Corning v. Nat'l Union Fire Insurance Co.

• Decision Date: 05 December 2000
• Docket Number: No. 99-4275,99-4275
• Citation: 257 F.3d 484
• Parties: (6th Cir. 2001) Owens Corning, Plaintiff-Appellee, v. National Union Fire Insurance Co. of Pittsburgh, Pennsylvania, Defendant-Appellant. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 484

257 F.3d 484 (6th Cir. 2001)

Owens Corning, Plaintiff-Appellee, v. National Union Fire Insurance Co. of Pittsburgh, Pennsylvania, Defendant-Appellant.

No. 99-4275

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: December 5, 2000

Decided and Filed: July 5, 2001

Appeal from the United States District Court for the Northern District of Ohio at Toledo, No. 95-07700, David A. Katz, District Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Mitchell F. Dolin, COVINGTON & BURLING, Washington, D.C., Steven R. Smith, CONNELLY, SOUTAR & JACKSON, Toledo, Ohio, for Appellee.

H. Frederick Humbracht, Jr., BOULT, CUMMINGS, CONNERS & BERRY, Nashville, Tennessee, for Appellant.

Before: BOGGS and GILMAN, Circuit Judges; and BECKWITH, District Judge. ^*

OPINION

BOGGS, Circuit Judge.

In this diversity action seeking declaratory judgment, Owens Corning, a corporation organized under the laws of Delaware, seeks to recover on its insurance contract with National Union Insurance ("National Union"), which has denied payment to compensate Owens Corning for indemnifying its directors and officers, who paid a substantial amount to settle a 1991 shareholder class action. Ohio law governs the contract, although we look to the corporate law of Delaware for the standards governing indemnification. Following a decision by this court in Owens Corning's favor on one issue, the district court, on remand, found that the insurance contract did not obligate Owens Corning to allocate its settlement and defense costs between those attributable to the directors (covered) and to the corporation (not covered), and also found that indemnification was appropriate under governing Delaware law. National Union appeals the resolution of these two substantive issues. National Union also appeals two procedural decisions of the district court: its entry of final judgment in favor of Owens Corning and its denial of National Union's motion to amend the pleadings to add new claims and defenses. For reasons that follow, we affirm.

I

Appellant National Union issued a directors and officers ("D & O") insurance policy to Owens Corning for the policy period from March 8, 1991 through March 8, 1992. The second part of the policy, Coverage B ("the Policy"), which is the subject of this dispute, insured Owens Corning for expenses incurred when Owens Corning indemnified its directors and officers against certain liabilities. Subject to a $2.5 million deductible, Coverage B states:

This policy shall reimburse the Company for Loss from any claim or claims which are first made against the Directors or Officers and reported to the Insurer during the Policy Period . . . for any alleged Wrongful Act in their respective capacities as Directors or Officers . . . but only when and to the extent that the Company has indemnified the Directors or Officers for such Loss pursuant to law, common or statutory, or contract, or the Charter or By-laws of the Company . . . .

On October 25, 1991, Owens Corning and six of its directors and officers were named as defendants in a class-action lawsuit brought by several Owens Corning shareholders. The lawsuit, captioned Gaetana Lavalle v. Owens Corning Fiberglass Corp., Case No. 3:91 CV 7640 (N.D. Ohio 1991) ("Lavalle"), was filed immediately after a transitory decrease in Owens Corning's stock price. The Lavalle complaint alleged that Owens Corning's 1988 to 1991 filings with the Securities and Exchange Commission ("SEC") had misrepresented the company's future financial exposure to asbestos claims, that the defendants had failed to disclose the danger that Owens Corning's products liability insurance coverage would eventually be exhausted, and that the defendants had misled investors concerning the impact that asbestos claims would have on the company's future financial condition and prospects. ¹

Specifically, the alleged misrepresentations focused on certain notes to the financial statements included in the company's SEC filings. These notes detailed the company's reserves and charges to earnings on account of contingent asbestos liabilities. As disclosed by documents filed under seal with us, the company believed that the lawsuit posed a risk of substantial damages. Upon being sued by the Lavalle plaintiffs, Owens Corning filed a claim under the Policy against National Union, and began to defend the suit. National Union denied coverage for the Lavalle claim based on two defenses: (1) an asbestos-claims exclusion in the policy, and (2) various potentially applicable exclusions (including ones pertaining to criminal or deliberate fraudulent acts and "short swing" profits).

