OneBeacon Am. Ins. Co. v. Colgate-Palmolive Co.

• Decision Date: 28 October 2014
• Docket Number: 651193/11, 12637
• Court: New York Supreme Court — Appellate Division
• Parties: ONEBEACON AMERICA INSURANCE COMPANY, Plaintiff, v. COLGATE–PALMOLIVE COMPANY, et al., Defendants. Colgate–Palmolive Company, Counterclaim Plaintiff–Respondent, v. OneBeacon America Insurance Company, Counterclaim Defendant, National Indemnity Company, et al., Counterclaim Defendants–Appellants.

123 A.D.3d 222

995 N.Y.S.2d 35

2014 N.Y. Slip Op. 07315

ONEBEACON AMERICA INSURANCE COMPANY, Plaintiff

v.COLGATE–PALMOLIVE COMPANY, et al., Defendants.

Colgate–Palmolive Company, Counterclaim Plaintiff–Respondent

v.OneBeacon America Insurance Company, Counterclaim Defendant

National Indemnity Company, et al., Counterclaim Defendants–Appellants.

651193/11, 12637

Supreme Court, Appellate Division, First Department, New York.

Oct. 28, 2014.

Simpson Thacher & Bartlett LLP, New York (Michael J. Garvey, Bryce L. Friedman, Mary Beth Forshaw and Summer Craig of counsel), for appellants.

Anderson Kill P.C., New York (William G. Passannante of counsel), for respondent.

PETER TOM, J.P., DIANNE T. RENWICK, RICHARD T. ANDRIAS, HELEN E. FREEDMAN, and DARCEL D. CLARK, JJ.

Opinion

FREEDMAN, J.

In this dispute between plaintiff OneBeacon America Insurance Company (OneBeacon) and its insured, defendant counterclaim plaintiff Colgate–Palmolive Company (Colgate), counterclaim defendant National Indemnity Company (NICO), OneBeacon's reinsurer, and its affiliated claims adjuster, counterclaim defendant Resolute Management, Inc. (Resolute), appeal from an order partially denying their motion to dismiss all of the counterclaims asserted against them pursuant to CPLR 3211(a)(7). Based on the total absence of a contractual relationship between Colgate and the counterclaim defendants, we reverse and dismiss the remaining counterclaims.

The underlying dispute between Colgate and OneBeacon arose over OneBeacon's right, under the more than 50 primary and excess liability policies it issued to Colgate (the Policies),¹ to control Colgate's defense against more than 20 lawsuits alleging personal injury caused by exposure to Colgate's talc products, which allegedly contained asbestos (the Talc Cases.) OneBeacon alleges that Colgate has not allowed it to control the defense of these cases, rejected the defense counsel and strategy that OneBeacon selected, and insisted on selecting its own independent counsel.

In March 2013, OneBeacon filed this action, seeking, among other things, a declaration that under the Policies at issue, OneBeacon has the exclusive right to control Colgate's defense and choose its counsel. OneBeacon further seeks a declaration that it is not obligated to indemnify Colgate in any Talc Cases that Colgate defends, settles, or tries without OneBeacon's consent.

Colgate counterclaimed against OneBeacon and joined NICO and Resolute as counterclaim defendants. Only the counterclaims against NICO and Resolute are before us.² Colgate alleges that OneBeacon's contractual relationship with NICO and Resolute created a conflict of interest because they serve a dual role as both the reinsurer of OneBeacon's liability under the Policies and the claims adjuster under those Policies. Colgate asserts, among other things, that although it wants to vigorously defend the Talc Cases to deter copycat lawsuits, NICO and Resolute want to settle the cases to minimize the legal expenses.

The relevant, undisputed facts are as follows: During an extended period ending in 1983, the Policies were either purchased directly from OneBeacon or from two of its predecessors.³ In 2001, OneBeacon and NICO entered into an Aggregate Loss Portfolio Reinsurance Agreement (the Reinsurance Agreement) and a related Administrative Services Agreement (the Services Agreement). Under the Reinsurance Agreement, in exchange for a $1.25 billion premium, NICO agreed to provide OneBeacon with $2.5 billion of reinsurance coverage for the carrier's liability under the Policies. The coverage encompassed OneBeacon's liability for Colgate's “asbestos related losses.”

