Liberty Mut. Fire Ins. Co. v. JT Walker Indus., Inc.
| Decision Date | 10 February 2014 |
| Docket Number | No. 12-2350,No. 12-2256,12-2256,12-2350 |
| Court | U.S. Court of Appeals — Fourth Circuit |
| Parties | LIBERTY MUTUAL FIRE INSURANCE COMPANY; EMPLOYERS INSURANCE OF WAUSAU, a mutual company, Plaintiffs - Appellees, v. JT WALKER INDUSTRIES, INC., f/k/a Metal Industries, Inc.; MI WINDOWS & DOORS, INC., f/k/a MI Home Products, Inc., f/k/a Metal Industries, Inc. of California, Defendants - Appellants. LIBERTY MUTUAL FIRE INSURANCE COMPANY; EMPLOYERS INSURANCE OF WAUSAU, a mutual company, now known as Employers Insurance Company of Wausau, Plaintiffs - Appellants, v. JT WALKER INDUSTRIES, INC., f/k/a Metal Industries, Inc.; MI WINDOWS & DOORS, INC., f/k/a MI Home Products, Inc., f/k/a Metal Industries, Inc. of California, Defendants - Appellees. |
UNPUBLISHED
Appeals from the United States District Court for the District of South Carolina, at Charleston. Margaret B. Seymour, Chief District Judge. (2:08-cv-02043-MBS)Before GREGORY, DAVIS, and THACKER, Circuit Judges.
Affirmed in part, vacated in part, and remanded by unpublished opinion. Judge Gregory wrote the opinion, in which Judge Davis and Judge Thacker joined. Judge Davis wrote a separate concurring opinion.
ARGUED: Richard Hugh Lumpkin, VER PLOEG & LUMPKIN, P.A., Miami, Florida, for Appellants/Cross-Appellees. Charles Mitchell Brown, NELSON MULLINS RILEY & SCARBOROUGH, LLP, Columbia, South Carolina, for Appellees/Cross-Appellants. ON BRIEF: Meghan C. Moore, W. Allen Bonner, VER PLOEG & LUMPKIN, P.A., Miami, Florida; William K. Davis, Alan M. Ruley, BELL, DAVIS & PITT, P.A., Winston-Salem, North Carolina, for Appellants/Cross-Appellees. William C. Wood, Jr., NELSON MULLINS RILEY & SCARBOROUGH LLP, Columbia, South Carolina; Morgan S. Templeton, WALL TEMPLETON & HALDRUP, PA, Charleston, South Carolina; J. Mark Langdon, ELMORE AND WALL, Raleigh, North Carolina, for Appellees/Cross-Appellants.
Unpublished opinions are not binding precedent in this circuit.
Liberty Mutual Fire Insurance Company ("Liberty") filed an action in the district court seeking reimbursement under its insurance policies after settling five product defect lawsuits. Liberty insured J.T. Walker Industries, Inc. and its subsidiary MI Windows & Doors, Inc. (collectively, "MI"), named defendants in the product defect actions. Despite MI's insistence on taking the cases to trial, Liberty settled all five cases within the deductible limits of the applicable insurance policies. MI refused to pay the costs of settlements it did not desire. When Liberty sued for breach of contract, MI filed counterclaims alleging that Liberty breached both the explicit terms of the insurance policies and the implied covenant of good faith and fair dealing.
A jury found both parties liable for contract damages and also found Liberty liable for actual and punitive damages on MI's bad faith claim. The district court set aside the bad faith damages, finding that MI failed to prove actual damages and, as a result, was not entitled to punitive damages. The district court affirmed the verdict as to the breaches of contract, and refused to award litigation costs and prejudgment interest. The parties now appeal the post-trial rulings and evidentiary issues. For the reasons stated below, we affirm thedistrict court's ruling on all issues except bad faith damages. We vacate the ruling on punitive damages and remand.
MI has manufactured windows and doors for nearly sixty years. Throughout that time, MI purchased various insurance policies, providing general liability, umbrella, and excess coverage. Between 1997 and 2003, Liberty insured MI under six annual commercial general liability insurance policies ("the Policies"). The Policies conferred upon Liberty the duty and right to defend MI against lawsuits claiming property damage. They also vested in Liberty the discretion to "investigate any occurrence and settle any claim or suit that may result."
Each policy contained a $2,000,000 aggregate limit, with a limit of $1,000,000 per occurrence. The Policies also provided for a $500,000 deductible, requiring MI to reimburse Liberty up to that amount for any defense and indemnity costs incurred per occurrence. The Policies established claim handling fees, with charges ranging from $625 to $967 for each claim file Liberty opened in relation to MI's coverage.
