Cont'l Ins. Co. v. Daikin Applied Ams. Inc., Civil No. 17-552 (DWF/HB)

• Decision Date: 14 August 2019
• Docket Number: Civil No. 17-552 (DWF/HB)
• Citation: 473 F.Supp.3d 939
• Parties: The CONTINENTAL INSURANCE COMPANY, Plaintiff, v. DAIKIN APPLIED AMERICAS INC., Defendant.
• Court: U.S. District Court — District of Minnesota

473 F.Supp.3d 939

The CONTINENTAL INSURANCE COMPANY, Plaintiff,

v.DAIKIN APPLIED AMERICAS INC., Defendant.

Civil No. 17-552 (DWF/HB)

United States District Court, D. Minnesota.

Signed August 14, 2019

Andrea E. Reisbord, Esq., and Jeanne H. Unger, Esq., Bassford Remele; and Patrick Florian Hofer, Esq., and William D'Orion Carson, Esq., Clyde & Co. U.S. LLP, counsel for Plaintiff The Continental Insurance Company.

Douglas L. Skor, Esq., John M. Bjorkman, Esq., and Monica Detert, Esq., Larson King, LLP; and Michael Lamar Jones, Esq., Henry & Jones, LLP, counsel for Defendant Daikin Applied Americas Inc.

MEMORANDUM OPINION AND ORDER

DONOVAN W. FRANK, United States District Judge

INTRODUCTION

This matter is before the Court on Plaintiff The Continental Insurance Company's ("Continental") Motion for Partial Summary Judgment Declaring that Its Duty to Defend is Limited to Suits Against McQuay-Perfex, Inc. (Doc. No. 148), Defendant Daikin Applied Americas Inc.’s ("Daikin Applied") Motion for Partial Summary Judgment on the Duty to Defend (Doc. No. 175), and Continental's Motion for Partial Summary Judgment Declaring that It Has No Obligation to Pay Pre-Tender Defense Costs and Dismissing Daikin Applied's Breach of Contract Claim (Doc. No. 225). For the reasons set forth below, the Court grants Continental's motions and denies Daikin Applied's motion.

BACKGROUND

Daikin Applied manufactures heating, ventilating and air conditioning products. Daikin Applied is a defendant in various lawsuits alleging bodily injury from exposure to asbestos (the "Asbestos Suits"). Continental is currently defending Daikin Applied in a number of Asbestos Suits under insurance policies it sold to McQuay-Perfex from 1967 to 1982. Continental is defending under a reservation of rights.

Daikin Applied is a successor to McQuay-Perfex, and Continental acknowledges that Daikin Applied is entitled to defense coverage from Continental under policies issued to McQuay-Perfex with respect to McQuay-Perfex's liabilities. (Doc. No. 150 at 2.) Daikin Applied, however, is also a successor to other companies via various corporate transactions that occurred after the last Continental policy expired.¹

Daikin Applied has tendered to Continental and demanded that Continental defend numerous underlying suits alleging liability arising out of exposure to asbestos-containing products. Some of these suits allege exposure to a product made by McQuay-Perfex, but others allege exposure to products made by other companies. Since 2013, Daikin Applied has tendered all such suits to Continental, including suits that allege that Daikin Applied is liable for products made by predecessor companies other than McQuay-Perfex, such as The Singer Company ("Singer") and American Air Filter.

I. The Policies

From January 1, 1967 to January 1, 1982, Continental issued five primary policies (the "Policies" or the "Continental Policies") that are relevant here:

• Policy No. CBP 455081, issued to McQuay, Inc. with a policy period from January 1, 1967 to January 1, 1970. (Doc. No. 188 ("Stipulation Regarding Existence and Terms of Certain Insurance Policies") ¶ 2.)

• Policy No. CBP 400570, issued to McQuay, Inc. with a policy period from January 1, 1970 to January 1, 1973. (Id. ¶ 3.)

• Policy No. CBP 411385, issued to McQuay-Perfex with a policy period from January 1, 1973 to January 1, 1976. (Doc. No. 179 ("Donoghue Decl.") ¶ 8, Ex. 1.)

• Policy No. CBP 411645, issued to McQuay-Perfex with a policy period from January 1, 1976 to January 1, 1979. (Id. , Ex. 2.)

• Policy No. CBP 411751, issued to McQuay-Perfex with a policy period from January 1, 1979 to January 1, 1982. (Id. , Ex. 3.)

The Policies provide comprehensive general liability coverage. Each Policy provides that Continental will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage caused by an "occurrence." (See, e.g. , Ex. 1 at 8.) An "occurrence" is defined as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage" during the policy period. (Id. at 13.) "Bodily injury" means "bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom." (Id. at 12.) The "insured" is defined as "McQuay-Perfex, Inc. and any owned subsidiary." (Id. ) The last Policy expired in 1982.

II. Corporate History of Daikin Applied

Daikin Applied is part of a large multinational company with a complex corporate history involving numerous mergers and asset acquisitions. (Doc. No. 152 ("Hofer Decl.") ¶ 3, Ex. 2 ("RFA Responses") at RFA Nos. 1-69.) For example, in 1933, McQuay, Inc. was incorporated in Minnesota. (RFA No. 5; Doc. No. 179 ("Donoghue Decl.") ¶ 10, Ex. 4.) McQuay, Inc. merged with Perfex Corporation and in 1971 and became "McQuay-Perfex, Inc." (RFA No. 18.) In 1983, McQuay-Perfex, Inc. changed its name back to "McQuay, Inc." (RFA No. 24.)

