Failure to get involved promptly in the state’s defense has left an insurance company liable for all of Montana’s $43 million settlement to Libby asbestos victims, a state judge has ruled.
District Court Judge Holly Brown found that even though National Indemnity Co. only insured the state of Montana between July 1, 1973, and July 1, 1975, it should pay the full settlement costs plus defense bills for the decade-long lawsuit. The amount could increase greatly because the settlement only covered 18 victims in a pool that’s subsequently grown to more than 200.
“Having determined that National breached its duty to defend the state as of July 18, 2005, National is responsible for paying all defense costs incurred by the state subsequent to that date,” Brown wrote in an order filed Feb. 27. “National also is responsible for paying the amounts of the completed settlements in the Libby claims for which National has not provided a full defense as of the date each settlement was approved by the district court presiding over that case, irrespective of policy limits.”
Montana had already paid about $26 million toward the settlement costs before National Indemnity challenged its participation in the case. Brown’s decision potentially moves the entire bill to the insurance company.
“We are pleased with the recent decision,” Montana Department of Administration spokeswoman Amber Conger said Tuesday. “This is a step in the right direction, but there are still more steps to come and we look forward to what’s next. Since this is an ongoing litigation, we are not ready to comment further or provide specific details.”
National Indemnity officials did not return requests for comment on Tuesday. The Nebraska-based company may appeal the decision to the Montana Supreme Court.
At its base, the lawsuit involves claims that Montana state inspectors failed to warn Libby residents about the danger of asbestos exposure from vermiculite mining and milling in their town between the 1950s and 1980s. The mine was originally operated by Universal Zonolite and Insulation Co., and eventually became part of W.R. Grace and Co.
Health problems with the Libby Mine showed up as early as 1943, when a state inspection found asbestos dust exposure greatly exceeded safety limits. Another inspection in 1956 concluded the air was “of considerable toxicity” as noted in the judge’s decision. And state-issued death certificates for at least three Libby Mine workers listed asbestos-related health problems as the cause of death. Federal inspectors added their warnings of dangerously high asbestos exposure starting in 1971.
But the state withheld its workplace inspection results from 1956 on, according to the decision. Before 1973, the state government had sovereign immunity protection from personal injury lawsuits. That changed after the new Montana Constitution was ratified, and the state started buying private insurance protection.
National Indemnity Co. provided liability insurance to the state of Montana from 1973 to July 1, 1975. Brown noted the state didn’t disclose the Libby Mine problems in the packet of underwriting data it gave insurance bidders until 2002, 29 years after National Indemnity’s policy was imposed. The state canceled its coverage in 1975 and switched to self-insuring.
Libby asbestos victims and their families started filing lawsuits against the state in 2000. By 2002 there were 18 suits filed. The state mounted its own defense without notifying National Indemnity. But in June 2002, it found a copy of the insurance policy in its archives and sent a letter to National Indemnity filing a claim for the victims’ injuries and asking the company to take over the defense. Nevertheless, the state took on the cases with its own lawyers.
A district court judge dismissed almost all of the Libby claims in August 2002, but the residents appealed to the Montana Supreme Court. The Supreme Court overturned the trial court in December 2004. State officials contacted National Indemnity three months later, asking if the company was accepting its request for coverage. It also noted that another 72 lawsuits from asbestos victims had joined the original 18.
National Indemnity lawyers started getting involved in 2005, but said the policy limited their exposure to $3 million. Letters went back and forth between the state and the insurance company for the next several years. By 2006, state officials rejected National Indemnity’s offer of limited help with the defense, and pushed the idea that because the company hadn’t given a clear response to the original request for coverage, it gave up its rights to back out.
In 2008, the state had accepted a $43 million settlement agreement with the Libby victims. National offered to pay $16.1 million toward that settlement and the state’s defense costs.
But in 2012, National brought a new declaratory judgment suit against the state to get out of some of the Libby claims. The state counter-claimed, adding that another 860 victims’ lawsuits had been filed outside that $43 million settlement.
National lawyers argued that coverage should have been barred in the first place, that the state’s nondisclosure of the asbestos health risks didn’t count as a coverable “occurrence” under the policy and the policy had an exclusion for incidents involving pollution. They also claimed they should only be responsible for the claims occurring during the two years of the policy, restricted to the $3 million cap.
Judge Brown ruled that it’s the insurance company’s job to clearly say if it’s in or out of the case.
“The Court also clearly has stated that the remedy for an insurer that disputes coverage was to defend under a reservation of rights and file a declaratory judgement action,” Brown wrote. “National did not file this declaratory judgement action until February 2012… Having determined that National breached its duty to defend the state, it is clear under Montana case law that National is estopped from denying coverage — and therefore from asserting any defenses to coverage — and becomes liable for any judgment entered against the insured or any settlement made by the insured.”
Brown also wrote that National gave up the right to challenge the reasonableness of the Libby victims’ settlements when it failed to participate in the original trials.
She also ordered National to pay the state’s defense costs after 2005, pre-judgment interest on those settlement amounts and the legal costs of the summary judgment before her court.