Bondex Int'l, Inc. v. Hartford Accident & Indem. Co.

• Decision Date: 28 November 2011
• Docket Number: 09–3307.,Nos. 08–4735,09–3091,09–3304,09–3092,s. 08–4735
• Citation: 667 F.3d 669
• Parties: BONDEX INTERNATIONAL, INC.; RPM, Inc.; and Republic Powdered Metals, Inc. (08–4735), Plaintiffs–Appellants/Cross–Appellees, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, et al., Defendant,andAllstate Insurance Company (09–3091); Mt. McKinley Insurance Company (09–3092); Century Indemnity Company (09–3304); Continental Casualty Company; Columbia Casualty Company (09–3307), Defendants–Appellees/Cross–Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

667 F.3d 669

BONDEX INTERNATIONAL, INC.; RPM, Inc.; and Republic Powdered Metals, Inc. (08–4735), Plaintiffs–Appellants/Cross–Appellees,

v.HARTFORD ACCIDENT AND INDEMNITY COMPANY, et al., Defendant,andAllstate Insurance Company (09–3091); Mt. McKinley Insurance Company (09–3092); Century Indemnity Company (09–3304); Continental Casualty Company; Columbia Casualty Company (09–3307), Defendants–Appellees/Cross–Appellants.

Nos. 08–4735

09–3091

09–3092

09–3304

09–3307.

United States Court of Appeals, Sixth Circuit.

Argued: Oct. 12, 2011.Decided and Filed: Nov. 28, 2011.*

ARGUED: Dennis R. Lansdowne, Spangenberg Shibley & Liber LLP, Cleveland, Ohio, for Plaintiffs. Daniel F. Gourash, Seeley, Savidge, Ebert & Gourash Co., L.P.A., Cleveland, Ohio, Patricia B. Santelle, White and Williams LLP, Philadelphia, Pennsylvania, Andrew T. Frankel, Simpson Thacher & Bartlett LLP, New York, New York, for Defendants. ON BRIEF: Dennis R. Lansdowne, Shelly K. Hillyer, Spangenberg Shibley & Liber LLP, Michael E. Brittain, Jeffrey J. Lauderdale, Calfee, Halter & Griswold LLP, Cleveland, Ohio, John B. Nalbandian, Taft, Stettinius & Hollister LLP, Cincinnati, Ohio, for Plaintiffs. Daniel F. Gourash, Robert D. Anderle, Seeley, Savidge, Ebert & Gourash, Co., L.P.A., Cleveland, Ohio, Patricia B. Santelle, Michael. E. DiFebbo, Shane R. Heskin, White and Williams LLP, Philadelphia, Pennsylvania, Andrew T. Frankel, Simpson Thacher & Bartlett LLP, New York, New York, Robert F. Cossolini, Jeremiah L. O'Leary, Finazzo, Cossolini, O'Leary, Meola & Hager LLC, Morristown, New Jersey, David M. Rice, Carroll, Burdick & McDonough LLP, San Francisco, California, Clifford C. Masch, Holly M. Wilson, Reminger & Reminger Co., LPA, Cleveland, Ohio, Howard J. Fishman, Aronberg Goldgehn Davis & Garmisa, Chicago, Illinois, Brian T. Winchester, McNeal, Schick, Archibald & Biro Co., LPA, Cleveland, Ohio, Michael J. Baughman, Cohn, Baughman & Martin, Chicago, Illinois, David J. Fagnilli, Davis & Young, Cleveland, Ohio, Andrew T. Hayes, Steven R. Hobson, Leiby, Hanna & Rasnick, Akron, Ohio, Michael E. Smith, Frantz Ward LLP, Cleveland, Ohio, Andrew M. Wargo, Bonezzi Switzer Murphy Polito & Hupp Co. L.P.A., Cleveland, Ohio, for Defendants. Michael J. Hendershot, Richard D. Schuster, Vorys, Sater, Seymour and Pease LLP, Columbus, Ohio, for Amicus Curiae.Before: DAUGHTREY, COOK, and KETHLEDGE, Circuit Judges.

OPINION

COOK, Circuit Judge.

Plaintiffs–Appellants RPM, Inc. (“RPM”) and its two subsidiaries, Bondex International, Inc. (“Bondex”) and Republic Powdered Metals, Inc. (“New Republic”), seek coverage from multiple insurance companies, Appellees, for Appellants' settlement and defense costs related to thousands of asbestos-exposure products-liability lawsuits that began in 1981. Many of the underlying asbestos claims allegedly arise from consumers' exposure to products manufactured by The Reardon Company (“Old Reardon”), a corporation that sold its assets and liabilities to RPM (then known as Republic Powdered Metals, Inc.), dissolved, and became a division of RPM's business in 1966. The relevant policies, issued in Ohio for policy periods spanning from 1973–1985, ¹ did not expressly identify Old Reardon or its later incarnation as “Named Insureds.” Nevertheless, the insurance companies do not dispute that the policies provide coverage for asbestos claims related to the Reardon products (the “Reardon claims”), and each has paid Appellants pursuant to the applicable policies' aggregate limits for “Products Hazard” claims. Collectively, the insurance companies have paid more than $100 million in coverage under the relevant policies. Appellants now seek more than $125 million in additional coverage under the relevant policies, as well as several million dollars in continuing defense costs from Mt. McKinley Insurance Company, arguing that the policies' “Products Hazard” caps do not apply to the Reardon claims.

