Gulf Chemical & Metallurgical Corp. v. Associated Metals & Minerals Corp.

• Decision Date: 13 September 1993
• Docket Number: No. 92-7499,92-7499
• Citation: 1 F.3d 365
• Parties: GULF CHEMICAL & METALLURGICAL CORPORATION and Cheminter Corporation, Plaintiffs-Appellants Cross-Appellees, v. ASSOCIATED METALS & MINERALS CORPORATION, et al., Defendants, Associated Metals & Minerals Corporation, General Star Indemnity, Insurance Company of North America, a/k/a Cigna Property and Casualty Companies, and International Surplus Lines Insurance Company, Defendants-Appellees, and Birmingham Fire Insurance Company of Pennsylvania, Defendant-Appellee Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 365

1 F.3d 365

GULF CHEMICAL & METALLURGICAL CORPORATION and Cheminter

Corporation, Plaintiffs-Appellants Cross-Appellees, v. ASSOCIATED METALS & MINERALS CORPORATION, et al., Defendants,

Associated Metals & Minerals Corporation, General Star

Indemnity, Insurance Company of North America, a/k/a Cigna

Property and Casualty Companies, and International Surplus

Lines Insurance Company, Defendants-Appellees,

and

Birmingham Fire Insurance Company of Pennsylvania,

Defendant-Appellee Cross-Appellant.

No. 92-7499.

United States Court of Appeals, Fifth Circuit.

Sept. 13, 1993.

David W. Alexander, James D. Thomas, Squire, Sanders & Dempsey, Columbus, OH, for plaintiffs-appellants cross-appellees.

Michael E. Warrick, Sheryl Mulliken Fike, Hudgins, Hudgins & Warrick, Houston, TX, for Birmingham Fire Ins.

Margaret F. Catalano, Howard L. Close, Orgain, Bell & Tucker, Beaumont, TX, Kevin Coughlin, McElroy, Deutsch & Mulvaney, Morristown, NJ, for International Surplus Lines Ins. Co.

Joseph P. Witherspoon, III, Jacobus, Boltz & Melamed, Houston, TX, for Associated Metals & Minerals, et al.

Scott Statham, David H. Brown, Vinson & Elkins, Houston, TX, for General Star Indem.

Richard M. Shusterman, Barbara S. Zellner, Regina B. Mapes, White & Williams, Philadelphia, PA, for Insurance Co. of North America.

Appeals from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, REAVLEY and BARKSDALE, Circuit Judges.

REAVLEY, Circuit Judge:

Gulf Chemical & Metallurgical Corporation (Gulf) sued its insurers and its former parent corporation for breach of contract and declaratory judgment, alleging that these defendants ignored their contractual obligations to defend Gulf in an ongoing toxic-tort case that features some 2000 plaintiffs. On summary judgment, the district court apportioned Gulf's defense costs among Gulf and two of Gulf's insurers. We vacate the judgment and instruct changed apportionment.

I. BACKGROUND

From 1973 to 1984, Associated Metals & Minerals Corporation (ASOMA) operated a chemical plant in Freeport, Texas through an unincorporated division (ASOMA's Chemical Division). ASOMA's Chemical Division shipped molybdenum trioxide (molyoxide) to Lone Star Steel Corporation (Lone Star) between June 18, 1981 and May 4, 1982.

ASOMA formed Gulf in December 1984 under Texas law, and transferred the assets of ASOMA's Chemical Division to Gulf on January 17, 1985 in exchange for all of Gulf's outstanding shares. ASOMA then sold Gulf's stock to Cheminter Corporation, under which Gulf has operated the Freeport plant. ¹ Gulf shipped molyoxide to Lone Star between January 20, 1986 and January 12, 1988.

Approximately 5000 former employees of Lone Star have sued approximately 2000 manufacturers and suppliers of chemicals that Lone Star used in its steel mill, claiming that the chemicals caused them various latent bodily injuries from 1946 to 1990. This consolidated litigation is pending in a Morris County, Texas court, styled Fowler et al. v. Union Carbide Corp. et al. (76th Dist.Ct., No. 15477). The Fowler plaintiffs joined Gulf as a defendant on October 16, 1987. Their August 1990 consolidated complaint (the Fowler complaint) alleges that Gulf is strictly liable for their injuries as a consequence of its sale of molyoxide to Lone Star.

Gulf filed this diversity suit in federal court to enforce the contractual obligations of various parties to pay for Gulf's defense in the Fowler litigation. These parties include ASOMA and four of Gulf's general comprehensive liability (GCL) insurers: International Surplus Lines Insurance Company (ISLIC), General Star Indemnity Company (GenStar), Birmingham Fire and Insurance Company of Pennsylvania (Birmingham), and Insurance Company of North America (INA).

In the January 18, 1985 Stock Purchase Agreement, ASOMA agreed

to indemnify [Cheminter] and Gulf and hold each of them harmless from and against any and all liabilities and obligations arising from the conduct by Gulf [or ASOMA's Chemical Division] or [ASOMA] prior to [January 18, 1985], or arising from the ownership, possession or use prior to [January 18, 1985] of the assets employed in [the business of Gulf or ASOMA's Chemical Division.]

