PHILADELPHIA (Legal Newsline) - An insurance company that inspected W.R. Grace’s Montana asbestos-mining facilities and provided industrial hygiene services to workers might be liable for their injuries, the Third Circuit Court of Appeals ruled, keeping alive long-running litigation over who pays for the manufacturer’s asbestos liabilities.
Grace operated the facility until 1990 and filed for bankruptcy in 2001 to resolve more than 100,000 asbestos lawsuits. As part of the reorganization, it established $4 billion in trusts to pay claims going forward.
After 26 years of litigation over the extent of its insurance coverage of Grace, CNA paid $84 million into the bankruptcy trusts in exchange for an injunction against further claims. The workers sued CNA anyway, claiming it was directly responsible because it failed to warn them about exposure risks it knew about because of its inspections and the services it provided.
The bankruptcy court upheld the injunction against lawsuits, citing Section 524(g) of federal bankruptcy law that was written to encourage insurance companies to contribute toward asbestos trusts. The workers appealed to the Third Circuit, which in a 2018 decision remanded the case because it couldn’t be sure CNA’s role met the requirements for protection under federal law.
The bankruptcy court then ruled for the plaintiffs and CNA appealed back to the Third Circuit. In a Sept. 15 decision, the court punted again on the central question of liability under federal law.
The appeals court agreed with CNA that it was protected against lawsuits under Montana tort law. Under general tort principles, independent parties like insurers are exempt from liability unless they meet a narrow set of exceptions centered upon whether they assumed responsibility for activities that independently increased the risk of someone being injured by another company’s products.
Examining the circumstances at the Libby mine, the Third Circuit said the connection between CNA and Grace wasn’t close enough to create liability under state law.
The question under 524(g), the federal bankruptcy law, is more complex, the appeals court ruled, however. Under that law, bankruptcy courts have the power to issue protective injunctions prohibiting lawsuits against insurers if they have a “statutory relationship,” defined as providing insurance coverage.
The plaintiffs argue CNA went beyond the normal insurer-insured relationship to provide other services including inspecting its facilities and providing industrial hygiene services to workers. CNA argues everything it did fell within the normal industry practices for commercial insurers.
The Third Circuit said it didn’t have enough facts to decide which is true, so it remanded the case yet again to the bankruptcy court to decide.