IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________________________
No. 98-21031
_______________________________________
GUARANTY NATIONAL
INSURANCE CO., Plaintiff-Appellee,
versus
AZROCK INDUSTRIES INC.,
d/b/a Azrock Commercial Flooring Defendant-Appellant.
_________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________________________________
April 27, 2000
ON PETITION FOR REHEARING
(Opinion March 10, 2000, 5th Cir., 2000, ____F.3d____).
Before WIENER and STEWART, Circuit Judges*:
WIENER, Circuit Judge:
The petition for rehearing filed by Plaintiff-Appellee
Guaranty National Insurance Co.’s (“Guaranty National”) is GRANTED,
our prior panel opinion is WITHDRAWN, and this opinion is
SUBSTITUTED therefor. We AFFIRM IN PART, REVERSE IN PART and
REMAND with instructions.
In this diversity case, Defendant-Appellant Azrock Industries
Inc. (“Azrock”) appeals from the district court’s grant of summary
*
District Judge John M. Shaw of the Western District of
Louisiana was a member of the panel that heard oral arguments, but
because of his death on December 24, 1999, he did not participate
in this decision. This case is being decided by a quorum. 28
U.S.C. § 46(d).
1
judgment to Guaranty National. We must decide what event triggers
an insurer’s duty to defend its insured against asbestos-related
personal injury claims under a Commercial General Liability (“CGL”)
policy, here, one issued by Guaranty National to Azrock. For
reasons we explain below, we reverse the district court, which
applied “manifestation of injury or disease” as the triggering
event, and remand with instructions.
I.
Facts and Proceeding
From the 1930s to the early 1980s, Azrock manufactured floor
tiles containing asbestos fibers. Between January 1989 and March
1998, Azrock was sued in at least thirty-three separate actions for
personal injuries allegedly caused by exposure to asbestos; and was
sued in one case by a governmental entity for property damage from
asbestos installation. Faced with the costs of litigation and the
potential for substantial liability, Azrock turned to its liability
insurance providers for defense and indemnity.
Azrock had no general liability insurance from 1930 to 1958.
From 1958 to 1983, Azrock’s primary CGL insurance provider was
Employers Casualty Company (“Employers”). Employers became
insolvent and was placed in receivership by the state of Texas in
1994. From 1983 to 1985, Azrock’s primary CGL insurance provider
was Western Employers Insurance Company (“Western”). Western also
became insolvent and was placed in receivership in 1991. From 1986
to 1991, Azrock’s CGL policies were issued by Kemper and Reliance;
but those policies contained asbestos exclusion provisions on the
2
basis of which both insurers denied coverage for the underlying
asbestos-related claims.
For the period of July 1, 1985 through June 30, 1986, Azrock’s
primary CGL coverage was provided by National American Insurance
Company of New York (“NAIC”). For that same twelve-months period,
Azrock was covered by an umbrella (excess) liability policy issued
by Guaranty National, covering personal injury, property damage,
and advertising liability. NAIC, as the primary carrier, undertook
the defense of Azrock until 1996, when that insurer notified
Guaranty National that its policy limit had been exhausted.
Subsequently, Azrock formally demanded that Guaranty National, as
the umbrella carrier, take over the defense of the lawsuit and
indemnify it on any ultimate liabilities.
In response to Azrock’s formal demand, Guaranty National
assumed the defense of the underlying claims, but, early in 1997,
filed this declaratory judgment action in federal district court,
seeking to establish that it had no duty to defend Azrock in the
underlying lawsuits. Later that year, Guaranty National filed a
motion for partial summary judgment grounded on the assertion that
it had no duty to defend Azrock. The following March, the district
court granted Guaranty National’s motion, declaring that as a
matter of law it had no duty to defend Azrock in the underlying
asbestos claims. In so ruling, the district court applied a
“manifestation theory” of triggerage for continuous bodily injury
claims. It noted that none of the plaintiffs in the underlying
suits had alleged that their illnesses became identifiable during
3
the term of the Guaranty National policy; accordingly, there was no
“occurrence” during the coverage period within the meaning of the
policy. Therefore, reasoned the district court, Guaranty National
had no duty to defend the suits and thus no duty to indemnify
Azrock in the underlying claims. Azrock appealed.
II.
Analysis
A. Standards of Review
This appeal arises from the grant of summary judgment to
Guaranty National. The district court applied Texas law to hold
that coverage under the Guaranty National policy was not triggered
by any of the underlying lawsuits; thus, as a matter of law,
Guaranty National had no duty to defend (and consequently no duty
to indemnify) Azrock in those lawsuits. We review the district
court’s grant of summary judgment de novo.1 In holding that
Guaranty National had no duty to defend the claims against Azrock,
the district court determined that the trigger of coverage under a
CGL policy for continuous exposure was settled under Texas law and,
accordingly, applied the manifestation theory. We review de novo
the district court’s determinations of state law.2
B. Jurisdiction and Choice of Law
Guaranty National filed this federal court declaratory
judgment suit in the Southern District of Texas on the basis of
1
New York Life Ins. Co. v. Travelers Ins. Co., 92 F.3d 336,
338 (5th Cir. 1996).
