William Powell Co. v. Nat'l Indem. Co., 20-3737

• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)
• Writing for the Court: NALBANDIAN, Circuit Judge.
• Citation: 18 F.4th 856
• Parties: WILLIAM POWELL COMPANY, Plaintiff-Appellee, v. NATIONAL INDEMNITY COMPANY, et al., Defendants, OneBeacon Insurance Company, Defendant-Appellant.
• Docket Number: No. 20-3737,20-3737
• Decision Date: 18 November 2021

18 F.4th 856

WILLIAM POWELL COMPANY, Plaintiff-Appellee,
v.
NATIONAL INDEMNITY COMPANY, et al., Defendants,

OneBeacon Insurance Company, Defendant-Appellant.

No. 20-3737

United States Court of Appeals, Sixth Circuit.

Argued: March 3, 2021
Decided and Filed: November 18, 2021

ARGUED: Richard M. Garner, COLLINS, ROCHE, UTLEY, & GARNER, LLC, Dublin, Ohio, for Appellant. David F. Hine, VORYS, SATER, SEYMOUR AND PEASE LLP, Cincinnati, Ohio, for Appellee. ON BRIEF: Richard M. Garner, Sunny Lane Horacek, COLLINS, ROCHE, UTLEY, & GARNER, LLC, Dublin, Ohio, for Appellant. David F. Hine, Nathaniel Lampley, Jr., Joseph M. Brunner, VORYS, SATER, SEYMOUR AND PEASE LLP, Cincinnati, Ohio, for Appellee.

Before: WHITE, LARSEN, and NALBANDIAN, Circuit Judges.

NALBANDIAN, J., delivered the opinion of the court in which LARSEN, J., joined, and WHITE, J., joined in part. WHITE, J. (pp. 875–80), delivered a separate opinion concurring in part and dissenting in part.

NALBANDIAN, Circuit Judge.

If at first you don't succeed, try, try again. OneBeacon Insurance takes this advice to heart. It has tried repeatedly, both before us and before the district court, to get rid of William Powell Company's (WPC) federal lawsuit against it. And up until now, those efforts have failed. But this time, OneBeacon comes armed with a new weapon: a final, state-court judgment. It says that this judgment precludes WPC's federal lawsuit.

The district court disagreed. Though the court believed that the state judgment likely satisfied the elements of claim preclusion, the court also felt it would be unjust to bar WPC's suit because it had allowed the federal case to proceed in tandem with the state case for several years. At the same time, the court recognized that this case was appropriate for interlocutory appeal. See 28 U.S.C. § 1292(b). And so it certified its order denying OneBeacon's motion to dismiss for us to review. We granted permission for the appeal, and we now REVERSE the district court's judgment and REMAND the case for proceedings consistent with this opinion.

I.

The roots of this litigation go back to the 1950s. From 1955 until 1976, WPC, a manufacturer of industrial valves, bought thirteen primary and excess level liability insurance policies from OneBeacon's predecessor. And good thing, too. In 2001, lawsuits started coming against WPC. The plaintiffs in those suits claimed they were exposed to asbestos in WPC's valves.

18 F.4th 861

Facing these lawsuits, WPC tendered claims for indemnity and defense to OneBeacon, its insurer. The two agreed on the terms and limits of WPC's coverage, and OneBeacon began its defense. But early cooperation quickly broke down. The parties reached an impasse over several issues, kicking off this labyrinthian litigation. WPC first sued OneBeacon in Ohio state court for declaratory relief. It asked the court to answer several questions: whether aggregate limits in WPC's policies were annual, what those aggregate limits were, whether WPC had the right to allocate settlement sums expended on its behalf, and whether OneBeacon had to pay 100% of defense and indemnity costs from claims triggering coverage under WPC's excess policies.

After some procedural jockeying, the state trial court granted WPC summary judgment on all issues except those relating to allocation and the excess policies. Those were not yet ripe for review.

While all this was happening, WPC also sued OneBeacon (and others) in federal court. This time, it alleged OneBeacon breached the general insurance agreements by denying WPC coverage and failing to defend it against asbestos litigation. WPC also alleged OneBeacon breached its duty of good faith and fair dealing in its handling, processing, payment, and satisfaction of WPC's asbestos-related insurance claims. According to WPC, OneBeacon conducted limited investigation into the lawsuits against WPC, delayed communication of coverage decisions, made unilateral litigation decisions, and refused to fund settlements or pay local defense counsel. So by "forcing [WPC] to bear indemnity and defense costs that were not [WPC's] responsibility," OneBeacon acted in bad faith. (R. 1, Compl., PageID # 21.)

