Drennen v. Certain Underwriters At Lloyds of London (In re Residential Capital, LLC)
Decision Date | 21 December 2022 |
Docket Number | 12-12020 (MG),Adv. Case 15-01025 (DSJ) |
Parties | In re: RESIDENTIAL CAPITAL, LLC, et al., Debtors. v. CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON, et al., Defendants. ROWENA DRENNEN, FLORA GASKIN, ROGER TURNER, CHRISTIE TURNER, JOHN PICARD AND REBECCA PICARD, individually and as the representatives of the KESSLER SETTLEMENT CLASS, STEVEN AND RUTH MITCHELL, individually and as the representatives of the MITCHELL SETTLEMENT CLASS, and RESCAP LIQUIDATING TRUST, Plaintiffs, |
Court | U.S. Bankruptcy Court — Southern District of New York |
PERKINS COIE LLP Counsel for ResCap Liquidating Trust By: Vivek Chopra, Esq. Selena Linde, Esq. ARNOLD & PORTER KAYE SCHOLER LLP Counsel for North American Specialty Insurance Company By: Kent Yalowitz, Esq. Daniel R Bernstein, Esq.
WILEY REIN LLP Counsel for Twin City Fire Insurance Company By: Cara Duffield, Esq.
HINSHAW CULBERTSON LLP Counsel for Certain Underwriters at Lloyd's of London By: J. Gregory Lahr, Esq. Matthew Ferlazzo, Esq. Karen Toto, Esq.
WALTERS RENWICK RICHARDS SKEENS & VAUGHAN, P.C. Counsel for the Kessler Class and the Mitchell Class By: Roy Frederick Walters, Esq. Kip D. Richards, Esq. Karen W. Renwick, Esq. David M. Skeens, Esq.
CAHILL GORDON & REINDELL LLP Counsel for Swiss Re International S.E. By: Thorn Rosenthal, Esq. Taylor Elicegui, Esq.
HANGLEY ARONCHICK SEGAL PUDLIN & SCHILLER Counsel for Steadfast Insurance Company By: Sharon F. McKee, Esq. KAUFMAN DOLOWICH & VOLUCK, LLP Counsel for Continental Casualty Company By: Patrick M. Kennell, Esq.
STEPTOE JOHNSON LLP Counsel for Clarendon National Insurance Company By: Harry Lee, Esq. John O'Connor, Esq.
DECISION RESOLVING CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT
This memorandum opinion and order (this "Decision") decides eleven separate motions for partial summary judgment filed at the close of discovery in a multi-party dispute between two types of claimants[1]-a liquidating trust that has succeeded to the rights of one of the debtors in a confirmed voluntary Chapter 11 bankruptcy case, and two groups of class-action plaintiffs who hold substantial allowed claims against the estate-as against multiple insurer defendants[2] who, among them, provided up to $400 million of liability insurance to the debtor. The claimants are proceeding under the authority of the confirmed plan and a related settlement, which together entitled the Class Plaintiffs and the Liquidating Trust to pursue coverage claims that the debtor originally had against its insurers. As assignees of the debtor's insurance rights, the Kessler Class and Mitchell Class seek coverage of their respective allowed claims as losses of the debtor under the insurance policies, while the Trust seeks coverage for the debtor's payment of a compensatory damages judgment in the Mitchell Class's underlying suit and related costs and expenses.
The motions addressed by this Decision seek rulings related to (i) whether the losses resulting from the claims of the Mitchell Class and the Kessler Class are covered under the terms of the insurance policies' provisions defining the scope of their coverage; (ii) if so, whether those insurance claims are barred by the policies' "Exclusion 38," which (as detailed and stated more precisely below) excludes from the policies' coverage certain claims arising from services rendered by insured people or entities that are not a "Professional Liability Assured"[3] as that term is defined in the policies; (iii) whether at least portions of the insurance claims at issue are excluded from the policies' coverage and/or precluded as a matter of law because they arise from awards of punitive damages and/or statutory penalties; (iv) whether claims against the Excess Insurers (those responsible for all but the first $50 million of coverage) are barred by so-called "exhaustion" provisions in the Excess Insurers' policies, which, roughly speaking, state that the Excess Insurers' obligations do not arise until the primary layer of insurance is paid in full or the Primary Underwriters are held liable to pay in full; (v) whether claims based on a variety of specific types of asserted consequential damages are recoverable; (vi) whether certain claims or causes of action are time-barred; (vii) whether the Insurers are entitled to challenge the reasonableness of the allowed claim amount giving rise to the Kessler Class's claims notwithstanding this Court's previous approval of the settlement, in the course of which this Court explicitly determined under the standards applicable to review of class action settlements and Bankruptcy Rule 9019 motions, among other things, that the settlement was fair and reasonable; (viii) even if the Insurers are not precluded from contending that their coverage obligations are not triggered because the settlement for which insurance payment was sought was unreasonable, whether the Court should determine that the Class Plaintiffs are entitled to summary judgment on the ground that no reasonable juror could conclude that the settlement was unreasonable; and (ix) whether the full allowed-claim amount of $300 million of the Kessler Class action claimants constitutes an insured loss, or whether the amount of that loss is limited to the actual cash payment obligation of the estate, where under the parties' Court-approved settlement and the Plan the Kessler Class received an allowed claim of $300 million that by agreement was to be satisfied solely by a cash distribution from the estate of approximately $27 million, coupled with the right to pursue the Insurers for the debtor's insurance coverage rights up to the full allowed amount of the claim, i.e., $300 million.
Put succinctly here and in greater and more precise detail below, this Decision holds as follows:
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