EMPLOYERS REINSURANCE CO. v. Superior Court

In this case, we consider the use of “course of performance” evidence in the interpretation of contracts of insurance and conclude that such evidence is relevant and may be used for such purpose. However, such evidence is only admissible when the performance was pursuant to the contract to be interpreted, not a subsequent settlement agreement such as the one we have in this case.

Thorpe Insulation Company (Thorpe), a distributor and installer of asbestos insulation products, was sued in numerous personal injury actions. Thorpe had many insurance policies, both primary and excess, issued by different insurance companies (the insurers). Thorpe tendered the asbestos claims to the insurers, and there followed some 30 years of negotiations, settlement agreements, claims handling agreements, reservations of rights, and payments of defense costs and indemnity, resulting in the exhaustion or near exhaustion of Thorpe’s $180 million in insurance coverage. Nearly all of Thorpe’s insurance policies provided coverage for both “products” (or “completed operations”) claims and “non-products” (or “operations”) claims. The individual policies’ aggregate limits of liability apply to…