Case Law Update: Insurance Coverage for Progressive Diseases; Rutherford Expanded by Ninth Circuit

Guaranty National Insurance Co. v. Azrock Industries, Inc., 211 F.3d 239 (5th Cir. 2000)

Defendant, a manufacturer of floor tiles containing asbestos fibers, appealed from the district court's grant of summary judgment to the plaintiff insurer. The district court found that coverage in instances of progressive diseases is triggered when the condition "manifests" itself in plaintiff through a qualified medical diagnosis. In granting summary judgment, the district court held that the date of diagnosis of asbestosis, carcinoma, or other condition was the date the harm became "manifest" or "identifiable," and concluded that none of the complaints contained an allegation of a diagnosis during the one-year policy period. Hence, none of the claims were covered.

The Fifth Circuit found that defendant's policy, in particular the terms "occurrence" and "bodily injury," was susceptible to more than one reasonable interpretation in the progressive disease context, and was therefore ambiguous as a matter of law. The circuit court disagreed with the district court's definition that "injury" meant "date of diagnosis" and stated that to agree with that definition "would require us to rely on a fiction that suggests a person is 'injured' on the date he decides, for whatever reason, to go to the doctor about a condition." After a thorough Erie analysis, the court adopted the "exposure theory" as what the highest Texas court would choose as the event that triggers the insurer's duty to defend in asbestos personal injury cases under a uniform CGL policy. Designating the exposure theory as the appropriate trigger, the court remanded the case to the district court to examine the pleadings and determine whether the duty to defend was triggered under the exposure theory.

Kennedy v. Southern California Edison Co., 219 F.3d 988 (9th Cir. 2000)

This wrongful death case involves alleged radiation exposure from nuclear "fuel flea" particles carried home by the decedent's husband who worked at a nuclear power plant. The particles allegedly caused Ellen Kennedy to develop terminal chronic myelogenous leukemia ("CML"), a rare form of cancer. The theory of the case was that Joe Kennedy, Ellen Kennedy's husband, inadvertently brought home microscopic particles of radioactive material, known as "fuel fleas," from the power plant on his clothing, hair, tools, etc. These fuel fleas, which according to plaintiffs contained radiation dosages in excess of the maximum allowable by federal regulations, came in contact with Mrs. Kennedy and caused her fatal cancer.

Plaintiffs asserted that the decedent's CML resulted from negligence on the part of Southern California Edison Company ("Cal Edison") causing her to be exposed to radiation from the company's San Onofre Nuclear Generating Station ("SONGS"), north of San Diego, where her husband was employed as a machinist from 1982 to 1990. Additionally, plaintiffs sued Combustion Engineering, Inc., under a products liability cause of action for the alleged faulty production of nuclear fuel rods.

The Ninth Circuit held that the district court erred in refusing to give a jury instruction under Rutherford v. Owens-Illinois, Inc., 941 P.2d 1203 (Cal. 1997), even though this case involved only a single defendant who allegedly manufactured the hazardous substance and the defense of alternative possible sources of the injury was raised. The court treated Cal Edison and Combustion Engineering as a single defendant with respect to the issue of alternative causes, and held that both defendants properly raised the defense that there were alternative possible causes of Mrs. Kennedy's cancer, though neither argued that the other was an independent source of causation. The jury instructions, as given, stated that radiation from SONGS need only have "contributed" to Mrs. Kennedy's risk of developing cancer. The court read Rutherford as requiring more. The court found that plaintiffs' burden was to demonstrate that the exposure, by reasonable medical probability, was "a substantial factor" in contributing to the risk of cancer.

The circuit court also held that the district court erred in dismissing claims under California products liability law. Plaintiffs presented evidence that the radioactive "fuel fleas" were released from Combustion Engineering's apparently defective fuel rods. Combustion Engineering argued that it was entitled to summary judgment on strict liability because it never marketed the fuel rods to the public, and because it could not have foreseen that the rods would injure a third party spouse like Mrs. Kennedy (who was not an employee of SONGS). The Court disagreed and held that the record suggested that Combustion Engineering had supplied thousands of fuel rods on a continuing basis to SONGS and several other nuclear plants. Therefore, Combustion Engineering's enterprise differed entirely in both quality and degree from the ad hoc and infrequent activities that allow the "isolated transaction" exception to California strict products liability law to apply. Based on Elmore v. American Motors Corp., 451 P.2d 84, 89 (Cal. 1969), the court found that that "the spouse of a nuclear-plant worker might fall within the zone of danger posed" by Combustion Engineering products. As a result, it was error for the district court to decide the issue as a matter of law.

Rehearing was held April 27, 2001, and a decision has not yet been issued. John Phillips at Paul Hastings Janofsky and Walker is the appellate counsel for Southern California Edison.