The Charter Oak Fire Ins. Co. v. Am. Capital
| Decision Date | 09 March 2011 |
| Docket Number | Civil Action No. DKC 09-0100 |
| Parties | THE CHARTER OAK FIRE INSURANCE COMPANY, et al. v. AMERICAN CAPITAL, LTD., et al. |
| Court | U.S. District Court — District of Maryland |
Defendant American Capital, Ltd. ("American Capital") is a fund that invests in other companies. One of its purported investments, Defendant Scientific Protein Laboratories, LLC ("SPL"), was allegedly involved in the sale and distribution of a tainted drug. Now, American Capital and SPL find themselves embroiled in several lawsuits in several courts. American Capital wants its insurers, Plaintiffs The Charter Oak Fire Insurance Company ("Charter Oak") and Travelers Property Casualty Company of America ("Travelers"), to defend and indemnify those suits. The insurers resisted and filed this action, wherein they seek to rescind or reform the relevant insurance contracts and ask the court to declare that neither insurer is required to defend or indemnify Defendants in the underlying suits.
American Capital and its co-defendants in this case have now filed a partial motion to dismiss. (ECF No. 49). Theissues are fully briefed and the court now rules, no hearing being deemed necessary. See Local Rule 105.6. For the reasons that follow, Defendants' motion will be granted in part and denied in part.
From 2006 to 2009, American Capital purchased three primary insurance policies and three umbrella insurance policies from Charter Oak and Travelers (the "Policies"). (ECF No. 44, Am. Compl. ¶¶ 15-20). The Policies cover general commercial liability over three one-year periods, each beginning on June 14: (1) 2006 to 2007, (2) 2007 to 2008, and (3) 2008 to 2009. (Id. ¶¶ 15, 18). Charter Oak issued the primary policies, which each carry liability limits of $1 million per occurrence and $2 million aggregate. (Id. ¶¶ 15, 16). Travelers issued the umbrella policies, which contain varying limits on liability: the 2006-2007 umbrella policy provided $10 million in limits, while the 2007-2008 and 2008-2009 policies provided $20 million in limits. (Id. ¶¶ 18, 19, 113). The Policies list American Capital as the Named Insured.
Like most insurance contracts, the Policies included certain limitations and exclusions. Some of these provisions are particularly relevant in this action. One provision, for instance, provides that "[n]o person or organization is an insured with respect to the conduct of any current or past... joint venture... that is not shown as a Named Insured in the Declarations." (Id. ¶ 89). The Policies limit coverage to injuries that occurred during the policy period and were unknown to American Capital before that period. (Id. ¶ 101-102). Only American Capital and those entities over which American Capital maintained "ownership or majority interest on the effective date of the policy" are insureds (id. 11 106-107), and the Policies do not cover partnerships, joint ventures, or limited liability companies (id. ¶¶ 108-109). Nor do they cover injuries occurring before or more than 180 days after the acquisition or formation of a subsidiary. (Id. ¶¶ 108-109). The umbrella policies contain an "other insurance" clause, which states that the policy does not apply wherever "any other valid and collectible insurance" is available. (Id. ¶ 113).
The Policies also impose certain obligations on American Capital. In particular, the Policies require American Capital to notify Plaintiffs of any claims arising under the Policies. (Id. ¶¶ 110-112). In addition, the Policies contain a "noaction" clause, which forbids any insured from "voluntarily mak[ing] a payment, assum[ing] any obligation, or incur[ing] any expense, other than for first aid, without [Plaintiffs'] consent." (Id. ¶ 93).
American Capital has sought insurance coverage for itself and its purported subsidiaries for two classes of lawsuits.
The first and most important class is a group of lawsuits concerning heparin.2 In those suits, American Capital and SPL have been forced to defend several claims that stem from "deaths and injuries from allegedly tainted heparin." (Id. ¶ 21). In particular, the lawsuits assert that one or more ingredients of certain heparin, including its active pharmaceutical ingredient, were tainted or contaminated during processing in China. (Id.). Changzhou SPL Company, Ltd., a joint venture between SPL and Tech-Pool Bio-Pharma Company, oversaw this processing. (Id. ¶ 23). Once processing in China was complete, the heparin was purportedly shipped to the United States to be finished by Baxter International, Inc. and Baxter Healthcare Corporations("Baxter"). (Id. ¶ 24). It was then distributed for patient use. (Id.).
