        RECOMMENDED FOR FULL-TEXT PUBLICATION
             Pursuant to Sixth Circuit Rule 206
    ELECTRONIC CITATION: 2000 FED App. 0152P (6th Cir.)
                File Name: 00a0152p.06


UNITED STATES COURT OF APPEALS
              FOR THE SIXTH CIRCUIT
                _________________


                                   ;
                                    
 THE LINCOLN ELECTRIC

             Plaintiff-Appellee/ 
 COMPANY,
                                    
               Cross-Appellant, 
                                       Nos. 98-4236/4340

                                    
                                     >
            v.                      
                                    
                                    
                                    
 ST. PAUL FIRE AND MARINE

          Defendant-Appellant/ 
 INSURANCE COMPANY,
                                    
                Cross-Appellee. 
                                  1
       Appeal from the United States District Court
        for the Northern District of Ohio at Akron.
      No. 96-00537—James S. Gwin, District Judge.
              Argued: November 2, 1999
           Decided and Filed: April 27, 2000
  Before: KEITH, NORRIS, and CLAY, Circuit Judges.
                  _________________
                       COUNSEL
ARGUED: Clifford M. Sloan, WILEY, REIN & FIELDING,
Washington, D.C., for Appellant. Robert S. Walker, JONES,
DAY, REAVIS & POGUE, Cleveland, Ohio, for Appellee.

                            1
2    Lincoln Electric Co. v. St. Paul     Nos. 98-4236/4340      Nos. 98-4236/4340        Lincoln Electric Co. v. St. Paul      39
     Fire and Marine Insurance Co.                                                        Fire and Marine Insurance Co.

ON BRIEF: Clifford M. Sloan, WILEY, REIN &                       benefits of a double-auditing system. It was in a position to
FIELDING, Washington, D.C., Thomas P. Kane,                      act much earlier in order to prevent some of the
OPPENHEIMER, WOLFF & DONNELLY, St. Paul,                         inconvenience and cost associated with this legal controversy.
Minnesota, for Appellant. Robert S. Walker, Brian F.
Toohey, Mark J. Andreini, JONES, DAY, REAVIS &                     We affirm the district court’s refusal to award attorney’s
POGUE, Cleveland, Ohio, Michael H. Ginsberg, Peter D.            fees on the ground that the recently enacted Ohio statute
Laun, JONES, DAY, REAVIS & POGUE, Pittsburgh,                    compels that result.
Pennsylvania, for Appellee. Gerald V. Weigle, DINSMORE
& SHOHL, Cincinnati, Ohio, Mary A. Cavanaugh, Dennis R.                                         III.
Lansdowne, SPANGENBERG, SHIBLEY & LIBER,
Cleveland, Ohio, Mitchell F. Dolin, COVINGTON &                     We affirm in part, reverse in part, and remand the case to
BURLING, Washington, D.C., Thomas J. Quinn, MENDES               the district court for further proceedings required to
& MOUNT, New York, New York, for Amici Curiae.                   implement the holdings in this opinion. We find that the
                                                                 parties properly raised their arguments on appeal. The district
                    _________________                            court did not commit clear error or legal error in reaching its
                                                                 determination that St. Paul was liable for failing to adhere to
                        OPINION                                  the terms of its policies held by Lincoln Electric. The district
                    _________________                            court did not commit clear error or legal error in finding that
                                                                 St. Paul was liable pursuant to “missing” polices dating from
   ALAN E. NORRIS, Circuit Judge. Defendant St. Paul Fire        1945 to1972 that were held by Lincoln Electric. We reverse
and Marine Insurance Company (“St. Paul”) appeals a district     the district court with regard to the process it used to reconcile
court judgment and award entered pursuant to a bench-trial       the contractual policy relationship of the parties with the long-
verdict for plaintiff, the Lincoln Electric Company (“Lincoln    term exposure and delayed manifestation injury claims of the
Electric”). The trial concerned a dispute over products          type associated with the “welding-fumes”/“asbestos
liability insurance policies that Lincoln Electric purchased     exposure” sort of injury, and direct it to follow the four-step
from St. Paul over the course of several decades. The policies   process articulated in this opinion to determine whether any
were altered over time as to the levels of deductibles for 1)    adjustments in the base judgment award are needed. We
assessed product-related injury liability and 2) legal costs     reverse the district court with respect to the method it used to
associated with litigation stemming from the covered product-    calculate prejudgment interest, and direct it to 1) take the
related injuries. The basis for insurance coverage between the   corrected base award, 2) add prejudgment interest, which is
parties also changed from an “occurrence” basis (coverage        to be calculated using an accrual date of February 22, 1996,
from the date of the injury) to a “claims” basis (coverage       and 3) accompany the total judgment award with a clear
from the date of the lawsuit), creating a situation where some   written explanation concerning the statistical, mathematical,
claims against Lincoln Electric could simultaneously trigger     accounting, and data processing assumptions and procedures
the “occurrence” policy and the “claims” policy.                 utilized to arrive at the base, prejudgment interest, and final
                                                                 judgment award figures. We affirm the district court’s
  In addition, the parties have had a long-standing              decision not to award attorney’s fees to Lincoln Electric.
disagreement about how they should determine when a
particular policy has been triggered by a claim involving a
38    Lincoln Electric Co. v. St. Paul      Nos. 98-4236/4340        Nos. 98-4236/4340           Lincoln Electric Co. v. St. Paul            3
      Fire and Marine Insurance Co.                                                              Fire and Marine Insurance Co.

and that is pending in a court of record on that date. Thus,         long-term exposure and delayed manifestation injury. This
this case is subject to the new statute because this case was        question is of special importance to both parties and to the
commenced prior to the effective date, and remains pending           products-liability insurance market. Since the 1970s there has
in a court of record. As the letter suggests, the following          been an explosion in class-action suits by welders for medical
provisions from R.C. § 2721.16(A) now govern:                        problems alleged to have resulted from exposure to asbestos,
                                                                     manganese, and welding fumes. Lincoln Electric, along with
  A court of record shall not award attorney’s fees to any           many other similarly-situated industrial entities, has faced
  party on a claim for declaratory relief . . . unless a section     thousands of these class-action suits. Typically, the suits
  of the Revised Code explicitly authorizes [it] or unless           allege both harmful exposure for decades and delayed
  an award of attorney’s fees is authorized by section               manifestation of injury, but do not allege any precise1 moment
  2323.51 of the Revised Code, by the Civil Rules, or by             of transformation from wellness to infirmity.             These
  an award of punitive or exemplary damages against the              characteristics can result in both the industrial entity and its
  party ordered to pay attorney’s fees.                              insurer having a strong fiscal incentive to manipulate the
                                                                     “triggering” date. Both parties may do this in order to take
St. Paul’s letter correctly observes that none of the three          advantage of what each considers to be the most favorable set
statutory prerequisites is satisfied by Lincoln Electric’s claim     of policy terms (e.g., deductibles and assumption of legal
for fees.
   Lincoln Electric did not file a written argument in response
to St. Paul’s letter, but did assert at oral argument that section
2721.16(A) does not apply to this case because the statute               1
                                                                           Exposure, a discrete temporal moment of injurious transformation,
concerns only a declaratory judgment action and Lincoln              manifestation, and diagnosis are different concepts and represent events
Electric was suing for breach of contract. We disagree with          that may or may not be at different periods of time (although they can
that argument. St. Paul filed in federal district court in           occur either simultaneously or in the sequence listed above). “Exposure”
Minnesota seeking declaratory judgment on March 11, 1996,            is a physical bodily encounter with a harmful substance, e.g., breathing
and Lincoln Electric responded by filing an action in the            asbestos fibers into the lungs. “A discrete temporal moment of injurious
                                                                     transformation” denotes the precise moment when, for example,
Northern District of Ohio. The Minnesota action was                  cancerous cells first appear in the exposed lungs. “Manifestation” refers
transferred to the Northern District of Ohio and consolidated        to the period of time when the injury becomes susceptible to observation
as a diversity of citizenship action under 28 U.S.C. § 1332,         by a reasonable person with an actual opportunity to observe its signs and
and Ohio law was properly applied. Additionally, this court          symptoms. Manifestation can also occur when the injury becomes
has not adopted Lincoln Electric’s theory concerning its             susceptible to observation by a reasonable person in a position to observe
                                                                     the signs and symptoms of the injury. For example, if cancer in the lungs
contractual policy relationship with regard to long-term             caused by asbestos began to cause unusual pain in the lungs or a coughing
exposure and delayed manifestation injury “welding fume”             of blood, manifestation would have occurred even if the injured individual
and “asbestos exposure” claims. It would thus be inaccurate          failed at that time to take notice and attach significance to the
to describe St. Paul’s reluctance to cooperate as “wrongful”         developments. Finally, “diagnosis” concerns an authoritative attribution
under Allen v. Standard Oil Co., 2 Ohio St.3d 122, 122, 443          of medical significance to a manifestation of signs or symptoms of an
                                                                     injury. Most often diagnosis will result from the methodological
N.E.2d 497, 497 (Ohio 1982), even if one assumes that the            examinations and informed conclusions of medical professionals. In our
syllabus in Allen is still good law following the new Ohio           example, diagnosis would occur when a doctor examines the injured
legislation. Finally, we note that Lincoln Electric enjoyed the      person and concluded that lung cancer was indicated by the evident signs
                                                                     and symptoms.
4       Lincoln Electric Co. v. St. Paul      Nos. 98-4236/4340       Nos. 98-4236/4340            Lincoln Electric Co. v. St. Paul             37
        Fire and Marine Insurance Co.                                                              Fire and Marine Insurance Co.

