Hopeman Bros., Inc. v. Cont'l Cas. Co.

• Decision Date: 02 April 2018
• Docket Number: Case No.: 4:16cv187
• Court: U.S. District Court — Eastern District of Virginia
• Parties: HOPEMAN BROTHERS, INC., Plaintiff, v. CONTINENTAL CASUALTY COMPANY, and Lexington Insurance Company, Defendants.

307 F.Supp.3d 433

HOPEMAN BROTHERS, INC., Plaintiff,

v.CONTINENTAL CASUALTY COMPANY, and Lexington Insurance Company, Defendants.

Case No.: 4:16cv187

United States District Court, E.D. Virginia, Newport News Division.

Signed April 2, 2018

Kyle P. Brinkman, Jeffrey M. Johnson, John A. Gibbons, Justin F. Lavella, Lyndsay A. Gorton, for Plaintiff.

Eileen T. McCabe, Jaimie H. Ginzberg, Maurice F. Mullins, Rebecca S. Bardach, Stephen T. Roberts, for Defendants.

OPINION AND ORDER

Mark S. Davis, UNITED STATES DISTRICT JUDGE

This matter is before the Court on a motion for summary judgment filed by Continental Casualty Company, ("Continental") and Lexington Insurance Company ("Lexington") (collectively "Defendants"), ECF No. 83, as well as a motion for partial summary judgment filed by Hopeman Brothers, Inc. ("Hopeman" or "Plaintiff"), ECF No. 81. For the reasons stated below, the Court GRANTS in part and DENIES in part Defendants' motion for summary judgment, ECF No. 83, and GRANTS in part and DENIES in part Plaintiff's motion for partial summary judgment, ECF No. 81. The Court reserves for later disposition the issue of whether certain asbestos-related claims fall into products/completed operations by default and the issue of whether the underlying policies have been exhausted.

I. FACTUAL AND PROCEDURAL BACKGROUND¹

This case arises out of a coverage dispute between Hopeman and its insurers regarding numerous asbestos-related claims. From the 1930s until 2003, Hopeman specialized in the engineering, manufacture, and installation of marine interiors on ocean-going vessels. During this period, maritime standards required the use of fire-containing materials. To meet these requirements, Hopeman procured and installed several kinds of asbestos-containing panels. Since 1979, Hopeman has been named in over 123,000 claims alleging personal or bodily injury from exposure to asbestos fibers contained in marine interior materials provided by Hopeman.

Beginning in 1937, Hopeman purchased primary and, starting in 1965, excess general liability insurance coverage. During the relevant period of 1971 to 1977, Hopeman maintained multilayer insurance coverage. Hopeman's primary-layer policies were all issued by the Liberty Mutual Insurance Company ("Liberty") for $500,000 in annual coverage (totaling $3 million in primary coverage from 1971 through 1977). Hopeman also obtained additional layers of excess insurance through annual policies issued by various excess insurers, including a number of policies issued by Defendants. From 1971 to 1974, Hopeman obtained two excess policies for $5 million in annual coverage from the Home Indemnity Company ("Home") and the Insurance Company of North America ("INA") for a combined total of $30 million in coverage. From 1974 to 1977, Hopeman acquired two further excess policies of $5 million in annual coverage from Liberty and the Aetna Casualty & Surety Company ("Aetna") for an additional $30 million in excess coverage. For additional excess coverage, Hopeman maintained a "quota share" layer including Continental, Lexington, and North Star Reinsurance Corporation ("North Star"). This agreement provided for $10 million in combined annual limits above the $10 million underlying excess coverage and $500,000 primary insurance (totaling $60 million in excess coverage from 1971 to 1977). Lexington agreed to be responsible for half of each quota share limit ($30 million in total), Continental for 20% ($12 million) and North Star the remaining 30% ($18 million).

As a result of numerous asbestos exposure claims, Hopeman has faced significant liability. These claims have in turn triggered the policies of Plaintiff's primary and excess-layer insurers, and Hopeman has received payments from or otherwise resolved coverage with all of the relevant insurers covering the 1971–77 period except Defendants.

In 2003, 2005, and 2009, Hopeman settled with Liberty, Aetna, and INA respectively. In 2013, Hopeman settled with the Insurance Commissioner of the State of New Hampshire as Liquidator of the Home. This settlement resolved Hopeman's claims against seven Home policies, and Hopeman ultimately assigned its rights under the Home policies to a third party. In all of the above-mentioned settlements, Hopeman agreed to modified pro rata allocation. See Van Epps Dep., Ex. 11 at 125:2–127:11, ECF No. 84–11.

