Delaware court upends $13.7M insurance judgment in asbestos suit

The Delaware Supreme Court has reversed a lower court’s decision to hold The Travelers Indemnity Co. responsible for a $13.7 million tab in an asbestos exposure suit, in a ruling that  focused on choice of law in corporatewide insurance policies.

Texas ties to the contractual relationship between the company and insurer trumped the fact that Wisconsin was the site of exposure, the court said, applying recent precedent.

Related: OSHA’s asbestos regulations and litigation: What insurers should know

A panel of three justices on Monday said Delaware courts should follow the high court’s ruling last year in Certain Underwriters at Lloyds London v. Chemtura, which found that the assessment should ”center on the insurance contracts and not the underlying claims” in order to apply a consistent body of law to disputes spanning multiple jurisdictions.

Clarification from high court

The clarification from the high court came on Travelers’ appeal of the Superior Court’s ruling last April that Wisconsin law bore the “most significant relationship” to three asbestos-related insurance policies the insurer negotiated with Texas oil-and-gas firm Tenneco Inc. between 1972 and 1985.

The policies were eventually assigned, without Travelers’ permission, to Tenneco subsidiary CNH Industrial America in a 1994 corporate reorganization through J.I. Case Inc., a Wisconsin-based subsidiary that was added to Tenneco’s general insurance policies.

Related: J&J ordered to pay almost $47. billion in talc asbestos cancer case

On appeal, Travelers argued that the transfer was invalid under Texas law, which required Travelers to approve the assignment. CNH countered that Wisconsin law should apply because the asbestos claims originated in Wisconsin, where J.I. Case managed its manufacturing operations. None of the policies explicitly stated which state’s law would apply in the dispute.

Justice Collins J. Seitz Jr., writing for the court, ruled that Texas law would apply under Chemtura‘s guidance that the expectations of the parties are “best served by providing terms in the contract with a meaning that does not vary based on the happenstance of the locations of a particular claim.”

Interpreting insurance contracts

In a 21-page order, Seitz said the policies were instead part of a broad-based, “comprehensive companywide insurance program” that Tenneco had negotiated in the state and managed from its corporate headquarters in Houston.

“In this case, the question is which state has a material interest in applying its law to the interpretation of the insurance contracts — not the asbestos liabilities,” he wrote. “The policies were negotiated, contracted and managed in Texas, where coverage of all of Tenneco’s business began; thus, Texas has the more material interest.”

“Because the parties agree that Tenneco’s assignment of the policies to CNH without Travelers’ consent is invalid under Texas law, we reverse the Superior Court’s decision and direct that judgment be entered in favor of Travelers.”

He was joined in the ruling by Chief Justice Leo E. Strine Jr. and Justice Gary F. Traynor.

Attorneys for both sides were not immediately available to comment on the ruling Tuesday afternoon.

The case, on appeal, was captioned Travelers Indemnity v. CNH Industrial America.

Related: Travelers sues 3 insurance carriers for nonpayment

Tom McParland of can be contacted at (215) 557-2485 or at tmcparland@alm.com. Follow him on Twitter @TMcParlandTLI.