costs) found at some chronological point along the time-frame         defendant insurer about the problem (particularly where   there
of a long-standing insurance relationship.                            is gross negligence, a lack of good faith, or fraud33), and
                                                                      2) will always begin at or before the date at which the insurer
   On appeal, St. Paul asserts that it fulfilled its contractual      was served with notice of a court action as to the matter.
obligations and that the district court erred in finding any
liability whatsoever on its part. It contends that the district          We remand this case back to the district court to recalculate
court reached its finding of liability by misapplying the             prejudgment interest. The district court must first ensure that
voluntary payment and mistake of law doctrine and the course          it has reached the correct base amount for the judgment award
of conduct doctrine. St. Paul also argues that the district court     by reconciling the contractual policy relationship with long-
applied an incorrect standard of proof when it reached a              term exposure and delayed manifestation injury “welding
factual finding for Lincoln Electric concerning the contents of       fume” and “asbestos exposure” claims though use of the
“missing” policies covering the years 1945 to 1972. St. Paul          calculation process described in the previous section of this
further believes that, even if there was liability on its part, the   opinion. The court can then properly calculate prejudgment
district court should have equitably allocated the application        interest by using February 22, 1996 as the date of accrual.
of the claims to the various triggered policies rather than
allowing Lincoln Electric to “pick and choose” between                7.   Attorney’s Fees and St. Paul’s Breach of Duty to Defend
policies while invoking coverage for each claim. Finally, St.              Lincoln Electric
Paul asserts that even if it loses every other issue on appeal,
the judgment award should be reduced because the district               On cross-appeal, Lincoln Electric challenges the district
court utilized an incorrect accrual date which resulted in            court’s refusal to award it attorney’s fees as the prevailing
exorbitant prejudgment interest.                                      party.

  Lincoln Electric asserts that the district court’s judgment           Pursuant to FED. R. CIV. P. 28(j), St. Paul filed a letter with
should be upheld because it was not clearly erroneous, and, on        the court on October 15, 1999. The letter included a copy of
cross-appeal, takes issue with the district court’s refusal to        recently-enacted legislation, OHIO REV. CODE ANN.
award attorney’s fees.                                                § 2721.16(A) (1999). St. Paul correctly pointed out that the
                                                                      new statute expressly applies to pending cases because it
     We affirm in part and reverse in part.                           governs any Ohio declaratory judgment action or proceeding
                                                                      that was commenced prior to the effective date of this section,
                                I.
1.     The Pre-1979 (September 1945-79) Relationship                       33
                                                                              According to the district court, St. Paul breached the policies by
                                                                      implementing a trigger “that was to its benefit and to the detriment of
    Lincoln Electric, a manufacturer of industrial products,          Lincoln Electric, while at the same time not disclosing to Lincoln Electric
including welding rods, is an Ohio corporation with its               other potential triggers of coverage.” At the same time, St. Paul had not
principal place of business in Ohio. St. Paul is a Minnesota          breached a duty of good faith because it had acted with “reasonable
corporation with its principal place of business also in that         justification” in its treatment of Lincoln Electric’s claims. Had the district
state. By 1979, Lincoln Electric and St. Paul had a                   court found that St. Paul acted fraudulently or in violation of the duty of
                                                                      good faith, the date the district court chose for prejudgment accrual might
longstanding commercial relationship stretching back to at            well have been appropriate under Ohio law as characterized by approach
least 1945, with St. Paul issuing insurance policies to Lincoln       four.
36     Lincoln Electric Co. v. St. Paul           Nos. 98-4236/4340           Nos. 98-4236/4340           Lincoln Electric Co. v. St. Paul            5
       Fire and Marine Insurance Co.                                                                      Fire and Marine Insurance Co.

   To impute accrual of interest before the date at which the                 Electric on a yearly basis. The James B. Oswald Company
insurer should have known that it was breaching its duty to                   (“Oswald”), a Cleveland insurance broker, was St. Paul’s
defend is to also effectively impute a contractual term that did              agent. Lincoln Electric was a sophisticated business entity,
not exist. Absent explicit agreement to the contrary, business                but an unsophisticated insured; it had no risk management
parties in an insurance relationship with a double auditing                   department and relied upon Oswald and, to a lesser degree, St.
procedure share equally in the risks of possible costs                        Paul, for expertise in handling liability insurance matters.
associated with mutually undetected mistakes occurring in
the administration of the insurance relationship. Equal                         In the years leading up to 1979, the policies contained 1) a
sharing of risk exists regardless of whether a particular                     $5,000 deductible for indemnity costs related to judgments
mistake happens to result in over-payment or under-payment,                   and settlements from covered injuries, 2) no deductible for2
until or unless either 1) one party explicitly assumes a                      legal defense costs, and 3) an “occurrence” or “accident”
disproportionate share of the risk contractually, and the                     basis of insurance. The policies covered “bodily injury . . .
insured incurs actual costs, or 2) the insurer knew or should                 caused by an occurrence [“an accident, including injurious
have known about the failure to fulfill its duty. Contrary to                 exposure to conditions, which results, during the policy
the district court’s suggestion, St. Paul was not in breach of                period, in bodily injury . . . neither expected  nor intended
contract until Lincoln Electric alerted St. Paul about its failure            from the standpoint of the insured”].”3 The policies also
to fulfill its duty in February 1996, and St. Paul responded by               granted St. Paul an exclusive contractual “right and duty to
refusing to correct the problem.32 St. Paul cannot be deemed                  defend” Lincoln Electric.
to be in breach of contract whenever it happens to
inadvertently mishandle one of the thousands of claims it                       The 1970s witnessed an industry-wide explosion of toxic
must process within a business relationship of the kind                       exposure tort cases, implicating Lincoln Electric and its
considered in this case. This is especially true when, as was                 welding-rod manufacturing business as a defending litigant in
true here, each party could reasonably have relied upon the                   thousands of tort cases. Each case was typically brought by
other party to render assistance by utilizing the double-                     hundreds of welders acting in a class or otherwise cooperating
auditing procedure to detect errors.                                          as a concerted group of litigants. The suits alleged lung
                                                                              disease and/or cancer and/or neurological problems, all
  We emphasize that application of this approach can result                   arising from decades of exposure to manganese and asbestos
in different dates of accrual depending on the scenario
adopted as true by the factfinder. The date of accrual 1) can
be at or before the date when plaintiff insured notifies                          2
                                                                                    An “accident” policy is triggered by allegations of an accident or
                                                                              event during the policy period. “Occurrence” policies are triggered by
                                                                              allegations of bodily injury during the policy period. Both occurrence and
     32                                                                       accident policies provide coverage for liabilities and accidents allegedly
       “Breach of contract” is “[f]ailure, without legal excuse, to perform
any promise which forms the whole or part of a contract.” BLACK’S LAW         occurring during the policy period, even if the lawsuits are filed years
DICTIONARY 188 (6th ed. 1990). The district court erred in finding a          later. According to Lincoln Electric, both types of policies also provide
breach, because St. Paul had a legal excuse for its failure to perform        coverage for injuries allegedly resulting from continuous or repeated
some of its promises during the period prior to February 22, 1996. The        exposure to harmful conditions.
legal excuse existed because of the double-auditing scheme, the                   3
complexity of the contractual arrangement, and the failure of Lincoln              According to Lincoln Electric, the duty is triggered by an allegation
Electric to alert St. Paul to the need to correct any problem.                of bodily injury, such as exposure to chemicals, during a policy period.
6    Lincoln Electric Co. v. St. Paul      Nos. 98-4236/4340       Nos. 98-4236/4340            Lincoln Electric Co. v. St. Paul           35
     Fire and Marine Insurance Co.                                                              Fire and Marine Insurance Co.

