NY Appeals Court Upholds Travelers’ Obligation to Provide Defense in Asbestos Cases

Alfa, which develops anti-heat transfer products, sued Travelers in 2011, seeking a court order directing Travelers to provide a defense in two separate asbestos-related cases.

The Appellate Division's ruling came after Judge Debra James of the New York Supreme Court for New York County decided in 2011 that Travelers, as the company's primary insurer, was obligated to provide Alfa with a defense against claims that fall within some of the policies it had purchased from Travelers' predecessor, Aetna.

In the underlying case, Travelers argued it should not be required to provide a defense because some of the claims against Alfa arose after the policies purchased by Alfa's predecessor had lapsed. Travelers also argued its liability should be limited by a percentage representing its "time of risk," particularly because Alfa had purchased coverage from other insurers.

James rejected those arguments, writing it would be "highly impractical" to allocate the insurers liability for defending Alfa because of the number of suits facing the company. According to the decision, Alfa has been involved in approximately 1,300 lawsuits since 2002. About 650 of those are still active.

In a Nov. 13 opinion, a five-judge panel upheld James' finding regarding Travelers, writing, "The duty to defend is broader than the duty to indemnify, requiring each insurer to defend if there is an asserted occurrence covered by its policy; the insured should not be denied initial recourse to a carrier merely because another carrier may also be responsible."

However, the Appellate Division modified a separate finding handed down by James.

In the underlying case, James found that OneBeacon Insurance Group, which provided additional coverage to Alfa, should also provide a full legal defense. The Appellate Division's Nov. 13 decision tweaked that ruling, saying "Travelers, as the long-standing insurer, should provide a complete defense, and OneBeacon may eventually be required to contribute to both defense costs and indemnification on a pro rata basis."

"The Appellate Division upheld a vital principle of insurance coverage under clear New York law that a covered policyholder is entitled to a full defense," William G. Passannante, an Anderson Kill & Olick attorney representing Alfa Laval, said in a statement, "That basic commitment takes precedence over any possibility that the insurance company may obtain contributions from other insurance companies on the risk."

Travelers said it doesn't comment on ongoing litigation.

Last year, Travelers announced it had upped its asbestos reserves by $114 million after-tax, citing higher defense and settlement costs.