Rapid-American Corp. v. Travelers Cas. & Sur. Co., St. Paul Fire & Marine Ins. Co., & Nat'l Union Fire Ins. Co. of Pittsburgh, Pa (In re Rapid-American Corp.), Case No. 13-10687 (SMB)

• Decision Date: 07 June 2016
• Docket Number: Case No. 13-10687 (SMB),Adv. Proc. No. 15-01095 (SMB)
• Parties: In re: RAPID-AMERICAN CORPORATION, Debtor. RAPID-AMERICAN CORPORATION, THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS, AND LAWRENCE FITZPATRICK, THE FUTURE CLAIMANTS' REPRESENTATIVE, Plaintiffs, v. TRAVELERS CASUALTY AND SURETY COMPANY, ST. PAUL FIRE AND MARINE INSURANCE COMPANY, AND NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

In re: RAPID-AMERICAN CORPORATION, Debtor.

RAPID-AMERICAN CORPORATION, THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS, AND LAWRENCE
FITZPATRICK, THE FUTURE CLAIMANTS' REPRESENTATIVE, Plaintiffs,
v.
TRAVELERS CASUALTY AND SURETY COMPANY, ST. PAUL FIRE AND MARINE INSURANCE COMPANY,
AND NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendants.

Case No. 13-10687 (SMB)
Adv. Proc. No. 15-01095 (SMB)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

June 7, 2016

Chapter 11

MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTIONS FOR PARTIAL SUMMARY JUDGMENT AND GRANTING DEFENDANTS' CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT

APPEARANCES:

REED SMITH LLP
Attorneys for the Debtor and Debtor-in-
Possession
599 Lexington Avenue, 22nd Floor
New York NY 10022

Paul E. Breene, Esq.
Paul M. Singer, Esq.
Of Counsel

Page 2

GILBERT LLP
Insurance Counsel to the Official Committee
Of Unsecured Creditors and the Future
Claimants' Representative
1100 New York Avenue, NW Suite 700
Washington, DC 20005

Kami E. Quinn, Esq.
Of Counsel

MENDES & MOUNT, LLP
Attorneys for the Defendant National
Union Fire Insurance Company of
Pittsburgh, PA
750 Seventh Avenue
New York, NY 10019

Eileen T. McCabe, Esq.
R. James Bradford, Esq.
Of Counsel

CLYDE & CO US LLP
Attorneys for Travelers Casualty and
Surety Company and St. Paul Fire
and Marine Insurance Company
405 Lexington Avenue
New York, New York 10174

Daren S. McNally, Esq.
Barbara M. Almeida, Esq.
John M. Vieira, Esq.
Of Counsel

STUART M. BERNSTEIN United States Bankruptcy Judge:

Plaintiffs Rapid-American Corporation ("Rapid"), the Official Committee of Unsecured Creditors, and the Future Claimants' Representative (collectively, the "Plaintiffs") commenced this adversary proceeding seeking a declaration of coverage and damages in connection with certain excess insurance policies (the "Insurance Policies") sold by Defendants St. Paul Fire and Marine Insurance Company and Travelers Casualty and Surety Company, f/k/a The Aetna

Page 3

Casualty and Surety Company (collectively, "Travelers") and National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union," and collectively with Travelers, the "Insurers").

The parties have moved or cross-moved for partial summary judgment. The motions relate to four excess policies and raise a common issue: must the underlying insurance limits be exhausted by actual payment before the Insurers' excess liability coverage attaches? The Plaintiffs contend that payment is unnecessary; it is sufficient that the accrued (but unpaid) liabilities reach the level of the excess insurer's coverage. With one exception, the Insurers argue that their policies require actual payment of the underlying limits before liability attaches. Travelers agrees, however, that Aetna policy number XN3635WCA, covering the period January 4, 1983 to January 4, 1984, does not require exhaustion, (Memorandum of Law in Opposition to Plaintiffs' Motion and in Support of Travelers' Cross-Motion, dated Mar. 10, 2016 ("Travelers Memo"), at 1 n.1 (ECF Doc. # 59-1)), and the Plaintiffs are entitled to partial summary judgment with respect to that policy to that extent, but this does not resolve the claim that Aetna has breached its contract. The three other policies issued by the Insurers unambiguously require actual payment before liability attaches. Accordingly, the Plaintiffs' motion regarding the St. Paul policy (defined below) and cross-motion regarding the two National Union policies (defined below) are denied, and the Insurers' motions and cross-motions are granted.¹

BACKGROUND

The material facts are not disputed. Rapid is the successor to the liabilities of The Philip Carey Manufacturing Company, a company that manufactured and distributed products

Page 4

containing asbestos. In 1974, claimants began suing Rapid in asbestos-related personal injury actions. Rapid settled many of the claims, but by the time it commenced this chapter 11 case on March 8, 2013, there were approximately 275,000 asbestos-related personal injury claims pending against it.

Rapid owned numerous primary and excess liability insurance policies during the relevant periods. Beginning in 1998, Rapid reached settlements with nearly all of its insurers. In addition, a number of insurers that issued policies to Rapid became insolvent and unable to pay the full limits of those policies. Although the parties dispute the point, I assume for the purpose of the motions that Rapid has accrued liabilities that reach the level of excess coverage provided under each policy at issue on the motions. It is undisputed, however, that neither Rapid nor anyone else has actually paid through settlement, judgment or otherwise an amount sufficient to reach the level of excess coverage provided under the policies at issue.