in the welding rods dating as far back as the 1930s. The                    necessary application of the statute. Predicate factual
plaintiffs did not contend that their injuries were attributable            determinations will not be disturbed except for an
to any single exposure year, but did allege that each exposure              abuse of discretion. The court’s attitude must be
caused injury.                                                              manifestly unreasonable, arbitrary or unconscionable;
                                                                            mere error of law or of judgment is insufficient to
  By the late 1970s, the extent of Lincoln Electric’s exposure              support reversal on appeal.
to welding fumes cases had become apparent. At the same
time, the products liability insurance market was experiencing        The Ohio law set forth above leads us to conclude that the
pressure due to an increasing volume of products liability         district court applied most of the31above principles correctly.
lawsuits, including those related to asbestos. A controversy       However, the district court erred when it adopted approach
began to emerge over the appropriate “trigger” for insurance       one by utilizing the “time between accrual of the claim and
coverage in claims alleging delayed injuries from long-term        judgment” for the calculation of interest. The district court
exposure. See, e.g., Stonewall Ins. Co. v. Asbestos Claims         correctly reasoned that “Lincoln Electric lost access and use
Management Corp., 73 F.3d 1178, 1195-96 (2d Cir. 1995),            of certain funds for the period through December 1997,” but
modified, 85 F.3d 49 (2d Cir. 1996)(discussing various trigger     it incorrectly determined that accrual before February 1996
theories). However, St. Paul and Lincoln Electric continued        was necessary to “fairly and reasonably compensate those
the renewal of policies and cooperated in the defense of           losses flowing from St Paul’s breach.”
welding fumes cases. The concerns of the parties respecting
the emerging trend of lawsuits ultimately led to an August
1979 meeting to negotiate renewal of coverage.
2.   The 1979 Deductible Endorsement and Subsequent                    31
     Coverage 1979-85                                                      We therefore reject Lincoln Electric’s position with respect to this
                                                                   issue. Moreover, we note that although St. Paul advocated the correct
   In the August 1979 meeting, the parties discussed issues        result, it was incorrect in suggesting adoption of approach two (instead of
including control of cases, the “occurrence” date, expenses,       approach four) as the rationale for reaching that result.
                                                                        St. Paul was incorrectly forced to expend or absorb costs related to
the renewal agreement, and premiums. St. Paul insisted upon        defense, but both parties were equally responsible for the failure of the
higher premiums, higher deductibles or cost sharing, or a          double-auditing system to catch the problem. This was not a situation
combination of these. Several policy proposals were                where the insurer had sole access to relevant records or where the insurer
discussed, including one for a combined defense-and-               was conducting the only auditing. It was not until February 1996 that
indemnity deductible, but the parties never discussed the          Lincoln Electric first proffered its complex theory for recovery and
                                                                   demanded a reallocation of defense and indemnity payments. Thus, under
language of the $25,000 deductible that eventually became          the unique facts of this case, the approach two date “when insurer is made
part of the 1979 policy. Date of occurrence was a major            aware that the insured disagrees with how insurer has disposed of the
issue. During the meeting, Lincoln Electric advocated a            claim the insured submitted to the insurer about funds expended by
trigger for the occurrence date that would run “from the day       insured in defense efforts” happens to coincide with the second prong of
the welder commences welding to [the] day he ceases to be a        approach four, which is when “the insurer knew or should have known
                                                                   that the insurer was not fulfilling its duty to defend.” Since both prongs
                                                                   under approach four must be satisfied, the date of accrual will always be
                                                                   pushed back to the date when the latter of the two prongs has been
                                                                   satisfied. In this case, prong two of approach four produces the same
                                                                   accrual date as approach two.
34     Lincoln Electric Co. v. St. Paul         Nos. 98-4236/4340         Nos. 98-4236/4340            Lincoln Electric Co. v. St. Paul              7
       Fire and Marine Insurance Co.                                                                   Fire and Marine Insurance Co.

                                                                                   4
          date for payment, and hence interest accrual, may be            welder,”
                                                                                5
                                                                                      while St.
                                                                                              6
                                                                                                 Paul countered with a “manifestation
          from the date coverage was demanded, the date                   date” alternative.    St. Paul acknowledged Lincoln Electric’s
          coverage was denied, the date of an accident, or some           position.7 Lincoln Electric asserts that no agreement on
          other date. In the context of this case, interest accrued       trigger or date of loss was reached.
          under R.C. 1343.03(A) on the date at which both A)
          the insured was incorrectly forced to expend or absorb            No deal of any kind was made at the August 15 meeting.
          defense costs, and B) the insurer knew or should have           A week later, on August 23, St. Paul sent a letter to Oswald’s
          known that it was not fulfilling its duty to defend.            CEO describing two options8 for Lincoln Electric, and the
                                                                          substance of the letter was then communicated to Lincoln
  3.      Mere denial that one is liable for a debt will not make
          a claim unliquidated30 and will not defeat a claim for
          prejudgment interest. Prejudgement interest will not
                                                                              4
          be denied merely because a principal amount is                         Lincoln Electric’s proposed trigger apparently was a hybrid of the
          liquidated, unliquidated, or not susceptible to easy            “exposure” trigger, which applies those policies in effect at the time of the
          ascertainment. Courts do not award interest based               exposure to the offending product, and the “continuing injury” trigger,
          upon a lack of good faith in the underlying action, the         which applies those policies in effect at any time from exposure through
                                                                          manifestation. Lincoln Electric’s language suggests a continuing injury
          insurer’s decision to defend, and/or the nonmovant's            trigger that is cut short by the last date at which exposure could have
          failure to settle. It makes no difference that the claim        occurred. Under Lincoln Electric’s proposal, the concept of exposure
          to be defended was not clearly within the defendant’s           would have been used to define the limits of coverage rather than as a
          policy periods. An arbitration award or verdict is not          justification for the substance of provided coverage.
          required. Admission or acknowledgment of liability                  5
          by the defendant insurer is not required.                             A traditional “manifestation” trigger applies those policies in effect
                                                                          at the time the injury was manifested.
  4.      The trial court judge is responsible for identifying the            6
          date of accrual. The trial court judge calculates the                 Lincoln Electric’s view is that St. Paul knew it could not avoid the
          amount of prejudgment interest. If a favorable                  occurrence coverage it had already sold, nor prevent future claims from
                                                                          triggering those policies. Lincoln Electric asserts St. Paul knew if it left
          judgment award has been obtained by plaintiff,                  Lincoln Electric it could not collect additional premiums to offset losses,
          plaintiff has a right under R.C. 1343.03(A) to an               thus exacerbating what was already a bad situation for St. Paul.
          interest award as a matter of law, and the trial judge
          has no discretion not to grant any interest award.                  7
                                                                                The position was acknowledged in a memorializing document which
          Although a trial court judge is bound to apply                  stated:
          prejudgment interest principles to the facts as found by
          the trial factfinder, the judge makes the additional                Establishment of Occurrence. Insured wants it to read from the
                                                                              day the welder commences welding to day he ceases to be a
          predicate factual determinations needed to support any              welder. This results in limits applying cumulatively during the
                                                                              years we provide coverage.
     30                                                                       8
       Even in the case of unliquidated debts, prejudgment interest may         One option was “a policy excluding welding fume claims,” while
be awarded under Ohio law if the amount is capable of ascertainment by    the other option offered “a policy with a $25,000 combined defense and
mere computation, or is subject to reasonably certain calculations by     indemnity deductible for welding fume claims” in return for an additional
reference to existing market value.                                       $548,000 in annual premiums.
8        Lincoln Electric Co. v. St. Paul      Nos. 98-4236/4340         Nos. 98-4236/4340          Lincoln Electric Co. v. St. Paul         33
         Fire and Marine Insurance Co.                                                              Fire and Marine Insurance Co.

Electric. The letter included the following language                     (St. Paul’s argument), “that prejudgment interest should only
(emphasis added):                                                        run from February 1996 – the point in time when Lincoln
                                                                         Electric first demanded a reallocation of defense and
    On August 21 . . . we quoted to Insured renewal of this              indemnity payments.” The court adopted approach one even
    policy at current limits with one exception an annual                though “[d]efendants had no way of knowing of the claim,”
    premium of $1,200,000 [sic]. The one exception was the               and there was a double-auditing procedure in place during the
    endorsement relating to a retroactive deductible on each             relevant time period to guard against mistakes and fraud. The
    claim for $25,000. This is to apply to all fume cases                court reasoned that “Lincoln Electric lost access and use of
    reported after August 1, 1979. Allocated claims expense              certain funds for the period through December 1997,” and that
    plus settlements [are] to be included in the deductible.             the money would “fairly and reasonably compensate those
       All other quota share quotes are withdrawn; however,              losses flowing from St Paul’s breach.”
    renewal of this policy at current limits, excluding fume
    cases, still stands at an annual premium of $652,000.                  After studying the guidance provided by Ohio law,29 we
       We recognize the dispute in application of limits and             conclude that prejudgement interest for this case should be
    coverage[9] for fumes cases exists. In keeping with these            determined in accordance with the following principles:
    issues as status quo and without prejudice to either party
    on this position, the attached endorsement has been                    1.     Prejudgement interest is not punitive; it is part of
    drafted in an effort to clearly indicate our intention on                     compensation for damages. Interest makes the
    future reported cases if we are to remain with this risk.                     plaintiff insureds whole for the lost use of their due
       We expect the decision from the Insured concerning                         and payable money during the time required to secure
    renewal with us by September 1, 1979 as we cannot                             ultimate judgment.
    continue current coverage beyond this date.
                                                                           2.     The date for when payment is due from an insurer
  The parties entered into a new policy, including an                             varies according to circumstances and the nature of the
endorsement specifying applicable deductibles, and a binder                       insured interest. Under a particular fact pattern the due
dated September 5, 1979 was issued. The policy addressed
the treatment of future claims as follows:                                   29
                                                                                Our synthesis of Ohio precedent is drawn from Landis v. Grange
    IN CONSIDERATION of [St. Paul] agreeing to provide                   Mutual Insurance Co., 82 Ohio St.3d 339, 340, 695 N.E.2d 1140, 1142
    coverage to the Insured [Lincoln Electric] for this policy           (Ohio 1998); Royal Electric Construction Corp., 73 Ohio St.3d at 115-17,
    period, the Insured agrees to pay the following deductible           652 N.E.2d at 691-92; Dwyer Electric, Inc. v. Confederated Builders,
                                                                         Inc., No. 3-98-18, 1998 WL 767442, at *1 (Ohio Ct. App. 1998); Lovejoy
    for: Bodily injury liability arising out of inhalation of            v. Westfield National Insurance Co., 116 Ohio App.3d 470, 475-76, 688
    toxic chemicals, including, but not limited to fumes and             N.E.2d 563, 567 (Ohio Ct. App. 1996); Eagle American Insurance Co.,
    gases, which are caused from welding products                        111 Ohio App.3d at 220-22, 675 N.E.2d at 1317-18; Domestic Linen
    manufactured, sold, handled, or distributed by the insured           Supply & Laundry Co., 109 Ohio App.3d at 322, 672 N.E.2d at 191;
                                                                         Outdoor Outfitters, Inc. v. Fireman’s Fund Insurance Co., 98 Ohio
                                                                         App.3d 733, 736-37, 649 N.E.2d 871, 873 (Ohio Ct. App. 1994); City of
     9                                                                   Willoughby Hills v. Cincinnati Insurance Co., 26 Ohio App.3d 146, 146-
      According to Lincoln Electric, the “limits and coverage” dispute   48, 499 N.E.2d 31, 32-34 (Ohio Ct. App. 1986); and Turner Construction
existed because, under the exposure or continuous trigger of coverage,   Co. v. Commercial Union Insurance Co., 24 Ohio App.3d 1, 4, 492
multiple policies could be triggered by each welding fume claim.         N.E.2d 836, 839 (Ohio Ct. App. 1985).
32    Lincoln Electric Co. v. St. Paul            Nos. 98-4236/4340          Nos. 98-4236/4340       Lincoln Electric Co. v. St. Paul        9
      Fire and Marine Insurance Co.                                                                  Fire and Marine Insurance Co.

