Rockwell Auto. v. Nat. Union Fire Ins., Pitts., Pa

• Court: U.S. Court of Appeals — Seventh Circuit
• Writing for the Court: Manion
• Citation: Rockwell Auto. v. Nat. Union Fire Ins., Pitts., Pa, 544 F.3d 752 (7th Cir. 2008)
• Decision Date: 12 September 2008
• Docket Number: No. 07-2848.,07-2848.
• Parties: ROCKWELL AUTOMATION, INC., Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant, Cross Plaintiff-Appellant, v. Travelers Indemnity Company, as successor in interest to Gulf Insurance Company, and Federal Insurance Company, Defendants, Cross Defendants-Appellees.

544 F.3d 752

ROCKWELL AUTOMATION, INC., Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant, Cross Plaintiff-Appellant, v. Travelers Indemnity Company, as successor in interest to Gulf Insurance Company, and Federal Insurance Company, Defendants, Cross Defendants-Appellees.

No. 07-2848.

United States Court of Appeals, Seventh Circuit.

Argued May 8, 2008.

Decided September 12, 2008.

Jeffrey O. Davis, Quarles & Brady, Milwaukee, WI, for Plaintiff.

Matthew J. Fink (argued), Bates & Carey, Chicago, IL, for Defendant, Cross Plaintiff-Appellant.

Thomas A. Gilligan, Jr. (argued), Murnane Brandt, St. Paul, MN, Todd S. Schenk (argued), Tressler, Soderstrom, Maloney & Priess, Chicago, IL, for Defendants, Cross Defendants-Appellees.

Before MANION, EVANS, and WILLIAMS, Circuit Judges.

MANION, Circuit Judge.

Following a state court trial in Missouri, a jury found Rockwell Automation, Inc. ("Rockwell") liable for damages exceeding $97 million. The court also awarded post-judgment interest which eventually accrued to over $18 million. Rockwell's excess insurers, National Union Fire Insurance Company of Pittsburgh ("National Union"), Federal Insurance Company ("Federal"), and Gulf Insurance Company ("Gulf") refused to pay the post-judgment interest, and Rockwell filed suit in Wisconsin state court seeking indemnification. The insurers removed the action to federal court. National Union settled with Rockwell, paid the post-judgment interest, and then filed cross-claims against the other excess insurers seeking to recoup the $18 million. The district court granted motions to dismiss and for summary judgment filed by Federal and Travelers Indemnity Company ("Travelers"), Gulf's successor in interest. The motions were granted based on the district court's conclusion that the general coverage sections of Federal and Gulf did not make them responsible for payment of post-judgment interest, and that National Union's assumption of Rockwell's defense obligated it to pay the post-judgment interest under its policy. National Union appeals the entry of judgment against it on these bases, as well the district court's determination that National Union's policy should be construed under Wisconsin law thus making it responsible for all of the post-judgment interest that accrued on the judgment against Rockwell. We affirm.

I.

This case arises out of a negligence and products liability lawsuit filed in 2001 in Jackson County, Missouri. Kansas City Power and Light ("KCPL") sued those it believed responsible for a natural gas explosion which occurred on February 17, 1999, and caused hundreds of millions of dollars in damage. Among the defendants was Rockwell, whose excess insurers are the parties in this appeal. The case proceeded to trial, and on March 4, 2004, the jury returned a verdict assessing KCPL's damages at $452 million, and finding Rockwell 30% at fault. After it applied credits for settlements between KCPL and other defendants, the trial court determined that Rockwell's portion of the jury verdict was $97,622,191.16. The trial court also determined, however, that based on limiting language in the contract between Rockwell and KCPL, Rockwell's liability should be reduced to $190,867. KCPL appealed, and the Missouri Court of Appeals reversed the trial court's decision to reduce the judgment. The lower court was directed not only to reinstate its original judgment, but to award post-judgment interest from August 12, 2004, the date the judgment was originally entered.

Rockwell had several layers of insurance coverage relevant to the liability it incurred in the Missouri suit. First, it was self-insured for $2 million per occurrence and held a policy with Travelers providing $1 million in excess general liability coverage. Next, National Union issued an excess general liability policy with coverage up to $50 million over the $3 million in underlying coverage. Federal issued an additional $50 million excess policy to Rockwell, and a third $50 million excess policy was issued by Gulf.¹ The questions before us on appeal relate to coverage under the three $50 million excess policies.²

The National Union policy begins with a general coverage section entitled "Coverage." In that section, National Union states that it

will pay on behalf of the Insured those sums in excess of the Retained Limit that the Insured becomes legally obligated to pay by reason of liability imposed by law or assumed by the Insured under an Insured Contract because of Bodily Injury, Property Damage, Personal Injury or Advertising Injury that takes place during the Policy Period and is caused by an Occurrence happening anywhere in the world.

