Charter Oak Fire Co. v. Am. Capital, Ltd.

• Decision Date: 03 March 2016
• Docket Number: Civil Action No. DKC 09-0100
• Parties: THE CHARTER OAK FIRE COMPANY, et al. v. AMERICAN CAPITAL, LTD., et al.
• Court: U.S. District Court — District of Maryland

THE CHARTER OAK FIRE COMPANY, et al. v. AMERICAN CAPITAL, LTD., et al.

Civil Action No. DKC 09-0100

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

March 3, 2016

AMENDED MEMORANDUM OPINION

Presently pending and ready for review in this insurance coverage dispute are: (1) a motion for summary judgment filed by Plaintiffs Charter Oak Fire Insurance Company ("Charter Oak") and Travelers Property Casualty Company of America ("Travelers") (ECF No. 510); (2) a cross-motion for summary judgment filed by Defendants American Capital, Ltd. ("American Capital") and Scientific Protein Laboratories LLC ("SPL") (ECF No. 514); and (3) motions to seal filed by Charter Oak and Travelers (collectively, the "Plaintiffs") (ECF Nos. 524; 525; 526). The issues have been fully briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, both motions for summary judgment will be granted in part and denied in part. Plaintiffs' motions to seal will be granted.

I. Background

A. Factual Background

Numerous prior opinions contain some recitation of the facts. (See ECF Nos. 42; 64; 77; 92; 170; 184; 267; 378; 492). However, because the record is now more thoroughly developed, a recitation of facts is required. Additional facts will be discussed in the analysis section.

This insurance coverage dispute involves two insurance company Plaintiffs and an investment fund, Defendant American Capital. In August 2006, American Capital made an investment in a company called SPL Acquisition Corp. ("SPL Acquisition").¹ (ECF No. 510-1, at 15). Defendant SPL is entirely owned by SPL Acquisition. (ECF No. 510-5, at 29). Although American Capital did not own any stock in Defendant SPL, it did own a majority non-voting interest in the holding company, SPL Acquisition, which owned Defendant SPL. (ECF Nos. 514-108; 514-109; 514-110).

Beginning in 2008, American Capital and SPL (collectively, the "Defendants"), became involved in more than 100 suits pertaining to an allegedly defective drug, heparin. The heparin complaints generally alleged that SPL and/or American Capital sold contaminated heparin. (See, e.g., ECF Nos. 514-10; 514-11). The heparin was provided to SPL by Changzhou SPL Co. ("Changzhou"), a Chinese joint venture between SPL and a Chinese company that has been producing heparin since 2004. (ECF Nos. 510-1, at 11; 510-4, at 3; 510-5, at 56). Some of the complaints mentioned Changzhou, and some focused solely on American Capital and SPL. The complaints all generally assert that the contaminated heparin was distributed by SPL. (See ECF No. 514-1, at 21-23). These complaints allege injuries during the 2006, 2007, and 2008 policy periods. (Id. at 21). Between January and March 2008, Baxter Healthcare Corporation ("Baxter"), a company to which SPL sold heparin, and SPL recalled their heparin products in the United States. (ECF No. 510-4, at 7). The allegedly contaminated heparin was produced in 2006 and 2007. (Id.).

American Capital first purchased liability insurance from Plaintiffs in June 2006. It purchased a primary policy from Charter Oak each year through the 2008-2009 coverage year as well as an "umbrella policy" from Travelers each year. (ECF No. 510-1, at 12). American Capital was the named insured in each of these policies. (ECF No. 510-9; 510-10; 510-11; 510-12; 510-13; 510-14). The policies insured American Capital, its "'executive officers,' [] directors," and stockholders. (E.g., ECF No. 510-9, at 87). In addition, the primary policies covered, for a limited time period, "[a]ny organization [American Capital] newly acquire[s] or form[s], other than a partnership, joint venture or limited liability company, and over which [American Capital] maintain[s] ownership or majority interest . . . if there is no other similar insurance available to that organization." (Id. at 88). Other relevant provisions include:

• "No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured." (Id. at 89).

• "No insured will, except at that insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without [Traveler's] consent." (Id. at 90).

• An exclusion for injuries "for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement" unless liability would have existed "in the absence of the contract or agreement." (Id. at 81).

In February 2008, SPL Acquisition purchased multiple liability insurance policies from insurance companies other than Plaintiffs. (ECF No. 510-1, at 17).

