San Francisco Trial Court Is First California Court To Adopt The Wallace & Gale Approach To Asbestos Operations

In what is the first trial court ruling in California on the issue, to our knowledge, the San Francisco Superior Court on January 31, 2013 issued a ruling adopting the Wallace & Gale approach to the completed operations issue for asbestos claims. The decision was issued by San Francisco Superior Court Judge John E. Munter in Phase III of Plant Insulation Co. v. Fireman's Fund Insurance Co., et al., a multi-phase declaratory relief action pending in San Francisco.

Plant distributed and installed asbestos-containing insulation products in Northern California starting in the 1950s. As asbestos claims against Plant mounted, Plant ultimately filed for bankruptcy, and a Plan of Reorganization became effective in November 2012. At the same time the bankruptcy action was pending (it is now in front of the Ninth Circuit), the insurance contract interpretation issues have been litigated in state court in front of Judge Munter.

Judge Munter's Phase III decision (which is tentative and subject to the parties' objections), addressed whether asbestos claims against Plant are subject to the completed operations and products aggregate limits in the policies, or whether they are "operations" claims for which no aggregate applies. This issue has been addressed previously in this blog, and is often referred to as the "Wallace & Gale" issue among insurance lawyers, based on a Fourth Circuit decision In re Wallace & Gale Co. (4th Cir. 2004) 385 F.3d 820. The issue arises from the fact that many CGL policies, including Plant's policies, provide aggregate limits only for claims arising from certain types of hazards—typically Products and Completed Operations. Injuries arising from an insured's ongoing operations are arguably not subject to an aggregate limit. Therefore, to the extent an asbestos claimant's injury is the result of exposure during the insured's operations, the claim arguably is not subject to an aggregate cap.

Like the policyholder in Wallace & Gale, Plant argued essentially that "once an operations claim, always an operations claim," contending that if a claimants' continuing injury was originally caused by operations, it remains an operations exposure through all subsequently triggered policies. Judge Munter rejected this argument, explaining:

The flaw in Plant's argument is that it completely ignores the definition of "bodily injury" in the policies....[T]he term "bodily injury" is specifically defined as "bodily injury, sickness or disease...