law.27 We now consider how Ohio law28 applies to the facts                     or insured’s vendors on any and all claims first presented
at bar.                                                                        to the Company on or after August 1, 1979, regardless of
                                                                               when the claim first arose. . . . $25,000.00 deductible per
  There are four points in time that courts could use to                       claim applicable to the payment of the claim and
determine when prejudgment interest should begin to accrue                     allocated claims expense.
against an insurer who wrongfully fails to defend on a claim
against an insured: 1) the date when the insured submitted a                 This same endorsement, providing a $25,000 indemnity-and-
claim to the insurer detailing funds expended in defense                     defense deductible for all claims reported after August 1,
efforts; 2) the date when the insurer was made aware that the                1979, was included in each policy from 1979 to 1985. The
insured disagreed with the insurer’s disposition of the                      district court found that by accepting the $25,000 deductible
defense-cost claim submitted to the insured; 3) the date when                endorsement, Lincoln Electric understood that it would not be
the insured filed a legal action against the insurer with a court            waiving any rights under pre-August 1979 policies and the
or arbiter concerning legal costs; or 4) the date when A) the                dispute about the trigger of coverage would be resolved by
insured has been incorrectly forced to expend or absorb                      maintaining the “status quo.”
defense costs, and B) the insurer knew or should have known
that it was not fulfilling its duty to defend.                                  St. Paul asserts that from 1979 to 1985 an unwavering
                                                                             course of conduct governed: the post-1979 policies with the
  In this case, the district court apparently adopted approach               $25,000 indemnity-and-defense deductible applied to cases
one, utilizing the “time between accrual of the claim and                    filed after August 1, 1979. Throughout this period: (1)
judgment.” The court explicitly rejected approach two                        Lincoln Electric forwarded each welding claim it received to
                                                                             St. Paul; (2) St. Paul paid the defense costs and any indemnity
                                                                             costs; (3) St. Paul submitted a bill to Lincoln Electric for the
     27
        Courts in Ohio have long recognized a common-law right to
                                                                             $25,000 deductible for defense and indemnity costs applicable
prejudgment interest, and Ohio has also created an additional statutory      to claims reported from 1979 to 1985 (only a $5,000
right to prejudgment interest. Cf. Royal Elec. Constr. Corp. v. Ohio State   indemnity deductible for cases reported before August 1,
Univ., 73 Ohio St.3d 110, 115, 652 N.E.2d 687, 691 (Ohio 1995). Ohio         1979), and (4) Lincoln Electric paid St. Paul the amount
courts have rendered numerous holdings explaining how Ohio                   billed. Lincoln Electric employed independent auditors to
prejudgment interest statutes are to be interpreted and reconciled with      review St. Paul’s statements, forwarded them to a law firm
Ohio common law.
     This controversy concerns a plaintiff insured, so the “matter is        retained to conduct continuous review, and corrected any
governed by R.C. 1343.03(A), rather than R.C. 1343.03(C).” Eagle Am.         errors it perceived. St. Paul also asserts that Lincoln Electric
Ins. Co. v. Frencho, 111 Ohio App.3d 213, 220, 675 N.E.2d 1312, 1317         knew the claims it submitted alleged exposure before August
(Ohio Ct. App. 1996). The statutory provisions of R.C. 1343.03(A) and        1, 1979, and that St. Paul applied the $25,000 deductible to
1343.03(C) differ in that “R.C. 1343.03(A) provides for interest on          such claims when they involved cases reported to St. Paul
money which [sic] becomes due and payable upon any instrument of
writing, including an insurance contract.” Id. at 220-21.                    after August 1, 1979. Nonetheless, St. Paul observes,
                                                                             Lincoln Electric did not protest any of the payments. Lincoln
     28
       The statutory language of “R.C. 1343.03(A) does not specify when      Electric has not disputed the existence of the double-auditing
prejudgment interest should begin to run, when it should stop running, or    scheme, and the parties agree that no protest about St. Paul’s
whether it should run continuously.” Domestic Linen Supply & Laundry         conduct was registered during this time period or at any time
Co. v. Kenwood Dealer Group, Inc., 109 Ohio App.3d 312, 323, 672
N.E.2d 184, 191 (Ohio Ct. App. 1996).
10      Lincoln Electric Co. v. St. Paul     Nos. 98-4236/4340     Nos. 98-4236/4340      Lincoln Electric Co. v. St. Paul     31
        Fire and Marine Insurance Co.                                                     Fire and Marine Insurance Co.

prior to a February 22, 1996 letter faxed to St. Paul by             injury claim allocated to a particular year, so that both the
Lincoln Electric.                                                    “occurrence-based” and “claims-based” policies are
                                                                     triggered by a claim where the long-term exposure and
3.     The 1979 Deductible Endorsement and Subsequent                delayed manifestation injury arose during an “occurrence-
       Coverage 1985-96                                              based” policy year but the claim for that long-term
                                                                     exposure and delayed manifestation injury was filed during
  From 1985 to 1996, the parties changed the policies in two         a subsequent “claims-based” policy year, the insured can
significant respects. First, the new policies required Lincoln       “pick and choose” between the policies as to that portion
Electric to assume a greater payment obligation. The 1985-87         of the liability which falls within the time-span with the
policies provided a $50,000 deductible applicable to both            double-protection from overlapping policies.
indemnity and defense expense costs for “toxic chemical and
fumes” claims; the 1987-90 policies provided a $250,000            We remand this case to the district court for further
self-insured retention applicable to all claims; and the 1990-     proceedings necessary to apply these principles, determine
96 policies provided a $2 million self-insured retention. This     whether the base judgment award must be adjusted
approach afforded Lincoln Electric substantially higher            downwards or upwards, and make any additional required
overall limits for a lower premium.                                modifications in its resolution of this case.
  Second, the policies provided “claims-made,” rather than         6. Date of Accrual for Prejudgment Interest
“occurrence,” coverage, meaning that the policies applied to
claims made within the policy period, instead of applying to         St. Paul contends that the district court erred in its
the occurrence of bodily injuries during that policy period,       interpretation and application of Ohio prejudgment interest
which would culminate in suits initiated after the policy
period. The policies from 1985-87 also included a
manifestation endorsement, which limited the applicability of
the policies with the higher deductibles and retentions to
claims where the manifestation occurred after August 1, 1985:
     The effect of this is to eliminate claims that should be
     covered under a previous policy. We won’t cover claims
     for injury arising out of inhalation of toxic chemicals,
     including but not limited to, fumes and gases[,] which are
     caused by the use of welding products manufactured,
     sold, handled, or distributed by you or your vendors if the
     injury first manifested itself prior to 8/1/85. The date of
     manifestation shall be the date the person injured knew
     or should have known that the injury had occurred or the
     date [it] was medically diagnosed, whichever is earlier.
The 1987-96 endorsements contained substantially similar
language. Unlike the occurrence policies, the possibility of
30     Lincoln Electric Co. v. St. Paul                Nos. 98-4236/4340             Nos. 98-4236/4340       Lincoln Electric Co. v. St. Paul      11
       Fire and Marine Insurance Co.                                                                         Fire and Marine Insurance Co.

