The First Department recently upheld a trial court decision requiring American Home Assurance Co. (“American Home”) to defend the Port Authority in several underlying asbestos claims in American Home Assur. Co. v Port Auth. of N.Y. & N.J.  In 1966, American Home issued a liability policy to the Port Authority relating to the construction World Trade Center complex, then known as the WTC Hudson Tubes Project.  The policy covered the Port Authority, as well as the site’s contractors and subcontractors, for liability that “arises out of … all operations … during the policy period in connection with the construction of the project.”  In 1975, American Home sent the Port Authority a notice of cancellation, effective February 1976.

Mirroring a nationwide trend, the Port Authority began experiencing a deluge of asbestos-related claims in the 1980s.  American Home defended the Port Authority and several contractors, in thousands of underlying asbestos cases, incurring more than $30 million worth in costs and settlements.  The present litigation began in 2012, when American Home filed a declaratory judgment action contending that the pending asbestos claims did not occur during the policy period. Specifically, they argued that for coverage to be triggered, a diagnosable disease needed to exist during the policy period, which was not the case in the underlying actions.

The trial judge ruled against American Home, holding that “during the policy period” modified the actual project operations, regardless of when the injuries began.  The judge further held that American Home could not rely on a $10 million per occurrence limit for “spray on fireproofing” because the alleged exposures occurred in a variety of ways.  Lastly, the court held that the defense costs were not subject to the policy limit, holding that the policy provided “litigation insurance” which survived the exhaustion of the policy limit.

On appeal, the First Department affirmed the majority of the trial court’s ruling.  The court held that the “plain language” of the policy “means that the policy covers injuries that result from operations that occurred during the policy period.”  Therefore, the policy provided coverage regardless of when the injury was diagnosed.  Further, the court held that the “spray on fireproofing” limit was not applicable because the claims did not arise from a single occurrence under the policy.  Notably, the court held the trial court erred in finding that the duty to defend survives exhaustion of the policy’s liability limit, as “[t]he policy explicitly provides that defense costs are subject to that limit.”  American Home could take solace in the First Department’s final ruling, as the defense costs for the pending asbestos claims could amount to further millions in costs.

Thanks to Doug Giombarrese for his contribution to this post.