Hoechst Celanese Corp. v. Certain Underwriters at Lloyd's London

• Decision Date: 28 February 1995
• Docket Number: 1994,No. 337,337
• Parties: HOECHST CELANESE CORPORATION and Celanese Engineering Resins, Inc., Corporations of the State of Delaware, Plaintiffs Below, Appellants, v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, and London Market Insurance Companies; Columbia Casualty Insurance Company; Federal Insurance Company; First State Insurance Company; Government Employees Insurance Company; Hartford Accident & Indemnity Company; Hudson Insurance Company; New England Insurance Company; New England Reinsurance Corporation; North River Insurance Company; and Twin City Fire Insurance Company, Defendants Below, Appellees. . Submitted:
• Court: United States State Supreme Court of Delaware

Page 1094

656 A.2d 1094

HOECHST CELANESE CORPORATION and Celanese Engineering Resins, Inc., Corporations of the State of Delaware, Plaintiffs Below, Appellants, v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, and London Market Insurance Companies; Columbia Casualty Insurance Company Federal Insurance Company; First State Insurance Company Government Employees Insurance Company; Hartford Accident &amp Indemnity Company; Hudson Insurance Company; New England Insurance Company; New England Reinsurance Corporation North River Insurance Company; and Twin City Fire Insurance Company, Defendants Below, Appellees.

No. 337, 1994.

Supreme Court of Delaware.

Submitted: Feb. 28, 1995.

Decided: March 30, 1995.

Rehearing Denied April 24, 1995.

Upon appeal from the Superior Court. REVERSED and REMANDED.

Richard E. Poole, James F. Burnett, David J. Baldwin, W. Harding Drane, Jr. and William R. Denny of Potter, Anderson & Corroon, Wilmington, and Eugene R. Anderson, Jordan S. Stanzler (argued), Lorelie S. Masters, Jean M. Farrell, Richard P. Lewis and Koorosh Talieh of Anderson, Kill, Olick & Oshinsky, Washington, DC, for appellants.

Francis J. Murphy and John S. Spadaro (argued), of Murphy, Welch & Spadaro, Wilmington, and Daniel M. Bianca, John A. Catania, Joseph P. Gunset and Anne-Rose van den Bossche of Mendes & Mount, New York City, for appellees London Market Insurers.

Before WALSH, HOLLAND, and HARTNETT, JJ.

HOLLAND, Justice.

This is an interlocutory appeal by Hoechst Celanese Corporation and Celanese Engineering Resins, Inc. ("HCC") from the entry of summary judgment by the Superior Court in favor of the London Market Insurers ("London"). The Superior Court certified this interlocutory appeal on August 26, 1994. This Court accepted the appeal on September 1, 1994.

This Court has concluded that the Superior Court erred procedurally in shifting the initial burden of proof to HCC, the non-moving party. The Superior Court erred substantively in granting summary judgment to London while material facts were in dispute. Accordingly, the judgment of the Superior Court must be reversed. The matter will be remanded for further proceedings in accordance with this opinion.

Context of Litigation

Since the early 1960's, HCC has made Celcon TM, an acetal copolymer resin product. Celcon TM is sold in raw pellet form to third parties, who use it to manufacture many different products. From 1978 until the late 1980's, several third-party manufacturers used Celcon TM to make insert plumbing fittings. These insert plumbing fittings were incorporated into plumbing systems which were installed into apartments, condominiums, mobile homes, and other residences. Contractors, developers, plumbers, and homeowners now allege that the plumbing systems incorporating these insert fittings are defective. Manufacturers also have alleged that Celcon TM caused their plumbing systems to fail.

In this action, HCC seeks to enforce excess general liability insurance coverage that it purchased from London to indemnify it in connection with products liability. HCC purchased several "claims-made" excess insurance policies from London. Those policies exist in various layers above the primary level of coverage for the period from May 1, 1988, through May 1, 1989.

Claims-made policies provide coverage only where the underlying claim is first made, in writing, during the policy period. Therefore, the initial focus under a claims-made policy is on the date of the first written assertion of the claim, rather than the date of the injury or the damage alleged within that claim. ¹ Claims-made policyholders often purchase, for an additional premium, policy "enhancements." In return for an extra premium, additional years of coverage are purchased. Such insurance is commonly referred to as "tail" coverage. In the present case, HCC bought such tail coverage, or policy "enhancements," from London.

