National Union Fire Insurance Company of Pittsburgh, PA et al v. Porter Hayden Company

Filing 367

MEMORANDUM. Signed by Judge Catherine C. Blake on 1/2/2014. (aos, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA., et al.

v.

PORTER HAYDEN COMPANY, et al.

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* Civil Nos. CCB-03-3414, CCB-03-3408
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MEMORANDUM
This decade old case involves Porter Hayden Company’s (“Porter Hayden”) claim that
National Union Fire Insurance Company of Pittsburgh, Pa. and American Home Assurance
Company (collectively, “the Insurers”) failed to indemnify Porter Hayden for asbestos-related
liability claims. Now pending before the court is the Insurers’ motion for partial summary
judgment on horizontal exhaustion. The Insurers seek a legal ruling that Maryland’s horizontal
exhaustion rule requires all available primary insurance to be exhausted before any excess
insurer may be required to pay for the loss.1 Also pending is Porter Hayden’s motion for
summary judgment. The issues in this case have been fully briefed, and oral argument was held
on November 20, 2013. For the reasons stated below, the Insurers’ motion for partial summary
judgment on horizontal exhaustion will be granted in part and denied in part, and Porter

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“A primary insurer that properly pays its policy limits is said to have ‘exhausted’ its limits.”
Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., 145 Md. App. 256, 314, 802 A.2d
1070, 1105 (2002) (citation and internal quotation marks omitted); see also Kurtz v. Erie Ins.
Exch., 157 Md. App. 143, 150, 849 A.2d 1050, 1055 (2004) (“In insurance parlance, exhaustion
contemplates the complete use of a primary liability policy before resort to any secondary or
excess policy.”).
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Hayden’s motion, as it pertains to Maryland law governing exhaustion, will be granted in part
and denied in part.2
BACKGROUND
Porter Hayden’s coverage program included both primary and excess liability insurance.
National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union”) issued two
primary policies to Porter Hayden, effective April 1, 1984, to April 1, 1986. (See Policy No.
1524165, ECF No. 344-2; Policy No. 1940385, ECF No. 344-3.) Operations claims and
completed operations claims were subject to different limits under Porter Hayden’s primary
insurance policies: In particular, some operations claims were not subject to an aggregate limit,
while completed operations claims were subject to such a limit. (See Insurers’ Mot. Summ. J.,
ECF No. 338-1, at 7; see also Porter Hayden’s Mot. Summ. J., ECF No. 344-1, at 9 n.3; Insurers’
Opp. to Porter Hayden’s Mot. Summ. J., ECF No. 350, at 24.)3 Turning to Porter Hayden’s
excess insurance coverage, National Union issued two excess insurance policies, effective July
11, 1976, to January 1, 1978. (See Policy No. 1186636, ECF No. 338-15; Policy No. 1186790,
ECF No. 338-16.) American Home Assurance Company (“American Home”) also issued an
excess insurance policy to Porter Hayden, effective July 11, 1975, to July 11, 1976. (See Policy
No. 2751098, ECF No. 338-14.)

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In this Memorandum, the court deals only with the part of Porter Hayden’s motion regarding
Maryland law governing exhaustion. The court does not yet address Porter Hayden’s request for
a declaration that “the Porter Hayden Bodily Injury Trust (“Trust”) pays claimants reasonable
values to resolve claims and the Insurers have waived their right to object to settlements paid by
the Trust.” (Porter Hayden’s Mot. Summ. J., ECF No. 344-1, at 1.) The court also does not yet
address Porter Hayden’s valuation of the primary and excess insurance policies.
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The court does not endeavor at this time to classify claims as either operations claims or
completed operations claims.
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STANDARD
Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted
“if the movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a) (emphasis added). Whether a fact
is material depends upon the substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
247–48 (1986). Accordingly, “the mere existence of some alleged factual dispute between the
parties will not defeat an otherwise properly supported motion for summary judgment.” Id. “A
party opposing a properly supported motion for summary judgment ‘may not rest upon the mere
allegations or denials of [his] pleadings,’ but rather must ‘set forth specific facts showing that
there is a genuine issue for trial.’” Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d
514, 522 (4th Cir. 2003) (alteration in original) (quoting Fed. R. Civ. P. 56(e)). The court must
view the evidence in the light most favorable to the nonmovant and draw all justifiable
inferences in his favor. Scott v. Harris, 550 U.S. 372, 378 (2007) (citation omitted); see also
Greater Baltimore Ctr. for Pregnancy Concerns, Inc. v. Mayor and City Council of Baltimore,
721 F.3d 264, 283 (4th Cir. 2013) (citation omitted). At the same time, the court must not yield
its obligation “to prevent factually unsupported claims and defenses from proceeding to trial.”
Bouchat, 346 F.3d at 526 (citation and internal quotation marks omitted).
ANALYSIS
Pursuant to the “continuous trigger theory,” insurance coverage for asbestos-related
bodily injury claims is triggered “from the date of initial exposure [to asbestos fibers] to the date
of manifestation [of asbestos-related disease].” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v.
Porter Hayden Co., 331 B.R. 652, 659, 664 (D. Md. 2005). To determine how coverage is
allocated among triggered policies, Maryland has “adopted the theory of a pro rata allocation by

