Northrop Grumman Corp. v. Axis Reinsurance Co., 042220 FED3, 19-1949
|Opinion Judge:||BIBAS, CIRCUIT JUDGE.|
|Party Name:||NORTHROP GRUMMAN CORPORATION v. AXIS REINSURANCE COMPANY; NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA Axis Reinsurance Company, Appellant|
|Attorney:||Kim W. West, Alec H. Boyd Clyde & Co US, Carmella P. Keener, Cooch & Taylor Counsel for Appellant Axis Reinsurance Company Barry J. Fleishman, Pillsbury Winthrop Shaw Pittman, David J. Baldwin, Berger Harris, Counsel for Appellee Northrop Grumman Corporation Sean P. Mahoney, Edward M. Koch, Felix...|
|Judge Panel:||Before: CHAGARES, RESTREPO, and BIBAS, Circuit Judges|
|Case Date:||April 22, 2020|
|Court:||United States Courts of Appeals, Court of Appeals for the Third Circuit|
Argued: February 5, 2020
On Appeal from the United States District Court for the District of Delaware (D.C. No. 1:17-cv-01738) District Judge: Honorable Matthew W. Brann
Kim W. West, Alec H. Boyd Clyde & Co US, Carmella P. Keener, Cooch & Taylor Counsel for Appellant Axis Reinsurance Company
Barry J. Fleishman, Pillsbury Winthrop Shaw Pittman, David J. Baldwin, Berger Harris, Counsel for Appellee Northrop Grumman Corporation
Sean P. Mahoney, Edward M. Koch, Felix S. Yelin, White & Williams, Timothy S. Martin White & Williams Counsel for Appellee National Union Fire Insurance Company of Pittsburgh, Pennsylvania
Before: CHAGARES, RESTREPO, and BIBAS, Circuit Judges
BIBAS, CIRCUIT JUDGE.
In families, as in insurance disputes, "related" is a relative term. But whether they are twins, other siblings, or cousins, all members of a family are just that: related. In this appeal, we must decide whether one set of allegations against a policyholder in a class action is "related," either causally or logically, to another set in an earlier class action against the same policyholder. If so, then Axis Reinsurance has a duty to defend Northrop Grumman, the policyholder, against the latest lawsuit. If not, that duty falls on National Union Fire Insurance.
Some allegations in the two class actions are like siblings; others are more like cousins. But all of them belong to the same family. Because the District Court correctly concluded that the two class actions are related, we will affirm.
A. The insurance policies
Northrop is a large defense contractor and one of the nation's biggest companies. It offers various retirement plans to its many current and former employees. Collectively, those obligations are substantial: at the end of 2015, for instance, one of Northrop's retirement plans had more than $19 billion in assets and more than 100, 000 participants.
These retirement plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461. Under ERISA, Northrop owes strict fiduciary duties to its plan participants. See id. §§ 1002(9), (21)(A), 1104(a); Sweda v. Univ. of Pa., 923 F.3d 320, 333 (3d Cir. 2019), cert. denied, No. 19-784, 2020 WL 1496631 (U.S. Mar. 30, 2020). Because of these duties, Northrop's retirement plans put it at risk of considerable liability.
To offload some of that risk, Northrop bought several insurance policies that covered claims under ERISA and similar laws. The policies covered Northrop, its plan-management committees, and their members. They included coverage for the costs of Northrop's legal defense and, if it ultimately suffered a covered loss, indemnity for that payout.
In most material respects, Northrop's various insurance policies worked the same way. Take its 2016 policy with National Union, for example. If a party alleged a "Wrongful Act" against Northrop, meaning an "actual or alleged violation" of an employee-benefit law like ERISA, that "Claim" would trigger coverage under the policy. App. 342, 350. Northrop could then submit the "Claim" to National Union, which would have a duty to defend the lawsuit. App. 332. Under that duty, after Northrop paid the first $2.5 million of its defense costs (its self-insured retention), National Union had to fund Northrop's defense of that claim until its "final disposition," even if it was "groundless, false or fraudulent." App. 323, 332-33.
B. The coverage towers
For the years at issue (2006 and 2016), Northrop bought several layered policies with different insurers: a primary policy with National Union and a series of excess policies with other insurers. The excess policies stacked on top of the primary policy and kicked in when the primary policy reached its liability limit. Collectively, they formed a "tower" of coverage for each year, which we will call the 2006 Tower and the 2016 Tower. The terms of the policies explained how coverage responsibility could shift both vertically (among the insurers within one year's tower) and horizontally (from one year's tower to another). See generally Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes § 13.14 (19th ed. 2018) (discussing horizontal and vertical interactions).
1. Liability limits governed vertical shifts. Under the policies, coverage responsibility would shift vertically among the insurers within the same tower when a policy reached its liability limit. In 2006 and 2016, National Union's primary policies covered the first $15 million in insurable losses, defense costs, and the like. Once those liabilities reached that $15 million limit, the excess policies would kick in, each covering another $15 million tier of liability. In both years, Continental Casualty covered the first tier beyond the primary policy. Axis Reinsurance covered the second tier. To ensure uniformity among the policies within one tower, the excess policies "appli[ed] in conformance with the provisions of" National Union's primary policy, with certain limited exceptions. App. 310, 312.
2. Two clauses triggered horizontal shifts. Responsibility could also shift horizontally from one tower to another. Ordinarily, Northrop's coverage would come from the tower of the year the claim was filed. In other words, if a plaintiff sued Northrop in 2016 for a breach of its fiduciary duty under ERISA, Northrop's coverage would typically come from the 2016 Tower.
But responsibility could shift horizontally from the 2016 Tower back to the 2006 Tower if a plaintiff brought a claim in 2016 that was "related" to one filed in 2006. Two provisions in National Union's primary policies worked together to govern these horizontal shifts: the 2016 policy's "prior-notice exclusion" and the 2006 policy's "relation-back clause." The former transferred coverage from one tower to the other; the latter ensured that coverage stayed in the transferee tower.
Here is how these two clauses interacted: The 2016 policy's prior-notice exclusion disclaimed coverage for claims "arising out of . . . the same or related Wrongful Act[s] alleged . . . in any claim which has been reported [for coverage] prior to the inception of this policy." App. 397 (emphasis added). And the 2006 policy's relation-back clause accepted coverage for claims "alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged in the [first] Claim" by treating the later claim as "related to the first Claim and made at the time the first Claim was made." App. 287 (emphases added).
Thus, if a plaintiff sued Northrop in 2016 alleging "Wrongful Act[s]" that were "related" to those alleged in a lawsuit filed against Northrop in 2006, then coverage responsibility for the 2016 lawsuit would shift horizontally to the 2006 Tower. And that shift could, in turn, cause vertical ripples within the 2006 Tower: if, by 2016, National Union's primary tier of coverage in the 2006 Tower had been exhausted, then the excess insurers would become responsible for defending the later lawsuit.
C. The ERISA class actions
Over time, two classes of plaintiffs sued Northrop for breaches of fiduciary duty under ERISA. These suits triggered Northrop's 2006 and 2016 Towers, along with the policy relationships between and within them.
1. The Grabek Action. In 2006, a group of plan participants including Gary Grabek filed a class action in the Central District of California against Northrop, two of its plan-management committees, and their members. The Grabek class included participants in two retirement plans from September 28, 2000 to May 11, 2009. The operative complaint levied three claims relevant here: • Fee-capture claim: The class accused Northrop of overpaying itself for plan-management...
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