908 F.2d 825 (11th Cir. 1990), 89-7158, Industrial Chemical & Fiberglass Corp. v. North River Ins. Co.

Docket Nº:89-7158.
Citation:908 F.2d 825
Party Name:INDUSTRIAL CHEMICAL & FIBERGLASS CORP., a corporation, Plaintiff-Cross Claim-Plaintiff-Appellant, Hartford Accident & Indemnity Company, Plaintiff-Joinder-Counterclaim-Defendant-Appellant, Mission Insurance Company, Plaintiff-Intervenor & Cross Claim-Appellee, v. The NORTH RIVER INSURANCE COMPANY, National Union Fire Insurance Company of Pittsburgh
Case Date:August 09, 1990
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit
 
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908 F.2d 825 (11th Cir. 1990)

INDUSTRIAL CHEMICAL & FIBERGLASS CORP., a corporation,

Plaintiff-Cross Claim-Plaintiff-Appellant,

Hartford Accident & Indemnity Company,

Plaintiff-Joinder-Counterclaim-Defendant-Appellant,

Mission Insurance Company, Plaintiff-Intervenor & Cross Claim-Appellee,

v.

The NORTH RIVER INSURANCE COMPANY, National Union Fire

Insurance Company of Pittsburgh, Pa.,

Defendants-Counterclaim

Plaintiffs-Cross-Claim

Defendants-Appellees,

Centennial Insurance Company, Counter Claim-Defendant-Appellee.

No. 89-7158.

United States Court of Appeals, Eleventh Circuit

August 9, 1990

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[Copyrighted Material Omitted]

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Hobart A. McWhorter, Jr., Bradley, Arant, Rose and White, Donald M. James, Stewart M. Cox, Birmingham, Ala., for Ind. Chem. & Fiberglass Corp.

Deborah Alley Smith, Rives & Peterson, Norma Mungenast Lemley, Edgar M. Elliott, III, Clarence M. Small, Jr., Birmingham, Ala., for Centennial Ins.

Larry B. Childs, Cabanise, Johnston, Gardner, Dumas & O'Neal, Steve Alan Tucker, Birmingham, Ala., for Hartford Acc. & Indem. Co.

W. Stancil Starnes, Starnes & Atchison, Birmingham, Ala., for North River Ins. Co., et al.

Richard F. Ogle, Schoel, Ogle, Benton, Gentle & Centeno, Douglas J. Centeno, Birmingham, Ala., for Mission Ins. Co.

Appeals from the United States District Court for the Northern District of Alabama.

Before CLARK and EDMONDSON, Circuit Judges, and RUBIN [*], Senior Circuit Judge.

EDMONDSON, Circuit Judge:

In 1980, two workers were burned to death while repairing a fiberglass storage tank when a bucket of methyl ethyl ketone peroxide ("MEKP") ignited. The estates of the workers, Chandler and Ensley, brought tort actions in state court against Reichhold Chemicals Inc. ("Reichhold") which manufactures MEKP, Industrial Chemical & Fiberglass Corporation ("Industrial Chemical") which distributes MEKP, and others who are not parties to this action. Reichhold and others settled for $2.25 million. Industrial Chemical was not a party to this settlement because its primary insurer, Centennial Insurance Company ("Centennial"), refused to authorize

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enough funds to make a credible settlement offer.

The state court actions went to trial against Industrial Chemical and Nova Industrial Group, with plaintiffs alleging that Industrial Chemical's negligent failure to warn wrongfully caused the deaths of Chandler and Ensley and that Industrial Chemical had breached its implied warranty of merchantability on MEKP. The jury returned a verdict of $7.25 million against Industrial Chemical; the verdict was reduced by the amount of the settlement to $5 million. 1

After Centennial tendered its $500,000 policy limit, and Industrial Chemical's excess liability carrier, Mission Insurance Company ("Mission"), tendered its $1 million policy limit, Industrial Chemical was left with a $3.5 million excess judgment. With the state court plaintiffs attempting to levy its assets, Industrial Chemical sought protection in the federal courts in an attempt to get one or several insurance companies to indemnify Industrial Chemical for the excess judgment.

