A.P.I., Inc. v. Home Ins. Co., Civil No. 09–975 (JRT/TNL).

• Decision Date: 30 March 2012
• Docket Number: Civil No. 09–975 (JRT/TNL).
• Parties: A.P.I., INC., ASBESTOS SETTLEMENT TRUST and A.P.I., Inc., Plaintiffs, v. HOME INSURANCE COMPANY, Zurich American Insurance Company, Zurich–American Insurance Company Of Illinois, Steadfast Insurance Company, Zurich Insurance Company (Switzerland), American Guarantee and Liability Insurance Company, American Zurich Insurance Company, and Orange Stone Reinsurance (Ireland), Defendants.
• Court: U.S. District Court — District of Minnesota

877 F.Supp.2d 709

A.P.I., INC., ASBESTOS SETTLEMENT TRUST and A.P.I., Inc., Plaintiffs,

v.HOME INSURANCE COMPANY, Zurich American Insurance Company, Zurich–American Insurance Company Of Illinois, Steadfast Insurance Company, Zurich Insurance Company (Switzerland), American Guarantee and Liability Insurance Company, American Zurich Insurance Company, and Orange Stone Reinsurance (Ireland), Defendants.

Civil No. 09–975 (JRT/TNL).

United States District Court,

D. Minnesota.

March 30, 2012.

John H. Faricy, Jr., Vadim Trifel, Faricy Law Firm, P.A., Minneapolis, MN, for plaintiffs.

Peter G. Van Bergen and Andrea E. Reisbord, Cousineau McGuire Chartered, Minneapolis, MN, Richard Mancino and Christopher J. St. Jeanos, Wilkie Farr & Gallagher LLP, New York, NY; and Joseph G. Davis, Wilkie Farr & Gallagher LLP, Washington, D.C., for defendant Home Insurance Company.

Peter G. Van Bergen, Kimberly Fleming, and Andrea E. Reisbord, Cousineau McGuire Chartered, Minneapolis, MN; Richard Mancino, Gregory E. Reid, and Christopher J. St. Jeanos, Wilkie Farr & Gallagher LLP, New York, NY; and Joseph G. Davis, Johanna M. Hickman and Michael P. Trahar, Wilkie Farr & Gallagher LLP, Washington, DC, for defendants Zurich American Insurance Company, Zurich–American Insurance Company of Illinois, Steadfast Insurance Company, Zurich Insurance Company (Switzerland), American Guarantee and Liability Insurance Company, American Zurich Insurance Company, and Orange Stone Reinsurance (Ireland).

MEMORANDUM OPINION AND ORDER ON CROSS–MOTIONS FOR SUMMARY JUDGMENT

JOHN R. TUNHEIM, District Judge.

Plaintiffs A.P.I., Inc. Asbestos Settlement Trust and A.P.I., Inc. (collectively “API”) seek to recover from defendants other than Home (collectively “Zurich”) on vicarious and successor liability theories. API now moves for summary judgment on its respondeat superior theory only. Zurich moves for summary judgment on all of API's claims. Because the Court finds that API's vicarious and successor liability theories fail as a matter of law, the Court will deny API's motion for partial summary judgment and grant Zurich's motion.

BACKGROUND

This action is rooted in a June 2002 state court action by one of API's primary insurers seeking declaratory relief. (Am. Compl. 8, Mar. 25, 2009, Docket No. 1.) API counterclaimed against the other insurers, including Home Insurance Company (“Home”), seeking a ruling that the policies required the insurers to provide further coverage. ( Id.) The state court stayed the proceedings as to Home, which by then was insolvent and in liquidation. ( Id. ¶ 9.) API is not pursuing the stayed claims against Home, but proceeding only against Zurich. ( Id.) ¹ Following the Court's March 2010 Order, API's remaining claims are rooted in theories of vicarious See API, Inc. et al. v. Home Ins. Co., et al., 706 F.Supp.2d 926, 947 (D.Minn.2010) (dismissing direct claims against Zurich).

From the 1940s to the 1970s, A.P.I., Inc. sold, distributed, and installed materials that contained asbestos. (Am. Compl. ¶ 2.) Workers and other individuals suffering injuries from inhaling asbestos dust began asserting claims for asbestos-related injuries against API in 1986. (Docket No. 305–12.) ² API obtained insurance coveragefor asbestos-related claims from several insurers, including Home, between 1970 and 1976. (Docket No. 306–5, at 4–6.) Home and API's other primary carriers shared the responsibility of covering the asbestos claims; the carriers memorialized this agreement in a Claims Handling and Settlement Agreement (“CHSA”) in 1993. (Docket No. 305–2; Docket No. 307–1 (Huffer) (138:6–139:8).) Approximately 2,300 claims (the “Closed Claims”) were resolved under the CHSA through 2002 for which API paid little or nothing in defense or indemnity. (Docket No. 307–6 (Rachey) (66:8–22); Docket No. 321–2 (O'Malley) (67:19–68:20).)

According to API, “[d]ue to the denial of coverage by Home and other carriers, and the financial uncertainty resulting from the lack of available coverage, including pressure from API's bankers and bondholders, API ... fil[e]d for bankruptcy” in January 2005. (Aff. of Loren Rachey, July 29, 2011, Docket No. 323; Docket No. 306–10, at 4.) Under API Inc.'s reorganization plan and pursuant to 11 U.S.C. § 524(g), the United States Bankruptcy Court created the A.P.I., Inc. Asbestos Settlement Trust (the “Trust”), which assumed API Inc.'s rights and liabilities relating to the asbestos-related claims. (Am. Compl. ¶ 4.) Following API Inc.'s bankruptcy, the Trust was responsible for paying asbestos-related claims and obtained the rights to pursue API Inc.'s claims against insurers. ( Id. ¶¶ 22–23; Docket No. 306–4.) Trustee Robert Brownson since approved payments on 692 claims that were pending at the time of the bankruptcy. (Docket No. 306–2, at 4, Ex. 2.) At least 370 additional claims have been filed since the Trust began operations in February 2007. (Docket No. 307–8 (Brownson) (84:20–85:11; 106: 15–107:8).) The claims Brownson approved and the additional claims of those 370 that have been paid pursuant to the Trust Distribution Procedures (“TDP”) comprise the “Trust Claims.”

