Significant Victory for Porter Hayden in Asbestos Coverage Dispute over Exhaustion of Insurers’ Excess Policies

January 2, 2014

Porter Hayden prevailed on a significant coverage dispute when the U.S. District Court for the District of Maryland confirmed that Maryland’s “horizontal exhaustion” rule requires only exhaustion of the primary policies in a particular year on the risk before excess layers in that same year are available.  National Union Fire Insurance Company of Pittsburgh, Pa. v. Porter Hayden Company, No. 1:03-cv-034080-CCB (D. Md.).

Porter Hayden was an installer of asbestos-containing insulation and, in 2007, emerged from bankruptcy under the special asbestos-bankruptcy code provisions (Section 524(g)). The bankruptcy resulted in the creation of the Porter Hayden Bodily Injury Trust to defend against asbestos personal injury claims and resolve those with merit.

National Union Fire Insurance Company of Pittsburgh, Pa. and American Home Assurance Company, two of Porter Hayden’s insurers, jointly argued that their excess policies do not respond until all of Porter Hayden’s triggered primary policies are exhausted, regardless of whether those primary policies are within the 1975-1978 period covered by National Union and American Home’s excess policies.  In a cross-motion for summary judgment, Porter Hayden argued that because Maryland is a “pro rata” allocation jurisdiction, Maryland’s horizontal exhaustion rule only requires exhaustion of primary policies on the risk for policy periods shared with an excess policy.

The court rejected the insurers’ argument and adopted Porter Hayden’s view of horizontal exhaustion. U.S. District Court Judge Catherine C. Blake confirmed that under Maryland law, as articulated by the Maryland Court of Special Appeals in Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., 802 A.2d 1070 (Md. Ct. Spec. App. 2002), “[i]f 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.” 1/2/2014 Mem. Op. at 5.  The court further noted that given Maryland’s pro rata approach to allocating long-tailed claims, National Union and American Home’s argument wrongly “rests on the notion that primary policies covering operations claims must pay more than their pro rata share.”  Id.  Porter Hayden’s interpretation of horizontal exhaustion in Maryland “avoids the problem of requiring an insurer to pay more than its pro rata share.”  Id. at 6.