2
Salve Regina College v. Russell, 499 U.S. 225, 239 (1991).
4
diversity of citizenship: Guaranty National is a Colorado
corporation with its principle place of business in Englewood,
California; Azrock is a Delaware corporation with its principal
place of business in Houston, Texas. Federal district courts
sitting in diversity apply the law and the choice of law rules of
the forum state.3 The district court in this case applied Texas
law and the parties do not dispute the propriety of that approach;
thus, we do not reach the choice of law issue and proceed on the
assumption that Texas law applies.4
C. Construction of Insurance Policies
In reaching the conclusion that, as a matter of law, Guaranty
National had no duty to defend and, accordingly, no duty to
indemnify Azrock in various underlying claims for damages resulting
from asbestos exposure, the district court examined only the
insurance policy and the underlying complaints, applying the so-
called “eight-corners” rule. Under this maxim, an insurer’s duty
to defend is determined by reference to the allegations in the
pleadings and the language of the insurance policy only.5 When
courts apply the eight-corners rule, they must liberally interpret
the allegations in the pleadings, resolving doubts in favor of the
3
Klaxton v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941).
4
See N.K. Parrish, Inc. v. Southwest Beef Indus. Corp., 638
F.2d 1366, 1370 n.3 (5th Cir. 1981).
5
American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842,
848 (Tex. 1994); St. Paul Ins. Co. v. Texas Dept. of Transp., 999
S.W.2d 881, 884 (Tex. App. 1999).
5
insured.6 Courts may not, however, (1) read facts into the
pleadings, (2) look outside the pleadings, or (3) imagine factual
scenarios which might trigger coverage.7
The duty to defend is broader than the duty to indemnify.8 The
duty to indemnify is triggered by the actual facts that establish
liability in the underlying lawsuit.9
Generally, insurance policies are subject to the same rules of
interpretation as other contracts.10 If the policy terms are
susceptible of only one reasonable construction, they will be
enforced as written.11 If, however, the policy is susceptible of
more than one reasonable interpretation, the court must resolve the
uncertainty by adopting the construction that most favors the
insured.12 This rule of construction is sometimes called contra
proferentem.
6
National Union Fire Ins. Co. v. Merchants Fast Motor Lines,
Inc., 939 S.W.2d 139, 141 (Tex. 1997).
7
St. Paul Ins. Co., 999 S.W.2d at 885 (citing National Union,
939 S.W.2d at 142).
8
St. Paul Ins. Co. v. Texas Dep’t. of Transp., 999 S.W.2d
881, 884 (Tex. App. 1999).
9
Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 821-22
(Tex. 1997).
10
Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex.
1987).
11
Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex.
1984).
12
Barnett, 723 S.W.2d at 667; see also Canutillo Indep. Sch.
Dist. v. National Union Ins. Co., 99 F.3d 695, 701 (5th Cir. 1996)
(interpreting Texas law); National Union Fire Ins. Co. v. Hudson
Energy Co., 811 S.W.2d 552, 555 (Tex. 1991); Glover v. National
Ins. Underwriters, 545 S.W.2d 755, 761 (Tex. 1977).
6
The district court in this case determined that the insurance
contract was not ambiguous and purported to interpret the policy
language according to its plain meaning. We conclude, however,
that the policy provisions, in particular the terms “occurrence”
and “bodily injury,” are susceptible of more than one reasonable
interpretation in the progressive disease context, and are
therefore ambiguous as a matter of law. Consequently, Texas law
requires that we resolve those ambiguities in favor of Azrock. A
cumulative, progressive disease does not fit any of the disease or
accident situations that the CGL policy typically covers.13 Our
conclusion that the policy terms are susceptible of more than one
reasonable interpretation is amply demonstrated by the fact that
federal and state courts have developed at least four distinct
interpretations of precisely the same uniform CGL policy language
in the context of continuous exposure, latent disease cases.
The Guaranty National policy issued to Azrock provides that
the insurance company will “pay on behalf of the insured all sums
which the insured shall be legally obligated to pay as ultimate net
loss because of (A) Personal Injury, (B) Property Damage, or (C)
Advertising Liability caused by an occurrence during the policy
period...” (emphasis added). The policy defines “occurrence” as
an accident, or a happening or event, or a continuous or
repeated exposure to conditions which unexpectedly or
unintentionally results in personal injury, property
13
Insurance Co. of N. Amer. v. Forty-Eight Insulations, Inc.,
633 F.2d 1212, 1222 (6th Cir. 1980).
7
damage or advertising liability. All such exposure to
substantially the same general conditions existing at or
emanating from one premises location shall be deemed one
occurrence.
