Crum & Forster, Inc. v. Monsanto Co.

Decision Date19 September 1994
Docket NumberNo. 06-92-00100-CV,06-92-00100-CV
Citation887 S.W.2d 103
PartiesCRUM & FORSTER, INC., International Insurance Company, United States Fire Insurance Company, North River Insurance Company, and Commonwealth Lloyd's Insurance Company, Appellants, v. MONSANTO COMPANY, Appellee.
CourtTexas Court of Appeals

Michael G. Norris, Payne & Jones, Overland Park, KS, David E. Keltner, Haynes and Boone, L.L.P., Fort Worth, TX, Frank C. Vecella, Jackson & Walker, L.L.P., Dallas, TX, John R. Mercy, Atchley, Russell, Waldrop, Hlavinka, Texarkana, TX, for Crum & Forster, Inc.

Robert E. Garner, Garner, Stone & Lovell, Amarillo, TX, Frederick Brown, Orrick, Herrington & Sutcliffe, San Francisco, CA, for International Ins. Co.

Steven A. Schneider, Johnson & Gibbs, Eric W. Buether, McKool Smith, Dallas, TX, Sam Baxter, Jones, Jones & Curry, Inc., Marshall, TX, for Monsanto Co.

Before CORNELIUS, C.J., and BLEIL and GRANT, JJ.

OPINION

GRANT, Justice.

STATEMENT OF THE CASE
Trial Results

Crum & Forster, Inc., International Insurance Company, United States Fire Insurance Company, North River Insurance Company, and Commonwealth Lloyd's Insurance Company (the appellants), appeal from a judgment favoring Monsanto Company (Monsanto), awarding Monsanto actual and treble damages, prejudgment interest, and attorneys' fees in the total amount of $71,048,070.22, as well as costs and post-judgment interest. Monsanto sued the appellant insurance companies alleging that they had wrongfully obtained and manipulated a financial interest in the Slaughter litigation 1 waged against their insured, Monsanto. In its brief, United States Fire aptly characterized this suit as being "litigation about litigation."

The Parties

Monsanto contends that the appellant insurance companies are in reality paper corporations wholly owned and controlled by the Crum & Forster corporation. Monsanto further contends that the appellants took over the plaintiffs' case in the Slaughter litigation principally by way of a series of Mary Carter agreements 2 and, thereby, violated their legal duty and public policy in attempting to gain financially by suing its own insured.

The insurance companies take the position that they are each separate corporate entities, and thus the fact that two of these insurance companies, United States Fire and International, were insurers of Monsanto did not prevent the other companies from obtaining an interest in the plaintiffs' case against Monsanto. The companies also contend that they had a duty to protect the interests of their insured, Farm & Home, who actually entered into the Mary Carter agreements in the Slaughter case.

Crum & Forster, Inc. is a holding company for several insurance companies. Crum & Forster is not an insurance company and therefore cannot issue insurance policies, nor does it handle subrogation matters or place reinsurance for any of its subsidiaries. Under the Insurance Holding Company System Regulatory Act, 3 insurance companies may share common facilities, management, services, and employees, but they must also maintain separate operating identities. Crum & Forster itself owns 100% of the stock of United States Fire, International, and North River, and another wholly-owned subsidiary of Crum & Forster owns 100% of the stock of Commonwealth Lloyd's.

Monsanto purchased several liability policies from subsidiaries of Crum & Forster, including excess general liability policies from United States Fire and International and environmental impairment liability policies (EIL policies) from International. As a result of the various phases of the Brio Site litigation (discussed in the next section), Monsanto made claims on these policies, but the Crum & Forster subsidiaries rejected all of the claims.

United States Fire, North River, and Commonwealth Lloyd's insured Farm & Home, a codefendant of Monsanto in the Slaughter litigation, under both primary and umbrella policies.

The Brio Site

During the 1970s, Farm & Home purchased a large tract of land in Harris County and began developing a residential subdivision. Adjoining this property was a chemical reprocessing plant known as the Brio Site that had been utilized by a large number chemical corporations, including Monsanto, since the 1950s. Farm & Home sold lots in the subdivision to various builders who built and sold homes there beginning in 1980.

