4th Circuit affirms pro rata liability for insurers in asbestos cases

Daily Record, The (Baltimore), Oct 15, 2004 by Barbara Grzincic

Insurance companies that covered an asbestos-installing firm are not responsible for all sums payable by their bankrupt insured, the 4th U.S. Circuit Court of Appeals has held.

Instead, each insurer must pay only a fractional share of the total damages, corresponding to its time on the risk - and the denominator of that fraction will include years in which the company was uninsured or self-insured.

The decision, which affirms a 2002 ruling of the U.S. District Court, limits the amount of money the insurers will have to pay into a fund for four former Bethlehem Steel workers.

The workers intervened in a declaratory judgment action filed in 1994 by Travelers Insurance Co., seeking to establish the relative liability of eight different insurers of Wallace & Gale Co. They claimed they were injured by asbestos the construction firm installed, and that each of Wallace & Gale's insurers over the years should be jointly and severally liable for all sums Wallace & Gale owed them.

On appeal, the workers asked the 4th Circuit to refer that question to the Maryland Court of Appeals for resolution as a matter of state law.

The 4th Circuit declined to do so, noting that the pro-rata method was adopted by the intermediate Court of Special Appeals in a similar case - a decision that, in fact, had played a pivotal role in the present matter.

The U.S. District Court initially ruled for the workers in February 2002, finding the policies could reasonably be read in either fashion but resolving the ambiguity against the insurers.

But that summer, the Court of Special Appeals adopted the pro rata allocation method in Mayor & City Council of Baltimore v. Utica Mutual Insurance Co., leading the federal court to do the same in the Wallace & Gale matter in September 2002.

The workers pointed out that the Maryland Court of Appeals had granted certiorari in Utica Mutual, but the question was taken from it because the parties settled.

The 4th Circuit declined, however, to certify the question, and affirmed the second ruling by the U.S. District Court.

The workers claimed the pro rata method ensures they will not recover the full amount of their damages, and that it was unfair to make them suffer for Wallace & Gale's failure to purchase insurance.

The 4th Circuit, however, said it would be just as unfair to hold the insurance pool liable.

It is neither equitable nor fair to require an insurance company to pay for coverage during a period for which no effective coverage is in force, Judge H. Emory Widener Jr. wrote for the court.

Louise Holcomb, a Middle River resident whose late husband, Cossie, was one of the original four plaintiffs, was not aware of the latest ruling. But she said she does not think the compensation she has received is fair.

I got some (money) earlier this year, but I still think we need more, Holcomb said.

The case is In re: Wallace & Gale, debtor (Jones v. Liberty Mutual et al.), No. 02-2389.