The Comprehensive General Liability ("CGL") policy is a standard liability-insurance policy that, with only rare exception, is routinely used by the insurance industry in the United States. Under this policy an insurer must indemnify the insured for "all sums which the insured shall be legally obliged to pay as damages because of ... bodily injury ... caused by an occurrence. "1 The insurer is additionally obligated to defend any suit against the insured to recover damages "on account of such injury ... even if any of the allegations of the suit are groundless, false or fraudulent."2

This case involves a now commonplace dispute between an asbestos manufacturer and several insurance companies over the interpretation of the standard CGL policy in the context of asbestos-induced disease. It is an "occurrence" that triggers the insurer's liability. However, because the onset of asbestos-induced disease is difficult to pinpoint, the parties in this case have differing views on when an insurer's duties to indemnify and defend are "triggered" under the CGL policy. The resolution of this dispute therefore requires us to interpret the definition of "occurrence" in the CGL policy.3

Abex Corporation, a brake-lining manufacturer whose products at one time contained asbestos, brought this action in the United States District Court for the District of Columbia seeking declaratory judgment that several insurance companies have obligations under the CGL policy to defend and indemnify Abex in over 200 pending asbestos tort actions. The parties have stipulated that this case is governed by New York law. The District Court granted Abex partial summary judgment and held that the insurers "are obliged to defend and pay for the asbestos claims and lawsuits against Abex and to pay its defense costs in accordance with" this circuit's decision in Keene Corp. v. Insurance Co. of North America.4 Keene, however, did not specifically interpret the CGL policy under New York law. At issue on appeal is whether Keene is consistent with New York law.

As a starting point in our review of this case, we first consider the Second Circuit's opinion in American Home Products Corp. v. Liberty Mutual Insurance Co.5 , in which the court construed the definition of "occurrence" under New York law. The New York Court of Appeals has yet to grapple with the issue; therefore, under general notions of comity within the federal judicial system, we are obliged to respect the Second Circuit's interpretation of New York law absent clear error. Because we can find no such clear error, and because Keene is inconsistent with both American Home Products and our own reading of the insurance contracts, we adopt the American Home Products, interpretation that the insurer's obligation to indemnify Abex arises when the asbestos causes real bodily injury during the policy period. Under this view, the injury need not be compensable or diagnosable during the policy period if its existence during that period can be proved in retrospect.

We remand the case to the District Court for further proceedings on the insurers' duty to indemnify Abex under the so-called "injury-in-fact" trigger as specified in American Home Products. We further conclude that the insurers have a duty to defend Abex in all cases in which the complaint "permits proof" of facts establishing coverage. Only if the insurers establish as a matter of law that there is no possibility of coverage can they avoid their duty to defend Abex. We therefore hold that the insurers have an immediate duty to defend Abex in its asbestos cases until they present positive proof that no coverage is possible.

Finally, we hold that Maryland Casualty Company has no duty to indemnify or defend Abex until the District Court expressly determines that Abex was covered by Maryland Casualty Company policies.

Abex is a manufacturer engaged in the sale and distribution of brake-linings for railroad cars, automobiles, trucks and industrial machinery. These products once contained asbestos and, as a result, Abex is now a defendant in over 200 asbestos tort cases. Although Abex was insured between 1943 and 1974 by successive CGL policies issued by Maryland Casualty Company ("Maryland"),6 Travelers Insurance Company ("Travelers"), and Liberty Mutual Insurance Company ("Liberty"), these insurers have refused to defend or indemnify Abex in all but one of Abex's asbestos cases.

