General Insurance Company of America v. The Walter E. Campbell Company, Inc. et al
Filing
312
MEMORANDUM. Signed by Judge William M Nickerson on 5/12/2016. (nd2s, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
GENERAL INSURANCE COMPANY OF
AMERICA
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v.
* Case No. WMN-12-3307
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THE WALTER E. CAMPBELL COMPANY, *
INC. et al.
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MEMORANDUM
Before the Court are the following motions: (1) a motion
filed by the Walter E. Campbell Company, Inc. (WECCO) and The
Hartford Financial Services Group, Inc. (Hartford) to dismiss
the claims that they have asserted against each other and to
substitute WECCO for Hartford in the remaining claims in this
litigation (Motion to Dismiss), ECF No. 283; (2) a motion filed
by The Continental Insurance Company, United States Fire
Insurance Company and St. Paul Fire and Marine Insurance Company
(collectively, the Non-Settled Insurers) to enforce previous
Orders of this Court and for a declaration of the parties’
obligations thereunder (Motion to Enforce), ECF No. 284; and (3)
a motion filed by the Non-Settled Insurers for partial summary
judgment in the form of declarations related to the proper
application of pro rata allocation to claims against WECCO in
certain asbestos suits (Motion for Partial Summary Judgment),
ECF No. 299.1
The motions are all ripe.
Upon review of the
papers filed and the applicable case law, the Court determines
that no hearing is necessary, Local Rule 105.6, and that NonSettled Insurers’ Motion to Enforce will be denied, that NonSettled Insurers’ Motion for Partial Summary Judgment will be
granted, and that the Motion to Dismiss filed by WECCO and
Hartford will be granted, as modified.
I. FACTUAL AND PROCEDURAL BACKGROUND
This case involves an insurance coverage dispute between
WECCO - a company which for decades engaged in the business of
handling, installing, disturbing, removing, and selling
asbestos-containing insulation materials - and several of its
insurers.
The factual background of the dispute and the
somewhat convoluted procedural history of this action have been
set out in detail in previous opinions of this Court2 and will
1
Also pending are several motions to seal various documents
filed in conjunction with these motions. ECF Nos. 287, 291,
298, 302, and 309. These motions will be granted for good cause
shown.
2
See June 11, 2013, Memorandum denying in part a motion to
dismiss filed by WECCO, ECF No. 131; January 16, 2014,
Memorandum denying WECCO’s request that this Court abstain from
exercising its jurisdiction over this matter, ECF No. 146; May
14, 2014, Memorandum approving the voluntary dismissal of two of
the insurers, ECF No. 199; and a May 26, 2015, Memorandum
denying WECCO’s motion to certify questions to the Maryland
Court of Appeals and approving the voluntary dismissal of
another insurer, ECF No. 251.
2
not be repeated here.
The Court has, however, issued several
rulings in this action that are relevant to the instant motions.
First, the Court has issued a ruling on Maryland insurance
law as it relates to the policies at issue.
On May 26, 2015,
the Court declared the following:
(a) Maryland law governs the interpretation of the
insurance policies issued or allegedly issued to WECCO
by [its] Insurers;
(b) Bodily injury that occurs during an insurer’s
policy period, and that arises from an operation that
concluded prior to the inception of the policy period,
falls within the “completed operations” hazard of that
policy and therefore is subject to the aggregate
limits of each such policy; and
(c) To avoid the application of the aggregate limit of
any particular policy, WECCO bears the burden of
proving that the bodily injury that occurred during
that policy’s policy period arose from asbestos
exposure during a WECCO operation that was ongoing
during such policy period.
May 26, 2015 Order, ECF No. 252.
Second, having been informed
that WECCO has settled the claims between it and various
insurers (collectively, the Settled Insurers), the Court issued
orders setting out the ongoing obligations of the parties
relative to the underlying asbestos litigation.
See ECF No. 199
(dismissing claims between WECCO and Pennsylvania Manufacturers
Association Insurance Company and claims between WECCO and
Federal Insurance Company); ECF No. 252 (dismissing claims
between WECCO and General Insurance Company of America).