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time on the risk.” See In re Wallace & Gale Co., 385 F.3d 820, 830 (4th Cir. 2004); see also
Porter Hayden Co., 331 B.R. at 668. Under the theory of pro rata allocation, an insurer’s
liability is limited to “that period of time it was on the risk compared to the entire period during
which damages occurred.” Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., 145 Md.
App. 256, 313, 802 A.2d 1070, 1104 (2002) (citation and internal quotation marks omitted). In
other words, “each insurer is liable only for its proportionate share of the total liability.” Porter
Hayden Co., 331 B.R. at 665.
Complicating the task of pro rata allocation is “the question of exhaustion, or [the] order
in which a court will decide to [collect from, or deplete the indemnification liabilities of] the
policies at issue.” Utica Mut., 145 Md. App. at 314, 802 A.2d at 1104 (citation and internal
quotation marks omitted). In Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., the
Maryland Court of Special Appeals explained:
One of the most hotly contested issues in continuous loss cases, often referred to by
insurers as “long-tail claims,” is whether an insured is obligated to exhaust its liability
coverage “vertically” or “horizontally.” This issue arises when several primary policies
or lower level excess policies are triggered, and a court must determine whether the limits
of the underlying policies for one year (vertical exhaustion) or all years (horizontal
exhaustion) must be exhausted before a particular excess policy must pay.
Id. at 314–15, 802 A.2d at 1105 (citation omitted). The court went on to “hold that ‘horizontal
exhaustion’ is the best fit for the realities of cases of this nature.” Id. at 315, 802 A.2d at 1105. 4
Thus, the horizontal exhaustion rule determined the allocation of liability among primary and
excess liability insurers. See id. at 314–16, 802 A.2d at 1104–05. In particular, the court stated:
“The exhaustion of all of the primary policies on the risk should occur prior to the requirement
that any excess policy respond to the loss, unless the language of the excess policy states that (1)

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The court agrees with the Insurers that Maryland has adopted the horizontal exhaustion rule
and, to that extent, the Insurers’ motion for summary judgment will be granted.
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it is excess insurance over a particular, specific, primary policy, and (2) will be triggered when
that discrete policy is exhausted.” Id. at 315, 802 A.2d at 1105 (emphasis added).
The court agrees with Porter Hayden that the horizontal exhaustion rule must be
understood in the context of Maryland’s adoption of the theory of pro rata allocation.
Accordingly, the court rejects the Insurers’ argument that, because some operations claims were
not subject to an aggregate limit, this means that some primary insurance policies were not
exhausted, and therefore, no excess insurance may be triggered. The Insurers’ argument rests on
the notion that primary policies covering operations claims must pay more than their pro rata
share. (See 11/20/13 Hr’g Tr. at 33:18–34:8; see also id. at 42:6–16.) The Insurers’ argument
also implies that excess insurance may never be available, because some operations claims were
not subject to an aggregate limit under Porter Hayden’s primary insurance. But this notion defies
Utica Mut., which recognized that “some primary policies that provide less coverage will be
exhausted sooner than others, and their excess insurers, if any, would accordingly have to
respond at an earlier point.” 145 Md. App. at 315, 802 A.2d at 1105. Therefore, the court does
not agree with the Insurers’ interpretation of the horizontal exhaustion rule and, to that extent,
their motion for summary judgment will be denied.
The court’s interpretation of the horizontal exhaustion rule follows Utica Mutual. In the
course of allocating damages pursuant to the pro rata allocation method, certain years of primary
insurance coverage may prove to be exhausted, while other years of primary insurance coverage
may not be. But this does not necessarily mean excess insurance is not available. If the primary
insurance as to a particular year on the risk has been exhausted, then an excess policy applicable
to that year must pay its pro rata share. As for operations claims not subject to an aggregate
limit, excess insurance for those claims may not be available for a particular year or years due to

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lack of exhaustion. Where primary coverage has been exhausted, however, excess insurance
may be required to pay for those losses. This interpretation avoids the problem of requiring an
insurer to pay more than its pro rata share. It is also consistent with the recognition of Utica
Mut. that certain primary policies may be exhausted sooner than others and, as a result, certain
excess policies respond sooner than others. Accordingly, Porter Hayden’s motion for summary
judgment will be granted in part, insofar as its interpretation of the horizontal exhaustion rule
matches that of the court, and otherwise denied.5
CONCLUSION
For the reasons stated above, the Insurers’ motion for partial summary judgment on
horizontal exhaustion will be granted in part, as to Maryland’s adoption of the horizontal
exhaustion rule, and otherwise denied. Porter Hayden’s motion, as it pertains to the law
governing exhaustion, will be granted in part, insofar as its interpretation of the horizontal
exhaustion rule aligns with that of the court, and otherwise denied. A separate order follows.

January 2, 2014
Date

_________/s/_____________________
Catherine C. Blake
United States District Judge

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In addition to disagreeing over Maryland law governing exhaustion, the parties disagree over
whether Porter Hayden’s excess policies require all primary insurance to be exhausted before
excess insurance may be triggered, or whether they provide for excess insurance over particular
primary policies. The court does not at this time decipher the meaning of Porter Hayden’s
excess insurance policies and whether they endeavor to deviate from Maryland’s horizontal
exhaustion rule.
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