In defining “personal injury,” the policy lists numerous types of
injurious events, such as false arrest, wrongful entry, libel,
slander, and the like, including “bodily injury.” In contrast, the
policy specifically defines “property damage” as
(a) physical injury to or destruction of tangible
property which occurs during the policy period, including
the loss of use thereof at any time resulting therefrom,
or (b) loss of use of tangible property which has not
been physically injured or destroyed provided such loss
of use is caused by an occurrence during the policy
period.
We agree with the district court’s construction of the policy
to the extent the court determined that “occurrence during the
policy period” requires that the actual “injury,” not merely the
negligent act or omission that causes the injury, must happen
during the policy period. Where we part ways with that court is in
defining the relevant “injury.” The district court defined
“injury” as the date an asbestos-related condition or disease
manifests or becomes identifiable. In granting summary judgment,
the court looked to the date of diagnosis alleged in the underlying
complaints and equated “manifestation” with that date. As the
court found no complaints that contained allegations of a date of
8
diagnosis within the one-year policy period, it held that the duty
to defend was not triggered in any of the suits. By contrast, we
define “injury” as the subclinical tissue damage that occurs on
inhalation of asbestos fibers. In remanding this case, we instruct
the district court to examine each underlying complaint for
allegations of exposure during the policy period, approximated by
alleged dates of employment involving work with Azrock’s products,
to determine whether the duty to defend is triggered.
D. The Trigger of Coverage
As noted above, these precise policy provisions, or
essentially identical versions in earlier uniform CGL policies,
have been interpreted by numerous courts in the latent disease
context, and four main theories of triggerage of coverage have
evolved. Unfortunately, construction of the exact terms, under
different sets of facts, against the backdrop of the contra
proferentem doctrine, has resulted in irreconcilable holdings.14
We briefly identify and define each.
1. Manifestation Theory:
Here, the district court held that, according to Texas law,
coverage in instances of progressive diseases is triggered when the
condition “manifests.” According to this theory, the term
14
“The reason for this seemingly anomalous result is that each
court considered the case of a different asbestos company which had
purchased liability insurance at a different stage in its asbestos
product-line development. Each of the courts, however, subjected
the policies to an interpretation designed to ‘promote coverage’
and to fulfill the ‘dominant purpose of [providing
indemnification].’” Lac D’Aminate du Quebec, Ltee. v. American
Home Assurance Co., 613 F. Supp. 1549, 1557 (D.N.J. 1985).
9
“occurrence” in the CGL policy means the time when the condition,
such as asbestosis or lung cancer, becomes clinically evident,
identifiable, or diagnosable. The date of “manifestation” is
usually equated with the date of diagnosis by a physician or the
date a claimant experiences symptoms that impair his sense of well-
being.15
2. Exposure Theory:
Interpreting such policy language under Louisiana law, we have
previously held that coverage under a CGL policy is triggered at
the time the claimant is initially exposed to the injury-causing
agent.16 Under the exposure theory, “injury” within the meaning of
the policy is the subclinical tissue damage that results on
inhalation of a toxic substance such as asbestos, even if symptoms
or a diagnosable condition have not yet developed.17 Courts
typically approximate the period of exposure by the claimant’s
period of employment in an asbestos-laden environment.
3. Continuous or “Triple” Trigger Theory:
In this appeal, Azrock asks us to hold that coverage is
triggered continuously, from the initial exposure to asbestos to
15
See Eagle-Picher Indus., Inc. v. Liberty Mutual Ins. Co.,
682 F.2d 12, 19-20 (1st Cir. 1982).
16
Porter v. American Optical Corp., 641 F.2d 1128, 1142 (5th
Cir. 1981) (agreeing with the “reasoning and result” of, and
declining to “prolong [an] already lengthy opinion by paraphrasing
and rephrasing the Sixth Circuit opinion” in, Forty-Eight
Insulations); see also Ducre v. Executive Officers of Halter
Marine, Inc., 752 F.2d 976, 993 (5th Cir. 1985) (holding that
Porter represents the best Erie guess of Louisiana law and applying
exposure theory in silicosis context).
17
Ducre, 752 F.2d at 993.
