United States Fid. & Guar. Co. v. Am. Re-ins. Co.
| Decision Date | 17 August 2010 |
| Docket Number | No. 604517/02,604517/02 |
| Court | New York Supreme Court |
| Parties | UNITED STATES FIDELITY & GUARANTY COMPANY, et. al. Plaintiffs. v. AMERICAN RE-INSURANCE COMPANY, et al.Defendants. |
Motion sequence numbers and 019 (also designated as 027), 024, 025 and 026 are consolidated for disposition.
In 2002, plaintiffs United States Fidelity & Guaranty Company (USF&G), The St. Paul Fire & Marine Insurance Company, and The St. Paul Companies, Inc. (collectively with USF&G, the USF&G Parties) settled an insurance coverage action entitled Western Mac Arthur Co., et al, v United States Fidelity & Guaranty Co., et al, No. 721595-7 (Cal Super Ct Alameda County) (the Underlying Coverage Action") wherein plaintiffs agreed to pay $987.4 million in satisfaction of all asbestos injury-related claims made against Western Asbestos, a USF&G policyholder. Having paid the settlement, the USF&G Parties now seek to recover a portion of their losses under reinsurance treaties issued by the defendants.
In motion sequence number 019, defendant American Re-Insurance Company (American Re) moves, pursuant to CPLR 3212, for partial summary judgment declaring that: 1) American Re has no obligation to reimburse USF&G for payments to asbestos claimants who received $100,000 or less of USF&G's money; 2) American Re has no obligation to reimburse USF&Gfor payments in excess of $200,000 to any claimant; 3) USF&G has the burden to prove that each claimant for whom it seeks reimbursement was exposed to asbestos before the last insurance policy USF&G issued to Western Asbestos; 4) USF&G has the burden to prove that each claimant for whom it seeks reimbursement was exposed to the asbestos of its insured, Western Asbestos Company (Western Asbestos); and 5) The $87.3 million that USF&G paid for legal fees of adverse parties and administrative expenses are not covered by reinsurance. The USF&G Parties originally cross-moved, pursuant to CPLR 3212 (e), for partial summary judgment, but have since amended their application, and now move for summary judgment in motion sequence 024.
In motion sequence 024, the USF&G Parties move, pursuant to CPLR 3212, for summary judgment as follows: (1) On the causes of action for breach of contract and beach of implied covenant of good faith and fair dealing against defendant American Re-Insurance Company n/k/a Munich Reinsurance America, Inc. (American Re), awarding USF&G compensatory damages in the amount of $202,507, 261.50 together with interest thereon, and (2) On the causes of action for breach of contract and breach of implied covenant of good faith and fair dealing against defendant Excess Casualty Reinsurance Association (ECRA) and the remaining constituent pool members, defendants ACE Property and Casualty Company (ACE), Century Indemnity Company (Century), OneBeacon American Insurance Company (OneBeacon), American Home Assurance Company (American Home) and American Re, awarding USF&G compensatory damages in the aggregate amount of $59,786, 218.81, together with interest thereon.
In motion sequence 025 defendant American Home moves, pursuant to CPLR 3212, for In motion sequence number 026, ACE, Century, OneBeacon, ECRA and Excess & Treaty Management Corporation (ETMC) (collectively, the ECRA defendants) move, pursuant to CPLR 3212 for summary judgment, dismissing the complaint.
Between 1948 and 1960, plaintiffs USF&G issued a number of liability insurance policies to Western Asbestos Company (Western Asbestos), a company that operated in California, where it sold and distributed insulation products containing asbestos manufactured by Johns-Manville Company. Subject to the terms, conditions, exclusions, and limitations of the Western Asbestos policy, USF&G insured Western Asbestos against liability for bodily injury and/or property damage caused by an "accident." Specifically, the Western Asbestos policy provided coverage for losses arising out of hazards relating to the products and business operations of Western Asbestos.
In the mid-1960s, Western Asbestos ran into financial trouble. In 1967, the MacArthur Company, which sold and installed asbestos products in the mid-west, decided to expand its business into California and formed the Western MacArthur Company (Western MacArthur), Western MacArthur purchased most of the operating assets of Western Asbestos, and took over its business. Thereafter, Western Asbestos filed a certificate of dissolution. Individuals injured by asbestos began suing Western MacArthur in the late 1970s, both in its own right, and as successor to Western Asbestos.