I. THE 1995 RECAPITALIZATION AND HOME'S OPERATION IN ITS WAKE

At the epicenter of the parties' dispute is what Zurich describes as the recapitalization transaction (the “Recapitalization”), a restructuring and refinancing of Home involving approval and oversight of insurance regulators from seven states. Immediately prior to the Recapitalization, Home was a commercial property and casualty insurer domiciled in New Hampshire in dire financial straits. (Gluckstern Aff. ¶¶ 12–13 June 27, 2011, Docket No. 294.) Swedish insurance company Trygg–Hansa AB (“Trygg”)—through Home Holdings Inc. (“HHI”)—invested hundreds of millions to revive Home, but was unsuccessful. (Docket No. 304–11, at 1; Docket No. 303–6, at 27; Docket No. 304–11, at 4–5; Docket No. 308–3, ¶ 16.) Following claims payment rating, Home was effectively disqualified from insuring many commercial and government accounts. (Docket No. 307–11 (Faigin) (106:6–25, 108:7–14); Docket No. 307–13 (Kramer) (70:1–72:17).) Home's revenues fell, and many of its customers and employees left. (Docket No. 307–14 (Marziano) (81:9–87:4); Docket No. 308–7, at 11–12.)

Amid Home's downward spiral, Home's parent corporation HHI, Zurich Centre Investments Limited (“ZCIL”), and several other entities committed to an Agreement in Principle whereby the parties manifested their intent to enter into various transactions to recapitalize Home and restructure its debts. (Gluckstern Aff. ¶¶ 15–19, Ex. B.) Because this Recapitalization would result in ZGIL and other Zurich companies owning more than 10% of HHI's common stock, the transaction required regulatory approval. ( Id. ¶ 17; see alsoN.H.Rev.Stat. § 401–B:2(II).) The New Hampshire Insurance Department (“NHID”), coordinating the efforts of regulatorsfrom six other states, conducted a three-month investigation of the transaction, gave notice to Home's policyholders and creditors of a public hearing on the investigation, and conducted a two-day public hearing reviewing the transaction.³ (Docket No. 294–14 (“Approval Order”) at 1, 5, 8–10.)

A. Regulatory Approval and Supervision

Specifically, the Recapitalization was subject to the approval of state insurance departments through the so-called “Form A” process, designed to ensure that proposed transactions are fair and reasonable to policyholders. (Docket No. 297–8, at 1–2; Docket No. 308–3, ¶ 14; see alsoN.H.Rev.Stat. Ann. § 401–B:2(II), (V).) The NHID, as New Hampshire-based Home's principal regulator, partnered with six other insurance departments to review the Recapitalization. (Gluckstern Aff. ¶¶ 18–23; Docket No. 308–3, at 9–10.) The regulators' primary concern was to protect this interests of Home's policyholders. (Docket No. 306–12 (Solitro) (153:23–154:6, 493:19–494:1; 41:9–24; 62:8–12).)

NHID held two days of public hearings in early April 1995; witnesses from Home, Zurich, Trygg, and experts retained by NHID testified under oath and were cross-examined. (Approval Order at 1–2; see generally Docket Nos. 300–3, 4, 5 (hr'g trs.).) More than fifty policyholders and other parties intervened. (Approval Order at 1–2.) Intervenors were allowed to conduct pre-hearing discovery, examine and cross-examine witnesses, offer evidence, and present oral and written arguments. (Docket No. 300–3 (6:17–7:3, 11:23–12:9); Docket No. 299–7.) Peter Johnson, CEO and Chairman of both Risk Enterprise Management (“REM”)—a non-party entity crucial to the dispute, discussed below—and Home from 1995 to 2003, testified that “Zurich wanted to be the majority owner of the company that managed [Home]....” (Docket No. 324–K (Johnson) (202:5–24).) Zurich “committed to insure that REM ha[d] adequate resources to me[et] its obligations” and that REM would “be able to access the Zurich actuarial, legal, insurance professionals.” ( Id. at 102:23–103:8.) The Commissioner left the record open until May 16, 1995 to allow for more comments after the hearing. (Docket No. 306–12 (Solitro) (200:4–25).)

Regulators negotiated with ZCIL and the other entities for months and extracted a number of enhancements for Home's policyholders. (Gluckstern Aff. ¶¶ 18–23; see also Docket No. 294–8; Docket No. 303–7; Docket No. 303–9.) These enhancements included:

i. An approximately $1.3–$1.6 billion reinsurance contract to replace the $590 million policy Home had with various reinsurers for no additional premium. (Approval Order at 4; Docket No. 296–4 (new agreement); Docket No. 303–3 (hr'g tr.) (25:16–26:21); Gluckstern Aff. ¶ 21.)

ii. A “portfolio value swap agreement” whereby Centre Reinsurance International agreed to provide Home a guaranteed 7.5% annual rate of return on its $3 billion investment portfolio. (Approval Order at 4.) This agreement was designed to mollify regulators' concern about uncertainty in Home's investment returns. (Docket No. 306–12 (Soli...