge of the biochemical details of the asbestosis process,°

or to have intended that any abstruse or unusual meanings be

given to the terms in its product liability insurance policies.

Where there is a conflict between a technical or medical defini-

tion and the meaning an average person would apply to an

insurance term, the court will accept and apply the layman's

viewpoint. Irelan v. Standard Mutual Assoc., Mo.App. 379

S.W.2d 815 (1964). As a result, the Court must interpret the

policy from the point of view of the layman.

The policies define personal injury or bodily injury in lay

terms, “bodily injury, shock, sickness or disease (including death,

mental anguish and mental injury resulting therefrom.)” The

exposure proponents assert that asbestosis is a process, not a

contracts at issue here. ce pcan apts gene

ee Se Ce es on Cena aa

be applied to these contracts. Forsyth v. Cessna Aircraft Co. , 520 F.2d

con eas Ol Cr. 1975).

* Dr. Gee agreed that his work is on the cutting edge of one area of the

developing science in this field, that indeed, only within the last five to eight

Bl4

disease, and that coverage should be provided for a series of

minute personal or bodily insults to the lung. The manifestation

proponents point out that all of the underlying claims against

Eagle-Picher allege fully manifested asbestos-related diseases,

not sub-clinical cellular injuries, and they argue that to a layper-

son, asbestosis or asbestos-related injury means symptomatic

diagnosable disease, regardless of what the terms might mean

to a research scientist.

Dr. Gee, who is also a clinician with vast treatment experi-

ence, proferrec ‘xis own definition of “asbestosis” as an injury

mechanism wh‘) is present soon after the first asbestos fiber is

embedded in the lung, but went on to distinguish between his

specialized meaning of the word in the context of research and

the meaning he would give the word as a treating physician.

According to Dr. Gee, “when a patient asks ‘Do I have asbesto-

sis?’ he means: Do I have clinically evident disease by your

methods, including my own perceptions, that is, the patient's,

. . . . He doesn’t mean: Do I have some injury mechanism going

on.” Dr. Gee drew the same distinction again when he said,

with reference to a patient's history of exposure to asbestos, and

the presence of asbestos in his lung, “If I find asbestos, I cannot

conclude without other evidence that there is clinical disease. I

can conclude that there is an injury mechanism set in motion.”

That testimony, combined with the ordinary meaning of the

coverage language, leads to the conclusion that exposure to

pte afm “personal injury” when it produces clinically

evident diagnosable disease, that is, when it becomes manifest.

Although the injurious process begins many years prior to the

eventual manifestation of clinical asbestosis, the phrase “results

in personal injury” cannot, absent the application of a technical

definition of the words, refer to the earliest clinical cellular

damages, but must refer to the time when the individual has

clinically evident disease.

The scope of the Court's analysis so far has been limited to an

examination of the text of the policies and to a review of the

relevant medical testimony. However, because other courts

have come to different conclusions and because the rules of

construction governing the interpretation of insurance contracts

B15

explicitly serve certain public policy goals, it is appropriate to

assess the manifestation theory in a broader context.

The Sixth Circuit, in a recent decision, affirmed the District

Court's adoption of the exposure theory.’ It nevertheless con-

cluded that it was “bound to broadly construe the insurance

policies to promote coverage.” Ins. Co. America v. Forty-Eight

Insulations, 633 F.2d 1212, 1219 (6th Cir. 1980)-(hereafter

“Forty-Eight”). The underlying facts of the Forty-Eight case are,

from a public policy point of view, substantially different from

those at issue here. In that case, Forty-Eight had purchased

liability insurance as far back as 1955, but its coverage starting

in 1976 contained such a large per person deductible for asbes-

tos cases that the court found that “as a practical matter, Forty-

Eight is uninsured for asbestosis occurring after 1976.” Forty-

Eight, supra, at 1216 n.6. This consideration led the Court to

reject as not controlling precedents in the area of health insur-

ance which it found to be “most relevan({t].”* Although the Court

the same rules of construction that we think are applicable here:

’ The Forty-Eight opinion was recently adopted both as to “reasoning and

result” by the Fifth Circuit, in Porter v. American Optical Corp., 641 F.2d

1128, 1145 (Sth Cir. 1981). See also, Keene Corporation v. Ins. Co. of No.

