In the Matter of the Liquidation of Integrity Insurance Company/Celotex Asbestos Trust, A-50 September Term 2011; Supreme Court; opinion by Cuff, P.J.A.D., temporarily assigned; decided June 19, 2013. On appeal from the Appellate Division. [Sat below: Judges Payne, Baxter and Koblitz in the Appellate Division.] DDS No. 23-1-0343 [36 pp.]

Celotex Corporation was a major manufacturer of commercial and residential building and roofing products. In the late 1970s and early 1980s, thousands of lawsuits were filed asserting liability against Celotex for bodily injuries and property damage incurred from its asbestos-related products. In 1990, it filed for reorganization under Chapter 11 of the Bankruptcy Code in the Middle District of Florida. The bankruptcy court thereafter approved the establishment of the Celotex Asbestos Settlement Trust to process all of the asbestos-related claims.

Integrity Insurance Company had issued two excess insurance policies to Celotex's parent corporation covering Oct. 1, 1982, through Oct. 1, 1984. The policies required Celotex to provide notice "as soon as practicable" of an "occurrence" that appeared likely to result in a claim for excess insurance coverage. Integrity was declared insolvent in 1986.

Celotex filed an adversary proceeding seeking a declaratory judgment that it was entitled to coverage for asbestos-related claims from multiple layers of primary, umbrella and excess coverage issued by multiple insurers over the years. The bankruptcy court held that Illinois law governed; that each installation of asbestos-containing materials was not a separate occurrence because the insured's liability was predicated on its manufacture and distribution of products rather than installation or incorporation of its products; and that although Celotex provided notice to its pre-1982 excess carriers in April 1983, its post-1982 providers received notice of claims no earlier than 1985, if then, and because notice was thus untimely and unreasonable, Celotex was barred from obtaining coverage under the relevant policies.

The District Court for the Middle District of Florida affirmed, as did the Eleventh Circuit Court of Appeals.

In 2009, the trust submitted proofs of claim to the Integrity liquidator seeking the face amount of the two policies. Both claims were rejected by the liquidator, a special master, and a trial judge. All relied on the order entered in the declaratory judgment action.

The Appellate Division reversed, finding that the issue before the bankruptcy court was whether Celotex had provided reasonable notice of the then-pending claims and that it did not address future claims.

On appeal, the liquidator contends the doctrine of collateral estoppel bars the trust from seeking coverage under the Integrity policies because the Florida decisions pertained to inadequate notice of occurrence, not inadequate notice of particular claims, and had already determined that Celotex breached its obligation to provide timely notice.

The trust argues that because the present claims involve different claimants, the Florida declaratory judgment has no bearing since each claim is a separate occurrence.

Held: The orders entered in the federal bankruptcy proceedings, finding that there was one occurrence from which all then-present and future claims derived and that Celotex failed to provide timely and reasonable notice to Integrity and thus is barred from relief, bar the proofs of claim filed by the trust with the Integrity liquidator.

Generally, collateral estoppel bars relitigation of any issue that was actually determined in a prior action, generally between the same parties, involving a different claim or cause of action. Because the court that rendered the judgment that the liquidator seeks to apply was a federal court, the court looks to the law of the Eleventh Circuit to determine the prior judgment's preclusive effect. That law requires that the issue litigated in the prior case must be precisely the same as that presently before the court.

The court says the bankruptcy court considered the proper interpretation of "occurrence" under Illinois law and addressed whether Celotex provided timely notice to post-October 1978 insurers. Those issues were actually litigated, and each determination was a critical and necessary part of the prior bankruptcy litigation. Celotex's interests were represented and Integrity had a full and fair opportunity to litigate the issue now before the court. Therefore, the court focuses its collateral-estoppel analysis on whether the issue at stake is identical to the one involved in the prior litigation.

The court says resolving the issue implicates the bankruptcy court's interpretation of "occurrence" because that interpretation informed the ultimate decision whether Celotex provided timely notice to its post-1978 insurers, including Integrity. The court holds that although the claims in the proofs of claim postdate those extant when the coverage issue was considered by the bankruptcy court, both sets of claims arise from the same occurrence, i.e., Celotex's manufacture and distribution of asbestos-containing materials and products.

As to defining "occurrence," Illinois has adopted the cause test, under which the court asks if there was but one proximate, uninterrupted, and continuing cause that resulted in all of the injuries and damage. The bankruptcy court's finding that there was a single occurrence for purposes of bodily and property injury claims was consistent with Illinois law at the time and as it has developed.

As to notice, the court says that under Illinois law, compliance with a timely notice requirement is a necessary precursor to obtaining coverage. Determining whether notice was reasonable requires an analysis of several factors, including the (1) timing of the notice in relationship to the status of the ongoing claims or ongoing litigation; (2) sophistication of the insured; (3) insured's diligence; and (4) prejudice. Consistent with Illinois law, the bankruptcy judge held that Celotex was obliged to provide notice of occurrence when it reasonably believed the excess coverage would be accessed, and it did not do so.

The court says the trust's contention that the bankruptcy proceeding addressed only whether Celotex had provided notice of pending claims ignores the clear distinction under Illinois law between an occurrence and a claim and the direct relationship between the proper interpretation of occurrence and the obligation to provide timely notice of an occurrence.

The court concludes that the Florida decisions determined that Celotex was barred from obtaining coverage because it failed to provide proper notice of occurrence. The Florida courts were focused on the asbestos litigation as a whole and not on specific claims then pending. Further, both the policies' plain language and Illinois case law indicate that there is one occurrence from which all of the claims against Celotex derive.

Therefore, the court holds that the orders entered in the prior bankruptcy proceeding bar the proofs of claim filed by the trust because of the doctrine of collateral estoppel.

Chief Justice Rabner, Justices Hoens and Patterson, and Judge Rodriguez, temporarily assigned, join in Judge Cuff's opinion. Justices LaVecchia and Albin did not participate.

For appellant Commissioner of Banking and Insurance — David M. Freeman (Mazie Slater Katz & Freeman; Freeman and John D. Gagnon on the brief). For respondent trust — James R. Matthews, of the Ohio bar (Saiber; Marc E. Wolin on the brief).