Viking Pump Inc. v. Century Indem. Co. . Warren Pumps Llc.

• Citation: 2 A.3d 76
• Decision Date: 14 October 2009
• Docket Number: C.A. No. 1465-VCS.
• Parties: VIKING PUMP, INC., Plaintiff, v. CENTURY INDEMNITY COMPANY, et al., Defendants. Warren Pumps LLC, Third-Party Plaintiff, v. Century Indemnity Company, et al., Third-Party Defendants. Viking Pump, Inc., Third-Party Plaintiff, v. John Crane, Inc., Houdaille Industries, Inc., Third-Party Defendants.
• Court: Court of Chancery of Delaware

2 A.3d 76

VIKING PUMP, INC., Plaintiff,

v.CENTURY INDEMNITY COMPANY, et al., Defendants.

Warren Pumps LLC, Third-Party Plaintiff,

v.Century Indemnity Company, et al., Third-Party Defendants.

Viking Pump, Inc., Third-Party Plaintiff,

v.John Crane, Inc., Houdaille Industries, Inc., Third-Party Defendants.

C.A. No. 1465-VCS.

Court of Chancery of Delaware.

Submitted: Aug. 7, 2009.

Decided: Oct. 14, 2009.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Lisa A. Schmidt, Esquire, Harry Tashjian, IV, Esquire, Richards, Layton & Finger, P.A., Wilmington, Delaware; Michael P. Foradas, Esquire, Lisa G. Esayian, Esquire, Matthew S. Buckley, Esquire, Kirkland & Ellis, LLP, Chicago, Illinois, Attorneys for Viking Pump, Inc.

John E. James, Esquire, Potter Anderson & Corroon, LLP, Wilmington, Delaware; Robin L. Cohen, Esquire, James R. Murray, Esquire, Keith McKenna, Esquire, John P. Winsbro, Esquire, Dickstein Shapiro LLP, New York, New York, Attorneys for Warren Pumps, LLC.

John S. Spadaro, Esquire, John Sheehan Spadaro, LLC, Hockessin, Delaware; Laura S. McKay, Esquire, Bruce M. Lichtcsien, Esquire, Hinkhouse Williams Walsh LLP, Chicago, Illinois, Attorneys for London Market Insurers.

Neal Levitsky, Esquire, Fox Rothschild LLP, Wilmington, Delaware; Kathleen D. Monnes, Esquire, Day Pitney LLP, Hartford, Connecticut, Attorneys for Travelers Casualty & Surety Company.

Robert M. Greenberg, Esquire, Tybout, Redfearn & Pell, Wilmington, Delaware; Amy R. Paulus, Esquire, Clausen Miller P.C., Chicago, Illinois, Attorneys for Old Republic Insurance Company.

Paul Cottrell, Esquire, Tighe & Cottrell, P.A., Wilmington, Delaware; Charles G. Carluccio, Esquire, Colliau Elenius Murphy Carluccio Keener & Morrow, Cranbury, New Jersey, Attorneys for The Continental Insurance Company, as successor by merger to The Fidelity & Casualty Company of New York.

Anthony G. Flynn, Esquire, Young Conaway Stargatt & Taylor LLP, Wilmington, Delaware; Timothy Dingilian, Esquire, Christopher Ferragamo, Esquire, Jackson & Campbell, Washington, District of Columbia, Attorneys for Granite State Insurance Company, Lexington Insurance Company and National Union Fire Insurance Company of Pittsburgh, PA.

Thaddeus J. Weaver, Esquire, Christie Pabarue Mortensen & Young PC, Wilmington, Delaware; Kevin J. O'Connor, Esquire, Peter C. Netburn, Esquire, Hermes, Netburn, O'Connor & Spearing, P.C., Boston, Massachusetts, Attorneys for OneBeacon America Insurance Company, XL Insurance America, Inc., as successor to Vanguard Insurance Company, and Republic Insurance.

James W. Semple, Esquire, Morris James LLP, Wilmington, Delaware; Karl S. Vasiloff, Esquire, Kristin Suga Heres, Esquire, Zelle Hofmann Voelbel & Mason LLP, Waltham, Massachusetts, Attorneys for Westport Insurance Corporation.

Donald M. Ransom, Esquire, Casarino Christman Shalk Ransom & Doss, P.A., Wilmington, Delaware; Brian G. Fox, Esquire, Siegal & Park, Mt. Laurel, New Jersey, Attorneys for Century Indemnity Company, as successor to CCI Insurance Company, as successor to Insurance Company of North America; Century Indemnity Company as successor to CIGNA Specialty Insurance Company (formerly known as California Union Insurance Company); Central National Insurance Company of Omaha, by and through its managing general agent Cravens, Dargan & Company, Pacific Coast; and TIG Insurance Company, as successor by merger to International Insurance Company, as successor by merger to International Surplus Lines Insurance Company.

Richard M. Beck, Jr., Esquire, Klehr, Harrison, Harvey, Branzburg & Ellers LLP, Wilmington, Delaware; Michael S. Komar, Esquire, Menz Bonner & Komar LLP, New York, New York, Attorneys for First State Insurance Company and Twin City Fire Insurance Company.

OPINION

STRINE, Vice Chancellor.

