Petition for Writ of Certiorari — Babcock & Wilcox Co. v. Arkwright-Boston Manufacturing Mutual Insurance

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Supreme Court, U.S.

Fit 2D

‘ No. 95-706

nny 1 19%

In The CLERK

Supreme Court of the United States _

October Term, 1995

THE BABCOCK & WILCOX COMPANY, et al.,

V. Petitioners,

ARKWRIGHT-BOSTON MANUFACTURING MUTUAL

INSURANCE COMPANY; ST. PAUL MERCURY INSURANCE

COMPANY; AMERICAN HOME ASSURANCE COMPANY;

AMERICAN INTERNATIONAL MARINE AGENCY; ALLIANZ

INSURANCE COMPANY; INSURANCE COMPANY OF

NORTH AMERICA; CARYL VAUGHN GIBBS, INDIVIDUALLY

AND ON BEHALF OF CERTAIN UNDERWRITERS OF

LLOYDS OF LONDON; INDEMNITY MARINE ASSURANCE

COMPANY LTD.; ENGLISH AND AMERICAN INSURANCE

COMPANY, LTD.; INSURANCE COMPANY OF NORTH

AMERICA (UK) LTD.; AND C.A. PARR,

Respondents.

Petition For A Writ Of Certiorari To The

United States Court Of Appeals For The Sixth Circuit

PETITION FOR A WRIT OF CERTIORARI

Davip S. Cupps Peter J. Katis*

MattHew J. HatrCHADORIAN JOHN M. SyLvesTER

STEPHEN J. Petras, JR. James E. SCHEUERMANN

Vorys, SATER, SEYMOUR AND Pease Paut K. STOCKMAN

Suite 2100 KirKPATRICK & LOCKHART LLP

One Cleveland Center 1500 Oliver Building

Cleveland, OH 44114-1724 Pittsburgh, PA 15222

(216) 479-6100 (412) 355-6500

Attorneys for Petitioner,

The Babcock & Wilcox Company

*Counsel of Record

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

1. Contrary to the law of every other Circuit that

has addressed this question, may the United States Court

of Appeals for the Sixth Circuit adopt a rule permitting

the grant of a defendant’s motion for summary judgment

and dismissal of a plaintiff’s case pursuant to Fed. R. Civ.

P. 56: (i) merely because the plaintiff has not satisfied the

affirmative burden raised by its own summary judgment

motion; and (ii) without any prior notice having been

given to the plaintiff that the ultimate dispositive issue

could serve as the basis for the dismissal?

2. Should this Court address the failure of the Sixth

Circuit, as well as that of other Circuit Courts of Appeals,

to follow this Court’s rule, set forth in Commissioner of

Internal Revenue v. Estate of Bosch, 387 U.S. 456 (1967),

requiring that a federal court sitting in diversity jurisdic-

tion and predicting state law in the absence of direct state

supreme court precedent give presumptive weight to

other relevant decisional law of that state?

PARTIES TO THE PROCEEDING AND AFFILIATIONS

The petitioner is Plaintiff-Appellant, The Babcock &

Wilcox Company. Third-Party Defendant-Appellant,

McDermott, Inc., and Defendant-Appellant, Creole Insur-

ance Company, Limited, join in this petition. The respon-

dents are listed on the caption of the case.

The Babcock & Wilcox Company is a wholly owned

subsidiary of Babcock & Wilcox Investment Company,

which is a wholly owned subsidiary of McDermott, Inc., a

corporation which has issued publicly traded securities.

McDermott, Inc. is a subsidiary of McDermott Interna-

tional, Inc., a publicly owned corporation. Creole Insur-

ance Company Limited is a wholly owned subsidiary of

McDermott International, Inc., and an affiliate of McDer-

mott, Inc.

ili

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ........-.----++ee+eeeeee i

PARTIES TO THE PROCEEDING AND

I cee pecacnsvenetervsceessveunces il

TABLE OF AUTHORITIES........... Perr ey Vv

OPINIONS BELOW... 02. c ccc cece cccccecevvcccces ]

JURISDICTION ......... cece cece reece er eeeeeereee l

PROCEDURAL RULE AND STATUTE INVOLVED... 2

STATEMENT OF THE CASE............---e ee eee: 2

REASONS FOR GRANTING THE PETITION ....... 8

1. The Sixth Circuit’s Affirmance Of The Grant Of

The Subscribers’ Motion For Summary Judg-

ment Is A Radical Departure From Precepts Of

Summary Judgment Practice That, If Left

Uncorrected, Will Create A Conflict Among

Cc Guar ci gue dna wun en cere eesseses 8

2. The Sixth Circuit’s Decision Is Contrary lo

Prior Directives Of This Court And Widens The

Conflict Among The Circuits On The Issue

Whether A Federal Erie Court Should Give Pre-

sumptive Deference To Relevant Decisional

Law On A State-Law Issue In The Absence Of

Direct State Supreme Court Precedent........ 14

eee TEETER ee 24

Ge sues 49s evr eewevewe wees evens: App. 1

Opinion of the United States Court of Appeals

for the Sixth Circuit, dateu May 17, 1995....App. 1

District Court Opinion and Order on Summary

Judgment, dated August 19, 1993............ App. 15

TABLE OF CONTENTS -—- Continued

Page

District Court Order Scheduling Summary

Judgment Hearing, dated April 9, 1993...... App. 37

District Court Opinion and Order on Choice of

Law, dated August 2, 1992 .............s0ce. App. 42

Order of the United States Court of Appeals for

the Sixth Circuit Denying Petitions for Rehear-

ing, Gated August 4, 1995 .......sccccececees App. 68

Petitions for Certiorari Raising Questions About

the Determination of State Law Under Erie R.R.

CO GE SE in cic ccdeceg event sis ateer eres App. 70

TABLE OF AUTHORITIES

Page

CASES

Advanced Cardiovascular Sys., Inc. v. Scimed Life

Sys., Inc., 988 F.2d 1157 (Fed. Cir. |, SRR 11

Air Prods. & Chems., Inc. v. Hartford Accident &

Indem. Co., 707 FE. Supp. 762 (E.D. Pa. 1989),

modified, No. Civ. A. 86-7501, 1989 WL 73656

(E.D. Pa. June 30, 1989), aff'd in part and vacated

and remanded on other grounds, 25 F.3d 177 (3d

EE Pe etna yey ET Can On erie 18

American Sheet Metal, Inc. v. Em-Kay Eng’g Co., 478

F. Supp. 809 (E.D. Cal. 1979) ..................... 19

Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676

wus DO COG Che, VOI oon vic cc cen cdicincbincens 18

Arkwright-Boston Mfrs. Mut. Ins. Co. v. Aries Marine

Corp., 932 F.2d 442 (5th Cir. 1991) ................ 11

Associated Indem. Corp. v. Dow Chem. Corp., 814 F.

supp. 613 (E.D. Mich. 1993) .........0cccessccens. 18

Baltimore & Ohio R.R. Co. v. Baugh, 149 U.S. 368

GEOR kaneis haces i eabbeaeteen eee eae Po

Bank of New York v. Amoco Oil Co., 35 F.3d 643 (2d

Re EOD ovo curs conpeaunsnaeiel renee 19

Beaudett v. City of Hampton, 775 F.2d 1274 (4th Cir.

1985), cert. denied, 475 U.S. 1088 (1986)............ 11

Becker v. Interstate Properties, 569 F.2d 1203 (3d Cir.

1977), cert. denied, 436 U.S. 906 (1978), abrogated

on other grounds by, Robinson v. Jiffy Executive

Limousine Co., 4 F.3d 237 (3d Cir. 1993) ........... 20

Bonilla v. Nazario, 843 F.2d 34 (1st Cir. 1988) ..... 12, 13

TABLE OF AUTHORITIES - Continued

Page

Boston Five Cents Sav. Bank v. Secretary of Dep't of

Housing and Urban Dev., 768 F.2d 5 (1st Cir.

WOMEN), vols. ee eae eee 9

Bradley v. Pittsburgh Bd. of Educ., 913 F.2d 1064 (3d

Ci SUR coc er ee eae 13

Brobst v. Columbus Servs. Int'l, 761 F.2d 148 (3d Cir.

1985), cert. denied, 484 U.S. 1043 (1988)......... 11,

Buckeye Union Ins. Co. v. Price, 313 N.E.2d 844

(2S . rrr rer rrr oc Sah els 16

CPC Int'l, Inc. v. Northbrook Excess & Surplus Ins.

Co., 962 26.77 Cist CO FRR ede os kuceaetcaccc esses 20

Celotex Corp. v. Catrett, 477 U.S. 317 (1986).......... 11

Champion Int'l Corp. v. Continental Casualty Co., 546

F.2d 502 (2d Cir. 1976), cert. denied, 434 U.S. 819

bi gf Pe Pee ee eran Oe ee aig hone A 18

Chemstar, Inc. v. Liberty Mut. Ins. Co., 41 F.3d 429

(9th Cir. 1994), petition for cert. filed, 63 U.S.L.W.

Bae LEONG) 5 van ves ¥ee4sksaucesenbe eases 18

Commissioner of Internal Revenue v. Estate of Bosch,

SOT TED. GG CDG 6 nk es icievien We cesseosatay 8, passim

Dimidowich v. Bell & Howell, 803 F.2d 1473 (9th Cir.

1986), modified in part on other grounds, 810 F.2d

Tar COGN GA Fs + oe eh ekccereOinensieeasee 19

Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) ..... 8, passim

Faruque v. Provident Life & Accident Ins. Co., 508

ae SOP Ce TO eas bc ncccvenvrcedieueeetien 16

Flintkote Co. v. Dravo Corp., 678 F.2d 942 (11th Cir.

SUMED s ss cccececesvsescuueeunab ce@iasseeeeeereeee 20

Vil

TABLE OF AUTHORITIES - Continued

Page

Fountain v. Filson, 336 U.S. 681 (1949).............-. 10

General Motors Corp. v. Doupnik, 1 F.3d 862 (9th Cir.

GON uv ioc haven Vecsey edna ee cov eesavisesccuset vas 19

Hanna v. Plumer, 380 U.S. 460 (1965) ............. 14, 22

Heublein, Inc. v. United States, 996 F.2d 1455 (2d

CSUN wi voc aa Sead esate cess cldcusesaseiescctyaes 9

Hicks on Behalf of Feiock v. Feiock, 485 U.S. 624

| nner see nuer a mare Ener ran rrr rr ee yere 15

Houghton v. Foremost Fin. Servs. Corp., 724 F.2d 112

a gk | errr eT errr eer ye Tee 9

Hubbard v. ‘Parker, 994 F.2d 529 (8th Cir. 1993)....... 11

International Surplus Lines Ins. Co. v. Certain Under-

writers at Lloyd’s of London, 868 F. Supp. 917

4 Be | SOP TOOeTETCTerrT ere TT er er rrre 17

Jardines Bacata, Ltd. v. Diaz-Marquez, 878 F.2d 1555

(9 | re er re Teer 13

John Deere Co. v. American Nat'l Bank, Stafford, 809

fo Be: Be ee, |) ery rrer rere rr cere ey 12

John v. Louisiana, 757 F.2d 698 (5th Cir. 1985)......... 4

Latecoere Int'l, Inc. v. United States, Dep't of Navy,

SD FOG BOGE CEU Ce. Bsc oven os veticicesicnes: 9

LewRON Television, Inc. v. D.H. Overmyer Leasing

Co., 401 F.2d 689 (4th Cir. 1968), cert. denied, 393

Sa CREED has asacevneeseeaescedesneeeens eres 9

Malhotra v. Cotter & Co., 885 F.2d 1305 (7th Cir.

Seed seeks yas vuw ceeds coda reuse sc teen cueer erent: 12

Michigan Chem. Corp. v. American Home Assurance

Co., 720 O20 S74 (Gt Cie. BOGE) «2. ccc cesccccess. 18

ee.

Vill

TABLE OF AUTHORITIES - Continued

Page

Mingus Constructors, Inc. v. United States, 812 F.2d

ee ls eRe odes Ca kerk d otc cs wbdaaerceee ch 9

Mitchell v. McCarty, 239 F.2d 721 (7th Cir. 1957)...... 9

Moorman v. Prudential Ins. Co. of Am., 445 N.E.2d

Ree ee I so oo akin ce pa ae overeat’ ieee we 16

Morales Morales v. Rafael Arias, 856 F.2d 396 (1st

SNS oie Cs oS oe ca ea Wee Ca ee po ee edn 12

Morton Thiokol, Inc. v. Aetna Casualty & Sur. Co.,

No. A-8603799 (Ohio Com. Pls. Dec. 28, 1988) .... 17

NL Indus., Inc. v. GHR Energy Corp., 940 F.2d 957

(5th Cir. 1991), cert. denied, 502 U.S. 1032 (1992) .... 13

N.L.R.B. v. Robbins Tire & Rubber Co., 437 U.S. 214

UE ay ok a Gale ha ere a ede ene eae ere oe 14

National Fire Ins. v. Bartolazo, 27 F.3d 518 (11th Cir.

BO sas oh tG kak eee wer Lak ard Peak Ce eee 11

Norfolk & Western Ry. Co. v. Accident & Casualty

Ins. Co., 796 F. Supp. 929 (W.D. Va. 1992), dis-

missed in relevant part as moot, 41 F.3d 928 (4th

Ge SD cose casi cena dead cee eeaae et coures ences 17

Northern Shipping Co. v. Arkwright-Boston Mfrs.

Mut. Ins. Co., 617 F. Supp. 136 (E.D. Pa.), aff'd,

FO Fee BES CO ROE BROOD cose reese eenecsaceee’s 17

Otis Elevator Co. v. George Washington Hotel Corp.,

27 ee Fee Ae Ge Fe oe he vecnredepecincseses 12

Owens-Illinois, Inc. v. Aetna Casualty & Sur. Co., 597

Fy ND : B Re CGF. Bhan Se cree ic eccasscenewees 17

Packard v. Provident Nat'l Bank, 994 F.2d 1039 (3d

Cir.), cert. denied, 114 S. Ct. 440 (1993)............ 19

TABLE OF AUTHORITIES - Continued

Page

Pittsburgh Corning Corp. v. Travelers Indem. Co., No.

Civ. A. 84-3985, 1988 WL 5302 (E.D. Pa. Jan. 21,

A ee ere rer re rrr ree ran Dae 17

Provau v. State Farm Mut. Auto. Ins. Co., 772 F.2d

gee! Ge ay.) SINR am nye Siren re eran rates 20

Rains v. Cascade Indus., Inc., 402 F.2d 241 (3d Cir.

|, See are Seer ier er nr Sai seh mbt rare ee eer re wy ae 9

Resolution Trust Corp. v. Ruggiero, 994 F.2d 1221

+, Be Bere err rrr ey rrr rear rire 11

Rodriguez v. Doral Mortgage Corp., 57 F.3d 1168 (1st

6 nr! er errr re rrr reer yr rrr rer 14

Sherwood v. Washington Post, 871 F.2d 1144 (D. D.C.

| i ro Pre err errr rere rr Tere 9

Sifers v. General Marine Catering Co., 892 F.2d 386,

modified in part on other grounds, 897 F.2d 1288

fu Re , Rrererrrr rrr reeerr rrr ir reer reir 20

Spinner Corp. v. Princeville Dev. Corp., 849 F.2d 388

Be ae, | Serr rrr rr rer er ere 19

Starsky v. Williams, 512 F.2d 109 (9th Cir. 1975)....... y

State Farm Mut. Auto. Ins. Co. v. Davis, 937 F.2d

G15 COG Cle. F991). oo cece cc ccc ccc tccccccccceseees 19

Stella v. Town of Tewksbury, 4 F.3d 53 (1st Cir. 1993) .... 11

Stonewall Ins. Co. v. National Gypsum Co., No. 86

Civ. 9671 (JSM), 1992 WL 123144 (S.D.N.Y. May

27, 1992), appeal pending ........+-+eeeeeeeeeeeeees 18

Tavery v. United States, 32 F.3d 1423 (10th Cir.

NN ag ee oa rs Pee eed RCN SNe sped ee tes Kars 41, i2

Trusthouse Forte, Inc. v. 795 Fifth Ave. Corp., 756

F.2d 255 (2d Cir. 1985)

TABLE OF AUTHORITIES —- Continued

Page

Tyler v. Bethlehem Steel Corp., 958 F.2d 1176 (2d

Cir.), cert. denied, 113 S. Ct. 82 (1992) ............. 18

Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. 1368

Ses te. DUER eee cectcecevaneuscaesaisseeuveuta 18

United States v. Little, 52 F.3d 495 (4th Cir. 1995) .... 20

United States v. Lopez, 115 S. Ct. 1624 (1995)......... 22

Wermager v. Cormorant Twp. Bd., 716 F.2d 1211 (8th

GOR WME 604 cesasrdeencs vacetéedacoseaenteien 9

West v. American Tel. & Tel. Co., 311 U.S. 223 (1940) .... 15

Williams v. City of St. Louis, 783 F.2d 114 (8th Cir.

ners me MADRE ISIS Se BS BOK peg dl Mages cane dg: 12

STATUTES

y Bh Cee 5 rer poe re Oe ee Pr ey 1

ae Gis Re oo nta es Foes ictansctvene cee 2

ty ee ea a ose eee een eee ae an

OTHER AUTHORITIES

Paul L. Caron, The Role of State Court Decisions in

Federal Tax Litigation: Bosch, Erie, and Beyond, 71

CM Ba DOOR: Pe ROOD oc ududes connvhustadeeeene te 21

Richard D. Freer, Erie's Mid-Life Crisis, 63 Tul. L.

TW. DE ERO s an 2406600440 20s oedeeh eee es reeves 21

6 James W. Moore et al., Moore’s Federal Practice

TI 56.04[1], 56.13 (2d ed. 1994)..................., Yy

Note, Deference to Federal Circuit Court Interpreta-

tions of Unsettled State Law: Factors, Etc., Inc. v.

Pro Arts, Inc., 1982 Duke L.J. 704................. 21

TABLE OF AUTHORITIES Continued

Court Is State Law Losing Cround?, 1977

B.Y.U.L. Rev. 1

A C. Wright, et al., Federal Practice & Procedure

77)

7 2/41

(1983)

| ‘ 4 > ,e7v 7 ’ > sh) , y

Geri J]. Yonover, Ascertaining State Law: The Con

1g Erie Dilemma, 38 DePaul L. Rev. 1 (1989)

eri |. Yonover, A Kinder, Gentler Erie: Reining In

Ise Certification, 47 Ark. L. Rev. 305 (1994)

Page

PETITION FOR A WRIT OF CERTIORARI

Petitioner, The Babcock & Wilcox Company (“B&W”),

respectfully petitions for a writ of certiorari to review the

judgment of the United States Court of Appeals for the

sixth Circuit in this case. McDermott, Inc. (“McDermott”)

and Creole Insurance Company Limited (“Creole”) join in

this petition.

