Century Indem. Co. v. Liberty Mut. Ins. Co., C.A. No. 09–285 S.

CourtUnited States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Rhode Island
Writing for the CourtWILLIAM E. SMITH
Citation815 F.Supp.2d 508
Decision Date06 September 2011
Docket NumberC.A. No. 09–285 S.
PartiesCENTURY INDEMNITY COMPANY, Plaintiff, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant.

815 F.Supp.2d 508

CENTURY INDEMNITY COMPANY, Plaintiff,
v.
LIBERTY MUTUAL INSURANCE COMPANY, Defendant.

C.A. No. 09–285 S.

United States District Court, D. Rhode Island.

Sept. 6, 2011.


[815 F.Supp.2d 509]

James T. McCormick, McKenna & McCormick, Providence, RI, John L. Altieri, Jr., Boutin & Altieri PLLC, Fairfield, CT, Lawrence A. Nathanson, Mt. Laurel, NJ, for Plaintiff.

Ralph T. Lepore, III, Benjamin M. McGovern, Michael T. Maroney, Christopher J. McCarty, Holland & Knight LLP, Boston, MA, for Defendant.

OPINION AND ORDER
WILLIAM E. SMITH, District Judge.

This dispute marks one more chapter in the long running—and constantly evolving—battle over the clean-up of the Centerdale Manor Superfund Site (the “Site”) in North Providence, Rhode Island. This chapter involves a kind of spillover fight among two insurers who were previously allied in the defense of an action brought by Emhart Industries, Inc. (“Emhart”), the company responsible for the clean-up.

[815 F.Supp.2d 510]

The two parted ways when one Liberty Mutual Insurance Company (“Liberty Mutual”) settled for a relative pittance while the other Century Indemnity Company (“Century”) marched into battle, winning a somewhat pyrrhic victory at great expense. Century now wants Liberty Mutual to help pay the lion's share of its substantial debt for Emhart's cost of defense. While the questions raised are difficult and close, Century's tactical gambit has paid off for the reasons set forth below.

I. Background

After being ordered by the Environmental Protection Agency (“EPA”) to take remedial actions to repair damage to the Site in North Providence, Rhode Island, Emhart 1 filed a lawsuit in this Court asserting, inter alia, that its insurers, Liberty Mutual and Century, were obligated under their respective policies to defend and indemnify Emhart against any claims, administrative proceedings, and/or lawsuits arising from the release of hazardous substances at the Site. Liberty Mutual settled all claims with Emhart for $250,000. Century went to trial, after which this Court sustained the jury's finding that Century did not owe Emhart a duty to indemnify but held that Century did owe Emhart a duty to defend. See generally Emhart Indus., Inc. v. Home Ins. Co., 515 F.Supp.2d 228 (D.R.I.2007), aff'd, Emhart Indus., Inc. v. Century Indem. Co., 559 F.3d 57 (1st Cir.2009). After the judgment of this Court was affirmed on appeal, Century promptly paid Emhart $6,067,290.11 in full satisfaction.

On June 29, 2009, Century brought the present action seeking equitable contribution from Liberty Mutual for the payment of Emhart's defense costs. Liberty Mutual counterclaimed seeking a declaration that it (1) had no duty to defend Emhart and (2) has no obligation to contribute equitably to Emhart's defense, or, in the alternative, that any such obligation was satisfied through its settlement with Emhart. On April 27, 2010, this Court held that Liberty Mutual owed Emhart a duty to defend, but granted Liberty Mutual a limited period to conduct discovery on “(i) what, if any, settlement offers Emhart made to Century in connection with the claims at issue in the Emhart lawsuit, and how Century responded; and (ii) whether any other insurers owed Emhart a duty to defend the EPA action.”

[815 F.Supp.2d 511]

Century Indem. Co. v. Liberty Mut. Ins. Co., 708 F.Supp.2d 202, 215 (D.R.I.2010).