Soon after the Environmental Protection Agency designated the Brio Site as a Superfund site in 1984, three groups of homeowners brought lawsuits against the builders and Farm & Home alleging fraud and deceptive trade practices in an attempt to recover damages for property devaluation and for mental anguish caused by the loss of value in their homes. In chronological order, these suits are known as the Powell suit, 4 the Jones suit, 5 and the Slaughter suit. In each of these cases, the builders and Farm & Home filed third-party actions against the owners of the Brio Site and the more than forty chemical companies that had used the site. The builders also filed cross-claims against Farm & Home for its alleged failure to disclose its knowledge regarding hazardous wastes stored at the Brio Site. The builders also sued Farm & Home for property damage in the Powell case. The jury came back with a verdict that Farm & Home was liable to the builders for the damages, but before the damages phase of the trial could commence, the builders settled with Farm & Home.

The Missouri Settlement

In 1986, United States Fire, North River, and Commonwealth Lloyd's brought a declaratory judgment action in a Missouri federal court against its insured, Farm & Home, concerning a dispute over the extent of the responsibility owed by the insurers to pay for Farm & Home's past and potential future liability in the Brio Site litigation. In 1987, the parties in that dispute settled their differences. Farm & Home agreed to pay its insurers $12.5 million, and the insurers agreed to indemnify Farm & Home in all phases of the Brio Site litigation. The settlement also reaffirmed the insurers' subrogation rights, although the subrogation interest was limited to the total amount that the insurers had paid or would pay on behalf of Farm & Home in the litigation. After the resolution of the Missouri lawsuit, the insurers provided Farm & Home with a defense in the Brio Site cases utilizing the same law firm which had represented the insurers in the Missouri lawsuit. As a result of the Missouri settlement, Farm & Home no longer had any direct interest in the Brio Site litigation because the Crum & Forster subsidiaries had stepped into its place.

In the settlement with the builders in the Powell case, Farm & Home's insurers, acting in accordance with their subrogation rights, paid over $20 million to the builders and also agreed to indemnify them for all claims made against them in the Brio Site litigation. Thus, the Crum & Forster subsidiary insurance companies assumed all exposure for claims asserted against either the builders or Farm & Home in all pending and future Brio Site cases.

The Slaughter Lawsuit

In the Slaughter case, which began as an intervention in the Jones case but was severed, Farm & Home signed three Mary Carter agreements, one for each of three groups of plaintiffs, under which the plaintiffs released their claims against Farm & Home and Farm & Home guaranteed the plaintiffs a minimum recovery of $10,320,000. Additionally, Farm & Home gained the right to negotiate settlements with the remaining defendants, provided such settlements were reasonable. Farm & Home's board of directors reviewed and, at least nominally, approved the agreements, and its insurers funded the agreements.

Under the terms of these Mary Carter agreements, any recovery from the remaining defendants would be distributed, with the first $17.2 million going to the plaintiff homeowners, thus reducing Farm & Home's guarantee amount to zero; the next $3.1 million would go to Farm & Home, i.e., its insurers, to pay for legal expenses, and any additional amounts would be split evenly between the plaintiffs and Farm & Home (its insurers).

After the signing of the Mary Carter agreements, the attorneys representing Farm & Home began working with the plaintiffs' attorneys in pursuing the plaintiffs' claims. The focus of the plaintiffs' case then switched from the liability of Farm & Home and the builders to the liability of the chemical companies that had used the Brio Site. Appellants contend that discovery had begun to reveal that Monsanto was the company primarily responsible for the Brio Site hazards. The plaintiffs' case also began to focus more heavily on the personal injuries allegedly suffered by the homeowners, which could be more lucrative than the property damage claims. United States Fire and International refused to pay on Brio Site related claims under any of the insurance policies that they issued to Monsanto. From October 1989 to February 1990, the Slaughter case was tried to a jury, which returned a take-nothing verdict in favor of Monsanto.

The Jury Verdict and Judgment in the Present Case

Before the trial of the Slaughter case commenced, Monsanto brought suit in the federal district court in Dallas against the appellants in the present case, alleging the same basic causes of action. Then, during the trial of the Slaughter case, Monsanto agreed to a voluntary dismissal of the federal action and, in the meantime, it filed the action which is now before this Court on appeal.

Monsanto sued the appellants in Harrison County alleging a breach of the duty of good faith and fair dealing and violations of Article 21.21 of the Texas Insurance Code. Monsanto originally included Farm & Home as a defendant but later nonsuited them without receiving consideration. Monsanto contended that Crum & Forster and its subsidiaries wrongfully obtained a financial interest in and direct control of litigation waged against their...

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