OPINIONS BELOW

The opinion of the Court of Appeals, App. 1-14, is

reported at 53 F.3d 762 (6th Cir. 1995). The opinion and

order of the district court, App. 15-37, are not reported

——————__—__—_—— @-—_ —

JURISDICTION

The judgment of the United States Court of Appeals

for the Sixth Circuit was entered on May 17, 1995. The

Petitions For Rehearing and Suggestion For Rehearing En

Banc of Plaintiff-Appellant, The Babcock & Wilcox Com

pany, and Third-Party Defendant-Appellant, McDermott,

Inc., and Defendant-Appellant Creole Insurance Com-

pany Limited were denied on August 4, 1995. The juris

diction of this Court is invoked under 28 U.S.C. § 1254(1)

— A ——

PROCEDURAL RULE AND STATUTE INVOLVED

Fed. R. Civ. P. 56. Summary Judgment

t * +

motion shall be served at least 10 days

before the time fixed for the hearing. The

adverse party prior to the day of hearing

may serve opposing affidavits. The judg-

ment sought shall be rendered forthwith if

the pleadings, depositions, answers to

interrogatories, and admissions on file,

together with the affidavits, if any, show

that there is no genuine issue as to any

material fact and that the moving party is

entitled to a judgment as a matter of law. A

summary judgment, interlocutory in char-

acter, may be rendered on the issue of lia-

bility alone although there is a genuine

issue as to the amount of damages.

28 U.S.C. § 1652. State laws as rules of decision

The laws of the several states, except where

the Constitution or treaties of the United States

or Acts of Congress otherwise require or pro-

vide, shall be regarded as rules of decision in

civil actions in the courts of the United States, in

cases where they apply.

STATEMENT OF THE CASE

1. Background. For over sixty years, B&W has designed,

manufactured, installed, delivered and maintained indus-

trial utility and marine boilers throughout the United

hited sana

States and the world. During most of this period, B&W

had a continuous corporate practice and policy of

approving or permitting the use of asbestos-containing

materials as components in the design, assembly, installa-

tion and servicing of its boilers.

Like many other industrial entities whose historical

operations or products involved asbestos-containing

materials and that did not recognize the associated dan-

gers, B&W is currently facing staggering liabilities from

persons claiming injury as a result of exposure to these

materials. To date, tens of thousands of asbestos-related

personal injury claims have been asserted against B&W,

along with numerous other parties alleged to be respons-

ible for the claimants’ exposure to asbestos. B&W has

incurred hundreds of millions of dollars in asbestos-

related liabilities in the form of payments made to the

asbestos claimants, with a significant number of unre-

solved claims still pending against B&W.

In response to the staggering asbestos-related lia-

bilities confronting it, B&W has turned to its historical

liability insurers for coverage. Both B&W’s primary-layer

liability insurers and the great majority of its excess layer

insurers, which provided coverage to B&W beginning in

1950, have agreed to pay substantial sums to indemnify

B&W for a significant portion of those liabilities. Nev-

ertheless, the Defendant-Respondent insurers, which sub-

scribe to a first-layer excess liability policy providing

coverage to B&W for the 1979-80 policy period (“the

Subscribers”), have refused to pay any of their policy

limits to indemnify B&W.

The Subscribers’ 1979-80 policy (the “Subscriber Pol-

icy”) contains a $2.5 million per-occurrence buffer layer

provision. This provision, in effect, provides that the

Subscriber Policy will cover, up to its limits, all liabilities

arising out of any one “occurrence” taking place during

the policy period, to the extent those liabilities exceed a

$2.5 million per-occurrence deductible.

The dispute in this case —- not one that ordinarily

would or should consume the time and resources of this

Court — centers around the application of this buffer-layer

provision to the large group of asbestos claims at issue.

B&W has contended that these asbestos claims arise out

of one common, caus**2 “occurrence” and, thus, the

amount of liability for »! of the claims, when added

together, well exceeds the $2.5 million per-occurrence

deductible. By contrast, the Subscribers take the position

that each of the tens of thousands of asbestos claims

arises out of a separate and distinct causative “occur-

rence” and, therefore, because the value of no one claim

exceeds the $2.5 million threshold, no coverage is pro-

vided by their Policy.

2. Proceedings Below. On May 22, 1991, B&W filed this

action for declaratory judgment and breach of contract

against the Subscribers in the United States District Court

for the Northern District of Ohio. In a preliminary ruling,

the district court held that the law of Ohio applied to this

case and, in particular, to the interpretation and applica-

tion of the Subscriber Policy. App. 67. Following discov-

ery, the parties filed cross-motions for summary

judgment on the issue of how many occurrences were

represented by the group of asbestos claims against B&W

(the “number of occurrences” issue). On August 19, 1993,

Se tn WO as

we he bh a abet ,

the district court entered an opinion and order granting

Defendants’ motion for summary judgment and dismiss-

ing B&W’s case.

The district court’s opinion never addressed the sin-

gle issue - the number-of-occurrences issue — that was

presented in the parties’ cross-motions for summary

judgment. Rather, the district court addressed only an

analytically distinct issue, i.e., whether the 1979-80 policy

period of the Subscriber Policy was “triggered” by the

asbestos claims at issue (the so-called “trigger of cover-

age” issue). The trigger-of-coverage issue had never been

presented to the court by Defendants’ motion for sum-

mary judgment. Nonetheless, the district court granted

Defendants’ summary judgment on this issue and -dis-

missed B&W’s case, without B&W having been afforded

the opportunity to present evidence on, and properly

brief, the issue. In a word, B&W had been ambushed.

The stated basis for the district court’s ruling was

that B&W had not satisfied its affirmative burden of

proving that the policy period of the Subscriber policy

had been triggered. Yet, the district court committed clear

error when it ruled, not that B&W’s own summary judg-

ment motion would be denied and the case would pro-

ceed to trial, but rather that Defendants’ cross-motion for

summary judgment would be granted on an issue not pre-

sented by that motion. App. 35. The critical error in this

ruling, and the resulting fundamental unfairness to B&W,

is patently obvious: B&W’s case was dismissed on cross-

motions for summary judgment on a dispositive issue

that the parties, particularly the Subscribers, never raised

in their cross-motions and about which the district court

never gave notice to B&W that it could serve as the basis

for dismissing B&W’s case. At best, B&W had only been

notified that its motion would be denied and the case

would proceed to trial if it did not come forward with

sufficient evidence on the trigger-of-coverage issue.

In presenting its appeal of the district court’s ruling

to the United States Court of Appeals for the Sixth Cir-

cuit, B&W requested correction of the manifest pro-

cedural error in the court’s grant of the Subscribers’

summary judgment motion and also requested that the

Sixth Circuit address the one and only issue that had

been presented by the parties’ cross-motions for sum-

mary judgment but that had not been decided by the

district court — the number-of-occurrences issue. The

Sixth Circuit chose to do the latter but not the former.

Specifically, the Sixth Circuit acknowledged but

rejected B&W’s argument that it had not been given prior

notice that the trigger-of-coverage issue could be the

basis for dismissal of its case. App. 5-6. Nonetheless, in

the course of rejecting B&W’s argument and upholding

the district court’s ruling, the Sixth Circuit actually high-

lighted the validity of B&W’s argument. Indeed, after

searching thoroughly through the district court record for

the document that supposedly placed B&W on notice that

Defendants’ summary judgment motion would be

granted if B&W did not come forward with sufficient

evidence on the trigger-of-coverage issue, the Sixth Cir-

cuit was able to identify only one document: “Defen-

dants’ Reply Memorandum in Opposition to Summary

Judgment Motions of B&W and McDermott.” App. 5. This

document related to Defendants’ opposition to B&W’s

motion, not to the Subscribers’ motion. Thus, the Sixth

Circuit opinion, while rejecting B&W’s appeal, actually

a. edi utc

serves to reinforce B&W’s argument that neither the

Defendants nor the district court gave B&W any notice

that the trigger issue could be the basis for a grant of

Defendants’ summary judgment motion.

Recognizing the tenuous basis of its decision, the

Sixth Circuit provided an alternative, independent basis

for rejecting B&W’s appeal — namely, the Court decided

to address the number-of-occurrences issue that had been

presented to the district court but had not been decided.

In ruling adversely to B&W on this issue, the Sixth Cir-

cuit committed its own glaring error that contravened the

directives of prior Supreme Court precedent. Specifically,

although the Sixth Circuit was sitting as an Erie court

with jurisdiction based on diversity of citizenship, the

Court did not attempt to predict how the highest court of

Ohio would decide the issue as required by this Court’s

precedents; rather, it decided the issue as a matter of

federal common law. App. 9-14.

There were no existing decisions of the Ohio

Supreme Court squarely deciding the number-of-occur-

rences issue. Nonetheless, the Sixth Circuit disregarded

the decisions of lower Ohio courts and federal courts

applying Ohio law to the number-of-occurrences issue. It

also failed to consider the principles of Ohio insurance

law that repeatedly have been espoused by the Ohio

Supreme Court and that should have been outcome-

determinative. Instead, the Sixth Circuit merely consid-

ered and adopted decisions on the issue by several out-

of-state federal district courts, without ever attempting to

determine if the analytical underpinnings of those deci-

sions were consistent with the principles of Ohio insur-

ance law.

Following the Sixth Circuit’s issuance of its decision

upholding the district court’s grant of the Subscribers’

summary judgment motion, B&W (as well as McDermott

and Creole) filed with that Court Petitions For Rehearing

And Suggestion For Rehearing En Banc. On August 4,

1995, the Sixth Circuit denied the petitions without fur-

ther explanation of its decision. App. 68-69.

REASONS FOR GRANTING THE PETITION

The Sixth Circuit’s affirmance of the district court's

grant of the Subscribers’ motion for summary judgment,

if left undisturbed, will (i) create a conflict among the

Circuits on long-settled principles of summary judgment

practice under Fed. R. Civ. P. 56; and (ii) contribute to the

federal courts’ increasing failure to abide by this Court's

prior directives under Erie Railroad Co. v. Tompkins, 304

U.S. 64 (1938), and Commissioner of Internal Revenue v.

Estate of Bosch, 387 U.S. 456 (1967), regarding the “proper

regard” to be accorded state lower-court decisions.

Because this decision has such far-reaching adverse

effects, it warrants review by this Court.

1. The Sixth Circuit’s Affirmance Of The Grant Of The

Subscribers’ Motion For Summary Judgment Is A

Radical Departure From Precepts Of Summary Judg-

ment Practice That, If Left Uncorrected, Will Create

A Conflict Among The Circuits.

The Sixth Circuit’s erroneous affirmance of the dis-

trict court’s grant of the Subscribers’ motion for summary

judgment squarely rejects two fundamental principles of

hc wih-v6 hn oes a

heehee ete.

federal summary judgment practice that have been

adopted by this Court as well as the Courts of Appeals

for other Circuits.

First, the affirmance is contrary to the rule adopted

by other Courts of Appeals that, where cross-motions for

summary judgment have been filed, one moving party’s

failure to establish its entitlement to judgment as a matter

of law should not result in a judgment in favor of the

cross-movant.! The Sixth Circuit’s decision is inconsistent

with the principle that the filing of cross-motions for

summary judgment does not reflect the parties’ consent

to the resolution of the case on the existing record and

does not grant the district court the freedom to treat the

case as though it had been submitted for final resolution

on a stipulated record.”

| E.g., Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d

Cir. 1993); LewRON Television, Inc. v. D.H. Overmyer Leasing Co.,

401 F.2d 689, 692 (4th Cir. 1968), cert. denied, 393 U.S. 1083 (1969);

Mitchell v. McCarty, 239 F.2d 721, 723 (7th Cir. 1957); Starsky v.

Williams, 512 F.2d 109, 112 (9th Cir. 1975); Houghton v. Foremost

Fin. Servs. Corp., 724 F.2d 112, 114 (10th Cir. 1983); Latecoere Int'l,

ive. v. United States, Dep't of Navy, 19 F.3d 1342, 1366 (11th Cir

1994); Mingus Constructors, Inc. v. United States, 812 F.2d 1387,

1391 (Fed. Cir. 1987).

2 E.g., Boston Five Cents Sav. Bank v. Secretary of Dep't of

Housing and Urban Dev., 768 F.2d 5, 11-12 (1st Cir. 1985) (Breyer,

J.); Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir. 1968);

John v. Louisiana, 757 F.2d 698, 705 (5th Cir. 1985); Wermager v

Cormorant Twp. Bd., 716 F.2d 1211, 1214 (8th Cir. 1983); Sherwood

v. Washington Post, 871 F.2d 1144, 1147-48 (D. D.C. 1989). See 6

James W. Moore et al., Moore's Federal Practice {] 56.04[1], 56.13

(2d ed. 1994).

In this case, the only issue raised by Subscribers’

summary judgment motion seeking dismissal of B&W’s

case was the number-of-occurrences issue. The district

court did not grant the motion based on that issue. Rather

the district court granted Subscribers’ motion based on a

distinct issue — the trigger-of-coverage issue — that at best

was mentioned only in the context of B&W’s affirmative

motion seeking summary judgment in its favor. The Sixth

Circuit’s decision upholding the district court’s dismissal

of B&W’s case places the Sixth Circuit at odds with each

of the other Circuit Courts of Appeals that has considered

this procedural issue. Accordingly, if a dismissal by a

district court on these same facts had been reviewed in

any other such Circuit, the dismissal would have been

vacated with directions to the district court to deny each

of the parties’ cross-motions for summary judgment and

to proceed to trial.

Second, assuming arguendo that the trigger-of-cover-

age issue was raised at all by the Subscribers’ briefing on

cross-motions for summary judgment, then the Sixth Cir-

cuit’s affirmance of the district court’s dismissal rejects

the rule adopted by this Court, and followed by every

other Circuit Court of Appeals considering the issue, that

adequate notice must be provided to a party before the

entry of summary judgment against it. See Fountain v.

Filson, 336 U.S. 681, 683 (1949). In this case, the only

arguable notice that was provided to B&W of the poten-

tially dispositive trigger-of-coverage issue was that con-

tained in a reply brief entitled “Defendant Subscribers’

Reply Memorandum in Opposition to Summary Judgment

Motions of Babcock & Wilcox and McDermott.” This reply

brief, which relates to B&W’s affirmative summary

a a le a tate he oe Sidi

——~@ <p el ts ke

judgment motion, does not satisfy the well-established

rule requiring notice to a party prior to the entry of

summary judgment against it, a rule that has been

embraced by Fed. R. Civ. P. 56 and every other Circuit

Court of Appeals that has considered the issue.?

By its decision, in this case, the Sixth Circuit has now

seemingly established a new and conflicting rule that any

statement of an issue, wherever contained in any pleading or

brief, can constitute notice to a party sufficient to permit

entry of summary judgment on that issue. The manifest

unfairness of such a rule in this case is highlighted by the

fact that, before the hearing on B&W’s and Subscribers’

respective cross-motions for summary judgment, the district

court had ruled expressly that the only pending motions that

it would entertain were those dealing with the number-of-

occurrences issue. App. 40 (cross-motions deal with “defin-

ing a single occurrence under the policy”).

3 E.g., Celotex Corp. v. Catrett, 477 U.S. 317, 326 (1986)

(“notice” required); Stella v. Town of Tewksbury, 4 F.3d 53, 55 (1st

Cir. 1993) (“adequate notice” required); Trusthouse Forte, Inc. v.

795 Fifth Ave. Corp., 756 F.2d 255, 259 (2d Cir. 1985) (“notice”

required); Brobst v. Columbus Servs. Int'l, 761 F.2d 148, 154 (3d

Cir. 1985) (“notice” required), cert. denied, 484 U.S. 1043 (1988);

Beaudett v. City of Hampton, 775 F.2d 1274, 1277 n.3 (4th Cir.

1985), cert. denied, 475 U.S. 1088 (1986); Arkwright-Boston Mfrs.

Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442, 444-45 (5th Cir.

1991) (“proper notice” required); Resolution Trust Corp. v. Rug-

giero, 994 F.2d 1221, 1226 (7th Cir. 1993) (“notice” required);

Hubbard v. Parker, 994 F.2d 529, 531 (8th Cir. 1993) (“sufficient

advance notice” required); Tavery v. United States, 32 F.3d 1423,

1427 n.5 (10th Cir. 1994) (“notice” required); National Fire Ins. v.

Bartolazo, 27 F.3d 518, 520 (11th Cir. 1994) (“notice” required); see

Advanced Cardiovascular Sys., Inc. v. Scimed Life Sys., Inc., 988

F.2d 1157, 1164 (Fed. Cir. 1993) (“notice” required).

afc aia titi aia)

The new rule embraced by the Sixth Circuit is also

squarely in conflict with the majority rule that a party

may be subjected to an entry of summary judgment pur-

suant to an adverse party’s motion only upon issues

raised in that motion, and not upon issues raised in other

contexts or not raised at all. As stated succinctly by the

Seventh Circuit, “[w]hen a party moves for summary

judgment on ground A, his opponent is not required to

respond to ground B —- a ground movant might have

presented but did not.” Malhotra v. Cotter & Co., 885 F.2d

1305, 1310 (7th Cir. 1989) (citing Bonilla v. Nazario, 843

F.2d 34, 37 (1st Cir. 1988); John Deere Co. v. American Nat'l

Bank, Stafford, 809 F.2d 1190, 1192 (5th Cir. 1987)).4

Indeed, in a decision reviewing a district court’s pro-

cedural error on summary judgment that is directly on

point with the one committed by the district court in this

case, the Tenth Circuit held that it was “unfair” to affirm

the summary judgment against the plaintiff when the

defendant-government only raised the issue upon which

summary judgment was granted in a brief opposing

plaintiff's motion for summary judgment and not in the

defendant-government’s own affirmative motion for

summary judgment. Tavery v. United States, 32 F.3d 1423,

1427 n.5 (10th Cir. 1994); see also, e.g., Williams v. City of St.