For the most part, all of the insurers have adopted identical language from the standard CGL policy in defining their obligations to Abex. Under the CGL policy, the insurers are obliged to indemnify Abex for all damages that result from

bodily injury or property damage to which this policy applies caused by an occurrence....7

an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured.8

In addition to its duty to indemnify Abex, the insurers are obliged

to defend any suit against the insured seeking damages on account of such injury or damage, even if any of the allegations of the suit are groundless, false or fraudulent....9

While all of Travelers' policies--covering Abex from March 1, 1971, until March 1, 1974--are involved in this case, only eight of the sixteen Liberty policies are at issue. The Liberty policies covered Abex from January 1, 1966, through January 1, 1970, and from August 1, 1957, through August 1, 1961. Although in most relevant respects the Liberty and Travelers policies are identical, the Liberty policies include two additional provisions not usually found in CGL policies. Both of these provisions could significantly alter Liberty's duty to indemnify Abex. First, the 1957-1960 Liberty policies include a so-called "deemer clause."10 It provides:

The policy applies only to personal injury and property damage which occur during the policy period any where in the world; provided personal injury or property damage caused by exposure to injurious conditions over a period of days, weeks, months or longer shall be deemed to occur only on the last day of exposure to such injurious conditions. Personal injury or property damage caused by such continuous or repeated exposure for which written claim is made against the insured during the policy period shall be deemed to occur only on the last day of the last exposure prior to the date such claim is made. Subject to the foregoing provisions, the policy does not apply to such personal injury or property damage caused by such continuous or repeated exposure, any part of which occurs after the policy period.11

Second, although the 1966-1970 Liberty contracts do not include this deemer clause, they too include a unique provision--the so-called "other insurance" provision:

The insurance afforded by this policy does not apply to that portion of the loss for which the insured has other valid and collectible insurance, whether on a primary, excess or contingent basis.12

The Maryland policies at issue allegedly covered Abex during 1953-1954 and 1956-1957. Maryland, however, denies that it insured Abex during those years, and submitted affidavits contending that Maryland was unable to find any record of these policies in its files. Abex produced copies of these policies, but their authenticity is hotly contested by Maryland. Although the Maryland policies are much older than the version of the CGL policy used by the other carriers, the policies provide the same duty to defend and to indemnify as that found in the Travelers and Liberty policies, and use only slightly different language than the standard CGL policy:

This policy applies only to occurrences which result in injury during the policy period....13

Maryland does not contest that, if it insured Abex, its duty to indemnify is exactly the same as that arising from the version of the CGL policy applicable to Liberty and Travelers.

After the insurers refused to defend Abex in the tort actions, Abex brought this action for declaratory judgment in July 1982. The insurers' motion to transfer this action to the Southern District of New York was denied by the District Court. Abex filed a motion for partial summary judgment on December 6, 1982, seeking to require the insurers to undertake immediately their defense and indemnity obligations. Almost two and a half years later, on April 16, 1985, the District Court granted Abex's motion in full with the following order:

Under consideration of the motion of plaintiff, Abex Corporation, for partial summary judgment and the statements of points and authorities in support thereof and in opposition thereto, and the entire record herein, it is hereby

ORDERED that,

1. Plaintiff's motion for partial summary judgment is granted in all respects.

2. Defendant Maryland Casualty Company, under policy numbers 96-026450 and 96-105310, defendant Liberty Mutual Insurance Company, under policy numbers LP6021-904327-37, LP6021-904327-38, LP-1-621-004078-040, LP1-621-004078-046, LG1-621-004078-047, LG1-621-004078-048, LG1-621-004078-049, and LG1-621-004078-319, and defendant Travelers Indemnity Company, under policy number TRNSL-957500-71, are obliged to defend and pay for the asbestos claims and lawsuits against Abex and to pay its defense costs in accordance with the decision in Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034 (D.C.Cir.1981), cert. denied, 455 U.S. 1007 [102 S. Ct. 1644, 71 L. Ed. 2d 875] (1982).