Amer., No. 78-1011 (D.C. D.C. January 30, 1981).

* The cases cited by the Sixth Circuit are part of a line of cases which,

B16

insurance policies must be strictly construed in favor of the

injured and to promote coverage; similarly a policy must be

construed to favor the legitimate expectations of the parties.”

Forty-Eight, supra, at 1221. The Court went on to conclude:

In this case, we are faced with two possible construc-

tions, one of which is likely to leave the manufacturer

insured, the other of which leaves the manufacturer

uninsured for all practical purposes. We think that

Illinois and New Jersey courts [the states whose law

was arguably applicable to the insurance contracts]

would try to construe the contract language to em-

brace the exposure theory. Forty-Eight, supra, at

1222.°

In the present case, the Court is similarly faced with one

construction which would provide coverage, and another which

leaves Eagle-Picher uninsured. Here however, it is the manifes-

tation theory which is like to maximize the coverage provided,

to Eagle-Picher in the underlying lawsuits. As the earlier dis-

cussion demonstrates, this court's adoption of the manifestation

theory is grounded on a finding that the relevant text of the

insurance policies, as explained by the medical evidence dic-

tates manifestation. An additional strand of support for this

conclusion, however, is provided by the fact that application of

general rules of insurance policy construction, with their public

policy underpinnings, produces the same result.

The facts of this case also indicate that manifestation most

closely approximates the expectations of the contracting parties.

As noted above, Eagle-Picher was uninsured during most of the

thirty years up to 1971 during which it manufactured asbestos.

* The Forty-Fight decision to rest primarily on considerations of

policy and result. However, oe ee a

sophisticated

nor “disease” within the common and ordinary meaning of these

B17

Only in 1968 did Eagle-Picher first purchase general liability

coverage. During the years after 1971, when Eagle-Picher ceased

to produce asbestos-containing materials, it nevertheless contin-

ued to purchase, and in increasing amounts, insurance coverage

for damages due to injury caused by asbestos exposure [See

App. A]. Although there was scant possibility that claims based

on further exposure to asbestos would be made, it could cer-

tainly be predicted that increasingly numerous manifestations of

asbestos-related diseases would occur, giving rise to increasingly

numerous claims against Eagle-Picher. The fact that Eagle-

Picher bought substantial amounts of insurance explicitly keyed

to damages due to asbestos exposure during a period when no

such exposures were taking place lends yet further support to

the conclusion that the expectation of the contracting parties

was that coverage would be provided on a manifestation, rather

than an exposure, basis.

Having found in favor of manifestation, a workable definition

of the term “manifestation” remains to be delineated. The par-

ties have proferred several possibilities. These include the date

on which an asbestosis victim “knows or has reason to know” he

has the disease, the date on which a victim’s symptoms become

“capable of medical diagnosis,” the date of actual diagnosis, or

the date of death. Because of the thousands of underlying law-

suits against plaintiff, each seeking damages for asbestos-related

disease, the policies in issue must be interpreted not only to

reflect the manifestation concept, but also to ensure that cover-

age is certain, and the availability of coverage is easily ascer-

tained and easily demonstrated. I conclude that with respect to

all claims under the insurance policies at issue in this case,

coverage shall be provided when the asbestos-related disease

becomes manifest, as measured by the date of actual diagnosis

or, with respect to those cases in which no diagnosis was made

prior to death, the date of death. This holding does not require

pro rata sharing or apportionment of damages on account of

Eagle-Picher’s liability for asbestos-related claims.

Judgment shall enter in accordance with this opinion.

August 14, 1981 Rya W. Zobel

‘DATE DISTRICT JUDGE

B18

EAGLE-PICHER INDUSTRIES v. LIBERTY MUT. INS. CO. 119

Che as 523 F.Supp. 110 (1951)

: AMOUNT OF INSURANCE

INSURERS

APPENDIX A

1 =e

; J

1

' a a LONOON MARKET

. 60.11% MAN. co. 7.00% MAN.CO. 44.57% MAN. CO.

12.50% MAN, SYNOD. B27 MAN.SYNO, 2oS MAK SYWD.

, Tam ex CO. 400% EXP CO. ame OO CO.

220% EXP SYNOD. 51.07% EX? SYNOD. Meee «EXP SYNOD.