I. Introduction

In this action, Warren Pumps LLC (“New Warren”) and Viking Pump, Inc. (“New Viking”), two companies that acquired businesses from Houdaille Industries, Inc., seek to use the insurance coverage that Houdaille purchased. Specifically, New Warren and New Viking own former pump manufacturing businesses that Houdaille used to own. As a result of those acquisitions, New Warren and New Viking now face potential liability due to personal injury claims made by plaintiffs alleging damages from asbestos exposure dating back to when New Warren and New Viking's businesses were owned by Houdaille (the “Houdaille-Era Claims”). To pay for the liabilities arising from the Houdaille-Era Claims, New Warren and New Viking seek to use Houdaille's insurance coverage, which includes a comprehensive insurance program of forty-five excess insurance policies (the “Excess Policies”) provided by twenty different insurers (the “Excess Insurers”). Those Insurers argue that New Warren and New Viking are not entitled to use the Excess Policies.

In this opinion, I address New Warren's, New Viking's, and the Excess Insurers' cross-motions for summary judgment, which discuss whether New Warren and New Viking are entitled to exercise the rights of an insured under those Excess Policies and how liability is to be apportioned among the Excess Insurers. These issues break down a bit further into three related questions: (1) can New Viking exercise the rights of an insured under the Excess Policies?; (2) can New Warren exercise the rights of an insured under the Excess Policies?; and (3) to the extent that either New Warren or New Viking can exercise the rights of an insured, do the Excess Policies embrace the so-called “all sums” or the “pro rata” method of allocating responsibility among the Excess Insurers for the Houdaille-Era Claims that arise from asbestos exposure spanning several policy periods (“Multi-Period Exposure”)?

First, I find that there is no disputed issue of material fact as to whether Houdaille assigned New Warren and New Viking the rights to use the Houdaille Policies for Houdaille-Era Claims (the “Houdaille-Era Insurance Rights” or the “Insurance Rights”). New Warren acquired its Insurance Rights through a 1985 Asset Sale Agreement by which New Warren acquired the Warren Pumps business (the “Warren ASA”). In that transaction, New Warren acquired the Warren Pumps assets along with all of the as-yet-unasserted liabilities that pertained to that business. And, through a subsequent amendment to the Warren ASA (the “Warren ASA Amendment”), Houdaille also agreed to assign New Warren the Houdaille-Era Insurance Rights so that it could cover those liabilities. That amendment can only sensibly be read as including the Insurance Rights to the Excess Policies. Thus, I find that New Warren is entitled to exercise the Insurance Rights to the Excess Policies.

New Viking's corporate history is slightly more complicated, implicating two transactions: (1) a 1985 Assignment and Assumption Agreement (the “Viking AAA”) in which Houdaille transferred Viking Pump assets and liabilities to New Viking, which was then a wholly owned Houdaille subsidiary; and (2) a 1988 Stock Purchase Agreement (the “Viking Stock Agreement”) in which Houdaille sold all its stock in New Viking and four other subsidiaries to IDEX Corporation. In the first transaction, Houdaille, which had previously operated its Viking Pump business as an “unincorporated” division, transferred all of that division's liabilities and all of the assets required to operate that division. In so doing, Houdaille clearly intended for New Viking to carry on the Viking Pump business, including having the duty to assume responsibility for tort claims regarding that division, which required that New Viking have access to the insurance coverage Houdaille had previously acquired to address such claims. Accordingly, the only reasonable reading of the Viking AAA is that it assigned to New Viking the Insurance Rights to the Excess Policies for pre-existing liabilities traceable to the Viking Pump business. And, I find that Viking Pump has retained the responsibility for Houdaille-Era Claims and the right to use the Excess Policies to respond to those Claims. Although the Excess Insurers use an odd provision in the Viking Stock Agreement to argue that the Houdaille-Era Claims and Insurance Rights were transferred out of New Viking back to Houdaille, a plain reading of that provision and the parties' undisputed course of performance reveals that the parties to the Viking Stock Agreement never intended to eliminate Viking Pump's access to the Insurance Rights. Therefore, New Viking now possesses the assets and liabilities attributable to the Viking Pump business.

I also reject the Excess Insurers' related argument that anti-assignment provisions within the Houdaille Policies made any assignments to New Warren and New Viking ineffective. Although the terms of those provisions state that Houdaille cannot transfer any rights under the Houdaille Policies, New York law, which governs the Excess Policies, overrides that type of policy provision in the case of post-loss assignments. Specifically, New York distinguishes between transferring coverage for events that have not yet happened and transferring coverage for liabilities that arose before the transfer. Where the underlying liability, such as for asbestos exposure, has already occurred, there is no issue of an insurer being asked to provide coverage for unanticipated events. Accordingly, to the extent that an anti-assignment provision bars post-loss transfers, it is deemed unreasonable. As a result, in a case like this one, where an insured does not transfer its insurance policies themselves, but rather just the right to collect under those policies for pre-existing liabilities, New York law will not enforce an anti-assignment provision.

Finally, I conclude that each Excess Policy is independently responsible for all of the liability that results from an occurrence during the term of the Policy's coverage, including occurrences involving Multi-Period Exposure. I apply New York law...