Catholic Mut. Relief Soc'y of Am. v. Arrowood Indem. Co.

• Decision Date: 10 August 2018
• Docket Number: Civil No. 17-3141 (JRT/LIB)
• Citation: Catholic Mut. Relief Soc'y of Am. v. Arrowood Indem. Co., 334 F.Supp.3d 986 (D. Minn. 2018)
• Parties: The CATHOLIC MUTUAL RELIEF SOCIETY OF AMERICA, Plaintiff, v. ARROWOOD INDEMNITY COMPANY, f/k/a Royal Indemnity Company and successor to Royal Indemnity Company, Connecticut Indemnity Company, The Fire & Casualty Insurance Company, Security Insurance Company Of Hartford, Connecticut Specialty Insurance Company, New Amsterdam Casualty Company, and Orion Capital Companies, Defendants.
• Court: U.S. District Court — District of Minnesota

334 F.Supp.3d 986

The CATHOLIC MUTUAL RELIEF SOCIETY OF AMERICA, Plaintiff,

v.ARROWOOD INDEMNITY COMPANY, f/k/a Royal Indemnity Company and successor to Royal Indemnity Company, Connecticut Indemnity Company, The Fire & Casualty Insurance Company, Security Insurance Company Of Hartford, Connecticut Specialty Insurance Company, New Amsterdam Casualty Company, and Orion Capital Companies, Defendants.

Civil No. 17-3141 (JRT/LIB)

United States District Court, D. Minnesota.

Signed August 10, 2018

Christopher L. Lynch, BARNES & THORNBURG LLP, 225 South Sixth Street, Suite 2800, Minneapolis, MN 55402, and Everett J. Cygal and Daniel J. Schufreider, SCHIFF HARDIN LLP, 233 South Wacker Drive, Suite 7100, Chicago, IL 60606, for plaintiff.

Robert D. Brownson, BROWNSON NORBY, PLLC, 225 South Sixth Street, Suite 4800, Minneapolis, MN 55402, for defendant.

MEMORANDUM OPINION AND ORDER DENYING MOTION TO DISMISS

JOHN R. TUNHEIM, Chief Judge

This action arises out of a dispute between two insurers of the same insured party.The Catholic Mutual Relief Society of America ("Catholic Mutual") brought this case for declaratory judgment against Arrowood Indemnity Company("Arrowood").Catholic Mutual issued insurance coverage certificates to the Diocese of St. Cloud ("the Diocese") and other parishes ("the Parishes") for periods during which they were also allegedly covered by policies issued by Arrowood's predecessor company.For decades, Arrowood's predecessor company acknowledged responsibility under those policies for sexual abuse claims filed against the Diocese and Parishes, despite the fact that the complete original polices could not be located.In 2011, however, Arrowood began denying claims under the same policies.

Catholic Mutual now seeks a judicial declaration that Arrowood is liable under its predecessor company's policies and therefore must defend and indemnify the Diocese against the sexual abuse claims covered by both insurers' policies.Catholic Mutual also seeks declaratory judgments regarding the terms of the policies and regarding a right of contribution from Arrowood for expenses incurred by Catholic Mutual in defending the Diocese.Arrowood seeks to dismiss this action pursuant to Federal Rule of Civil Procedure 12(b)(1).Because Catholic Mutual has alleged an actual case and controversy that is neither premature nor moot, the Court will deny Arrowood's Motion to Dismiss.

BACKGROUND

I.FACTUAL BACKGROUND

A.THE PARTIES

Plaintiff Catholic Mutual is a Nebraska non-profit corporation with its principal place of business in Nebraska.(Compl. ¶ 7, July 20, 2017, DocketNo. 1.)Catholic Mutual "operates as a self-protection fund of the Catholic Church in the United States and Canada" and "issues certificates of coverage to participating members, which provide the members with coverage for certain property and casualty risks."(Id. )

The Diocese is a Minnesota general business entity with its principal place of business in Minnesota.(Id.¶ 11).From February 1971 to February 1990, Catholic Mutual issued certificates to the Diocese that "may provide coverage ... for liability arising from acts of sexual abuse that took place during each certificate's coverage period."(Id.¶ 19.)Catholic Mutual alleges that the Diocese was also covered under occurrence-based general liability insurance protection policies issued by the Security Insurance Company of Hartford ("Security") for injuries occurring from 1964 through 1971.¹(Id.¶ 1.)From at least 1990 to 2011, Security "stood by its insured and paid claims submitted by the Diocese."(Compl. ¶¶ 3, 30.)Security no longer exists, but its obligations are now managed by Defendant Arrowood, a Delaware corporation with its principal place of business in North Carolina.(Id.¶ 8.)

Catholic Mutual alleges that Arrowood - a "run-off manager" - has aggressively managed its claims, requiring "exacting evidence of insurance coverage purchased over 50 years ago" and routinely denying claims filed against the Diocese, despite the fact that Security previously acknowledged responsibility under the same policies and agreed to pay claims under the same policies.(Id.¶¶ 5-6.)Catholic Mutual alleges that, "starting in 2011, when it became clear that there was significant potential liability relating to alleged sexual misconduct claims ... [Arrowood] abandoned [the Diocese] and asserted defenses that [Security] waived long ago."(Id.¶ 6.)