   (which may vary even as to separate individual policies                           any disbursement from the claims-made policies expired at
   from the same insurer over time) for deductibles, legal                           the end of each policy period unless a claim had been filed
   costs, and legal defense set forth under each of the policies                     prior to its expiration.
   for each of the policy periods from each of the relevant
   entities (and/or under one entity and/or under self-                                St. Paul asserts that just as from 1979 to 1985, the parties
   insurance). To the extent that joint and several liability and                    continued a consistent course of conduct from 1985 to 1996.
   contribution for a particular policy period would normally                        As to (1) claims reported before 1979, the parties applied a
   apply under the law, those doctrines will remain unaltered.                       $25,000 deductible to both indemnity and defense costs; (2)
   However, joint liability and contribution must take into                          claims made after August 1, 1985, with a manifestation before
   account the 26effects of the trigger and allocation                               that date, the parties applied the $25,000 deductible in
   presumptions.                                                                     accordance with the manifestation endorsement; and (3)
                                                                                     claims made after August 1, 1985, with a manifestation after
   4) For the portion of a claim falling within a time span                          that date, the parties applied the higher deductibles and self-
      that is “double-protected” by overlapping                                      insured retentions to indemnity and defense costs. The vast
      “occurrence-based” and “claims-based” policies, the                            majority of underlying claimants alleged manifestation of
      insured is entitled to “pick-and-choose” between                               injury after 1979, with most alleging manifestation after 1984.
      policies for the best terms of coverage as to that                             Throughout this period, St. Paul continued to submit bills for
      portion.                                                                       reimbursement to Lincoln Electric, and Lincoln Electric
                                                                                     continued to consult with its auditors and attorneys and to pay
   In circumstances where 1) an insurer has replaced an                              the sums without protest.
   “occurrence-based” policy with a “claims-based” policy, 2)
   there has been no explicit “buy-back” of the old                                  4.   Conflict Between Lincoln Electric and St. Paul
   occurrence-based policy or its liabilities by the insurance                            Concerning the Contractual Insurance Obligations
   company, and 3) there is a discrete claim or a portion of a
   pro-rated long-term exposure and delayed manifestation                               As discussed previously, the pre-1979 insurance coverage
                                                                                     was on an “occurrence” basis, meaning the policies covered
                                                                                     “bodily injury . . . caused by an occurrence [“an accident,
     26
                                                                                     including injurious exposure to conditions, which results,
        In other words, allocation does not preclude application of any              during the policy period, in bodily injury . . . neither expected
joint and several liability doctrine which might otherwise be relevant               nor intended from the standpoint of the insured”].” A shift
under Ohio law. Allocation relates to the duties of proof, affirmative               was then made to a “claims” basis so that 1979-85 coverage
defenses, and duties of production connected with proving the existence
of liability; in contrast, joint and several liability relates to the distribution   would apply to “any and all claims first presented to the
of obligations for defendants who are found to share liability. Allocation           Company on or after August 1, 1979, regardless of when the
simply precedes application of the joint and several liability doctrine in           claim first arose.” Finally, after 1985 coverage was further
the process of liability attribution. If two insurers were found to have             altered to include the proviso that “[St. Paul] won’t cover
valid policies for the same year, and the joint and several liability doctrine       claims for injury arising out of the inhalation of toxic
validly applied, both insurance companies would be jointly and severally
liable for the portion of the long-term exposure and delayed manifestation           chemicals . . . if [the “person injured knew or should have
injury claim which was allocated to the jointly-covered policy period.               known that the injury had occurred or the date [it] was
The application of any principles of contribution otherwise relevant under           medically diagnosed, whichever is earlier” is] prior to
Ohio law likewise remains unaltered.
12    Lincoln Electric Co. v. St. Paul            Nos. 98-4236/4340          Nos. 98-4236/4340            Lincoln Electric Co. v. St. Paul            29
      Fire and Marine Insurance Co.                                                                       Fire and Marine Insurance Co.

8/1/85.” After Lincoln Electric hired new counsel in 1995,                     will be allocated equally over all triggered years.24 In the
sharp differences of view emerged. In the February 22, 1996                    absence of special weighting considerations, which require
faxed letter, Lincoln Electric formally requested                              additional specific proof, assign an equal fractional
reimbursement for monies it believed St. Paul owed it. St.                     percentage of exposure value to each policy period which
Paul signaled disagreement concerning the significance                         corresponds to the years of exposure.
properly assigned to the three shifting schemes for coverage
which had been used over time.10                                               3) Identify the liable legal entity for each triggered
                                                                                  policy governing each year and make a pro-rata
  Lincoln Electric informed St. Paul that it believed the pre-                    allocation of deductibles, legal costs, and legal
1979 policies, with the $5,000 damages-only deductible,                           defense obligations by looking to the terms associated
should govern any period of exposure in those years, even if                      with the relevant triggered policies.
the claim was made after the end of the policy term. It
contended that the “continuous injury” trigger of coverage                     Identify the legal entities obligated to pay for successful
should apply. In application, Lincoln Electric’s position                      claims that are covered by each of the corresponding policy
would have meant that any policy in effect during the period                   periods. Unless a policy or group of policies affirmatively
when a claimant alleged exposure could apply, and that policy                  and explicitly make assurances about absorbing the entire
could then permissibly be the sole applicable policy even if                   cost of a long-term exposure and delayed manifestation
exposure was alleged to have extended over many years or                       injury with exposure extending through a time period more
even a vaguely delimited number of decades. Lincoln                            extensive than the time period for that individual policy or
Electric also contended that it would have the right to pick                   constituent policy, assign a pro-rata percentage of exposure
and choose among all triggered policies to select the one with                 value to each legal entity based upon the number of
the most favorable terms, rather than allocating losses                        corresponding     policy periods that the legal entity
equitably across all policies. According to Lincoln Electric,                  assumed.25 Treat that pro-rata percentage under the terms


                                                                                 24
                                                                                     A “continuing injury” trigger applies those policies in effect at any
                                                                             time from exposure through manifestation, while an “injury-in-fact”
                                                                             trigger applies those policies which were in effect at any time when actual
                                                                             injury occurred. In effect, we find that the proper trigger is a hybrid
                                                                             between these two triggers. The hybrid is a “flexible continuing injury”
     10                                                                      trigger that presumes uniformity of injury probability while allowing
       It would appear that there were at least four possible theories for
determining which insurance policy coverages had been triggered by a         “injury-in-fact” evidence to rebut the presumption and constrict the range
claim alleging delayed injuries from long-term exposure: 1) a traditional    of the allocation field. The allocation field is potentially constricted by
“manifestation” trigger, applying those policies in effect at the time the   weighting the risk probability distribution and collapsing it down to a
injury manifested; 2) an “exposure” trigger, applying those policies in      short time span or even a precise moment of injury.
effect at the time of the exposure to the offending product; 3) a                25
“continuing injury” trigger, applying those policies in effect at any time          With respect to legal defense costs, the insurer bears the burden of
from exposure through manifestation; and 4) an “injury-in-fact” trigger,     demonstrating that the costs it expended pursuant to a duty to defend were
in which the applicable policies were those in effect at any time actual     unduly disproportionate to the allocated portion of the claim that was
injury occurred. See, e.g., Stonewall Ins. Co., 73 F.3d at 1195-96           assigned to the insurer’s particular policy with the triggered duty to
(discussing the various trigger theories).                                   defend.
28    Lincoln Electric Co. v. St. Paul          Nos. 98-4236/4340          Nos. 98-4236/4340          Lincoln Electric Co. v. St. Paul          13
      Fire and Marine Insurance Co.                                                                   Fire and Marine Insurance Co.

  exposure and delayed manifestation injuries by                           St. Paul admitted that a claim could trigger  both an
  incorporating a specific and articulated method of trigger               occurrence policy and a claims-made policy.11
  and calculation. In the absence of clear guidance from the
  terms of the contract concerning long-term exposure and                    St. Paul believes that Lincoln Electric’s interpretation is
  delayed manifestation injuries, there is a rebuttable                    incorrect because of (1) the sweeping language of the
  presumption that all exposure prior to diagnosis contributed             deductible endorsements (which applied to “any and all
  equally to an injury-in-fact; thus, all policies in effect at the        claims” presented after a particular date “regardless of when
  time of both exposure to the offending product and actual                the claim first arose”) and (2) the parties’ consistent conduct
  manifestation will be construed to have been triggered.                  for the prior seventeen years. St. Paul contends that Lincoln
                                                                           Electric was well aware of the pertinent facts at all relevant
  2) Match the alleged years of exposure to corresponding                  times; Lincoln Electric’s letter explicitly stated that the
     periods covered by triggered policies.                                request for the refund was based solely upon a change in
                                                                           Lincoln Electric’s legal position on the matter. Additionally,
  Identify all years of exposure alleged to have occurred in a             St. Paul argues it is self-evident that it could have stopped
  lawsuit, and then identify the corresponding policy periods              insuring Lincoln Electric. St. Paul asserts that the increase in
  (including periods where the insured decided to “go bare”                Lincoln Electric’s deductibles and retentions meant that there
  with self-insurance). Determine whether special weighting                was a division of obligations: (1) Lincoln Electric would pay
  considerations exist because 1) a specific “critical                     an increased amount of defense costs for its aggressive no-
  transformation” point was alleged (i.e. where the plaintiff              settlements defense strategy, and (2) St. Paul would continue
  clearly went from total wellness to clear contraction of                 to insure Lincoln Electric. Now that Lincoln Electric has
  infirmity in a21discrete temporal moment of injurious                    successfully avoided paying judgments in the lawsuits, St.
  transformation23
                    ), or 2) non-uniform levels of exposure22              Paul complains, Lincoln Electric does not need St. Paul’s
  were alleged. When the policyholder cannot demonstrate                   prospective coverage and is attempting to use this litigation to
  a discrete temporal moment of injurious transformation                   shift the payments it made for its defense onto St. Paul.
  prior to or contemporaneous with the diagnosis, due to
  complex medical facts, the presumption is that the injury                5.   The District Court Decision
                                                                             The district court, following a two-week bench trial, made
                                                                           voluminous findings of fact and conclusions of law. It
                                                                           awarded Lincoln Electric $36.5 million in relief, allowing
     21                                                                    actual damages, prejudgment interest, and additional
       This would occur if, for example, there was harmful exposure at     declaratory relief. The court denied an award of attorney’s
a level of 20 units for ten years, but on the 11th year an accidental
exposure at 100 units in one day resulted in clear symptoms of a disease   fees. The district court made six determinations of major
two days later.                                                            significance for this appeal:
     22
      This would occur if, for example, there was five years of 20-unit
magnitude of exposure and one year of 100-unit exposure.
                                                                                11
     23                                                                           The illustration Lincoln Electric uses is that a 1986 claim that a
       On remand, both parties should be given an opportunity to allege    plaintiff was injured in 1978 would trigger both the 1978 occurrence
facts substantiating the need for special weighting considerations.        policy and the 1986 claims-made policy.
14   Lincoln Electric Co. v. St. Paul     Nos. 98-4236/4340      Nos. 98-4236/4340             Lincoln Electric Co. v. St. Paul             27
     Fire and Marine Insurance Co.                                                             Fire and Marine Insurance Co.

