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Insureds Bear The Burden Of Showing When The Operations Hazard Applies To A Claim
Nat’l Union Fire Ins. Co. of Pittsburgh, PA, v. Porter Hayden Co.
On March 6, 2012, the United States District Court for the District of Maryland addressed Porter Hayden Company’s (“Porter Hayden”) Motion for Partial Summary Judgment Regarding Application of Insurance Policies Aggregate Limits. In September 2005, Judge Davis issued an opinion in this case clarifying how asbestos-related bodily injury claims would be classified under the various policies (“hazards”) within the insurance policies issued by National Union Fire Insurance Company of Pittsburgh and American Home Assurance Company (“the Insurers”). That opinion set forth the parameters for determining whether a given claim would fall under the “operations” hazard or the “completed operations” hazard. The issue was, and continued to be, contested by the parties because claims classified under the completed operation (or “products”) hazard were subject to an aggregate limit on liability while the operations hazard imposes no aggregate limit.
Porter Hayden sought determination from the court that the insurers bore the burden of demonstrating that a claim falls under the completed operations hazard (and thus is subject to an aggregate limit on liability). The insurers argued that it was incumbent upon Porter Hayden to establish the source of coverage for claims as part of its prima facie case.
The extent of the insurer’s duty to indemnify Porter Hayden depended in part on whether claims were classified as completed operations (or “products”) claims or operations claims. While the insurers conceded that coverage was afforded for both types of claims, an aggregate limit applied only to claims that fell within the completed operations/products hazard.
The parties did not dispute that Porter Hayden stopped most asbestos operations in 1973. All of the insurance policies at issue were issued after 1973. A claim fell under the operations hazard if a claimant’s initial exposure occurred while Porter Hayden was still conducting asbestos-related operations. If the initial exposure occurred after the operations were completed, or if exposure that began during operations continued after the operations were completed, then the claim was subject to the aggregate limit for completed operations claims for any policy that came into effect after the operations were complete. The previous opinion written by Judge Davis did not explicitly discuss the allocation of the burden of proof for showing how a claim should be classified, which was the subject of the instant motion.
The parties agreed that Porter Hayden was required to make a prima facie case that it was entitled to coverage for a particular claim. They also agreed that the insurers bore the burden of presenting affirmative defenses or showing that an exclusion applied under the policies. The parties disagreed, however, as to whether demonstrating that a particular claim fell under the completed operations hazard or the operations hazard was properly part of the prima facie case (to be proven by Porter Hayden) or in the nature of an exclusion (to be proven by the insurers). In other words, Porter Hayden argued that no aggregate limit applied to any claim unless the insurers demonstrated that it did. The insurers contended that Porter Hayden was responsible for establishing the source of coverage for a claim, regardless of which hazard applied.
It is well-established in Maryland that “[i]n an action on an insurance policy, the plaintiff has the burden of proving every fact essential to his or her right to recover.” Once the plaintiff makes that prima facie showing, “the burden rests on the insured to establish the applicability of a particular exclusion from coverage.
The court found that Porter Hayden bore the burden of showing when the operations hazard applied to a claim. Though it is true that the insurers bear the burden of establishing exclusions in coverage, presenting affirmative defenses, or otherwise limiting coverage beyond the terms of coverage, classification of a claim, however, is a matter of showing entitlement to coverage – not a defense or limitation thereto. Insofar as Porter Hayden argued that it was conducting operations that resulted in the release of asbestos fibers (such as “tie-in” operations or asbestos removal operations) during the relevant policy periods, the burden was on Porter Hayden to prove that, because it was in the best position to do so. The court declined to require the insurers to demonstrate the absence of ongoing operations during the policy periods.
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