All the defendants in the federal case successfully moved to dismiss WPC's complaint except OneBeacon. But that was not for lack of trying. After WPC filed the complaint, OneBeacon moved to dismiss or stay the case. It argued that abstention principles disfavored federal adjudication.

This effort failed. The district court rejected OneBeacon's argument that the federal and state proceedings were parallel, so it denied OneBeacon's motion to dismiss. Undeterred, OneBeacon tried to appeal and moved the district court to reconsider. Those efforts also failed.

Remember, this federal litigation was going on while the state suit remained pending. And in 2017, after filing its federal complaint, WPC amended its state complaint to reallege the issues the trial court previously said were not yet ripe. But this time, WPC did not seek a declaratory judgment. Instead, it brought two claims for breach of contract. In the first, WPC said OneBeacon breached its general accident policies by unilaterally allocating claim payments among policies against WPC's wishes. And in the second, WPC claimed OneBeacon breached the excess policies by refusing to pay all of WPC's indemnity and defense costs.

The state court resolved these claims. It held that WPC had the right to direct allocation of claims among policies. But it also held that OneBeacon had not committed either of the breaches that WPC alleged. That was because OneBeacon's excess policies were not yet triggered, so there were no policies to which WPC could direct the allocation of funds. And for this same reason, OneBeacon did not have to pay WPC's indemnity and defense costs from its excess policies. Instead, WPC owed OneBeacon more than $11 million for OneBeacon's overpayments.

With this victory in hand, OneBeacon again moved to dismiss WPC's federal lawsuit. Having won a final judgment, OneBeacon argued that the trial court's ruling precluded WPC's federal claims. And it

18 F.4th 862

also argued that Colorado River abstention was appropriate. See Colo. River Water Conservation Dist. v. United States , 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).

This time, the district court agreed with OneBeacon, but only partially. The court acknowledged that the state court judgment likely satisfied the elements of claim preclusion, but it declined to dismiss the case. Instead, the court allowed it to survive, citing the Restatement (Second) of Judgments § 26(1)(f). Still, the court stayed the case, noting that WPC's second amended complaint in the state court action made the state and federal proceedings parallel. See Colo. River , 424 U.S. at 817, 96 S.Ct. 1236.

Unsatisfied with this ruling, OneBeacon successfully moved the court to certify for appeal its interlocutory order denying the motion to dismiss. See 28 U.S.C. § 1292(b). And we agreed to hear the appeal. In re OneBeacon Ins. Co. , No. 19-0309, 2020 U.S. App. LEXIS 21780, at *1–3 (6th Cir. July 13, 2020) (order); see 28 U.S.C. § 1292(b).

One last thing. After OneBeacon filed its notice of appeal here, the Ohio Court of Appeals reviewed the state court's order—the one OneBeacon hopes has preclusive effect. See William Powell Co. v. OneBeacon Ins. Co. , 162 N.E.3d 927 (Ohio Ct. App. 2020). And it affirmed in part and reversed in part. Id. at 947. Affirming, the Court of Appeals agreed that WPC had the right to allocate claim proceeds. Id. at 946–47. But partially reversing, the Court of Appeals said that some of WPC's excess policies had been triggered and that OneBeacon breached these policies by not paying all of WPC's defense costs. Id. at 943–44. In other words, OneBeacon breached some , but not all, of the excess policies. Id. The court also reversed the trial court's holding that OneBeacon was entitled to contribution from WPC. Id. at 945. When all was said and done, the court remanded the case to the trial court to calculate damages for WPC. Id. at 947.

OneBeacon appealed the Court of Appeals' decision to the Ohio Supreme Court, which declined to review the case. See William Powell Co. v. OneBeacon Ins. Co. , 161 Ohio St.3d 1475, 164 N.E.3d 840 (Ohio 2021) (table).

II.

If all that procedural history were not complicated enough, things get trickier still. After the parties briefed and argued this case, Pennsylvania liquidated OneBeacon. As part of its liquidation order, the state liquidator stayed all litigation against OneBeacon—whether in Pennsylvania or elsewhere. And the language of that order, in theory, included this case. So we were left with the difficult question of whether the stay binds us.

We asked the parties to submit supplemental briefing on the questions the stay order raised. Thus, we asked whether the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), "reverse preempts" the federal diversity jurisdiction statute, 28 U.S.C. § 1332. We also asked the parties to brief whether abstention under Burford v. Sun Oil Co. , 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), was appropriate. And finally, we asked whether an Ohio state court would respect Pennsylvania's stay on litigation, and whether a federal court deciding Ohio...