Chatz v. Cont'l Cas. Co. (In re CFB Liquidating Corp.)
| Decision Date | 21 November 2016 |
| Docket Number | Adversary No. 15–4136,Case No. 01–45483 rle Jointly Administered |
| Citation | 561 B.R. 500 |
| Parties | In re CFB Liquidating Corporation, f/k/a Chicago Fire Brick Co., an Illinois Corporation, et al., Debtors. Barry A. Chatz, as Trustee for the CFB/WFB Liquidating Trust, Plaintiff, v. Continental Casualty Company, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of California |
Peter C. Califano, Cooper, White and Cooper, San Francisco, CA, Joseph D. Frank, Law Offices of Frank and Gecker, Chicago, IL, for Plaintiff.
Raymond J. Tittmann, Robert Whitney, Edison, McDowell & Hetherington LLP, Oakland, CA, for Defendant.
On March 9, 2016, Barry Chatz, as trustee for the CFB/WFB Liquidating Trust (the "Trustee" and the "Trust"), filed his First Amended Complaint against Continental Casualty Company ("Continental"). The First Amended Complaint seeks damages for breach of contract and declaratory relief regarding the interpretation of the Joint Chapter 11 Plan of debtors CFB Liquidating Corporation and WFB Liquidating Corporation (the "Plan" and "Debtors"). Continental filed its Answer and a Counterclaim in which Continental also seeks declaratory relief regarding the interpretation of the Plan.1
On May 31, 2016, Continental filed its motion for partial summary judgment on its Counterclaim (the "Summary Judgment Motion"). The Summary Judgment Motion has been fully briefed. For the reasons explained here, the Summary Judgment Motion is denied because Continental's interpretation of the relevant sections of the Plan is incorrect.
Debtors manufactured and distributed refractory products some of which contained asbestos. As of the October 2001 petition date, Debtors were defendants in numerous personal injury and wrongful death lawsuits in which over 22,000 individuals asserted asbestos personal injury claims against Debtors and their affiliates. Main Case Docket no. 422, p. 7 (June 1, 2012 Disclosure Statement).
Debtors had purchased third party liability insurance policies from a number of insurers. When they filed their chapter 11 cases, Debtors had not yet exhausted their primary and excess insurance policies with coverage periods between November 25, 1959 and January 1, 1987 and these insurance policies were the main assets of the estate. Disclosure Statement, p. 8–9.
During the case, Debtors negotiated "buyback" settlements with three of their primary insurance carriers (Hartford Accident and Indemnity Company, Bituminous Casualty Corporation, and ACE Insurance Company) (the Settlements, Settlement Agreements, and the Settling Insurers). The Debtors obtained approximately $11.5 million from these three Settlements. Debtors did not reach a "buyback" settlement with Continental, their only other primary insurance carrier.2 Disclosure Statement, p. 9–10.
Debtors' Plan was filed in June 2012 and confirmed in September 2012. Main Case Docket no. 421 (the Plan), Docket no. 460 (Confirmation Order). Sections 9.1–9.3 of the Plan incorporated the Settlements. Section 8.1 of the Plan described the liquidating trust to which the Settlement proceeds were transferred and through which allowed asbestos personal injury claims, designated as Class 3 and Class 4 (the "Claims"), were to be paid in accordance with the trust distribution procedures (the "Trust Distribution Procedures") which were also incorporated into the Plan.
Pursuant to the Settlements, Debtors sold their policies to the Settling Insurers free and clear of any liens, claims, interests, and encumbrances under Bankruptcy Code § 363, with any such liens, claims, interests, and encumbrances attaching to the Settlement proceeds with the same priority and validity as they held previously. In exchange, the Settling Insurers were granted certain injunctive relief and releases. Plan, § 7.3, § 7.7, § 9. Each of the Settling Insurers paid in an amount that exceeded its policy limits which were then "preserved for the exclusive benefit" of the holders of asbestos personal injury claims. Plan § 9.1–9.3. Each Settlement Agreement provides, inter alia , that the payment that the Settling Insurer made is the total it is obligated to pay on account of any and all claims relating to its policies, and that all "limits of liability are deemed fully and properly exhausted." Disclosure Statement, Ex. B, C, D.
