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The commercial liability insurers for shipping and engineering giant Kvaerner are obligated to defend the company against thousands of asbestos actions filed against it since the fall of 2001, a Philadelphia judge has ruled. Kvaerner U.S. Inc. v. One Beacon Insurance Co. was handled in Philadelphia’s Commerce Case Management Program. Interpreting the language of policies issued to Kvaerner by One Beacon, Judge Albert W. Sheppard Jr. held that the asbestos-related personal injury claims at issue did not, as One Beacon had contended, stem from “a single occurrence” as defined in the policies. “Kvaerner’s activities which triggered the underlying claims did not arise from a single, negligent practice that could be considered one cause, such as distributing a uniformly defective product from a single manufacturer or selling a product containing asbestos from one location.” Sheppard wrote. “Instead the exposure to asbestos arose from the construction of furnaces at different sites, at different times and for varying lengths of time. Consequently, the claimants that were exposed to asbestos at the same location and at the same time were exposed to ‘substantially the same general condition.’ Accordingly, the claims for each site should be considered one occurrence.” Sheppard ordered the insurance companies to pay 100 percent of the defense costs incurred by the company after September 2001 in defense against asbestos claims. Timothy Russell of Spector Gadon & Rosen, the attorney who represented Kvaerner in the matter, said Sheppard’s ruling means that the liability limits on Kvaerner’s One Beacon policies could be applied several times over, instead of just once. The lawyer who defended One Beacon said that while his client is not yet sure whether or not it will appeal, he believes that Sheppard’s decision in Kvaerner appears to conflict with the recent holding of 3rd U.S. Circuit Court of Appeals Judge Theodore A. McKee in Liberty Mutual Insurance Co. v. Treesdale Inc. In his opinion in Treesdale, which was filed several days before Sheppard’s Kvaerner decision, McKee held that the manufacturer of an asbestos-containing product can only be covered for a single occurrence under the terms of its insurance policy. “We’re disappointed that the ruling [in Kvaerner] was not in accordance with our reading of Treesdale,” said One Beacon lead defense counsel Ralph Luongo of Christie Pabarue Mortensen & Young. In his Aug. 19 decision to grant a Kvaerner motion for summary judgment, Sheppard also ruled that although Kvaerner should be allowed to follow through with running the defense against the pending claims against it, One Beacon and co-defendant Century Indemnity Co. should be permitted to control the defense against claims brought in the future. According to Sheppard’s opinion, 5,993 asbestos claims had been filed against Kvaerner (specifically, companies it has previously purchased) as of March 2005, and about 3,500 of those remain active and open. Such claims continue to be brought against Kvaerner at a rate of 100 per month. Luongo said he understood, based on information made available through the discovery process, that over the course of decades Kvaerner took over the assets and liabilities of Arthur G. McKee & Co., which designed and constructed boilers and furnaces used at industrial plants. A predecessor company of One Beacon had issued six policies covering the years 1964 to 1982 to what ultimately became Kvaerner subsidiaries, and a Century predecessor had issued four policies covering the years 1982 to 1986 to companies that likewise later became parts of the Kvaerner conglomerate. “Upon receipt of the bodily injury claims, Kvaerner requested that defendants provide a defense,” Sheppard wrote. “As of this date, although defendants have paid Kvaerner’s past defense costs incurred with respect to some claims through a certain date in 2004, defendants have not assumed the duty to defend. Presently, Kvaerner is being represented by house counsel and various law firms across the country.” The key issue in Kvaerner concerned the extent to which One Beacon is obligated to defend the company. “Kvaerner argues that all the asbestos-related personal injury claims embodied in the underlying suits should be identified and correlated by construction sites and that each construction site should constitute an occurrence,” Sheppard wrote. “One Beacon on the other hand argues that all the asbestos-related personal injury claims alleged by claimants were caused by a single occurrence, the continuous or repeated exposure to the asbestos and, thus, the underlying injuries result from one occurrence.” Under the language of the relevant policies, Sheppard continued, all injury or damage “arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as a arising out of one occurrence.” Sheppard agreed with Kvaerner that its interpretation of the policies’ language conforms to industry standards and denied a defense motion for summary judgment as to the scope of the duty to defend. But Sheppard did side with the defense on the issue of control of defending against future asbestos claims. He rejected Kvaerner’s argument that conflicts of interest would occur if the defendants controlled the defense against future claims, given their recent attempts to avoid or limit their coverage duties. “Kvaerner � argues that, if afforded the opportunity to control the defense, defendants would settle claims at a rate and in amounts that hasten the termination of their defense duties but at the same time raise Kvaerner’s profile and make it a more inviting target for claimants,” Sheppard wrote. “To some extent,” he added later, “Kvaerner seeks to promote a per se rule that counsel provided to an insured by an insurance company is likely to disregard his ethical duty to his client. This court is unwilling to adopt such a rule based solely on Kvaerner’s expectation that a conflict will arise.” Sheppard did find, however, that if Kvaerner were to cede control of the defense against the active asbestos actions, “the effects of the hard work expended by its defense teams thus far in defending present claims would likely be so attenuated so as to be deemed a real loss.” Defense attorney Luongo said Kvaerner has incurred millions of dollars’ worth of legal fees in the several years it has been defending against the asbestos suits at issue. Russell, who was counsel for Kvaerner, said that last week, Sheppard amended his order in the matter to include language that allows the company to seek prejudgment interest on amounts it has spent in conjunction with its recent legal costs. Century Indemnity’s attorney in the case, Lawrence Serlin of Siegal Napierkowski & Park in Mount Laurel, N.J., did not immediately respond to a call seeking comment.

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