3. Upon the express finding that there is no just reason to delay, and pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, the Court directs the entry of this order as a final judgment.14

The central and dispositive issue on appeal is the meaning of the word "occurrence" as defined in the CGL policy used by the insurers in this case. Our interpretation of the word "occurrence" will, in turn, determine what event or events will "trigger" the insurers' duties to defend and indemnify Abex. The courts that have addressed this issue have come to significantly different conclusions. Some courts, for example, have held that the insurers' obligations under the CGL policy are triggered only when an injury is manifest during the policy period.15 Others hold that liability is triggered by mere exposure to the harmful conditions during the policy period.16 In Keene Corp. v. Insurance Company of North America,17 we addressed this very issue and concluded "that inhalation exposure, exposure in residence, and manifestation all trigger coverage under the policies.... [and that] 'bodily injury' ... mean[s] any part of the single injurious process that asbestos-related diseases entail."18

Under the mandate of Erie Railroad Co. v. Tompkins,19 however, our obligation in a diversity action such as this one is to interpret and apply state law--in this case, the law of New York. In Keene, we did not purport to apply the law of New York--nor did we even explicitly apply the law of any single state. Instead, because we determined that none of the states whose law was arguably applicable had addressed specifically the issue in dispute, we applied "the basic principles governing the interpretation of insurance policies,"20 in interpreting the CGL policy. Keene, therefore, does not necessarily identify the correct interpretation of the CGL policy under New York law. As we concluded in Eli Lilly & Co. v. Home Insurance Co.,21 "Keene is relevant only insofar as we determine that the [state] courts would adopt it."22 Indeed, in Eli Lilly, this court cited New York law as an example of a state whose law is possibly inconsistent with Keene.23 We must therefore look specifically to the law of New York.

Fortunately, we are not without guidance. This is one of the rare instances in which a sister circuit has provided an unambiguous answer to our inquiry. In American Home Products Corp. v. Liberty Mutual Insurance Co.,24 Judge Sofaer explicitly rejected the Keene multiple trigger as inconsistent with New York law, and instead adopted an "injury-in-fact" trigger. As modified on appeal by the Second Circuit, insurance obligations under the CGL policy arise when real injury occurs during the policy period. Real injury need not have been compensable or diagnosable during the policy period if its existence during that period can be proved in retrospect. Thus, unlike the approach in Keene, under the injury-in-fact trigger the central issue is when injury actually occurred. Injury need not be manifest, but it must exist in fact. According to Judge Sofaer, the plain meaning of the definition of "occurrence" in the CGL policy mandates that the insurers' obligations to indemnify the insured arise when real injury occurs during the policy period. Under New York law, extrinsic evidence of intent is admissible only if a contract provision is susceptible of at least two fairly reasonable meanings.25 Because Judge Sofaer concluded that the plain meaning of the definition of occurrence permits only the injury-in-fact trigger, he looked to extrinsic evidence of the parties' intent only to confirm his analysis of the plain language of the contracts.26

We will follow the American Home Products interpretation of the CGL policy under New York law. As Judge Newman wisely concluded in Factors Etc., Inc. v. Pro Arts, Inc.,27

Where, as here, the pertinent court of appeals has essayed its own prediction of the course of state law on a question of first impression within that state, the federal courts of other circuits should defer to that holding, perhaps always, and at least in all situations except the rare instance when it can be said with conviction that the pertinent court of appeals has disregarded clear signals emanating from the state's highest court pointing toward a different rule.28

The application of a contract interpretation different than that adopted by the Second Circuit would create the oddity of a split in the circuits over the correct application of New York law. The evils of forum shopping, which the Erie doctrine is designed in part to prevent, could only be exacerbated by such a split over an issue of state law. It seems obvious, for example, that this case was brought in the District Court for the District of Columbia because the holding in Keene is favorable to Abex. Furthermore, it is fair to assume that the circuit with jurisdiction over the state whose law is in question will inevitably have a better sense of the applicable state law than that of our own. The holding of a "home" circuit is especially strong when, as here, it substantially adopts the reading of state law offered by a district court in the pertinent state.29

For these reasons, we will defer to the local circuit's view of the law of a state in its jurisdiction when that circuit has made a reasoned inquiry into state law, unless we are convinced that the court has ignored clear signals emanating from the state courts.30 Only when we are certain that the pertinent circuit has clearly misread state law would it make sense to reject that circuit's view of state law. In such a case, our adoption of a clearly incorrect reading of state law would do nothing to prevent forum shopping. Litigants would still choose a federal forum whenever the circuit's reading of state law is more favorable than that actually adopted by state courts. We are convinced, however, that such a clear misreading of state law will rarely occur.

