the Lincoln Electric Company v. S T . Paul Fire and Marine Insurance Company

1
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
C OMPANY ,
Plaintiff-Appellee/
Cross-Appellant,
v.
S T . P AUL FIRE AND M ARINE
INSURANCE C OMPANY ,
Defendant-Appellant/
Cross-Appellee.
;>

1
Nos. 98-4236/4340
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.

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2 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
ON BRIEF: Clifford M. Sloan, WILEY, REIN &
FIELDING, Washington, D.C., Thomas P. Kane,
OPPENHEIMER, WOLFF & DONNELLY, St. Paul,
Minnesota, for Appellant. Robert S. Walker, Brian F.
Toohey, Mark J. Andreini, JONES, DAY, REAVIS &
POGUE, Cleveland, Ohio, Michael H. Ginsberg, Peter D.
Laun, JONES, DAY, REAVIS & POGUE, Pittsburgh,
Pennsylvania, for Appellee. Gerald V. Weigle, DINSMORE
& SHOHL, Cincinnati, Ohio, Mary A. Cavanaugh, Dennis R.
Lansdowne, SPANGENBERG, SHIBLEY & LIBER,
Cleveland, Ohio, Mitchell F. Dolin, COVINGTON &
BURLING, Washington, D.C., Thomas J. Quinn, MENDES
& MOUNT, New York, New York, for Amici Curiae.
_________________
OPINION
_________________
ALAN E. NORRIS, Circuit Judge. Defendant St. Paul Fire
and Marine Insurance Company (“St. Paul”) appeals a district
court judgment and award entered pursuant to a bench-trial
verdict for plaintiff, the Lincoln Electric Company (“Lincoln
Electric”). The trial concerned a dispute over products
liability insurance policies that Lincoln Electric purchased
from St. Paul over the course of several decades. The policies
were altered over time as to the levels of deductibles for 1)
assessed product-related injury liability and 2) legal costs
associated with litigation stemming from the covered product-
related injuries. The basis for insurance coverage between the
parties also changed from an “occurrence” basis (coverage
from the date of the injury) to a “claims” basis (coverage
from the date of the lawsuit), creating a situation where some
claims against Lincoln Electric could simultaneously trigger
the “occurrence” policy and the “claims” policy.
In addition, the parties have had a long-standing
disagreement about how they should determine when a
particular policy has been triggered by a claim involving a
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
39
benefits of a double-auditing system. It was in a position to
act much earlier in order to prevent some of the
inconvenience and cost associated with this legal controversy.
We affirm the district court’s refusal to award attorney’s
fees on the ground that the recently enacted Ohio statute
compels that result.
III.
We affirm in part, reverse in part, and remand the case to
the district court for further proceedings required to
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
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
1945 to1972 that were held by Lincoln Electric. We reverse
the district court with regard to the process it used to reconcile
the contractual policy relationship of the parties with the long-
term exposure and delayed manifestation injury claims of the
type associated with the “welding-fumes”/“asbestos
exposure” sort of injury, and direct it to follow the four-step
process articulated in this opinion to determine whether any
adjustments in the base judgment award are needed. We
reverse the district court with respect to the method it used to
calculate prejudgment interest, and direct it to 1) take the
corrected base award, 2) add prejudgment interest, which is
to be calculated using an accrual date of February 22, 1996,
and 3) accompany the total judgment award with a clear
written explanation concerning the statistical, mathematical,
accounting, and data processing assumptions and procedures
utilized to arrive at the base, prejudgment interest, and final
judgment award figures. We affirm the district court’s
decision not to award attorney’s fees to Lincoln Electric.

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

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4 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
costs) found at some chronological point along the time-frame
of a long-standing insurance relationship.
On appeal, St. Paul asserts that it fulfilled its contractual
obligations and that the district court erred in finding any
liability whatsoever on its part. It contends that the district
court reached its finding of liability by misapplying the
voluntary payment and mistake of law doctrine and the course
of conduct doctrine. St. Paul also argues that the district court
applied an incorrect standard of proof when it reached a
factual finding for Lincoln Electric concerning the contents of
“missing” policies covering the years 1945 to 1972. St. Paul
further believes that, even if there was liability on its part, the
district court should have equitably allocated the application
of the claims to the various triggered policies rather than
allowing Lincoln Electric to “pick and choose” between
policies while invoking coverage for each claim. Finally, St.
Paul asserts that even if it loses every other issue on appeal,
the judgment award should be reduced because the district
court utilized an incorrect accrual date which resulted in
exorbitant prejudgment interest.
Lincoln Electric asserts that the district court’s judgment
should be upheld because it was not clearly erroneous, and, on
cross-appeal, takes issue with the district court’s refusal to
award attorney’s fees.
We affirm in part and reverse in part.
I.
1. The Pre-1979 (September 1945-79) Relationship
Lincoln Electric, a manufacturer of industrial products,
including welding rods, is an Ohio corporation with its
principal place of business in Ohio. St. Paul is a Minnesota
corporation with its principal place of business also in that
state. By 1979, Lincoln Electric and St. Paul had a
longstanding commercial relationship stretching back to at
least 1945, with St. Paul issuing insurance policies to Lincoln
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
37
33According 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, while at the same time not disclosing to Lincoln Electric
other potential triggers of coverage.” At the same time, St. Paul had not
breached a duty of good faith because it had acted with “reasonable
justification” in its treatment of Lincoln Electric’s claims. Had the district
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
well have been appropriate under Ohio law as characterized by approach
four.
defendant insurer about the problem (particularly where there
is gross negligence, a lack of good faith, or fraud33), and
2) will always begin at or before the date at which the insurer
was served with notice of a court action as to the matter.
We remand this case back to the district court to recalculate
prejudgment interest. The district court must first ensure that
it has reached the correct base amount for the judgment award
by reconciling the contractual policy relationship with long-
term exposure and delayed manifestation injury “welding
fume” and “asbestos exposure” claims though use of the
calculation process described in the previous section of this
opinion. The court can then properly calculate prejudgment
interest by using February 22, 1996 as the date of accrual.
7. Attorney’s Fees and St. Paul’s Breach of Duty to Defend
Lincoln Electric
On cross-appeal, Lincoln Electric challenges the district
court’s refusal to award it attorney’s fees as the prevailing
party.
Pursuant to FED . R. C IV . P. 28(j), St. Paul filed a letter with
the court on October 15, 1999. The letter included a copy of
recently-enacted legislation, OHIO R EV . C ODE ANN .
§ 2721.16(A) (1999). St. Paul correctly pointed out that the
new statute expressly applies to pending cases because it
governs any Ohio declaratory judgment action or proceeding
that was commenced prior to the effective date of this section,