Discovery has now closed. In a new round of submissions on Century's motion for summary judgment (ECF No. 7) and Liberty Mutual's cross-motion for summary judgment (ECF No. 34), the parties no longer contest the two issues on which this Court had ordered additional discovery. Liberty Mutual does not argue that Century failed to mitigate its damages by rejecting reasonable settlement offers from Emhart or that other insurers may have owed Emhart a duty to defend. Rather, the dispute has now shifted to the amount of equitable contribution Liberty Mutual owes to Century. This question implicates two difficult and important issues regarding risk allocation among insurers, particularly in large-scale environmental claims like this one: first, the effect of Liberty Mutual's settlement with Emhart on the amount of equitable contribution it owes Century; 2 and, second, the proper method for allocating defense costs between Liberty Mutual and Century.3

II. Discussion

A. The Settlement between Liberty Mutual and Emhart

Liberty Mutual argues that its duty to defend Emhart terminated as of their March 24, 2005 settlement and that the Court should not require it to contribute to Emhart's defense costs after that date. Century disputes this claim on several grounds.

First, Century claims that the Court has already rejected Liberty Mutual's settlement argument, pointing to the following excerpts from the Court's April 27, 2010 Opinion and Order:

[T]he parties agree that Liberty Mutual's settlement with Emhart is not relevant to the scope of its duty to defend the company.

....

In terms of timing, the duty to defend takes effect when a complaint “reasonably susceptible” to coverage is filed, and continues until the insurer obtains a judgment that there is no coverage. In this case, those dates begin when the EPA issued its charges (starting in February 2000), and end when the jury delivered its verdict in the Emhart trial (October 19, 2006).

Century Indem., 708 F.Supp.2d at 207–08 (citation omitted). These excerpts are taken out of context, however, and surely were not intended to foreclose Liberty Mutual's settlement argument. The first excerpt is contained in a discussion of the settlement with regard to its effect on whether Liberty Mutual had a duty to defend Emhart, and the second is merely a description of the possible temporal range of that duty. In holding that Liberty Mutual had a duty to defend Emhart, notwithstanding its settlement, the Court did not attempt to define the nature of any equitable

[815 F.Supp.2d 512]

burden flowing to Century from that duty. That issue was expressly reserved for the present decision. See Id. at 215 (“[The Court] further GRANTS Liberty Mutual's motion for a continuance to conduct the discovery described above before ruling on the issue of equitable contribution.”).

On the merits, Liberty Mutual asserts that, because the right to equitable contribution exists to prevent coinsurers from paying more than their “fair share of a common burden,” its “common burden” existed only during the period that both it and Century shared a duty to defend Emhart (i.e., prior to settlement). Thomas, 751 A.2d at 734. To hold otherwise, it posits, would frustrate the public policy in favor of settlements by penalizing insurers who settle early rather than refusing to defend. See Skaling v. Aetna Ins. Co., 799 A.2d 997, 1012 (R.I.2002) (“It is the policy of this state to encourage the settlement of controversies in lieu of litigation.”).

Century points to several cases holding that an insurer's settlement with the insured does not extinguish the right of other coinsurers to obtain equitable contribution from the settling insurer. See, e.g., Maryland Cas. Co. v. W.R. Grace & Co., 218 F.3d 204, 211 (2d Cir.2000) (“[T]he contract of settlement an insurer enters into with the insured cannot affect the rights of another insurer who is not a party to it. Instead, whatever obligations or rights to contribution may exist between two or more insurers of the same event flow from equitable principles.”); Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 139 (Utah 1997) (“[A]n insurer who is on notice that another insurer has been paying significant defense costs should not be allowed to settle for a minimal sum to avoid having to contribute its fair share.”). Further, Century also analogizes this case to claims under the Rhode Island Joint Tortfeasor Act, which provides that a settling joint tortfeasor is not protected from contribution claims absent a release from the injured plaintiff. See R.I. Gen. Laws § 10–6–8.

