William Powell Co. v. Nat'l Indem. Co.

• Decision Date: 30 September 2015
• Docket Number: Case No. 1:14-cv-807
• Parties: The William Powell Co., Plaintiff, v. National Indemnity Co., et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

141 F.Supp.3d 773

The William Powell Co., Plaintiff,

v.National Indemnity Co., et al., Defendants.

Case No. 1:14-cv-807

United States District Court, S.D. Ohio, Western Division.

Signed September 30, 2015

Joseph Michael Brunner, Katherine Greiner Barnes, Daniel Jerome Buckley, Vorys, Sater, Seymour & Pease LLP, Cincinnati, OH, for Plaintiff.

Richard M. Garner, Sunny Lane Horacek, Collins Roche Utley & Garner, LLC, Dublin, OH, for Defendants.

ORDER GRANTING DEFENDANTS NATIONAL INDEMNITY COMPANY AND RESOLUTE MANAGEMENT, INC.'S MOTION TO DISMISS (Doc. 22.)

Judge Susan J. Dlott

, United States District Court

This matter is before the Court on the motion to dismiss, or in the alternative to stay, filed by Defendants National Indemnity Company and Resolute Management, Inc. (Doc. No. 22). For the reasons that follow, Defendants' motion to dismiss is well-taken and is GRANTED; Defendants' motion to stay is MOOT.¹

I. Background

Plaintiff The William Powell Company ("Powell"), an Ohio corporation, has manufactured industrial valves since at least 1846. Complaint ¶ 9. During the period from 1955 to 1977, Powell purchased a series of primary and excess product and general liability insurance policies from General Accident Fire & Life Assurance Corporation ("General Accident"). Complaint ¶ 17. According to the complaint, these insurance policies required General Accident to defend and indemnify Powell against damages resulting from accidents resulting in bodily injury. Id. Powell alleges that these policies cumulatively provide coverage for up to $60 million in claims, not including the costs of defense. Id. Powell estimates that, including defense costs, the policies have a value of as much as $180 million. Id.

Beginning in 2001, numerous individual plaintiffs began to sue Powell for asbestos-related injuries that allegedly were caused by asbestos in Powell valves. Complaint ¶ 16. Powell claims to have been sued by asbestos plaintiffs in 37 states and Canada. Id. As a result of these lawsuits, Powell began to piece together its insurance coverages. Id. Complaint ¶ 17. Powell learned that, through a series of corporate mergers and asset sales, the policies it purchased from General Accident were eventually assumed by Defendant OneBeacon Insurance Company ("OneBeacon"). Complaint ¶ 19. OneBeacon is alleged to be a Pennsylvania corporation with its principal place of business in Boston, Massachusetts. Complaint ¶ 12.

OneBeacon, in turn entered into a reinsurance agreement with Defendant National Indemnity Company ("NICO"). Complaint ¶ 20. NICO is alleged to be a Nebraska corporation that is wholly-owned by Berkshire Hathaway, Inc. Id. This was not a typical reinsurance agreement according to the complaint, however. Instead of prospectively agreeing to indemnify OneBeacon against claims, the complaint alleges that NICO purchased OneBeacon's claims reserves for $2.5 billion and then agreed to reimburse OneBeacon for claims and defense costs up to $2.5 billion. Complaint ¶ 21.

NICO also acquired responsibility for handling and adjusting all of OneBeacon's claims. Id. NICO, however, delegated its claims handling responsibilities to Ken Randall America ("Ken Randall") and then to Cavell America ("Cavell"). Complaint ¶ 22. In 2006, NICO delegated claims handling to Defendant Resolute Management, Inc., a Delaware corporation ("Resolute"). Resolute is also wholly-owned by Berkshire Hathaway. Id.

The complaint alleges that NICO and Resolute combined to form a racketeering enterprise for the purpose of depriving Powell of its insurance coverage and to profit at Powell's expense. Complaint ¶ 24. Because NICO owns OneBeacon's claims reserves, the complaint alleges that NICO is motivated to maintain control of those reserves in order to earn money on the "float" the reserves generate. Therefore, the complaint alleges, in order to maximize its profits from the float, NICO instructs Resolute to deny and delay claims payments to insureds like Powell without regard to the validity of the policyholder's claims. Additionally, NICO allegedly sets limits on the amount of claims payments Resolute can make based on its own financial goals rather than on the value of policyholders' claims. Complaint ¶ 26-27. Stated another way, the complaint alleges that NICO does not want to pay out the claims reserves it bought from OneBeacon and uses Resolute to hinder, delay, and frustrate payment of legitimate claims from policyholders. The complaint alleges that NICO and Resolute formed this alleged racketeering enterprise in 2006. Complaint ¶ 22.

