Nucor Corp. v. Employers Ins. Co. of Wausau

• Decision Date: 23 November 2012
• Docket Number: 1 CA-CV 10-0174,1 CA-CV 10-0454
• Parties: NUCOR CORPORATION, Plaintiff/Appellant/ Cross-Appellee, v. EMPLOYERS INSURANCE COMPANY OF WAUSAU, Defendant/Appellee/ Cross-Appellant, and HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendant/Appellant/ Cross-Appellee. NUCOR CORPORATION, Plaintiff/Appellant, v. EMPLOYERS INSURANCE COMPANY OF WAUSAU, Defendant/Appellee.
• Court: Arizona Court of Appeals

NUCOR CORPORATION, Plaintiff/Appellant/ Cross-Appellee, v. EMPLOYERS INSURANCE COMPANY OF WAUSAU, Defendant/Appellee/ Cross-Appellant, and HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendant/Appellant/ Cross-Appellee.

NUCOR CORPORATION, Plaintiff/Appellant, v. EMPLOYERS INSURANCE COMPANY OF WAUSAU, Defendant/Appellee.

1 CA-CV 10-0174

1 CA-CV 10-0454

COURT OF APPEALS STATE OF ARIZONA DIVISION ONE

Date: November 23, 2012

NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED

EXCEPT AS AUTHORIZED BY APPLICABLE RULES.

See Ariz. R. Supreme Court 111(c); ARCAP 28(c);

Ariz. R. Crim. P. 31.24

MEMORANDUM DECISION

(Not for Publication -

Rule 28, Arizona Rules of

Civil Appellate Procedure)

Appeal from the Superior Court in Maricopa County

Cause No. CV 1997-008308

The Honorable Kenneth L. Fields, Judge (Retired)

AFFIRMED IN PART; REVERSED IN PART; VACATED IN PART; REMANDED

Winston & Strawn, LLP

by Scott P. DeVries, Pro Hac Vice

Yelitza V. Dunham, Pro Hac Vice

San Francisco

and

Fennemore Craig, P.C.

by Timothy Berg

Christopher L. Callahan

Theresa Dwyer-Federhar

Attorneys for Plaintiff/Appellant/Cross-Appellee

Nucor Corporation

Phoenix

Barber Law Group

by Bryan M. Barber, Pro Hac Vice

San Francisco

and

Ryley Carlock & Applewhite PA

by John C. Lemaster

Attorneys for Defendant/Appellee/Cross-Appellant

Employers Insurance Company of Wausau

Phoenix

Gordon & Rees LLP

by David C. Capell, Pro Hac Vice

San Francisco

and

Bowman and Brook LLP

by Thomas M. Klein

Attorneys for Defendant/Appellant/Cross-Appellee

Hartford Accident and Indemnity Company

Phoenix

PORTLEY, Judge

¶1 Nucor Corporation ("Nucor"), Hartford Accident and Indemnity Company ("Hartford") and the Employers Insurance Company of Wausau ("Wausau") challenge rulings that resolved the dispute between Nucor and its insurance carriers over payment ofindemnity and defense costs. For the reasons set forth in our companion opinion and as follows,¹ we affirm in part, reverse in part, vacate in part, and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

¶2 After the City of Phoenix discovered trichloroethylene (TCE) in its public wells in 1982, the Arizona Department of Environmental Quality ("ADEQ") began an investigation that resulted in the determination that Nucor had contributed to the groundwater contamination because it had used TCE as a cleaning solvent when it owned an electronics manufacturing plant. ADEQ sent Nucor a letter in 1989 identifying it as a potentially responsible party and directing it to prepare a remedial investigation and feasibility study. Nucor subsequently settled with ADEQ.

¶3 While the parties were seeking court approval of the settlement, Nucor was sued in a class action lawsuit in February 1992.² A year later, Nucor was sued in a different class action lawsuit,³ and the lawsuits were consolidated. The consolidated lawsuits resulted in three classes of plaintiffs: (1) those who sought expenses for future medical monitoring because of TCEexposure ("medical monitoring claims"); (2) those who sought damages for the diminution in the value of their property because of the stigma of being located above groundwater containing TCE ("stigma claims"); and (3) those who suffered personal injuries or death allegedly caused by the contamination. The class action litigation subsequently settled in January 2003 for $21 million.⁴

¶4 Nucor filed this lawsuit in 1997 against Hartford and another insurer for declaratory relief and damages for breach of contract and breach of the covenant of good faith and fair dealing because they refused to defend Nucor or provide indemnity for the ADEQ action or the class action litigation. Nucor amended the complaint a year later to add additional claims and carriers, including Wausau, American Mutual,⁵ and Travelers. Wausau was the only carrier that reserved its rights in the ADEQ action, and it provided a defense in the class action litigation under a reservation of rights.

¶5 Travelers and Wausau filed a successful motion for partial summary judgment and the trial court dismissed Nucor's claim that the carriers had to pay indemnity for the portion of the class action settlement attributed to the stigma claims.

