In re Quigley Co., Inc., Bankruptcy No. 04-15739(SMB).

• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
• Writing for the Court: Stuart M. Bernstein
• Citation: 361 B.R. 723
• Parties: In re QUIGLEY COMPANY, INC., Debtor. Continental Casualty Company, et al., Plaintiffs, v. Pfizer, Inc., et al., Defendants.
• Docket Number: Adversary No. 06-1299.,Bankruptcy No. 04-15739(SMB).
• Decision Date: 22 February 2007

361 B.R. 723 In re QUIGLEY COMPANY, INC., Debtor.
Continental Casualty Company, et al., Plaintiffs,
v.
Pfizer, Inc., et al., Defendants. Bankruptcy No. 04-15739(SMB). Adversary No. 06-1299. United States Bankruptcy Court, S.D. New York. February 22, 2007.

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Dickstein, Shapiro, Morin & Oshinsky LLP, Sanford N. Berland, Of Counsel, New York, NY, Gilbert Heintz & Randolph LLP, David B. Killalea, Jonathan M. Cohen, Of Counsel, Washington, D.C., for Defendant Pfizer, Inc.

Schulte Roth & Zabel LLP, Michael L. Cook, Lawrence V. Gelber, Of Counsel, New York, NY, for Defendant Quigley Company, Inc.

Seyfarth Shaw LLP, David C. Christian II, Robert M. Dremluk, Andrew T. Hahn, Sr., Of Counsel, New York, NY, Carroll, Burdick & McDonough LLP, Rodney L. Eshelman, Gretchen A. Ramos, Shay A. Gilmore, Of Counsel, San Francisco, CA, for Plaintiffs Continental Casualty Company and Continental Insurance Company.

Steptoe & Johnson LLP, John D. Lovi, James E. Rocap, George R. Calhoun, Justin F. Capuano, Of Counsel, New York, NY, for Defendant Travelers Casualty & Surety Company.

Hogan & Hartson LLP, William J. Bowman, Joshua D. Weinberg, David M. Posner,

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Of Counsel, New York, NY, for Defendants First State Insurance Company, Hartford Accident and Indemnity Company, New England Insurance Company, and Twin City Fire Insurance Company.

OPINION REGARDING MOTIONS TO DISMISS, TO STAY, FOR RELIEF FROM THE STAY AND OTHER RELIEF

STUART M. BERNSTEIN, Chief Judge.

Plaintiffs Continental Casualty Company ("CCC") and Continental Insurance Company ("CIC," and together with CCC, the "Plaintiffs") commenced this adversary proceeding against Pfizer, Inc. ("Pfizer"), Quigley Company, Inc. ("Quigley") — the debtor in possession and Pfizer's wholly owned subsidiary — and sixty-four other insurance companies that issued policies to Pfizer. In the main, the Plaintiffs seek a declaratory judgment that certain policies issued to Pfizer by CIC, or CIC's predecessor-in-interest, London Guarantee & Accident Company of New York ("LG & A"), exclude coverage for asbestos-related claims. Alternatively, the Plaintiffs seek to reform the CIC Policies to exclude such coverage, or if coverage exists, to apportion liability among the Plaintiffs and the various defendant insurance companies.¹ In a separate count, Count Four, the Plaintiffs seek a declaration that Pfizer and Quigley' anticipatorily repudiated the CCC and CIC policies. Guildhall Insurance Company filed a cross-claim seeking the same declaratory relief that the Plaintiffs requested in Counts One (coverage) and Two (reformation).

Pfizer and Quigley moved to dismiss the entire Complaint (and Guildhall's cross-claim) for lack of subject matter jurisdiction, and the anticipatory repudiation claim for the additional reason that it fails to state a claim. In addition, a group of defendant insurance companies (the "Certain Insurers") moved to stay the adversary proceeding and lift the automatic stay to allow arbitration of the coverage issues raised in the Complaint. Finally, four of the Certain Insurers (collectively "Hartford") moved for dismissal or abstention or a stay on the same ground.

For the reasons that follow, Counts One, Two and Three are stayed pending the completion of arbitration, and the Certain Insurers are granted relief from the automatic stay to commence arbitration. Hartford's motion to dismiss or abstain is denied, but the motion for a stay is granted. Finally, Count Four is dismissed without prejudice to the right of any party in interest to raise the same issues as an objection to confirmation.

BACKGROUND

A. Introduction

Quigley was founded in 1916 as a refractory company, and engaged in the development manufacture and sale of refractory products for the iron, steel, power generation, petroleum, chemical and glass industries. (Fourth Amended Disclosure Statement with respect to Quigley Company, Inc. Third Amended. Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated October 17, 2005 (the "Disclosure Statement"), § IV.A.1 at 30.)² Beginning

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in the 1940's and until the early 1970's, Quigley made or sold a number of products containing asbestos. (Id. § IV.A.2 at 30.)

On August 25, 1968, Pfizer acquired Quigley's stock. (Id. § IV.A.1 at 30) In 1992, Quigley sold substantially all of its assets to a third-party, and retained the liabilities stemming from products sold prior to the sale of its business. (Id. § IV.A.3 at 30.) Since then, Quigley's principal business has been the management of personal injury claims brought against it by persons allegedly exposed to asbestos-containing products formerly made, used or sold by Quigley. (Id. § IV.A.4 (a) at 31.)