Louis, 783 F.2d 114, 116 (8th Cir. 1986) (reversing grant of

4 Accord Morales Morales v. Rafael Arias, 856 F.2d 396, 397

(1st Cir. 1988); Otis Elevator Co. v. George Washington Hotel Corp.,

27 F.3d 903, 910 (3d Cir. 1994).

aaa

summary judgment in favor of defendant when disposi-

tive issues were only raised in plaintiff’s earlier briefs in

Opposition to motion to dismiss).5

Accordingly, other Circuit Courts of Appeals that

have considered the issue do not permit a district court to

grant a party's motion for summary judgment on

grounds that are not raised by the moving-party’s motion

but rather are raised by the moving party in some other

procedural context. By contrast, in the Sixth Circuit, a

party may be subjected to an adverse summary judgment

on an issue without ever having been apprised that it

must come forward with evidence creating a triable issue

of fact on that issue.

Moreover, if the district court’s entry of summary

judgment in this case is deemed to have been a judgment

entered sua sponte rather than one upon Subscribers’

motion, then the Sixth Circuit’s decision creates a conflict

as to the rule adopted by other Circuits that, when sum-

mary judgment is entered sua sponte, any doubts as to the

adequacy of the notice should be resolved in favor of the

losing party. This rule has been expressly adopted by

both the First and Fifth Circuits. See Jardines Bacata, Ltd. v.

Diaz-Marquez, 878 F.2d 1555, 1561 (1st Cir. 1989); NL

Indus., Inc. v. GHR Energy Corp., 940 F.2d 957, 965 (5th Cir.

1991), cert. denied, 502 U.S. 1032 (1992). The foregoing rule

is an extension of the principle that sua sponte entry of

summary judgment should be employed only with great

care and circumspection. E.g., Bonilla v. Nazario, 843 F.2d

> See also Bradley v. Pittsburgh Bd. of Educ., 913 F.2d 1064,

1069 (3d Cir. 1990) (reversing district court’s grant of summary

judgment pursuant to a motion in limine).

34, 37 (1st Cir. 1988) (Breyer, J.) (quoting 10A C. Wright, et

al., Federal Practice & Procedure, § 2720 at 34 (1983)); Brobst

v. Columbus Servs. Int'l, 761 F.2d 148, 154 (3d Cir. 1985),

cert. denied, 484 U.S. 1043 (1988).

Finally, the Sixth Circuit’s new rule is also squarely

contrary to a central purpose of the Federal Rules of Civil

Procedure — to prevent litigation by ambush. See N.L.R.B.

v. Robbins Tire & Rubber Co., 437 U.S. 214, 253 (1978);

Rodriguez v. Doral Mortgage Corp., 57 F.3d 1168, 1171-72

(1st Cir. 1995). Accordingly, this Court should grant cer-

tiorari to strike down this rule and to restore uniformity

in the federal courts as to the requirements for adequate

notice to a party prior to the entry of summary judgment

against that party.

2. The Sixth Circuit’s Decision Is Contrary To Prior

Directives Of This Court And Widens The Conflict

Among The Circuits On The Issue Whether A Fed-

eral Erie Court Should Give Presumptive Deference

To Relevant Decisional Law On A State-Law Issue

In The Absence Of Direct State Supreme Court Pre-

cedent.

This Court has characterized its decision in Erie Rail-

road Co. v. Tompkins, 304 U.S. 64 (1938), as “one of the

modern cornerstones of our federalism, expressing poli-

cies that profoundly touch the allocation of judicial

power between the state and federal systems.” Hanna v.

Plumer, 380 U.S. 460, 474 (1965) (Harlan, J., concurring).

Unfortunately, the Sixth Circuit and several other Courts

of Appeals are undermining the well-established Erie

doctrine by the manner in which they purport to ascer-

tain a state’s law on an issue in the absence of any direct

state supreme court precedent on the issue. This Court, in

Commissioner of Internal Revenue v. Estate of Bosch, 387 U:S.

456 (1967), has set forth the procedure to be applied in

such a situation. Specifically, this Court has stated:

If there be no decision by [the State’s highest]

court then federal authorities must apply what

they find to be the state law after giving ‘proper

regard’ to relevant rulings of other courts of the

State. In this respect, it may be said to be, in

effect, sitting as a state court.

Id. at 465. Moreover, as Bosch reaffirmed, “proper regard”

requires that a federal court predicting state law under

Erie treat a lower state court decision as “ ‘a datum for

ascertaining state law which is not to be disregarded

. unless it 1s convinced by other persuasive data that the

highest court of the state would decide otherwise.’ ” Id. (quot

ing West v. American Tel. & Tel. Co., 311 U.S. 223, 237

(1940); final emphasis by the Bosch Court).°

Notwithstanding this clear direction, the Sixth Cir-

cuit’s decision in this case implicitly rejects the mandate

of Bosch and adopts the following alternative rule for a

federal court ruling on an issue of state law: When there

is no direct state supreme court precedent on an issue, the

federal court need not give any deference to the decisions

of lower courts interpreting the state’s law on the rele-

vant issue; nor must it pay any regard to the state's

general jurisprudential principles that govern the subject

matter of the dispute, even as set forth by the state

supreme court. In short, the Sixth Circuit has determined

n.3 (1988) (quoting with approval West, 311 U.S. at 237-38)

that, in the absence of direct state supreme court prece-

dent, a federal court may pick and choose any decisional

law from around the nation, regardless of the particular

state law that it purports to apply. The nationalization of

insurance law may or may not be a laudable goal. None-

theless, the worthiness of this goal, and the manner in

which it is to be achieved, are not matters for the federal

courts to decide.

In this case, in supporting its ruling on the number-

of-occurrences issue, the Sixth Circuit did not rely upon a

single case from an Ohio court or upon a single decision

of another court applying Ohio law. The court summarily

(and erroneously) distinguished all of the decisions cited

by B&W that applied Ohio law to the number-of-occur-

rences issue, without making any attempt to apply the

principles of Ohio insurance law supporting those deci-

sions to the policy language at issue. The court also made

no effort to test its ultimate ruling — or the rulings of the

non-Ohio cases on which it relied — against the general

principles of Ohio insurance law that should govern this

case.” Instead, the court went through the entire body of

national case law “cafeteria-style,” supporting its ruling

7 Some of the Ohio insurance principles ignored by the

Sixth Circuit in ruling on the number-of-occurrences issue are

that: (i) ambiguities in policy language are to be construed in

favor of the insured, and (ii) any limitations or qualifications on

coverage are to be interpreted narrowly and with the presump-

tion that any risk that is not clearly excluded is covered. See, e.g.,

Faruque v. Provident Life & Accident Ins. Co., 508 N.E.2d 949, 952

(Ohio 1987); Moorman v. Prudential Ins. Co. of Am., 445 N.E.2d

1122, 1124-25 (Ohio 1983); Buckeye Union Ins. Co. v. Price, 313

N.E.2d 844, 846 (Ohio 1974).

with three decisions from non-Ohio federal courts — two

decisions from the Eastern District of Pennsylvania, and

one decision from the Western District of Virginia. See

App. 10-12.8

To have followed Bosch and accorded “proper

regard” to the Ohio rules of decision in resolving the

number-of-occurrences issue in this case, the Sixth Circuit

should have (i) considered the one Ohio lower-court deci-

sion on the same issue’ and determined that the analyti-

cal underpinning of that decision was squarely applicable

in this case; (ii) reviewed federal court decisions applying

Ohio law to this issue! to understand the Ohio insurance

law principles that guided those decisions; (iii) analyzed

the general principles of insurance law espoused by the

Ohio Supreme Court that were relevant to deciding the

8 Compounding its error, the Sixth Circuit misapplied the

teachings of the three cases upon which it relied. In each case,

the district court was construing policy language that it con-

cluded was ambiguous. See Norfolk & Western Ry. Co. v. Accident

& Casualty Ins. Co., 796 F. Supp. 929, 936 (W.D. Va. 1992), dis-

missed in relevant part as moot, 41 F.3d 928 (4th Cir. 1994); Pitts-

burgh Corning Corp. v. Travelers Indem. Co., No. Civ. A. 84-3985,

1988 WL 5302, at *2 (E.D. Pa. Jan. 21, 1988); Northern Shipping Co.

v. Arkwright-Boston Mfrs. Mut. Ins. Co., 617 F. Supp. 136, 138

(E.D. Pa.), aff'd, 774 F.2d 1152 (3d Cir. 1985). As such, under

controlling principles of Ohio law, see supra n.7, these decisions

actually support a ruling in favor of the policyholder.

9 See Morton Thiokol, Inc. v. Aetna Casualty & Sur. Co., No.

A-8603799, slip op. (Ohio Com. Pls. Dec. 28, 1988), reprinted in 3

Mealey’s Litig. Reps. — Ins. § B (Jan. 11, 1989).

10 See International Surplus Lines Ins. Co. v. Certain Underwri-

ters at Lloyd's of London, 868 F. Supp. 917 (S.D. Ohio 1994);

Owens-Illinois, Inc. v. Aetna Casualty & Sur. Co., 597 F. Supp. 1515

(D. D.C. 1984).

number-of-occurrences issue!!; and (iv) reviewed the

caselaw on the issue from around the nation that arises

from the same principles of insurance law as those found

in decisions of the Ohio Supreme Court, the overwhelm-

ing majority of which support B&W’s position.!? All of

the foregoing authority was provided to the Sixth Circuit

by B&W in its briefs, and all of it was seemingly ignored.

The Sixth Circuit’s practice of ignoring the dictates of

Bosch and disregarding relevant, lower state-court deci-

sional law is not a unique phenomenon among the Courts

of Appeals. For example, the Second Circuit has indicated

that “proper regard” under Bosch may require merely a

passing acknowledgement of lower state-court decisions

and that such decisions may be of no more value in

predicting how the state’s highest court would rule on an

issue than the federal court’s exercise of its own judg-

ment, Tyler v. Bethlehem Steel Corp., 958 F.2d 1176, 1190-91

11 See supra n.7.

12 See, e.g., Champion Int'l Corp. v. Continental Casualty Co.,

546 F.2d 502, 505-06 (2d Cir. 1976), cert. denied, 434 U.S. 819

(1977); Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56, 61

(3d Cir. 1982); Michigan Chem. Corp. v. American Home Assurance

Co., 728 F.2d 374, 379 (6th Cir. 1984); Chemstar, Inc. v. Liberty Mut.

Ins. Co., 41 F.3d 429, 432-33 (9th Cir. 1994), petition for cert. filed,

63 U.S.L.W. 3599 (1995); Associated Indem. Corp. v. Dow Chem.

Corp., 814 F. Supp. 613, 621 (E.D. Mich. 1993); Uniroyal, Inc. v.

Home Ins. Co., 707 F. Supp. 1368 (E.D.N.Y. 1988); Air Prods. &

Chems., Inc. v. Hartford Accident & Indem. Co., 707 F. Supp. 762,

773 (E.D. Pa. 1989), modified, No. Civ. A. 86-7501, 1989 WL 73656

(E.D. Pa. June 30, 1989), aff'd in part and vacated and remanded on

other grounds, 25 F.3d 177 (3d Cir. 1994); Stonewall Ins. Co. v.

National Gypsum Co., No. 86 Civ. 9671 (JSM), 1992 WL 123144, at

*13 (S.D.N.Y. May 27, 1992), appeal pending.

(2d Cir.), cert. denied, 113 S. Ct. 82 (1992), or decisions

from other jurisdictions, Bank of New York v. Amoco Oil

Co., 35 F.3d 643, 650 (2d Cir. 1994). Similarly, the Court of

Appeals for the Ninth Circuit has evidenced a similar

disregard of this Court’s direction on the subject,!* sug-

gesting that lower state court decisions are “ ‘merely

data’” providing “guidance” to a federal court, Dimid-

owich v. Bell & Howell, 803 F.2d 1473, 1482 (9th Cir. 1986)

(quoting American Sheet Metal, Inc. v. Em-Kay Eng’g Co.,

478 F. Supp. 809, 813 (E.D. Cal. 1979)), modified in part on

other grounds, 810 F.2d 1517 (9th Cir. 1987), and that they

are entitled to no more weight than decisions from other

jurisdictions, see State Farm Mut. Auto. Ins. Co. v. Davis,

937 F.2d 1415, 1418 (9th Cir. 1991); Dimidowich, 803 F.2d at

1482. In fact, the Ninth Circuit has gone so far as to state

that, ultimately, it need use only its own best judgment in

predicting state law. General Motors Corp. v. Doupnik, 1

F.3d 862, 865 (9th Cir. 1993); see Davis, 937 F.2d at 1418.

By contrast, the Third Circuit has remained faithful

to Bosch’s “proper regard” standard by requiring a federal

court to search thoroughly and give preeminence to

lower court decisions, “at least in the absence of convinc-

ing evidence [that] the state supreme court would not

follow them,” Packard v. Provident Nat'l Bank, 994 F.2d

1039, 1049 (3d Cir.), cert. denied, 114 S. Ct. 440 (1993), and

by requiring that the federal court “be sensitive to the

'3 Indeed, the Ninth Circuit appears to believe, erro-

neously, that it “is open to some question” whether Bosch

requires that even decisions of intermediate appellate courts be

followed absent other persuasive contrary authority. Spinner

Corp. v. Princeville Dev. Corp., 849 F.2d 388, 390 n.2 (9th Cir.

1988). This belief is clearly incorrect. See Bosch, 387 U.S. at 465.

doctrinal trends of the state” and “the policies which

inform the prior adjudications by the state courts,” Becker

v. Interstate Properties, 569 F.2d 1203, 1206 (3d Cir. 1977),

cert. denied, 436 U.S. 906 (1978), abrogated on other grounds

by Robinson v. Jiffy Executive Limousine Co., 4 F.3d 237 (3d

Cir. 1993).

Other Circuit Courts of Appeals, including the First,

Fourth, Fifth and Eleventh, have joined the Third Circuit

in according proper deference to a state’s lower-court

decisions and relevant jurisprudential principles in the

absence of direct state supreme court precedent. See, e.g.,

CPC Int'l, Inc. v. Northbrook Excess & Surplus Ins. Co., 962

F.2d 77, 88-89 (1st Cir. 1992); United States v. Little, 52 F.3d

495, 498 (4th Cir. 1995); Sifers v. General Marine Catering

Co., 892 F.2d 386, 397 & n.46, modified in part on other

grounds, 897 F.2d 1288 (5th Cir. 1990); Provau v. State Farm

Mut. Auto. Ins. Co., 772 F.2d 817, 820 (11th Cir. 1985);

Flintkote Co. v. Dravo Corp., 678 F.2d 942, 945 (11th Cir.

1982).

The conflict and inconsistency among the federal Cir-

cuits in the application of the Bosch “proper regard”

standard has been well-documented and widely crit-

icized. One scholarly commentator, reviewing hundreds

of federal appellate opinions in diversity cases, reached

the “explicit and disquieting” conclusion that “the Erie

decision is being frequently ignored or avoided.” David

A. Thomas, The Erosion of Erie in the Federal Courts: Is State

Law Losing Ground?, 1977 B.Y.U. L. Rev. 1, 2 (noting that

nearly a quarter of all diversity cases in federal courts of

appeals may have contained a misapplication or non-

application of state law, in contravention of Erie). Many

other commentators have identified this same problem,

. eel

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noting time and again the uncertainty surrounding fed-

eral courts’ determination of state law rules of decision.

See, e.g., Geri J. Yonover, A Kinder, Gentler Erie: Reining In

the Use of Certification, 47 Ark. L. Rev. 305, 307 (1994);

Richard D. Freer, Erie’s Mid-Life Crisis, 63 Tul. L. Rev.

1087, 1089, 1091 (1989); Geri J. Yonover, Ascertaining State

Law: The Continuing Erie Dilemma, 38 DePaul L. Rev. 1,

3-8, 40-42 (1989); Note, Deference to Federal Circuit Court

Interpretations of Unsettled State Law: Factors, Etc., Inc. v.

Pro Arts, Inc., 1982 Duke L.J. 704, 705.14

In addition, this Court’s own certiorari docket also

demonstrates that this problem is a recurring one. Ques-

tions about the procedure for ascertaining state law

under the Erie doctrine have been presented to the Court

at least thirty times since 1970.5

In short, this Court’s prior directive in Bosch, setting

forth the “proper regard” and presumptive weight to be

accorded other relevant state decisional law in the

absence of direct state supreme court precedent, is being

routinely ignored in several Circuit Courts of Appeals,

including the Sixth Circuit. Moreover, even those courts

that are purporting to follow Bosch are doing so in con-

flicting and inconsistent manners. As a result, disarray on

14 Cf. Paul L. Caron, The Role of State Court Decisions in

Federal Tax Litigation: Bosch, Erie, and Beyond, 71 Or. L. Rev. 781,

784 (1992) (reviewing over 900 tax cases and rulings citing Bosch

and finding “a quarter century of disarray caused by a misread-

ing of the Erie underpinnings of the ‘proper regard’ standard.”)

15 A non-exhaustive list of petitions for certiorari raising

questions about lower courts’ determinations of state law is set

forth in the Appendix. App. 70-72.

this issue among the Circuits has developed over the past

quarter-century. This Court should put an end to this

cacophonous din.

Frequent misapplications of the Bosch rule by federal

courts pose a serious threat to fundamental principles of

federalism, and risk undermining the entire Erie doctrine.

As a result of misconstruing the Bosch standard, federal

courts often are engaging in the type of ad hoc decision-

making that was prevalent under the Swift v. Tyson reg-

ime and that the Court in Erie so strongly criticized. Erie,

304 U.S. at 78 (quoting Baltimore & Ohio R.R. Co. v. Baugh,

149 U.S. 368, 401 (1893) (Field, J., dissenting)). Today,

however, instead of invoking “general law” to reach

desired results, many federal courts are making “predic-

tions” as to state law that are (explicitly or implicitly)

nothing more than a reflection of their own views as to

what a state’s law ought to be, divorced from the juris-

prudential traditions of the particular state. The natural

and inevitable outgrowth of such a freestyle judicial

inquiry is the “debilitating uncertainty in the planning of

everyday affairs,” see Hanna v. Plumer, 380 U.S. at 474

(Harlan, J., concurring), and the forum-shopping by fed-

eral litigants that Erie was intended to prevent.

