Abt Building Prods. v. National Union Fire Ins.

Decision Date19 December 2006
Docket NumberNo. 05-1739.,05-1739.
Citation472 F.3d 99
PartiesABT BUILDING PRODUCTS CORPORATION; ABTco, Incorporated, Plaintiffs-Appellees, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Incorporated, Defendant-Appellant. Complex Insurance Claims Litigation Association, Amicus Supporting Appellant.
CourtU.S. Court of Appeals — Fourth Circuit

ARGUED: Jeffrey A. Goldwater, Bollinger, Ruberry & Garvey, Chicago, Illinois, for Appellant. Steven John Roman, Dickstein, Shapiro, Morin & Oshinsky, L.L.P., Washington, D.C., for Appellees. ON BRIEF: Clay H. Phillips, Carol L. Johnson, Sharon Rice, Bollinger, Ruberry & Garvey, Chicago, Illinois; John M. Claytor, Elizabeth E.S. Skilling, Harman, Claytor, Corrigan & Wellman, Glen Allen, Virginia, for Appellant. Robin L. Cohen, Dickstein, Shapiro, Morin & Oshinsky, L.L.P., New York, New York; James H. Kelly, Jr., Susan H. Boyles, Kilpatrick Stockton, L.L.P., Winston-Salem, North Carolina, for Appellees. Laura A. Foggan, John C. Yang, Thomas S. Garrett, Wiley Rein & Fielding, L.L.P., Washington, D.C., for Amicus Supporting Appellant.

Before WILKINSON, NIEMEYER, and KING, Circuit Judges.

Affirmed by published opinion. Judge KING wrote the majority opinion, in which Judge WILKINSON joined. Judge NIEMEYER wrote a dissenting opinion.

KING, Circuit Judge.

National Union Fire Insurance Company of Pittsburgh, Incorporated ("National Union"), seeks appellate relief from the 2004 Judgment entered against it in the Western District of North Carolina, following a jury trial on claims made by its insureds, ABT Building Products Corporation and ABTco, Incorporated (collectively "ABT").1 The Judgment awarded ABT compensatory damages in the sum of $2.5 million for National Union's breach of its duty to defend, declaratory relief on National Union's indemnity obligations to ABT, treble damages under the North Carolina Unfair and Deceptive Trade Practices Act (the "UDTPA") in the sum of $11.7 million, and attorneys' fees of nearly $2 million under the UDTPA. On appeal, National Union makes the following contentions: (1) that the district court erred in failing to grant judgment as a matter of law on ABT's claim that National Union had breached a duty to defend ABT; (2) that the court erred in failing to grant judgment as a matter of law on ABT's claim that National Union was obliged to indemnify ABT; (3) that the court erred in failing to grant judgment as a matter of law on ABT's claim that National Union had violated the UDTPA; and (4) that the court erred in awarding attorneys' fees to ABT. As explained below, we reject each of these contentions and affirm.

I.
A.

On June 14, 2001, ABT initiated this civil action in the Western District of North Carolina, alleging in its Complaint five separate causes of action against its insurer, National Union. ABT's claims centered on National Union's conduct relating to a series of underlying product liability actions involving hardboard siding manufactured by ABT (the "underlying actions").2 First, ABT sought a declaration that National Union was obliged to indemnify it in connection with the underlying actions (the "Indemnification Claim"). Second, ABT sought damages for National Union's alleged breach of its contractual obligations, under insurance policies it had issued to ABT, in failing to defend ABT in the underlying actions (the "Failure to Defend Claim"). Third, the Complaint sought damages for National Union's alleged conduct in its handling of ABT's claims for defense and indemnification, asserting that such conduct was willful, malicious, and in bad faith (the "Bad Faith Claim"). Fourth, ABT alleged that National Union, as a result of its willful, malicious, and bad faith conduct, was liable to ABT for punitive damages (the "Punitive Damages Claim"). Finally, the Complaint alleged that National Union's conduct in its denial and handling of ABT's claims for defense and indemnification contravened the UDTPA (the "UDTPA Claim"). In conjunction with these claims, ABT sought declaratory relief on its Indemnification Claim; compensatory damages on its Failure to Defend Claim; compensatory and punitive damages on its Bad Faith and Punitive Damages Claims; and treble damages, plus attorneys' fees and other relief, on its UDTPA Claim.

After nearly three years of extensive pre-trial proceedings, a jury trial was conducted by the district court in Statesville, North Carolina, in June of 2004. As explained below, the resulting verdict was in favor of ABT and gives rise to this appeal.

B.