3
In the
Orders dismissing those claims and substituting WECCO for the
Settled Insurers, the Court specified that:
(i) Any judgment or award obtained by WECCO against
any other insurer shall be automatically reduced by
the amount, if any, that a Court determines by
judgment [the Settled Insurer] would have been liable
to pay such other insurer as a result of that
insurer’s claim so that the claim by that insurer
against [the Settled Insurer] is thereby satisfied and
extinguished;
(ii) WECCO will be obligated to participate in the
defense and indemnity of WECCO to the same extent that
[the Settled Insurer] would be obligated to
participate under applicable law; and
(iii) WECCO and [the Settled Insurer] are ORDERED to
deposit the settlement payment in a qualified
settlement fund, pending resolution of substantive
issues relating to [the Settled Insurer’s]
responsibility, if any, to pay defense and indemnity
costs;3
ECF No. 199 at 10-12, ECF No. 252 at 3.
II. NON-SETTLED INSURERS’ MOTION TO ENFORCE
There is substantial disagreement among the parties as to
whether WECCO has complied with these Orders since their
issuance.
In their Motion to Enforce, Non-Settled Insurers
represent that WECCO has failed to make promised payments of
fees to long-standing defense and settlement counsel, Richard
Flax and Robert Spinelli.
WECCO then unilaterally replaced Flax
3
Consistent with the Court’s orders, WECCO established the WECC
Qualified Settlement Fund (WECCO QSF). In the portions of this
Memorandum that follow that speak of the obligation of WECCO to
stand in the shoes of the Settled Insurers, it is understood
that the obligation actually rests on the WECCO QSF.
4
and Spinelli with the law firm of Morgan Lewis & Bockius LLP
(Morgan Lewis) in over 570 pending asbestos suits against WECCO.
Morgan Lewis is the firm that is also representing WECCO in the
instant coverage dispute and Non-Settled Insurers view the
representation in the underlying asbestos cases by coverage
counsel as a clear conflict of interest.
Instead of Morgan
Lewis, the Non-Settled Insurers advocate for the retention of
Dehay & Elliston, a law firm with considerable experience
defending asbestos cases in Baltimore where most of the cases
are pending.
Non-Settled Insurers also complain that WECCO is
attempting to force them to accept the following conditions
before it will retain new counsel:
(1) an artificial cap of $10,000 per case on amounts
that could be expended on WECCO’s defense,
(2) a requirement that the WECCO [QSF] alone would
control whether to take any particular case to trial,
(3) a requirement that defense counsel would comply
with a settlement “framework” as to which [NonSettled] Insurers neither have been apprised nor have
consented, and
(4) an agreement by [Non-Settled] Insurers to all
terms of the draft defense protocol as proposed by
WECCO.
ECF No. 286 at 9.
As relief in this motion, Non-Settled Insurers seek
declarations that:
5
(1) with respect to the asbestos suits in which Morgan
Lewis has been substituted or appeared as WECCO’s
defense counsel, [Non-Settled] Insurers shall have no
obligation for defense or indemnity under the policies
and alleged policies at issue in this action, and
(2) with respect to any asbestos suits that are
hereafter filed and tendered by WECCO to [Non-Settled]
Insurers for defense, WECCO shall participate in the
defense and indemnity of WECCO to the same extent that
the [Settled Insurers] would be obligated to
participate under Maryland law, shall not condition
its participation on any additional terms or
limitations unless mandated by the Court, and shall
promptly after the filing of each such suit consent to
the appearance of non-conflicted defense counsel
acceptable to the insurers participating in WECCO’s
defense.
Id. at 3.
In opposition, WECCO submits that, while it did substitute
Morgan Lewis for Flax and Spinelli, this was on a “temporary
basis while the parties negotiated a more permanent defense
protocol.”
ECF No. 292 at 14.
Furthermore, WECCO stresses that
Morgan Lewis has been defending WECCO in these suits “at no cost
to any party.”
Id.
As to the conditions that it seeks to
insert into the defense protocol going forward, WECCO asserts
that, because it is now responsible for more than 50% of the
defense costs after having absorbed the responsibilities of the
Settled Insurers, it should be able to exercise the right to
control the litigation as “lead counsel.”
Furthermore, WECCO
sees no inherent conflict under Maryland law for Morgan Lewis to
6
serve as both WECCO’s defense counsel and WECCO’s coverage
counsel.
Before trying to untangle those areas wherein the parties
disagree, the Court notes that, at least as to the “products and
completed operations claims” for which the Non-Settled Insurers
have denied coverage, the Non-Settled Insurers have no grounds
to protest Morgan Lewis’ continued role as defense counsel at
WECCO’s sole expense.
While WECCO purports to disagree with the
Court’s resolution of the scope of completed operations claims
and to dispute that the Non-Settled Insurers have sufficiently
established that the aggregate limits of their policies for that
class of claims has been exhausted, WECCO appears to have
acquiesced to its role as sole defender of those claims.
