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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND Southern Division
IN RE: THE WALLACE & GALE CO., * * Bankruptcy No. 85-A-0092 In Chapter 11

Debtor * _________________________________ * THE AETNA CASUALTY AND SURETY COMPANY, * Plaintiff v. THE WALLACE & GALE CO., et al., Defendants * * * * * * * * * * * * * * * * * Civil No. PJM 94-2327

OPINION
I. This case concerns insurance coverage for claims of asbestos-related bodily injury against Wallace & Gale, Inc., an insulation contractor currently in bankruptcy. The Intervenors are four (4) former employees of the Bethlehem Steel Plant at Sparrows Point in Baltimore or their personal representatives, all of whom have filed such claims.1
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The Intervenors are Roy E. Jones, Andrew R. Younghan, Louise Holcomb as Personal Representative of the Estate of Cossie Holcomb, and Robert M. Barber as Personal Representative of the Estate of Milton Barber. -1-

specially-named legal representative represents unknown claimants who may file such claims in the future.2 Defendants are insurance companies that provided either primary or excess insurance policies to Wallace & Gale between 1962 and early 1985.3 The Intervenors, Travelers, Hartford/St. Paul, and Granite State/New Hampshire have submitted Cross-Motions for Summary Judgment raising the following issues: 1) Is each insurer liable for "all sums" payable on any claim for asbestos-

related injuries that Wallace & Gale may be found liable to pay? Or is an insurer's liability limited to a pro-rata share of all sums payable, measured by the time the insurer was on the risk relative to the entire period of coverage? 2) Are claims subject to an aggregate limit by reason of the "completed

operations hazards" provisions of the policies?

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The Intervenor Legal Representative for Unknown Future Claimants has adopted the Intervenors' Motion for Summary Judgment.
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The primary insurers, Travelers Casualty Insurance Company (formerly known as Aetna Casualty and Surety), Hartford Insurance Company, St. Paul Fire & Marine Insurance Company, and Granite State Insurance Company, issued comprehensive general liability (CGL) policies to Wallace & Gale covering the periods January 1, 1962 to April 1, 1983 and September 30, 1984 to January 24, 1985. Travelers issued the majority of the primary policies: 18 annual policies between January 1, 1962 through December 31, 1979. The excess insurers, Continental Casualty Co., Riunione Adriatica de Sicurta ("Adriatica"), St. Paul, and New Hampshire Co., issued policies covering the period January 1, 1980 to January 25, 1985. The precise dates that each insurer provided coverage and the scope of the coverages are set forth in Appendix A hereto. -2-

3) With regard to Travelers' policies covering the period 1962-65, have the Intervenors presented sufficient evidence (a) that the policies are lost and (b) if so, of the terms, conditions and scope of coverage under the policies? 4) With regard to the Granite State and New Hampshire policies, is coverage precluded by reason of the "expected or intended" injury clauses of the policies? II. A) Beginning in approximately 1930 and continuing until the early 1970s,

Wallace & Gale supplied and installed asbestos-containing insulation materials at various industrial and commercial buildings throughout Maryland. Among these was the Bethlehem Steel Plant at Sparrows Point. In the course of its work, Wallace & Gale personnel regularly cut asbestos materials, generating asbestos dust and other debris, some of which was inhaled by individuals on-site, including workers at the Sparrows Point Plant. As a result, several of these individuals developed or claim to have developed asbestos-related diseases. Wallace & Gale ended its operations in the early 1970s, in large part due to the problems associated with its asbestos-related activities. Eventually it was forced into bankruptcy, in the course of which a substantial number of asbestos-related bodily injury claims followed, including those of the Intervenors. Wallace & Gale had several CGL policies providing possible coverage of these claims. From the outset, however, the Insurers disputed the extent of both their duty to defend or indemnify against the claims. Those disputes led to a withdrawal of reference of the issues from the Bankruptcy Court and their