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36 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
32“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
D ICTIONARY 188 (6th ed. 1990). The district court erred in finding a
breach, because St. Paul had a legal excuse for its failure to perform
some of its promises during the period prior to February 22, 1996. The
legal excuse existed because of the double-auditing scheme, the
complexity of the contractual arrangement, and the failure of Lincoln
Electric to alert St. Paul to the need to correct any problem.
To impute accrual of interest before the date at which the
insurer should have known that it was breaching its duty to
defend is to also effectively impute a contractual term that did
not exist. Absent explicit agreement to the contrary, business
parties in an insurance relationship with a double auditing
procedure share equally in the risks of possible costs
associated with mutually undetected mistakes occurring in
the administration of the insurance relationship. Equal
sharing of risk exists regardless of whether a particular
mistake happens to result in over-payment or under-payment,
until or unless either 1) one party explicitly assumes a
disproportionate share of the risk contractually, and the
insured incurs actual costs, or 2) the insurer knew or should
have known about the failure to fulfill its duty. Contrary to
the district court’s suggestion, St. Paul was not in breach of
contract until Lincoln Electric alerted St. Paul about its failure
to fulfill its duty in February 1996, and St. Paul responded by
refusing to correct the problem.32 St. Paul cannot be deemed
to be in breach of contract whenever it happens to
inadvertently mishandle one of the thousands of claims it
must process within a business relationship of the kind
considered in this case. This is especially true when, as was
true here, each party could reasonably have relied upon the
other party to render assistance by utilizing the double-
auditing procedure to detect errors.
We emphasize that application of this approach can result
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
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
5
2An “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
accident policies provide coverage for liabilities and accidents allegedly
occurring during the policy period, even if the lawsuits are filed years
later. According to Lincoln Electric, both types of policies also provide
coverage for injuries allegedly resulting from continuous or repeated
exposure to harmful conditions.
3According to Lincoln Electric, the duty is triggered by an allegation
of bodily injury, such as exposure to chemicals, during a policy period.
Electric on a yearly basis. The James B. Oswald Company
(“Oswald”), a Cleveland insurance broker, was St. Paul’s
agent. Lincoln Electric was a sophisticated business entity,
but an unsophisticated insured; it had no risk management
department and relied upon Oswald and, to a lesser degree, St.
Paul, for expertise in handling liability insurance matters.
In the years leading up to 1979, the policies contained 1) a
$5,000 deductible for indemnity costs related to judgments
and settlements from covered injuries, 2) no deductible for
legal defense costs, and 3) an “occurrence” or “accident”2
basis of insurance. The policies covered “bodily injury . . .
caused by an occurrence [“an accident, including injurious
exposure to conditions, which results, during the policy
period, in bodily injury . . . neither expected nor intended
from the standpoint of the insured”].”3 The policies also
granted St. Paul an exclusive contractual “right and duty to
defend” Lincoln Electric.
The 1970s witnessed an industry-wide explosion of toxic
exposure tort cases, implicating Lincoln Electric and its
welding-rod manufacturing business as a defending litigant in
thousands of tort cases. Each case was typically brought by
hundreds of welders acting in a class or otherwise cooperating
as a concerted group of litigants. The suits alleged lung
disease and/or cancer and/or neurological problems, all
arising from decades of exposure to manganese and asbestos

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6 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
in the welding rods dating as far back as the 1930s. The
plaintiffs did not contend that their injuries were attributable
to any single exposure year, but did allege that each exposure
caused injury.
By the late 1970s, the extent of Lincoln Electric’s exposure
to welding fumes cases had become apparent. At the same
time, the products liability insurance market was experiencing
pressure due to an increasing volume of products liability
lawsuits, including those related to asbestos. A controversy
began to emerge over the appropriate “trigger” for insurance
coverage in claims alleging delayed injuries from long-term
exposure. See, e.g., Stonewall Ins. Co. v. Asbestos Claims
Management Corp., 73 F.3d 1178, 1195-96 (2d Cir. 1995),
modified, 85 F.3d 49 (2d Cir. 1996)(discussing various trigger
theories). However, St. Paul and Lincoln Electric continued
the renewal of policies and cooperated in the defense of
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
Coverage 1979-85
In the August 1979 meeting, the parties discussed issues
including control of cases, the “occurrence” date, expenses,
the renewal agreement, and premiums. St. Paul insisted upon
higher premiums, higher deductibles or cost sharing, or a
combination of these. Several policy proposals were
discussed, including one for a combined defense-and-
indemnity deductible, but the parties never discussed the
language of the $25,000 deductible that eventually became
part of the 1979 policy. Date of occurrence was a major
issue. During the meeting, Lincoln Electric advocated a
trigger for the occurrence date that would run “from the day
the welder commences welding to [the] day he ceases to be a
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
35
31We therefore reject Lincoln Electric’s position with respect to this
issue. Moreover, we note that although St. Paul advocated the correct
result, it was incorrect in suggesting adoption of approach two (instead of
approach four) as the rationale for reaching that result.
St. Paul was incorrectly forced to expend or absorb costs related to
defense, but both parties were equally responsible for the failure of the
double-auditing system to catch the problem. This was not a situation
where the insurer had sole access to relevant records or where the insurer
was conducting the only auditing. It was not until February 1996 that
Lincoln Electric first proffered its complex theory for recovery and
demanded a reallocation of defense and indemnity payments. Thus, under
the unique facts of this case, the approach two date “when insurer is made
aware that the insured disagrees with how insurer has disposed of the
claim the insured submitted to the insurer about funds expended by
insured in defense efforts” happens to coincide with the second prong of
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.
necessary application of the statute. Predicate factual
determinations will not be disturbed except for an
abuse of discretion. The court’s attitude must be
manifestly unreasonable, arbitrary or unconscionable;
mere error of law or of judgment is insufficient to
support reversal on appeal.
The Ohio law set forth above leads us to conclude that the
district court applied most of the above principles correctly.
However, the district court erred31 when it adopted approach
one by utilizing the “time between accrual of the claim and
judgment” for the calculation of interest. The district court
correctly reasoned that “Lincoln Electric lost access and use
of certain funds for the period through December 1997,” but
it incorrectly determined that accrual before February 1996
was necessary to “fairly and reasonably compensate those
losses flowing from St Paul’s breach.”

