American Guarantee & Liability Ins. Co. v. United States Fid. & Guar. Co.

• Decision Date: 10 February 2012
• Docket Number: No. 10–2275.,10–2275.
• Citation: 668 F.3d 991
• Parties: AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, Appellant, v. UNITED STATES FIDELITY & GUARANTY COMPANY; TIG Insurance Company, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

668 F.3d 991

AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, Appellant,

v.UNITED STATES FIDELITY & GUARANTY COMPANY; TIG Insurance Company, Appellees.

No. 10–2275.

United States Court of Appeals, Eighth Circuit.

Submitted: April 14, 2011.Filed: Feb. 10, 2012.

Thomas Michael Ward, argued, Gerald P. Greiman, Erik O. Solverud, Teresa Michelle Young, Anne M. Linder, on the brief, St. Louis, MO, for appellant.

Peter G. Thompson, argued, Washington, DC, Gerald T. Carmody, David H. Luce, St. Louis, MO, Peter G. Thompson, Thomas J. Judge, Washington, DC, and Jack T. Friedman, Walnut Creek, CA, on the brief, for appellee.

Before BYE, COLLOTON, and GRUENDER, Circuit Judges.

BYE, Circuit Judge.

This is a dispute between an excess and primary insurer, both of whom insured a trucking company whose tractor trailer was involved in a fatal traffic accident. Parties injured in the accident sued the trucking company and obtained a jury verdict which exposed the excess carrier to a seventeen million dollar liability. The excess carrier, American Guarantee and Liability Insurance Company (hereinafter Zurich), sued the primary carrier, United States Fidelity & Guaranty Company (USF & G), alleging bad faith in failing to settle the underlying claim within the policy limits. Just a few months before Zurich's suit, USF & G had itself filed a declaratory judgment action asking the court to declare it owed no obligation to Zurich. After the two suits were consolidated, the district court ¹ granted USF & G's motion for summary judgment. Zurich appeals. We affirm.

I

On May 18, 2002, heavy fog stopped traffic in the westbound lane of Interstate 44 near Joplin, Missouri, resulting in an eleven-vehicle pileup. One of the vehicles involved in the pileup was occupied by Jose Silva and his wife, Ana. The Silva vehicle rear-ended a semi tractor trailer before being hit from behind by another vehicle. Several other vehicles, including a semi tractor trailer operated by Consolidated Freightways, Inc. (CF), then crashed into the disabled vehicles and caused a severe fire. Ana Silva burned to death inside her car. Jose Silva suffered second- and third-degree burns over ninety percent of his body. He was found in the median after crawling out of his car. He survived thirty-seven days before dying. Ana and Jose's parents brought wrongful death suits in the Circuit Court of St. Louis City against CF and others for the injuries resulting from the accident.

USF & G insured CF under a primary policy with limits of five million dollars. The USF & G policy was a fronting policy.² In addition to USF & G's policy, CF carried two levels of excess insurance. The first layer of excess insurance was a policy from a CF affiliate with three million dollars in coverage. The second layer of excess insurance was a policy issued by Zurich with fifty million dollars in coverage.

In September 2002, CF filed for bankruptcy for reasons unrelated to the Silva lawsuits. The automatic stay was lifted as to the Silva lawsuits on the condition any recovery from CF would be limited to available insurance coverage. CF later dissolved in December 2004. Prior to CF's dissolution, the bankruptcy court approved the transfer of CF's remaining assets to the CF Trust. The CF Trust was directed to “take such actions that are necessary or useful to maximize the value of the Trust,” “[m]anage and protect the Trust property;” and “[s]ettle, compromise or adjust ... any Claims, disputes or controversies in favor of or against the Trust.”

In April 2004, a global mediation was held in the Silva lawsuits. CF participated in the mediation through TIG Insurance Company (TIG), a California claims handling corporation which handled all CF claims on behalf of USF & G. The mediation resulted in all defendants settling except for CF and one other defendant for a total of $3.165 million. During the mediation, the Silva plaintiffs demanded five million dollars from CF alone for its part in the accident. CF countered with a $250,000 offer. The Silva plaintiffs rejected CF's offer. In late 2005, the Silva plaintiffs and the CF Trust (through TIG) had additional settlement discussions. The discussions were unsuccessful with the Silva plaintiffs still demanding five million dollars and the CF Trust “willing to discuss a settlement ... at a lower settlement figure.”

