A Georgia Court of Appeals judge recently ruled that Scapa Dryer Fabrics was entitled to $17.4 million worth of primary coverage from National Union Fire Insurance Company of Pittsburgh, PA for claims of injurious exposure to Scapa’s asbestos-containing dryer felts. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Scapa Dryer Fabrics, Inc., No. A18A1173, 2018 WL 5306693, at *1 (Ga. Ct. App. Oct. 26, 2018). Scapa sought coverage under five National Union policies issued from 1983–1987. The 1983, 1984 and 1985 National Union policies had limits of $1 million per occurrence and $1 million in the aggregate. The liability limits for the 1986 and 1987 renewal policies were amended by endorsement to $7.2 million. Scapa sought to recover the full $17.4 million from all five policies. National Union argued that a “Non-Cumulative Limits of Liability Endorsement” in the 1986 and 1987 policies limited Scapa’s recovery to only $7.2 million. Scapa sued National Union and its sister company, New Hampshire Insurance Company (from which Scapa purchased excess liability coverage), in Georgia state court.
The “Non-Cumulative Limits of Liability Endorsement” in the National Union policies provides, in relevant part, “[i]f … for any reason [Scapa] has been provided with more than one policy by [National Union] covering the same loss/losses, the limit of liability stated in the schedule of this endorsement is the total limit of [National Union’s] liability for all damages which are payable under such policies. Any loss incurred under this policy shall serve to reduce and shall therefore be deducted from the total limit of [National Union’s] liability.” In affirming the trial court’s decision on this “stacking issue,” the Georgia Court of Appeals found that the non-cumulation provision did not indicate whether the limit applied to that policy period only or to the aggregate period under the original and renewed policies. Accordingly, the court found the provision ambiguous and read the provision in favor of Scapa, allowing Scapa to “stack” the primary policy limits to the full $17.4 million.
The insurers (National Union and its sister company, New Hampshire Insurance Co.) also argued that the trial court erred by concluding that New Hampshire’s obligations under its excess liability policies are triggered by exhaustion of the National Union primary policies issued during the same periods. The insurers argued that Scapa must exhaust all primary coverage, regardless of the period to which it applied. Reading the excess policies’ insuring agreements against the policies’ “other insurance” clause, the court concluded that the policy language does not say Scapa must exhaust all other policies issued at any other time before New Hampshire’s duties to defend and indemnify are triggered. Rather, the “other insurance” clause required only that Scapa maintain those underlying policies in force at the commencement of the New Hampshire policies; Scapa, therefore, need only exhaust those policies to trigger the New Hampshire excess coverage.
Finally, the court held that defense costs did not erode the 1986 and 1987 National Union policies’ limits. Those policies stated that the total liability limit for “Ultimate Net Loss” resulting from any one occurrence was $7.2 million, with “Ultimate Net Loss” defined as “the total sum which [Scapa] or [National Union] … become obligated to pay due to any bodily injury … including all expenses incurred by [National Union], all costs taxed against [Scapa] in any claim, suit, or other action defend by [National Union] and all interest on the entire amount of any judgment ….” The court found the endorsement ambiguous as to whether National Union was obligated to pay defense costs solely as part of its contractual duty to defend, as opposed to those sums it is legally obligated to pay by reason of the liability imposed upon Scapa by law for damages.
Scapa Dryer highlights the importance of ensuring clarity in policy wording. Provisions that purport to limit insurer liability when losses span multiple policy periods and multiple lines of coverage are often complex and require careful analysis to ensure that the provisions can be read together in a meaningful manner. Where the provisions conflict or are otherwise irreconcilable, or lead to multiple plausible interpretations, those provisions are ambiguous and should be read in favor of coverage. In Scapa Dryer, that careful analysis allowed Scapa to overcome its insurers’ biased policy interpretation and increase its recovery by more than $10 million.