Amount of Insurance fin miixorns)

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a a a a ee

aan. 08

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Cl

APPENDIX C

OTHER PENDING INSURANCE LITIGATION FOR

ASBESTOS RELATED CLAIMS

1.

10.

11.

Abex Corp. v. Maryland Casualty Co. , Civil Action 82-2098

(D.D.C.)

A.C. & R. Insulation Co., Inc. v. Fireman's Fund Insurance

Co., No. 350-81 (D.C. Super. Ct.)

A.C. & S., Inc. v. Aetna Casualty & Surety Co., No. 80-

1341 (E.D. Pa.)

American Mut. Liab. Ins. Co. v. Eastern Refractions Co.,

No. 80-3768 (Mass. Super. Ct., Middlesex Div.)

Amatex v. Aetna Casualty & Surety Co., Case No. 79-2305

(C.P. Montgomery County, Pa.)

American Universal Ins. Co. v. Amatex, No. C-328287 (Cal.

Super. Ct., Los Angeles County).

Armstrong Cork Co. v. Aetna Cas. & Sur. Co. et al, C-

315367 (Cal. Super. Ct., Los Angeles County)

Asten Group v. Argonaut Ins. Co., No. 5219 (C.P., Phila-

delphia County, Pa)

Asten Group v. Commerce & Indus. Ins. Co., No. 58-19

(C.P., Philadelphia County, Pa.)

Brinco Mining Ltd. V. Federal Ins. Co. No. 82-1165

(D.D.C.)

The Celotex Corp. v. Aetna Cas. & Sur. Co., No. 79-5885

(Fla. Cir. Ct., Hillsborough County)

12 Centennial Ins. Co. v. North Amer. Asbestos Co., No. 80-

13.

H-43 (Ill Cir. Ct., McLean County)

Combustion Engineering v. INA, No. N-28204 (Cir. Ct.

Chattanooga Tenn.)

14.

15.

83 8 3S 8 & F B RB

C2

Commercial Union Ins. Co. v. Johns-Manville Corp., C.A.

No. 80-306-N (D. Mass.)

Commercial Union Ins. Co. v. Pittsburgh Corning Corp.,

No. 80-21-29 (E.D. Pa.)

. Commercial Union Ins. Co. v. Sepco Corp., No. 08-769

(E.D. La.)

. Commercial Union Ins. Co. v. Unarco Indus. Inc., No. 81-

L-802 (Ill. Cir. Ct., Cook County)

. Crown Cork & Seal Co. v. Aetna Cas. & Sur. Co., No.

1292 (C.P., Philadelphia County, Pa.)

Eagle-Picher Indus. Inc. v. American Employers Ins. Co.,

Civ. No. 82-1841 (D.D.C.)

Fireman's Fund Ins. Co. v. Fibreboard Corp., No. 753-885

(Cal. Super. Ct., San Francisco County)

. GAF v. Insurance Co. of N. America, No. C-286217 (Cal.

Super. Ct., Los Angeles County)

Johns-Manville Corp. v. The Home Ins. Co., No. 765226

(Cal. Super. Ct., San Francisco County)

Keene v. INA et al, Civil Action No. 3152-82 (D.C. Super.

Ct.)

Keene Corp. v. Aetna Casualty & Surety Co., C.A. No. 82-

2020 (D. D.C.)

Liberty Mutual Ins. Co. v. Armstrong Cork Co., No. 80-

429-G (D. Mass)

National Gypsum Co. v. Amer. Motorists Ins. Co., No. 82-

1332 (D.D.C.)

Nicolet Ind. Inc. v. Insurance Co. of N.A., No. C 393943

(Cal. Super. Ct., Los Angeles County)

Owens-Illinois Inc. v. Aetna Casualty & Surety Co., Civil

Action 82-0089 (D.D.C.)

Standard Asbestos Mfg. & Insulation Co. v. Royal Indem.

Ins. Co., No. CV80-14909 (Mo. Cir. Ct., Jackson County)

C3

30. Turner & Newall v. Amer. Mutual Liberty Ins. Co., No.

82-1339 (D.D.C.)

31. Unarco v. Zurich Ins. Co. et al., No. 5154-82 (D.C. Super.

Ct.)

32. Zurich Ins. Co. v. Raybestos Manhattan Inc.. No. 78-L-

8760 (Ill. Cir. Ct., Cook County)