10
the manifestation of a disease. Some courts refer to this theory
as the “triple trigger” theory because the policy is triggered by
(1) inhalation exposure, (2) “exposure in residence,” and (3)
manifestation.18 “Exposure in residence” is the period between the
initial injurious exposure and the time when the injury manifests
itself, during which period disease development from asbestos
fibers lodged in the lung occurs.19
A variation on the continuous or “triple” trigger theory is
the “double” trigger theory, applied by at least one court.20
Interpreting an earlier version of the uniform CGL policy that
defined “bodily injury” as “bodily injury, sickness, or disease,”
the Illinois Supreme Court found adequate medical evidence in the
record that “bodily injury” in the form of lung tissue damage
occurs at the time of exposure, “disease” exists when the condition
is manifest or reasonably capable of clinical detection, and
“sickness” includes the claimant’s disordered, weakened, or unsound
state before clinical manifestation.21 The court did not find,
however, that the expert testimony in the record established that
asbestos-related disease progressed during the period after
exposure but before manifestation, or “disease in residence,” and
thus declined to hold that the policy was triggered in that
18
Keene Corp. v. Ins. Co. of N. Amer., 667 F.2d 1034, 1047
(D.C. Cir. 1981).
19
Id. at 1046.
20
Zurich Ins. Co. v. Raymark Indus., Inc., 514 N.E.2d 150
(Ill. 1987), aff’ing 494 N.E.2d 634 (Ill. App. 1986).
21
Id. at 161.
11
interim.22
4. Injury-in-Fact Theory:
The final theory of coverage triggering in continuous exposure
cases is the “injury-in-fact” theory, according to which
insurance obligations under the CGL policy arise when
real injury occurs during the policy period. Real injury
need not have been compensable or diagnosable during the
policy period if its existence during that period can be
proved in retrospect.... [T]he central issue is when
injury actually occurred. Injury need not be manifest,
but it must exist in fact.23
The challenge in adopting the injury-in-fact approach is that, in
each case of an individual suing a manufacturer, a “mini-trial”
must be held to determine “at what point the build-up of asbestos
in the plaintiff’s lungs resulted in the body’s defenses being
overwhelmed. At that point, asbestosis could truly be said to
‘occur.’”24
As Texas courts have not squarely addressed the issue of the
trigger of coverage in progressive disease cases, we must make an
Erie guess on this aspect of Texas law.25
22
Id. at 160.
23
Abex Corp. v. Maryland Cas. Co., 790 F.2d 119, 124-25 (D.C.
Cir. 1986) (relying on American Home Prods. Corp. v. Liberty Mutual
Ins. Co., 784 F.2d 760 (2d Cir. 1984)).
24
Forty-Eight Insulations, 633 F.2d at 1217.
25
See Aetna Cas. and Sur. Co. v. Naran, 1999 WL 59782, at *4
(Tex. App. Feb. 10, 1999) (noting that “the Texas Supreme Court has
never directly addressed the coverage trigger issue”); Clemtex,
12
The district court, in adopting the manifestation theory,
relied by analogy on Fifth Circuit and Texas cases involving
coverage for non-bodily injury. The court declined to distinguish
the property damage context from the personal injury context on the
rationale that the policy language itself made no such distinction.
Citing three cases involving non-bodily injury from continuous
exposure,26 the district court held that the CGL policy provides
coverage for “occurrences” that actually result in “personal
injury” during the policy period. We agree that an “injury” must
occur during the policy period but disagree with the district
court’s defining the term “occurrence” as the manifestation of
disease.
The district court relied on two prior decisions by this court
interpreting Texas law to support the manifestation theory. The
first, Snug Harbor, Ltd. v. Zurich Insurance,27 involved a
plaintiff’s mishandling of a petition that resulted in a default
judgment being entered against the defendant. The defendant then
sought to recover from the plaintiff’s CGL insurer. We concluded
Inc. v. Southeastern Fidelity Ins. Co., 807 F.2d 1271, 1274-75 (5th
Cir. 1987) (noting that Texas courts have not ruled on exposure
theory but adopting district court’s holding as parties did not
challenge it on appeal); Garcia, 876 S.W.2d at 853 n.20 (noting
that “Texas has limited precedent” on issue of triggers of coverage
but declining to select among the theories as resolution of that
question was not necessary to the holding).
26
American Home Assurance Co. v. Unitramp Ltd., 146 F.3d 311
(5th Cir. 1998); Snug Harbor Ltd. v. Zurich Ins., 968 F.2d 538 (5th
Cir. 1992); Dorchester Dev. Corp. v. Safeco Ins. Co., 737 S.W.2d
380 (Tex. App. 1987).
27
968 F.2d 538 (5th Cir. 1992).
13
that there was no “occurrence” during the policy period because,
even though the petition was mishandled while the policy was in
effect, the entry of the default judgment occurred outside the
policy period. We held that an “occurrence” is when the claimant
sustains damage -- in Snug Harbor, suffers default judgment -- not
when the negligent act or omission causing that damage -- there,
improper service -- is committed.
In the second case, American Home Assurance Co. v. Unitramp
Ltd.,28 we noted that Texas courts have held that property damage
“occurs” within the meaning of a CGL policy not when the causative
negligence occurs but when the damage becomes manifest or
identifiable. On the facts of that case, involving damages
following delivery of water-contaminated fuel to a vessel, we held
that the “occurrence” was not the date the tainted fuel was loaded,
but the date the resulting damage became capable of being easily
perceived or recognized, such as by chemical testing of the fuel.