Federal courts’ current freedom to fashion ad hoc

results, under the guise of predicting state law, also is

shifting the balance of power struck by Erie significantly

toward the federal courts and away from the states. Just

last Term, this Court reaffirmed the importance of our

federalist system of dual sovereignty, limiting Congress's

legislative power over purely local matters. See United

States v. Lopez, 115 S. Ct. 1624 (1995). This Court should

now take the opportunity to reaffirm that, under Erie,

—<

similar limitations are imposed on the federal judiciary

See Erie, 304 U.S. at 78-79.

Accordingly, the Court should grant certiorari on this

issue, to reject the type of ad hoc predictions of state law

that have been sanctioned by the Sixth, Second and Ninth

Circuits and to make clear its direction to federal courts

that the decisions of lower state courts are presumptively

correct, and should be disregarded only when there is

“persuasive evidence” that they do not accurately reflect

the way in which the state’s highest court would decide

the question. This Court should also reaffirm that any

prediction as to state law particularly one based on

rulings from courts outside the state - must be formu-

lated in the light of, and explicitly evaluated against, that

state’s relevant jurisprudential principles, whether

expressed by lower-court decisions on the issue, other

decisions applying that state’s law to the issue, or by

decisions of the state’s highest court on analogous ques-

tions on the same subject matter

CONCLUSION

For the foregoing reasons, the petition for writ of

certiorari should be granted.

Respectfully submitted,

Peter J. Kauis

JOHN M. SyLvesTeR

James E. SCHEUERMANN

Paut K. STOCKMAN

KIRKPATRICK &

LockHart LLP

1500 Oliver Building

Pittsburgh, PA 15222

(412) 355-6500

Davip S. Cupps

MatrTHew J. HATCHADORIAN

STEPHEN J. PeTRAS, JR.

Vorys, SATER, SEYMOUR

AND PEASE

Suite 2100

One Cleveland Center

Cleveland, OH 44114-1724

(216) 479-6100

Attorneys for Petitioner,

The Babcock & Wilcox Company

Rockne L. MOoseLey

Mose.ey & ASSOCIATES

866 Camp Street

New Orleans, LA 70130

(504) 523-5220

Attorneys for Joining Petitioner,

McDermott, Inc.

C. GorRDON STARLING, JR.

Gert, SULLIVAN, CAROLL & GIBBENS

430 Notre Dame Street

New Orleans, LA 70130-3610

(504) 524-9714

Attorneys for Joining Petitioner,

Creole Insurance Company, Ltd.

October 31, 1995

App. 1

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 24

ELECTRONIC CITATION: 1995 FED App. 0151P (6th Cir.)

File Name: 95a0151p.06

Nos. 93-4149/4150

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

THe Bascock & Witcox Company, ) ON ApPEAt

fr :'

Plaintiff-Appellant/ ws ig

Cross-Appellee, _——

) District

v ) Court for the

ARKWRIGHT-BOSTON MANUFACTURING ) ee

MuTUAL INSURANCE Co.; St. Paut } a of

Mercury INSURANCE Co.; AMERICAN -

Home ASSURANCE Co.; AMERICAN

INTERNATIONAL MARINE AGENCY; ALLIANZ

INSURANCE Co.; INSURANCE Co. Of |

NortH AMERICA; CARYL VAUGHN GIBBS, ‘

individually and on behalf of certain |

underwriters of Lloyds of London;

INDEMNITY MARINE ASSURANCE Co., LTD.; |

ENGLISH AND AMERICAN INSURANCE CO.,

Lrp.; INSURANCE Co. oF NortH AMERICA

(UK), Lrv.; C.A. Parr,

Defendants-Appellees/

Cross-Appellants,

CREOLE INSURANCE Co., LTD., )

Defendant-Appellant/

Cross-Appellee,

)

McDermotrt, INc., )

Third-Party Defendant

)

Appellant/Cross-Appellee.

App. 2

Decided and Filed May 17, 1995

Before: KENNEDY and NORRIS, Circuit Judges; TAY-

LOR, District Judge.*

KENNEDY, Circuit Judge. Defendants, a group of

insurance companies, subscribed to an insurance policy

designed to provide excess liability insurance to plaintiff.

Plaintiff filed this declaratory judgment action against

defendants, seeking a judgment that its lower levels of

insurance had been exhausted and that defendants were

now liable under the excess insurance policy. The parties

filed cross-motions for summary judgment, and the Dis-

trict Court granted summary judgment in favor of defen-

dants. Plaintiff now appeals, and we affirm. Defendants

have also filed a cross-appeal, but we find it unnecessary

to reach that issue.

The Babcock & Wilcox Company (“Babcock”) has

manufactured boilers since the nineteenth century. Until

1972, Babcock approved the use of asbestos insulation, as

well as various components containing asbestos, in its

boilers. In 1972, Babcock ceased approving the use of

asbestos insulation, although the use of certain asbestos-

containing components continued until the mid 1980's.

* The Honorable Anna Diggs Taylor, United States District

Judge for the Eastern District of Michigan, sitting by designa-

tion.

App. 3

In 1978, J. Ray McDermott & Company (“McDer-

mott”) acquired Babcock. Beginning in 1979, McDermott

and Babcock jointly purchased excess umbrella liability

insurance coverage. McDermott, with the help of its long-

time broker Adams & Porter, drafted an insurance policy

to satisfy McDermott’s needs. After the two parties final-

ized the language and contents of the policy, Adams &

Porter lined up several insurance companies to “sub-

scribe” to the policy. These insurance companies (collec-

tively, the “Subscribers”) are defendants in the present

action.

The relevant portions of the policy provide as fol-

lows:

1. COVERAGE

Underwriters hereby agree, subject to the limita-

tions, terms and conditions hereinafter men-

tioned, to pay on behalf of the Assured all sums

which the Assured shall be obligated to pay by

reason of their liability imposed upon the

Assured by Federal, State, and Municipal or

other qualified authority or in respect of lia-

bilities assumed by the Assured under contract

or agreement, for “property damage” and “per-

sonal injuries” as defined herein resulting from

an “occurrence” as defined herein.

DEFINITIONS

4. OCCURRENCE

The term “Occurrence,” whenever used herein,

shall mean any happening or series of happen-

ings, arising out of or due to one event taking

App. 4

place during the term of this contract in respect

to all the Assured’s operations.

The dispute in the District Court centered around the

definition of an “occurrence”. This definition is the center

of controversy due to the “buffer layer” established in the

policy. All parties acknowledge that the Subscribers’ pol-

icy does not come into play until the damages for each

occurrence exceed a specified minimum amount.! The

dispute, therefore, centers around how many “occur-

rences” have arisen under the 1979-80 policy.

The policy defines “occurrence”, in part, as a “hap-

pening” that arises out of an “event.” Babcock’s primary

argument before the District Court was that the relevant

“event” is Babcock’s decision to use asbestos in its

boilers, and the “happening” or “series of happenings”

are the injuries suffered by people exposed to the boilers.

While the Subscribers do not take issue with Babcock’s

definition of “happening,” they do strenuously argue that

the “event” is not the decision to use asbestos-containing

components, but rather is each person’s exposure to the

asbestos components.

The District Court did not resolve the “number of

occurrences” issue. Instead, the lower court assumed that

Babcock’s definition of “event” was correct and focused

1 At some points, the parties state that this specified

amount is $2 million, while at other times they indicate that the

amount is $2.5 million. We need not resolve this dispute. If we

find in favor of Babcock, the record clearly indicates they have

paid more than $2.5 million. If we find in favor of Subscribers,

the record contains no evidence suggesting that the damages for

any one “occurrence” (as the Subscribers define it) have

amounted to $2 million.

App. 5

on the last clause of the policy’s definition of an “occur-

rence.” That last clause states “arising out of or due to

one event taking place during the term of this con-

tract....” After reviewing the record, the District Court

concluded that Babcock had not carried its burden of

showing that it made any pertinent decision during the

term of the policy. Accordingly, the District Court granted

summary judgment in favor of the Subscribers. Babcock

now appeals.

II.

A. Trigger of Coverage

Babcock strenuously argues that the District Court

erred in deciding the trigger of coverage issue, as it was

not raised below and was not fully briefed. We disagree.

We have reviewed the material submitted to the District

Court in relation to the cross-motions for summary judg-

ment, and the Subscribers clearly made this argument to

the District Court. The argument was foreshadowed in

early pleadings, and it explicitly appeared in the pleading

entitled “Defendant Subscribers’ Reply Memorandum in

Opposition to Summary Judgment Motions of Babcock &

Wilcox and McDermott.” This pleading was filed with the

District Court on March 5, 1993. A review of the lower

court’s docket sheet shows that Babcock filed at least one

other relevant pleading after that date. On March 12,

1993, Babcock filed its “Reply by Plaintiff Babcock &

Wilcox Co. in Opposition to Defendants’ Cross Motion for

Summary Judgment on Occurrence Issue and in Further

Support of Plaintiffs’ Partial Summary Judgment

Motion.” Thus, the Subscribers clearly placed the trigger

of coverage issue before the District Court, and Babcock

App. 6

had at least one opportunity to respond to that argument.

Accordingly, the District Court did not err in resting its

decision on that ground.

Turning to a review of the merits of this issue, we

start our examination, as did the District Court, with the

assumption that Babcock’s definition of “event” is correct

~ that Babcock’s decision to use asbestos in its boilers is

the relevant cause of the injuries. Babcock argues that this

assumption should essentially end our inquiry, as the

Subscribers have conceded that injuries did occur during

the policy year. Babcock’s argument misses two key

points. First, it totally ignores the dispute over what must

occur during the policy term — the injuries or the event.

Second, it lifts the Subscribers’ alleged “concession” com-

pletely out of context. As we noted above, both parties

agree on the definition of “happening” — the dispute is

over the definition of “event.” The Subscribers’ “conces-

sion” was made in conjunction with their contention that

the relevant “event” was the exposure to asbestos.

We turn then to what must occur during the policy

terms under Babcock’s definition of event. The relevant

portion of the policy states: “The term ‘Occurrence’

whenever used herein, shall mean any happening or

series of happenings, arising out of or due to one event

taking place during the term of this contract in respect to

all the Assured’s operations.” The dispute revolves

around the phrase “taking place during the term of this

contract” and whether the phrase modifies “happening”

or “event.” Babcock argues that the policy requires the

“happening or series of happenings” to occur during the

policy term, as opposed to the “event.”

App. 7

The District Court correctly rejected this interpreta-

tion, and we adopt that portion of his opinion:

Such an interpretation requires the court to

ignore the plain import of the sentence; it would

have this court apply a phrase at the end of the

sentence to a phrase at the beginning of the

sentence without regard to any of the material

which lies between. Given the fact that the tem-

poral restriction follows the term ‘event’ and is

contained in an independent phrase separated

from the description of happening by a comma,

the plain meaning of the sentence is that the

event, not the happening, must occur during the

term of the contract.

During the oral argument on the motions,

plaintiff argued that “there appears to be a

comma missing”... . With regard to the missing

comma theory, the court must confine itself to

the content of the document. This court can no

more decide this case based on phantom punc-

tuation than it could decide this case based on

words and phrases not incorporated in the con-

tract.

At various points in this appeal, Babcock has argued

that the terms of the policy are ambiguous, and, there-

fore, this court should construe the language against the

Subscribers. The Subscribers rebut this argument by

pointing out that Babcock and its insurance broker

selected the terms of the policy. We need not resolve this

dispute. In Ohio, as in most states, a court reviewing an

insurance policy must give all the words and phrases in

the contract “ ‘their natural and commonly accepted

meaning.’ ” Tomlinson v. Skolnik, 540 N.E.2d 716, 718

(Ohio 1989) (quoting Golmolka v. State Auto. Mut. Ins. Co.,

App. 8

436 N.E.2d 1347, 1348 (Ohio 1982). The doctrine of con-

struing the language against the insurance company does

not come into play unless a clause is ambiguous. King v.

Nationwide Ins. Co., 519 N.E.2d 1380, 1384 (Ohio 1988). As

the District Court correctly concluded, the clause at issue

in this case is not ambiguous. Once the “phantom

comma” argument is rejected, the policy clearly requires

that the “event” must take place during the policy term.

That is the only reasonable reading of the clause.

After concluding that the relevant “event” must

occur during the policy term, the District Court held that

Babcock had not made the decision to use asbestos dur-

ing that term. Anticipating that we might uphold the

District Court on the first issue, Babcock contends that

the District Court also erred with respect to the latter

conclusion. This brings us back to the definition of

“event.” For purposes of this issue, we are assuming that

the relevant event is Babcock’s decision to use asbestos in

its boilers. Accordingly, we now turn to the issue of

whether a “decision” occurred during the term of the

policy.

The most obvious use of “decision” would be to

describe an explicit decision by Babcock’s executive offi-

cers or board of directors to continue using asbestos in

the boilers. Babcock, however, has presented no evidence

to show that it formally reconsidered its stance on

asbestos during the term of the policy and decided to

continue using it. Instead, Babcock has offered a number

of theories as to what might constitute the relevant deci-

sion. The first is a “continuing decision” theory; that is,

every time Babcock made or offered to make a boiler with

App. 9

the asbestos components, it remade the “decision”. Bab-

cock has also proffered a “continuing exposure” theory;

that is, during the policy year, thousands of Babcock

boilers containing asbestos were out in the marketplace.

Babcock’s decision to manufacture these boilers put

workers in a situation where, during the policy year, they

were exposed to asbestos. We agree with the District

Court that these theories are not sufficient to establish

that a decision took place during the policy term. In

addition to being strained interpretations of a “decision,”

both of these arguments move away from Babcock’s “one

occurrence” scenario and start to sound remarkably like

the Subscribers’ ”

manufacture of a boiler or each exposure of a worker are

multiple occurrence” theory — each

separate “events” under the policy.

Finally, Babcock contends that even if they have not

shown as a matter of law that a decision was made

during the policy year, they have introduced sufficient

evidence to create a triable issue of fact. We find no merit

to this contention.

B. Number of Occurrences

Although the District Court did not decide the

number of occurrences issue, it was fully briefed below.

We apply de novo review to a grant of summary judgment

and may affirm a grant of summary judgment on grounds

other than those used by the lower court. See, e.g., Baggs

v. Eagle-Picher Indus. Inc., 957 F.2d 268, 273 (6th Cir.), cert.

denied, 113 S. Ct. 466 (1992). Consequently we have cho-

sen to address the “number of occurrences” issue.

App. 10

To reiterate, the policy defines “occurrence” as “any

happening or series of happenings, arising out of or due

to one event taking place during the term of this con-

tract... . ” The parties essentially agree that, in the

present context, the “happening or series of happenings”

mentioned in the policy refers to the actual injury or

disease suffered by a person exposed to the asbestos in

Babcock’s boilers. The parties, however, differ drastically

in their definition of “event.” According to Babcock, the

“event” is Babcock’s decision to use asbestos in its

boilers. According to the Subscribers, the relevant

“event” is each worker’s exposure to the asbestos in the

boilers. Thus, Babcock’s definition of “event” would

result in a finding of one occurrence. The Subscribers’

definition, however, would result in many occurrences

under the policy. Disputes over insurance policies are

fundamentally contract disputes. As we discussed above,

Ohio law requires that we look first to the language of the

contract in trying to resolve the parties’ dispute. We can

go behind the face of the policy only if we determine that

the controverted language is unclear or ambiguous.

The parties have directed our attention to a number

of cases to assist us in construing the relevant language.

Many of the cases cited by Babcock would superficially

appear to support their position that only one occurrence

exists. A closer look, however, reveals that the resolution

of these cases turned on a definition of “occurrence”

different from the one in the policy at issue. Of the cases

cited by the parties, only three interpret definitions that

are significantly similar to the one at bar. These are

Norfolk & Western Ry. Co. v. Accident & Casualty Ins. Co.,

796 F. Supp. 929 (W.D. Va. 1992), aff'd. in part and dismissed

App. 11

in part as moot, 41 F.3d 928 (4th Cir. 1994); Pittsburgh

Corning Corp. v. Travelers Indemnity Co., No. 84-3985, 1988

WL 5302 (E.D. Penn. Jan. 21, 1988); and Northern Shipping

Co. v. Arkwright Boston Mfg. Mut. Ins. Co., 617 F. Supp. 136

(E.D. Penn.), aff'd., 774 F.2d 1152 (3d Cir. 1985).

Only one of these cases, Pittsburgh Corning, involved

asbestos. Pittsburgh Corning manufactured a product

known as Unibestos. The insurance policy defined

“occurrence” as “one happening or a series of happenings

arising out of or resulting from one event taking place

during the term of this policy.” Travelers argued that the

cause of all injuries was Pittsburgh Corning’s manufac-

ture and sale of asbestos. The court rejected that argu-

ment, stating

Pittsburgh Corning is being sued by thousands

of claimants alleging exposure to Unibestos on

hundreds of job sites, on thousands of different

dates, and under a variety of conditions over a

period of six years. Not everyone exposed to

asbestos is affected and not all claimants were

exposed under the same circumstances or to the

same lot of asbestos. I hold that the ‘cause’ of

the injuries in question is the exposure of each

individual to asbestos. That exposure thus con-

stitutes an occurrence for the purposes of deter-

mining the number of occurrences.

1988 WL 5302 at *2.

In Norfolk & Western Railway, the railroad brought an

action against its excess insurer seeking to force the

insurer to pay for claims arising out of noise-induced

hearing loss. Again, the policy’s definition of an “occur-

rence” is substantially the same as the definition in the

App. 12

policy at issue in this case. The railroad attempted to

argue that only one “event” existed under the policy — the

railroad’s failure to protect its employees from excessive

noise. The court rejected this argument, declaring:

The difficulty that the court has with this argu-

ment is that it leads to a result which would

defy common sense. The typical single occur-

rence giving rise to multiple claims is the auto-

mobile accident which gives rise to a chain of

events which results in injury to several par-

ties... . In this case, a wide variety of machines

in a number of different locations created a vari-

ety of sounds over the course of a number of

years. Railroad employees working near these

machines suffered injury to their hearing as a

result of exposure to these sounds. . . . While the

railroad’s negligence may indeed have been a

cause of the injuries, calling that negligence the

single occurrence out of which the claims arose

is nonsensical.

The railroad’s argument allows the cause

test to sweep too broadly and arrives at a result

which defies common sense. . . .

796 F. Supp. at 937. The court in Northern Shipping

reached a similar conclusion, holding that the immediate

cause of the injury was the relevant “event” for purposes

of the policy, rather than a more remote cause. 617 F.

Supp. at 138-39.

