Gaston County Dyeing v. Northfield Ins.

• Decision Date: 04 February 2000
• Docket Number: No. 10PA99.,10PA99.
• Parties: GASTON COUNTY DYEING MACHINE COMPANY, Tax I.D. No. 56-02-32800, Plaintiff, v. NORTHFIELD INSURANCE COMPANY, Liberty Mutual Insurance Company, Rosenmund, Inc., Allendale Mutual Insurance Company, Sterling Winthrop, Inc., and Sterling Pharmaceuticals, Inc., and International Insurance Company, Defendants, and United Capitol Insurance Company, Intervenor.
• Court: North Carolina Supreme Court

524 S.E.2d 558

GASTON COUNTY DYEING MACHINE COMPANY, Tax I.D. No. 56-02-32800, Plaintiff, v. NORTHFIELD INSURANCE COMPANY, Liberty Mutual Insurance Company, Rosenmund, Inc., Allendale Mutual Insurance Company, Sterling Winthrop, Inc., and Sterling Pharmaceuticals, Inc., and International Insurance Company, Defendants, and United Capitol Insurance Company, Intervenor.

No. 10PA99.

Supreme Court of North Carolina.

February 4, 2000.

Yates, McLamb & Weyher, L.L.P., by Barbara B. Weyher, Raleigh; and Fowler, White, Gillen, Boggs, Villareal & Banker, P.A., by Tracy R. Gunn, pro hac vice, Tampa, FL, for defendant-appellant Northfield Insurance Company.

Dean & Gibson, L.L.P., by Rodney Dean and Barbara J. Dean, Charlotte, for defendant-appellee Liberty Mutual Insurance Company.

Lustig & Brown, L.L.P., by James J. Duggan, pro hac vice, Buffalo, NY; and Henson & Henson, L.L.P., by Perry Henson, Jr., Greensboro, for defendant-appellee International Insurance Company.

Golding, Meekins, Holden, Cosper & Stiles, L.L.P., by Harvey L. Cosper, Jr., Charlotte; and Sedgwick, Detert, Moran, & Arnold, by Sidney Rosen, pro hac vice, New York, NY, for intervenor-appellant United Capital Insurance Company.

Parker, Poe, Adams & Bernstein L.L.P., by Josephine H. Hicks, Charlotte, on behalf of Hoechst Celanese Corporation, amicus curiae.

Rivkin, Radler & Kremer, by Richard S. Feldman, pro hac vice, Uniondale, NY; and Bennett & Guthrie, L.L.P., by Richard Bennett, Winston-Salem, on behalf of Commercial Union Insurance Company and Fireman's Fund Insurance Company, amici curiae.

FRYE, Chief Justice.

In this case, the trial court reformed primary and excess policies covering plaintiff so as to afford full coverage to defendant Rosenmund, Inc. (Rosenmund); applied the "injury-in-fact" date in determining when damage to property occurred; concluded that the applicable policy period was a one year period beginning 1 July 1991; and ruled that the policy issued by intervenor was excess to all other coverage available to Rosenmund. The Court of Appeals affirmed in part and reversed in part the trial court's order. We allowed discretionary review to determine the correctness of the Court of Appeals' decision.

This case arises out of a products liability action that was originally filed in the United States District Court for the District of Puerto Rico on 17 December 1992. Sterling Pharmaceuticals, Inc. (Sterling); Sterling Winthrop, Inc.; and Allendale Mutual Insurance Company filed the underlying action to recover damages in excess of $20 million from Gaston County Dyeing Machine Company (Gaston), Rosenmund, and their insurers. The original complaint alleged defects in the design and manufacture of pressure vessels fabricated by Gaston for Rosenmund and sold by Rosenmund to Sterling for use in production of contrast media dyes for diagnostic medical imaging. On 21 June 1992, Sterling modified the production process, increasing the operating pressure in one of the pressure vessels. On 31 August 1992, Sterling discovered that ethylene glycol, a chemical used in connection with the heating process, had leaked into the vessel and contaminated over sixty tons of the contrast media dye.

Liberty Mutual Insurance Company (Liberty Mutual), Northfield Insurance Company (Northfield), and International Insurance Company (International) had issued policies insuring Gaston effective for the policy periods 1 July 1991 to 1 July 1992 and 1 July 1992 to 1 July 1993. For each policy period, Liberty Mutual issued to Gaston a comprehensive general liability (CGL) policy providing $1 million in primary coverage per occurrence and a commercial umbrella excess liability policy providing $1 million coverage per occurrence. Rosenmund purported to be an additional named insured on the Liberty Mutual policies. Northfield issued to Gaston commercial excess liability policies providing $5 million coverage for the 1991-92 policy period and $9 million for the 1992-93 policy period. International issued to Gaston commercial excess liability policies providing $9 million coverage for the 1991-92 policy period and $5 million for the 1992-93 policy period. The Liberty Mutual, Northfield, and International policies are all "occurrence-based" policies, and the Northfield and International excess policies "follow the form" of the Liberty Mutual umbrella policies. United Capital Insurance Company (United) issued to Rosenmund a separate CGL policy providing $2 million coverage on a "claims-made" basis for claims reported during the 4 October 1991 to 4 October 1992 policy period.