The third case relied on by the district court was a Texas
Court of Appeals decision, Dorchester Development Corp. v. Safeco
Insurance Co.,29 which involved defective construction work. The
state court held that there was no “occurrence” during the policy
period; the defective workmanship was performed during that period
but the damage to the property that resulted from that work did not
become manifest until later.
Guaranty National, in its brief, relies on an unpublished
28
146 F.3d 311 (5th Cir. 1998).
29
737 S.W.2d 380 (Tex. App. 1987).
14
Texas Court of Appeals decision, Aetna Casualty and Surety Co. v.
Naran,30 which involved a claim for fire damage to a home, garage,
and car. The insured property owner asserted that the damage was
the result of a continuous process of damage to the car, caused by
excessive heat from an improperly installed catalytic converter.
Relying on Dorchester, the Naran court held that the damage did not
“manifest” during the policy period. The court rejected Naran’s
arguments for application of either the exposure or injury-in-fact
theories of triggerage, distinguishing the personal injury context,
in which those theories had been applied previously, from the
property damage context: “[Those] cases typically involve claimants
suffering from continuous exposure to asbestos and pollutants or
toxins causing environmental contamination which cause latent
disease or damage and not the type of property damage involved in
the present case.”31
We agree that such a distinction is relevant. Federal
district courts applying Texas law in the progressive disease
context have distinguished between property damage cases, in which
“manifestation” of injury triggers coverage, and bodily injury
cases, in which coverage is triggered by exposure or injury-in-
fact.32 As the Sixth Circuit noted: “In a nutshell, the proponents
30
1999 WL 59782 (Tex. App. Feb. 10, 1999).
31
Id. at *4.
32
See Mustang Tractor and Equip. Co. v. Liberty Mut. Ins. Co.,
1993 WL 566032 (S.D. Tex. Oct. 8, 1993) (rejecting manifestation
trigger for bodily injury but declining to select between exposure
or continuous trigger theories); see also National Standard Ins.
Co. v. Continental Ins. Co., CA3-81-1015-D (N.D. Tex. Oct. 4, 1984)
15
of the manifestation theory urge that we treat asbestosis the same
as any other disease and that we not make any ‘special rules’ for
the cumulative disease situation which asbestos presents. We
cannot agree. Cumulative disease cases are different from the
ordinary accident or disease situation.”33 Accordingly, we do not
find instructive prior opinions of this court or of Texas appellate
courts that apply the manifestation theory in entirely different
contexts, particularly property damage cases.
Only one federal circuit court has adopted the manifestation
trigger for progressive disease cases. The First Circuit, in
Eagle-Picher Industries, Inc. v. Liberty Mutual Insurance Co.,34
relied on the dictionary definition of the term “injury” as “hurt,
damage, or loss sustained” to require the condition to be
clinically evident or manifest before coverage would be triggered.35
That court did not find adequate evidence in the record that such
“injury” occurred at the time of inhalation of asbestos fibers,
because even sub-clinical tissue damage did not occur immediately
on inhalation and was reversible in some cases; thus it declined to
adopt an exposure theory. In addition, the First Circuit noted
that the “public policy underpinning of insurance law,” that is,
the contra proferentem doctrine, supported the application of the
manifestation trigger as Eagle-Picher was uninsured during the
(applying exposure theory).
33
Forty-Eight Insulations, 633 F.2d at 1219.
34
682 F.2d 12 (1st Cir. 1982).
35
Id. at 19.
16
period when most of the injurious exposure took place.36 We are not
persuaded to apply the dictionary approach on the instant facts.
In granting summary judgment, the district court in the
instant case relied on the dates of diagnosis of asbestos,
carcinoma, or other conditions alleged by the claimants, as a proxy
for the date their harm became “manifest” or “identifiable,” and
concluded that none of the complaints contained an allegation of a
diagnosis during the one-year policy period. Therefore, reasoned
the court, under the eight-corners rule, none of the claims was
covered. We cannot agree with the district court that the meaning
of “injury” in the CGL policy is best understood as the date of
diagnosis. To do so would require us to rely on a fiction that
suggests a person is “injured” on the date he decides, for whatever
reason, to go to the doctor about a condition. “No doctor would
say that asbestosis occurred when it was discovered.”37
Accordingly, we decline to adopt a version of the manifestation
theory that equates “injury” with “diagnosis.” We are constrained,
therefore, to reverse the grant of summary judgment on that basis.
As to the one underlying complaint alleging property damage,38
the district court, however, was correct in applying the
manifestation theory to trigger coverage for this property damage
claim according to Texas law. The district court, in granting
36
Id. at 23.
37
Forty-Eight Insulations, 633 F.2d at 1219.
38
State v. United States Gypsum Co., No. 98-L-61 (Cook Co.