1) A “continuous trigger” applied to the term “occurrence,”        1) Determine what kind of trigger applies.
   and any policy in effect from exposure to diagnosis or
   death was applicable to the claim.                              The face of the20contract governs where the policy terms
                                                                   unambiguously contemplate coverage of long-term
2) The post-1979 endorsements did not control the
   disposition of claims filed after August 1, 1979, but
   instead the pre-1979 policies were applicable because             20
   they were not modified by the post-1979 endorsements.                “All claims” language on the face of the policy is not dispositive
                                                                 and does not inherently preclude or resolve possible ambiguity. “All
   This was due to the plain language of the endorsements,       claims” language in a policy means “all claims” legally deemed to have
   and “[e]ven if the endorsements were susceptible [to] St.     triggered a policy under its policy period occurrence language. Policy
   Paul’s interpretation” St. Paul had not “proved that its      language concerning the qualitative dimensions of the risk of loss must be
   interpretation is the only reasonable one.”                   construed together with other policy language setting forth temporal
                                                                 dimensions of the risk of loss, along with any contractual or legal
3) St. Paul breached the policies by implementing a trigger      guidelines governing reconciliation of multiple sources for policy
                                                                 outlays.
   “that was to its benefit and to the detriment of Lincoln           Long-term exposure and delayed manifestation injury claims trigger
   Electric, while at the same time not disclosing to Lincoln    individual policies by virtue of a legal presumption. The presumption
   Electric other potential triggers of coverage.” At the        allows insureds to avoid the arduous task of proving a discrete temporal
   same time, St. Paul had not breached a duty of good faith     moment of injurious transformation in order to prove there was a
   because it acted with “reasonable justification” in its       recoverable injury. Since a legal presumption must be utilized in order to
   treatment of Lincoln Electric’s claims.                       recognize any trigger of the policy whatsoever, the trigger is activated by
                                                                 operation of law only with respect to the risk of loss that is circumscribed
                                                                 by the qualitative and temporal limits set forth in the policy. If, instead of
4) Lincoln Electric could choose and apply the most              relying upon the benefit of a legal presumption regarding trigger, Lincoln
   favorable policy from all those triggered by a particular     Electric chose to offer direct proof that all (or a disproportionate portion)
   claim, rather than allocating the costs equitably among all   of the long-term exposure and delayed manifestation injuries occurred
   triggered policies. In practical terms, this meant that the   during one policy period (e.g., 1973), Lincoln Electric could on that basis
   court was allowing Lincoln Electric to apply, to the          allocate more of the risk of loss to that particular policy. Under this
                                                                 option, Lincoln Electric would be free of the constraints concerning
   extent possible, all claims under the 1973 policy, because    allocation which attend use of the legal presumption to trigger the
   1973 was the earliest year for which Lincoln Electric         policies. Likewise, since the “[t]he insurer’s liability is not ‘joint and
   could produce an insurance policy and show yearly             several’, it is individual and proportionate,” Forty-Eight Insulations, 633
   policy terms granting a favorable $5,000 indemnity-only       F.2d at 1225, any insurer in St. Paul’s position is free to rebut the default
   deductible. The district court’s analysis resulted in         presumption by offering specific proof that the risk of loss should be
                                                                 allocated away from certain policies because injury should be properly
   $23,537,313 in damages for Lincoln Electric, nearly $21       weighted to other time periods outside those policies.
   million of which was attributable to legal defense costs.          The principles explained are reached through a set of rebuttable
                                                                 presumptions which relate to duties of proof, proof of affirmative
5) Prejudgment interest was calculated to accrue from the        defenses, and duties of production. See id. at 1222. Either the insurer or
   time when Lincoln Electric made payments to St. Paul,         the insured may compel “conventional” insurance law treatment of long-
   seventeen years prior to the judgment, instead of from the    term exposure and delayed manifestation injury claims by forgoing the
                                                                 use of rebuttable presumptions and undertaking the necessary effort and
   date Lincoln Electric challenged the payments in the          costs needed. Theories of coverage and allocation should “parallel the
   February 1996 letter to St. Paul. The interest award          theory of liability,” id. at 1218, 1224-25, in order to assure that neither the
                                                                 insurer nor the insured may have their proverbial cake and eat it too.
26   Lincoln Electric Co. v. St. Paul     Nos. 98-4236/4340       Nos. 98-4236/4340            Lincoln Electric Co. v. St. Paul           15
     Fire and Marine Insurance Co.                                                             Fire and Marine Insurance Co.

implementing a trigger “that was to its benefit and to the             increased the judgment by more than fifty percent of the
detriment of Lincoln Electric, while at the same time not              base award, at an exact amount (after the district court
disclosing to Lincoln Electric other potential triggers of             lowered the amount by $471 to conform with a statutory
coverage.” The district court further held that Lincoln                amendment) of $12,993,367.
Electric could choose and apply the most favorable policy
from all those triggered by a particular claim, rather than       6) The district court rejected Lincoln Electric’s request for
allocating the costs equitably among all triggered policies. In      attorney’s fees.
practical terms, that meant Lincoln Electric would be allowed
to apply claims to the 1973 policy whenever possible, because                                         II.
1973 was the year when it enjoyed a favorable $5,000
indemnity-only deductible. The district court’s analysis          1.   Standard of Review and Ohio Law Concerning Contract
resulted in $23,537,313 in damages for Lincoln Electric,               Interpretation
nearly $21 million of which was attributable to legal defense
costs.                                                              “We review for clear error the findings of fact made by the
                                                                  district court after a bench trial; the court’s legal conclusions
  We are persuaded that the Ohio Supreme Court would              we review de novo.” Davies v. Centennial Life Ins. Co., 128
adopt principles in harmony with the compelling rationale         F.3d 934, 938 (6th Cir. 1997). The district court’s application
articulated in Forty-Eight Insulations, 633 F.2d at 1222,         of state law is reviewed de novo. Leavitt v. Jane L., 518 U.S.
1224-25 (Michigan law). The district court’s holding in this      137, 145 (1996); International Ins. Co. v. Stonewall Ins. Co.,
case ran contrary not only to Forty-Eight Insulations, but also   86 F.3d 601, 604 (6th Cir. 1996).
to the deference accorded in that opinion to the basic
principles undergirding the product-liability insurance market,      “Generally, contract terms are to be given their ordinary
such as risk calculation, risk management, and bargained-for-     meaning. . . . When the terms of the contract are clear on their
exchange. Consistent with the rationale of Forty-Eight            face, the court has no need to construe the evidence otherwise.
Insulations, the district court on remand should apply the        . . . Parol evidence is admissible only if the terms of the
following general principles in resolving the dispute at bar:     contract are ambiguous and then only to interpret, but not to
                                                                  contradict, the express language.” Ohio Historical Soc’y v.
                                                                  General Maintenance & Eng’g Co., 65 Ohio App.3d 139,
                                                                  146, 583 N.E.2d 340, 344 (Ohio Ct. App. 1989). “The
                                                                  question of whether the language of a written agreement is
                                                                  ambiguous [i.e., requires extrinsic evidence in addition to the
                                                                  language within the four corners of   the document to ascertain
                                                                  contract meaning] is one of law.”12 Parrett v. American Ship


                                                                       12
                                                                         Extrinsic evidence can become a consideration before an ambiguity
                                                                  has been identified from the face of the contract as a matter of law, in the
                                                                  limited sense that such evidence can assist the court in determining
                                                                  whether, as a matter of law, two plausible interpretations exist in the
                                                                  manner necessary to give rise to the existence of an ambiguity. Key v.
16     Lincoln Electric Co. v. St. Paul               Nos. 98-4236/4340             Nos. 98-4236/4340       Lincoln Electric Co. v. St. Paul     25
       Fire and Marine Insurance Co.                                                                        Fire and Marine Insurance Co.