The Plan also incorporated agreed upon treatment of Continental's insurance obligations. Section 8.3 is entitled "Handling of Claims for which Continental May Have Financial Responsibility." This section is the focus of the dispute in this Summary Judgment Motion and will be discussed in detail below. In short, it (1) provides that the Trust will give Continental a proposal for the payment of the liquidated value of the Claims the Trust contends Continental is responsible for (the "Proposals"); (2) provides a structure and deadlines for Continental to accept or reject any such Proposals; and (3) sets out the consequences that flow from Continental's response to a Proposal. Plan, § 8.3.
Section 16.19 of the Plan is entitled "Insurance Neutrality." It provides, in brief, that nothing in the Plan, the Trust Distribution Procedures, or any Settlement Agreement shall impair an insurer's rights, Debtors' rights, and/or the Trust's rights against the Settling Insurers except to the extent impaired or limited in a Settlement Agreement and/or as expressly provided in § 7.3 of the Plan. Plan, § 16.19.3
Continental sold Debtors three primary-level comprehensive general liability insurance policies which covered asbestos personal injuries occurring from January 1, 1985 to January 1, 1988. Each policy provided $1 million in coverage. Approximately $2.56 million in coverage under these three policies remained available for payment of the Claims when the Plan was confirmed. AP Docket no. 19, ¶ 5.
The Trust attached copies of three Continental policies to the first amended complaint. AP Docket no. 15, Ex. A–C. These copies of the policies were missing pages, included duplicate pages, and were, in part, illegible. The court requested complete legible, copies. On September 23, 2016, the parties filed a joint stipulation which attached revised versions of the three policies to be substituted for the original exhibits. AP Docket no. 40, Ex. 1–3. The stipulation states that the parties believe that "certain pages of the insuring agreements of the policies may be missing." The court notes that there are, in fact, missing pages but whether the missing pages are only the referenced pages of the "insuring agreements" is unknown.4
With respect to bodily injury liability, the record versions of the 1985 and 1986 policies state: "The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury ... to which this insurance applies, caused by an occurrence..." AP Docket no. 40, Ex. 1, Ex. 2. The record version of the 1987 policy does not include this language as it consists of seven almost completely illegible pages. AP Docket no. 40, Ex. 3.
The record version of the 1986 policy includes a page defining bodily injury as "bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom." AP Docket no. 40, Ex. 2, p. 18.5 The record versions of the 1985 and 1987 policies do not include pages with this language. The record version of the 1986 policy includes a page with an "other insurance" provision which the record versions of the 1985 and 1987 policies lack. Nevertheless, Continental claims this provision is in all its policies. AP Docket no. 27, p. 23.
As a result of the Settlements, plus the payment from Debtors' insolvent insurer Home Insurance Company, and the settlement with its excess insurer Safety National, the Trust initially had approximately $16 million to pay Claims according to the Plan and the Trust Distribution Procedures (the "Insurance Fund").
The Trust Distribution Procedures establish a detailed process for the submission and review of Claims and set forth the requirements for proof of exposure to asbestos and illness.6 The liquidated value of each Claim is determined pursuant to these procedures and the holder of a Claim is entitled to receive a pro rata share of that liquidated value based on the amount in the Insurance Fund. The Trust Distribution Procedures establish four disease levels and a set value for each one: $40,000 for mesothelioma ; $10,000 for lung cancer ; $10,000 for certain other cancers ; and $2,000 for asbestosis /pleural disease. Main Case Docket no. 482.
In 2013, the Trust began to review Claims. In October 2015, the Trust filed a motion for entry of an order approving and allowing Claims which the court granted (the "Allowance Motion" and the "Allowed Claims"). Main Case Docket nos. 533, 543. The Allowance Motion stated that the Trust had received almost 28,000 Claims for review and had determined that approximately 14,000 Claims with a liquidated value of $46 million satisfied the Trust Distribution Procedures' requirements for allowance. The Allowance Motion stated that the Trust was holding over $14 million from which to make pro ratadistributions on the Allowed Claims. Finally, because of anticipated litigation with Continental, the Trust proposed to distribute 20% of the liquidated value of the Allowed Claims (roughly $9.2 million) and reserve the rest until Continental's obligations were resolved. Main Case Docket no. 533.7
Between May and September 2015, the Trust submitted Proposals to...
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