Ontario appeal court rejects bid to force carriers to cover asbestos claims

The Ontario Court of Appeal last week ruled in favour of seven insurance carriers who had written liability policies between 1969 and 1980 for Goodyear Canada Inc., whose U.S. parent is facing asbestos-related lawsuits.

Goodyear Canada wants those carriers to defend and indemnify the firm against claims made after 1985, when Goodyear says liability insurance for asbestos claims was not commercially available.

In 2004, Goodyear had sought declatory relief against the carriers, asking an Ontario court to adopt the “Stonewall principle,” which stipulates that “when allocating an asbestos-based claim for insurance purposes over a number of years of injury, the insured should not be deemed to self-insure for those years when the insured could not voluntarily insure itself because of the existence of an asbestos exclusion.”

The policies Goodyear Canada had with the insurers named as defendants were on an occurrence, rather than a claims-made basis. Goodyear essentially argued that by 1986, insurance carriers had imposed asbestos exclusions in the U.S. on general liability policies, so the firm was unable to obtain coverage for asbestos-related claims in the U.S.

Goodyear Canada made gaskets containing asbestos between 1969 and 1973, which were sold in the U.S. Court records indicate that some American plaintiffs suing Goodyear alleged they were exposed to the asbestos from those gaskets and that the asbestos fibres stayed in their lungs, causing disease that “manifested itself” at a later date.

In a September 2011, ruling Mr. Justice David Stinson of the Ontario Superior Court of Justice noted that if a trial court adopts a “continuous trigger” theory, then it will “have to contend with the allocation of claims across multiple policy periods.” 

Judge Stinson was only ruling on some issues that Goodyear Canada and its former liability writers in Canada agreed to have decided prior to trial, in order to narrow the scope of their dispute. Court records suggest a trial judge might have to allocate a loss between multiple carriers and Goodyear itself, if different carriers covered Goodyear between the time a plaintiff was first allegedly exposed to asbestos, and the time the plaintiff was diagnosed with an asbestos-related disease.

The issue Stinson ruled on was whether Goodyear would be responsible for “occurrences” found to have occurred after 1985, five years after the occurrence-based liability policies expired and when asbestos liability insurance in the U.S. was allegedly not available.

In ruling against Goodyear on that issue, Judge Stinson in 2011 declined to bring the Stonewall principle to Ontario. The Ontario Court of Appeal on June 13 upheld Judge Stinson’s ruling.

The appeals court noted last Thursday that not all American judges agree with the Stonewall principle.”The logic of this premise has been seen by some U.S. courts, rightly in my view, as highly suspect,” wrote Madam Justice Eleanore Cronk on behalf of the Ontario Court of Appeal.

“By invoking the Stonewall Principle, Goodyear essentially seeks to shift to (the insurance carriers) the risks attendant on its own business decision to market asbestos-containing products. There is no contractual foundation, or consideration, for this deemed transfer of risk.”

The other two appeal court judges concurred.

In hearings held before Judge Stinson May 30 through June 3, 2011, an official with HKMB HUB International Insurance Brokers, testified that after 1985, “insurance coverage could not be obtained in Canada for Goodyear with respect to U.S. asbestos exposures.” 

This was because as underwriters became more aware of the asbestos issues, they knew they “would be accepting a risk where there would be known claims,” according to testimony at the time from John Gelston, HKMB Hub’s senior vice president and chief broking officer.

By the mid-1980s, “coverage may have been available in theory but not in practice, since the price would be so prohibitively expensive that coverage was not purchasable from a practical perspective,” Gelston testified.

The defendants in Goodyear’s claim were:

• American International Group Inc., which wrote excess coverage for Goodyear Canada from Oct. 31, 1969 to Oct. 31, 1976 with primary carriers providing coverage to a limit in each year of $500,000;
• Gerling Canada Insurance Company, which wrote excess coverage from 1974 to 1976 for underlying $15-million umbrella policies granted by AIG;
• ING Canada, the successor to Guardian Insurance Company of Canada, which wrote an occurrence-based comprehensive general liability policy from Oct. 31, 1975 to Oct. 31, 1976;
• Northumberland General Insurance Company, which wrote a primary CGL policy from Oct. 31, 1978 to Oct. 31, 1980 and also provided excess coverage in 1978;
• Royal & Sun Alliance Insurance Company, which wrote an occurrence-based policy from 1972 until 1975;
• Aviva Insurance Company of Canada, which assumed the businesses of The General Accident Assurance Company of Canada and Scottish & York Insurance Co. Ltd., which issued policies from 1976 to 1979;
• Lombard Canada Ltd., which acquired the business of Phoenix Assurance Company Ltd. which in turn wrote liability insurance for Goodyear Canada from 1969 to 1972.

“In my view, there is simply no contractual footing for the assertion that the respondents agreed to assume liability for damages occasioned by bodily injuries sustained after (in some cases, many years, if not decades, after) the expiration of the policies,” Judge Cronk wrote June 13 on behalf of the Ontario Court of Appeal.

“Contractual language of this type could easily have been included in the Policies if the parties had intended to contract for coverage outside the defined policy periods. Moreover, Goodyear paid no premium for the insurers’ assumption of such broadly-cast risks.”

Asbestos fibres, when inhaled, can cause asbestosis, (scarring of the lungs), as well as lung cancer, cancer of the larynx and ovarian cancer, according to Health Canada. It can also cause mesothelioma, according to the Ontario Workplace Safety Insurance Board (WSIB), and workers most at risk include pipe fitters, insulation workers, boilermakers and auto brake mechanics.

Last year, credit rating agency A.M. Best Company Inc. said the “net ultimate” losses due to asbestos for the U.S. P&C industry is now $85 billion, net of reinsurance.