The few courts and commentators to have pondered the issue have roundly rejected Liberty Mutual's proposed bright line rule that “one insurer's settlement with the insured is [always] a bar to a separate action against that insurer by the other insurer or insurers for equitable contribution or indemnity.” Clarendon Am. Ins. Co. v. Mt. Hawley Ins. Co., 588 F.Supp.2d 1101, 1106 (C.D.Cal.2008) (quoting Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal.App.4th 1279, 1289, 77 Cal.Rptr.2d 296 (Cal.Ct.App.1998)); see also Maryland Cas., 218 F.3d at 211; Certain Underwriters at Lloyd's London v. Mass. Bonding & Ins. Co., 235 Or.App. 99, 113, 230 P.3d 103 (Or.Ct.App.2010); Emp'rs Ins. Co. of Wausau v. Travelers Indem. Co., 141 Cal.App.4th 398, 405–06, 46 Cal.Rptr.3d 1 (Cal.Ct.App.2006); 15 L.R. Russ & T.F. Segalla, Couch on Insurance, § 218.29 (3d ed. 2005). By the same token, however, there is no prevailing bright line rule to the contrary—that a settlement should have no effect at all on Century's potential equitable entitlement to contribution from Liberty Mutual. Most courts, in determining the effect of such settlements, have proceeded with a view toward upholding equity and preventing unjust enrichment. See Maryland Cas., 218 F.3d at 210–12 (holding that the relevant considerations under “an equitable analysis [are] whether one party is unjustly enriched at the expense of another” and “whether the settlement of the suit was reasonable or equitable, not simply whether there was a settlement”); accord Emp'rs Ins. Co. of Wausau, 141 Cal.App.4th at 405–06, 46 Cal.Rptr.3d 1; cf. Thomas, 751 A.2d at 734 (“The doctrine of equitable contribution is applied to prevent

[815 F.Supp.2d 513]

one of two or more guarantors from being obliged to pay more than his or her fair share of a common burden, or to prevent one guarantor from being unjustly enriched at the expense of another.”).

Courts have also rejected Liberty Mutual's contention that a finding against it would categorically undermine...

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    ...1.See, e.g., Emhart Indus., Inc. v. Century Indem. Co., 559 F.3d 57 (1st Cir.2009); Century Indem. Co. v. Liberty Mut. Ins. Co., 815 F.Supp.2d 508 (D.R.I.2011); Century Indem. Co. v. Liberty Mut. Ins. Co., 708 F.Supp.2d 202 (D.R.I.2010). 2. In its brief, appellee PWIC remarks in passing tha......
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17 cases
  • Alticor, Inc. v. Nat'l Union Fire Ins. Co. of Pa., No. 1:07–cv–1079.
    • United States
    • United States District Courts. 6th Circuit. United States District Court (Western District Michigan)
    • January 4, 2013
    ...insurers liable in part for occurrences outside the period covered by their policies.”); Century Indem. Co. v. Liberty Mut. Ins. Co., 815 F.Supp.2d 508, 516 (D.R.I.2011) (“The other insurance clauses function to prevent double recovery where two or more insurers concurrently cover the same ......
  • In re Viking Pump, Inc.
    • United States
    • New York Court of Appeals
    • May 3, 2016
    ...jurisdictions (see Ohio Cas. Ins. Co. v. Unigard Ins. Co., 268 P.3d 180, 184 [Utah 2012] ; Century Indem. Co. v. Liberty Mut. Ins. Co., 815 F.Supp.2d 508, 516 [D.R.I.2011] ; Westport Ins. Corp., 327 Wis.2d at 168–169, 787 N.W.2d at 919 ; Boston Gas Co., 454 Mass. at 361, 910 N.E.2d at 308 [......
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    ...jurisdictions (see Ohio Cas. Ins. Co. v. Unigard Ins. Co., 268 P.3d 180, 184 [Utah 2012] ; Century Indem. Co. v. Liberty Mut. Ins. Co., 815 F.Supp.2d 508, 516 [D.R.I.2011] ; Westport Ins. Corp., 327 Wis.2d at 168–169, 787 N.W.2d at 919 ; Boston Gas Co., 454 Mass. at 361, 910 N.E.2d at 308 [......
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