We find the reasoning of these three courts persua-

sive and agree with their result. Consequently, we reject

Babcock’s definition of “event.” As Babcock relies exclu-

sively on its proffered definition to support its theory for

App. 13

recovery, the District Court correctly granted summary

judgment in favor of the Subscribers.2

C. Failure to Warn

Creole Insurance Company, which provides an inter-

mediate layer of excess insurance, was joined as an indis-

pensable party to this action. After the District Court

granted summary judgment in favor of the Subscribers,

Creole filed a motion to alter or amend the judgment. In

that motion, Creole argued that a relevant “event” had

indeed occurred during the policy term, and that the

event was Babcock’s failure to warn its customers about

the dangers of asbestos. The District Court denied Cre-

ole’s motion, and Creole now appeals.

We need not address either the procedural posture or

the merits of Creole’s motion. Even if Creole is right, that

only affects our holding on the “trigger of coverage”

issue. It leaves undisturbed our primary holding that the

relevant “event” is exposure to asbestos, not a more

remote cause such as Babcock’s decision to use asbestos

or its failure to warn. Consequently, Creole’s argument

would not change the outcome of this suit, and we there-

fore decline to address it.

Babcock also argues that the District Court’s conclusion

leads to an absurd result because it creates a gap in coverage

between the primary and excess layers of insurance. That result,

however, is the logical one based on the language of the policy.

The District Court did not “create” a gap. Rather, it simply

recognized that the parties had drafted contract language that

led to such a gap.

App. 14

D. Choice of Law

In the event we reversed the District Court, the Sub-

scribers cross-appealed the District Court’s choice of law

decision. As we have affirmed the lower court, we need

not reach this issue.

For the foregoing reasons, we AFFIRM the judgment

of the District Court.

iit ce i te

App. 15

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

THE BABCOCK & WILCOX CO., ) CASE NO.

Plninnit ) 5:91CV0987

: )

: ; Judge

ia ) Sam H. Bell

ARKWRIGHT-BOSTON ) pie

MANUFACTURING MUTUAL ) pn a

INSURANCE CO., et al. ; (Filed

Defendants. ) Aug. 19, 1993)

)

As this court has previously stated, it has before it a

plethora of motions to dispose of this cause in one man-

ner or another. It is neither necessary nor beneficial to

discuss any of these in this order because they address

issues analytically distant from the primary question to

be resolved. In reaching the conclusions stated below, the

court relied on voluminous evidentiary supplements and

detailed briefs, and, as well, the well-organized and artic-

ulate presentations of counsel made during hearings on

the first set of motions. The cross motions for summary

judgment on the occurrence issue are, however, imme-

diately relevant.

All parties appear to agree that this matter is prop-

erly resolvable at this stage. Counsel for plaintiff explic-

itly advised the court to “rule based on the policy itself.”

(Hearing Transcript at 87.) Likewise, counsel for the

defendants, summarizing the posture of the case,

explained: “[T]here appears to be unanimous consent

App. 16

there are no material fact disputes. The parties’ disagree-

ments in this case . . . boil down to the legal standard by

which the policies should be interpreted, the manner in

which it should be interpreted.” (T. at 33.)

BACKGROUND

I. Adams & Porter Policy Number 8658.

Defendants in this action are subscribers to a policy

of quota share excess umbrella insurance written by

Adams & Porter (hereinafter, “the Policy”). The Policy

generally provides excess liability insurance for J. Ray

McDermott & Co., Inc. and its subsidiaries and affiliates.

McDermott is the owner of plaintiff Babcock & Wilcox

Company. The Policy which is the subject of this suit was

effective between April 1, 1979 and April 1, 1980 (“the

Policy term”).

According to the terms of the Policy, the Underwri-

ters agreed:

to pay on behalf of the Assured all sums which

the Assured shall be obligated to pay by reason

of their liability imposed upon the Assured by

Federal, State, and Municipal or other qualified

authority or in respect of such liabilities

assumed by the Assured under contract or

agreement, for “property damage” and “per-

sonal injuries” as defined herein resulting from

an “occurrence” as defined herein.

A limit of liability provision renders the Underwriters

liable only when the claims arising from a single occur-

rence exceed $2.5 million. This limit functions in many

respects in the manner of a deductible feature. The

App. 17

Underwriters are not liable for more than $20 million for

claims arising from a single occurrence.

The term “personal injury” is broadly defined to

mean “bodily injury (including death at any time result-

ing therefrom), . . . sickness, [or] disease.”

The critical term on which the parties focus is “occur-

rence” defined by the Policy as follows:

The term ‘occurrence’, whenever used herein,

shall mean any happening or series of happen-

ings, arising out of or due to one event taking

place during the term of this contract in respect

to all the Assured’s operations.”

II. Babcock & Wilcox’ History.

Plaintiff has been in the business of manufacturing

and servicing boilers since the mid-1800s.! An 1884 con-

tract contains the first reference to asbestos use by plain-

tiff. By 1895, contracts provide evidence that plaintiff was

specifying the use of asbestos-containing gaskets. (Dilling

depo. at 23.) According to plaintiff, the word ‘specifica-

tion’ as used here, means that customers were informed

that if they selected asbestos as a product material, B&W

would agree to and approve the use of asbestos. While at

an earlier time asbestos was commonly used as an insu-

lating material in boiler assemblies, the choice dictating

the use of that material was first and foremost the choice

! Plaintiff produced Marcia J. Dilling for purposes of testi-

fying on plaintiff’s historic use of asbestos. Ms. Dilling is a

product technical representative for plaintiff and reviewed

numerous contracts and other documents in preparation for her

deposition.

App. 18

of the client. But there is no question that B&W did, in

fact, furnish asbestos-protected boiler units conjunctive

with the role of installer of its boiler units. (Dilling at

26-30.)

After a boiler product is designed, utilizing standard

documents which contain plaintiff's specifications, the

boiler is fabricated. Fabrication may be done by plaintiff's

employees, an outside contractor, or a combination of

both. The fabricated components are then sent to the

boiler site, be that a building, factory, power plant, or

shipyard, and there installed. The insulation is usually

installed at the boiler site as well. The installation may be

executed by plaintiff or by third parties who receive the

plaintiff’s specifications and the fabricated components.

(Dilling at 43-44.)

In 1972, according to plaintiff’s witness, plaintiff

stopped recommending the use of asbestos as an insula-

tor. (Dilling at 38.) This decision is apparently reflected in

what the witness refers to as “standard documents.” (Dil-

ling at 38.) These documents “specify what B&W

approves.” (Dilling at 46.) Customers could still seek to

substitute a different component if they so chose. For

example, while plaintiff stopped generally specifying

asbestos-containing gaskets-in 1983, one division contin-

ued to specify such gaskets until 1987. Indeed, that par-

ticular division continued to utilize asbestos-containing

gaskets as a replacement part until 1992 for one customer

who continued to request them. (Dilling at 56.) Plaintiff

stopped specifying asbestos braid in the early 1980s. (Dil-

ling at 58.)

App. 19

The decision to curtail specification of asbestos as an

insulator and as asbestos-containing cement appears to

have been motivated by two forces. First, in 1970,

asbestos was put on a toxic substance list. Second, an

increasing number of plaintiff’s clients requested a

replacement for asbestos. Thus, concern about toxicity

and response to market preferences (which may them-

selves have been dictated by concern about toxicity) led

to the change in specification in the early 70s. (Dilling at

61.)

Ill. The 1979-1980 Asbestos Claims.

The parties have entered into a number of stipula-

tions which effectively define the nature of the claims for

which plaintiff now seeks indemnification from the sub-

scribers to the Policy. First, the asbestos-related bodily

injury claims submitted “arise from liabilities imposed

upon B&W by various federal, state, and/or municipal

courts, and/or under settlement agreements entered into

by B&W.” (Docket #246 at 9.) Second, the asbestos-

related claims submitted under the Policy are personal

injury claims as defined in the Policy.

Third, the claims are described as “claims for per-

sonal injuries, which are alleged to have occurred in part

or in whole, during the Policy period of April 1, 1979 to

April 1, 1980 (the ‘Policy Period’).” Id. at 9-10.2 From

* The term “occurrence” has a highly specific meaning

within the context of this cause. The parties have not argued

that “occurred” is used in the stipulation as a term uniquely

defined by the Policy. Rather, it appears that “occurred” is

utilized in the stipulation in its generic, everyday sense.

App. 20

Plaintiff's briefing, it appears that the claims were made

by third parties who, during the Policy Period, were

exposed to asbestos-containing products manufactured

by plaintiff. None of the individual asbestos-related

bodily injury claims filed against B&W exceed $2.5 mil-

lion. The aggregate total of the asbestos-related bodily-

injury claims based on exposure to asbestos-containing

boilers during the Policy Period does exceed $2.5 million.

STANDARD OF REVIEW

In reviewing a motion for summary judgment, a

court must consider the pleadings, related documents,

evidence, and all reasonable inferences in a manner most

favorable to the non-moving party. Adickes v. S. H. Kress &

Co., 398 U.S. 144, 90 S.Ct. 1598, 86 L.Ed.2d 142 (1970);

Smith v. Hudson, 600 F.2d 60 (6th Cir. 1979). Rule 56

provides, in relevant part, as follows:

The judgment sought shall be rendered forth-

with if the pleadings, depositions, answers to

interrogatories, and admissions on file, together

with affidavits, if any, show that there is no

genuine issue as to any material fact and that

the moving party is entitled to judgment as a

matter of law.

) ea

When a motion for summary judgment is made

and supported as provided in this rule, an

adverse party may not rest upon the mere alle-

gations or denials of the adverse party’s plead-

ing, but the adverse party’s response, by

we «i tha he hi PSA Mit te CANN TB NE 8 ee Saat teat tate Nl anil Nieik tts lis Mal tine

Dee ie Oe ne a Oe eee ae cee

App. 21

affidavits or as otherwise provided in this rule,

must set forth specific facts showing that there

is a genuine issue for trial.

Three Supreme Court cases have provided guidance

as to the nature of the respective burdens allocated under

Rule 56. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct.

2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 106 S.Ct. 2502, 91 L.Ed.2d 202 (1986); Mat-

sushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475

U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The ulti-

mate burden lies with the non-moving party to show the

existence of a genuine issue of material fact. “When the

moving party has carried its burden under Rule 56(c), its

opponent must do more than simply show that there is

some metaphysical doubt as to the material facts . . . In

the language of the Rule, the non-moving party must

come forward with ‘specific facts showing that there is a

genuine issue for trial.’ Fed. Rule Civ. Proc. 56(e).” Mat-

sushita, 475 U.S. at 586-587 (emphasis supplied). “In our

view, the plain language of Rule 56(c) mandates the entry

of summary judgment, after adequate time for discovery

and upon motion, against a party who fails to make a

showing sufficient to establish the existence of an element

essential to that party’s case, and on which that party will

bear the burden of proof at trial.” Celotex, 477 U.S. at 322.

The court in Anderson held that “the plaintiff must pre-

sent affirmative evidence in order to defeat a properly

supported motion for summary judgment. This is true

even where the evidence is likely to be within the posses-

sion of the defendant, as long as the plaintiff had a full

opportunity to conduct discovery.” Anderson, 477 US. at

257.

App. 22

On the other hand, the moving party’s burden under

Rule 56 is lighter.

Of course, a party seeking summary judgment

always bears the initial responsibility of inform-

ing the district court of the basis for its motion,

and identifying those portions of the “plead-

ings, depositions, answers to interrogatories,

and admissions on file, together with the affi-

davits, if any,” which it believes demonstrate the

absence of a genuine issue of material fact. But

unlike the Court of Appeals, we find no express

or implied requirement in Rule 56 that the mov-

ing party support its motion with affidavits or

other similar materials negating the opponent's

claim. On the contrary, Rule 56(c) . . . suggests

the absence of such a requirement.

Celotex, supra, at 323 (emphasis supplied).

The Sixth Circuit Court of Appeals, in Street v. J. C.

Bradford and Co., 886 F.2d 1472 (6th Cir. 1989) recently

reviewed court decisions and commentary regarding the

impact of Anderson, Celotex, and Matsushita on summary

judgment practice. The court concluded that a “new era”

in summary judgment practice has opened in the court

system as a result of these opinions.

Scholars and courts are in agreement that a

“new era” in summary judgments dawned by

virtue of the Court’s opinions in these cases

. . On the whole, these decisions reflect a

salutary return to the original purpose of sum-

mary judgments. Over the years, decisions

requiring denial of summary judgment if there

was even a suggestion of an issue of fact and

App. 23

tended to emasculate summary judgment as an

effective procedural device.

Street, supra, at 1476.

The court enunciated the following “new era” princi-

ples, among others: as on federal directed verdict

motions, the “scintilla” rule applies, i.e., the respondent

must adduce more than a scintilla of evidence to over-

come the motion; the respondent cannot rely on the hope

that the trier of fact will disbelieve the movant’s denial of

a disputed fact, but must “present affirmative evidence in

order to defeat a properly supported motion for summary

judgment”; the trial court no longer has the duty to

search the entire record to establish that it is bereft of a

genuine issue of material fact. Id. at 1479-1480 (footnotes

and citations omitted).

LAW AND ANALYSIS

This cause is governed by Ohio law. Under Ohio law,

an insurance policy is a contract governed by general

rules of contract law. Hybud Equip. Corp. v. Sphere Drake

Ins. Co., 64 Ohio St. 3d 657, 665 (1992), cert. denied 113 S.

Ct. 1585 (1993). The cardinal rule of construction is that if

an insurance contract is clear and unambiguous, the con-

tract must be interpreted in accordance with its plain

meaning. Hybud Equip., 64 Ohio St. 3d at 665. This long-

followed rule is designed to prevent a court from rewrit-

ing an insurance policy otherwise susceptible to only one

reasonable interpretation. National Life Ins. Co. v. Ray, 117

Ohio St. 13, 22 (1927) (“Insurance policies, like other

written contracts, mean what they say and all they say.

They are written for the protection of both parties

App. 24

thereto, and all others interested in the policies. If such

policies are not to be enforced as written, they might as

well not be written at all.”) The intention of the parties

must be derived from the whole contract, not by focuss-

ing [sic] on any one part. Tomlinson v. Skolnick, 44 Ohio St.

3d 11, 13 (1989).

I. Plaintiff's Construction and Application of the Policy.

In the instant cause, plaintiff claims that the third-

party asbestos-related personal injuries collectively con-

stitute one series of happenings arising out of one event

and therefore, collectively constitute one occurrence.

Such a construction of the Policy could trigger coverage

under the Policy because, while no single asbestos-related

injury claim against plaintiff exceeds $2.5 million, the

aggregate of asbestos-related injury claims does far

exceed the “deductible.”

Plaintiff reaches its interpretation by applying certain

meanings to the terms which define “occurrence”. First,

plaintiff claims that “happening or series of happenings”

is synonymous with the harm for which plaintiff is

indemnified — personal and bodily injures. Second, plain-

tiff claims that “event” means the tortious act which

ultimately caused the personal injury. Third, plaintiff

claims that the phrase “series of happenings” specifically

indicates that multiple injuries sharing a common cause

should be aggregated as a single occurrence. Finally,

3 Defendant subscribers have also moved for summary

judgment based on a series of affirmative defenses. It is unnec-

essary to analyze the merits of those motions.

Nesl Rinne ti on

pean }

App. 25

plaintiff asserts that only the personal injury must occur

during the Policy term.

Applied to this case, plaintiff argues that the

asbestos-related diseases for which claimants filed

actions against plaintiff are a series of happenings. Plain-

tiff defines the one event out of which these injuries arose

as plaintiff’s decision to specify asbestos-continuing com-

ponents in the design, fabrication, assembly and servic-

ing of boilers. Plaintiff claims that because part of the

injury to the claimants occurred during the Policy term,

the claims satisfy the temporal requirements of the Policy.

After noting that a chief source in interpreting policy

language is case law, plaintiff offers a variety of cases to

support its interpretation and application of the Policy.

According to plaintiff, this court should follow the

instruction that “the Court’s inquiry is whether there was

one proximate, uninterrupted and continuing cause

which resulted in all the injuries and damages.” Owens-

Illinois, Inc. v. Aetna Casualty and Sur. Co., 597 F. Supp.

1515, 1527 (D.D.C.) (applying Ohio law). Plaintiff cites an

Ohio opinion which concluded: “[A manufacturer’s] deci-

sion to manufacture and distribute asbestos-containing

brake components constitutes the single-occurrence out

of which the ‘asbestos claims’ arose.” Morton Thiokol, Inc.

v. Aetna Casualty and Sur. Co., No. A-8603799, slip op.

(Hamilton Cty. C.P. Dec. 28, 1988). Finally, plaintiff cites a

variety of opinions and annotations which demonstrate

that other courts have held that a single occurrence arises

from the continuing manufacture and sale of asbestos-

containing products. See e.g., Air Prods. & Chem. v. Hart-

ford Accident and Indem. Co., 707 F. Supp. 762, 777 (E.D. Pa.

1988).

App. 26

Defendants concur in interpreting the happening as

the injury or damage for which coverage is sought.

Defendants interpret the event to be the accident or fortu-

itous incident that gives rise to or causes the injury or

damage. Defendant also argues that the ‘event’ must take

place during the Policy period. This interpretation, in

conjunction with certain contentions arising from the

facts, lead defendants to a different conclusion.

First, defendants contend that the use of asbestos by

plaintiff can not be characterized as an event taking place

during the Policy period. Second, defendants contend

that even if the use of asbestos is an event within the

Policy period, it would not be an insurable event since the

injuries were not fortuitous — by 1979, plaintiff knew of

the harms from asbestos-exposure. In light of these con-

tentions, defendants believe that the only plausible inter-

pretation of the Policy is that the event is the exposure of

an individual to asbestos and that the happening is the

injury sustained by the individual due to the exposure.

II. Interpretation of ‘Occurrence’ Definition.

As presented, plaintiff’s interpretation of the defini-

tion of ‘occurrence’ is problematic. Such an interpretation

is predicated on a strained reading of the temporal

restriction in the Policy. Plaintiff claims that the definition

of ‘occurrence’ does not require that the event which is

the cause of the personal injury occur during the Policy

term and further claims that the Policy requires that the

happening, that is the injury, occur during the Policy

App. 27

term. It is believed that such an interpretation is inconsis-

tent with the plain meaning of the definition and is also

inconsistent with apparently accepted practice in the

insurance industry.