Owens Corning settled the Lavalle class-action suit in 1995 for $9,975,000; National Union was kept fully apprised of the ongoing negotiations, but did not participate in the defense or settlement of the action. After indemnifying its directors and officers for their defense and settlement costs, Owens Corning requested reimbursement from National Union. National Union again denied coverage on the same grounds that it had earlier asserted. On December 1, 1995, Owens Corning filed this diversity action against National Union for breach of the Policy. Owens Corning sought a declaratory judgment that National Union was obligated to pay under the Policy all sums that Owens Corning incurred in the defense and settlement of the Lavalle lawsuit, less the $2.5 million deductible. Following discovery, Owens Corning filed a motion for partial summary judgment on the ground that EDO 192, the asbestos-claims exclusion, did not bar coverage for the Lavalle case. National Union contemporaneously moved for summary judgment on the same issue. On March18, 1997, the district court denied Owens Corning's motion and granted summary judgment to National Union, reasoning that EDO 192 barred coverage for the Lavalle claim. However, in October 1998 we reversed the district court and entered partial summary judgment for Owens Corning, ruling that the exclusion did not extend to the claims arising from the Lavalle settlement.Owens Corning v. Nat'l Union Fire Ins. Co., No. 97-3367, 1998 WL 774109 (6th Cir. Oct. 13, 1998) ("Owens Corning I").

On remand, the two remaining issues involved whether Owens Corning was obliged to have allocated some portion of the settlement to itself (a non-covered entity under the insurance contract) and whether the indemnification of its directors was conducted according to law, as the insurance contract requires. The district court granted summary judgment to Owens Corning on both issues.

Meanwhile, National Union had filed a motion to amend its answer to add a new defense based on a breach by its insured of the duty of good faith and fair dealing, and a new defense and counterclaim in which it sought to reform the contract to reflect the intent of the parties. National Union claimed that, although pursuant to Owens Corning I, the asbestos exclusion could not be read as applying to shareholder suits, the parties had intended that it would. The district court rejected these amendments as untimely and prejudicial, and as to the contract reformation, in violation of the mandate ofOwens Corning I. Owens Corning moved to enter final judgment. However, National Union objected to entry of final judgment, claiming that the original Lavalle settlement was unreasonable and that National Union should not be responsible for it. The court rejected this argument, and judgment was entered for Owens Corning for the cost of the settlement, substantial attorney's fees incurred during the settlement, and pre-judgment interest. National Union appeals the grants of summary judgment, the entry of final judgment, and the refusal to allow it to amend its pleadings.

II Standard of Review

The allocation and indemnification issues come to us following grants of summary judgment in favor of Owens Corning. On appeal, we review the grant of summary judgment de novo, using the same Rule 56(c) standard as the district court. Hansard v. Barrett, 980 F.2d 1059 (6th Cir. 1992). The moving party has the initial burden of proving that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Street v. J.C. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir. 1989). The burden then shifts to the nonmoving party to come forward with evidence showing that there is a genuine issue for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

In this case, we apply state law in accordance with the controlling decisions of the Ohio or Delaware Supreme Court, as appropriate. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); Bailey Farms, Inc. v. NOR-AM Chem.Co., 27 F.3d 188, 191 (6th Cir. 1994). If the state supreme court has not yet addressed the issue presented, we must predict how it would rule, by looking to "all available data," including state appellate decisions. Kingsley Assocs., Inc. v. Moll PlasticCrafters, Inc., 65 F.3d 498, 507 (6th Cir. 1995)

The denial of National Union's motions to amend and file a new counterclaim are considered under abuse of discretion. "Decisions as to when justice requires amendment are left to the sound discretion of the trial judge, and we review those decisions under an abuse of discretion standard." Miller v. Metropolitan Life Ins. Co., 925 F.2d 979, 982 (6th Cir. 1991).

The parties have not briefed the issue of the standard of review appropriate to the grant of a motion to enter final judgment. However, based on its connection to the trial judge's discretion in docket management, and its relationship to the factual details of the parties' conference, abuse of discretion appears to be the...