A.P.I. Inc v. Home Ins. Co.

• Decision Date: 31 March 2010
• Docket Number: Civil No. 09-975 (JRT/JJG).
• Citation: 706 F.Supp.2d 926
• 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

706 F.Supp.2d 926

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/JJG).

United States District Court D. Minnesota.

March 31, 2010.

COPYRIGHT MATERIAL OMITTED

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

Peter G. Van Bergen, Cousineau McGuire Chartered, Minneapolis, MN for Defendant, Home Insurance Company.

Peter G. Van Bergen and Andrea E. Reisbord, Cousineau McGuire Chartered, Minneapolis, MN, Richard Mancino, Russell D. Morris, Christopher J. St. Jeanos, and Jodi B. Leibowitz, Wilkie Farr & Gallagher LLP, New York, NY, and Joseph G. Davis, Wilkie Farr & Gallagher LLP, Washington, DC, for Defendants, Zurich American Insurance Company, Zurich-American Insurance Company of Illinois, and Steadfast Insurance Company.

Peter G. Van Bergen and Andrea E. Reisbord, Cousineau McGuire Chartered, Minneapolis, MN, for Defendants, Zurich Insurance Company (Switzerland), American Guarantee and Liability Insurance Company, American Zurich Insurance Company, and Orange Stone Reinsurance (Ireland).

MEMORANDUM OPINION AND ORDER

JOHN R. TUNHEIM, District Judge.

This case is before the Court on defendants' motion for judgment on the pleadings. For the reasons set forth below, the Court grants in part and denies in part that motion.

BACKGROUND

From the 1940s to the 1970s, plaintiff A.P.I., Inc. (“API”) sold, distributed, and installed materials that contained asbestos. (Am. Compl. ¶ 2, Ex. 1, Docket No. 1.) In 1982, workers and other individuals who had suffered injuries from inhaling asbestos dust began asserting claims for asbestos-related injuries (the “asbestos-related claims”), and claimants have continued to bring actions against API since that time. ( Id.) The asbestos-related claims typically allege “injury arising out of the operations of API.” ( Id. ¶ 20.) API obtained insurance coverage from several insurers, including St. Paul Fire and Marine Insurance Company (“St.Paul”) and defendant Home Insurance Company (“Home”), to compensate individuals who brought asbestos-related claims against API. ( Id. ¶ 3, 5.)

In June 2002, St. Paul brought an action in Minnesota state court seeking a declaration that it had no continuing obligation to provide coverage to API for asbestos-related claims. ( Id. ¶ 8.) In response, API filed counterclaims against St. Paul and brought claims against other insurers, including Home, seeking a ruling that the policies required the insurers to provide further coverage for asbestos-related claims. ( Id.) Home filed a motion to dismiss on the basis that it was insolvent and in liquidation. ( Id. ¶ 9.) The state court denied the motion to dismiss but stayed the proceedings as to Home. ( Id.) API eventually settled with the other insurers (the “Settling Insurers”), but API and Home did not resolve the claims against Home. ( Id. at ¶¶ 3, 7.)

As a result of the asbestos-related claims and “the failure of its insurers to provide insurance coverage afforded by their policies to cover” those claims, API filed for bankruptcy in January 2005. ( Id. ¶ 4.) Under API'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's rights and liabilities relating to the asbestos-related claims. ( Id.) The Trust was responsible for paying asbestos-related claims and obtained the rights to pursue API's claims against insurers. ( Id. ¶¶ 22-23.)

In March 2009, API and the Trust (collectively, “plaintiffs”) filed an amended complaint in Minnesota state court “to resolve certain issues as to API's insurance coverage.” ( Id. ¶ 11.) Plaintiffs do not pursue claims that are stayed as to Home. ( Id.) Instead, plaintiffs pursue claims against Zurich American Insurance Company, Zurich-American Insurance Company of Illinois, and Steadfast Insurance companies (collectively, “Zurich”) directly and as successors-in-interest to Home. ( Id. ¶¶ 15-17.) Plaintiffs allege that Zurich is liable for Home's conduct and for Home's obligations under the Home policies. ( Id. ¶ 25.) Zurich timely removed the action to federal court. (Docket No. 1.)