A. The St. Paul Policy

St. Paul issued policy number 590XA6136 to Rapid, covering the period from October 31, 1974, to October 31, 1977 (the "St. Paul Policy").² The St. Paul Policy sits atop $3 million of primary coverage and $60 million of excess coverage. According to the information submitted by the Plaintiffs, the following chart summarizes the insurance underlying the St. Paul Policy:

Page 5

Policy	Alleged Annual Limit	Alleged Status
Primary: CNA	$3,000,000	Settlement or coverage-in-place
1st Excess: Lloyd's	$1,000,000	Settlement or coverage-in-place
2nd Excess: Lloyd's	$9,000,000	Settlement or coverage-in-place
3rd Excess: Lloyd's	$10,000,000	Settlement or coverage-in-place
4th Excess: CNA	$20,000,000	Settlement or coverage-in-place
5th Excess: Lumbermens	$10,000,000	Settlement or coverage-in-place
6th Excess: Midland	$10,000,000	Insolvent
7th Excess: St. Paul	$10,000,000	Subject of Litigation

(Affirmation of Paul M. Singer in Support of Plaintiffs' Motion for Partial Summary Judgment, dated January 22, 2016 ("Singer Affirmation"), Ex. B (ECF Doc. # 41).)

The St. Paul Policy "follows form," which means it incorporates the terms of the "immediate underlying policy," (see Singer Affirmation Ex. A, at p. 4 of 10), and the Plaintiffs and Travelers agree that the "immediate underlying policy" is policy number XL 145076, issued by Midland Insurance Company (the "Midland Policy"). (Plaintiffs' Consolidated Response to Travelers' Counterstatement and National Union's Statement of Undisputed Material Facts Pursuant to Local Rule 7056-1 Regarding Actual Payment, dated March 30, 2016, at 4 (ECF Doc. # 80).) The Midland Policy requires actual payment of the underlying limits before liability attaches:

The Company's obligation to pay any ultimate net loss with respect to any accident or occurrence falling within the terms of this Policy shall not attach until the amount of the applicable underlying limit has been paid by or on behalf of the Insured on account of such accident or occurrence.

(Singer Affirmation, Ex. C, at p. 3 of 5 (emphasis added) (ECF Doc. # 41-3).)

Page 6

The St. Paul Policy includes two other, common clauses which, the Plaintiffs argue, are relevant to the motions. The first, a Maintenance of Underlying Insurance clause ("Maintenance Clause"), provides as follows:

It is a condition of this Policy that the policy or policies referred to in Item 4 of the Declarations, including renewal or replacements thereof, shall be maintained, without alteration of terms or conditions, in full effect during the currency of this Policy except for any reduction or exhaustion of the aggregate limit contained therein solely by reason of losses that arise out of occurrences which take place during the period of this Policy. Failure of the insured to comply with the foregoing shall not invalidate this Policy but in the event of such failure the Company shall be liable hereunder only to the extent that it would have been liable had the insured complied therewith.

(Singer Affirmation, Ex. A, at p. 6 of 10 (emphasis added.) Second, the St. Paul Policy includes a provision, required by New York law, see N.Y. INS. LAW § 3420(a)(1), that "[b]ankruptcy or insolvency of the Insured or of the Insured's estate shall not relieve the Company of any of its obligations hereunder." (Singer Affirmation, Ex. A, at p. 6 of 10.) This provision will be referred to as the Bankruptcy Clause.

B. The National Union 1977 Policy

National Union issued policy number 122-93-43, in effect from October 31, 1977 to January 1, 1979 (the "National Union 1977 Policy"). According to the information submitted by the Plaintiffs, the following chart summarizes the primary and two levels of excess insurance coverage underlying the National Union 1977 Policy:

Policy	Alleged Annual Limit	Alleged Status
Primary: CNA	Undisclosed	Settlement or coverage-in-place
1st Excess: Northbrook	$20,000,000	Settlement or coverage-in-place
2nd Excess: CNA	$9,000,000	Settlement or coverage-in-place
3rd Excess:3 National Union	$7,000,000	Subject of Litigation

Page 7

3rd Excess: Fireman's Fund	$16,000,000	Settlement or coverage-in-place
3rd Excess: Hartford	$5,000,000	Settlement or coverage-in-place
3rd Excess: Mission Ins. Co.	$7,000,000	Insolvent
3rd Excess: City Ins. Co.	$5,000,000	Insolvent

(Singer Affirmation, Ex. B.)

The National Union 1977 Policy also "follows form" and states that "subject to all the terms and conditions set forth below . . . the insurance afforded by this policy shall follow all the terms and conditions of Policy Number to be Advised issued by Northbrook Insurance Company." (Affirmation of R. James Bradford in Support of National Union's Cross-Motion for Summary Judgment that the Coverage Obligations of National Union's Excess Policies Do Not Attach Until All Underlying Coverage Is Exhausted by Actual Payment of Claims or Losses, dated March 10, 2016 ("Bradford Affirmation"), Ex. A, at p. 2 of 3 (ECF Doc. # 60).) Although it does not identify the underlying form that it follows, the parties...