Cir. Ct., filed Feb. 17, 1998).
17
summary judgment, determined that the sole property damage claim
did not allege manifest, identifiable damage to property between
July 1, 1985 and June 30, 1986, sufficient to trigger the duty to
defend against that particular complaint. We affirm that portion
of the court’s decision.
Having rejected the manifestation trigger, we next must decide
which other theory of triggerage should be applied to the remaining
personal injury claims to determine whether the duty to defend is
triggered. In applying the eight-corners rule, the district court
dismissed the case on the strength of the pleadings and the policy
only, holding that none of the underlying complaints alleged a
covered claim.
Azrock urges us to adopt the so-called continuous or “triple”
trigger, asserting that it is a reasonable interpretation of the
policy language and that under the contra proferentem doctrine we
should defer to the interpretation they propose. The obvious
advantage of the triple-trigger theory to an insured is that it
maximizes coverage and requires little or no individual proof of
injury. Under this theory, the duty to defend is triggered if the
plaintiff has alleged that he was exposed, was diagnosed or
developed identifiable symptoms, or has yet to develop an
identifiable condition as a result of exposure at an earlier time.
Under this theory, Guaranty National would be required to defend
Azrock in each of the underlying claims.
We acknowledge that Texas law requires us to construe
ambiguous policy terms in favor of the insured, but we are not
18
required blindly to adopt the interpretation profferred by the
insured, especially if we perceive such an interpretation to be an
unreasonable construction of the policy terms or to be unsupported
in law. To adopt the continuous trigger approach, we would have to
interpret the term “bodily injury” in the policy as encompassing
three distinct events: (1) inhalation exposure, (2) exposure in
residence, and (3) manifestation or diagnosis.
We decline to adopt the continuous trigger theory as the best
Erie guess of what the highest Texas court would do if squarely
faced with this issue. No Texas court has ever adopted or
implicitly endorsed the continuous trigger theory. The three
federal district court opinions construing Texas law and applying
the continuous trigger theory to which Azrock directs us are of
limited precedential value to our decision. In Mustang Tractor &
Equipment Co. v. Liberty Mutual Insurance Co.,39 an unpublished
decision from the Southern District of Texas, the court rejected
the manifestation theory but declined to decide between the
continuous trigger and exposure theories. In Dayton Independent
School District v. National Gypsum Co.,40 a decision from the
Eastern District of Texas, the court adopted the continuous trigger
theory, but the opinion was vacated on appeal on the grounds that
the plaintiffs lacked standing. The Dayton court relied on
39
1993 WL 566032 (S.D. Tex. Oct. 3, 1993).
40
682 F. Supp. 1403 (E.D. Tex. 1988), rev’d sub nom. W.R.
Grace & Co. v. Continental Cas. Co., 896 F.2d 865 (5th Cir. 1990).
19
National Standard Ins. Co. v. Continental Ins. Co.,41 an unpublished
decision from the Northern District of Texas which held that the
insurer had a duty to defend the insured in all cases alleging
exposure to various chemicals “from the date of initial exposure to
such chemicals to the date of manifestation of disease.”42 Again,
though, we owe no deference to federal district court’s
interpretation of state law.43
Azrock has not presented adequate support for its proffered
theory to convince us that if a Texas court were faced squarely
with the issue of the trigger of coverage in the progressive
disease context, it would adopt the continuous trigger theory. We
therefore decline to do so for Texas.
In arguing that we should reject the manifestation theory
applied by the district court, however, Azrock correctly observes
that we have twice adopted the “exposure” theory of triggerage when
making an Erie guess on Louisiana law. Porter v. American Optical
Corp.,44 like the instant case, involved asbestos litigation against
the manufacturer of an asbestos-containing product. That case was
tried before a jury and the record contained extensive medical
evidence about the progressive nature of asbestos-related diseases.
On the basis of that evidence, we noted: “Due to this progressive
41
1984 WL 23448 (N.D. Tex., April 9, 1984).
42
Id. at *2.
43
Salve Regina College, 499 U.S. at 237 (“When de novo review
is compelled, no amount of deference is acceptable.”).
44
641 F.2d 1128 (5th Cir. 1981).
20
nature, it is generally quite difficult, if not impossible, to
assign manifestation of the disease to a specific date.”45 We
reversed the district court’s application of the manifestation
theory and adopted the exposure theory. In so doing we first
analyzed the language of the CGL policy, in particular the term
“bodily injury,” defined as “bodily injury, sickness, or disease”
and determined that the district court, in adopting the
manifestation trigger, improperly equated “bodily injury” with
“sickness” or “disease.” Second, we noted that after the district
court decided the case, the Sixth Circuit decided Forty-Eight
Insulations, rejecting the manifestation theory and accepting the
exposure theory. We incorporated by reference the reasoning and
result of the Sixth Circuit opinion in toto, without any discussion
of features that might distinguish Louisiana law from the
substantially similar Illinois and New Jersey laws that were
applied in that case.46
We reaffirmed Porter and the application of the exposure
theory under Louisiana law in Ducre v. Executive Officers of Halter
Marine, Inc., a silicosis case.47 In Ducre, we reversed the
district court’s holding that had distinguished Porter and applied
the injury-in-fact approach to trigger coverage for real but
undiscovered injuries that nevertheless could be proven in
45
Id. at 1133.