Bldg. Co., 990 F.2d 854, 858 (6th Cir. 1993)(Ohio law); Ohio                        5.   Reconciliation of the Contractual Policy Relationship
Historical Soc’y, 65 Ohio App.3d at 146, 583 N.E.2d at 344.                              with Long-Term Exposure, Delayed Manifestation Type
“If a contract is clear and unambiguous . . . there is no issue                          of Claim
of fact to be determined.” Inland Refuse Transfer Co. v.
Browning-Ferris Indus. of Ohio, 15 Ohio St.3d 321, 474                                 The most complex question in this case, of course, involves
N.E.2d 271, 272-73 (Ohio 1984)(per curiam). “However, the                           how the unique characteristics of long-term exposure and
interpretation of such language, once held to be ambiguous,                         delayed manifestation injury claims can be reconciled with
is a factual issue turning on the intent of the parties.” Parrett,                  the various coverage provisions that emerged during the long-
                                                                                    standing contractual insurance relationship between the
                                                                                    parties. The question encompasses several component issues:
                                                                                    1) what kind of “trigger” applies for the policies covering
Allstate Ins. Co., 90 F.3d 1546, 1548-49 (11th Cir. 1996)(Florida                   welding-fumes claims; 2) what impact does the switch from
law)(emphasis added)(“Under ordinary principals of contract                         “occurrence” to “claims” policies have in light of the “status
interpretation, a court must first examine the natural and plain meaning of         quo” preservation of positions between the parties as to the
a policy's language. . . . [U]nless and ambiguity exists, a court should not
resort to outside evidence or the complex rules of construction to construe         type of trigger; 3) how should a claim be handled if it
the contract. . . . Moreover, in determining whether a contract is                  occurred during the time-span of the “occurrence-based”
ambiguous, the words should be given their natural, ordinary meaning,               policy, but then was filed as a claim against the insured during
. . . and ambiguity does not exist simply because a contract requires               a subsequently active “claims-based” policy; 4) as a general
interpretation or fails to define a term . . . . If, on the other hand, a court     proposition, what relationship exists between various insurers,
determines that the terms of an insurance contract are ambiguous, or
otherwise not susceptible to a reasonable construction, a court may look            different policies from the same insurer, and self-insurers over
beyond the contractual language to discern the intent of the parties in             time with respect to a single long-term exposure and delayed
making the agreement. In general, ambiguities in contracts are construed            manifestation injury claim; and 5) when is an insured allowed
against their drafters.”); Press Mach. Corp. v. Smith R.P.M. Corp., 727             to “pick and choose” among terms of different policies in
F.2d 781, 784-85 (8th Cir. 1984)(Missouri law)(emphasis added)(“In                  circumstances where those multiple policies are triggered by
determining whether a contract is ambiguous, the court must consider the
whole instrument and the natural and ordinary meaning of the language.              a long-term exposure claim.
. . . [T]he court's role is to determine the intention as manifested . . . by the
document. In that inquiry, however, the court is justified in considering              Ohio law provides no dispositive guidance on these issues.
more than the mere words of the contract. The surrounding                           Ohio law is very sketchy even with respect to the component
circumstances at the time of contracting and the positions and actions of           issues just mentioned. In this case, we are faced with the
the parties are relevant to the judicial interpretation of the contract.”).         additional task of reconciling the overall calculation scheme
       Obviously, the natural and ordinary meaning of language, reasonable
construction of a contract, surrounding circumstances, and positions and            in a cohesive fashion, and no Ohio statute or Ohio Supreme
actions of the parties are issues that cannot be weighed in a vacuum. See           Court decision squarely addresses the question. Erie R. Co.
Bunnell Med. Clinic, P.A. v. Barrera, 419 So.2d 681, 683 (Fla. Dist. Ct.            v. Tompkins, 304 U.S. 64 (1938).
App. 1982)(emphasis added)(“A latent ambiguity has been defined as one
where the language in a contract is clear and intelligible and suggests a             As stated earlier, the district court held that the post-1979
single meaning, but some extrinsic fact or extraneous evidence creates a            endorsements did not control the disposition of claims filed
need for interpretation or a choice between two possible meanings . . .
[and extrinsic evidence becomes] admissible to show the intent of the               after August 1, 1979, but instead the pre-1979 policies were
parties”). Thus, the district court may take cognizance of extrinsic                applicable because they were not modified by the post-1979
evidence in order to determine whether a factfinder need consider parol             endorsements.       St. Paul breached the policies by
evidence in construing the contract.
24    Lincoln Electric Co. v. St. Paul      Nos. 98-4236/4340        Nos. 98-4236/4340        Lincoln Electric Co. v. St. Paul      17
      Fire and Marine Insurance Co.                                                           Fire and Marine Insurance Co.

4.   Standard of Evidence Required for Proving the Existence         990 F.2d at 858; Ohio Historical Soc’y, 65 Ohio App.3d at
     and Terms of Alleged “Missing” Insurance Policies               146, 583 N.E.2d at 344. “The meaning of [ambiguous] terms
                                                                     . . . will not be overturned on appeal absent a showing that the
   The district court cited three federal district court decisions   trial court abused its discretion.” Id. at 147.
from other circuits, each dealing with non-Ohio law, in
support of its conclusion that a preponderance of the evidence         As to the scrutiny applied to a district court’s application of
standard should be used to determine whether Lincoln                 the parol evidence rule under Ohio law, this court has
Electric had carried its burden to prove the existence and           previously noted, Construction Interior Sys., Inc. v. Marriott
terms of the alleged “lost” insurance policies covering the          Family Restaurants, Inc., 984 F.2d 749, 754 (6th Cir. 1993),
years from 1945 to 1972. The court then found sufficient             that:
evidence to meet the preponderance of the evidence standard.
St. Paul challenges both the standard used and the nature of           [w]here the parties, following negotiations, make mutual
the evidence employed by contending that the standard should           promises which thereafter are integrated into an
be clear and convincing evidence and impermissible evidence            unambiguous written contract, duly signed by them,
was considered.                                                        courts will give effect to the parties' expressed intentions.
                                                                       . . . Intentions not expressed in the writing are deemed to
  A perusal of the various cases cited by the parties and the          have no existence and may not be shown by parol
district court verifies that there is no dispositive statute or        evidence. . . . Even where a contract is not fully
Ohio Supreme Court case on point. However, the district                integrated, parol evidence cannot be admitted if its effect
court did adopt a standard that makes practical sense, appears         will be to vary or contradict any matter that is specifically
to represent the majority rule, and can be said to reasonably          covered by the written terms of the contract. . . . There
anticipate the Ohio Supreme Court’s position. Two cases that           can be no implied promises in a contract in relation to
deal with Ohio law appear to be in accord with the district            any matter that is specifically covered by the written
court’s holding: Miller v. MIF Realty L.P. (In re Perrysburg           terms of the contract . . . Interpretation of written contract
Marketplace Co.), 208 B.R. 148, 158 (N.D. Ohio 1997), and              terms is a matter of law for initial determination by the
Household Finance Corp. v. Johnson, 56 Ohio App.2d 14, 15,             court, . . . the job of interpretation is turned over to the
381 N.E.2d 215, 216 (Ohio Ct. App. 1978).                              fact finder [only when the relevant contract language is
                                                                       determined by the judge to be ambiguous.]
   We conclude that the district court correctly relied upon the
preponderance of the evidence standard. When that standard             Finally, should this court determine that the contract in this
is applied we are unable to say that the district court’s factual    case involved an ambiguity, it should be mindful of a final
finding in support of the “missing policies” was clearly             principle of Ohio law:
erroneous.
                                                                       In interpreting the contract herein, the additional terms
                                                                       supersede the original terms to the extent the two are
                                                                       contradictory. If the additional terms are ambiguous,
                                                                       then we are to give effect to the additional terms but we
                                                                       are to interpret them consistently with the original terms
                                                                       to the extent possible. . . . Accordingly, our construction
18     Lincoln Electric Co. v. St. Paul           Nos. 98-4236/4340           Nos. 98-4236/4340            Lincoln Electric Co. v. St. Paul           23
       Fire and Marine Insurance Co.                                                                       Fire and Marine Insurance Co.

  of the contract should attempt to harmonize all the                         district court seemed to find that Lincoln Electric’s
  provisions rather than produce conflict in them. . . . To                   acquiescence to St. Paul’s processing of the claims was
  that end, no provision of the contract should be ignored                    attributable to a lack of awareness rather than to a conscious
  as inconsistent if there exists a reasonable interpretation                 manifestation of implicit approval concerning execution of
  which [sic] gives effect to both. . . . Moreover, to the                    the contract. The district court implicitly found that Ohio’s
  extent we encounter an ambiguity in the contract, that                      voluntary payment and mistake of law doctrine did not apply
  ambiguity must be construed against the drafting party.                     because Lincoln Electric’s payments did not carry the fully-
                                                                              informed consent necessary to constitute “voluntary”
Ottery v. Bland, 42 Ohio App.3d 85, 87, 536 N.E.2d 651, 654                   payment. The district court also found there was no “buy
(Ohio Ct. App. 1987); see also McKay Mach. Co. v. Rodman,                     back” of Lincoln Electric’s policies by St. Paul. The district
11 Ohio St.2d 77, 79, 228 N.E.2d 304, 307 (Ohio 1967);                        court was not clearly erroneous18 in its  interpretation of the
Franck v. Railway Exp. Agency, Inc., 159 Ohio St. 343, 345-                   evidence concerning the relationship19 between the parties.
46, 112 N.E.2d 381, 383 (Ohio 1953).                                          Thus, we cannot overrule the district court’s resultant refusal
                                                                              to adopt St. Paul’s version of an alleged course of conduct
   The above principles underscore the need for this court to                 and to apply the voluntary payment and mistake of law
reach an initial determination regarding whether there was                    doctrine. St. Paul remains liable for failing to adhere to the
ambiguity in the original  written policy. We conclude that                   terms of policies held by the Lincoln Electric.
there was no ambiguity.13 As a consequence, this court must
scrutinize most of the district court’s disposition of this case
as a question of law under the de novo standard. To the
extent that material facts for this case must be derived from
findings of the district court, we rely upon those findings of
fact because we are unable to say that the court committed
clear error. Aside from the errors specifically identified in
                                                                                  18
this opinion, we also cannot say that the district court                            St. Paul points out that there was evidence the district court could
committed legal error.                                                        have used to find for its version of the facts. However, the court did not
                                                                              commit clear error because its interpretation of the evidence is plausible.
                                                                                  19
                                                                                      For example, we do not disturb the district court’s conclusion, on
     13                                                                       its findings of fact or law, that post-August 1979 $25,000 deductibles did
        This dispute between the parties did not arise because there was      not purport to eliminate coverage under pre-August 1979 policies, and
objective latent uncertainty at the time of contract formation with respect   that the post-1979 deductibles were ineffective to exclude or restrict
to the inherent meaning of words used to express the agreement. Rather,       coverage. The August 1979 to August 1980 policy deductible did not
this dispute centers upon how the law should apply to a contract with         exclude coverage for welding fume claims under all earlier accident and
clear meaning that has proven inadequate in the context of environmental      occurrence policies. The endorsement itself stated it would apply only to
change. See Insurance Co. of N. Am. v. Forty-Eight Insulations, Inc., 633     the policy to which it was attached; it mentions no other policies. Further,
F.2d 1212, 1217, 1219 (6th Cir. 1980). The policies were internally           each pre-August 1979 policy required that any changes be made only by
unambiguous when viewed through the lens of original expectations and         “endorsement issued to form a part of [each] policy.” Once policies were
the scheme the parties believed they were creating. In hindsight, however,    sold, the insurer could not alter them without buying them back. St. Paul
the policies now reveal the fact that, at the time of the early policy        has never even alleged that they purchased the policies back with a quid
agreements, neither party contemplated their future encounter with long-      pro quo monetary exchange. The district court apparently found that St.
term exposure and delayed manifestation injury claims.                        Paul never purchased the old policies back.
22     Lincoln Electric Co. v. St. Paul            Nos. 98-4236/4340           Nos. 98-4236/4340             Lincoln Electric Co. v. St. Paul          19
       Fire and Marine Insurance Co.                                                                         Fire and Marine Insurance Co.