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

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8 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
9According to Lincoln Electric, the “limits and coverage” dispute
existed because, under the exposure or continuous trigger of coverage,
multiple policies could be triggered by each welding fume claim.
Electric. The letter included the following language
(emphasis added):
On August 21 . . . we quoted to Insured renewal of this
policy at current limits with one exception an annual
premium of $1,200,000 [sic]. The one exception was the
endorsement relating to a retroactive deductible on each
claim for $25,000. This is to apply to all fume cases
reported after August 1, 1979. Allocated claims expense
plus settlements [are] to be included in the deductible.
All other quota share quotes are withdrawn; however,
renewal of this policy at current limits, excluding fume
cases, still stands at an annual premium of $652,000.
We recognize the dispute in application of limits and
coverage[9] for fumes cases exists. In keeping with these
issues as status quo and without prejudice to either party
on this position, the attached endorsement has been
drafted in an effort to clearly indicate our intention on
future reported cases if we are to remain with this risk.
We expect the decision from the Insured concerning
renewal with us by September 1, 1979 as we cannot
continue current coverage beyond this date.
The parties entered into a new policy, including an
endorsement specifying applicable deductibles, and a binder
dated September 5, 1979 was issued. The policy addressed
the treatment of future claims as follows:
IN CONSIDERATION of [St. Paul] agreeing to provide
coverage to the Insured [Lincoln Electric] for this policy
period, the Insured agrees to pay the following deductible
for: Bodily injury liability arising out of inhalation of
toxic chemicals, including, but not limited to fumes and
gases, which are caused from welding products
manufactured, sold, handled, or distributed by the insured
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
33
29Our synthesis of Ohio precedent is drawn from Landis v. Grange
Mutual Insurance Co., 82 Ohio St.3d 339, 340, 695 N.E.2d 1140, 1142
(Ohio 1998); Royal Electric Construction Corp., 73 Ohio St.3d at 115-17,
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
v. Westfield National Insurance Co., 116 Ohio App.3d 470, 475-76, 688
N.E.2d 563, 567 (Ohio Ct. App. 1996); Eagle American Insurance Co.,
111 Ohio App.3d at 220-22, 675 N.E.2d at 1317-18; Domestic Linen
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
Willoughby Hills v. Cincinnati Insurance Co., 26 Ohio App.3d 146, 146-
48, 499 N.E.2d 31, 32-34 (Ohio Ct. App. 1986); and Turner Construction
Co. v. Commercial Union Insurance Co., 24 Ohio App.3d 1, 4, 492
N.E.2d 836, 839 (Ohio Ct. App. 1985).
(St. Paul’s argument), “that prejudgment interest should only
run from February 1996 – the point in time when Lincoln
Electric first demanded a reallocation of defense and
indemnity payments.” The court adopted approach one even
though “[d]efendants had no way of knowing of the claim,”
and there was a double-auditing procedure in place during the
relevant time period to guard against mistakes and fraud. The
court reasoned that “Lincoln Electric lost access and use of
certain funds for the period through December 1997,” and that
the money would “fairly and reasonably compensate those
losses flowing from St Paul’s breach.”
After studying the guidance provided by Ohio law,29 we
conclude that prejudgement interest for this case should be
determined in accordance with the following principles:
1. Prejudgement interest is not punitive; it is part of
compensation for damages. Interest makes the
plaintiff insureds whole for the lost use of their due
and payable money during the time required to secure
ultimate judgment.
2. The date for when payment is due from an insurer
varies according to circumstances and the nature of the
insured interest. Under a particular fact pattern the due

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32 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
27Courts in Ohio have long recognized a common-law right to
prejudgment interest, and Ohio has also created an additional statutory
right to prejudgment interest. Cf. Royal Elec. Constr. Corp. v. Ohio State
Univ., 73 Ohio St.3d 110, 115, 652 N.E.2d 687, 691 (Ohio 1995). Ohio
courts have rendered numerous holdings explaining how Ohio
prejudgment interest statutes are to be interpreted and reconciled with
Ohio common law.
This controversy concerns a plaintiff insured, so the “matter is
governed by R.C. 1343.03(A), rather than R.C. 1343.03(C).” Eagle Am.
Ins. Co. v. Frencho, 111 Ohio App.3d 213, 220, 675 N.E.2d 1312, 1317
(Ohio Ct. App. 1996). The statutory provisions of R.C. 1343.03(A) and
1343.03(C) differ in that “R.C. 1343.03(A) provides for interest on
money which [sic] becomes due and payable upon any instrument of
writing, including an insurance contract.” Id. at 220-21.
28The statutory language of “R.C. 1343.03(A) does not specify when
prejudgment interest should begin to run, when it should stop running, or
whether it should run continuously.” Domestic Linen Supply & Laundry
Co. v. Kenwood Dealer Group, Inc., 109 Ohio App.3d 312, 323, 672
N.E.2d 184, 191 (Ohio Ct. App. 1996).
law.27 We now consider how Ohio law28 applies to the facts
at bar.
There are four points in time that courts could use to
determine when prejudgment interest should begin to accrue
against an insurer who wrongfully fails to defend on a claim
against an insured: 1) the date when the insured submitted a
claim to the insurer detailing funds expended in defense
efforts; 2) the date when the insurer was made aware that the
insured disagreed with the insurer’s disposition of the
defense-cost claim submitted to the insured; 3) the date when
the insured filed a legal action against the insurer with a court
or arbiter concerning legal costs; or 4) the date when A) the
insured has been incorrectly forced to expend or absorb
defense costs, and B) the insurer knew or should have known
that it was not fulfilling its duty to defend.
In this case, the district court apparently adopted approach
one, utilizing the “time between accrual of the claim and
judgment.” The court explicitly rejected approach two
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
9
or insured’s vendors on any and all claims first presented
to the Company on or after August 1, 1979, regardless of
when the claim first arose. . . . $25,000.00 deductible per
claim applicable to the payment of the claim and
allocated claims expense.
This same endorsement, providing a $25,000 indemnity-and-
defense deductible for all claims reported after August 1,
1979, was included in each policy from 1979 to 1985. The
district court found that by accepting the $25,000 deductible
endorsement, Lincoln Electric understood that it would not be
waiving any rights under pre-August 1979 policies and the
dispute about the trigger of coverage would be resolved by
maintaining the “status quo.”
St. Paul asserts that from 1979 to 1985 an unwavering
course of conduct governed: the post-1979 policies with the
$25,000 indemnity-and-defense deductible applied to cases
filed after August 1, 1979. Throughout this period: (1)
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
$25,000 deductible for defense and indemnity costs applicable
to claims reported from 1979 to 1985 (only a $5,000
indemnity deductible for cases reported before August 1,
1979), and (4) Lincoln Electric paid St. Paul the amount
billed. Lincoln Electric employed independent auditors to
review St. Paul’s statements, forwarded them to a law firm
retained to conduct continuous review, and corrected any
errors it perceived. St. Paul also asserts that Lincoln Electric
knew the claims it submitted alleged exposure before August
1, 1979, and that St. Paul applied the $25,000 deductible to
such claims when they involved cases reported to St. Paul
after August 1, 1979. Nonetheless, St. Paul observes,
Lincoln Electric did not protest any of the payments. Lincoln
Electric has not disputed the existence of the double-auditing
scheme, and the parties agree that no protest about St. Paul’s
conduct was registered during this time period or at any time