See
ECF No. 292 at 12-13 (“WECC[O] reasonably proposed that the
defense of products and completed operations claims would remain
with Morgan Lewis and that WECC[O] would not seek reimbursement
from Non-Settled Insurers, so Non-Settled Insurers should have
no input in how these claims are defended.”).
As to those
claims, the Court sees no need for any further declarations at
this time.
As to the “operations” claims that are potentially covered
under the Non-Settled Insurers’ policies, WECCO and the NonSettled Insurers all rely on the language of the applicable
insurance policies (the Non-Settled Insurers on the language of
7
their own policies and WECCO on the language of the Settled
Insurers’ policies) and on firmly established Maryland law for
the proposition that each insurer has the “right and duty” to
defend WECCO.
As set out by WECCO,
Under Maryland law, which this Court has thus far held
applies in this coverage dispute, an insurer’s right
to defend its insured is an essential right:
“It is common – almost universal – for liability
insurance policies to give the insurer both the right
to control the defense of any claim covered by the
policy and the duty to provide that defense. . . .
The right to control the defense . . . is important to
the insurer as a mechanism for protecting and
minimizing its duty of indemnification. If it is to
be liable for any judgment rendered against the
insured, it has a right to make certain that a proper
defense is made to the claim and that unwarranted,
overstated, and collusive claims are exposed and
defeated.”
ECF No. 292 at 10 (quoting Sherwood Brands, Inc. v. Hartford
Accident & Indem. Co., 698 A.2d 1078, 1083 (Md. 1997) (emphasis
in Sherwood Brands)); see also ECF No. 286 at 12 (Non-Settled
Insurers’ reliance on that same authority).
Given that it is
undisputed that WECCO now bears the largest stake in the defense
of these operations claims, the Court concludes that it is
appropriate that WECCO take the “lead” in that defense, with
certain qualifications.
One of those qualifications is that WECCO cannot continue
to retain conflicted counsel to defend these suits and, as long
as it does so, Non-Settled Insurers shall have no defense or
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indemnity obligations with respect to those suits in which
Morgan Lewis remains defense counsel.
Given the long and
protracted efforts of Morgan Lewis to pull cases into coverage
under the Non-Settled Insurers’ policies, Morgan Lewis cannot
also be placed into the position where it can slant the defense
in a manner that could render the claims covered claims.
See
New York State Urban Dev. Corp. v. VSL Corp., 563 F. Supp. 187,
190 n.1 (S.D.N.Y. 1983).
WECCO’s insistence that Morgan Lewis’
representation in these actions is “temporary” indicates to the
Court at least a tacit admission that Morgan Lewis’ continued
representation is inappropriate.
That said, when new counsel is retained to defend these
suits, be it DeHay & Elliston, LLP or some other non-conflicted
counsel on which the parties agree, the Court concludes that an
agreement on a “defense protocol” and a settlement “framework”
would be reasonable and it is not a breach of any Order of this
Court to attempt to establish some guidelines to the manner in
which the operations cases will be defended.
These guidelines,
of course, are necessarily limited to general guidelines and
defense counsel, consistent with their professional
responsibilities and obligations, must apply them on a case-bycase basis, in line with the rights of the insurers, both the
Non-Settled Insurers and the Settled Insurers, in whose shoes
9
WECCO now stands.
The proposed protocol acknowledges that duty.4
Furthermore, it is not clear from the current record exactly
where the parties are in disagreement regarding the guidelines,
rendering it impractical for the Court to meaningfully address
the dispute.
Finding that WECCO is not currently in breach of any Order
of the Court, the Court will deny the Non-Settled Insurers’
Motion to Enforce.
It would appear to be in the best interest
of all parties to quickly come to an agreement on new defense
counsel for the potential “operations” cases and on an
appropriate defense protocol.
If the parties continue to be at
an impasse, however, the Court would consider referring the
4
The proposed guidelines state:
Nothing contained in these Guidelines is intended to
interfere with the attorney/client relationship or the
proper discharge of defense counsel’s duties to his or
her client, where counsel is representing an insured.
It is the counsel's obligation to bring to Resolute's
attention any specific factual situations where
counsel believes that the Guidelines may potentially
interfere with counsel's obligations to his or her
client. While it is our desire to be a part of the
decision-making process, nothing contained herein is
intended to (1) restrict defense counsel’s independent
exercise of professional judgment in rendering legal
services to or for the insured or (2) otherwise
interfere with any relevant ethical rules governing
the conduct of counsel. Counsel is expected to adhere
to all ethics rules governing professional conduct and
responsibility.
