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INSURANCE NOTES

Asbestos Claimants' Bankruptcy Claim Files Held Inadmissible To Establish Coverage

10.06.2010

On August 9, 2010, the trial court in Fuller-Austin Insulation Company v. Fireman’s Fund Insurance Company, Los Angeles County Superior Court Case No. BC116835, held that an insurer’s duty to indemnify must be established through the use of admissible evidence. Although not binding precedent, this is an important ruling, particularly in the context of asbestos and latent bodily injury claims.

Previously, the Court of Appeal in Fuller-Austin Insulation Co. v. Highlands Ins. Co., 135 Cal.App.4th 958 (2006), had held that the insured, Fuller-Austin Insulation Company, bears the burden to prove coverage and stated that California law establishes that “whether an insured is liable to a claimant is a distinctly different issue from whether such liability amounts to a covered claim.”

After remand, Fuller-Austin again sought indemnity from Stonewall Insurance Company for thousands of asbestos bodily injury claims that Fuller-Austin paid under a bankruptcy plan. The sole evidence Fuller-Austin produced came from the claim files created and maintained for the bankruptcy payout process: release forms, unverified claim forms or print-outs from electronic filings, affidavits of employment, social security records, notices of payout determination, medical records, and correspondence prepared by Fuller-Austin during the claim review process.

Stonewall moved for summary adjudication on the ground that Fuller-Austin could not meet its burden of proving, by admissible evidence, that each claimant was actually exposed to Fuller-Austin related asbestos-containing products as a cause of injury, within the meaning of “occurrence” in the Stonewall policy.

Fuller-Austin acknowledged the bankruptcy claims materials were hearsay, but argued that they were admissible for non-hearsay purposes, including demonstrating that the claimant alleged that the injury fell within the insuring agreement of the Stonewall policy. Fuller-Austin argued that it was not required to prove the truth of facts relative to coverage; rather, it was only required to show that the allegations made by the asbestos claimants that formed the basis of a settlement fall within coverage.  Fuller-Austin cited case law for the proposition that, where an insured settles a claim and seeks reimbursement from its insurer, the insured is entitled to an evidentiary presumption as to its liability for the claim and the amount.

The trial court disagreed, determining that the claims files were inadmissible hearsay and did not satisfy Fuller-Austin’s burden to prove coverage. The trial court ultimately denied summary adjudication to Stonewall because Fuller-Austin still has an opportunity to produce admissible evidence that might comport with the legal standard. Relying on the Court of Appeal’s Fuller-Austin decision, the trial court reasoned that “deeming” the allegations in the claims file as true for purposes of establishing coverage would “undermine the Court of Appeal’s distinction of liability and coverage and would render the analysis superfluous.” The trial court explained that in order to make a prima facie showing of actual coverage necessary to impose an indemnity obligation on Stonewall, Fuller-Austin was required to present admissible evidence, beyond the allegations in the claims files of settled claims, establishing actual, covered exposure and resulting bodily injury. 

This ruling supports insurers’ contention that allegations alone are not sufficient to establish a duty to indemnify and the insured bears the burden to prove through the use of admissible evidence that each and every claim is covered.

We invite you to contact us if you would like a copy of this decision or would like to discuss any aspect of this matter.

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