Do Asbestos Rip-Out Claims And The “Abandoned Materials” Policy Exception Neutralize The Impact of the Completed Operations Aggregate?

In an effort to avoid the impact of the completed operations aggregate limit, policyholder counsel sometimes attempt to characterize claims as (1) rip-out exposures, or (2) as relating to “abandoned or unused materials,” so as to come within a common insurance policy carve-out from the Completed Operations Hazard. Both arguments are a stretch.

As to “rip-out” claims, the argument is that to the extent an asbestos claimant’s injury is due to exposure during rip-out of previously-installed asbestos, not due to exposure during the original installation operations, the claim falls outside the Completed Operations Hazard. It’s an effort to create a new post-operation “operation” exposure and thereby push the claims into later years. Three points in response: (1) the only rip-out claims presenting possible exposure to late-year carriers are ones where the rip-out occurred during the carriers’ actual policy periods, which often raises significant proof problems in the underlying cases; (2) even as to such claims, exposure to rip-out operations involving asbestos previously installed or distributed by the insured, as opposed to other installers or suppliers, is a “products” claim as to that insured and falls within the products hazard aggregate limit under the policy—that is, where the insured is ripping out the same asbestos insulation it installed at a location years earlier, exposures fall within the Products Hazard because it arises after possession of the product was relinquished to a third party; (3) some policies specifically define completed operations to include subsequent work on a product (e.g. rip-out): “Operations which may require further service or maintenance work, or correction, repair or replacement because of any defect or deficiency, but which are otherwise complete shall be deemed completed.”

The “abandoned or unused materials” issue relates to an exception in the standard ISO Completed Operations Hazard definition: “The completed operations hazard does not include bodily injury or property damage arising out of . . . (b) the existence of tools, uninstalled equipment or abandoned or unused materials, . . .” Some policyholders argue that asbestos dust remaining in a building after operations are completed constitutes “abandoned or unused material” within Exception (b) and therefore injuries from exposure to this material are not within the Completed Operations Hazard. The argument was raised in the Wallace & Gale appeal, but never addressed by the Fourth Circuit because the insured failed to raise the argument in the trial court. (Wallace & Gale, 385 F.3d at 835.) The issue was addressed, however, in National Union Fire Ins. Co. v. Porter Hayden Co. (D.Md. 2005) 331 B.R. 652, 668 n.21.) There, the court called the policyholder’s argument “nonsensical.” (Id.) Quoting U.S. Sanitary Specialities Corp. v. Globe Indemnity Co. (7th Cir. 1953) 204 F.2d 774, 777, the Porter Hayden court explained that “’this exception to completed operations refers only to tools, equipment and materials which on completion of an operation should have been removed by the assured but which, instead, were abandoned there by the insured and later were instrumental in causing an accident.’” (331 B.R.at 668 n.21) (emphasis by court.)