A paint and drywall product manufacturer said an Allianz unit can't rely on a pollution exclusion to avoid a dispute over coverage for underlying asbestos claims, telling a Texas federal court that the insurer's interpretation of the exclusion is contrary to the policy language and unsupported by Texas law.

In a brief filed Tuesday, Murco Wall Products Inc. urged the court to deny Interstate Fire & Casualty Co.'s bid to dismiss Murco's cross-claims for breach of contract and declaratory relief.

The pollution exclusion in Interstate's excess policy bars coverage for injury arising out of the release or pollutants "into or upon land, the atmosphere or any watercourse or body of water," unless the release is sudden and accidental. Murco contended that the insurer's reference to the land, atmosphere and water make it reasonable to conclude that the exclusion applies only to harms arising from environmental pollution, which has not been alleged in this case as asbestos-related claims typically involve the inhalation of asbestos fibers.

"Despite asbestos litigation having flourished since the 1960s, examples of pollution exclusions being construed to bar coverage for asbestos injuries are practically non-existent in Texas," the company said. "Indeed, this dearth of case law mirrors Murco's own experience in which all of Murco's primary insurers, and many excess insurers, have paid their limits settling asbestos claims against Murco despite their policies also containing pollution exclusions."

Even if Interstate were correct that the exclusion applies to asbestos-related claims, Murco said the policy "outlines factual conditions that may allow Murco to prevail notwithstanding Interstate's interpretation, as do a number of other superseding factual issues."

For example, Murco said its allegations do not clarify whether the exclusion conditions have been met for any of the underlying suits, nor was it required to plead such facts.

The dispute concerns coverage for hundreds of underlying suits filed against Murco over alleged bodily injury caused by exposure to asbestos in products it manufactured.

Murco, a Texas-based company founded in 1971, purchased primary, umbrella and excess liability coverage during the 1970s and 1980s. Some of the primary policies have been exhausted by defense and indemnity payments, which Murco said was accelerated by the insolvency of certain other primary insurers. As a result, the company said it turned to its excess policies, all but three of which have been exhausted.

Berkshire Hathaway Specialty Insurance Co., which insured Murco under umbrella and excess policies, was chosen to indemnify Murco for defense costs incurred in a number of the suits, while other pending suits have been tendered to Interstate and Canal Insurance Co., both of which have denied coverage. According to court filings, the insolvent primary policies include those underlying the Interstate and Canal excess policies.

Berkshire Hathaway sued Murco in July, asserting that its policies' pollution exclusion bars coverage because Murco's liability stems from the "discharge, dispersal, release or escape of irritants or contaminants" that was not sudden and accidental. The insurer also contended that it is entitled to contribution from Interstate and Canal for the defense and indemnity of the underlying suits.

In September, Murco filed cross-claims against Interstate and Canal, alleging that the two carriers breached their respective policies by failing to indemnify Murco in connection with the underlying suits. The company is also seeking declarations that the pollution exclusions in their policies do not bar coverage and that their underlying limits have been accounted for by payments made by other insurers.

Interstate moved to dismiss the cross-claims in October, arguing that Murco has not sufficiently pled that the policy's underlying limit is exhausted or that an exception to the pollution exclusion permits coverage for the asbestos claims.

"Like its argument concerning its pollution exclusion, Interstate's argument regarding its underlying limits also lacks fidelity to its policy's terms and ignores predicate facts that can only be resolved in discovery," Murco said Tuesday.

Interstate incorrectly claims that payments by other insurers cannot account for the absence of the primary policy underlying its excess policy, Murco said. Interstate bases its argument on the policy's loss payable provision, which states liability does not attach until the applicable underlying limit, defined to include any other "valid and collectible insurance available to the insured," has been paid "by or on behalf of the insured," the company said.

"Critically here, all of Murco's other insurance — exhausted or otherwise — is not part of Interstate's 'underlying limits' for purposes of determining when Interstate must pay a claim," Murco said. "Only insurance that is 'available,' 'valid,' and 'collectible' for that claim is included."

Even if Interstate's interpretation of the loss payable provision is correct, Murco said the policy would need to be compared to other policies of Murco's that have paid claims on its behalf.

"Interstate's loss payable provision, even if it attempted to retroactively subordinate Murco's exhausted coverage (which it does not do), would be ineffective in doing so against any policy with a similar coverage-subordinating provision," the company said.

Representatives of the parties did not immediately respond to requests for comment Wednesday.

Berkshire Hathaway is represented by Mark T. Beaman, Ryan C. Bueche and Kelli Smith of Germer Beaman & Brown PLLC.

Murco is represented by Ernest Martin Jr., Reese Letourneau and Andrew P. Van Osselaer of Haynes and Boone LLP.

Canal is represented by Stephen A. Melendi and Matthew Rigney of Tollefson Bradley Mitchell & Melendi LLP.

Interstate is represented by Roger C. Diseker, Joakim Soederbaum, William J. Baron and Gina M. Foran of Duana Morris LLP.

The case is Berkshire Hathaway Specialty Insurance Co. v. Murco Wall Products Inc. et al., case number 4:25-cv-00764, in the U.S. District Court for the Northern District of Texas.