  A valid “written changes only” provision preempts                            2.   Preservation of Issues in District Court for Subsequent
consideration of course of performance. In contrast, course of                      Appeal
conduct can be considered in certain respects notwithstanding
a “written changes only” contractual provision, because the                      Lincoln Electric suggests that St. Paul’s “voluntary
series of acts in question are evaluated only as evidence                      payment” and “equitable allocation”14 arguments have been
regarding a continuity of the purpose captured16by the original                forfeited because they were not argued to the district court
contractual terms at the time of formation.         Contrary to                prior to its judgment. We are unpersuaded. Our examination
Lincoln Electric’s assertions, it was within the province of the               of the motions, the district court opinion, and the briefs
district court to consider course of conduct evidence to divine                suggests that all issues in the appeal of this complex matter
the parties’ intent.                                                           have been properly raised. All of the various points of
                                                                               operative fact were raised before the district court, and the
  St. Paul’s theory that it is free of liability nonetheless falls             parties were sufficiently thorough in proffering to the district
short, because St. Paul fails to acknowledge that a course of                  court their concerns, differences of opinion, preferred sources
conduct analysis rests upon preliminary conclusions which     are              of precedent, recommendations for interpretations of law and
predicated upon preliminary factual determinations.17 The                      fact, and positions regarding the proper award.
district court was free to ascertain whether a course of
conduct existed. If the court found there was a course of                      3.   Existence of St. Paul’s Liability Towards Lincoln
conduct, it had the prerogative to decide whether it evidenced                      Electric for Non-Compliance with Policy Terms:
specific contractual intent suggesting the existence of a                           Reconciliation of Doctrines Concerning Course of
contractual ambiguity, and/or fully-informed consent and                            Conduct, Written Changes Only Provisions, Policy Buy-
voluntary payment by Lincoln Electric.                                              Back, and the Voluntary Payment/Mistake of Law
                                                                                    Doctrine
  Apparently the district court did not find the series of acts
in this case sufficient to compel the interpretation of                           As an initial proposition, St. Paul asserts that the district
contractual intent and meaning that St. Paul advocates. The                    court erred in finding that it had any liability whatsoever. St.
                                                                               Paul believes that an understanding reached with respect to
                                                                               any and all claims filed after August 1, 1979 dictated that the
     16                                                                        post-1979 endorsements controlled the disposition of claims
       Consideration of a course of conduct is permissible because silence     filed after August 1, 1979. St. Paul notes that 1) from 1979-
can sometimes reflect the contracting parties’ contemporaneous belief that
the original contract terms are being honored. Cf. United States v.            1996, Lincoln Electric forwarded to St. Paul thousands of
Hoosier, 542 F.2d 687 (6th Cir. 1976)(per curiam)(silence as an                claims that included allegations of exposure before 1979;
admissible party admission under FED. R. EVID. 801(d)(2)(B)). The              2) from 1979-1996, with respect to those claims, St. Paul
existence of such a contemporaneous belief would suggest a particular          applied post-1979 deductibles and retentions; and 3) from
contract meaning. That meaning, in turn, would preclude the existence of       1979-1996, for those claims, Lincoln paid the post-1979
an ambiguity and/or clarify a facially ambiguous term.
                                                                               deductibles and retentions.
     17
       Since a course of conduct is “a series of acts over a period of time,
however short, evidencing a continuity of purpose,” cf. Leydon, 260 Cal.
Rptr. at 254 (emphasis added), it is clear that the impact of a course of
conduct can be identified only after a factfinder determines from the               14
evidence what acts took place and what purpose accompanied those acts.                   “Equitable allocation” is also known as “horizontal allocation.”
20   Lincoln Electric Co. v. St. Paul      Nos. 98-4236/4340       Nos. 98-4236/4340           Lincoln Electric Co. v. St. Paul          21
     Fire and Marine Insurance Co.                                                             Fire and Marine Insurance Co.

   St. Paul contends that a seventeen-year course of conduct       conduct” with “course of performance.”15 “Course of
of payment without protest should bar Lincoln Electric’s           performance” is defined as “[t]he understandings of
request for a refund. According to St. Paul, the Ohio              performance which develop by conduct without objection
voluntary payment and mistake of law doctrine prevents             between two parties during the performance of an executory
Lincoln Electric from attempting to recover voluntary              contract.” BLACK’S LAW DICTIONARY 352 (6th ed. 1990)
payments on a policy on the basis of a claimed mistake of          (emphasis added); cf. U.C.C. § 2-208(1) (1994). “Course of
law, a new legal position, or a new construction of a contract.    conduct,” in contrast, is generally understood to denote “a
St. Paul characterizes Lincoln Electric’s February 22, 1996        series of acts over a period of time, however short, evidencing
letter concerning the multiple trigger theory as being             a continuity of purpose.” Cf. Leydon v. Alexander, 212 Cal.
disallowed under Ohio law. In response, Lincoln Electric           App.3d 1, 4, 260 Cal. Rptr. 253, 254 (Cal. Ct. App.
asserts that St. Paul never purchased the old policies back        1989)(quoting California statutory definition)(emphasis
from Lincoln Electric. It argues that it continues to enjoy that   added).
coverage because no consideration supported any alleged
agreement to rescind coverage from the older policy terms.
                                                                       15
                                                                          “Course of performance” and “course of conduct” are terms
  We are considering an insurance policy scheme that was           distinct in modern usage not only from each other, but from the term
1) negotiated between entities with sophisticated business         “course of dealing.” U.C.C. § 2-208(2), 2-309 cmts. 1, 5 (1994).
expertise and resources, and 2) implemented under                  “Course of dealing” denotes “a sequence of previous conduct between the
continuous monitoring by two separate teams of auditors and        parties to a particular transaction which is fairly to be regarded as
                                                                   establishing a common basis of understanding for interpreting their
counsel acting for each party. Given this context, St. Paul        expressions and other conduct.” U.C.C. § 1-205(1) (1994). Thus, course
correctly invokes the proposition that “[w]here a course of        of dealing concerns some aspects of the portion of a total course of
conduct removes an ambiguity in the written terms of an            conduct which might happen to have existed previous to or
agreement, the rule of practical construction should take          contemporaneous with initial contract formation (a course of conduct may
precedence over the rule that a contract of insurance is           conceivably extend from a time previous to initial contract formation to
                                                                   a time subsequent to contract formation). Cf. U.C.C. § 2-309 cmt. 5
construed against its drafter.” William C. Roney & Co. v.          (1994). “Course of dealing” and “course of performance” are defined
Federal Ins. Co., 674 F.2d 587, 590 (6th Cir. 1982). A course      with reference to the moment of initial contract formation, and thus they
of conduct illuminates the specific nature of the relationship     cannot overlap with each other but can overlap with the course of
between the parties, resolving questions concerning the            conduct. Of course, when there is a writing intended by the parties as a
existence of ambiguity and thus obviating the need to resort       final expression of their agreement with respect to such terms as are
to defaults provided by the general rules of contract              included therein, courts must generally look to see if state law forbids
                                                                   having such terms “contradicted by evidence of any prior agreement or of
construction. Id.                                                  a contemporaneous oral agreement.” Cf. U.C.C. § 2-202 (1994). The
                                                                   parol evidence rule concerns attempts to modify, alter, or supplement a
  Lincoln Electric counters that the course of dealing between     written contract, using evidence of operative facts in existence before or
the parties cannot be considered in reaching a resolution of       during contract formation. With many types of contracts the course of
this case, because all of the policies in question before and      dealing may be considered even when the parol evidence rule is found to
after 1979 included “written changes only” provisions.             apply. U.C.C. § 2-202(a) (1994).
                                                                        In this case, we have not been pointed to any part of the record
Lincoln Electric’s position implicitly confuses “course of         suggesting that the district court took account of a course of performance
                                                                   or course of dealing instead of considering the possibility of a course of
                                                                   conduct. Thus, we need not reach any further discussion concerning the
                                                                   relationship between course of conduct and the parol evidence rule.
