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The Takeaway

In the aftermath of a recent multi-million-dollar award in a benzene exposure case, two things are likely: benzene bodily injury case filings will increase, and those cases will trigger three key insurance coverage issues:

1. When is liability insurance coverage triggered in these long-tail exposure cases?
2. How is coverage from multiple insurers allocated?
3. What determines the exhaustion of other insurance that triggers umbrella coverage?

The rulings in a 2022 North Carolina Supreme Court case—to date the only state high court decision regarding benzene claim coverage—offer some guideposts.

Introduction

Recently, a jury awarded a former mechanic multi-millions of dollars in damages due to what it determined was a failure of a petroleum company to warn him of the risk of benzene in its products.

This verdict will likely trigger both insurance coverage questions as well as a new wave of benzene suits. In view of these possibilities, Perkins Coie attorney Jonathan Hardin advises potential defendants to study the case of Radiator Specialty v. Arrowood Indemnity, which to date has been the only state high court decision regarding benzene claim coverage.

The Radiator Specialty Case

Radiator Specialty Co. v. Arrowood Indem. Co., 383 N.C. 387, 881 S.E.2d 597 (2022) involved a manufacturer of automotive, hardware, and plumbing products. Some of Radiator’s products contained benzene, and over the last 20 years the company was named in hundreds of personal injury lawsuits seeking damage for bodily injury allegedly caused by repeated exposure to benzene. The company then sued its commercial liability and excess insurers, seeking compensation for the defense and settlement costs it incurred as a result of that litigation. At issue was which insurer was obligated to pay which costs arising from those liabilities.

Various parties appealed after the Superior Court entered a partial summary judgment order on various coverage issues. The Court of Appeals dismissed the appeals and remanded. On remand, the Superior Court, Mecklenburg County, entered judgment determining the insurers were obligated to defend and indemnify the insured. Insurers appealed. The Court of Appeals, 274 N.C.App. 510, 850 S.E.2d 624, affirmed in part and dismissed in part. All parties petitioned for discretion review from the Supreme Court.

The Supreme Court held that:

1. An insurer’s coverage was triggered when claimants in underlying actions were exposed to benzene during the policy period (rather than when claimants developed an observable bodily injury).
2. An insurer’s scope of liability to its insured was limited to damages accrued during its “time on the risk” relative to the total number of years of triggered coverage (instead of an allocation of “all sums” or joint and several liability).
3. An excess insurer’s duty to defend its insured was triggered upon vertical exhaustion of primary policies beneath it during the same policy period (rather than upon horizontal exhaustion of all primary polices from other policy periods).

Analysis of the Supreme Court’s Decision

Triggering Coverage: Exposure vs. Manifestation

The first issue before the Supreme Court was to decide when “bodily injury” occurred in order to determine when coverage was triggered.

One of the insurers asked the Court to apply a “manifestation trigger.” They argued that even though exposure to benzene was the cause of the claimants’ injuries, exposure alone was not the actual injury that created the claim for damages. Instead, they argued that the resulting cancers or other physical ailments were the actual injury.

Other defendants urged the Court to apply the “exposure trigger.” They reasoned that injury happened in the days following a benzene exposure, although the symptoms from that injury took longer to become noticeable. Radiator Specialty Co. v. Arrowood Indem. Co., 383 N.C. 387, 881 S.E.2d 597 (2022).

The Court agreed that the claims were subject to an exposure trigger. It noted that the trial court had taken “judicial notice of the innumerable cases concerning asbestos and benzene exposure and recognize[d] how difficult it is to ascribe a ‘date certain’ or ‘single event’ to such harm.” Id. Further, the Court rejected an alternative argument that under an exposure theory, policies in effect during the development of a claimant’s malignancy and cancer also should be deemed triggered (in effect, that a “continuous trigger” applied). According to the Court, applying a “continuous trigger” would be “at odds with [its] holding that in benzene cases, the injury that triggers coverage occurs at the time of exposure.” Id at 609.

Allocating Coverage from Multiple Insurers: Pro-Rata vs. All Sums

The next issue the Court had to determine was how to allocate defense and indemnification costs among multiple insurers and policies.

The insurers argued for the Court to apply pro-rata allocation. Under this approach, each triggered policy would owe a share of the total damages that was based on the proportion of the number of years it was at risk divided by the total number of years of triggered coverage. (For example, if Radiator was insured by Insurer A for seven years and the total number of years that Radiator had coverage policies was 28, Insurer A would be liable for one-fourth of the total damages.)

In contrast, Radiator Specialty urged the Court to adopt the “all sums” approach. In this case, each insurer would be liable for the full amount of the costs that Radiator incurred up to each insurer’s policy limits.

The Supreme Court reversed the Court of Appeals and held that the language used in the various policies supported pro-rata allocation. It explained that“… the modern trend is to apply pro-rata allocation when limiting language like ‘during the policy period’ exists, even when the policy contains a reference to paying ‘all sums’ arising out of certain liabilities. Id.

The Court added that

[b]ecause there is very little daylight between exposure and injury in the context of benzene exposure, there [would be] virtually no practical purpose in distinguishing between [policy language] limiting coverage to [injury] during the policy period and [language] limiting coverage to occurrences during [the policy] period. Id.

Determining Exhaustion of Other Insurance: Vertical vs. Horizontal

Finally, the Court needed to decide which method to use to determine when other liability insurance coverage was exhausted.

The Court determined that vertical instead of horizontal exhaustion applied to the duty to defend under certain umbrella policies. Id at 619. Specifically, the Court determined that the subsections of the policies were not to be read together because they were phrased in the disjunctive (i.e., they were joined by “or”) not the conjunctive (i.e., joined by “and”). Furthermore, subsection (b) was operative because the underlying policies included “pre-existing damage” exclusions that precluded coverage for the benzene claim. The Court remanded the case for the purpose of applying vertical exhaustion. Id.