46
Id. at 1145.
47
752 F.2d 976 (5th Cir. 1985).
21
retrospect.48 In rejecting the Ducre district court’s attempt to
distinguish Porter, we noted that both cases involved
interpretation of the same policy language, especially the critical
term “occurrence” and the limit on liability to personal injury
sustained during the policy period. We also rejected an argument
by one of the parties that the “trend” in Louisiana law was towards
adoption of the manifestation theory.
The third of our cases that implicitly raised the trigger of
coverage issue for progressive disease cases was governed by Texas
law.49 The district court, in Clemtex, Inc. v. Southeastern
Fidelity Ins. Co., observed that Texas courts had not ruled on the
issue and concluded that Texas would apply the exposure theory, as
enunciated in Forty-Eight Insulations.50 The parties did not
dispute that determination on appeal and thus we never reached that
issue but adopted the district court’s conclusion to the extent
necessary to decide the remaining issues before us.
We are not persuaded by any cases from Texas courts or from
federal cases construing Texas law that there is any defensible
reason to apply a different trigger of coverage theory for cases
governed by Texas law than we have previously adopted in construing
Louisiana law. The Forty-Eight Insulations court itself noted that
the choice of law issue mattered only to the extent that both New
48
Id. at 992 (citing American Home Prod. Corp. v. Liberty
Mutual Ins. Co., 565 F. Supp. 1485, 1497 (S.D.N.Y. 1983), aff’d as
modified, 748 F.2d 760 (2d Cir. 1984)).
49
807 F.2d 1271 (5th Cir. 1987).
50
Id. at 1274-75.
22
Jersey and Illinois, like Texas, require construction of
ambiguities in favor of the insured; and, as for whether the policy
terms were ambiguous, the court noted that the CGL policy terms
were standardized and thus did not implicate state-specific law
questions. In like manner, we find no basis for distinguishing
between Louisiana and Texas law for purposes of construing the CGL
policy and thus are persuaded, even though not bound, by our prior
holding in Porter.
We further note that on the facts of this case, application of
the exposure theory will likely trigger the duty to defend, based
on the eight-corners rule, in a number of the underlying claims.
Thus, our holding comports with the requirement under Texas law to
construe ambiguities in favor of coverage. By contrast, the
district court’s application of the manifestation theory relieved
Guaranty National of the duty to defend in every one of the
underlying claims.
For the purposes of determining an insurer’s duty to defend
its insured in claims alleging personal injury from continuous
exposure to asbestos products, the district court on remand need
only examine the face of the underlying complaints in light of our
holding today regarding interpretation of the CGL policy language.
To trigger Guaranty National’s duty to defend, the pleading must
allege (1) exposure to Azrock’s asbestos-containing products during
the policy period and (2) that such exposure caused bodily injury
-- even if the particular asbestos-related disease was not
diagnosed until sometime after the policy expired. The decision we
23
announce today is premised on our general understanding of the
progressive nature of asbestos-related diseases;51 indeed, the
genesis of the instant dispute and the plethora of asbestos-related
insurance cases we have discussed, is the proper construction of
insurance policy provisions that were not drafted with that unique
disease process in mind. To the extent that the parties challenge
that general premise on the basis of the particular type of
asbestos product or fiber involved, its effect on an individual
plaintiffs, or other grounds, those factual disputes are relevant
not to the duty to defend – determined under the eight-corners
doctrine – but perhaps to the duty to indemnify or as a causation
defense to the underlying liability suits.52
We remand with instructions for the district court to examine
closely the underlying pleadings to determine which complaints
allege exposure to Azrock’s asbestos products between July 1, 1985
and June 30, 1986. Our cursory review of the pleadings included in
the record on appeal suggests that some of the complaints clearly
allege relevant employment in asbestos tile installation or related
51
See Borel v. Fiberboard Paper Prods. Corp., 493 F.2d 1076,
1083 (5th Cir. 1973); see also Porter, 641 F.2d at 1132-33; Forty-
Eight Insulations, 633 F.2d at 1214 (noting that “there is
universal agreement that excessive inhalation of asbestos can and
does result in disease”). This statement should not be construed
as our taking judicial notice of the “fact” that asbestos causes
disease for purposes of subsequent litigation in this or other
cases. See Hardy v. Johns-Manville Sales Corp., 681 F.2d 334, 347-
48 (5th Cir. 1982).