B.THE UNDERLYING CLERGY SEXUAL ABUSE CLAIMS

Since the Minnesota Child Victims Act, Minn. Stat. § 541.073, became law, 75 actions ("the Underlying Claims") have been filed against the Diocese and the Parishes.²(Id.¶¶ 13, 15.)The Underlying Claims allege sexual abuse by members of the clergy or other individuals associated with the Diocese and Parishes between 1948 and 1995 and allege that the Diocese continues to conceal important information about priests accused of abuse.(Id.¶¶ 15-16.)The Underlying Claims allege public and private nuisance, negligence, negligent supervision, and negligent retention.(Id.¶ 17.)

The Diocese and the Parishes tendered the defense of 35 of the 75 Underlying Claims to Catholic Mutual in September 2016.(Compl. ¶ 23 & Ex. 1.)At least a portion of the abuse alleged in each of the 35 claims took place during Catholic Mutual's coverage period.(SeeCompl.¶ 23& Ex. 1.)In October 2016, Catholic Mutual accepted the defense and indemnity of 34 of the 35 claims without a reservation of rights.(Compl. ¶¶ 24-25 & Exs. 2-3.)

Catholic Mutual alleges that Security "issued at least three insurance policies to the Diocese" that may cover the Underlying Claims: LGC 314009, covering 1964 to 1967;GLA 437394, covering 1967 to 1970; and GLA 606265, covering 1970 to 1973 but canceled November or December 1971.(Compl. ¶ 26.)Catholic Mutual alleges that the Diocese has been unable to locate complete copies of any of the policies, but it has located a portion of GLA 606265 and offers secondary evidence of the existence of the other two policies and their material terms and conditions.(Id.¶¶ 27-29.)

Secondary evidence of the LGC 314009 policy includes a series of letters between Security and the Diocese regarding a claim within the policy's coverage period, (id.¶¶ 32-33, 35 & Exs. 6-7), and a draft affidavit prepared based on those letters that was sent to an agent stating that he wrote a general liability insurance coverage for the Diocese, (Compl. ¶ 34 & Exs. 8-10).Security accepted the defense and indemnification of the claim without a reservation of rights.(Compl. ¶¶ 36 & Exs. 12.)Secondary evidence of the GLA 437394 policy and the GLA 606265 policy includes correspondence between Security and the Diocese indicating that Security agreed to defend various claims within the policies' coverage periods.(Compl. ¶¶ 39-41 & Exs. 17-23.)Security explicitly stated several times that it would honor coverage of claims from November 1967 to December 1971 and acknowledged certain policy limits during that time period.(Compl. ¶ 40 & Exs. 19-21.)

C. ARROWOOD'S DENIAL OF COVERAGE

On May 27, 2011, the Diocese sought indemnity contribution from Arrowood, as successor to Security, for a claim alleging abuse from 1967-1969 and in 1971.(Compl. ¶ 44 & Ex. 25.)Arrowood denied that it owed defense or indemnity to the Diocese under GLA 437394 because the Diocese could not provide an entire copy of the policy or any document that indicated the named insured, policy period, or limits of insurance.(Compl. ¶ 44, Ex. 25at 113.)Arrowood stated that it had paid out a prior claim under GLA 437394"in error" and that it was "unable to confirm the basis for which [Security] previously agreed to accept coverage for the Diocese" for the period 1967 to 1973.(Id. at 114.)Arrowood also noted that it did not have documentation of certain material terms for GLA 606265.(Id. at 115.)Arrowood appeared to be warning the Diocese that it would no longer honor the agreement the Diocese had with Security without additional documentation or evidence of the terms of the purported policies.

In 2016, the Diocese tendered 52 of the Underlying Claims to Arrowood, as they were purportedly covered by the Security policies, but Arrowood disputed that the Claims were covered.(Compl. ¶¶ 49-50.)Catholic Mutual alleges that "Arrowood abandoned the Diocese and refused to defend any of the Underlying Claims."(Id.¶ 51 & Ex. 29.)Arrowood "agreed to cover some defense costs and provide very limited indemnity to the Diocese" for 20 of the 52 claims, (Compl. ¶ 52), all of which allege abuse in the period covered by GLA 437394andGLA 606265, (id.¶ 53 & Ex. 30).Eight of these 20 claims allege abuse in the time period covered by Security's policies and Catholic Mutual's policies ("the Overlapping Claims").(Id.¶ 55.)Arrowood maintains that this agreement was a compromise and not an admission of coverage.(Compl. ¶ 51, Ex. 29at 132.)Arrowood's compromise agreement is subject to a reservation of rights and applies to the Diocese alone - not to the Parishes.(Compl. ¶ 54.)Arrowood has denied or refused to acknowledge any obligation whatsoever on the remaining claims.(Id.¶ 56.)

II.PROCEDURAL BACKGROUND

Catholic Mutual filed its Complaint on July 20, 2017.(Compl.)Its complaint presents an action for declaratory judgment pursuant to 28 U.S.C. §§ 2201and2202.(Id.¶ 58.)In Count One, Catholic Mutual "seeks a judicial determination that, under [Security's policies], Arrowood has a duty to defend and indemnify the Diocese and Parishes in connection with these twenty-eight claims subject to a $100,000 per occurrence limit and no aggregate limit."(Id.¶ 78.)Catholic Mutual also seeks judicial declarations that the policies exist and contain certain terms and conditions, as well as costs and expenses.(Id. )In Count Two, Catholic Mutual seeks "a declaration that it has a right of contribution from Arrowood for a fair share of the defense costs incurred by Catholic Mutual in providing a...