February 2012

Co-authored by Brian Gross 

On February 10, 2012, the Massachusetts Supreme Judicial Court found that plaintiffs were entitled to more than $22 million when it held that the damages to which a plaintiff is entitled to recover pursuant to M.G.L. c. 93A and 176D for an insurers’ failure to effect prompt, fair and equitable settlement of claims must be based on the underlying judgment in the plaintiffs’ tort action, and not the loss of use of the sum ultimately offered by the defendant-insurers.  See Rhodes v. AIG Domestic Claims, Inc., — N.E. 2D —-,Mass., 2012 WL 401034 (Mass., February 10, 2012).

The Rhodes case arose out of Rhode’s catastrophic personal injuries when a tractor trailer truck rear ended her car.  Rhodes, her husband and daughter brought a tort action against inter aliaGAF Building Corp. (“GAF”), the company that leased the tractor trailer truck. GAF was insured by Zurich American Insurance Company (“Zurich”) which carried a $2 million primary policy, and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”), which carried a $50 million excess umbrella policy. AIG Domestic Claims, Inc. (“AIGDC”) acted as National Union’s claims administrator.

Defendants’ and their Insurers’ evaluation of plaintiffs’ claims and the various settlement offers and demands are detailed at length in the Court’s opinion.  For purposes of this report, it is sufficient to note Zurich tendered its policy limits to AIGDC, but AIGDC’s highest offer prior to trial was $3.5 million, which increased to $6 million at the close of evidence.

After a trial on damages, the jury awarded plaintiffs damages in the approximate amount of $11.3 million, after deducting a co-defendant settlement and adding statutory interest.  The underlying tort action was settled pending appeal, but, plaintiffs’ claims against Zurich and AIGDC for both pretrial and postjudgment violations of Chapters 93A/176D proceeded to bench trial, where the judge found in favor of Zurich, but against AIGDC.  In calculating plaintiffs’ damages pursuant to Chapters 93A and 176D, the trial court andAppeals Courtboth held that plaintiffs’ damages are based on plaintiffs’ lost use of the funds.

On further appeal, the Massachusetts Supreme Judicial Court disagreed and held that the plain language of the Massachusetts Legislature’s 1989 amendments to Chapter 93A provides that the damages for knowing and willful violations of Chapters 93A and 176D committed by insurers are calculated by doubling or trebling the amount of the underlying judgment – in this case $11.3 million.

While the SJC’s decision invites the Legislature to consider expanding the range of permissible damages to be awarded for such cases, it is clear that under current law, liability insurers face significant risk in their claims handling practices, particularly where the underlying matter involves clear liability and potential for significant damages.

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Co-authored by Brian Gross 

Navy ShipAfter years of inconsistent rulings in the trial and appellate courts, the California Supreme Court recently decided the issue of whether plaintiffs in asbestos litigation may pursue claims against equipment manufacturers for injuries caused by asbestos-containing replacement component parts they neither manufactured nor supplied. For the reasons below, the Court expressly rejected this theory of liability and affirmed judgment in favor of equipment manufacturers Crane Co. and Warren Pumps (O’Neil v. Crane Co., California Supreme Court Case No. S177401).

Procedural History of Case

This opinion originated from a wrongful death personal injury asbestos case first filed in Los Angeles Superior Court. Plaintiffs alleged that the Decedent was exposed to asbestos-containing gaskets, packing, and insulation materials found in or on the Defendants’ pump and valve products when Decedent served aboard ship in the United States Navy. Although the evidence demonstrated that Defendants’ products incorporated asbestos-containing component parts, it was undisputed that the Defendants did not manufacture or supply the asbestos-containing gaskets and packing actually found in or on the equipment at the time of Decedent’s exposure.

At trial, the Superior Court granted Defendants’ non-suit motions.  In doing so, the Superior Court ruled thatCalifornia’s strict liability and negligence law did not support imposition of liability for harm caused by another manufacturer’s product. The Second District Court of Appeal reversed the trial court’s decision.

California Supreme Court Ruling

On final appeal, the California Supreme Court reversed the Court of Appeal decision and affirmed the trial court judgment in favor of Defendants.  In so doing, the Court re-affirmed the general rules that a manufacturer cannot be held strictly liable for defects in another entity’s product, and that a manufacturer has no duty to warn of risks arising from another manufacturer’s products.

Impact of O’Neil Decision on California Asbestos Litigation Going Forward

The O’Neil decision will likely have a significant impact on asbestos litigation going forward. Although the decision does not entirely eliminate liability for all pump, valve, or other equipment manufacturers, it certainly limits the factual scenarios under which they may be held liable. Accordingly, California asbestos litigation counsel may anticipate the following:

  • An increased litigation focus on the remaining pool of asbestos replacement part manufacturers, such as gasket, packing and insulation manufacturer defendants
  • An increase in litigation against the direct suppliers of gasket, packing, and insulation materials (largely due to fact that many of the insulation, gasket, and packing defendants are now bankrupt)
  • Finally, because the O’Neil opinion leaves open the possibility that an equipment manufacturer may be held liable upon a showing that it “substantially participated” in creating a harmful combined use of its product with asbestos-containing replacement parts, equipment manufacturers should anticipate that certain Plaintiffs firms will pursue and develop this theory of liability against them through the pre-trial discovery process.

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