The indemnity agreement entitles Gulf to "reasonable legal and other costs incurred in defending against or investigating any claim of liability."

ISLIC provided Gulf GCL coverage from January 17, 1985 to January 17, 1986. GenStar provided Gulf GCL coverage from January 17, 1986 to July 1, 1986. Birmingham provided Gulf GCL coverage from June 1, 1987 to June 1, 1988. INA provided Gulf GCL coverage from June 1, 1988 to June 1, 1989. The policies of ISLIC, GenStar, and Birmingham all provide:

the [insurer] shall have the right and duty to defend any suit against the insured seeking damages on account of ... bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent....

INA's policy provides:

[INA] will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. [INA] will have the right and duty to defend any "suit" seeking those damages.

Gulf's GCL insurer from July 1, 1986 to July 1, 1987 did not agree to defend or indemnify Gulf for claims made subsequent to the term of the policy, and Gulf has not sued that insurer.

The district court disposed of Gulf's entire contract suit for monetary and declaratory relief by summary judgment, and explained its judgment in a series of orders. The court dismissed Gulf's claims against ASOMA after finding it "highly unlikely" that the Fowler plaintiffs are suing Gulf for the molyoxide shipments made by ASOMA's Chemical Division.

As for Gulf's insurers, the court held that "the [Fowler plaintiffs'] allegations of bodily injury resulting from continuous exposure to chemicals triggers a duty of defense by the terms of each policy." However, the court held that an "expected or intended" injury exclusion in INA's policy excuses INA from defending Gulf. See Gulf Chem. & Metallurgical Corp. v. Associated Metals and Minerals Corp., 765 F.Supp. 375, 376 (S.D.Tex.1991). The court also held that ISLIC owes Gulf no duty of defense because ISLIC's policy expired on January 17, 1986, three days before Gulf first shipped molyoxide to Lone Star.

The district court then read our precedent to require coverage-time-based proration of the defense costs among GenStar, Birmingham, and Gulf itself, because Gulf was essentially self-insured between July 1, 1986 and June 1, 1987. The court held that "the relevant exposure period with respect to [Gulf] and its insurers is January 20, 1986 to January 12, 1988," the dates of Gulf's first and last molyoxide shipments to Lone Star.

Gulf appeals, claiming that the district court erred by: 1) dismissing INA, ISLIC, and ASOMA; 2) requiring Gulf to contribute to the costs of its defense; and 3) dismissing Gulf's claims for attorney fees and breach of the duty of good-faith dealing. ² Birmingham cross-appeals, claiming that the district court's apportionment formula is erroneous.

II. ANALYSIS

We review the district court's summary judgment de novo, reviewing the record evidence in the light most favorable to the party against whom the motion is made. See Walker v. Sears, Roebuck & Co., 853 F.2d 355, 358 (5th Cir.1988). New York law governs our interpretation of the Stock Purchase Agreement, and no party argues that the district court erred by interpreting the various insurance policies according to Texas law.

A. THE DISTRICT COURT'S DISMISSAL OF ASOMA, ISLIC, AND INA

Gulf argues that the record does not support the district court's summary judgment in favor of ASOMA, INA, or ISLIC. We agree, and find Gulf entitled, for different reasons, to recovery against ASOMA, INA, and ISLIC.

1. New York Law and ASOMA

In the Stock Purchase Agreement, ASOMA agreed to pay all "reasonable legal and other costs incurred in defending against or investigating any claim of liability" made against Gulf arising from the conduct of Gulf or ASOMA prior to January 18, 1985. The Fowler plaintiffs have sued Gulf for damages from their exposure to toxic chemicals between 1946 and 1990.

Going beyond the allegations in the Fowler complaints, the district court requested evidence which it later used to determine that Gulf should not have been sued for conduct prior to the acquisition by Cheminter. But whether Gulf should have been sued is not the issue. Gulf was sued, and the fact that Gulf may ultimately prevail in the underlying actions insofar as they allege exposure to Gulf's products prior to 1985 does not abrogate ASOMA's duty to defend. See Starobin v. Randolph Computer Corp., 689 F.Supp. 323, 327 (S.D.N.Y.1988) ("It is not necessary that an indemnitee have sustained actual damages in the main action in order to be entitled to enforce an agreement as to indemnification for attorneys' fees.").

By effectively limiting ASOMA's defense-cost indemnity obligation to colorable claims, the district court narrowed the coverage of the indemnity provision in contravention of governing New York law. See Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 571 N.Y.S.2d 672, 674, 575 N.E.2d 90, 92 (1991) ("the duty to defend is broader than the duty to indemnify" and "an insurer may be contractually bound to defend even though it may not ultimately be bound to pay"). By the terms of the Stock Purchase Agreement, ASOMA must indemnify Gulf for the cost of litigating ultimate liability, like that described in Starobin and Fitzpatrick.

2. Texas Law and INA and ISLIC

Under Texas Law, insurance policies are construed as are contracts generally, and must be interpreted to effectuate the intent of the parties at the time the contracts were formed. Glover v. National Ins. Underwriters, 545 S.W.2d 755, 761 (Tex.1977). When the words of a policy are unambiguous, they are to...