National Union Fire Ins. v. Puget Plastics
| Decision Date | 06 September 2006 |
| Docket Number | No. CIV A B-05-050.,CIV A B-05-050. |
| Citation | 450 F.Supp.2d 682 |
| Parties | NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, P.A., Plaintiff, v. PUGET PLASTICS CORPORATION, Puget Plastics Corporation, S.A. de C.V., and Wausau Business Insurance Company, Defendants. |
| Court | U.S. District Court — Southern District of Texas |
James B. Friderici, Delaney, Wiles, Hayes, Gerety, Ellis & Young, Inc., Anchorage, AK, James N. Leik, Perkins Coie, Llp, Anchorage, AK, Jeffrey Roger Parsons, David A Clark, David Alan Walton, Keith Herman Odenweller, Beirne Maynard et al, Houston, TX, for National Union Fire Ins. Co. of Pittsburgh, PA.
James B. Friderici, Delaney, Wiles, Hayes, Gerety, Ellis & Young, Inc., Anchorage, AK, James N. Leik, Perkins Coie, LLP, Anchorage, AK, Jeffrey M Feldman, Felman & Orlansky, Anchorage, AK, Steve A Bryant, Steve A Bryant & Associates, Houston, TX, Denman Hilton Heard, Heard Robins Et Al, Houston, TX, Justin Ryan Goodman, Heard Robins Cloud & Lubel, Houston, TX, for Aon Risk Services, Inc.
Jeffrey M Feldman, Felman & Orlansky, Anchorage, AK, Steve A Bryant, Steve A Bryant & Associates, Houston, TX, Denman Hilton Heard, Heard Robins et al, Houston, TX, Justin Ryan Goodman, Heard Robins Cloud & Lubel, Houston, TX, for Microtherm, Inc.
Edward Michael Rodriguez, Henri Eugene Nicolas, Rodriguez & Nicolas LLP, Brownsville, TX, Justin Ryan Goodman, Heard Robins Cloud & Lubel, Houston, TX, Steve A Bryant, Steve A Bryant & Associates, Houston, TX, for Puget Plastics Corp., Puget Plastics Corp. SA DE CV
Marjorie C Nicol, Phillips & Akers, Houston, TX, for Wausau Business Ins. Co.
Steve A Bryant, Steve A Bryant & Associates, Houston, TX, Justin Ryan Goodman, Heard Robins Cloud & Lubel, Houston, TX, for Arctic Slope Regional Corp.
Pending before the Court are: the Motion for Summary Judgment of National Union Fire Insurance Company of Pittsburgh, P.A. [Docket No. 95], Motion for Summary Judgment of Puget Plastics Corporation, Arctic Slope Regional Corporation and Microtherm, Inc. [Docket No. 99], National Union's Motion for Leave to File Sur-Reply to Arctic Slope Regional Corporation, et al.'s Reply to National Union's Response to Defendant's Motion for Summary Judgment [Docket No. 110], and National Union's Amended Motion for Leave to File Sur—Reply to Arctic Slope Regional Corporation, et al.'s Reply to National Union's Response to Defendants' Motion for Summary Judgment [Docket No. 112]. National Union's Amended Motion for Leave to File Sur—Reply to Arctic Slope Corporation, et al.'s Reply to National Union's Response to Defendant's Motion for Summary Judgment [Docket No. 112] is GRANTED. National Union's Motion for Leave to File Sur—Reply to Arctic Slope Regional Corporation, et al.'s Reply to National Union's Response to Defendant's Motion for Summary Judgment [Docket No. 110] is withdrawn as per National Union's request and is therefore DENIED as moot. The parties' cross motions for summary judgment will be addressed below.
National Union Fire Insurance Company of Pittsburgh, P.A. ("National Union") filed the instant action seeking a declaration that it does not have a duty to pay the defense costs and damages resulting from a state court lawsuit filed against Puget Plastic Corporation and Puget Plastic Corporation, S.A. de C.V. ("PPC"), and Arctic Slope Regional Corporation ("Arctic"), PPC's parent company and the named insured under National Union's policy. Microtherm, the plaintiff in the underlying suit, was in the business of manufacturing tankless water heaters. PPC manufactured component parts for the water heaters, specifically, plastic water chambers. The plastic water chambers manufactured by PPC began to fail, causing damage to the water heaters, as well as homes and businesses where the water heaters were installed.1 Due to the failure of the plastic water chambers, Microtherm filed suit against PPC and parent company Arctic in the 357th Judicial District Court of Cameron County, Texas. The jury found in favor of Microtherm, awarding at total of $36,081,807.18 against PPC, which included attorneys' fees and prejudgment interest.
