Hunton Insurance Recovery Blog

In this final post in the Blog’s Landmark Montana Supreme Court Decision Series, we discuss the court’s ruling on the known loss doctrine and its interpretation of “occurrence” in National Indemnity Co. v. State, 499 P.3d 516 (Mont. 2021).

Personal injury claims against the State of Montana arose out of its alleged failure to warn Libby residents about the danger of asbestos exposure despite the State’s regulatory inspections of the Libby Mine as early as the 1950s and through the 1970s. Among other defenses, the insurer contended that there was no coverage for these claims because the asbestos claims arising out of the Libby Mine were a “known loss.” A “known loss” defense, as the court explained, is “not based upon a provision of the Policy, but a common law principle which courts have imposed upon liability policies” that “requires that losses arise without the insureds’ knowledge.”

The insurer argued that Montana knew about the asbestos-related conditions at the Libby Mine prior to July 1973 when the policy was issued. The court rejected that argument, finding it “largely divorced from historical factual context.” It explained that Montana regulatory involvement was “for good” and “to enhance safety.” Given that, it was “unexpected” and “incomprehensible” that Montana’s actions would later be declared “harmful to thousands of people.” And so the loss was not one that Montana “even suspected was substantially certain to occur.”

The court also addressed the parties’ dispute over the number of occurrences. The insurer contended there was one occurrence because the asbestos claims against Montana “stem[med] from one cause: the State’s singular decision to conceal its knowledge of asbestos conditions in Libby in reliance on a 1942 Attorney General Opinion.” The State argued for multiple occurrences, claiming that its liability was not based on a single decision but instead “on multiple alleged failures to disseminate information contained in separate inspection reports at different times over two decades with different information in each report.” The trial court charted a third path, finding “a different ‘occurrence’ for each of a given Libby Claimant’s aggregated exposure to asbestos that were distinct from the time, location, routes, and circumstances of the exposures of other Libby Claimants.”

The Montana Supreme Court agreed with the State. It said that “relevant event” was “the State’s failure to warn the Libby Claimants of their hazardous exposure to asbestos.” Because the record was unclear on how many times the State failed to warn, the court remanded the case to the trial court for a determination of how many occurrences there were.

These parts of the opinion illustrate the potential for key insurance coverage issues turning on courts’ views of the underlying facts and how they fit into existing rubrics for deciding things like the number of occurrences.