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10 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
prior to a February 22, 1996 letter faxed to St. Paul by
Lincoln Electric.
3. The 1979 Deductible Endorsement and Subsequent
Coverage 1985-96
From 1985 to 1996, the parties changed the policies in two
significant respects. First, the new policies required Lincoln
Electric to assume a greater payment obligation. The 1985-87
policies provided a $50,000 deductible applicable to both
indemnity and defense expense costs for “toxic chemical and
fumes” claims; the 1987-90 policies provided a $250,000
self-insured retention applicable to all claims; and the 1990-
96 policies provided a $2 million self-insured retention. This
approach afforded Lincoln Electric substantially higher
overall limits for a lower premium.
Second, the policies provided “claims-made,” rather than
“occurrence,” coverage, meaning that the policies applied to
claims made within the policy period, instead of applying to
the occurrence of bodily injuries during that policy period,
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
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
31
injury claim allocated to a particular year, so that both the
“occurrence-based” and “claims-based” policies are
triggered by a claim where the long-term exposure and
delayed manifestation injury arose during an “occurrence-
based” policy year but the claim for that long-term
exposure and delayed manifestation injury was filed during
a subsequent “claims-based” policy year, the insured can
“pick and choose” between the policies as to that portion
of the liability which falls within the time-span with the
double-protection from overlapping policies.
We remand this case to the district court for further
proceedings necessary to apply these principles, determine
whether the base judgment award must be adjusted
downwards or upwards, and make any additional required
modifications in its resolution of this case.
6. Date of Accrual for Prejudgment Interest
St. Paul contends that the district court erred in its
interpretation and application of Ohio prejudgment interest

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30 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
26In other words, allocation does not preclude application of any
joint and several liability doctrine which might otherwise be relevant
under Ohio law. Allocation relates to the duties of proof, affirmative
defenses, and duties of production connected with proving the existence
of liability; in contrast, joint and several liability relates to the distribution
of obligations for defendants who are found to share liability. Allocation
simply precedes application of the joint and several liability doctrine in
the process of liability attribution. If two insurers were found to have
valid policies for the same year, and the joint and several liability doctrine
validly applied, both insurance companies would be jointly and severally
liable for the portion of the long-term exposure and delayed manifestation
injury claim which was allocated to the jointly-covered policy period.
The application of any principles of contribution otherwise relevant under
Ohio law likewise remains unaltered.
(which may vary even as to separate individual policies
from the same insurer over time) for deductibles, legal
costs, and legal defense set forth under each of the policies
for each of the policy periods from each of the relevant
entities (and/or under one entity and/or under self-
insurance). To the extent that joint and several liability and
contribution for a particular policy period would normally
apply under the law, those doctrines will remain unaltered.
However, joint liability and contribution must take into
account the effects of the trigger and allocation
presumptions.26
4) For the portion of a claim falling within a time span
that is “double-protected” by overlapping
“occurrence-based” and “claims-based” policies, the
insured is entitled to “pick-and-choose” between
policies for the best terms of coverage as to that
portion.
In circumstances where 1) an insurer has replaced an
“occurrence-based” policy with a “claims-based” policy, 2)
there has been no explicit “buy-back” of the old
occurrence-based policy or its liabilities by the insurance
company, and 3) there is a discrete claim or a portion of a
pro-rated long-term exposure and delayed manifestation
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
11
any disbursement from the claims-made policies expired at
the end of each policy period unless a claim had been filed
prior to its expiration.
St. Paul asserts that just as from 1979 to 1985, the parties
continued a consistent course of conduct from 1985 to 1996.
As to (1) claims reported before 1979, the parties applied a
$25,000 deductible to both indemnity and defense costs; (2)
claims made after August 1, 1985, with a manifestation before
that date, the parties applied the $25,000 deductible in
accordance with the manifestation endorsement; and (3)
claims made after August 1, 1985, with a manifestation after
that date, the parties applied the higher deductibles and self-
insured retentions to indemnity and defense costs. The vast
majority of underlying claimants alleged manifestation of
injury after 1979, with most alleging manifestation after 1984.
Throughout this period, St. Paul continued to submit bills for
reimbursement to Lincoln Electric, and Lincoln Electric
continued to consult with its auditors and attorneys and to pay
the sums without protest.
4. Conflict Between Lincoln Electric and St. Paul
Concerning the Contractual Insurance Obligations
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,
including injurious exposure to conditions, which results,
during the policy period, in bodily injury . . . neither expected
nor intended from the standpoint of the insured”].” A shift
was then made to a “claims” basis so that 1979-85 coverage
would apply to “any and all claims first presented to the
Company on or after August 1, 1979, regardless of when the
claim first arose.” Finally, after 1985 coverage was further
altered to include the proviso that “[St. Paul] won’t cover
claims for injury arising out of the inhalation of toxic
chemicals . . . if [the “person injured knew or should have
known that the injury had occurred or the date [it] was
medically diagnosed, whichever is earlier” is] prior to

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12 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
10It would appear that there were at least four possible theories for
determining which insurance policy coverages had been triggered by a
claim alleging delayed injuries from long-term exposure: 1) a traditional
“manifestation” trigger, applying those policies in effect at the time the
injury manifested; 2) an “exposure” trigger, applying those policies in
effect at the time of the exposure to the offending product; 3) a
“continuing injury” trigger, applying those policies in effect at any time
from exposure through manifestation; and 4) an “injury-in-fact” trigger,
in which the applicable policies were those in effect at any time actual
injury occurred. See, e.g., Stonewall Ins. Co., 73 F.3d at 1195-96
(discussing the various trigger theories).
8/1/85.” After Lincoln Electric hired new counsel in 1995,
sharp differences of view emerged. In the February 22, 1996
faxed letter, Lincoln Electric formally requested
reimbursement for monies it believed St. Paul owed it. St.
Paul signaled disagreement concerning the significance
properly assigned to the three shifting schemes for coverage
which had been used over time.10
Lincoln Electric informed St. Paul that it believed the pre-
1979 policies, with the $5,000 damages-only deductible,
should govern any period of exposure in those years, even if
the claim was made after the end of the policy term. It
contended that the “continuous injury” trigger of coverage
should apply. In application, Lincoln Electric’s position
would have meant that any policy in effect during the period
when a claimant alleged exposure could apply, and that policy
could then permissibly be the sole applicable policy even if
exposure was alleged to have extended over many years or
even a vaguely delimited number of decades. Lincoln
Electric also contended that it would have the right to pick
and choose among all triggered policies to select the one with
the most favorable terms, rather than allocating losses
equitably across all policies. According to Lincoln Electric,
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
29
24A “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”
trigger that presumes uniformity of injury probability while allowing
“injury-in-fact” evidence to rebut the presumption and constrict the range
of the allocation field. The allocation field is potentially constricted by
weighting the risk probability distribution and collapsing it down to a
short time span or even a precise moment of injury.
25With respect to legal defense costs, the insurer bears the burden of
demonstrating that the costs it expended pursuant to a duty to defend were
unduly disproportionate to the allocated portion of the claim that was
assigned to the insurer’s particular policy with the triggered duty to
defend.
will be allocated equally over all triggered years.24 In the
absence of special weighting considerations, which require
additional specific proof, assign an equal fractional
percentage of exposure value to each policy period which
corresponds to the years of exposure.
3) Identify the liable legal entity for each triggered
policy governing each year and make a pro-rata
allocation of deductibles, legal costs, and legal
defense obligations by looking to the terms associated
with the relevant triggered policies.
Identify the legal entities obligated to pay for successful
claims that are covered by each of the corresponding policy
periods. Unless a policy or group of policies affirmatively
and explicitly make assurances about absorbing the entire
cost of a long-term exposure and delayed manifestation
injury with exposure extending through a time period more
extensive than the time period for that individual policy or
constituent policy, assign a pro-rata percentage of exposure
value to each legal entity based upon the number of
corresponding policy periods that the legal entity
assumed.25 Treat that pro-rata percentage under the terms