We are confident from our examination of the applicable case law of New York that the Second Circuit has not disregarded clear signals emanating from the New York courts. Indeed, several New York decisions cast doubt on the Keene approach by rejecting exposure as a sufficient basis for the triggering of coverage under the CGL policy. In American Motorists Insurance Co. v. E.R. Squibb & Sons, Inc.,31 for example, a New York trial court suggested that an injury --and not mere exposure--must occur during a policy period:

A reading of the [CGL] policy language would appear to indicate that coverage is predicated not on the act which might give rise to ultimate liability, but upon the result. It would be a strained interpretation to construe the occurrence clause as though it covered "exposure during the policy period which results in bodily injury." It is the result which is keyed to the period, and not the accident or exposure.32

Similarly, the Appellate Division concluded that exposure after initial injury that "aggravated existing injuries or caused additional injuries" also triggered coverage.33 Clearly, these cases do not offer an unambiguous embrace of the injury-in-fact approach, but they are far more consistent with the injury-in-fact trigger than with the multiple trigger adopted by Keene and the manifestation theory adopted by other courts.34

Furthermore, American Home Products is more consistent with our own reading of the insurance contracts than is Keene.35 The plain language of the definition of "occurrence" used in the CGL policy requires exposure that "results, during the policy period, in bodily injury" in order for an insurer to be obligated to indemnify the insured. The unambiguous meaning of these words is that an injury --and not mere exposure--must result during the policy period. The CGL policies expressly distinguish exposure from injury; to equate the two as urged by Abex is to ignore this distinction. Any argument that mere exposure--without injury--triggers liability is simply unsound linguistically. Additionally, the manifestation theory, too, is inconsistent with the definition of "occurrence." Although the language of these policies demands that the insured prove that an exposure caused an injury during the policy period, it imposes no requirement that the injury be discovered at that time.

Because we adopt the injury-in-fact trigger as most consistent with New York law, summary judgment on the question of the insurers' duty to indemnify is not appropriate in this case. It may be, as suggested by Abex, that in the context of asbestos cases, injury occurs simultaneously with exposure.36 The record below is devoid of evidence on when asbestos-induced injury occurs, however, and the inescapable dispute of fact over this issue prevents summary judgment. The CGL policy requires that real injury occur during the policy period before an insurer is obligated to indemnify an insured, and thus makes the existence of injury a material issue of fact. We therefore remand for further proceedings in the District Court on the insurers' duty to indemnify under the injury-in-fact trigger.

On remand, there will be no need for the District Court to examine extrinsic evidence on intent. In American Home Products, the court adopted the injury-in-fact trigger as mandated by the plain meaning of the definition of "occurrence" in the CGL policy. We adhere to this view. The contract language here is susceptible of only one reasonable interpretation; therefore, under New York law, extrinsic evidence of intent is irrelevant.37

The principal task for the District Court on remand will be to determine when injury-in-fact occurred. As Judge Sofaer observed, the trier of fact need not pinpoint the exact date of injury. Instead, "all that is necessary is reasonably reliable evidence that the injury, sickness, or disease more likely than not occurred during a period of coverage."38 Once the court determines that asbestos exposure causes injury at a particular time and in a particular manner, it may be appropriate to apply these findings to all similar cases.39 Such an approach would avoid the need for repetitive minitrials on this issue for each of the tort claims against Abex. However, we will leave this matter for assessment by the District Court in the first instance.