Subject to the terms, conditions, exclusions, and limitations of the Western Asbestos policy, USF&G insured Western Asbestos against liability for bodily injury and/or property damage caused by an"accident" Specifically, the Western Asbestos policy provided coveragefor losses arising out of hazards relating to the products and business operations of Western Asbestos.
In 1993, Western MacArthur initiated the Underlying Coverage Action against USF&G and two other Western Asbestos insurers in the Superior Court for Alameda County, California, seeking damages and a declaration that USF&G had a duty to defend and indemnify Western MacArthur against the asbestos-related personal injury claims.
In response, USF&G argued that the entity prosecuting the Underlying Coverage Action, Western MacArthur, lacked standing to sue USF&G for breach of insurance policies that USF&G issued to Western Asbestos. Western MacArthur argued that insurance coverage purchased by Western Asbestos transferred to Western MacArthur by operation of law, but in 1997, the California Court of Appeals ruled that Western MacArthur was not entitled to Western Asbestos's insurance coverage {General Accident Ins. Co. v Superior Court, 55 Cal App 4th 1444, 1445 [1st Dist 1997]). As a result of this decision, USF&G took the position that it had no obligations to Western MacArthur.
Neither Western MacArthur nor USF&G could locate the insurance policies in issue. USF&G therefore argued that it had no liability because it never provided products liability coverage to Western Asbestos, and that, even if it did, its standard policies at the time did not provide products coverage. Finally, USF&G argued that even if it had provided insurance, the policies would have limited the aggregate amount of such coverage.
The trial of the Underlying Coverage Action began on March 26, 2002. In order to defeat USF&G's objections to standing, Western MacArthur found a former officer of Western Western MacArthur also convinced a California court to "revive" Western Asbestos after the fact to ratify the assignment. In May 2000, Western Asbestos intervened in the Underlying Coverage Action as a plaintiff. Thereafter, the trial court ruled that USF&G lacked standing to challenge the purported assignment of insurance rights to western MacArthur. These developments represented a significant defeat for USF&G.
With respect to the issue of the lost policies, the plaintiffs in the Underlying Coverage Action presented secondary evidence that USF&G's lost policies provided products coverage without aggregate limits. At this point, USF&G determined that its downside exposure potential was enormous, and it engaged in global settlement discussions.
On June 3, 2002, after almost 10 years of litigation, the parties reached a settlement. Pursuant to a Settlement Agreement, entered into between MacArthur Company, Western MacArthur Company and Western Asbestos Company (the Western Plaintiffs), the "Asbestos Plaintiffs" (defined as individuals holding asbestos-related claims represented by Asbestos Plaintiffs' Counsel) and the USF&G Parties, USF&G agreed to pay $975 million plus interest, which would be disbursed as follows: 1) $160 million plus interest into a judgment escrow for those claimants who already held judgments against the Western Plaintiffs; 2) $940 million into a bankruptcy trust for current and future claims (the Trust); 3) All costs and fees from and including May 17, 2002, as incurred, in connection with the handling and defense of asbestospersonal injury claims brought against the Western Plaintiffs; and 4) $12.3 million to the Asbestos Plaintiffs' Counsel .and MacArthur Company filed for bankruptcy protection and sought relief under section 524 (g) U S Bankruptcy Code, which allows companies with asbestos-related liability to obtain an injunction barring all past, present and future claims in exchange for the creation of a trust fund for the compensation of existing and future asbestos claimants (see, 11 U S C § 524 [g]).
According to USF&G, settlement negotiations centered on ascertaining the amount of Western MacArthur's past, present and future asbestos liability. In negotiating the settlement, the parties treated each claimant as a separate accident under USF&G's policies. The parties also assumed that an asbestos claimant could recover from USF&G only if he or she was exposed to or suffered an asbestos injury from a Western Asbestos product or from the operations of Western Asbestos during the stipulated period of USF&G's coverage, which was from 1948 through 1960.
USF&G contends that it was able to use California law to limit its obligations under the Settlement Agreement. According to USF&G, under certain California appellate court cases, insurers are required to pay "all sums," up to the policy limit of the insured's liability, not just liability allocable to damage during the policy period. USF&G contends that it mitigated the effect of these cases by successfully arguing that the limits of successive policies triggered by a single claim or injury could not be aggregated or stacked to increase the available coverage. Rather, USF&G argued, and the parties settled, on the basis that the policyholder could seek...
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