52
Cf. Ducre, 752 F.2d at 994 (noting importance of medical
evidence in Porter and Forty-Eight Insulations and suggesting that
parties have opportunity to develop such evidence in the underlying
liability suits); Porter, 641 F.2d at 1132-33.
24
work during the policy period as well as causation; those
complaints would trigger the duty to defend. Others clearly allege
employment (ergo exposure) that ended prior to the policy period;
Guaranty National would have no duty to defend those complaints.
And still others do not allege a period of exposure or relevant
employment at all. Again, Texas law instructs us that in applying
the eight-corners rule, a court must resolve doubts in favor of the
insured but may not read facts into the pleadings, may not look
outside the pleadings, and may not merely imagine fact patterns
that might trigger coverage. Therefore, for complaints lacking an
allegation of exposure, the district court on remand should not
impose a duty to defend on Guaranty National.
As we are put to “the always-dangerous undertaking”53 of making
an Erie guess, we take comfort in selecting a trigger of coverage
theory that employs a relatively clearly defined, easily
ascertainable trigger which will not impose an undue fact-finding
burden on busy district courts. We concede the attraction of the
intellectual honesty of the injury-in-fact approach, which is
arguably the truest to the CGL policy language of “bodily injury”
(not relying, as a proxy for “real injury,” on either diagnosis or
subclinical tissue damage, which according to some scientific
evidence, might not develop into a full-blown “disease” in every
case). We nevertheless agree with the reasoning of the Forty-Eight
Insulations court that a significant problem with the injury-in-
53
Stephens v. State Farm Mutual Auto. Ins. Co., 508 F.2d 1363,
1366 (5th Cir. 1975).
25
fact trigger is that “[i]f medical testimony as to asbestosis’
origin would have to be taken in each of the thousands of
asbestosis cases, the cost of litigation would be prohibitive.”54
In addition, the catharsis of resolving this case had made us
acutely aware of the morass of theories, distinctions, and
commentaries generated by the issue of triggerage of coverage in
continuous exposure cases. In a conscious effort to avoid adding
to the confusion and increasing the number of irreconcilable
holdings from different courts by attempting to refine any of the
four less-than-ideal theories, we adopt the same theory for Texas
that we have applied in Louisiana, thereby at least maintaining a
consistent doctrine in this Circuit.
In sum, our best Erie guess as to what Texas would choose as
the event that triggers the insurer’s duty to defend in asbestos
personal injury cases under a uniform CGL policy is the exposure
theory. Designating that as the appropriate trigger, we remand
this case to the district court for (1) the court to examine the
pleadings in each personal injury suit to determine which ones, if
any, allege (a) exposure to Azrock’s asbestos-containing products
during that period and (b) bodily injury caused by that exposure,
and (2) further proceedings consistent with this opinion, including
briefing and determination on apportionment of coverage, if any,55
54
633 F.2d at 1218.
55
Texas Prop. and Cas. Ins. Guar. Assoc. v. Southwest
Aggregates, Inc., 982 S.W.2d 600,604-05 (Tex. App. 1998) (holding
that, under eight-corners rule, Texas law does not require pro rata
allocation of costs of defense).
26
and the duty to indemnify, issues not ripe for determination by or
adequately briefed for this court. We affirm the court’s grant of
summary judgment on the single property damage claim.
One final point: The district court not only held that, as a
matter of law, Guaranty National owed Azrock no duty to defend it
on any of the underlying claims, but also held that, as a matter of
law, there could be no duty to indemnify. As we presume that
Guaranty National might well be found to have a duty to defend
Azrock in at least some of the underlying lawsuits, it thus might
be found to have a duty to indemnify as well. Although the duty to
defend is based on the allegations in the complaints, the duty to
indemnify must be determined on the actual facts as established at
trial. Accordingly, we also reverse the district court’s ruling
that Guaranty National has no duty to indemnify in any of the
underlying suits, and we remand that issue as well for further
determination consistent with this opinion.
III.
Conclusion
We reverse the district court’s application of the
manifestation trigger of coverage (except as to the single property
damage case) and reverse its holding that, as a matter of law,
based on the allegations in the underlying pleadings, Guaranty
National had no duty to defend Azrock in any of those suits. We
also reverse the district court’s holding that, as a matter of law,
27
Guaranty National had no duty to indemnify Azrock in any of those
cases. We therefore remand this case to the district court for
examination of the pleadings to determine whether the duty to
defend is triggered under the exposure theory and other legal
determinations and proceedings consistent with this opinion.
AFFIRMED IN PART; REVERSED IN PART and REMANDED with instructions.
28
Guaranty National Insurance v. Azrock Industries Inc.
Court: Court of Appeals for the Fifth Circuit
Date filed: 2000-04-27
Citations: 211 F.3d 239
Copy CitationsCombined Opinion