I. PLAINTIFFS' CLAIMS AGAINST HOME AND AGAINST ZURICH AS SUCCESSOR-IN-INTERESTA. Plaintiffs' Factual Allegations

Plaintiffs allege that there are three relevant categories of liability coverage under the Home policies: “products-completed work,” “products/completed operations,” and “operations.” ( See Am. Compl. ¶¶ 26-27, 32, Ex. 1, Docket No. 1.) On December 12, 2001, Home advised API that under the Home policies, “Home insurance has $174,569.00 remaining in primary limits” for payment relating to asbestos-related claims. ( Id. ¶ 26.) Plaintiffs allege, however, that Home misallocated payments for many asbestos-related claims to the “products-completed work” and “products/completed operations” coverage categories. ( Id. ¶ 27.) Plaintiffs also allege that Home misrepresented that once those coverage categories were exhausted, the Home policies would not cover any remaining asbestos-related claims. ( Id. ¶ 28.) Plaintiffs allege that “bodily injury claims arising from hazards not defined within the ‘products-completed work’ and ‘products/completed operations' portions of the policies are not subject to any policy or aggregate limit.” ( Id. ¶ 29.) Plaintiffs claim that the “operations” coverage in the Home policies is also not subject to an aggregate limit and that Home did not properly allocate payments for defense or indemnity of asbestos-related claims to that coverage category. ( Id. ¶¶ 32-33.) In short, plaintiffs allege:

By improperly allocating all indemnity payments on behalf of API to the “products-completed work” or “products/completed operations” coverages, Home attempted to improperly and prematurely exhaust that coverage thus exposing API to liabilities in the Asbestos-Related Claims even though many if not all of those claims were covered under the Home policies.

( Id. ¶ 37.)

With respect to Zurich's liability, plaintiffs “allege that Zurich is now responsible for the obligations of Home under the Home policies including responsibility for Home's improper handling of the Asbestos-Related Claims.” ( Id. ¶ 38.) Plaintiffs also bring independent claims against Zurich arising out of a series of agreements that Zurich entered into with Home. ( Id.) Specifically, plaintiffs allege that Zurich and Home entered into agreements in which Zurich “obtained Home's assets and gained control over Home's activities.” ( Id. ¶ 39.) Among those agreements were a “Reinsurance Agreement” in which Zurich offered reinsurance certificates or replacement policies to Home in place of Home policies; a “Renewal Rights Agreement” providing that Home would cease writing renewal policies and would assist Zurich in assessing Home's book of business in order for Zurich to renew Home policies under Zurich's name; “Portfolio Swap Agreements,” which enabled Zurich to gain control of Home's portfolio; and “Services Agreements” in which “Zurich ‘obtained’ Home's books and records ... and opened dozens of new offices, established relationships and contacts with agents and brokers, and other infrastructure for both claims handling and underwriting aspects of Home's business. Zurich also ‘obtained’ 800 former Home employees and ‘leased 1454 Home employees.’ ” ( Id. ¶ 46.)

Plaintiffs allege that those agreements enabled Zurich to “assume [ ] daily management of Home's activities, [make] Home's claims and investment decisions and use[ ] Home's assets to pay for its own operations.” ( Id. ¶ 39.) Plaintiffs also allege that Zurich “withdrew or obtained billions in assets from Home and in return provided little or no consideration,” and that Zurich “was ... aware of Home's obligations to pay coverage to API and other insured companies,” but that Zurich did not compensate plaintiffs for Home's obligations. ( Id. ¶ 42.) Finally, plaintiffs allege that “Zurich's control and mismanagement of Home eventually lead [sic] to Home's insolvency and Home's inability to provide coverage to API. Zurich intended to withdraw Home's assets for its own gain while leaving Home unable to satisfy its coverage obligations to its insured.” ( Id. ¶ 44.) Plaintiffs allege that as a result, API was forced to file for bankruptcy and that the Trust has been left with insufficient resources to continue to pay asbestos-related claims. ( Id. ¶ 45.)

B. Plaintiffs' Claims

The amended complaint alleges fourteen causes of action. Those claims fall into three general categories. First, Counts 1-5, 7, 10-11, and 13 are claims against Home regarding Home's conduct in response to API's asbestos-related claims (the “Home Claims”). Those Home Claims seek to hold Zurich vicariously liable for Home's conduct. Second, Counts 9, 12, and 14 seek declaratory judgments on Zurich's vicarious liability for the Home Claims (the “Vicarious Liability Claims”). Third, Counts 6 and 8 are direct claims against Zurich based on Zurich's agreements with Home and Zurich's alleged raiding of Home's assets (the “Zurich Claims”).

As to the Home Claims, Counts 1 and 2 seek declaratory judgments that Home has a duty to defend, investigate and pay costs, and to pay claims for API's asbestos-related claims. ( Id. ¶ 47-58.) Count 3 alleges breach of contract and asserts that Home “breached its primary liability policies by applying defense and indemnity payment only to ‘products-completed work’ or ‘products/completed operations' coverages and by failing to defend and pay” asbestos-related claims arising out of API's operations. ( Id. ¶ 61.) Count 4 seeks contribution from Home...