A section entitled "Defense" follows and states, in pertinent part, that whenever National Union assumes the defense of any claim or suit, it will pay

. . .

d. pre-judgment interest awarded against the Insured on that part of the judgment we pay. If we make an offer to pay the applicable Limit of Insurance, we will not pay any pre-judgment interest based on that period of time after the offer;

e. all interest that accrues after entry of judgment and before we have paid, offered to pay or deposited in court the part of the judgment that is within our applicable Limits of Insurance.

The Federal policy lists the National Union policy as underlying insurance, and states in its coverage section that Federal "will pay that part of loss, covered by this insurance, in excess of the limits of Underlying Insurance." The Federal policy does not expressly mention payment of post-judgment interest. The Gulf policy also lists the National Union policy as underlying insurance, and its coverage section provides that Gulf will "indemnify the Insured that amount of loss which exceeds the amount of loss payable by the underlying policies described in the Declarations . . . ." Like the Federal policy, the Gulf policy makes no express mention of payment of post-judgment interest.

While not expressly mentioning post-judgment interest, both policies contain language indicating that they follow form with the National Union policy. The Federal policy provides that "[t]he terms and conditions of Underlying Insurance are made a part of this policy, except with respect to any contrary provision contained in this policy." The Gulf policy likewise provides that, subject to certain exceptions irrelevant here, "this policy shall apply in like manner as the underlying insurance." Therefore, the terms of the National Union "Defense" section, and specifically those covering payment of post-judgment interest, are subject to our review in determining the obligation of Federal and Travelers to pay post-judgment interest. See Sphere Drake Ins. Ltd. v. All Am. Ins. Co., 256 F.3d 587, 589 (7th Cir.2001) (noting that it is the essence of a follow-form policy to follow the underlying policy in every respect except where specifically mentioned); see also Houbigant, Inc. v. Fed. Ins. Co., 374 F.3d 192, 203 (3rd Cir.2004) (noting that under a follow-form policy "coverage issues presented turn solely on the interpretation of the underlying polic[y]").

Because Rockwell was self-insured for the initial $2 million of its coverage, it retained and paid for its own trial counsel, Steven P. Sanders. The record shows that National Union, Federal, and Travelers were, at the very least, being kept abreast of developments in the case by Sanders. National Union also retained and paid for attorney Melinda Kollross with the intention that she would, at a minimum, assist at trial by identifying and preserving appellate issues. To that end, Kollross worked on a proposed verdict form and the post-trial motions, and prepared a memorandum identifying appellate issues which she forwarded to Sanders. Towards the end of the trial, KCPL asserted the existence of a conflict with Kollross's firm, and it was decided that counsel other than Kollross would be sought to assist on post-trial motions and the appeal. Attorney Susan Ford Robertson was retained by National Union for that purpose. National Union admits that it paid Robertson's fees, but the parties dispute whether National Union alone selected Robertson, and whether primary responsibility for Rockwell's defense ever transferred from Sanders to Robertson.

Following the decision of the Missouri Court of Appeals, National Union and Federal contributed the amounts within their respective policy limits to satisfy the damages portion of the judgment. However, the three excess insurers refused to pay the post-judgment interest ordered by the appellate court prompting Rockwell to initiate this action in the Milwaukee County Circuit Court seeking indemnification. Rockwell alleged that National Union was responsible for the post-judgment interest because it had assumed Rockwell's defense after the jury verdict. It also alleged in the alternative that each of the excess insurers was responsible for payment of the post-judgment interest under the general coverage sections of their policies. The excess insurers removed the action to federal court citing 28 U.S.C. § 1332 as the basis for federal jurisdiction. National Union and Rockwell entered into a settlement where Rockwell assigned to National Union its claims against Federal and Travelers. In return, National Union payed the post-judgment interest at issue, which by that point had accrued to an amount exceeding $18 million.

National Union filed amended cross-claims against Federal and Travelers denying that it had assumed Rockwell's defense and alleging that it, Federal, and Travelers had each merely participated in defending Rockwell. National Union sought from Federal and Travelers damages to compensate it for paying the $18 million in post-judgment interest. Federal and Travelers both moved to dismiss National Union's cross-claims arguing that the general coverage sections of their policies did not obligate them to pay Rockwell's post-judgment...