In February 1994, Gaston brought this action for declaratory judgment against all its insurers, the plaintiffs from the underlying action, and Rosenmund. As an additional insurer for Rosenmund, United was allowed to intervene. Northfield filed a parallel declaratory judgment action in Puerto Rico.

Liberty Mutual provided defense to Rosenmund in the underlying action from 8 July 1993 until 23 August 1993, when Liberty Mutual withdrew after determining that the "additional insured" endorsements of the Gaston policies did not cover Rosenmund for products liability. United assumed Rosenmund's defense in the underlying action under its 4 October 1991 to 4 October 1992 CGL policy until 26 January 1996, when Liberty Mutual resumed Rosenmund's defense pursuant to a partial settlement agreement between the two parties.

Later in 1995, the underlying action was resolved by settlement agreement, and Gaston and Rosenmund dismissed their claims against the insurers. The four insurance carriers contributed to a settlement fund of $11 million as follows: Liberty Mutual, $2 million; United, $2 million; Northfield, $5 million; and International, $2 million. Pursuant to a stipulation of the insurers, the following issues were reserved for judicial determination: choice of law and forum; trigger of coverage; priority of coverage; allocation of payments among insurers; and whether Rosenmund was afforded the same coverage as Gaston under the Liberty Mutual, International, and Northfield policies.

In 1996, following settlement of the underlying action, Liberty Mutual, International, and United filed motions for summary judgment in the North Carolina declaratory judgment action. The summary judgment motions were heard at the 5 December 1996 Civil Session of Superior Court, Mecklenburg County, and an additional hearing was held on 17 January 1997.

After determining that there were no issues of material fact and that North Carolina law was applicable to all issues, the trial court found as follows:

4. ... [O]n June 21, 1992 damage occurred to products being manufactured by Sterling Pharmaceuticals as the result of pressure vessel leakage, and that damage continued to result from the same or substantially the same leaking condition from June 21, 1992 until discovery of the damage on August 31, 1992.

5. ... [T]here was one "occurrence" as that term is used in all applicable insurance policies.

6. ... [T]he "occurrence" of damages in this case took place on June 21, 1992 when the leak damage commenced.

7. ... [T]he damages in this case resulted from continuous or repeated exposure to substantially the same general harmful conditions, i[.]e., pressure vessel leakage resulting in the contamination of pharmaceutical dye with ethylene glycol during the manufacturing process at Sterling Pharmaceuticals.

8. ... [T]he date upon which damage occurred can be established without question or uncertainty even though the existence of the damage was not immediately discovered. Under these circumstances, the Court finds that applicable North Carolina law is that the "injury-in-fact" that took place on June 21, 1992 triggers the coverages applicable on that date and that the liability of the respective insurance carriers is for the coverages applicable on June 21, 1992....

9. ... [T]he Liberty Mutual policies, the Northfield policy, and the International policy for the period July 1, 1992 to July 1, 1993 are not applicable to the loss in question.

....

12. ... Rosenmund is entitled to coverage for the claims of Sterling Pharmaceuticals as an additional insured under the Liberty Mutual primary and excess policies; as such, Rosenmund is also entitled to full coverage for the claims of Sterling Pharmaceutical[s] under the Northfield and International ... policies which the Court finds follow form to the Liberty Mutual excess policies.

13. ... [T]he policies of insurance issued by Liberty Mutual, Northfield, and International are "occurrence" policies, while the policy of insurance issued by United Capitol is a "claims made" policy. The facts are undisputed that the claim made in this case was during the pendency of the United Capitol policy that provided coverage from a period of October 4, 1991 to October 4, 1992. It is undisputed that not only did all damages take place during that period of time, but claims were also duly made to United Capitol during that same policy period. However, the Court finds that the United Capitol policy is excess above the other coverage available to Rosenmund, therefore its coverage is not reached.

....

15. ... [T]he coverage obligations of the carriers for funding the $11 million settlement on behalf of Gaston and Rosenmund are as follows:

a. Liberty Mutual—primary coverage—$1 million

b. Liberty Mutual—excess coverage—$1 million

c. Northfield—$5 million

d. International n/k/a Westchester—$4 million

16. ... United Capitol is entitled to reformation of the Liberty Mutual policies to provide Rosenmund with product liability coverage and to a declaration of coverage for Rosenmund for the claims of Sterling Pharmaceuticals as an additional insured under the Liberty Mutual primary and excess policies and under the Northfield and International n/k/a Westchester policies, which follow form to the Liberty Mutual excess policies; and that United Capitol's policy is excess over all other coverages available to

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