UNR Industries, Inc. v. Continental Ins. Co.

• Decision Date: 25 February 1988
• Docket Number: No. 85 C 3532,83 A 2523.,85 C 3532
• Citation: 682 F. Supp. 1434
• Parties: UNR INDUSTRIES, INC., et al., Plaintiffs, v. CONTINENTAL INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

682 F. Supp. 1434

UNR INDUSTRIES, INC., et al., Plaintiffs, v. CONTINENTAL INSURANCE COMPANY, et al., Defendants.

Nos. 85 C 3532, 83 A 2523.

United States District Court, N.D. Illinois, E.D.

February 25, 1988.

COPYRIGHT MATERIAL OMITTED

Malcolm M. Gaynor, Richard Bendix, Jr., Schwartz, Cooper, Kolb & Gaynor, Chtd., Chicago, Ill., Ronald M. Oster, Madeline Hickey, Paul, Hastings, Janofsky & Walker, Santa Monica, Cal., Sandy Klekowski, UNR Industries, Inc., Chicago, Ill., for UNR.

Daniel J. Pope, Coffield, Ungaretti, Harris & Slavin, Chicago, Ill., for American Re-Insurance Co.

D. Patterson Gloor, Michael J. Gallagher, Cassiday, Schade & Gloor, Gerald G. Saltarelli, Ronald Butler, Butler, Rubin, Newcomer, Saltarelli & Boyd, Chicago, Ill., for Bituminous Cas. Co.

Lloyd E. Williams, Anthony P. Katauskas, Jacobs, Williams and Montgomery, Ltd., Chicago, Ill., for Commercial Union Assur. Companies.

Perry L. Fuller, Robert E. Nord, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, Ill., for Continental Cas. Co.

Thomas L. Aries, Merrill C. Hoyt, Aries, Hoyt & Taden, Stanley B. Block, Donald W. Jenkins, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., for Continental Ins. Co. and Underwriters Adjusting Co.

Thomas C. Walker, James E. O'Halloran, Jr., O'Halloran, Lively & Walker, Northbrook, Ill., for Corroon & Black of Illinois, Inc.

Michael J. Dolesh, David M. Spector, Isham, Lincoln & Beale, Chicago, Ill., for Employers Reinsurance Co.

Terrence E. Kiwala, Rooks, Pitts, Fullager & Poust, Chicago, Ill., for First State Ins. Co.

Donald M. Haskell, Michael Sehr, William Ryan, Haskell & Perrin, Chicago, Ill., for Home Ins. Co.

Gary M. Elden, Philip C. Stahl, Donald A. Vogelsang, Reuben & Proctor, Chicago, Ill., for Nat. Sur. Corp. and Fireman's Fund Ins. Co.

Philip J. McGuire, Dowd & Dowd, Chicago, Ill., for Northbrook Ins. Co.

J. William Cuncannan, Sarah M. Stegemoeller, DeFrees & Fiske, Chicago, Ill., for Official Creditors Committee.

Peter C. John, Douglas J. Lipke, Matthew J. Gehringer, Phelan, Pope & John, Ltd., Chicago, Ill., for Zurich Ins. Co.

Malcolm M. Gaynor, Richard M. Bendix, Jr., Schwartz, Cooper, Kolb & Gaynor, Chtd., Chicago, Ill., for debtor in possession.

Kevin M. Forde, Kevin M. Forde, Ltd., Chicago, Ill., for unknown putative asbestos-related claimants.

Stanley A. Walton III, Winston & Strawn, Chicago, Ill., for Unsecured Creditors Committee.

MEMORANDUM OPINION AND ORDER

WILLIAM T. HART, District Judge.

I. Nature of the Case

UNR Industries, Inc., its predecessors and owned affiliated companies (hereinafter "UNR") manufactured asbestos products beginning in the 1920's. Most production ceased by 1963 and all production stopped by 1970. In December 1966, the first products liability claim involving injury from exposure to asbestos products was filed. Tomplait v. Combustion Engineering, Inc., et al. UNR was named a party to this action in August 1968. Claims against it had accumulated to approximately 17,000 when UNR filed for bankruptcy reorganization on July 19, 1982.

Until this proceeding was initiated as an adversary matter in the bankruptcy court, UNR contended that it first purchased liability insurance which provided primary coverage for products hazards from Zurich Insurance Company ("Zurich") on June 26, 1958. Zurich provided primary products coverage to UNR until November 1, 1964. After that date and for six years until November 1, 1970, primary products liability coverage was provided by Bituminous Casualty Corporation ("Bituminous"). From November 1, 1970 until May 7, 1980, Continental Insurance Company ("Continental") provided products coverage to UNR. UNR has not had primary products coverage for asbestos products since May 7, 1980. UNR also purchased umbrella and excess products liability coverage from various carriers as hereinafter set forth.