The district court rejected Appellants' coverage theories and granted summary judgment to the insurance companies, reasoning that the de facto merger doctrine warranted extending the policies' Products Hazard caps to Old Reardon, as RPM's absorbed predecessor. As a result of this ruling, the district court dismissed many of the insurance companies' contingent counterclaims and third-party claims as moot and dismissed certain counterclaims for failure to meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b).

Although we do not adhere to the district court's de facto merger analysis, we affirm because the policy language and the parties' course of dealing support the district court's judgment.

I.

Old Reardon, a company founded in 1883 and incorporated in Missouri in 1914, manufactured and sold paint and drywall products later discovered to contain asbestos. In March 1966, Republic Powdered Metals, Inc. (“Old Republic”) entered into a purchase and assumption agreement (“1966 purchase agreement”) whereby it purchased Old Reardon's assets for cash and assumed liability for claims arising from Old Reardon's products. At the same time as the purchase agreement, Old Reardon's shareholders approved a dissolution and liquidation plan. In short order, Old Reardon changed its name to Nodraer (“Reardon” spelled backwards) Liquidating Company, dissolved, and liquidated its assets by the end of the year. Despite the dissolution and liquidation of Old Reardon, Old Republic continued Old Reardon's business as an internal division called the Reardon Division. The Reardon Division continued to operate Old Reardon's manufacturing plants with many of the same Old Reardon employees, brand names, and product formulas. Naturally, the new products had the same latent asbestos problems. Old Republic blurred the distinction between it and Old Reardon by adopting Old Reardon's founding and incorporation dates as its own and advertising its products with Old Reardon's trade names, “Bondex” and “The Reardon Company.”

In November 1971, Old Republic changed its name to RPM, Inc., and created two wholly owned subsidiaries called Bondex International, Inc. (“Bondex”) and Republic Powdered Metals, Inc. (“New Republic”). The following May, RPM transferred the assets and liabilities of the Reardon Division to Bondex and transferred the assets and liabilities of Old Republic to New Republic, but the asset transfers did not significantly affect RPM's business or product lines.

Beginning in 1981 and continuing through the 2000s, numerous consumers filed suit against Appellants claiming asbestos-related injuries caused by exposure to products manufactured by The Reardon Company, RPM, Bondex, or Republic (collectively “Republic/RPM”). By 2006, more than 32,000 plaintiffs had filed asbestos claims, many of which targeted goods manufactured and sold by Old Reardon (pre–1967) or the Reardon Division of RPM (post–1966). Republic/RPM had insured itself and its subsidiaries against such risks under general coverage liability insurance policies issued by Defendants–Appellees Allstate, Century, Continental, Columbia, and Mt. McKinley, or their predecessors. Some of these insurers provided primary insurance, and others provided excess insurance that kicked in if Appellants exhausted a primary or subordinate insurance policy. Although the relevant policies varied with regard to some terms, they all provided defense or indemnity coverage to the policies' “Named Insured” or “Insured.” The policies also contained Products Hazard caps, which set aggregate limits on the amount of coverage available to insureds for product-liability claims during the applicable policy period. In the absence of the Products Hazard cap or another limitation on coverage, the policies provided for general coverage liability (i.e., unlimited coverage).

The policies define the relevant terms as follows:

* NAMED INSURED: “Named Insured” means the organization named in the declaration of this policy and includes: (1) any subsidiary company (including subsidiaries thereof) and any other company under their control and active management at the inception date of this policy; (2) new organizations acquired by the Named Insured during the policy period, through consolidation, merger, purchase of the assets of, or assumption of control and active management; provided such acquisition or assumption is reported to INA within sixty days after it is effected and provided further such acquisition is endorsed on this policy.

* NAMED INSURED'S PRODUCTS: “Named Insured's products” means goods or products manufactured, sold, handled or distributed by the Named Insured or by others trading under his name, including any container thereof (other than a vehicle)....

* PRODUCTS HAZARD: “products hazard” includes personal injury and property damage arising out of the Named Insured's products or reliance upon a representation or warranty made at any time with respect thereto, but only if the personal injury or property damage occurs away from premises owned by or rented to the Named Insured after physical possession of such products has been relinquished to others.

As the asbestos claims poured in throughout the 1980s and 1990s, Appellants negotiated settlements between the asbestos plaintiffs and their insurance companies. When all necessary parties agreed to settlement terms, Appellants submitted approved settlements to the insurers, the insurers disbursed settlement checks to Appellants' attorneys up to the limits of the relevant insurance policies, and Appellants' attorneys disbursed settlement funds to the underlying plaintiffs. When a primary or subordinate insurance company reported to Appellants that they had exhausted their Products Hazard coverage for a particular policy period, Appellants would seek coverage from the next level of excess insurance. Occasionally, Appellants disputed coverage allocation with their primary insurers, but these disputes did not concern whether the Products Hazard caps applied...