In January 2006, the only other remaining non-settling defendant, Estes, settled with the Silva plaintiffs for $1.898 million. This brought the total settlement amounts the Silva plaintiffs had received from defendants other than CF to nearly $5.1 million. This meant the Silva plaintiffs would have to recover a verdict exceeding $5.1 million to recover anything from the CF Trust, a verdict exceeding $10.1 million to exhaust the USF & G fronting policy, and a verdict exceeding $13.1 million to recover anything from Zurich (because the first layer of excess insurance was three million dollars through the CF affiliate). None of the insurers, claims managers, or defense attorneys involved in the Silva lawsuits estimated CF's exposure to be more than $13.1 million, and all believed the risk of a jury finding CF responsible for more than $13.1 million was very low to nonexistent.

Zurich was first notified of the Silva lawsuits in January 2006. Like the other claims managers involved in the Silva lawsuits, Zurich's claim handler did not believe the value of the remaining CF claim, when accounting for setoffs for the prior settlements, would expose Zurich to liability. Nevertheless, Zurich asked TIG to settle the remaining CF claim within USF & G's policy limits of five million dollars. But with $5.1 million in settlement proceeds from the other defendants, the Silva plaintiffs had little to risk by going to trial against CF.

Jury selection in the Silva lawsuits began in February 2006. TIG made one more attempt to settle on behalf of the CF Trust by offering $500,000. The Silva plaintiffs countered by demanding $4.75 million. Still believing the $4.75 million demand was more than CF's realistic exposure given its role in the accident, TIG and the CF Trust did not settle. Nor did the CF Trust ever ask TIG to settle within USF & G's policy limits. After the Silva trial began, TIG made one more attempt to settle by offering a “high-low” settlement offer. TIG guaranteed a low of $250,000 to the Silva plaintiffs even if there was a defense verdict, and a high of two million dollars in the event the Silva plaintiffs received a verdict from the jury in excess of two million dollars. The Silva plaintiffs rejected the “high-low” offer and reiterated their demand of $4.75 million.

At the conclusion of the Silva trial, the Silva plaintiffs asked the jury for an award of fifty million dollars. The jury returned verdicts totaling $46.06 million. With subsequent reductions by the trial court, adjustments for set-offs, and a further reduction negotiated by Zurich, the Silva plaintiffs eventually accepted a settlement of twenty-two million dollars. Of that amount, five million dollars was paid by the USF & G under its policy, and Zurich ultimately faced an exposure of seventeen million dollars.

In April 2006, USF & G filed a declaratory judgment action against Zurich in federal district court in Missouri. USF & G claimed its payment of five million dollars terminated all of its obligations with respect to the Silva lawsuits. In August 2006, Zurich filed an action against USF & G and its claim manager, TIG, in federal district court in the state of Washington alleging USF & G failed to settle the Silva plaintiffs' underlying wrongful death suits in bad faith. Zurich sought seventeen million dollars in damages from USF & G. Zurich (a New York corporation with its principal place of business in Illinois) chose Washington as the state to file its bad faith claim against USF & G (at the time a Maryland corporation with its principal place of business in Minnesota) and TIG (a California corporation with its principal place of business in Texas) because CF had operated its nationwide trucking company out of Washington before its dissolution in December 2004.

USF & G brought a motion to dismiss Zurich's suit in Washington, or in the alternative, a motion to transfer the Washington suit to Missouri where USF & G had first filed its declaratory judgment action. Under the “first to file” rule, the Washington court agreed the dispute between the two insurance companies should be litigated in Missouri, concluding Zurich had not “demonstrated a stronger connection with Washington than Missouri.” Am. Guarantee & Liab. Ins. Co. v. U.S. Fid. & Guar. Co., No. CO6–1254, 2006 WL 3499342 at *3 (W.D.Wash. Dec. 4, 2006). The Washington court transferred Zurich's action to Missouri, where it was consolidated with USF & G's pending declaratory judgment action.

In the consolidated action, USF & G and TIG moved for summary judgment with respect to Zurich's bad faith failure-to-settle claim. The district court made a preliminary determination about whether the summary judgment motion would be evaluated under Washington law as requested by Zurich, or under Missouri law as requested by USF & G. The district court determined the dispute between the two insurers had more contacts with the state of Missouri than with the state of Washington, for the following reasons: (1) any injuries arising from the bad faith failure-to-settle claim did not occur in Washington because CF was dissolved in December 2004 and no longer existed when the Missouri jury rendered a verdict in favor of the Silvas in early 2006; (2) the conduct causing the injury occurred in Missouri where most of the settlement negotiations took place or should have taken place; (3) neither Zurich nor USF & G were incorporated in either Washington or Missouri; and (4) Missouri was the place where the relationship between the two insurers was centered because Missouri was where the underlying Silva litigation...