In the course of its business, Pfizer purchased comprehensive general liability insurance policies to cover the cost of defending and resolving personal injury claims for itself and its subsidiaries. Pfizer's policies covered Quigley after Pfizer acquired Quigley's stock. (Id. § IV.A.5 (a) at 31-32.) CCC issued four policies to Pfizer between 1964 and 1975 (the "CCC Policies"), which were the subject of a settlement agreement, effective March 15, 1999 (the "1999 Settlement"), among Pfizer, Quigley and CCC. (¶ 80.)³ The CCC Policies' limits have been paid or are being paid pursuant to the terms of the 1999 Settlement. (Id.) The Plaintiffs do not contend that there is a coverage dispute regarding the CCC Policies.

CIC and LG & A⁴ issued liability insurance policies to Pfizer during the period of October 1, 1982 to October 1, 1984 (the "CIC Policies"). These policies also cover Quigley. (¶ 1.) The CIC Policies "follow form" to certain policies issued by Transit Casualty Company to Pfizer for the same period (the "Transit Policies"), and "exclude coverage for `claims ... arising out of asbestosis or any similar condition caused by asbestos.'" (¶¶ 1, 78-79, 83.) Pfizer was aware of the exclusion when it purchased the CIC Policies, (¶ 86), but Pfizer and Quigley now contend that the CIC Policies cover asbestos-related claims. (¶ 87.)

In addition, the defendant insurance companies issued one or more liability insurance policies that, Pfizer claims, may provide coverage for asbestos-related claims. (¶ 84.) Like the CIC Policies, some of the defendants' policies exclude coverage for asbestos claims by their terms, or "follow form" to the Transit Policies and incorporate the asbestos exclusion. (See e.g. Memorandum in Support of Motion by Certain Insurers to Stay Adversary Proceeding, dated April 21, 2006, ("Certain Insurers' Memorandum") at 7, n. 11)(ECF Doc. # 114.)

B. The Reorganization Plan

Quigley filed a voluntary chapter 11 petition on September 3, 2004, to resolve its liability for asbestos-related personal injury claims, (Disclosure Statement § V.A at 46), and filed its proposed plan on October

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6, 2005. (See Plan at 132-200.) Under the Plan, Quigley's asbestos-related liabilities, as well as Pfizer's liabilities that are based on Quigley's conduct or products, will be channeled to a trust fund (the "Asbestos PI Trust"). (Disclosure Statement § I.A at 16; Plan §§ 1.1 at 142 (defining "Asbestos PI Trust"); 9.3 at 170-72.) The channeled claims can only be pursued through, and paid from, the Asbestos PI Trust; they cannot be asserted against reorganized Quigley or Pfizer. (Disclosure Statement § I.A at 146.)

Pfizer and Quigley will transfer certain assets to fund the Asbestos PI Trust. Importantly, the "Quigley Contribution" will include Quigley's rights to the proceeds under various insurance policies and settlement agreements (i.e., the "At-Issue Policies").⁵ (See Plan § 9.3(d) at 152-153). The At-Issue Policies are identified in Exhibit C to the Plan, which lists the "Shared Asbestos Insurance Policies." (See id. at 343-350.) According to § 1.1 of the Plan, these policies cover "all or certain Asbestos PI Claims." (Id. at 155.) Quigley is contributing its rights under these policies to the Asbestos PI Trust. Pfizer will also relinquish its rights and interests in the At-Issue Policies.⁶

Two other Plan exhibits bear mention. Exhibit D, (see id. at 351-353), consists of the "Shared Asbestos-Excluded Insurance Policies," and as the title suggests, these policies "provide coverage to Pfizer and Quigley for claims other than claims alleging exposure to asbestos and/or asbestos-containing products." (Id. at 155.) Similarly, Exhibit E consists of the "Shared Asbestos-Excluded Claims-Made Insurance Policies," (Id. at 354-56), and these policies also "provided coverage to Pfizer and Quigley for certain claims other than claims alleging exposure to asbestos and/or asbestos-containing products." (Id. at 155.) Quigley is not contributing its rights under these policies to the Asbestos PI Trust. (See id. at 153 (defining "Quigley Transferred Insurance Rights").) Similarly, Pfizer is not relinquishing its rights under these policies. (Id. at 448.)

The CCC and CIC Policies are listed in Exhibit C to the Plan. In addition, Exhibit C lists the policies of most of the remaining insurer defendants. Accordingly, Quigley's rights under these policies will form part of the Pfizer and Quigley contributions to the Asbestos PI Trust, (Plan, Ex. C at 343-350; see Complaint ¶¶ 84, 87.)

The Plan has not been confirmed, and no confirmation hearing has been scheduled.

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C. The Wellington Agreement

The arbitration issues raised by the parties implicate the Wellington Agreement,⁷ entered into on June 19, 1985, by Pfizer, Quigley, CIC (but not CCC) and scores of other insurers and asbestos defendants. The Wellington Agreement was designed to address the widespread litigation of asbestos-related claims, insurance coverage disputes, and the application of differing rules of law and court decisions existing throughout the United States during the period leading up to its...