Finally, the District Court must consider the applicability of the "deemer" clauses and "other insurance" clauses in the Liberty policies. Although these provisions could significantly affect Liberty's duty to indemnify Abex, there is no mention of these clauses in the District Court's order. The deemer clause, for example, provides that injury caused by exposure to injurious conditions is deemed to occur on the last day of exposure. This could be read to eliminate Liberty's duty to indemnify Abex for injuries caused by exposure that ceased before the beginning of Liberty's policy period, as well as injuries caused in part by exposure occurring after the expiration of the Liberty policy. Unfortunately there is no Second Circuit interpretation of these two contract provisions,40 so we must leave the task of interpreting these provisions to the District Court. The District Court must first determine if these provisions have a plain meaning. If they are susceptible of at least two fairly reasonable meanings, under New York law the court must then examine any extrinsic evidence.41 Only "after all aids to construction have been employed but have failed to resolve the ambiguities" should the court apply the maxim that ambiguities are to be construed against the insurer.42

Although the issues surrounding the insurers' duty to indemnify Abex cannot be resolved on a motion for summary judgment, the same is not true with respect to the duty to defend Abex. Under well-settled principles of New York law, Abex is entitled to defense by the insurance companies if the underlying tort complaints "permit proof" of the facts establishing coverage, or if the complaints do not exclude the possibility that injury-in-fact occurred during the policy period.43 Only if the insurers establish, "as a matter of law, that there is no possible factual or legal basis on which the insurer might eventually be obligated to indemnify,"44 would they escape their duty to defend Abex. Recently, a New York trial court applied these principles and granted an insured summary judgment on the duty to defend when the insurers "failed to establish that there is no possible factual or legal basis on which they might eventually be obligated to indemnify [the insured] against liability."45 Summary judgment is also appropriate in this case because the insurers here too have failed to establish that no coverage is possible as a matter of law.

As we concluded above, indemnification is triggered by injury-in-fact. Thus, as long as there remains a possibility--however remote--that injury occurred during the policy periods of each insurer, the insurers must defend Abex.46 Because it is possible for asbestos-induced injuries to occur at any time following initial exposure, the tort complaints against Abex "permit proof" that the injury-in-fact occurred during the policy periods of all three insurers. We hold, therefore, that the insurers must immediately fulfill their duty to defend Abex. This obligation will continue until the insurers establish that, as a matter of law, there is no possibility that they will have to indemnify Abex.47

Although we hold that Travelers and Liberty have a duty to defend Abex, we are presently unable to make any such determination with respect to Maryland. Before the District Court imposes any duty on Maryland, it must first determine that Maryland insured Abex for the years claimed. Under New York law, Abex has the burden of establishing the existence of this coverage.48

On the record before us, there remains an unresolved dispute of fact concerning Maryland's coverage of Abex. The evidence supporting this coverage is arguably persuasive, but the standard for summary judgment requires that the District Court find no dispute of material fact--mere persuasiveness is not enough.49 Although Abex presented two alleged policies found in the records of its London insurance broker, these policies are stamped "SAMPLE" and "CANCELLED." Of course, as Abex suggests, this could merely denote the fact that only a copy of the policy was sent to London, and that the policy was cancelled at the end of the policy period. On a motion for summary judgment, however, we are not permitted to draw any inferences against Maryland.50 As Maryland argues, "SAMPLE" could mean that these policies were prepared as only an example of the coverage Maryland could provide. Similarly, the fact that neither Maryland nor Abex's domestic insurance broker had a copy of the purported policies, and the fact that key provisions of the policies are missing, cast some doubt on the authenticity of these policies.

On remand, the District Court must conduct further proceedings before imposing liability on Maryland. If a factual dispute persists after further discovery, the District Court must hold a trial on this issue.

We are fortunate that the Second Circuit has already resolved the principal issues of New York law dispositive of this appeal. Because the Second Circuit is the "home" circuit, we adopt its interpretation of New York law; the duty of each insurer to indemnify Abex is therefore triggered by injury-in-fact. We remand the case to the District Court for a trial on each insurer's duty to indemnify under this trigger. We further conclude that the insurers are obligated under New York law to defend Abex until the insurers establish that, as a matter of law, there is no possibility of coverage. This duty, of course, includes a duty to reimburse Abex for defense costs already incurred, as well as a duty to assume Abex's defense in all pending and future asbestos cases. Finally, we hold that the District Court must determine whether Maryland insured Abex before imposing either a duty to defend or a duty to indemnify upon Maryland.

So ordered.