Nucor subsequently filed motions for summary judgment but settled with Hartford, Travelers, Twin City, and First State before any ruling. The court then granted Nucor partial summary judgment for Wausau's failure to defend the ADEQ proceeding and denied Wausau's motion for partial summary judgment that it did not have to pay indemnity for the class action settlement attributed to the medical monitoring claim because of genuine issues of material fact.

¶6 Wausau filed a cross-complaint against Hartford and Travelers seeking declaratory relief, equitable indemnity and equitable contribution for any costs it would have to pay related to the ADEQ proceeding and class action litigation. Nucor unsuccessfully requested to be substituted as the indemnitor because Travelers had, in its earlier settlement, assigned its contribution rights and liabilities to Nucor, and Nucor had agreed to defend and hold Hartford harmless concerning equitable claims brought by co-insurers. The court, however, allowed Nucor to intervene.

¶7 The court then divided the remaining issues into four phases. Phase I focused on Nucor's reasonable and necessary defense costs. Phase II focused on the percentage of defense costs owed by the primary insurers, Travelers, Hartford, Wausau, and American Mutual. Phase III concentrated on the allocation of Hartford's settlement to defense and indemnity costs.

Finally, Phase IV addressed Traveler's contribution and indemnity claims against Wausau that Nucor pursued as Traveler's assignee.

¶8 Phase I was resolved by a bench trial. Nucor sought nearly $22 million in defense costs for work performed by multiple law firms, including Piper Marbury, arising from the environmental contamination litigation. In its findings of fact and conclusions of law, the court deducted: (1) all the fees billed by Piper Marbury after determining those fees were not reasonable or necessary; (2) the defense costs associated with the stigma claim ruling, which resulted in a nine percent deduction; and (3) another sum of nearly $319,000 after adjusting the rates for Phoenix area counsel. The court found that the total reasonable and necessary defense costs were $15,770,141.31.

¶9 The court then considered reimbursements paid by Wausau and Travelers of $10,310,029 and $5,506,810, respectively, as offsets, and determined that Nucor was entitled to recover $726,837.13 in damages for defending the ADEQ proceeding, plus prejudgment interest. The court also found that Nucor was entitled to prejudgment interest on the principal amount of Nucor's loss related to the ADEQ defense costs of $1,031.645.50. The court, moreover, found that Wausau was entitled to recover $46,698.36 it overpaid for Nucor's defensecosts in the class action litigation, plus prejudgment interest from April 22, 2003, the date of Wausau's final payment in that litigation. After considering the offsets, the court found that Wausau owed Nucor $1,699,496.27 as of December 6, 2005.

¶0 Phase II was also resolved by a bench trial. The trial focused on: (1) the percentage of Nucor's defense costs that each primary insurer should pay; (2) whether other insurers were liable to Wausau for prejudgment interest on their respective shares; and (3) whether Nucor should pay the share otherwise allocated to American Mutual, the insolvent insurer.⁶

¶11 The court adopted a time-on-the-risk allocation among the insurers and required Travelers and Hartford to reimburse Wausau for prejudgment interest to the extent that the two carriers had not paid their fair shares of Nucor's defense costs. The court also determined that the equitable contribution percentages between the insurers would be as follows: Travelers - 64.7%; Hartford - 13%; Wausau - 17.3%; and Nucor/American Mutual - 5%. In setting the percentages, the court refused to apply the terms of the interim May 1992 defense agreement between Nucor and Wausau in the class action litigation — which would have required Wausau to pay 3.55% ofthe defense costs — because the agreement was not intended to bind Wausau in any action against other primary insurers. The court subsequently entered an order that Hartford had to pay Wausau $2,006,131.99 plus prejudgment interest starting on or before April 22, 2003, the last date Wausau paid for defense costs.

¶12 The Phase III issue — whether Wausau breached its insurance contract with Nucor — was resolved by a jury trial. The jury concluded that Wausau had breached its contract with Nucor and that Wausau owed Nucor $887,150 for the unpaid portion of Nucor's indemnity claim. The court denied Wausau's post-trial motion for judgment as a matter of law seeking a full offset of Hartford's $4.9 million settlement payment, but reduced the damages to $374,365.00 because Nucor had not timely disclosed certain settlement amounts. The court awarded attorneys' fees and costs to Nucor and against Wausau for 17.3% of the total fees and costs incurred in the action against the insurers pursuant to Arizona Revised Statutes ("A.R.S.") section 12-341.01(A) (West 2012). The court also awarded attorneys' fees to Wausau for its equitable contribution claim against Hartford, First State, Twin City, and Travelers.

¶13 The court entered its amended final judgment incorporating rulings from Phases I, II, and III in January 2010 pursuant to Arizona Rule of Civil Procedure ("Rule") 54(b).

Nucor, along with Hartford, Twin City, and First State filed appeals and Wausau filed a cross-appeal.

¶14 Before the final resolution of the earlier phases, the court turned to Phase IV to decide whether Nucor, as the assignee of Travelers, could recover the $4.3 million Travelers paid to Nucor for its contribution and indemnity claims against Wausau. The court noted that factual issues remained regarding "[t]he pro rata amount payable by each...