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28 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
21This would occur if, for example, there was harmful exposure at
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
two days later.
22This would occur if, for example, there was five years of 20-unit
magnitude of exposure and one year of 100-unit exposure.
23On remand, both parties should be given an opportunity to allege
facts substantiating the need for special weighting considerations.
exposure and delayed manifestation injuries by
incorporating a specific and articulated method of trigger
and calculation. In the absence of clear guidance from the
terms of the contract concerning long-term exposure and
delayed manifestation injuries, there is a rebuttable
presumption that all exposure prior to diagnosis contributed
equally to an injury-in-fact; thus, all policies in effect at the
time of both exposure to the offending product and actual
manifestation will be construed to have been triggered.
2) Match the alleged years of exposure to corresponding
periods covered by triggered policies.
Identify all years of exposure alleged to have occurred in a
lawsuit, and then identify the corresponding policy periods
(including periods where the insured decided to “go bare”
with self-insurance). Determine whether special weighting
considerations exist because 1) a specific “critical
transformation” point was alleged (i.e. where the plaintiff
clearly went from total wellness to clear contraction of
infirmity in a discrete temporal moment of injurious
transformation21), or 2) non-uniform levels of exposure22
were alleged.23 When the policyholder cannot demonstrate
a discrete temporal moment of injurious transformation
prior to or contemporaneous with the diagnosis, due to
complex medical facts, the presumption is that the injury
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
13
11The illustration Lincoln Electric uses is that a 1986 claim that a
plaintiff was injured in 1978 would trigger both the 1978 occurrence
policy and the 1986 claims-made policy.
St. Paul admitted that a claim could trigger both an
occurrence policy and a claims-made policy.11
St. Paul believes that Lincoln Electric’s interpretation is
incorrect because of (1) the sweeping language of the
deductible endorsements (which applied to “any and all
claims” presented after a particular date “regardless of when
the claim first arose”) and (2) the parties’ consistent conduct
for the prior seventeen years. St. Paul contends that Lincoln
Electric was well aware of the pertinent facts at all relevant
times; Lincoln Electric’s letter explicitly stated that the
request for the refund was based solely upon a change in
Lincoln Electric’s legal position on the matter. Additionally,
St. Paul argues it is self-evident that it could have stopped
insuring Lincoln Electric. St. Paul asserts that the increase in
Lincoln Electric’s deductibles and retentions meant that there
was a division of obligations: (1) Lincoln Electric would pay
an increased amount of defense costs for its aggressive no-
settlements defense strategy, and (2) St. Paul would continue
to insure Lincoln Electric. Now that Lincoln Electric has
successfully avoided paying judgments in the lawsuits, St.
Paul complains, Lincoln Electric does not need St. Paul’s
prospective coverage and is attempting to use this litigation to
shift the payments it made for its defense onto St. Paul.
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
actual damages, prejudgment interest, and additional
declaratory relief. The court denied an award of attorney’s
fees. The district court made six determinations of major
significance for this appeal:

-- 13 of 20 --

14 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
1) A “continuous trigger” applied to the term “occurrence,”
and any policy in effect from exposure to diagnosis or
death was applicable to the claim.
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
they were not modified by the post-1979 endorsements.
This was due to the plain language of the endorsements,
and “[e]ven if the endorsements were susceptible [to] St.
Paul’s interpretation” St. Paul had not “proved that its
interpretation is the only reasonable one.”
3) St. Paul breached the policies by implementing a trigger
“that was to its benefit and to the detriment of Lincoln
Electric, while at the same time not disclosing to Lincoln
Electric other potential triggers of coverage.” At the
same time, St. Paul had not breached a duty of good faith
because it acted with “reasonable justification” in its
treatment of Lincoln Electric’s claims.
4) Lincoln Electric could choose and apply the most
favorable policy from all those triggered by a particular
claim, rather than allocating the costs equitably among all
triggered policies. In practical terms, this meant that the
court was allowing Lincoln Electric to apply, to the
extent possible, all claims under the 1973 policy, because
1973 was the earliest year for which Lincoln Electric
could produce an insurance policy and show yearly
policy terms granting a favorable $5,000 indemnity-only
deductible. The district court’s analysis resulted in
$23,537,313 in damages for Lincoln Electric, nearly $21
million of which was attributable to legal defense costs.
5) Prejudgment interest was calculated to accrue from the
time when Lincoln Electric made payments to St. Paul,
seventeen years prior to the judgment, instead of from the
date Lincoln Electric challenged the payments in the
February 1996 letter to St. Paul. The interest award
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
27
20“All claims” language on the face of the policy is not dispositive
and does not inherently preclude or resolve possible ambiguity. “All
claims” language in a policy means “all claims” legally deemed to have
triggered a policy under its policy period occurrence language. Policy
language concerning the qualitative dimensions of the risk of loss must be
construed together with other policy language setting forth temporal
dimensions of the risk of loss, along with any contractual or legal
guidelines governing reconciliation of multiple sources for policy
outlays.
Long-term exposure and delayed manifestation injury claims trigger
individual policies by virtue of a legal presumption. The presumption
allows insureds to avoid the arduous task of proving a discrete temporal
moment of injurious transformation in order to prove there was a
recoverable injury. Since a legal presumption must be utilized in order to
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
relying upon the benefit of a legal presumption regarding trigger, Lincoln
Electric chose to offer direct proof that all (or a disproportionate portion)
of the long-term exposure and delayed manifestation injuries occurred
during one policy period (e.g., 1973), Lincoln Electric could on that basis
allocate more of the risk of loss to that particular policy. Under this
option, Lincoln Electric would be free of the constraints concerning
allocation which attend use of the legal presumption to trigger the
policies. Likewise, since the “[t]he insurer’s liability is not ‘joint and
several’, it is individual and proportionate,” Forty-Eight Insulations, 633
F.2d at 1225, any insurer in St. Paul’s position is free to rebut the default
presumption by offering specific proof that the risk of loss should be
allocated away from certain policies because injury should be properly
weighted to other time periods outside those policies.
The principles explained are reached through a set of rebuttable
presumptions which relate to duties of proof, proof of affirmative
defenses, and duties of production. See id. at 1222. Either the insurer or
the insured may compel “conventional” insurance law treatment of long-
term exposure and delayed manifestation injury claims by forgoing the
use of rebuttable presumptions and undertaking the necessary effort and
costs needed. Theories of coverage and allocation should “parallel the
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.
1) Determine what kind of trigger applies.
The face of the contract governs where the policy terms
unambiguously20 contemplate coverage of long-term

