UNR Industries v. American Mut. Liability Ins. Co.
| Decision Date | 30 September 1988 |
| Docket Number | 82 B 9841-9851 (85 A 1429).,No. 88 C 3254 (84 C 6475),88 C 3254 (84 C 6475) |
| Citation | 92 BR 319 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | UNR INDUSTRIES, INC., et al., Plaintiffs, v. AMERICAN MUTUAL LIABILITY INSURANCE CO., Defendant. |
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W. Boyd Reeves, John G. Jacobs, Armbrecht, Jackson, Demovy, Crowe, Holmes & Reeves, Mobile, Ala., Jonah Orlofsky, Plotkin & Jacobs, Chicago, Ill., Stuart I. Parker, Kennard M. Goodman, Siff, Newman, Rosen & Parker, P.C., New York City, for American Mut. Ins.
Malcolm M. Gaynor, Schwartz, Cooper, Kolb & Gaynor, Chicago, Ill., Bruce D. Ryan, Ronald M. Oster, Paul, Hastings, Janofsky & Walker, Los Angeles, Cal., Paul A. Zevnick, Kaye, Scholer, Fierman, Hays & Handler, Washington, D.C., for UNR Industries, Inc.
This matter is before the court for consideration of the written reports of the United States Bankruptcy Court filed April 18, 1988 and August 15, 1988.
UNR Industries, the debtor in Chapter 11 proceedings pending before the bankruptcy court, brought an adversary complaint against the defendant American Mutual Liability Insurance Company. Because UNR demanded a jury this court granted its motion to withdraw the complaint. However, because in many aspects the complaint related to matters pending before the reorganization court, the complaint was referred to the bankruptcy court for pretrial proceedings and supervision of a final pretrial order. During the course of these proceedings UNR filed an amended complaint and the defendant moved to dismiss. After extensive briefing and oral argument the bankruptcy court filed an extensive written report recommending that the complaint be dismissed and that judgment be entered for the defendant. After the initial report UNR moved for leave to again amend its complaint. In a second report, after briefing, the bankruptcy judge adhered to his original recommendation.
On appeal to this court the court has reviewed the record and considered the oversized briefs filed in this court dealing with UNR's objections to the bankruptcy judge's analysis.
This court agrees with the conclusions reached by the bankruptcy court. Those reports set forth a most careful and thorough consideration of the issues. The objections do not require further elaboration or discussion of the cited authorities.
IT IS THEREFORE ORDERED that the reports of the bankruptcy court filed April 18, 1988 and August 15, 1988 are adopted as the conclusions of this court and that the Clerk of the Court is directed to enter a judgment in favor of defendant dismissing this case with prejudice and with costs awarded to the defendant.
Defendant, American Mutual Liability Insurance Company, ("American Mutual") has moved to Dismiss the First Amended Complaint of the debtor-plaintiffs, UNR Industries, Inc., and its wholly-owned subsidiaries ("UNR"). That motion should be granted.
UNR and its predecessor corporations were manufacturers of asbestos products until 1970. Ingalls Shipbuilding Corporation, ("Ingalls") and Bath Iron Works ("Bath") bought and used some of those products in their Navy shipyard activities. After years of continued exposure to UNR's products, employees of Ingalls and Bath developed asbestosis and 485 of those employees asserted claims against UNR. These claims are among 17,000 against UNR for asbestos related injuries as of July, 1982 when UNR took shelter under Chapter 11 of the United States Bankruptcy Code.
The Defendant, American Mutual, provided general liability insurance to UNR and its predecessors until 1964, but did not cover the asbestos-related products liability claims. American Mutual also provided insurance coverage, including workers' compensation insurance, to Ingalls and Bath when they were using UNR's asbestos products and when American Mutual was UNR's general liability insurer. American Mutual conducted periodic health and occupational safety inspections of Ingalls and Bath, and inspected UNR's manufacturing facilities.
UNR's Amended Complaint seeks to impose liability upon American Mutual for UNR's losses resulting from the asbestos cases. That pleading is not founded upon any insurance policy, but upon a variety of tort theories. The heart of UNR's amended complaint is this: Although American Mutual insured the shipyards and UNR at the same time, and although American Mutual inspected the shipyards and UNR's manufacturing facilities and knew or should have known of the dangers of asbestos, American Mutual failed to disclose to UNR that its products were being manufactured and used at the shipyards in an unsafe manner; failed to ensure that UNR had adequate liability insurance; and failed to protect against the unsafe use of UNR's products. The issue here is whether UNR is entitled to relief on these allegations.