More than 100 heparin lawsuits were filed against American Capital and/or SPL before April 10, 2009, when American Capital stopped forwarding heparin lawsuits to Plaintiffs. (Id. ¶ 21). Since that time, even more lawsuits have been filed. (Id. ¶ 25).
According to the insurers, American Capital sought coverage for itself and SPL, as it says SPL is an American Capital subsidiary. (Id. ¶ 3). Plaintiffs decline to provide coverage to either party because American Capital failed to advise them that it sought coverage for SPL when it renewed its policies with Plaintiffs in 2007 and 2008, or at any other time. (Id. ¶¶ 27, 82).
The insurers argue that American Capital's exact interest in SPL is unclear, and that American Capital has "equivocate[d] on whether SPL and other companies are or are not subsidiaries of American Capital." (Id. ¶ 85). The complaints in the underlying lawsuits "variously allege that SPL is a subsidiary of, solely owned by, or majority owned by American Capital, and/or that American Capital is the parent of SPL." (Id. ¶ 22). American Capital has responded "inconsistently" to these allegations while concurrently arguing that SPL is a subsidiaryof SPL Acquisition Corporation. (Id.). SPL Acquisition Corporation has in turn represented that it has no parent. (Id.).
In addition to the heparin lawsuits, this case concerns coverage for one other type of lawsuit. American Capital and another of its purported subsidiaries, Defendant SMG, have been named as defendants in a lawsuit involving injuries to a spectator at an Ohio sports arena. (Id. ¶ 28). During an event at Nationwide Arena, a falling sheet of glass allegedly struck the spectator, knocking her unconscious. (Id.). The plaintiff in that case maintains that American Capital is the parent company of SMG. (Id. ¶ 29).
American Capital and SMG originally requested defense and indemnity from Plaintiffs for the arena injury case, but have since withdrawn that request. (Id. ¶¶ 30-31). Plaintiffs nevertheless include the lawsuit in their amended complaint because "American Capital has not disavowed its position that it is owed coverage for lawsuits relating to entities that it did not disclose to Charter Oak and Travelers." (Id. ¶ 31). The arena injury lawsuit is evidence, Plaintiffs say, that American Capital "never intended to obtain liability insurance with respect to other entities." (Id.).
Plaintiffs aver that neither American Capital nor any one of its subsidiaries is entitled to coverage under the Policies because American Capital made certain "material and intentional" false representations. (Id. ¶ 84). Among other things, American Capital purportedly made several misrepresentations in its insurance applications. For example:
• American Capital submitted insurance applications in 2006 and 2008 indicating that it had no subsidiaries, even though it now seeks coverage for subsidiaries (id. ¶¶ 32, 34);
• American Capital acquired SPL in 2006, but answered "no" on its 2008 insurance application when asked whether it had acquired any operations in the past five years (id. ¶ 37);
• American Capital had been named as a defendant in at least one heparin lawsuit before submitting its 2008 insurance application, but nevertheless answered "no" when asked whether there had been any product liability loss in the last three years (id. ¶ 40);
• In early 2008, heparin and heparin's active pharmaceutical ingredient were recalled, but American Capital answered "no" on its 2008 insurance application when asked whether any products had been recalled (id. ¶ 43);
• American Capital answered "no" in one or more insurance applications when asked whether it sold, distributed, or used foreign products as components, even though the heparin was processed in China (id. ¶ 46);
• American Capital admitted in heparin lawsuits that the allegedly tainted heparin was processed by a joint venture, but answered "no" on one or more of its insurance applications when asked whether it had been active or was currently active in any joint ventures (id. ¶ 49); and• American Capital did not provide details of pending heparin lawsuits in its 2008 application, even though it was asked to give details "of all liability claims exceeding $10,000, or occurrences that might give rise to such claims" (id. ¶ 52).
The alleged misrepresentations are not limited to American Capital's insurance applications. For example, when it purchased policies for the 2006-2007 period, American Capital submitted a summary of all claims paid and pending against it between June 2004 and June 2006. (Id. ¶ 58). The loss summary did not show any "premises/operations liability claims paid or pending, " and American Capital did not submit a loss summary for any entity other than itself. (Id. ¶¶ 58-59).
American Capital also submitted Commercial General Liability Exposure Schedules each time it sought or renewed coverage. (Id. ¶ 61). These schedules identified only offices of American Capital, gave a risk classification of "office, " and did not state any risk based on manufacturing or sales. (Id. ¶¶ 65-67.) The Schedules did not identify any subsidiaries or other owned entities of American Capital, including SPL. (Id. ¶¶...
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