In late 2012, Plaintiff notified the "quota share" excess insurers that the underlying 1974–77 policies were nearing exhaustion. In February 2013, Hopeman informed Defendants and the General Reinsurance Corporation ("Gen Re"), the successor to North Star, that the underlying policies had been exhausted, and requested that the "quota share" layer insurers immediately enter settlement negotiations. Soon thereafter, Hopeman began negotiations with Gen Re, resulting in a settlement on a modified pro rata basis in October 2013.

Between 2013 and December 2016, the Claro Group ("Claro"), Hopeman's agent, negotiated with Defendants' third-party administrator, Resolute Management Inc., regarding Defendants' policies. Hopeman asserts that Continental initially agreed to pay on its policies, making $355,823 in payments between December 2012 to April 2014, but that it terminated its participation in July 2014. Lexington, however, has never agreed to participate in any payments. In December 2016, the parties terminated further settlement negotiations after Resolute refused Plaintiff's latest settlement demand.

Shortly thereafter, Hopeman filed a two-count complaint, alleging breach of contract and seeking a declaratory judgment regarding Defendants' alleged obligation to pay various asbestos-related claims. See generally Compl., ECF No. 1. Specifically, Hopeman alleges that Defendants are in breach of contract for failing to reimburse Hopeman for claims related to Defendants' 1974–77 policies. See id. at 8. Hopeman also demands a declaratory judgment regarding Defendants' obligations to pay an "all sums" share of amounts incurred for asbestos-related claims arising during the 1971–77 policy periods, as well as "all sums" incurred in defense of such claims. Id. at 7, 9. In May 2017, Defendants filed their answers to the complaint. ECF Nos. 32, 33.

In November 2017, Plaintiff filed its motion for partial summary judgment. ECF No. 81. Hopeman first requests summary judgment on two scope of coverage issues: (1) that the "all sums" allocation method applies to the policies, id at 1; and (2) that the Lexington Policies provide defense coverage, id. Plaintiff next seeks a ruling that the underlying insurance of the 1974–77 policies has been exhausted. Id. at 2. For the 1971–74 policies, Hopeman requests summary judgment that Hopeman's payment of the Home policy's products/completed operations aggregate limit and the granting of an allowed claim in the Home insolvency satisfy the Home policy's limits. Id. Plaintiff then argues that summary judgment is appropriate on the following coverage issues: (1) that products/completed operations coverage applies by default for asbestos-related claims, id. at 2; (2) that "bodily injury" occurs for products/completed operations claims from the date of first exposure and continues thereafter, id. at 2–3; and (3) that each individual alleging bodily injury from exposure to asbestos constitutes a separate "occurrence" under the policies, id. at 3. Hopeman also requests summary judgment that the non-cumulation clauses only reduce Insurers' policy limits with respect to the same "occurrence" or "loss" as the one for which Hopeman seeks coverage, and only to the extent Hopeman has recovered for that same "occurrence" or "loss" under relevant prior insurance at the same "layer" or horizontal "tier" of coverage. Id. at 3. Plaintiff further requests summary judgment that the term "loss" in several relevant non-cumulation clauses should be read narrowly, and that, in any case, the first $7 million of recovery from Defendants will be unaffected by the non-cumulation clauses because Hopeman has not previously recovered from prior insurance in the same tier or layer as the policies at issue. Id. Finally, Hopeman seeks a ruling that it has satisfied any duty to mitigate or avoid losses for asbestos-related claims. Id. Defendants responded to Hopeman's motion in late November 2017, ECF No. 98, and Plaintiff filed a reply in December 2017, ECF No. 115.

In November 2017, Defendants also filed their motion seeking summary judgment on five issues. ECF No. 83. Defendants first argue that Plaintiff had previously evinced a belief that Defendants' policies required a "pro rata" allocation method, and therefore should not be permitted to now seek "all sums" allocation. See Defs.' Summ. J. Br. 2, 12–15, ECF No. 84. Second, Defendants claim that, even if an "all sums" allocation method applies, the prior insurance/non-cumulation provisions must be enforced to limit coverage. Id. at 2, 15–20. Third, Defendants assert that they are under no obligation to pay the excess liability claims because the underlying policies are not exhausted. Id. at 2, 20–23. The claims are allegedly not exhausted because Hopeman compromised its claims with certain insurers for less than the full limits of those policies. Id. at 2. Fourth, Defendants argue that Hopeman failed to comply with its obligation to allocate claims according to whether they were "product" or "non-product" claims. Id. at 23–26. Accordingly, Defendants claim they are entitled to a ruling that this method of calculating the exhaustion of the underlying limits is incorrect as a matter of law. See id. at 26. Finally, Defendants claim that Hopeman is improperly seeking reimbursement of some defense costs. See id. at 26–30. In November 2017, Hopeman filed a response to Defendants' motion, ECF No. 97, and in December 2017, Defendants filed a reply brief, ECF No. 113.

Having been fully briefed and considered by this Court, Plaintiff's motion for partial summary judgment and Defendants' motion for...