Broken into its components, the definition of occur-

rence has four relevant parts: “[1] any happening or

series of happenings, [2] arising out of or due to [3] one

event [4] taking place during the term of this contract.”

Plaintiff’s analysis focusses primarily upon the first and

third portions of the definition.

Such an interpretation requires the court to ignore

the plain import of the sentence; it would have this court

apply a phrase at the end of the sentence to a phrase at

the beginning of the sentence without regard to any of

the material which lies between. Given the fact that the

temporal restriction follows the term ‘event’ and is con-

tained in an independent phrase separated from the

description of happening by a comma, the plain meaning

of the sentence is that the event, not the happening, must

occur during the term of the contract.

During the oral argument on the motions, plaintiff

argued that “there appears to be a comma missing” and

that “[t]his definition was written by the insurance indus-

try and they could have drafted a clearer definition.” (T.

at 9-10.) With regard to the missing comma theory, the

court must confine itself to the content of the document.

This court can no more decide this case based on phan-

tom punctuation than it could decide this case based on

words and phrases not incorporated in the contract.

As for the clarity of this provision, it should be noted

that plaintiff initially argued that the provision is clearly

App. 28

and unambiguously in its favor. (Docket #267 at 13

(“[T]he Subscriber policy is not ambiguous.”)) But the

same party also argues that if the passage is not inter-

preted in its favor, the passage must be ambiguous and

unclear. (T. at 9.) As a substantive matter, the court is of

the opinion that the provision is clear and unambiguous.

Plaintiff's own arguments reinforce this conclusion.

Beyond the plain grammar, plaintiff strenuously

argues that the Policy is what is called an occurrence

policy, as distinguished from a claims-made policy or an

accident policy. (Hearing Trans. at 8.) This construction of

the Policy is consistent with the interpretation by another

court in regard to a policy with a substantially similar

occurrence definition. Pacific Resources, Inc. v. American

Bureau of Shipping, 1984 WL 928 (S.D.N.Y. 1984). The

Pacific Resources court explained the difference between

an occurrence policy and a claims-made policy:

The Bumbershoot policy is an ‘occurrence’ as

opposed to a ‘claims made’ policy; it protects

the policy holder from liability for any act done

while the policy is in effect, whereas a ‘claims

made’ policy protects the holder against claims

made during the life of the policy. St. Paul Fire &

Marine Ins. Co. v. Barry, 438 U.S. 531, 535 n.3

(1978). Thus, a shipowner/operator who oper-

ated for only one year, say in 1975, would only

need one 1975 ‘occurrence’ policy, but would

require several years of ‘claims made’ policies to

protect itself from claims arising out of acts in

1975. See St. Paul Fire, 555 F.2d 3, 5 n.1 (1st Cir.

1977).

Pacific Shipping at 4. See also Kaiser v. Wood, 1992 WL 2538

*3 (Ohio App. 1992) (distinguishing claims made policy);

App. 29

Chicago Insur. Co. v. Mills, 1989 WL 50668 *2 (Ohio App.

1989) (noting that- an occurrence policy is “one which

covers only acts which occurred during the policy’s

term.”); Mitchell v. Continental Casualty Co., 1981 WL 2945

*3 (Ohio App. 1981) (“in an ‘occurrence’ policy the cover-

age is effective if the negligent or omitted act occurred

during the period of the policy, whatever the date of

discovery.”)

Under plaintiff’s interpretation, the Policy only pro-

tects the assured in the event an injury occurs during the

policy year. However, if, for example, an assured manu-

factured a defective boiler in 1979 and it did not explode

until 1982, because the injury did not occur during the

term of the contract, the injury would not be insured. In

effect, under this interpretation, an assured is required to

secure a series of policies to adequately indemnify itself.

Such a practice is directly inconsistent with the usual

interpretation and intent of an occurrence policy.

On the other hand, by interpreting the contract to

require that the event, that is the causative act, occur

during the term of the contract, the policy is consistent

with the usual meaning and import of an occurrence

policy. In sum, plaintiff’s interpretation is both contrary

to plain meaning and, on its face, not reasonable consid-

ering the policy as a whole. To prevail, plaintiff must

show that the claims for which it seeks payment from the

Subscribers are for injuries which arose from a common

event which took place during the Policy term.

Through the extensive course of briefing, defendants

articulated a variety of arguments in opposition to plain-

tiff’s claim. Eventually, defendants’ argument evolved to

App. 30

the position that, first, the court must rule that the com-

mon event had to occur during the Policy period. Second,

defendants argued, even if this court accepts the general

meaning of the other terms propounded by plaintiff, the

instant cause must be dismissed because plaintiff can not

show that the claims arose from a common event which

arose during the Policy term. This argument has the

attractive quality of simplicity. Rather than analyze the

depth of defendants’ substantive objections to plaintiff's

general interpretation of the Policy, this court, having

accepted defendants’ specific objection to plaintiff’s inter-

pretation of the temporal requirement, shall focus its

analysis on the question of the common event. If no

common event occurred during the Policy period, plain-

tiff’s claim must necessarily fail.

Ill. Decisional Continuum as Causative “Event”.

Plaintiff argues that all asbestos-related bodily injury

claims were necessarily caused by the decision to specify

and use asbestos in manufacturing and repairing boilers

and boiler components.* Accordingly, the court is asked

to accept that asbestos-related personal injuries arise

from or are due to that decision. In effect, the decision is

the “event”. However, no evidence linking the injuries to

* [T]he event is the continuing decision to use or per-

mit the use of asbestos in the boilers; the happenings

or the series of happenings are the injuries.

But even if you do find that the event has to occur

in the policy year, in this case the event is a continu-

ing decision and it also occurred during the policy

year.

(Tr. at 10.)

App. 31

a decision made during the Policy term was presented.

Rather, the injuries are linked to the decision to use and

specify asbestos in general, not to any decision to use or

specify the use of asbestos specifically made during the

Policy term.

Plaintiff has argued that the Policy is an occurrence

policy. The court concurs. As an occurrence policy, it is

irrelevant when an injury occurs. To the contrary, an

occurrence policy is explicitly designed to insure when-

ever an injury occurred. Otherwise, as previously noted,

the assured would have to secure a series of policies into

an indefinite future to secure adequate insurance.

Applying this theory to a more conventional product

liability context, if an assured decided to use a defective

valve in a boiler in 1940 and continued to specify that

valve in boilers until 1980, the insurer for 1975 would -be

liable for an explosion in 1975 of a 1945 boiler even

though the decisions relating to the exploded boiler were

made thirty-five years before the policy was written. On

the other hand, once the assured ceases to specify the

defective valve, no insurer is liable for subsequent explo-

sions of the defective boilers. Thus, it can be seen that

this theory works the opposite of an occurrence policy. In

an occurrence policy, no matter when an injury occurs,

the claim is referred back to the policy in force at the time

the injury was caused. Under plaintiff’s theory, an injury

is referred forward to the policy in effect when the injury

occurs regardless of when the injury was caused. As

previously noted, plaintiff’s counsel argued that the Pol-

icy is an occurrence policy, not some kind of hybrid

“injury-occurred” policy. This court concurs with that

construction.

App. 32

Under the terms of the Policy, when an injury is

inflicted is irrelevant to the occurrence definition. The

timing of the cause of the injury is relevant. The court

must reject plaintiff’s argument that an individual injured

by asbestos during the Policy term because of a decision

to specify asbestos before the Policy term has an injury

arising from an event during the Policy term. Plaintiff

must demonstrate that the injuries were caused by an

event in 1979-1980. To hold otherwise would substantially

rewrite a critical passage of the contract.

A number of opinions were cited in the briefs and at

the hearing. Of these, only two definitely deal with how

Ohio courts would interpret the contested provisions. The

remaining cases are cited to support less controversial

issues.

Owens-Illinois is attacked by defendants because it

has come under sharp criticism in subsequent opinions.

See Norfolk & Western Rwy. Co. v. Accident & Cas. Ins. Co.,

796 F. Supp. 929 (W.D. Va. 1992), appeal pending. It is not

necessary to resolve the continued vitality of Owens-Illi-

nois because the case addresses a fundamentally different

legal issue from that posed herein.

The definition of “occurrence” interpreted in Owens-

Illinois provided:

“occurrence” means an accident, including inju-

rious exposure to conditions, which results, while

this policy is in force, in personal injury, property

damage or advertising offense which is neither

expected nor intended from the standpoint of

the insured.

a es

Sg hate

App. 33

Owens-Illinois, 597 F. Supp. at 1529 (emphasis added). In

contrast to the Policy here, the Owens-Illinois policy is

triggered by a result, that is an injury, occurring during

the policy term. It is irrelevant when the injury was

caused under the Owens-Illinois policy. Whether or not

the D.C. District correctly applied Ohio law in Owens-

Illinois is largely irrelevant since, even if its interpretation

were appropriate in that case, it is not appropriate in the

instant case which involves a policy with a substantially

different definition.

Morton Thiokol v. Aetna is also unhelpful. Morton

Thiokol sought partial summary judgment against Aetna

as to Asbestos Claims Premiums. The Court of Common

Pleas, after listing the documents it read in conjunction

with the motion, declared that there were no issues of

material fact. Beyond that, the court merely held: “Mor-

ton Thiokol’s corporate decision to manufacture and dis-

tribute asbestos-containing brake components constitutes

the single occurrence out of which the ‘asbestos claims’

arose.” Morton Thiokol, slip op. at 1. The record does not

contain any reference to when the corporate decision was

made or how corporate product design occurred.

An Ohio Court of Appeals reversed the court of

Common Pleas in a related case involving this same

policy. The Court of Appeals ruled that the trial court

erred in applying Ohio law. Motion Int'l, Inc. v. Aetna Cas.

& Sur. Co., 1991 WL 201651, 6 (Ohio App. 1991). In that

opinion, the appellate court noted that the policy defined

an-“occurrence” as “an accident, including continuous or

repeated exposure to conditions, which results in bodily

injury or property damage neither expected nor intended

from the standpoint of the insured.” Id. at 3. The policy

App. 34

language which forms the foundation for any interpreta-

tion was again substantially different from the Policy

involved in the instant suit. Likewise, given the cryptic

order of the trial court upon which plaintiff relies, it is

impossible to determine whether the decision is based on

an underlying factual predicate which is at all analogous

to the instant cause.

An Ohio appellate court has applied a “continuous

event” theory of causation to at least one case involving

an occurrence policy of excess liability insurance. See

Phoenix Phase I Assoc. v. Ginsberg, Guren & Merritt, 23 Ohio

App. 3d 1 (1985). Phoenix involved malpractice by a law

firm involved in a real estate deal. The court held that the

liability should be apportioned between a 1972-73 and a

1973-74 insurance policy because, while the decision to

endorse the deal occurred during the first policy, all

investors were also harmed by the firm’s equally negli-

gent failure to explain certain remedies available to upset

investors during the second policy. Id. at 3. The case is

noteworthy because the Ohio court did not merely rely

on the fact that the firm did not change its initial negli-

gent decision but rather the court emphasized an inde-

pendent negligent act which took place during the second

policy period.

As a matter of law, it is apparent that given the

specific language of the Policy and the general approach

to this area of excess insurance, an Ohio court would

require plaintiff to point to some act taking place during

the Policy period as a contractual predicate to Subscriber

liability.

App. 35

CONCLUSION

In interpreting the Policy, this court is constrained by

the terms to which the parties agreed. When those words

have a single, plain meaning, this court must apply that

meaning. The definition of occurrence contained in the

Policy plainly requires that an occurrence is all injuries

caused by an event which took place during the term of

the contract. Even accepting, arguendo, any definition of a

decision as the causative event, the evidence in this case

does not relate the claims to any specific decision made

during any identifiable period, let alone to a decision

made during the Policy term. As such, the claims can not

be said to implicate the liability of the Subscribers. Defen-

dants’ motion for summary judgment (docket #271) is

hereby GRANTED.

IT IS SO ORDERED.

/s/ Sam H. Bell

SAM H. BELL

U. S. DISTRICT JUDGE

App. 36

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

THE BABCOCK & WILCOX CO., ) CASE NO.

Plaintiff, 5:91CV0987

; : Judge

" ) Sam H. Bell

ARKWRIGHT-BOSTON ) pea

MANUFACTURING MUTUAL ?

INSURANCE CO., et al. ; (Filed

Defendants. ) Aug. 19, 1993)

This Court having filed its order of decision of the

matters in this action, therefore, pursuant to Fed. R. Civ.

P. 58, IT IS ORDERED that this action is hereby termi-

nated.

Further, the court instructs the parties to make provi-

sion with the Clerk’s Office to effect prompt removal of

the affidavits filed under seal with the Clerk.

/s/ Sam H. Bell

SAM H. BELL

U. S. DISTRICT JUDGE

App. 37

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

THE BABCOCK & WILCOX CO., ) CASE NO.

Plaintiff, 5:91C V0987

. . Judge

ie ) Sam H. Bell

ARKWRIGHT-BOSTON ) oa

MANUFACTURING MUTUAL ? ER

INSURANCE CO., et al. (Filed

Defendants. ) April 9, 1993)

Pending before the court are a variety of motions and

cross-motions for partial and complete summary judg-

ment. These motions are accompanied by a voluminous

factual record. It is immediately apparent that these

motions and the accompanying exhibits raise substantial

factual and legal questions. It is not, however, imme-

diately clear that the factual questions are material ques-

tions of fact which should be reserved for a jury’s

consideration. To the contrary, at various points in the

briefs of both sides, the parties argue that the instant

cause is ripe for resolution based on the motions.

The current posture of this case presents a variety of

legal, factual, and practical difficulties for the court. Now

before the court is an array of motions for summary

judgment, partial summary judgment cross-motions for

summary and partial summary judgment and interlock-

ing reply/responses. Accompanying this torrent of legal

argument and authority is an ocean of evidence filed in

the form of appendices. These latter volumes include

extensive deposition excepts, sample contracts, actual

App. 38

contracts, drafting history, correspondence, notes, unre-

ported cases and even a decades old thesis on excess

liability insurance. The record now contains approx-

imately 1,500 pages of supplemental material which the

court is expected to consider and comprehend.

Considering the entirety of this material is both time

consuming and frustrating given the desireability [sic] of

reaching a prompt resolution of this matter. But because

of the literal mass of the material submitted, we have

only now come to the point at which any oral presenta-

tion might be profitably made and understood.

The first motion before the court is third party defen-

dant McDermott, Inc.’s motion for partial summary judg-

ment filed on January 25, 1993. That motion seeks three

things. First, “judgment that McDermott has satisfied all

conditions and/or warranties regarding the maintenance

of proper underlying insurance and the ‘buffer layer’ ”.

Docket #265 at 1. Second, McDermott urges, “that this

Court declare that all third-party asbestos related bodily

injury claims against B&W are the result of one occur-

rence.” Id. Finally, McDermott urges that the defendant/

third party plaintiff subscribers “are not entitled to re-

scind or reform the policy.” Id. at 1-2. McDermott’s sup-

porting memorandum also seeks permission to

supplement the memorandum with additional facts in the

event the subscribers’ motion to amend the pleadings is

granted.

The second motion, also filed January 25, is Babcock

& Wilcox’s motion for partial summary judgment. Like

McDermott, Babcock & Wilcox “requests that the Court

enter judgment that third party asbestos-related bodily

App. 39

injury claims are the result of one occurrence.” Docket

#267 at 1.

Defendant subscribers joined the paper fray with two

motions of their own filed simultaneously with the pre-

ceding motions on January 25. The first motion is styled,

“Defendant Subscriber’s Motion for Summary Judgment

of Dismissal or, Alternatively, for Summary Judgment on

Their Third Party Complaint.” This motion primarily

rests on one argument: “The Court should rule that the

claim of each asbestos bodily injury claimant is a separate

‘occurrence’ within the meaning of the Subscriber and

Creole policies.” Docket #271 at 23. This motion also

advances the argument that, if the Subscribers are liable

to Babcock & Wilcox, they deserve to be indemnified by

McDermott for failing to satisfy all of the warranties and

conditions of the Subscriber policy. In effect, this motion

is a cross motion addressing substantially the same issues

addressed in the previously noted motions of Babcock &

Wilcox and McDermott.

The other motion by Subscribers seeks summary

judgment on another alternative theory. It is styled,

“Motion for Summary Judgment on Certain Defendants’

Reformation, Uberrimae Fidei and Rescission Defenses.”

Docket #272 at 1. This motion asserts affirmative defenses

upon which Subscribers base their claim for dismissal.

The second wave consists of Babcock & Wilcox’s

motion for summary judgment on the rescission and ref-

ormation issues as well as the applicability of the doc-

trine of uberrimae fidei. This motion was filed on March 5,

and is obviously a cross motion opposing the second of

App. 40

Subscribers’ two motions. Plaintiff also filed a memoran-

dum and exhibits opposing subscribers’ first motion for

summary judgment and supporting plaintiff's motion for

partial summary judgment on the occurrence issue.

The sixth motion for summary judgment was also

filed on March 5, by third-party defendant McDermott

for dismissal of the third party complaint. This motion is

also styled to serve as McDermott’s opposition to sub-

scribers’ motion for summary judgment on the third

party complaint.

In addition to the memoranda accompanying the

actual motions, the parties have filed numerous other

response and reply briefs including supplemental appen-

dices and exhibits. The briefing has reached the surreply

stage now where parties are filing briefs initially protest-

ing that their opponent has filed an unpermitted brief

and then seeking this court’s leave to do the same.

The effect of this course of briefing is to bifurcate the

legal issues raised by this cause. One set of cross-motions

generally deals with defining a single occurrence under

the policy. The second set generally deals with sub-

scribers’ affirmative defenses. Disentangling the corpus

of motions and briefs beyond this rough division is not

currently practicable.

Counsel for the defendants has suggested that this

court’s deliberations might be better guided if the parties

are given an opportunity to argue the motions before the

court. That suggestion is well taken. Therefore, this court

now orders that the parties appear for a hearing on May

14, 1993, at 9 a.m. At that hearing, each side shall be

App. 41

allotted 90 minutes in which to make a presentation and

answer the inquiries of the court.

The motions present a number of discrete legal issues

which have been, and may properly continue to be,

treated independently. While the underlying facts are the

same, the legal analysis required to resolve these issues is

different. To best utilize the oral argument process, the

May 14 hearing is to be dedicated only to consideration

of the cross-motions for summary judgment regarding

interpretation of the insurance policy, specifically, the

meaning and interpretation of the operative provisions of

the occurrence definition. Consideration of third-party

issues involving McDermott Inc. and affirmative defenses

such as reformation and rescission will be deferred to a

future hearing which shall be scheduled as needed.