The evidence presented by the parties in the nine-day jury trial consisted of the testimony of approximately sixteen witnesses plus an array of exhibits. In its evidentiary presentation, ABT emphasized two factual underpinnings of its claims against National Union: (1) that National Union had failed in bad faith to defend and indemnify ABT in connection with the underlying actions; and (2) that National Union had intentionally sold and issued to ABT a new liability insurance policy covering a two-year period for which ABT was already insured by National Union, and that the new policy narrowed ABT's coverage and more than doubled its annual premium. The jury, after hearing and considering the trial evidence and instructions on the applicable legal principles, received and completed a Verdict Form of nearly four pages (the "Verdict").3 The Verdict resolved the disputes between the parties, largely in favor of ABT. The factual predicate of the Verdict, as drawn from the trial evidence, is summarized as follows.4

1.

ABT manufactures hardboard siding, a wood-based product that is sold and affixed to the exteriors of homes, at a plant it operates in western North Carolina. The plaintiffs in the underlying actions, which were filed beginning in 1995, had purchased and installed hardboard siding manufactured and sold by ABT. They alleged, inter alia, that the siding, when exposed to moisture, humidity, and other normal climatic conditions, absorbed moisture and prematurely rotted and deteriorated. Many of the plaintiffs also claimed that those problems had, in turn, resulted in consequential damages to other parts of their homes.

During the period from January 1, 1997, to January 31, 1998, ABT was covered by a commercial general liability insurance policy issued by Employers Insurance of Wausau (the "1997 Wausau Policy"). The 1997 Wausau Policy was ABT's primary liability insurance policy for the period of its coverage, and it provided coverage to ABT for defense and indemnity on liability claims made by purchasers of its products. The Policy contained a limit of $1 million per occurrence, obligated Wausau to defend ABT in connection with covered claims, and provided that the expenses Wausau incurred in the defense of any lawsuits or claims would be in addition to the $1 million per occurrence limit. Although several of the underlying actions were pending when the 1997 Wausau Policy was issued it did not exclude claims relating to defective siding manufactured by ABT.

During the coverage period of the 1997 Wausau Policy, ABT was also insured under a commercial general liability policy issued by National Union (the "1997 NU Policy").5 The 1997 NU Policy was an umbrella liability policy, requiring National Union to indemnify ABT for any liabilities in excess of the limits of ABT's underlying insurance (such as the 1997 Wausau Policy), up to $25 million. Pursuant to the 1997 NU Policy, National Union was obliged to defend ABT against covered claims when ABT's underlying insurance had "been exhausted by payment of claims." 1997 NU Policy § II.A.1. Under the terms of the 1997 NU Policy, ABT agreed that, even if it failed to keep its underlying insurance in full force and effect for the coverage period of the Policy, National Union's defense and indemnity obligations to ABT would be measured as if ABT's underlying insurance had remained in effect (the "Underlying Insurance Clause"). See id. § VI.I. As relevant, the 1997 NU Policy covered "Property Damage . . . caused by an Occurrence." Id. § I.6 It specifically excluded from coverage "Property Damage to Your Product arising out of it or any part of it" (the "Your Product Exclusion"). See id. § V.F.7 And, like the 1997 Wausau Policy, the 1997 NU Policy did not exclude the coverage of claims against ABT relating to its manufacture of hardboard siding.

The 1997 NU Policy was initially issued for the thirteen-month period from January 1, 1997, to January 31, 1998. This coverage period was soon identified as erroneous, however, in that National Union and ABT had agreed that the Policy would cover a thirty-seven-month period. When ABT notified National Union of the coverage period error, the 1997 NU Policy's "Endorsement #012" was issued by National Union. That Endorsement, in conformity with the earlier agreement, extended the coverage period of the 1997 NU Policy for the proper thirty-seven-month period, through January 31, 2000.

On January 14, 1998, Wausau notified ABT that it planned to cancel ABT's primary liability insurance coverage under the 1997 Wausau Policy, which was scheduled to expire seventeen days later, on January 31, 1998. In order to comply with the applicable legal requirements for its cancellation decision, Wausau was obliged to provide ninety days' notice to ABT. As a result, it issued a "stub," or extension, policy that extended the terms of the 1997 Wausau Policy for the three-month period from January 31, 1998, to May 1, 1998 (the "1998 Wausau Stub Policy"). Wausau then issued a new primary liability policy to ABT—which excluded from coverage any and all claims arising from ABT's manufacture and sale of hardboard siding—effective for the nine-month period from May 1, 1998, through January 31, 1999 (the "1998 Wausau Policy").

2.

In January 1998, National Union underwriter Paul Rovelli assumed...

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