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26 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
implementing a trigger “that was to its benefit and to the
detriment of Lincoln Electric, while at the same time not
disclosing to Lincoln Electric other potential triggers of
coverage.” The district court further held that Lincoln
Electric could choose and apply the most favorable policy
from all those triggered by a particular claim, rather than
allocating the costs equitably among all triggered policies. In
practical terms, that meant Lincoln Electric would be allowed
to apply claims to the 1973 policy whenever possible, because
1973 was the year when it enjoyed a favorable $5,000
indemnity-only deductible. The district court’s analysis
resulted in $23,537,313 in damages for Lincoln Electric,
nearly $21 million of which was attributable to legal defense
costs.
We are persuaded that the Ohio Supreme Court would
adopt principles in harmony with the compelling rationale
articulated in Forty-Eight Insulations, 633 F.2d at 1222,
1224-25 (Michigan law). The district court’s holding in this
case ran contrary not only to Forty-Eight Insulations, but also
to the deference accorded in that opinion to the basic
principles undergirding the product-liability insurance market,
such as risk calculation, risk management, and bargained-for-
exchange. Consistent with the rationale of Forty-Eight
Insulations, the district court on remand should apply the
following general principles in resolving the dispute at bar:
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
15
12Extrinsic 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.
increased the judgment by more than fifty percent of the
base award, at an exact amount (after the district court
lowered the amount by $471 to conform with a statutory
amendment) of $12,993,367.
6) The district court rejected Lincoln Electric’s request for
attorney’s fees.
II.
1. Standard of Review and Ohio Law Concerning Contract
Interpretation
“We review for clear error the findings of fact made by the
district court after a bench trial; the court’s legal conclusions
we review de novo.” Davies v. Centennial Life Ins. Co., 128
F.3d 934, 938 (6th Cir. 1997). The district court’s application
of state law is reviewed de novo. Leavitt v. Jane L., 518 U.S.
137, 145 (1996); International Ins. Co. v. Stonewall Ins. Co.,
86 F.3d 601, 604 (6th Cir. 1996).
“Generally, contract terms are to be given their ordinary
meaning. . . . When the terms of the contract are clear on their
face, the court has no need to construe the evidence otherwise.
. . . Parol evidence is admissible only if the terms of the
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

-- 15 of 20 --

16 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
Allstate Ins. Co., 90 F.3d 1546, 1548-49 (11th Cir. 1996)(Florida
law)(emphasis added)(“Under ordinary principals of contract
interpretation, a court must first examine the natural and plain meaning of
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
the contract. . . . Moreover, in determining whether a contract is
ambiguous, the words should be given their natural, ordinary meaning,
. . . and ambiguity does not exist simply because a contract requires
interpretation or fails to define a term . . . . If, on the other hand, a court
determines that the terms of an insurance contract are ambiguous, or
otherwise not susceptible to a reasonable construction, a court may look
beyond the contractual language to discern the intent of the parties in
making the agreement. In general, ambiguities in contracts are construed
against their drafters.”); Press Mach. Corp. v. Smith R.P.M. Corp., 727
F.2d 781, 784-85 (8th Cir. 1984)(Missouri law)(emphasis added)(“In
determining whether a contract is ambiguous, the court must consider the
whole instrument and the natural and ordinary meaning of the language.
. . . [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
more than the mere words of the contract. The surrounding
circumstances at the time of contracting and the positions and actions of
the parties are relevant to the judicial interpretation of the contract.”).
Obviously, the natural and ordinary meaning of language, reasonable
construction of a contract, surrounding circumstances, and positions and
actions of the parties are issues that cannot be weighed in a vacuum. See
Bunnell Med. Clinic, P.A. v. Barrera, 419 So.2d 681, 683 (Fla. Dist. Ct.
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
single meaning, but some extrinsic fact or extraneous evidence creates a
need for interpretation or a choice between two possible meanings . . .
[and extrinsic evidence becomes] admissible to show the intent of the
parties”). Thus, the district court may take cognizance of extrinsic
evidence in order to determine whether a factfinder need consider parol
evidence in construing the contract.
Bldg. Co., 990 F.2d 854, 858 (6th Cir. 1993)(Ohio law); Ohio
Historical Soc’y, 65 Ohio App.3d at 146, 583 N.E.2d at 344.
“If a contract is clear and unambiguous . . . there is no issue
of fact to be determined.” Inland Refuse Transfer Co. v.
Browning-Ferris Indus. of Ohio, 15 Ohio St.3d 321, 474
N.E.2d 271, 272-73 (Ohio 1984)(per curiam). “However, the
interpretation of such language, once held to be ambiguous,
is a factual issue turning on the intent of the parties.” Parrett,
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
25
5. Reconciliation of the Contractual Policy Relationship
with Long-Term Exposure, Delayed Manifestation Type
of Claim
The most complex question in this case, of course, involves
how the unique characteristics of long-term exposure and
delayed manifestation injury claims can be reconciled with
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
welding-fumes claims; 2) what impact does the switch from
“occurrence” to “claims” policies have in light of the “status
quo” preservation of positions between the parties as to the
type of trigger; 3) how should a claim be handled if it
occurred during the time-span of the “occurrence-based”
policy, but then was filed as a claim against the insured during
a subsequently active “claims-based” policy; 4) as a general
proposition, what relationship exists between various insurers,
different policies from the same insurer, and self-insurers over
time with respect to a single long-term exposure and delayed
manifestation injury claim; and 5) when is an insured allowed
to “pick and choose” among terms of different policies in
circumstances where those multiple policies are triggered by
a long-term exposure claim.
Ohio law provides no dispositive guidance on these issues.
Ohio law is very sketchy even with respect to the component
issues just mentioned. In this case, we are faced with the
additional task of reconciling the overall calculation scheme
in a cohesive fashion, and no Ohio statute or Ohio Supreme
Court decision squarely addresses the question. Erie R. Co.
v. Tompkins, 304 U.S. 64 (1938).
As stated earlier, the district court held that 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 they were not modified by the post-1979
endorsements. St. Paul breached the policies by