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return to this Court for determination. Earlier in these proceedings, after extensive briefing and argument, the Court determined that each of the Insurers did indeed have a duty to defend, given that the various claims had the potential of triggering coverage under each of the several policies. The parties then returned to the Bankruptcy Court to develop a Plan of Reorganization, which was eventually established and approved. The Plan provides that the Insurers will create a trust fund that will assume any liability Wallace & Gale may ultimately be determined to have with respect to asbestos-related bodily injury claims. The principal assets of the trust will be Wallace & Gale's rights under these insurance policies. The purpose of the present proceeding is to establish Wallace & Gale's rights in the policies, hence the framework within which coverage of individual claims will be determined.4 B) With one exception, the parties agree that, with regard to claims arising out of injuries sustained while Wallace & Gale was actively involved in its operations

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The Intervenors and Travelers have entered into several important stipulations, including a Stipulation Concerning Medical Issues (Appendix B hereto) and a Stipulation Regarding Various Issues, Defenses and Damages (Appendix C hereto). In addition, the parties have entered into stipulations regarding the nonapplicability of various potential defenses (Appendix D hereto). Except for Granite State and New Hampshire, the Insurers have stipulated that they will not contend that Wallace & Gale "expected or intended" any of the injuries alleged by individuals asserting asbestos-related bodily injury claims. Similarly, again with the exception of Granite State and New Hampshire, the Insurers have stipulated that they will not contend that Wallace & Gale's insurance coverage is barred, limited, excluded or impaired because an individual's asbestos-related injury constituted a "known loss" or a "loss in progress." The Insurers have also either stipulated that they will not contend or do not in fact contend that any "pollution exclusion" clause applies to bar or limit coverage. Id. In short, many of the coverage defenses that the Insurers raised in their summary judgment motions on the duty to defend are not issues in this indemnification phase of the case. -4-

installing asbestos, the policies have no limit of coverage.5 The Intervenors contend, moreover, that if a claimant was initially exposed to the asbestos while Wallace & Gale was still on the job, the insurer whose policy was in place at that time and each insurer thereafter is jointly and severally liable for all sums Wallace & Gale may be found liable to pay. The Insurers' response is that, at most, they are liable for a pro-rata share of the total liability based on the time each insurer was on the risk. The consequence of this distinction is that, if liability is pro-rated, no coverage will be available for any period in which Wallace & Gale had no policy in effect, and the pro-rata share of each insurer will be reduced pro tanto. The Insurers also argue that, to the extent that claims pertain to any policy period after Wallace & Gale completed its operations, those claims are subject to an aggregate limit by reason of the completed operations hazards definitions of the policies. The Intervenors respond that so long as an injury -- including exposure -- occurred during Wallace & Gale's operations, it remains an operations claim thereafter, with no limit in coverage; it cannot be converted in whole or part into a completed operations claim subject to an aggregate limit. Travelers, Granite State and New Hampshire raise additional issues unique to their own circumstances.

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The sole exception is Granite State, which claims aggregate limits for all claims, operations-related as well as completed operations claims. See Chart, Appendix A hereto. -5-

Travelers contends that the Intervenors have failed to produce Wallace & Gale's 1962-65 policies and have failed to present sufficient evidence of either the fact of loss or the terms and conditions and scope of coverage under the policies. The Intervenors argue to the contrary. Granite State and New Hampshire assert that Wallace & Gale expected or intended the asbestos-related injuries and claims when it purchased their policies for the 1984-85 period and, as such, they are excluded from coverage by reason of the "expected or intended" clauses of their respective policies. The Intervenors' response is that there is no evidence that Wallace & Gale actually expected or intended specific injuries at the time it bought either policy and, therefore, the exclusion does not apply. The Intervenors also deny the applicability of the "known loss" doctrine, a closely related defense. III. The parties have filed cross-motions for summary judgment. All agree that the principal issues before the Court

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