/s/ Sam H. Bell

SAM H. BELL

U. S. DISTRICT JUDGE

App. 42

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

CASE NO. 91-CV-987

Judge Sam H. Bell

ORDER

(Filed Aug. 3, 1992)

THE BABCOCK & WILCOX

COMPANY

Plaintiff

- VS -

ARKWRIGHT-BOSTON

MANUFACTURING MUTUAL

INSURANCE COMPANY, et

al.

Defendant

Presently before the court in the above-captioned

cause is a motion in limine by plaintiff, The Babcock &

Wilcox Company (B&W), for a determination of which

state law, in the absence of a choice of law by the parties,

is to be applied in construing a disputed term of B&W’s

liability insurance contract with defendant insurers.

Plaintiff contends that, under the “more significant rela-

tionship” analysis adopted by Ohio courts, Ohio law

should be applied. Defendants have filed a brief in oppo-

sition in which they contend that, under the same analy-

sis, Louisiana law should be applied.

BACKGROUND

The present action involves a dispute over liability

insurance coverage for asbestos-related claims arising

from B&W’s design, manufacture, sale, and service of

boilers. Sales of the B&W boilers relevant to the present

litigation were made on a nationwide and worldwide

App. 43

scale. Claims against B&W for exposure to asbestos dur-

ing the relevant time period of 1979-80 were likewise

filed throughout the United States and the world.

B&W is a corporation organized under the laws of

Delaware. While at the time of contracting certain of its

corporate offices had been relocated from New York to

Louisiana, B&W’s principal place of business was and

remains Ohio, where the majority of its management,

manufacture, and design operations are conducted,

where the major portion of its employees reside, and

where the bulk of its assets are located.

None of the defendant insurers has its place of incor-

poration or its principal place of business in either Louisi-

ana or Ohio. Most of the defendant insurers, however,

have obtained certificates of compliance with the insur-

ance laws of Ohio and are licensed to conduct insurance

business in the state.

In 1978, B&W became a subsidiary of J. Ray McDer-

mott & Company (McDermott), a Louisiana-based corpo-

ration. While its nominal headquarters became located in

Louisiana, B&W retained its separate corporate identity,

and continued its major operations in Ohio. The respon-

sibility for securing B&W’s 1979-80 liability insurance

coverage shifted to McDermott. Through its authorized

Texas-based insurance broker, Adams & Porter Associates

Inc., McDermott secured a multiple-layer comprehensive

liability insurance policy for 1979-80 with defendant

insurers on behalf of all its subsidiaries. However, speci-

fic and separate terms of coverage for B&W were individ-

ually considered and provided for in the otherwise

App. 44

general insurance contract. The contract did not include

any choice of law provision.

Subject to McDermott’s approval, Adams & Porter

negotiated the terms of the insurance contract with defen-

dant insurers. Negotiations took place primarily in Texas,

New York, and England. The defendant insurers ulti-

mately executed the insurance policy at their respective

offices, none of which was located in Louisiana or Ohio.

The executed policy was assembled by Adams & Porter at

its Texas office and delivered to McDermott at its New

Orleans, Louisiana, office. Premiums on the policy were

paid out of McDermott’s office to Adams & Porter in

Texas, which then distributed the proportionate shares of

the premiums to the defendant insurers at their respec-

tive offices.

While B&W’s parent corporation, through its autho-

rized agent, obtained this secondary excess liability

insurance coverage for B&W in the amount of 17.5 mil-

lion dollars, B&W retained its own separate primary com-

prehensive general liability policy with Travelers

Insurance Company in the amount of two million dollars,

and a first layer of excess coverage with Creole Insurance

Company Limited in the amount of $500,000. There is no

dispute over the fact that the primary coverage with

Travelers has been exhausted; B&W and Creole agree that

the Creole first-layer excess coverage has likewise been

exhausted and paid out in full. Defendants contend, how-

ever, that the first layer of excess coverage with Creole

has not been exhausted, and that they are therefore not

obligated to reimburse B&W for any claims paid.

App. 45

The central point of dispute between the parties is

the construction of the term “occurrence” as it is used in

the secondary excess liability insurance contract with

defendant insurers, and in the primary excess liability

insurance contract between B&W and Creole. Although

neither party offers any analysis of the respective con-

structions of this term under the laws of Ohio and Louisi-

ana, the parties are in apparent agreement that the legal

construction of this term would differ significantly

depending upon whicn state’s law is applied, and that the

choice of the applicable law would be virtually disposi-

tive of the respective rights of the parties under the

contract.

The scope of coverage of the insurance contract with

defendant insurers is as follows:

Underwriters hereby agree, subject to the limita-

tions, terms and conditions hereinafter men-

tioned, to pay on behalf of the Assured all sums

which the Assured shall be obligated to pay by

reason of their liability imposed upon the

Assured by Federal, State, and Municipal or

other qualified authority or in respect of such

liabilities assumed by the Assured under con-

tract or agreement, for “property damage” and

“personal injuries”, as defined herein resulting

from an “occurrence” as defined herein.

The definition of the term “occurrence” is the same in

both the contract with defendant insurers and the con-

tract with Creole:

The term “Occurrence”, whenever used herein,

shall mean any happening or series of happen-

ings, arising out of or due to one event taking

App. 46

place during the term of this contract in respect

to all the Assured’s operations.

Generally, there are three varying approaches taken

by courts in construing the term “occurrence” under such

a liability insurance policy. See Annotation, What Consti-

tutes Single Accident or Occurrence Within Liability Policy

Limiting Insurer’s Liability to a Specified Amount per Acci-

dent or Occurrence, 64 ALR 4th 668 (1988). Of relevance

herein are two of these approaches, which respectively

look to either the cause or to the effect of injury to

determine the number of occurrences for purposes of

liability coverage.

B&W urges a construction of “occurrence” that

defines it in terms of the underlying cause of the multiple

asbestos-related injuries and resulting claims. Thus, as

there was but one occurrence that caused the asbestos-

related claims against B&W - the design and manufacture

of asbestos-containing boilers - the total amount of

money paid out in disposing of the numerous resulting

claims is aggregated to determine whether the policy

limits of the Creole primary excess liability coverage have

been exhausted, and the threshhold of defendant

insurers’ secondary excess liability coverage has been

reached. This approach to construing “occurrence” is

taken by the vast majority of courts. Id.; Michigan Chemi-

cal Corp. v. American Home Assurance Co., 728 F.2d 374, 379

(6th Cir. 1984). For present purposes the court will pre-

sume, in the absence of any analysis of this issue by the

parties, and in view of B&W’s stance on the issue pres-

ently before the court, that Ohio law is in keeping with

this majority approach.

App. 47

Defendant insurers, on the other hand, espouse the

minority view that “occurrence” is to be construed in

terms of the ultimate effect, thus rendering each individ-

ual injury or claim a separate occurrence. Under this

construction, defendant insurers’ obligation to pay on

any one of these claims is not triggered until liability for

that claim exceeds the $500,000 policy limits of the Creole

policy. Because the typical asbestos-related claim is

allegedly disposed of for about $10,000, this would mean

that defendant insurers would not be obligated to pay on

any of the claims. For the reasons stated above, the court

will presume that Louisiana law supports defendant

insurers’ construction of “occurrence”. The court would

note, however, that Louisiana courts are apparently in

~ conflict over which approach to take. See 64 ALR 4th at

674, 680-81.

CHOICE OF LAW PRINCIPLES

In a diversity action, the district court is obliged to

apply the choice of law rules of the state in which it sits.

Klaxon v. Stenton Electric Mfg. Co., 313 U.S. 487, 491, 61

S.Ct. 1020, 85 L.Ed. 1477 (1941); Boyd v. LaMaster, 927 F.2d

237 (6th Cir. 1991). This court must therefore apply Ohio

choice of law rules.

For the present action, the determinative Ohio choice

of law rules are set forth in Nationwide Mut. Ins. Co. v.

Ferrin, 21 Ohio St. 3d 43, 487 N.E.2d 568 (1986), and Gries

Sports Enterprises, Inc. v. Modell, 15 Ohio St. 3d 284, 473

N.E.2d 807 (1984), cert. denied 473 U.S. 906 (1985). Ohio

choice of law rules mandate that the law of the state with

the more significant relationship to the contract should

App. 48

govern disputes arising from it. N«tional Union Fire Ins. v.

Watts, 963 F.2d 148 (6th Cir. 1992). To determine which

state has the more significant relationship to the contract,

Ohio law has adopted the test set forth in the Restatement

(Second) of Conflict of Laws, Section 188. Miucurdy v.

Sikov & Love, P.A., 894 F.2d 818, 822 (6th Cir. 1990); Ferrin,

supra; Modell, supra.

Section 188 states, in relevant part:

(2) In the absence of .an effective choice of law

by the parties, * * * the contacts to be taken into

account in applying the principles of [Section] 6

to determine the law applicable to an issue

include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(d) the location of the subject matter of the

contract, and

(e) the domicile, residence, nationality,

place of incorporation and place of business

of the parties.

These contacts are to be evaluated according to

their relative importance with respect to the par-

ticular issue.

The plain language of Restatement (Second) of Conflict of

Laws Section 188, as adopted by Ohio case law, requires

the court to consider the Section 188 factors in applying

the general principles enunciated in Restatement (Sec-

ond) of Conflict of Laws Section 6 to determine the law

applicable to an issue. Watts, supra. Section 6 sets forth:

App. 49

(1) A court, subject to constitutional restric-

tions, will follow a statutory directive of its own

state on choice of law.

(2) When there is no such directive, the factors

relevant to the choice of the applicable rule of

law include

(a) the needs of the interstate and interna-

tional systems;

(b) the relevant policies of the forum;

states and the relative interests of those

states in the determination of the particular

issue;

(d) the protection of justified expectations;

(e) the basic policies underlying the partic-

ular field of law;

(f) certainty, predictability, and uniformity

of result; and

(g) ease in the determination and applica-

tion of the law to be applied.

As to the application of the above principles, the

parties are not in dispute. The parties are in dispute,

however, over whether under Ohio conflict of laws prin-

ciples this court may apply the provisions of a related

Restatement section, Sectica 193, and the comments

thereto. Section 193 reads:

The validity of a contract of fire, surety or casu-

alty insurance and the rights created thereby are

determined by the local law of the state which

the parties understood was to be the principal

location of the insured risk during the term of

App. 50

the policy, unless with respect to the particular

issue, some other state has a more significant

relationship under the principles stated in [Sec-

tion] 6 to the transaction and the parties, in

which event the local law of the other state will

be applied.

Comment b to Section 193 provides that “The location of

the insured risk will be given greater weight than any

other single contact in determining the state of the appli-

cable law provided that the risk can be located, at least

principally, in a single state.” Where no principal location

of the risk can be determined, Comment a to Section 193

requires that the governing law be determined by appli-

cation of the general principles set forth in Section 188.

Comment f to Section 193 deals specifically with

“multiple risk” insurance policies of the type at issue in

the present case. Comment f states, in part:

Multiple risk policies. A special problem is pre-

sented by multiple risk policies which insure

against risks located in several states. A single

policy may, for example, insure dwelling houses

located in states X, Y, and Z. These states may

require that any fire insurance policy on build-

ings situated within their territory shall be in a

special statutory form. If so, the single policy

will usually incorporate the special statutory

forms of the several states involved. Presuma-

bly, the courts would be inclined to treat such a

case, at least with respect to most issues, as if it

involved three policies, each insuring an indi-

vidual risk. So, if the house located in state X

were damaged by fire, it is thought that the

court would determine the rights and obliga-

tions of the parties under the policy, at least

App. 51

with respect to most issues, in accordance with

the local law of X. * * *

The principles governing the federal courts’ deter-

mination of state law are summarized in Grantham and

Mann v. American Safety Products, 831 F.2d 596, 608-609

(6th Cir. 1987):

In diversity cases, the federal courts must apply

state law “in accordance with the then control-

ling decision of the highest state court.” * * * If

the forum state’s highest court has not

addressed the issue, the federal court must

ascertain from all available data, including the

decisional law of the state’s lower courts,

restatements of law, law review commentaries,

and decisions from other jurisdictions on the

“majority” rule, what the state’s highest court

would decide if faced with the

issue. * * * Nevertheless, although a decision by

a lower state court is not controlling where the

highest state court has not spoken, * * * the

decision of “an intermediate appellate state

court ... is a datum for ascertaining state law

which is not to be disregarded by a federal court

unless it is convinced by other persuasive data

that the highest court of the state would decide

otherwise.” * * * (Citations and emphases omit-

ted).

ANALYSIS

Plaintiff urges this court to find that Section 193,

which emphasizes the principal location of the insured

risk as the primary factor in determining the controlling

law, would be adopted by Ohio courts if they were pre-

sented with the issue herein. Plaintiff further contends

App. 52

that, under Section 193, Ohio is the state with the more

significant relationship with respect to the construction of

the terms of the liability insurance contract because Ohio

is the principal location of the insured risk, i.e., the situs

of the major portion of the operations and assets of

Babcock & Wilcox.

Defendant insurers contest the assertion that Ohio is

the principal location of the insured risk. Defendants

contend that Section 193 cannot be applied in the present

case because no Ohio court has as yet adopted it, and

indications are that Ohio courts would not adopt it; alter-

natively, defendants contend that Section 193 is inapplica-

ble to the present facts by its own terms. Ultimately,

defendants argue that the application of the principles

enumerated in Section 6 and Section 188 mandates a

finding that Louisiana law is controlling, in that Louisi-

ana was the principal place of contracting, and because

the goals of uniformity and predictability will be best

served by application of Louisiana law.

Location of the Insured Risk

Our first inquiry is to determine whether or not Ohio

is the principal location of the insured risk in the present

case. If not, then the question of whether or not Ohio

courts would adopt Section 193 would be rendered moot,

as our analysis in that case would be confined to the

application of the principles set forth in Section 6 and

Section 188. See, e.g., General Acc. Ins. Co. v. Insurance Co.

of North America (1990), 69 Ohio App. 3d 52, 590 N.E.2d

33; Compagnie des Bauxites v. Argonaut-Midwest Ins., 880

App. 53

F.2d 685, 690 (3rd Cir. 1989); Sandefer Oil & Gas v. Aig Oil

Rig of Texas, Inc., 846 F.2d 319, 324 (5th Cir. 1988).

Plaintiff's theory is that the “insured risk” in the

present contract is the risk of loss to the insured, i.e., the

risk of depletion of the insured’s assets as a result of

liability for claims made against it. Under this view, since

Ohio is the principal location of the insured’s assets, Ohio

is therefore the principal location of the insured risk.

Although B&W cites no cases where “insured risk” is

expressly construed in this manner, it finds some support

for this approach through extrapolation of the language

and holdings in a handful of cases: Republic-Franklin Ins.

Co. v. Progressive Casualty Ins. Co. (1976), 45 Ohio St. 2d

93, 95, 341 N.E.2d 600 (“A liability insurance policy is

written for the protection of the insured.”); Eagle-Pilcher

Industries v. Liberty Mutual Ins. Co., 829 F.2d 227, 248 (1st

Cir. 1987) (Ohio law applied in insurance coverage dis-

pute over asbestos-related claims because the question of

whether an Ohio manufacturer “is entitled to reimburse-

ment, and to what extent, for the many millions of dollars

in claims paid as a result of injuries caused by its prod-

ucts is of major concern to the state in which the business

is domiciled.”); Unigard Security Ins. Co. v. North River Ins.

Co., 762 F. Supp. 566, 589 (S.D.N.Y. 1991) (“In the mass

tort context, the state where the insured is located has

been held to be the state having the greatest interest in

the application of its law concerning insurance cover-

age.”).

Defendants contend, on the other hand, that the

“insured risk” is the risk of claims being made against the

insured. Since claims for asbestos-related injury have

App. 54

arisen against B&W nationwide and worldwide, and

since the contract explicitly provides coverage for the

insured regardless of the geographical location of the

claim, there is no one state that can be regarded as the

principal location of the insured risk. In support of this

construction, defendants cite several cases, the chief ones

being General Acc. Ins. Co., supra; Compagnie des Bauxite,

supra; and Sandefer Oil & Gas, supra. As with the cases

cited by plaintiff, none of these cases expressly construe

“insured risk” in the manner proposed; at best, these

cases implicitly presume without any analysis of the issue

that the situs of the insured risk is determined by where

the injury occurred and/or the claim was filed.

The equation of “insured risk” with claims made

appears appropriate enough where one of the issues is

the insurer's duty to defend against claims wherever they

may arise. See, e.g., General Acc. Ins. Co., supra. However,

such an approach has little value in the present case,

where the contract expressly states that the insurers

“shall not be called upon to assume charge of the settle-

ment or defense of any claim made or suit brought or

proceeding instituted against the Assured .. . ”. Under

the terms of the present contract, rather than an obliga-

tion to defend against claims, the insurers have “the right

and shall be given the opportunity” to involve them-

selves in the defense of claims that may affect their inter-

ests. In such event, their only obligation is to “cooperate”

in the defense of claims against the insured.

The ultimate issue herein is whether the insured is

entitled to coverage for claims that allegedly continue to

be filed and for reimbursement of funds already

expended in payment of claims against it, i.e., whether it

App. 55

is entitled to protection and restoration of its assets. In

this context, and where there is no duty to defend, the

fact that claims have been filed in numerous jurisdictions,

and the fact that performance under the contract has no

geographical limitations, are largely irrelevant.

Essentially, the only performance by the insurers that

is called for by the contract is to pay, to the “Assured

which sustains the loss”, all sums for which that insured

becomes liable as a result of the occurrences covered in

the contract. Thus, the true subject matter of the contract

is the protection of the assets of each individual insured.

The risk insured against for B&W is not the risk of claims

being made against B&W, but the risk of claims being

paid for by B&W and the resulting depletion of its assets.

Therefore, the principal location of the insured risk inso-

far as B&W is concerned is the principal location of that

insured’s assets — Ohio.