This adversary proceeding has had a somewhat tortured history. UNR filed its original complaint on July 27, 1984 in the District Court, where it was assigned to Judge Grady. American Mutual then moved to transfer the case to Judge Hart, who was hearing another proceeding brought by UNR against American Mutual and other insurance companies. In that other proceeding, UNR voluntarily dismissed its claims against American Mutual; Judge Hart then denied American Mutual's Motion to transfer this proceeding. American Mutual then filed a motion to dismiss. In October, 1985, Judge Grady determined that this matter should have been filed in the Bankruptcy Court and on November 13, 1985, it was referred to the Bankruptcy Court.
On American Mutual's motion, Judge Hart, on April 10, 1986, withdrew the reference, but re-referred the proceeding back to the Bankruptcy Court with instructions that this Court supervise the proceeding through completion of a final pretrial order and make a report and recommendation that (1) resolves all non-jury issues, and (2) describes what issues must be tried to a jury.
After Judge Hart's referral, this proceeding moved forward into discovery before Bankruptcy Judge Toles. Judge Toles retired and this adversary proceeding was assigned to Bankruptcy Judge Ginsberg. In October, 1986, UNR obtained leave to amend its complaint. UNR filed its First Amended Complaint, which is the complaint now before this Court, on December 5, 1986.
American Mutual moved to dismiss UNR's First Amended Complaint on January 27, 1987. At American Mutual's request, discovery has been held in abeyance pending a ruling on the Motion to Dismiss. That motion has been briefed and Judge Ginsberg heard arguments on September 22, 1987. On January 12, 1988 this proceeding was transferred to Judge Barliant.
In Counts I and II of its nine count Amended Complaint, UNR seeks indemnity, contribution or apportionment from American Mutual for the claims by Ingalls (Count I) and Bath (Count II) workers.
American Mutual provided workers' compensation, comprehensive general liability and other insurance coverage to Ingalls and Bath, and inspected the shipyards for safety purposes. The inspections, which included asbestos dust counts, were conducted while American Mutual also insured UNR. In conducting the inspections and advising the shipyards, American Mutual undertook their duties to the workers and others to assure the safe use of UNR's products. UNR, Ingalls and Bath considered the inspections essential to the insurance services, and Ingalls and Bath relied on the inspections to detect hazards. American Mutual knew or should have known the hazards of asbestos and the threat it posed to workers when the inspections were conducted. American Mutual gave no warning of the hazards to UNR, Ingalls or Bath and failed to recommend safety precautions.
UNR alleges that American Mutual's negligent conduct of the inspections, and its failure to warn of the dangers was the proximate cause of injury to the workers and the damage claims against UNR. UNR itself "was not negligent or otherwise at fault," although it is "potentially liable to claimants in the asbestos cases on the basis of strict liability without fault." Amended Complaint ¶¶ 29 and 50. American Mutual, on the other hand, "bears far more culpability for claimants' injuries because American Mutual's conduct was grossly negligent, wanton and reckless" in its conduct of safety inspections. Amended Complaint ¶¶ 33 and 54. Since American Mutual's fault was active, while UNR's was passive, UNR seeks indemnification for the workers' claims. Alternatively, American Mutual's negligent inspections proximately caused the workers' injuries, entitling UNR to contribution.
In Counts III and IV, UNR alleges that American Mutual breached fiduciary duties owed to UNR. In Count III, American Mutual's breach consisted of its failure to recommend adequate measures to protect UNR from liability; in Count IV, its breach was its failure to recommend adequate insurance coverage.
From 1935 until 1964, American Mutual was the direct writer of UNR's liability insurance policies. As such, American Mutual was the equivalent of an insurance broker, and UNR relied on American Mutual's professed expertise and superior knowledge about insurance requirements of asbestos manufacturers. American Mutual's advertising and marketing represented that it would investigate unsafe conditions and develop insurance to adequately protect the insured and UNR relied on these representations.
American Mutual knew of the asbestos hazard, and (because of its inspections) the unsafe use of UNR products at Ingalls and Bath. American Mutual knew that UNR was unaware of these facts, yet failed to disclose them to UNR. American Mutual also failed to recommend discontinued production and sales of the unsafe asbestos products. These were breaches of American Mutual's...
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