During the time period covered by the Policies, MI was a named defendant in five property damage lawsuits in SouthCarolina. Each suit alleged that, inter alia, defective manufacturing and installation of MI windows and doors led to progressive water damage in five condominium developments. The plaintiffs in each suit were the individual homeowners and the respective homeowners' associations for each development. The plaintiffs sued MI alongside other contractors and developers involved in constructing the condominiums, alleging millions of dollars in damages for each lawsuit. The five suits were: Avian Forest, Tilghman Shores, Riverwalk, Magnolia North, and Marais.1
MI tendered each suit to Liberty, which agreed to defend MI in all five cases. Liberty retained counsel to represent MI's interests in each of the underlying lawsuits. Finley Clarke served as counsel in four cases, and Scott Taylor served as counsel in Magnolia North due to Clarke's conflict in that case. MI involved its national outside counsel, Paul Gary, in each case. Defense counsel in the underlying cases prepared andpresented reports for Liberty, MI, and Gary. During the underlying litigation, MI expressed its position, through Gary, that it desired to defend the reputation of its products and avoid settling meritless cases, lest it become an easy target for suits related to other buildings or developments.
After receiving the cases, Liberty set a reserve for each case -- an estimate of losses due to MI's potential exposure. Liberty set the reserves based upon the facts of each claim and adjusted the amounts to reflect any new information it received. Liberty used these figures to inform an evaluation of whether a given case should be tried or settled. The aggregate reserve total amounted to $475,000. Liberty also estimated costs of defending each case through trial, eventually allocating $769,310 for defense costs. Based on the evidence, these estimates, the nature of the claims, and the potential for joint and several liability, Liberty settled each of the five underlying lawsuits, despite MI's desire to proceed to trial on four of them.
Avian Forest settled first. Liberty set the Avian Forest reserve at $300,000 and estimated $96,250 in defense costs. Clarke estimated the potential liability to be between $3 million and $7 million. Clarke expressed confidence that summary judgment would not resolve the case. The plaintiffs in the case retained three sets of experts prepared to fault MI forthe property damages based on the quality of its windows. Being that the jury verdict would turn on whichever set of experts the jury found more credible, Clarke considered MI's likelihood of a favorable jury verdict to be no better than fifty percent.
Approximately one week before trial was to commence, MI learned that the claims adjuster authorized Liberty to settle MI's portion of the Avian Forest claims. MI objected to settlement, stating its intent to reject Liberty's defense and assume control of the defense through trial. In response, Liberty offered MI an opportunity to withdraw the claim for coverage, whereupon Liberty would cede full control of the defense to MI. Doing so would have released Liberty from any liability and caused MI to assume the risk of a verdict greater than the settlement amount. MI refused to release Liberty from its coverage obligations. Liberty settled Avian Forest one day later for $72,300.2
In Tilghman Shores, Liberty set a reserve of $75,000 and estimated $65,000 for defense costs. Clarke estimated potential liability in the vicinity of $6 million, not including punitive damages. He estimated settlement would cost between $300,000 and $500,000. Just as with Avian Forest, Clarke found nopossibility of a favorable summary judgment resolution and estimated no more than a fifty percent chance for a favorable jury verdict. Liberty settled Tilghman Shores for $75,000.
The next two cases, Riverwalk and Magnolia North, settled simultaneously for $400,000. For Riverwalk, Liberty estimated defense costs at $125,000 but set the reserve at $0. Clarke expressed concern that an adverse verdict in Riverwalk could result in joint and several liability between $7 million to $10 million. He doubted the possibility of a favorable summary judgment disposition, and estimated no better than a fifty percent chance of a favorable jury verdict. He also expressed concern that MI's windows in nine of the Riverwalk buildings would not meet applicable building codes. Liberty settled Riverwalk for $200,000.
In Magnolia North, Liberty estimated defense costs at $192,000 and set a reserve of $50,000. Taylor estimated damages upwards of $10 million, with an additional $3.8 million for the individual homeowners' loss-of-use claims. He was certain the conflicting expert reports would preclude summary judgment. Taylor also believed MI held a fifty percent chance of a favorable verdict if the developer remained a co-defendant. He held no expectation that the developer, who suffered a multi-million dollar liability in the Avian Forest trial, would settleprior to trial in Magnolia North.3 Liberty settled Magnolia North at the same time as Riverwalk and for the same amount -- $200,000.
The final case, Marais, was the only one for which MI expressed a desire to settle. Upon defense counsel's advice, Liberty estimated $291,000 for defense costs and set a reserve of $50,000. MI accepted some level of responsibility for damage due to its failure to remedy an improper installation. MI sought a $150,000 settlement. According to Clarke, the plaintiffs sought more than $20 million from all defendan...
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