London's Original Motion

On February 14, 1994, London filed a motion regarding the "trigger of coverage" provision under several of the "claims-made" insurance policies issued to HCC. London moved for summary judgment "on the basis that coverage may be triggered under the London Market 'claims-made' policies, if at all, only where the underlying claim was first asserted against HCC in writing during the policy period." ² London's request was supported by an affidavit and cited Insuring Agreement 1. The agreement provided:

In the event that a claim or claims are first made, in writing, against the Insured during the period of this Policy, Underwriters will indemnify the Insured for that amount of Ultimate Net Loss which the Insured shall be obligated to pay by reason of the liability....

London contended that this policy language was unambiguous.

HCC's Original Opposition

HCC responded to London's contention that the claims-made policy language was unambiguous. It argued that the policies provided alternative trigger mechanisms which permitted HCC to notify London of "potential claims, and thereby extend the time period under which claims can be brought against HCC and still trigger the policy." ³ (emphasis added). In opposing London's suggested interpretation of the policy language, HCC cited two provisions in the insurance agreements.

The first provision HCC cited is Insuring Agreement 5 and is designated the Loss Notification Option ("LNO"):

The Insured may notify a Loss to this Policy by sending a notice of such Loss, in writing, by registered or certified mail during the period of this Policy, to the entity designated in Item 7 of the Declarations, provided:

(1) the Loss being notified is a Loss for which a claim or claims have already been made, in writing, against the Insured, and

(2) the Loss is such that is likely to involve this Policy, and

(3) the Loss has not previously been notified as a Circumstance under this Policy or any prior policy.

In the event the Insured so notifies the Loss to this Policy then any claim which is made, in writing, against the Insured, as respects such Loss within [seven] years after the applicable date shown below shall be deemed to have been first made, in writing, against the Insured on such date.

(emphasis added). ⁴

The second provision that HCC cited in support of its argument for an alternative trigger mechanism was Insuring Agreement 4, the Notice of Circumstance ("NOC") provision:

Whenever the Insured has information relating to a Circumstance which is likely to involve this Policy and gives notice of such Circumstance, in writing, sent by registered or certified mail during the period of this Policy, to Underwriters' representative, as set forth in the entity designated in Item 7 of the Declarations, then any claim, as respects such Circumstance, which is made, in writing, against the Insured within [seven] years from the date of the written notification of such Circumstance, to Underwriters' representative, shall be deemed to have been first made, in writing, against the Insured on the date upon which the notice of the said Circumstance was first sent to Underwriters' representative, in writing.

(emphasis added). ⁵

HCC also presented an opposing affidavit which referred to the "enhancement" provisions and included the testimony of Geoffrey A. Harrison, one of the drafters of London's "claims-made" policy form. According to HCC, this evidence confirmed that provisions like the NOC modify the "claims first made in writing" triggering mechanism. As noted in Mr. Harrison's testimony: [W]ith the claims made policy--claims made against the insured policy--the trigger of coverage is when the claim is made against the insured for that claim, other than various things like notice of circumstance, maybe discovery and one or two other things, which would interfere with it.

(emphasis added).

Thus, HCC's answer to London's original motion in the Superior Court contended that the policies at issue are not pure "claims-made" policies. In support of its position, HCC cited the LNO and NOC provisions in the policies, which provided for seven additional years of insurance coverage. According to HCC, those LNO and NOC citations were a sufficient response to London's original motion, which only relied upon Insuring Agreement 1 for its proposition that the claims-made policies were unambiguous. HCC contended that the citations were sufficient to preclude the entry of summary judgment in London's favor.

London's Expanded Motion

Superior Court's Trigger Ruling

London's reply to HCC's answering brief raised an issue that was not presented in its original motion. London's reply brief argued that HCC had never given the notice required to activate the seven-year "tail" coverage. The Superior Court accepted this argument without affording HCC an opportunity to respond to the lack of notice proposition, even though London had raised it for the first time in its reply brief. The Superior Court also did not require London, the "moving party," to aver or otherwise demonstrate that the LNO and NOC policy provisions cited by HCC did not refute London's original allegation that the policy language was unambiguous.

Instead, the Superior Court ruled that it was HCC's burden to present evidence that it had given notice to activate the LNO and NOC provisions; and, in addition, that it was HCC's burden to show that claims were made during that seven-year period. ⁶ In the Superior Court's view:

Plaintiffs, while arguing a legal theory under which the notice of circumstance and/or loss notification clauses of the London Market Insurers' policies might override the claims made in writing provision, proffer no facts to fit those legal theories, i.e., no notice of circumstance was made during the terms of the policies; likewise, no claims appear to have been made upon which a loss notification could be added to provide a coverage tail.

The Superior Court granted London's motion "to the extent that [HCC] may only seek coverage for claims which...