In the 1980s, Snyder General Corp., which later merged with McQuay-Perfex, acquired certain liabilities of Singer and other companies via the following corporate transactions. In 1981, Snyder General-Texas incorporated, and the following year, acquired The Singer Company's Climate Control Division. (RFA No. 23; Donoghue Decl. ¶ 11, Ex. 7.) In 1984, Snyder General-Texas acquired three additional companies: ARCO Comfort Products Co., Halstead & Mitchell division of Halstead Industries, and McQuay, Inc. (all of which then became subsidiaries of Snyder General-Texas). (RFA Nos. 22-27; Doc. No. 152 ("Hofer Decl. I") ¶ 4 ("Daikin Applied 30(b)(6) Dep.") at 157; Donoghue Decl. ¶ 12, Ex. 8.) Then in 1986, Snyder General-Texas transferred its liabilities and assets to McQuay, Inc., McQuay, Inc. changed its name to "SnyderGeneral Corporation" ("SnyderGeneral-Minn."), and Snyder General-Texas changed its name to Snyder Management Corporation. (RFA Nos. 39-42; Donoghue Decl. ¶ 13, Exs. 9, 10.) That same year, SnyderGeneral-Minn. acquired Barry Blower and Snyder Management Corporation merged with SnyderGeneral-Minn. (RFA Nos. 43-44; Donoghue Decl. ¶ 14, Ex. 11.) In 1987 and 1988, SnyderGeneral-Minn. acquired Jenn Industries and the Los Angeles Branch of Hess, Greiner & Pollard Inc. (RFA Nos. 47, 52.) In 1978, Allis-Chalmers acquired the property, rights, assets, business, and goodwill of American Air Filter, which was created in 1925. (RFA Nos. 1, 21.) Then in 1988, SnyderGeneral-Minn. acquired the assets of American Air Filter. (RFA Nos. 21, 48, 51, 53 & 54; Donoghue Decl. ¶ 15.)

The corporate history continued as such: In 1992, another "SnyderGeneral Corporation" was incorporated in Delaware ("SnyderGeneral-Del."). (RFA No. 60; Donoghue Decl. ¶ 16, Ex. 12.) That same year, SnyderGeneral-Minn. merged with SnyderGeneral-Del. (RFA No. 61; Donoghue Decl. ¶ 16, Ex. 12.) In 1994, a Malaysian corporation bought SnyderGeneral-Del. and changed its name to "AAF-McQuay Inc." (RFA Nos. 62-63; Donoghue Decl. ¶ 17, Ex. 14.) Later, in 2006, Daikin Industries Ltd. bought AAF-McQuay Inc. and, in 2013, changed the name to "Daikin Applied Americas Inc." (RFA at No. 69; Donoghue Decl. ¶ 19, Ex. 16.)

III. The Asbestos Suits

Asbestos Suits have been brought against Daikin Applied by various names, including McQuay International, McQuay, McQuay-Perfex, and AAF-McQuay, Inc. Some of the Asbestos Cases implicate occurrences during the 1967-1982 coverage period, including exposure to products made by Singer or American Air Filter.² In 1998, Daikin Applied tendered the first suit to Continental under policies not at issue in this case, as well as to other insurers. (Doc. No. 229 ("Hofer Decl. II") ¶ 2, Ex. 1 ("Daikin Applied 30(b)(6) Dep.") at 17-18, 22-23 & Ex. 4.) Continental disclaimed coverage based on an asbestos exclusion. (Id. at 18-19.) In November 1998, Daikin Applied asked its attorney for information regarding available insurance coverage, after which the attorney identified the McQuay-Perfex policies (the Continental Policies). (Id. at 28.) Except for one case, Daikin Applied did not seek coverage under the Policies for roughly fifteen years and, instead, generally defended itself. (Id. at 119.)

In 2012, Daikin Applied commissioned its insurance broker to identify insurance policies with potential coverage for Asbestos Suits. (Hofer Decl. II. ¶ 6, Ex. 5 ("Mateikis Dep.") at 26-28 ("We undertook a forensic search for any insurance policies we and our predecessors might have had that did not exclude asbestos claims. In October, we hit on policies from the early 1970s that did not contain the exclusion.").) The Continental Policies were identified, among others. (Daikin Applied 30(b)(6) Dep. at 56-57, 65-66.) Nearly a year later, on or around September 25, 2013, Daikin Applied tendered twenty-three Asbestos Suits to Continental, alleging that a duty to defend arose under the identified Policies.³ (Id. at 76 & Ex. 18.)

Continental acknowledged Daikin Applied's claim, reserved its rights, and began investigating whether Daikin Applied is entitled to coverage under the Policies. In October 2013, as part of its investigation, Continental sought additional information from Daikin Applied, and in particular, information about Daikin Applied's corporate structure and relationship with various predecessor companies. (Id. at 82-83 & Ex. 22 at 1598 ("Please advise ... as to the relationship of these entities to AAF McQuay and the basis for seeking coverage under those policies. Please include any documentation related to any purchases, mergers or name changes and dates of such.").) Continental requested information again in April 2014. (Id. at 83 & Ex. 22 at 1606 ("We are wrapping up our policy search related to this notice. Would you please advise [sic] the relationships between AAF McQuay, Snyder General, American Air Filter, Perfex and any other entity AAF McQuay is claiming coverage under.").) Daikin Applied provided...