Arctic had two insurance policies, a Commercial General Liability ("CGL") policy issued by Wausau Business Insurance Company ("Wausau") and a Commercial Umbrella Insurance Policy issued by National Union. When the suit was originally initiated by Microtherm, National Union issued a letter which, according to the Defendants' brief, was a reservation of rights and "denial of coverage" letter. When the case went to trial the jury made several findings against PPC. First, the jury found that PPC engaged in false, misleading or deceptive acts by: (1) "[r]epresenting that goods or services had or would have characteristics that they do not have," (2) "[r]epresenting that goods or services are or will be of a particular quality if they were of another," and (3) "[flailing to disclose information about goods or services that was known at the time of the transaction with the intention to induce Microtherm into a transaction it otherwise would not have entered into if the information had been disclosed." [Docket No. 95, Ex. 2] Second, the jury found that PPC engaged in unconscionable actions, that is, "an act or practice that, to a consumer's detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree." Id. Third, the jury found that PPC failed to comply with a warranty, specifically: (1) "[flailing to comply with an express warranty," (2) "[flurnishing or selecting goods that were not suitable for a particular purpose," and (3) "[flailing to perform services in a good and workmanlike manner." Id. Finally, the jury found that all of the above was done "knowingly," under the Texas Deceptive Trade Practices Act ("DTPA"). Id. The jury did not find liability or attribute any of the damages to Arctic, PPC's parent company. Id. Although the jury also found that PPC committed fraud, Microtherm elected to pursue its recovery under the DTPA causes of action. Id.
After entering a final judgment in favor of Microtherm, the state district court ordered the parties to mediation. National Union was invited to participate in the mediation, but refused. At the mediation Wausau tendered its policy limits of one million dollars on behalf of the defendants in the underlying suit. Arctic paid Microtherm an additional two million dollars, despite the fact that the judgment stated Microtherm should "take nothing" from Arctic,2 and PPC assigned any and all rights it had under the National Union policy to Microtherm under the agreement that Microtherm would not execute on the judgment against PPC. [Docket No. 95, Exs. 3, 4 & 5] PPC further agreed to aid Microtherm by providing all relevant documents, taking no action to interfere with Microtherm's rights under the assignment, and making witnesses available to Microtherm. [Docket No. 95, Ex. 5]
National Union responded by filing a declaratory judgment action against Arctic in Alaska and against PPC in this Court. The Alaska action was subsequently transferred to this Court and Microtherm intervened. National Union now seeks a declaration that it has no duty to pay the judgment under its umbrella policy. Meanwhile, PPC and Microtherm seek payment of the state court judgment under the umbrella policy, and Arctic seeks reimbursement of the two million dollars paid at the mediation.
The central issue in this case is whether the state court judgment is covered under the policy issued by National Union.3 The "Coverage" section of the policy states:
[National Union] will pay on behalf of the Insured those sums in excess of the Retained Limit that the Insured becomes legally obligated to pay . . . because of Bodily Injury, Property Damage, Personal Injury or Advertising Injury that takes place during the Policy Period and is caused by an Occurrence . . .
[Docket No. 95, Ex. 6, ¶ I] PPC, Arctic and Microtherm (hereinafter "Defendants") argue that there was an "Occurrence" and, alternatively, that they need not prove an occurrence because there was a separate grant of coverage under the Products-Completed Operations Hazard section of the policy. In determining whether there is coverage for the damages awarded in the underlying action, the Court will address three issues in this order: (A) whether there was a separate grant of coverage under the Products—Completed Operations Hazard, (B) whether there was or could have been an "occurrence" under the policy, and (C) whether consequential damages are covered under the policy.
Defendants argue that the Products—Completed Operations Hazard ("PCOH") coverage is a separate grant of coverage which does not require an occurrence. [Docket No. 124] Urging that there is PCOH coverage, Defendants claim that the definition of PCOH is more than merely a definition because it "tells the insured what is included and excluded," and, in an effort to avoid the "occurrence" requirement under the policy's grant of coverage, explains that "the language of the insuring agreement is written broadly to provide protection for bodily injury and property damage without reference to the cause." Id. (emphasis original). The Court cannot accept this interpretation of the PCOH coverage.
PCOH coverage is discussed in two sections of the policy, the limits of insurance section and the definitions section. [Docket No. 95, Ex. 6, § III and ¶ IV] The policy states that:
Products Completed Operations Hazard includes all Bodily Injury and Property Damage occurring away from premises you own or rent and arising out of Your Product or Your Work except:
a. products that are still in your physical possession; or
b. work that has not yet been completed or abandoned.
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