Tig Ins. Co. v. Tyco Int'l Ltd.

• Decision Date: 08 April 2013
• Docket Number: Civil Action No. 3:08–CV–1584.
• Citation: 919 F.Supp.2d 439
• Parties: TIG INSURANCE COMPANY, Plaintiff, v. TYCO INTERNATIONAL LTD., Grinnell Corporation, and the Brooklyn Hospital Center, f/k/a the Brooklyn Hospital—Caledonian Hospital, Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

919 F.Supp.2d 439

TIG INSURANCE COMPANY, Plaintiff,

v.TYCO INTERNATIONAL LTD., Grinnell Corporation, and the Brooklyn Hospital Center, f/k/a the Brooklyn Hospital—Caledonian Hospital, Defendants.

Civil Action No. 3:08–CV–1584.

United States District Court, M.D. Pennsylvania.

Jan. 23, 2013.

Order Amending April 8, 2013.

James Kallianis, Carlos E. Del Carpio, Mary E. Fechtig, Chicago, IL, Richard G. Fine, Fine, Wyatt & Carey, P.C., Scranton, PA, for Plaintiff.

Walter T. Grabowski, Holland, Brady & Grabowski, P.C., Wilkes–Barre, PA.

MEMORANDUM

A. RICHARD CAPUTO, District Judge.

Presently before the Court are Defendant SimplexGrinnell LP's Motion for Summary Judgment (Doc. 115) and Plaintiff TIG Insurance Company's Motion for Summary Judgment on Exclusion 4 (Doc. 120), Motion for Summary Judgment on Exclusion 7 (Doc. 122), Motion for Partial Summary Judgment on Defendant's Affirmative Defense Asserting Estoppel (Doc. 124), and Motion to Strike the Affidavit of Lawrence A. Durkin and Testimony of Sean Patton (Doc. 174). For the reasons that follow, TIG's Motion to Strike will be granted in part and denied in part, TIG's Motion for Partial Summary Judgment on Grinnell's Affirmative Defense Asserting Estoppel will be granted, Grinnell's Motion for Summary Judgment will be denied, TIG's Motion for Summary Judgment on Exclusion 4 will be denied, and TIG's Motion for Summary Judgment on Exclusion 7 will be granted.

BACKGROUND

A. The Diversified Fire

Defendant SimplexGrinnell LP (“Grinnell”) is and was at all relevant times a subsidiary of Tyco International Ltd. (“Tyco”) that installs, manufactures, and supplies automatic fire sprinkler and fire alarm and detection systems. (Def.'s Stmt. of Material Facts (“SMF”) at ¶¶ 1–2.) In 1995, Grinnell contracted to install fire protection sprinkler systems in a large document storage warehouse complex in West Pittston, Pennsylvania, owned by Diversified Records Services, Inc. (“Diversified”). (Pl.'s SMF at ¶ 3.) By May 1997, the sprinkler systems were installed at Diversified's warehouse complex, but they were not turned on in one of the buildings because the accompanying alarm system had not yet been connected. ( Id. at ¶ 4; Def.'s SMF at ¶ 4.)

A fire began at the Diversified complex on May 5, 1997 (“the Fire”). (Pl.'s SMF at ¶ 5; Def.'s SMF at ¶ 3.) That same day, Tyco reported the Fire to its third-party administrator, Crawford & Company (“Crawford”), who was responsible for investigating incidents that might give rise to claims under Tyco's liability insurance and appraising those potential claims. (Def.'s SMF at ¶¶ 5–6; Pl.'s SMF at ¶¶ 59–63.) Grinnell knew of the Fire the day that it began. (Pl.'s SMF at ¶ 8.) The Fire lasted several days, destroying three large warehouses and millions of corporate documents inside. (Def.'s SMF at ¶ 3; Pl.'s SMF at ¶¶ 6–7.) In a May 14, 1997 report to Grinnell's outside counsel, a Crawford adjuster stated that “[a] conservative estimate of damage” that the Fire caused to the Diversified warehouses and their contents was “about $8,000,000.” (Def.'s SMF at ¶ 8; Pl.'s SMF at ¶¶ 67–68.) The adjuster did not alter his damage estimate between his initial report in May 1997 and his final report in December 1997. (Def.'s SMF at ¶ 10.)

B. Grinnell's Insurance Coverage

Tyco and its subsidiaries had the following general liability program from July 1, 1996 to July 1, 1997: primary coverage of $5 million with National Union Fire Insurance Company of Pittsburgh, PA, an American Insurance Group (“AIG”) member company; umbrella coverage with AIG of $15 million; first layer excess coverage with White Mountain Insurance Company (“White Mountain”) of $40 million; and second layer excess coverage with American Excess Insurance Association (“AEIA”) of $90 million (the “AEIA Policy”). (Pl.'s SMF at ¶ 9.)

The AEIA Policy, which occupied a “high excess layer,” provided coverage of $90 million in excess of $60 million. (Def.'s SMF at ¶ 13.) The AEIA Policy had a retroactive date of July 1, 1993, meaning that it applied to occurrences beginning on or after that date. ( Id. at ¶ 14.) It was a “reported occurrence policy,” requiring that the occurrence happen during the policy period and notification of that occurrence likely to involve the policy be given to AEIA “as soon as practicable” during the policy period or within a sixty-day grace period following its expiration.¹ ( Id. at ¶¶ 15–16; Pl.'s SMF at ¶ 11.) In September 1996, AEIA stopped writing new coverage. (Def.'s SMF at ¶ 21.) In March 1997, AEIA informed Tyco that the AEIA Policy would not be renewed after it expired on July 1, 1997 and requested that Tyco notify AEIA no later than that date of all known occurrences likely to involve the policy. ( Id. at ¶¶ 22–23.)