Powell alleges that its asbestos claims handling went smoothly under the direction of Ken Randall and Cavell. Complaint ¶ 28. Things were allegedly different, however, once Resolute took over Powell's claims. Complaint ¶ 29. Powell alleges that Resolute took a number of acts at NICO's direction in derogation of its rights under the various insurance policies, all for the alleged purpose of eroding its insurance coverage and increasing NICO's profits. Among other things, Powell alleges that:

1. Resolute began to delay payments to local defense counsel and to fund settlements;

2. Resolute attempted to curtail local defense counsel's activities and changed Powell's national coordinating counsel without consulting Powell;

3. Resolute began increasing the rates and amounts of settlements in order to curtail, reduce, and exhaust Powell's policy limits;

4. Resolute disputed the terms and limits of Powell's coverages under the policies;

5. Resolute rejected numerous suggestions from Powell for improving the defense of its cases in order not to reduce the float;

6. Resolute limited local defense counsel's ability to investigate exposure dates;

7. Resolute failed to timely notify Powell of coverage decisions;

8. Resolute unilaterally made decisions that impaired Powell's defense;

9. Resolute unilaterally authorized settlements;

10. Resolute failed to keep Powell apprised of settlement developments;

11. Resolute refused to fund settlements and to pay the invoices of local defense counsel;

Complaint ¶¶ 29-37. Powell alleges on information and belief that Resolute took these actions at NICO's direction. Id. ¶ 37. Furthermore, Powell alleges that Resolute used interstate communications in the form of emails with Powell and its various defense counsel as part of a fraudulent scheme to play the float and reduce limits and defense costs. Id. ¶ 37. The complaint then sets forth a number of examples where Resolute, under NICO's direction, allegedly limited local defense counsel's ability to investigate claims, impaired Powell's defense of claims, and denied coverage of claims:

The complaint then sets forth a number of examples where Resolute, under NICO's direction, allegedly limited local defense counsel's ability to investigate claims, impaired Powell's defense of claims, and denied coverage of claims:

1. In July 2011, in the David Smith case, Resolute denied coverage despite representing earlier that coverage was available and despite evidence showing that the plaintiff had served on ships containing Powell valves during the period covered by the policies. Additionally, Resolute refused to pay local defense counsel's fees. Complaint ¶ 39.

2. In late 2011, Resolute refused to accept defense of the James DeSalvo case on the grounds that the plaintiff's date of first exposure was "in the late 1970's" despite evidence developed by local defense counsel that the plaintiff's exposure could have been as early as 1974. Resolute refused to provide coverage for the claim on the same grounds. Complaint ¶ 40.

3. In July 2013, in the Daniel Swain case, local defense counsel reported to Resolute that the plaintiff's exposure to asbestos began in 1976, or in other words, within the time period covered by Powell's policies. Resolute, however, claimed that the plaintiff's exposure date was in 1977. Without notifying Powell, Resolute asked local counsel to confirm that date and counsel revised its conclusion as to the exposure date to 1978—a point that was outside of Powell's coverage. In September 2013, Powell reached a settlement agreement with the plaintiff and tendered the claim to Resolute for payment. Resolute, however, denied the claim and required Powell to fund the settlement. Complaint ¶¶ 41-42.

4. Despite long-standing practice to the contrary, beginning in October 2013, as a condition of settlement, Resolute began requiring claimants to execute an affidavit affirming that they had actually worked with Powell valves. Powell claims that this change in procedure undermined standing agreements in principle with certain of plaintiffs' counsel. Resolute continues to enforce this change in practice over Powell's objections. Complaint ¶ 45.

5. In early 2014, Resolute ignored Powell's complaints about certain local defense counsel, ignored Powell's request to change local defense counsel and rejected Powell's recommendations for replacement defense counsel. Instead, Resolute chose its own replacement counsel, delayed notifying Powell about the change in counsel, and, over Powell's objections, began transferring cases to the replacement counsel. Complaint ¶¶ 46-47.

6. Resolute instructed counsel not to contact Powell even though it was representing Powell on cases. For in example, in the Tilghman Cole Perry, Jr. case, Resolute instructed counsel not to contact Powell even though Powell was funding a portion of the defense costs. Additionally, Resolute instructed counsel to withhold from Powell relevant information concerning costs and exposure dates. Complaint ¶ 48.

7. In February 2011, Powell requested Resolute to notify it concerning all case reports, coverage communications, and settlement discussions. Soon after this request, however, Resolute extended settlement authority to local defense counsel in three cases without notifying Powell. Complaint ¶ 51-52. Resolute continued this pattern throughout 2012 and into 2013. Complaint ¶¶ 53-54.

8. In March 2013, without notifying...