Early liability suits filed against UNR were referred by its attorneys and brokers to Zurich and Bituminous. Questions of insurance coverage were immediately raised. The now common disputes in asbestos products insurance coverage cases are: (1) What events trigger insurance coverage? (2) What is the insured's individual liability for damages and defense costs for any period not covered by insurance? (3) What is a carrier's responsibility for defense costs after indemnity limits are exhausted? Allocation questions in cases filed against UNR prior to 1976 were resolved on an individual basis at the time of disposition. Initially, Continental was not involved because Continental did not provide primary coverage until November 1, 1970. By this time UNR was out of the asbestos manufacturing business although its products continued to be in the public domain. In 1976 UNR and Continental entered into a letter agreement dated March 26, 1976 (as part of its 1976 policy) relating to Continental's 1970-75 policies that provides a formula for the allocation of payments of claims and expenses by Zurich, Bituminous and Continental for claims made during and prior to the year 1976. UNR thereafter entered into apportionment agreements with its primary carriers as part of Continental's 1977, 1978 and 1979 policies. UNR did not purchase primary coverage from Continental after May 7, 1980. It did, however, continue to have claim sharing agreements with Zurich, Bituminous and Continental. In October of 1981, UNR terminated its apportionment agreements with Zurich, Bituminous and Continental effective December 31, 1981.¹

During 1982, UNR's primary, umbrella and excess insurance carriers filed declaratory judgment suits in the Circuit Court of Cook County. These suits were stayed by operation of law when UNR filed bankruptcy proceedings. The carriers then filed adversary claims in the bankruptcy court and UNR filed adversary claims against its insurance carriers. UNR and the carriers moved for withdrawal of the adversary claims to this court. It was represented that UNR's primary, umbrella and excess insurance carriers should be allowed to participate in the same proceeding rather than in a series of cases in the state or bankruptcy courts. It was further asserted that a jury was demanded by UNR to resolve factual disputes and, therefore, the case could not proceed to trial before a bankruptcy court.

The proceedings were withdrawn to this court. Thereafter, in amended pleadings, UNR was styled the plaintiff and the insurance companies were designated defendants. UNR was also given leave to amend its pleadings to name as additional parties defendant National Surety Corporation and Fireman's Fund Insurance Company² ("National Surety"), and Corroon & Black of Illinois, Inc. ("C & B"), its former insurance broker. UNR alleged that it first discovered in 1983 that it had products liability coverage prior to June 26, 1958 from National Surety and Zurich, but that its insurance contracts were lost. UNR filed negligence, misrepresentation and fiduciary claims against its former broker C & B. It also alleged breach of contract, rescission and tort claims against its primary carriers, as well as antitrust and RICO violations. The primary and excess carriers counterclaimed for declaratory relief seeking a declaration of their rights and obligations under Illinois law.

By January of 1984 the litigation was extremely complex. Numerous pleading and discovery issues were before the court. Some of these matters are more fully described in opinions dated November 30, 1984, 607 F.Supp. 855 (N.D.Ill.1984), April 9, 1985, 623 F.Supp. 1319 (N.D.Ill.1985) and October 7, 1985.

In keeping with the practice adopted by other courts hearing litigation of this type³ and in order to expedite the resolution of insurance coverage questions that could facilitate disposition or settlement, it was decided to try the insurance coverage claims and issues separately as is permitted by Rule 42(b) of the Federal Rules of Civil Procedure. After a pretrial conference at which the parties were permitted to suggest a plan for expedited disposition, it was specified that expedited discovery would proceed on certain insurance claims and issues. A pretrial order dated January 5, 1984 provided for expedited discovery on the following matters:

a. Existence, terms and compliance with notice and other provisions of insurance policies allegedly issued to UNR, the existence of which is disputed.

b. Exhaustion of limits and duty to defend if limits are exhausted.

c. Drafting, negotiation, execution, interpretation and amendment of the Houston agreement.

By November 27, 1985, the period fixed for discovery on the expedited issues had expired and the parties were engaging in general discovery on other issues. The period for general discovery had not yet closed. The parties had exchanged thousands of documents and taken more than 150 depositions. It was apparent that unless halted this discovery would go on at great additional cost to the estate without resolution of the initial insurance coverage disputes. Accordingly, on November 27, 1985, further discovery was stayed and the parties were directed to submit a final pretrial order for trial of the expedited issues. The Phase I issues were as described above and include "the validity and meaning of the so-called Houston agreement."

On December 16, 1985, an order was entered directing that the parties state their positions in pretrial briefs as to whether or not they regarded the terms of the various insurance contracts, including both those of the primary carriers and excess carriers, as ambiguous. The parties were further instructed to argue the contract interpretation issues with a view towards declaratory relief on those contract interpretation questions that are a question of law for the court.

Prior to trial, litigation was also pending in the Illinois courts with respect to what events trigger products liability insurance coverage in asbestos cases and with respect to the obligation of insurance carriers to defend after policy...