In its first federal action--filed before the state court actions went to trial but decided after entry of the state verdicts--Industrial Chemical sought a declaration that Hartford Accident and Indemnity Company ("Hartford"), Reichhold's primary insurer, was obligated under a broad-form vendor's endorsement to defend and to indemnify Industrial Chemical. The district judge certified to the Alabama Supreme Court the issue of coverage under such a broad-form vendor's endorsement. After a ruling by the Alabama Supreme Court favorable to Industrial Chemical, the judge entered an order holding Hartford liable for "the full amount of [the state] judgment or settlement, even if it exceeds the policy limits" and found that Hartford had acted in bad faith in denying coverage under the vendor's endorsement. Industrial Chem. and Fiberglass Corp. v. Hartford Accident and Indemn. Co., CV-83-G-2875-S (N.D.Ala. Dec. 22, 1986).

Faced with this judgment in federal court, Hartford agreed to protect and to indemnify Industrial Chemical against the underlying state court judgments and to assume the defense in appealing these judgments. In return, Industrial Chemical assigned to Hartford the rights it might have against three other insurers--Centennial, Mission, and The North River Insurance Company ("North River"), an excess liability carrier for Reichhold. Hartford and Industrial Chemical petitioned the district judge to vacate his order and to enter an order reflecting their settlement. In the revised order, the court found that Industrial Chemical was an additional insured under the Hartford policy--but expressly deleted the finding that Hartford had acted in bad faith and was obligated to pay the whole state court judgment.

In this second federal action, Industrial Chemical, Centennial, and Mission sued North River, claiming that North River had breached its insurance contract with Reichhold to provide excess coverage. Industrial Chemical and Mission cross-claimed, and North River counterclaimed, against Centennial, asserting that Centennial negligently or in bad faith failed to settle the underlying state court actions. Hartford was joined as an involuntary plaintiff. (See attached Appendix for the interests and alignment of the parties.)

The district judge ruled that (1) North River did not breach its contract with Reichhold because Industrial Chemical was not covered under the terms of the North River policy; (2) Centennial had negligently failed to settle the underlying state court actions on behalf of Industrial Chemical; (3) Mission, as subrogee of Industrial Chemical, could recover the $1 million plus prejudgment interest it had paid to the state court plaintiffs; and (4) Industrial Chemical (in the light of Hartford's agreement to indemnify Industrial Chemical for all losses) would recover nothing because it had suffered no injury as a result of Centennial's negligence. Industrial Chemical and Hartford appeal the first and fourth rulings.

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The district court in this case erred when it concluded that Industrial Chemical was not covered under the terms of the North River policy. It also misapplied controlling Alabama law in determining that the indemnity agreement between Hartford and Industrial Chemical extinguished the damage Industrial Chemical suffered from Centennial's negligence. 2

Breach of Contract Claim

Reichhold has a $1 million primary-liability policy with Hartford and a $45 million excess-liability policy with North River. The Hartford policy contains a vendor's endorsement. The purpose of a vendor's endorsement--as demonstrated by extensive correspondence between Reichhold and its vendors--is to assure vendors of Reichhold products that Reichhold will insure them against liability arising out of distribution of the products.

North River says it has no obligation under its insurance contract with Reichhold to indemnify Industrial Chemical. But we conclude that Industrial Chemical is an insured under the North River policy. While Reichhold is the named insured under the North River policy, the policy also provides coverage to "any additional Insured ... included in the Underlying Insurances, subject to the provisions in Condition B". An attached schedule of underlying insurances lists the Hartford Comprehensive General Liability policy. The Hartford policy contains a provision which by its terms makes the "the insurance [applicable] to all vendors of [Reichhold] products"; this...

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