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24 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
4. Standard of Evidence Required for Proving the Existence
and Terms of Alleged “Missing” Insurance Policies
The district court cited three federal district court decisions
from other circuits, each dealing with non-Ohio law, in
support of its conclusion that a preponderance of the evidence
standard should be used to determine whether Lincoln
Electric had carried its burden to prove the existence and
terms of the alleged “lost” insurance policies covering the
years from 1945 to 1972. The court then found sufficient
evidence to meet the preponderance of the evidence standard.
St. Paul challenges both the standard used and the nature of
the evidence employed by contending that the standard should
be clear and convincing evidence and impermissible evidence
was considered.
A perusal of the various cases cited by the parties and the
district court verifies that there is no dispositive statute or
Ohio Supreme Court case on point. However, the district
court did adopt a standard that makes practical sense, appears
to represent the majority rule, and can be said to reasonably
anticipate the Ohio Supreme Court’s position. Two cases that
deal with Ohio law appear to be in accord with the district
court’s holding: Miller v. MIF Realty L.P. (In re Perrysburg
Marketplace Co.), 208 B.R. 148, 158 (N.D. Ohio 1997), and
Household Finance Corp. v. Johnson, 56 Ohio App.2d 14, 15,
381 N.E.2d 215, 216 (Ohio Ct. App. 1978).
We conclude that the district court correctly relied upon the
preponderance of the evidence standard. When that standard
is applied we are unable to say that the district court’s factual
finding in support of the “missing policies” was clearly
erroneous.
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
17
990 F.2d at 858; Ohio Historical Soc’y, 65 Ohio App.3d at
146, 583 N.E.2d at 344. “The meaning of [ambiguous] terms
. . . will not be overturned on appeal absent a showing that the
trial court abused its discretion.” Id. at 147.
As to the scrutiny applied to a district court’s application of
the parol evidence rule under Ohio law, this court has
previously noted, Construction Interior Sys., Inc. v. Marriott
Family Restaurants, Inc., 984 F.2d 749, 754 (6th Cir. 1993),
that:
[w]here the parties, following negotiations, make mutual
promises which thereafter are integrated into an
unambiguous written contract, duly signed by them,
courts will give effect to the parties' expressed intentions.
. . . Intentions not expressed in the writing are deemed to
have no existence and may not be shown by parol
evidence. . . . Even where a contract is not fully
integrated, parol evidence cannot be admitted if its effect
will be to vary or contradict any matter that is specifically
covered by the written terms of the contract. . . . There
can be no implied promises in a contract in relation to
any matter that is specifically covered by the written
terms of the contract . . . Interpretation of written contract
terms is a matter of law for initial determination by the
court, . . . the job of interpretation is turned over to the
fact finder [only when the relevant contract language is
determined by the judge to be ambiguous.]
Finally, should this court determine that the contract in this
case involved an ambiguity, it should be mindful of a final
principle of Ohio law:
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

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18 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
13This dispute between the parties did not arise because there was
objective latent uncertainty at the time of contract formation with respect
to the inherent meaning of words used to express the agreement. Rather,
this dispute centers upon how the law should apply to a contract with
clear meaning that has proven inadequate in the context of environmental
change. See Insurance Co. of N. Am. v. Forty-Eight Insulations, Inc., 633
F.2d 1212, 1217, 1219 (6th Cir. 1980). The policies were internally
unambiguous when viewed through the lens of original expectations and
the scheme the parties believed they were creating. In hindsight, however,
the policies now reveal the fact that, at the time of the early policy
agreements, neither party contemplated their future encounter with long-
term exposure and delayed manifestation injury claims.
of the contract should attempt to harmonize all the
provisions rather than produce conflict in them. . . . To
that end, no provision of the contract should be ignored
as inconsistent if there exists a reasonable interpretation
which [sic] gives effect to both. . . . Moreover, to the
extent we encounter an ambiguity in the contract, that
ambiguity must be construed against the drafting party.
Ottery v. Bland, 42 Ohio App.3d 85, 87, 536 N.E.2d 651, 654
(Ohio Ct. App. 1987); see also McKay Mach. Co. v. Rodman,
11 Ohio St.2d 77, 79, 228 N.E.2d 304, 307 (Ohio 1967);
Franck v. Railway Exp. Agency, Inc., 159 Ohio St. 343, 345-
46, 112 N.E.2d 381, 383 (Ohio 1953).
The above principles underscore the need for this court to
reach an initial determination regarding whether there was
ambiguity in the original written policy. We conclude that
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
this opinion, we also cannot say that the district court
committed legal error.
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
23
18St. Paul points out that there was evidence the district court could
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.
19For example, we do not disturb the district court’s conclusion, on
its findings of fact or law, that post-August 1979 $25,000 deductibles did
not purport to eliminate coverage under pre-August 1979 policies, and
that the post-1979 deductibles were ineffective to exclude or restrict
coverage. The August 1979 to August 1980 policy deductible did not
exclude coverage for welding fume claims under all earlier accident and
occurrence policies. The endorsement itself stated it would apply only to
the policy to which it was attached; it mentions no other policies. Further,
each pre-August 1979 policy required that any changes be made only by
“endorsement issued to form a part of [each] policy.” Once policies were
sold, the insurer could not alter them without buying them back. St. Paul
has never even alleged that they purchased the policies back with a quid
pro quo monetary exchange. The district court apparently found that St.
Paul never purchased the old policies back.
district court seemed to find that Lincoln Electric’s
acquiescence to St. Paul’s processing of the claims was
attributable to a lack of awareness rather than to a conscious
manifestation of implicit approval concerning execution of
the contract. The district court implicitly found that Ohio’s
voluntary payment and mistake of law doctrine did not apply
because Lincoln Electric’s payments did not carry the fully-
informed consent necessary to constitute “voluntary”
payment. The district court also found there was no “buy
back” of Lincoln Electric’s policies by St. Paul. The district
court was not clearly erroneous18 in its interpretation of the
evidence concerning the relationship19 between the parties.
Thus, we cannot overrule the district court’s resultant refusal
to adopt St. Paul’s version of an alleged course of conduct
and to apply the voluntary payment and mistake of law
doctrine. St. Paul remains liable for failing to adhere to the
terms of policies held by the Lincoln Electric.

