Wisconsin Supreme Court Rules against Asbestos Insurer

In January, a Wisconsin Supreme Court decision made it clear that "long tail" claims can't be satisfied as a single incident.

The decision, handed down in Madison, indicates that Liberty Mutual may have to pay each claimant in an asbestos lawsuit on an individual basis, regardless of its 2005 lump-sum payment of $14.3 million to pay asbestos-related claims against its insured, Plastics Engineering Co., also known as Plenco, of Sheboygan, Wisconsin.

The context of the suit involves Plenco, which in 1934 began manufacturing molding compounds. Between 1950 and 1983, Plenco made these products with asbestos. Plenco has been involved in hundreds of lawsuits which involve Plenco worker's claims that exposure to the asbestos damaged their health.

Liberty Mutual is the insurer of record for Plenco, providing primary general liability policies beginning in 1957, and insured Plenco under "umbrella" liability policies from 1970 forward.

In 2004, Plenco filed against Liberty Mutual, arguing that the insurance company was obligated to "fully" defend Plenco against all current and future asbestos injury claims. Liberty countered by saying it should not be liable for some defense and indemnification expenses, under the terms of the insurance, and should also be refund in this area for cases already settled by its 2005 lump sum settlement.

In October of 2006, a circuit court ruled, both for and against both parties, and entered into a final judgment to which both parties agreed at the time and later appealed. Liberty Mutual has since tried to argue that all employee injuries during that period amounted to a single occurrence - the "long-tail" claim - and that the $14.3 million paid in 2005 covers its liability in regard to Plenco.

The most recent decision by the Wisconsin Supreme Court rejects that argument, and suggests that each injured employee has a separate case, and that Liberty Mutual must cover all the costs of injuries, including litigation costs and peripheral expenses, not just a portion.

Toxic tort claims (which include environmental damage and product liability claims) all share a common factor; they may prompt lawsuits under old insurance policies. So far, the U.S. Supreme Court has not ruled on the time limits of these policies, and as one risk analyst has noted, a failure to establish a moratorium on risk may lead to a future where insurance companies remain on the hook for policies given out six decades ago, before the risks of asbestos were fully understood.

The situation vis a vis Liberty Mutual and Plenco is complicated by the fact that Wisconsin is a "continuous trigger" state. Where harm occurs, even over a lengthy exposure period, all policies issued during that period are triggered, at least from a defense and indemnity standpoint.

The Wisconsin Supreme Court's opinion is based on three factors common in long-tail coverage analysis, namely:

• How many occurrences exist
• How much coverage exists
• Can the insured (Plenco) be held liable for any portion of the damages

Liberty Mutual will no doubt appeal the decision to a higher court, forcing a final decision on the term limits of long-tail insurance claims. In the meantime, former Plenco workers are covered, regardless of their dates of employment.