U.S. Sides With Insurers in Asbestos Claims Litigation

The Reagan Administration, saying it is concerned about insurance costs, is siding with insurers who are trying to avoid millions of dollars in possible punitive damages sought by asbestos manufacturers in a California case.

In papers filed last week with the state Supreme Court, the Justice Department attacked a state appeals court ruling that said California law would govern a California suit between out-of-state manufacturers and insurance companies. The state’s law allows punitive damages for bad-faith denial of insurance coverage.

The ruling violates state law and the U.S. Constitution, and “would make liability insurance more difficult and expensive to obtain for all sectors of the U.S. economy,” said the brief by Justice Department lawyer Linda Silberman.

The federal government is not directly involved in the case, but got permission from the state court last month to submit its views.

Justice Department spokeswoman Amy Brown said Wednesday that the department sometimes submits arguments in private lawsuits “if we feel there’s a significant interest or if we feel it’s appropriate.” She said the department filed a similar brief last week in a drug-testing case in Boston.

The government’s position in the California case is consistent with President Reagan’s view that rising insurance rates are being caused by excessive damages in lawsuits.

The case is an offshoot of a San Francisco suit in which five asbestos manufacturers are suing 50 companies that insured them at various times, to determine which insurance policies covered them for claims of lung damage filed by more than 24,000 workers and their survivors. The total amount of the insurance policies has been estimated at $2 billion.

Two of the insurance firms are Kemp & Companies, composed of underwriters at Lloyds of London, and Insurance Co. of North America, or INA, based in Pennsylvania. Both are being sued by GAF Corp., an asbestos manufacturer, which claims they denied coverage in bad

faith. The same claim was made against INA by another asbestos maker, Nicolet Inc.

The state Supreme Court has agreed to hear the insurers’ appeal of a ruling by the 1st District Court of Appeal, issued in March, that California law applied to the suits, even though neither the insurers nor the manufacturers are based in California.

The ruling by a unanimous three-judge appellate panel noted that the insurance companies did large amounts of business with Californians and that many of the asbestos workers filing claims against the manufacturers were also Californians.

Pennsylvania Rule

The court said Pennsylvania, like Great Britain, apparently bars punitive damages against insurers in such cases. To apply the Pennsylvania rule to this case “would require that California assist that state in sheltering against the world a corporation whose blatant misconduct, if proved, might wreak immense damage outside the confines of its home state,” said Justice William Newsom.

But the Justice Department argued that California had no legal interest in the case, because the claims of California insurance policy-holders and California asbestos workers had nothing to do with the dispute between manufacturers and insurers.

To apply California law to a contract dispute between out-of-state manufacturers and out-of-state insurers “is an infringement of the interests of other states and nations,” said Silberman, the government’s lawyer.

Pro and Con

With no legitimate California interests at stake, she said, “the plaintiffs cannot be permitted, by choosing a California forum, to impair the policies of other states which protect companies from financial disaster by prohibiting large punitive damage awards.”

But David Steuber, a lawyer for the asbestos manufacturers, said Wednesday that California has “very substantial interests” in the case, including the availability of insurance for the large number of claims by California asbestos workers.