The Reinsurance Agreement further provided that, in accordance with the Services Agreement, OneBeacon appointed NICO “to perform all administrative services” connected with the Policies, including the settlement or payment of the reinsured claims. Finally, the Reinsurance Agreement stated that it was an indemnity insurance agreement solely between OneBeacon and NICO, and that no one other than those two parties had any rights under the contract.

In 2004, NICO and Resolute entered into an Intercompany Service Agreement (Intercompany Agreement), under which Resolute agreed, while acting as NICO's agent, to adjust Colgate's claims under the Policies. The Intercompany Agreement also provided that it could not be assigned and that NICO and Resolute did not intend the contract to confer any rights on third parties.

In 2008, the first Talc Case was filed in Supreme Court, New York County. After Colgate notified OneBeacon about the lawsuit, Resolute responded to Colgate by letter stating that it was handling the coverage claims on OneBeacon's behalf. Colgate objected and engaged counsel without consulting OneBeacon. Thereafter, OneBeacon commenced this action and Colgate counterclaimed.

On appeal, five of Colgate's counterclaims are before us: a counterclaim against Resolute for a declaration that it is entitled to independent counsel and that Resolute is prohibited from obstructing its defense of the Talc Cases (first counterclaim); a breach of contract claim against NICO (third); a claim for tortious interference with contract against Resolute (fifth); a claim for breach of the implied covenant of good faith and fair dealing against NICO (seventh); and a statutory claim against Resolute for violation of Massachusetts General Law c. 93A (ninth).⁴

We find that none of these counterclaims states a cause of action. Turning to the breach of contract counterclaim against NICO, Colgate alleges that, by entering into the Reinsurance Agreement, OneBeacon either assigned its rights and obligations under the Policies to NICO, or NICO assumed those rights and obligations. According to Colgate, NICO thereby became contractually obligated to it as the insured and NICO breached its contractual obligations by refusing to acknowledge Colgate's choice of counsel and refusing to pay the legal fees.

Colgate's claims raise the issue of whether an insurance policyholder has rights against its carrier's reinsurer, if the reinsurer administers the insured's claims under the policy. In a typical reinsurance arrangement, where the carrier administers claims and the reinsurer merely indemnifies it in accordance with the “follow the fortunes” doctrine (see United States Fid. & Guar. Co. v. American Re–Ins. Co., 93 A.D.3d 14, 23, 939 N.Y.S.2d 307 [1st Dept.2012], mod. 20 N.Y.3d 407, 962 N.Y.S.2d 566, 985 N.E.2d 876 [2013] ), the insured can only state viable claims against the reinsurer in specific circumstances that do not pertain here. In this case, Colgate only holds the Policies with OneBeacon. The carrier's reinsurer, NICO, and its affiliate, Resolute, both adjust Colgate's Policy claims and indemnify OneBeacon for claim payouts. NICO's and Resolute's dual role does not, however, give rise to any liability to Colgate because Colgate lacks contractual privity with NICO and Resolute. In the absence of privity, Colgate's breach of contract claims against NICO and Resolute fail.

The Reinsurance Agreement, which is a contract only between NICO and OneBeacon, is separate and distinct from the underlying Policies (see Unigard Sec. Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576, 582, 584 N.Y.S.2d 290, 594 N.E.2d 571 [1992] ). Colgate lacks standing to state a claim against NICO for breach of the underlying Policies because NICO is not a party to those contracts (see id. at 583, 584 N.Y.S.2d 290, 594 N.E.2d 571 ; Aces Mech. Corp. v. Cohen Bros. Realty & Constr. Corp., 136 A.D.2d 503, 504, 523 N.Y.S.2d 824 [1st Dept.1988] [finding “no basis for holding the ... defendant liable for the breach of a contract to which it was not a party”] ).

Colgate claims that NICO is liable under the Policies because either OneBeacon “assigned” contractual rights and obligations under the Policies to NICO, or NICO assumed obligations under the Policies. But nothing in the Reinsurance Agreement suggests an assignment or assumption. Rather, the contract indicates OneBeacon's appointment of NICO as its claims administrator for the Policies. In turn, under the Intercompany Agreement, NICO engaged Resolute to perform services for it, delegating to Resolute the obligation to fulfill its duties to OneBeacon. If...