In May 1997, Tyco negotiated with insurers for its general liability program for the July 1, 1997 to July 1, 1998 policy period. (Pl.'s SMF at ¶ 13.) At that time, Tyco's insurance broker, J & H Marsh & McLennan, Inc. (“Marsh”), sought coverage from TIG Insurance Company (“TIG”) for the 1997–98 policy year. ( Id. at ¶ 15; Def.'s SMF at ¶ 24.) Grinnell asserts that Marsh contacted TIG to provide coverage for a portion of the expiring AEIA Policy layer and that TIG knew that it was being asked to provide protection against large, unanticipated “catastrophic” losses. (Def.'s SMF at ¶¶ 24–25.) Tyco believed that transitioning to the TIG coverage would leave a potential coverage gap for occurrences that happened during the AEIA Policy period (July 1, 1993 to July 1, 1997) but would not have been timely reported to AEIA because their existence or magnitude could not have been known at that time. ( Id. at ¶ 26.) Tyco sought to extend the time for reporting such occurrences—those occurring prior to July 1, 1997 for which a claim is first made against Tyco after July 1, 1997. ( Id.; Pl.'s SMF at ¶ 16.)

TIG issued Policy No. XLX 914 12 65, an excess liability policy, for the period July 1, 1997 to July 1, 1998, with limits of $30 million excess of $90 million (the “TIG Policy”). (Pl.'s SMF at ¶ 18; Def.'s SMF at ¶¶ 34–35.) The TIG Policy provides coverage for losses arising out of occurrences taking place during the policy period, but also includes an “Extended Reporting Provision for Occurrences Prior to this Policy Period” endorsement (“Extended Reporting Provision” or “ERP”). (Pl.'s SMF at ¶¶ 19–20; Def.'s SMF at ¶ 28.) The Extended Reporting Provision provides coverage for “claims ² first made” after July 1, 1997 “resulting from occurrence(s) that took place during the period from 6/1/1993 to 7/1/1997” subject otherwise to the exclusions and conditions of the policy. (Pl.'s SMF at ¶ 21.) The parties dispute whether the attachment point of the ERP is $60 million (the same attachment point as the AEIA Policy) or $90 million (the same attachment point as the rest of the TIG Policy). (Doc. 117 at ¶ 37; Doc. 125 at 1.)

The TIG Policy's Extended Reporting Provision also contains seven exclusions, two of which are relevant to this case. Exclusion 7 excludes from coverage “[a]ny claims resulting from an occurrence ³ of which the Named Insured had actual or constructive notice prior to the commencement of coverage under this policy.” ( Id. at ¶ 52; Def.'s SMF at ¶ 40.) Exclusion 4 excludes coverage for “[a]ny claims covered, in whole or in part, by the terms of any other policy of insurance available to the Named Insured, whether or not collectible.” (Pl.'s SMF at ¶ 69.)

Tyco's general liability program from July 1, 1997 to July 1, 1998 consisted of: primary coverage with AIG of $5 million; umbrella coverage with AIG of $20 million; first layer excess coverage with White Mountain of $65 million; second layer excesscoverage with TIG of $30 million; third layer excess coverage with Zurich Insurance Company (“Zurich”) of $40 million; and fourth layer excess coverage with Federal Insurance Company (“Chubb”) of $40 million. ( Id. at ¶¶ 14, 19; Def.'s SMF ¶¶ 34–35, 37.)

C. The Consolidated Action Suits

In 1998 and 1999, various entities that stored documents with Diversified sued Diversified and Grinnell in the Court of Common Pleas of Luzerne County, Pennsylvania for losses associated with the Fire (the “Underlying Actions”). ( Id. at ¶ 22; Def.'s SMF at ¶ 41.) Diversified and its property insurer also sued Grinnell in the same court for damage to the warehouse complex and business interruption costs (the “Diversified Action”). (Pl.'s SMF at ¶ 23.) The Underlying Actions and the Diversified Action were consolidated into a single action (the “Consolidated Action” and the “Consolidated Action Suits”). ( Id. at ¶ 24.)

AIG controlled the defense and settlement of the Consolidated Action Suits. ( Id. at ¶ 29.) A two-phase trial was held for the Consolidated Action, with the liability trial for two lead cases, brought by First Union Corporation (“First Union”) and Mobil Oil Corporation (“Mobil”), beginning in September 2002. ( Id. at ¶ 30; Def.'s SMF at ¶¶ 42, 45.) During the trial, Diversified and Grinnell entered into an agreement whereby Grinnell became responsible for all liability. (Pl.'s SMF at ¶ 31.) On October 18, 2002, the jury returned a liability verdict, assessing 60% fault to Diversified and 40% fault to Grinnell. ( Id. at ¶ 32; Def.'s SMF at ¶ 45.) The jury awarded $20,534,963 in damages to First Union on December 13, 2002, and $20,750,653 to Mobil on January 17, 2003. (Def.'s SMF at ¶ 46; Pl.'s SMF at ¶ ¶ 33–34.) AIG appealed the judgments, but both were affirmed by the Superior Court of Pennsylvania on August 25, 2005. (Def.'s SMF at ¶ 47; Pl.'s SMF at ¶ 36.) AIG and White Mountain ultimately paid judgments of $32,979,909.57 to First Union and $31,631,905.00 to Mobil on August 15, 2006. (Def.'s SMF at ¶ 48; Pl.'s SMF at ¶ 39.)

Approximately $67.4 million was paid in settling or resolving the Consolidated Action Suits. (Pl.'s SMF at ¶ 46.) Between 2003 and 2007, AIG and White Mountain resolved all the Consolidated Action Suits by...