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22 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
16Consideration of a course of conduct is permissible because silence
can sometimes reflect the contracting parties’ contemporaneous belief that
the original contract terms are being honored. Cf. United States v.
Hoosier, 542 F.2d 687 (6th Cir. 1976)(per curiam)(silence as an
admissible party admission under F ED. R. EVID. 801(d)(2)(B)). The
existence of such a contemporaneous belief would suggest a particular
contract meaning. That meaning, in turn, would preclude the existence of
an ambiguity and/or clarify a facially ambiguous term.
17Since 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
evidence what acts took place and what purpose accompanied those acts.
A valid “written changes only” provision preempts
consideration of course of performance. In contrast, course of
conduct can be considered in certain respects notwithstanding
a “written changes only” contractual provision, because the
series of acts in question are evaluated only as evidence
regarding a continuity of the purpose captured by the original
contractual terms at the time of formation.16 Contrary to
Lincoln Electric’s assertions, it was within the province of the
district court to consider course of conduct evidence to divine
the parties’ intent.
St. Paul’s theory that it is free of liability nonetheless falls
short, because St. Paul fails to acknowledge that a course of
conduct analysis rests upon preliminary conclusions which are
predicated upon preliminary factual determinations.17 The
district court was free to ascertain whether a course of
conduct existed. If the court found there was a course of
conduct, it had the prerogative to decide whether it evidenced
specific contractual intent suggesting the existence of a
contractual ambiguity, and/or fully-informed consent and
voluntary payment by Lincoln Electric.
Apparently the district court did not find the series of acts
in this case sufficient to compel the interpretation of
contractual intent and meaning that St. Paul advocates. The
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
19
14“Equitable allocation” is also known as “horizontal allocation.”
2. Preservation of Issues in District Court for Subsequent
Appeal
Lincoln Electric suggests that St. Paul’s “voluntary
payment” and “equitable allocation”14 arguments have been
forfeited because they were not argued to the district court
prior to its judgment. We are unpersuaded. Our examination
of the motions, the district court opinion, and the briefs
suggests that all issues in the appeal of this complex matter
have been properly raised. All of the various points of
operative fact were raised before the district court, and the
parties were sufficiently thorough in proffering to the district
court their concerns, differences of opinion, preferred sources
of precedent, recommendations for interpretations of law and
fact, and positions regarding the proper award.
3. Existence of St. Paul’s Liability Towards Lincoln
Electric for Non-Compliance with Policy Terms:
Reconciliation of Doctrines Concerning Course of
Conduct, Written Changes Only Provisions, Policy Buy-
Back, and the Voluntary Payment/Mistake of Law
Doctrine
As an initial proposition, St. Paul asserts that the district
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
post-1979 endorsements controlled the disposition of claims
filed after August 1, 1979. St. Paul notes that 1) from 1979-
1996, Lincoln Electric forwarded to St. Paul thousands of
claims that included allegations of exposure before 1979;
2) from 1979-1996, with respect to those claims, St. Paul
applied post-1979 deductibles and retentions; and 3) from
1979-1996, for those claims, Lincoln paid the post-1979
deductibles and retentions.

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20 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
Nos. 98-4236/4340
St. Paul contends that a seventeen-year course of conduct
of payment without protest should bar Lincoln Electric’s
request for a refund. According to St. Paul, the Ohio
voluntary payment and mistake of law doctrine prevents
Lincoln Electric from attempting to recover voluntary
payments on a policy on the basis of a claimed mistake of
law, a new legal position, or a new construction of a contract.
St. Paul characterizes Lincoln Electric’s February 22, 1996
letter concerning the multiple trigger theory as being
disallowed under Ohio law. In response, Lincoln Electric
asserts that St. Paul never purchased the old policies back
from Lincoln Electric. It argues that it continues to enjoy that
coverage because no consideration supported any alleged
agreement to rescind coverage from the older policy terms.
We are considering an insurance policy scheme that was
1) negotiated between entities with sophisticated business
expertise and resources, and 2) implemented under
continuous monitoring by two separate teams of auditors and
counsel acting for each party. Given this context, St. Paul
correctly invokes the proposition that “[w]here a course of
conduct removes an ambiguity in the written terms of an
agreement, the rule of practical construction should take
precedence over the rule that a contract of insurance is
construed against its drafter.” William C. Roney & Co. v.
Federal Ins. Co., 674 F.2d 587, 590 (6th Cir. 1982). A course
of conduct illuminates the specific nature of the relationship
between the parties, resolving questions concerning the
existence of ambiguity and thus obviating the need to resort
to defaults provided by the general rules of contract
construction. Id.
Lincoln Electric counters that the course of dealing between
the parties cannot be considered in reaching a resolution of
this case, because all of the policies in question before and
after 1979 included “written changes only” provisions.
Lincoln Electric’s position implicitly confuses “course of
Nos. 98-4236/4340 Lincoln Electric Co. v. St. Paul
Fire and Marine Insurance Co.
21
15“Course of performance” and “course of conduct” are terms
distinct in modern usage not only from each other, but from the term
“course of dealing.” U.C.C. § 2-208(2), 2-309 cmts. 1, 5 (1994).
“Course of dealing” denotes “a sequence of previous conduct between the
parties to a particular transaction which is fairly to be regarded as
establishing a common basis of understanding for interpreting their
expressions and other conduct.” U.C.C. § 1-205(1) (1994). Thus, course
of dealing concerns some aspects of the portion of a total course of
conduct which might happen to have existed previous to or
contemporaneous with initial contract formation (a course of conduct may
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
(1994). “Course of dealing” and “course of performance” are defined
with reference to the moment of initial contract formation, and thus they
cannot overlap with each other but can overlap with the course of
conduct. Of course, when there is a writing intended by the parties as a
final expression of their agreement with respect to such terms as are
included therein, courts must generally look to see if state law forbids
having such terms “contradicted by evidence of any prior agreement or of
a contemporaneous oral agreement.” Cf. U.C.C. § 2-202 (1994). The
parol evidence rule concerns attempts to modify, alter, or supplement a
written contract, using evidence of operative facts in existence before or
during contract formation. With many types of contracts the course of
dealing may be considered even when the parol evidence rule is found to
apply. U.C.C. § 2-202(a) (1994).
In this case, we have not been pointed to any part of the record
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.
conduct” with “course of performance.”15 “Course of
performance” is defined as “[t]he understandings of
performance which develop by conduct without objection
between two parties during the performance of an executory
contract.” BLACK’S LAW DICTIONARY 352 (6th ed. 1990)
(emphasis added); cf. U.C.C. § 2-208(1) (1994). “Course of
conduct,” in contrast, is generally understood to denote “a
series of acts over a period of time, however short, evidencing
a continuity of purpose.” Cf. Leydon v. Alexander, 212 Cal.
App.3d 1, 4, 260 Cal. Rptr. 253, 254 (Cal. Ct. App.
1989)(quoting California statutory definition)(emphasis
added).

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