On August 12, 2008, American Capital provided Travelers with notice of the underlying heparin lawsuits, but did not formally request that Travelers defend the suits. (ECF Nos. 510-1, at 19; 510-40). Travelers acknowledged receipt and opened a claim for the heparin lawsuits. (ECF No. 514-8). Travelers also attempted to obtain more information about the heparin lawsuits and a possible defense, but American Capital did not provide the requested information. (ECF Nos. 510-48; 510-49; 510-50). When American Capital ultimately responded to Travelers, it noted that it was hoping to be dismissed from the underlying suits and "prefer[ed] not to allocate resources at this time to discussing those coverage issues" raised by Travelers. (ECF No. 510-47). On November 24, 2008, following some back and forth between Travelers and American Capital, the two parties agreed that, if a request for defense was made, November 24, 2008 would be the date from which costs would be covered by Travelers. (ECF Nos. 510-1, at 22; 510-54, at 6). On December 12, 2008, Travelers sent a letter to American Capital's attorney memorializing the agreement, stating that:

Travelers, [American Capital], and SPL agree that Monday, November 24, 2008, shall be the tender date for the Heparin Lawsuits . . . if (or when) [American Capital] decides to tender such Heparin Lawsuits on its and/or SPL's behalf to Travelers for possible defense and indemnity and if Travelers agrees or it ultimately is determined that Travelers has a duty to defend any such suits. In such event, Travelers agrees that it will not assert that costs incurred on or after November 24, 2008 in defending the Heparin Lawsuits are not covered since the suits were not tendered until after November 24, 2008, and in exchange, [American Capital] and SPL agree that they will not seek reimbursement of defense costs incurred prior to November 24, 2008.

(ECF No. 510-54, at 13).

Throughout late 2008, American Capital and SPL were involved in negotiations for a Confidential Settlement and Cost-Sharing Agreement ("Agreement") with Baxter, which was finalized on December 2, 2008. (ECF No. 510-57). Travelers did not consent to the Agreement, which was provided to Travelers on December 29. (ECF No. 514-1, at 33). The Agreement functioned, in part, as a joint defense agreement specifying that Kirkland & Ellis, LLP "shall undertake to jointly represent and defend [American Capital, SPL, and Baxter] in the Heparin Litigation," and Dechert, LLP "shall undertake to jointly represent [American Capital, SPL, and Baxter] as special settlement counsel to explore and, if possible, effectuate settlements of the claims . . . in the Heparin Litigation." (ECF No. 510-57 ¶ 3.1). The Agreement also specified that costs occurring after December 2, including legal fees, "costs of settlements of claims and/or lawsuits in the Heparin Litigation" and "costs of satisfying final, non-appealable judgments for compensatory damages awarded" in the heparin lawsuits were "joint costs." (Id. ¶ 5.1(b)). The Agreement specified that Baxter was responsible for the first $20 million in joint costs and SPL was responsible for the next $15 million. (Id. ¶¶ 5.3(i)-(ii)).

On January 14, 2009, American Capital and SPL requested that Travelers provide a "coverage determination . . . apropos of [the] tender date agreement." (ECF No. 510-54, at 20). Two days later, Travelers sent a letter to American Capital denying coverage (ECF No. 514-5) and filed this suit for declaratory judgment. Travelers contends that the first time American Capital and SPL "expressly requested" that Travelers defend the heparin lawsuits was in an email on February 17, 2009. (ECF Nos. 510-1, at 25; 510-61).

B. Procedural History

Plaintiffs commenced this action by filing a complaint on January 16, 2009. (ECF No. 1). Eventually, a Second Amended Complaint was filed on March 29, 2011. (ECF No. 67). The Second Amended Complaint contains four counts: Rescission of Insurance Contracts against American Capital (Count I); Reformation due to Mutual Mistake (Count II), Reformation due to Unilateral Mistake (Count III), and Declaratory Relief concerning the duty to defend or indemnify as to all Defendants (Count IV). The Third Amended Counterclaim (ECF No. 380) contains fourteen counts: Declaratory Judgment that the unilateral rescission of policies was without legal basis as to Charter Oak regarding the 2006 primary policy (Count I), as to Travelers regarding the 2006 umbrella policy (Count II), as to Charter Oak regarding the 2007 primary policy (Count III), as to Travelers regarding the 2007 umbrella policy (Count IV), as to Charter Oak regarding the 2008 primary policy (Count V), and as to Travelers regarding the 2008 umbrella policy (Count VI), Breach of contract against Charter Oak concerning its duty to defend with regard to the 2007 primary policy (Count VII), against Travelers with regard to the 2007 umbrella policy (Count VIII), against Charter Oak as to the 2006 primary policy (Count IX), as to Travelers regarding the 2006 umbrella policy (Count X), as to Charter Oak regarding the 2008 primary policy (Count XI), and as to Travelers regarding the 2008 umbrella policy (Count XII), a Statutory tort claim for lack of good faith against both Charter Oak...