Application of Section 193

Defendants assert that Section 193 should not be

applied in the present case because the Supreme Court of

Ohio has implicitly rejected application of Section 193 in

Ferrin, supra. However, the court finds no support for this

contention in that case. There is simply no basis for

defendants’ claim that the Supreme Court of Ohio

“passed over the opportunity” to adopt Section 193 in

Ferrin by virtue of its application therein of Section 188 to

determining the governing law for a contract of liability

insurance. There is no mention of Section 193 in that case,

no indication that the parties ever raised the issue of its

applicability, and not even so much as a hint that the

court considered it in any way. As B&W aptly points out,

App. 56

there would have been no need in Ferrin to consider the

applicability of Section 193, as the same result would

have been reached in that case through application of

either Section 193 or Section 188.

Defendants further contend that no Ohio court has as

yet applied or followed Section 193. This contention is

also without merit. While the appellate court in General

Accident Ins., supra, decided the choice of law issue under

the principles of Section 188, it did so because of the

particular facts of that case, i.e., there was no principal

location of the insured risk. Although the court rejected

the contention that Maryland law should be held to be

controlling under Section 193, there was no objection to

nor rejection of Section 193 in principle. Indeed, the

court’s language and analysis makes it clear that it actu-

ally followed Section 193 in determining the governing law

in that case. After quoting extensively from Section 193

and Section 188, and then stating that it was “[a]pplying

the foregoing”, the court determined whether or not there

was a principal location of the insured risk and, having

found none, turned to an analysis under the more general

principles of Section 188. The court’s analysis was thus in

accordance with the precepts of Section 193, Comment a.

Next, defendants argue that, even if Ohio courts

would follow Section 193, it is inapplicable to the present

case by its own terms. Defendants point out that Section

193 requires that there be 1) a principal location of the

insured risk; 2) an understanding between the parties as

to the principal location of the insured risk; and 3) no

other state with a more significant relationship to the

transaction and the parties under the principles stated in

Section 6.

App. 57

We have already determined that there is a principal

location of the insured risk insofar as B&W is concerned,

and that is Ohio. The question of whether Louisiana has a

more significant relationship to the transaction and the

parties with respect to the contested issue will be dis-

cussed more fully infra; for present purposes, however,

we state our conclusion that Louisiana does not have the

more significant relationship under the principles stated

in Section 6.

As for the remaining factor, the understanding of the

parties as to the principal location of the insured risk,

defendants err in regarding this as requiring, in effect, a

mutual understanding that is tantamount to an express

agreement on the issue. Virtually identical language in

Comment c to Section 193 and Comment e to Section 188

shows that the understanding spoken of is to be loosely

construed: “ . . . it can often be assumed that the parties,

to the extent that they thought about the matter at all,

would expect that the local law of the state where the risk

is to be principally located would be applied to determine

many of the issues arising under the contract.” Restate-

ment (Second) of Conflict of Laws, Section 193, Comment

Defendants also take issue with Comment f to Section

193, regarding multiple risk policies. Defendants claim

that the “divide the risks” approach to such policies of

Comment f, which suggests that the law of the principal

location of each individual insured risk should control in

the determination of insurance disputes regarding that

risk, would violate the principles of Section 6 regarding

consideration for certainty, predictability, and uniformity

of result, and the justified expectations of the parties in

App. 58

that regard. A similar viewpoint is expressed in dicta in

Westinghouse Electric Corp. v. Liberty Mutual Ins. Co., 559

A.2d 435 (N.J.Super.A.D. 1989), upon which defendants

primarily rely:

* * * [W]hen comprehensive nationwide cover-

age is purchased, it is surely the expectation of

both insured and insurer that what the insurer

has bought and what the insurer has sold is a

single protection from liability irrespective of

the particular state law under which that lia-

bility is determined so long as the risk, whether

or not ultimately resulting in liability, is within

the policy coverage. * * * In our view, the notion

that the insured’s rights under a single policy

vary from state to atate [sic] state depending on

the state in which the claim invoking the cover-

age arose contradicts not only the reasonable

expectations of the parties but also the common

understanding of the commercial community. It

also seems to us anomalous, in conflict of law

terms, to suggest that more than one body of

law will apply to a single contract. The theme

running through the federal mega-coverage

cases is the assumption not only that state law

will determine whose insurance law will govern

the coverage dispute but also that it will be a

single state’s law chosen in accordance with

applicable conflict principles of the forum. * * *

Id. at 442. Defendants cite a handful of federal district

court cases that have cited this language from Westing-

house in reaching similar conclusions. See Potomac Electric

Power Co. v. California Union Ins. Co., 777 F.Supp. 968

(D.D.C. 1991); National Starch and Chemical Corp. v. Great

American Ins. Co., 743 F.Supp. 318 (D.N.J. 1990); CPC

App. 59

International, Inc. v. Northbrook Excess & Surplus Ins. Co.,

739 F. Supp. 710 (D.R.I. 1990).

The relevance of these cases to the present action is

questionable, in that B&W is not advocating the applica-

tion of the laws of numerous states depending on where

the claims arose, which is at the heart of the controversy

in these cases. Rather, B&W’s argument is consistent with

their rulings in its emphasis on the application of the law

of a single state, and in its assertion that the law of the

insured’s principal place of business, i.e., the principal

location of the insured risk, be applied.

Furthermore, defendants’ reliance on Westinghouse in

support of this argument is also questionable, as the same

appellate court that decided Westinghouse later criticized

and rejected its reasoning. See Johnson Matthey Inc. v.

Pennsylvania Manufacturers’ Assoc. Ins. Co., 593 A.2d 367

(N.J.Super.A.A. [sic] 1991); Gilbert Spruance Co. v. Pennsyl-

vania Manufacturers’ Assoc. Ins. Co., 603 A.2d 61

(N.J.Super.A.D. 1992). As stated by the court:

In Johnson Matthey, we explained our disagree-

ment with Westinghouse. In short, we concluded

that nationwide uniformity of policy interpreta-

tion was an illusory goal, not truly achievable or

necessarily preferable. If it is associated with the

place of contract, it is associated with an arbi-

trary and usually irrelevant choice which [sec-

tion] 193 of the Restatement discards. Site-

specific uniformity, on the other hand, is achiev-

able, and represents a choice of the law of the

jurisdiction that is most concerned with the out-

come.

App. 60

Gilbert Spruance, supra, at 64. The court went on to make

the following observation, which is most pertinent to the

present claim of concern for certainty, predictability, and

uniformity of result:

If the parties to an insurance contract truly prize

uniform interpretation of multistate insurance

policy language, they can frequently achieve it

by expressing a choice of law in the con-

tract. * * * Their failure to express such a choice

tends to show that uniform interpretation was

not a conscious goal of the contracting parties.

Id. at 64-65.

In any event, there is little danger of nonuniform

interpretation of the contract through application of Com-

ment f of Section 193 in the present case, as we have

already rejected the contention that the place of the

insured risk in the present case is wherever the claims

arose. Comment f is useful and relevant for our present

purposes insofar as it lends support for a separate consid-

eration of B&W’s insurance coverage apart from that of

the parent corporation and the other subsidiaries. Such

an approach is entirely consistent with - and all but

expressly called for by - the terms of the contract itself,

which throughout treats B&W separately and individu-

ally, while for the most part treating the remaining

insureds collectively.

Defendants point out that in Westinghouse, et al, it is

the law of the principal place of business of the corporate

parent that is held to be controlling. To the extent that

this is accurate, however, it appears to be the result of

coincidence, reached through the requisite case-by-case

weighing of all relevant factors, rather than the result of a

App. 61

determination as a matter of law that the law of the

principal place of business of the corporate parent is

controlling in a dispute between its corporate subsidiary

and their common insurer. Under the present facts and

circumstances, B&W is better regarded as the separate

corporation that it is, and McDermott, its corporate par-

ent, is better regarded merely as B&W’s agent for pur-

poses of procuring its individualized insurance policy.

The court finds plaintiff’s analysis of the question of

whether Ohio courts would adopt and follow Section 193

to be persuasive. There is no inherent conflict between

Section 193 and Sections 6 and 188. Rather, under the

scheme of the Restatement (Second), Sections 189 through

197 are essentially subsections of Section 188, and act as

models for the application of the principles of Section 188

to particular types of contracts:

** * These contracts are given special attention

because it is considered possible to state with

respect to each that, in the absence of an effec-

tive choice of law by the parties, a particular

contact plays an especially important role in the

determination of the state of the applicable

a, * *:*

Introductory Note to Title B of Chapter Eight, Restate-

ment (Second) of Conflict of Laws. Where Section 6 states

general principles applicable to all issues of choice of law,

and Section 188 states general principles applicable to

choice of law issues regarding contracts, Sections 189-197

state specific principles applicable to particular types of

contracts. Thus, these sections together form a continuous

and harmonious scheme for the analysis of choice of law

questions regarding contract disputes.

App. 62

The court can find no justification for concluding that

Ohio courts, having adopted Sections 6 and 188, would

reject the application of their integrally related subsec-

tions if faced with factual situations where they would be

applicable. The court therefore finds that Ohio courts

would adopt and apply Section 193 under the facts of the

present case.

Analysis Under Sections 6 and 188

Even if Ohio courts would for some reason reject the

application of Section 193 under the present facts, an

analysis of these facts under Sections 6 and 188 yields the

same result — that Ohio law should control the resolution

of the present dispute.

Of the factors listed in Section 6, the most pertinent

to the present inquiry are subsections (2)(b) and (c),

which prescribe an examination and balancing of the

relative policies of the forum state and other interested

states in the determination of the issue in dispute. Com-

ment f to Section 6 states that “In general, it is fitting that

the state whose intérests are most deeply affected should

have its local law applied.” While Ohio’s interests in the

resolution of this dispute are substantial, Defendants fail

to present any correspondingly significant interests on

the part of Louisiana that would compel the application

of its law.

As established earlier, subsections (2)(d) and (f),

regarding the expectations of the parties and the unifor-

mity of result, are of little weight in the present case.

App. 63

Under subsection (2)(g), the court should take into

consideration the ease in determination and application

of the law to be applied. The court has not had the benefit

of any analyses or arguments regarding the ultimate issue

of the constriiction under Ohio and Louisiana law of the

term “occurrence”. A preliminary inquiry, however, indi-

cates that neither state has as yet definitively ruled on

this issue. Since the courts in Louisiana are apparently in

conflict, see 64 ALR4th 668, the determination of Louisi-

ana law on th:s issue poses some difficulties. We have

found no Ohio cases that have directly addressed the

present issue, although at least one Ohio appellate court

has adopted the general principle that the term “occur-

rence” in a liability insurance contract should be con-

strued broadly and liberally in favor of extending

coverage to the insured. Buckeye Union Ins. Co. v. Liberty

Solvents and Chemicals Co. (1984), 17 Ohio App. 3d 127,

132, 477 N.E.2d 1227. Although this in itself is not conclu-

sive of Ohio law on this issue, it is persuasive precedent.

Thus, the factor of the ease of determination of the law to

be applied tends to favor Ohio.

Turning to the more specific factors listed in Section

188, we find that these also favor application of Ohio law.

Of greatest significance is subsection (d), the location of

the subject matter of the contract. Comment e to Section

188 makes it clear that the “subject matter” of the contract

is equated with the “insured risk”, in accord with the

principles of Section 193.

Subsection (e) lends futher [sic] support to the con-

clusion that Ohio is the state with the more significant

contacts. None of the defendant insurers has any signifi-

cant contact with either Louisiana or Ohio in terms of

App. 64

domicile, residence, place of incorporation, or principal

place of business, although most of the insurers are

authorized to conduct insurance activities in both states.

While B&W’s place of incorporation is Delaware, and

while it maintains a nominal residence in Louisiana, its

domicile, principal residence, and principal place of busi-

ness is in Ohio.

As used in the Restatement, “the place of contracting

is the place where occurred the last act necessary, under

the forum’s rules of offer and acceptance, to give the

contract binding effect... ”. Comment e to Section 188,

Restatement (Second) of Conflict of Laws. Assuming, as

defendants suggest, that the ultimate delivery of the con-

tract to McDermott in Louisiana was the last act neces-

sary to make the contract binding, then Louisiana would

be the place of contracting. However, Comment e to Sec-

tion 188 places this factor in proper perspective:

Standing alone, the place of contracting is a

relatively insignificant contact. To be sure, in the

absence of an effective choice of law by the

parties, issues involving the validity of a con-

tract will, in perhaps the majority of situations,

be determined in accordance with the local law

of the state of contracting. In such situations,

however, this state will be the state of the appli-

cable law for reasons additional to the fact that

it happens to be the place where occurred the

last act necessary to give the contract binding

effect. The place of contracting, in other words,

rarely stands alone and, almost invariably, is but

one of several contacts in the state. Usually, this

state will be the state where the parties con-

ducted the negotiations which preceded the

making of the contract. Likewise, this state will

App. 65

often be the state of the parties’ common domi-

cil [sic] as well. By way of contrast, the palce

[sic] of contracting will have little significance,

if any, when it is purely fortuitous and bears no

relation to the parties and the contract, such as

when a letter of acceptance is mailed in a rail-

road station in the course of an interstate trip.

While Ohio may still adhere in theory to the general

principle that the law of the state where the contract is

made governs interpretation of the contract, see Ferrin,

supra, at 44, the adoption of Section 188 dictates that this

general principle is applicable only when no other signifi-

cant factors outweigh the place of contracting. Such is not

the case here.

In the present case, assuming that Louisiana is the

place of contracting, this factor stands alone as the only

significant contact with Louisiana. There is no common

domicile between B&W and any of the defendants.

Although some consultations regarding negotiations may

have taken place between McDermott in Louisiana and

Adams & Porter in Texas, negotiations were conducted

primarily in states and fora other than Louisiana or Ohio.

Comment e makes it clear that, under such circumstances,

the place of negotiations is likewise of little significance:

The place where the parties negotiate and agree

on the terms of their contract is a significant

contact. Such a state has an obvious interest in

the conduct of the negotiations and the agree-

ment reached. This contact is of less importance

when there is no one single place of negotiation

App. 66

and agreement, as, for example, when the par-

ties do not meet but rather conduct their nego-

tiations from separate states by mail or

telephone.

Lastly, the place of performance, subsection (c) to

Section 188, is of no bearing in the present case. The only

performance at issue herein is defendants’ duty to pay

B&W under the terms of the contract. In this day of

computerized banking and electronic transfers, the place

where payment is to be made or received is of little, if

any, real significance.

In sum, an analysis of the present facts under Sec-

tions 6 and 188 leads to the conclusion that Ohio is the

state with the more significant contacts, and that Ohio

law should control the resolution of the present dispute.

Constitutionality of Applying Ohio Law

Defendants’ final objection to the application of Ohio

law is that it would be unconstitutional, because Ohio

allegedly has no ” . significant contact or significant

aggregation of contacts, creating state interests, such that

choice of its law is neither arbitrary nor fundamentally

unfair.” Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 818,

105 S.Ct. 2965, 86 L.Ed.2d 628 (1985). Based on our anal-

ysis above, the court finds no merit in this contention.

App. 67

CONCLUSION

The court finds that Ohio is the state with the more

significant contacts with the parties and issues raised in

the present case, and that therefore Ohio law will be

applied.

IT IS SO ORDERED.

/s/ Sam H. Bell

SAM H. BELL

U. S. DISTRICT JUDGE

App. 68

Nos. 93-4149/4150

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

THE BABCOCK & WILCOX

COMPANY,

Plaintiff-Appellant/

Cross-Appellee, ORDER

. (Filed

ARKWRIGHT-BOSTON MFG. Aug. 4, 1995)

MUTUAL INSURANCE

COMPANY, ET AL.,

Defendants-Appellees /

Cross-Appellants,

CREOLE INSURANCE COMPANY,

LTD.,

Defendant-Appellant/

Cross-Appellee,

MCDERMOTT, INC.,

Third Party Defendant

Appellant /Cross-Appellee

ee ee ee ee ee ee ee ee ee ee oe ee ee

BEFORE: KENNEDY and NORRIS, Circuit Judges; and

TAYLOR,* District Judge.

The court having received two petitions for rehearing

en banc, and the petitions having been circulated not only

to the original panel members but also to all other active

judges of this court, and no judge of this court having

* Hon. Anna Diggs Taylor, United States District Judge for

the Eastern District of Michigan, sitting by designation.

App. 69

Nos. 93-4149/4150

requested a vote on the suggestion for rehearing en banc,

the petitions for rehearing have been referred to the

original hearing panel.

The panel has further reviewed the petitions for

rehearing and concludes that the issues raised in the

petitions were fully considered upon the original submis-

sion and decision of the case. Accordingly, the petitions

are denied.

ENTERED BY ORDER

OF THE COURT

/s/ Leonard Green

Leonard Green, Clerk pe

Mr. Peter J. Kalis

Kirkpatrick & Lockhart

1500 Oliver Building

Pittsburgh, PA 15222

App. 70

PETITIONS FOR CERTIORARI

RAISING QUESTIONS ABOUT THE

DETERMINATION OF STATE LAW

UNDER ERIE R.R. CO. V. TOMPKINS

Windham v. First Gibraltar Bank FSB, No. 95-195, cert.

pending

National Fid. Life Ins. Co. v. Chadima, No. 95-166, cert.

denied, 1995 WL 455033 (U.S. Oct. 2, 1995)

Transcraft Corp. v. Liberty Mut. Ins. Co., No. 94-1597, cert.

denied, 115 S. Ct. 1990 (1995)

Joslyn Mfg. Co. v. Liberty Mut. Ins. Co., No. 94-978, cert.

denied, 115 S. Ct. 935 (1995)

Richards v. Michelin Tire Corp., No. 94-906, cert. denied, 115

S. Ct. 902 (1995)

Murray v. National Broadcasting Co., No. 94-866, cert.

denied, 115 S. Ct. 734 (1995)

Chicago Bd. of Educ. v. Affiliated FM Ins. Co., No. 94-436,

cert. denied, 115 S. Ct. 425 (1994)

General Elec. Capital Corp. v. National Union Fire Ins. Co.,

No. 94-58, cert. denied, 115 S. Ct. 293 (1994)

Madsen v. Allstate Ins. Co., No. 92-981, cert. denied, 113 S.

Ct. 1264 (1993)

Bezanson v. Metropolitan Ins. & Annuity Co., No. 91-1727,

cert. denied, 505 U.S. 1205 (1992)

Rally’s Inc. v. International Shortstop Inc., No. 91-824, cert.

denied, 502 U.S. 1059 (1992)

F L Aerospace Corp. v. Aetna Casualty & Sur. Co., No.

90-289, cert. denied, 498 U.S. 911 (199

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