Defense Counsel Guidelines of Resolute Management Inc., ECF No.
292-6 at 3.
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parties to a Magistrate Judge to help guide an appropriate
resolution to that impasse.
III. NON-SETTLED INSURERS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
In their motion for partial summary judgment, the NonSettled Insurers asked the Court to issue two additional
declarations regarding the coverage of claims.
The first states
that an insurer’s indemnity obligation to WECCO is to be
proportional to the insurer’s “time on the risk” as compared to
the “Allocation Period.”
The Allocation Period is the period
from the claimant’s first exposure to a WECCO-related asbestos
product to the claimant’s manifestation of an asbestos-related
disease, minus any period of time in which insurance for
asbestos-related diseases was not commercially available.5
The
second declaration relates to WECCO’s portion of defense and
indemnity costs.
Non-Settled Insurers ask that the Court
5
The actual requested text of this first declaration is as
follows:
Any indemnity obligation an insurer may have to WECCO
with respect to an asbestos bodily injury suit is to
be allocated pro rata based on such insurer’s
triggered time on the risk as compared to the
“Allocation Period,” which is the entire period during
which the claimant’s bodily injury occurred. The
Allocation Period starts with the date of a claimant’s
first WECCO-related exposure to asbestos and ends with
the manifestation of the claimant’s asbestos-related
disease, exclusive of any periods for which WECCO
establishes that insurance for asbestos claims was
commercially unavailable to WECCO for procurement.
ECF No. 299 at 1.
11
declare that WECCO’s indemnity obligation extends to any part of
the Allocation Period for which: the insurance procured by WECCO
has been exhausted; the insurer is insolvent; the insurer has
settled with WECCO; or WECCO failed to procure insurance, unless
insurance for asbestos claims was commercially unavailable for
that period of time.6
WECCO opposes the issuance of these declarations on two
grounds.
First, while conceding that these declarations are
generally consistent with this Court’s previous rulings,7 WECCO
takes issue with the allocation of loss to WECCO for the periods
of time when it bought insurance from a carrier that
subsequently became insolvent.
This allocation is particularly
6
The actual requested text of this second declaration is as
follows:
WECCO must pay all pro rata shares of any judgment or
settlement not allocable to Certain Insurers. This
includes indemnity allocable to any period in the
Allocation Period for which (i) the insurance procured
by WECCO has been exhausted; (ii) the insurance
procured by WECCO was issued by one or more insurers
that are insolvent; (iii) the insurance procured by
WECCO was issued by an insurer with whom WECCO has
reached a settlement; and/or (iv) WECCO failed to
procure insurance, unless WECCO establishes that
insurance for asbestos claims was commercially
unavailable to WECCO for procurement during that
period.
Id.
7
WECCO disagrees with this Court’s interpretation of Maryland
law and states its intent to ask the Fourth Circuit, on appeal,
to certify questions related to these issues to the Maryland
Court of Appeals. ECF No. 303 at 2 n.2.
12
significant here in that WECCO bought thirteen years of coverage
from an insurer that became insolvent, American Liablity
Insurance Company.
Second, WECCO also suggests that the
appropriateness of these declarations is an issue for trial and
not one for resolution on a motion for summary judgment.
As for the first argument, neither side has directed the
Court to binding Maryland law on this precise issue.
Non-
Settled Insurers have noted, however, that both the Maryland
Court of Special Appeals in Mayor & City Council of Baltimore v.
Utica Mutual Insurance Company, 802 A.2d 1070, 1103 (Md. Ct.
Spec. App. 2002) and the Fourth Circuit Court of Appeals in
Pennsylvania National Mutual Casualty Insurance Company v.
Roberts, 668 F.3d 106, 114 (4th Cir. 2012), cited with approval
a Second Circuit decision, Olin Corporation v. Insurance Company
of North America, 221 F.3d 307, 323 (2d Cir. 2000), which did
directly address the allocation of indemnity when an insurer
becomes insolvent.
The Olin court opined,
where the policies triggered are provided by multiple
insurers, allocation avoids saddling one insurer with
the full loss, the burden of bringing a subsequent
contribution action, and the risk that recovery in
such an action will prove to be impossible because,
for instance, the insurer of other triggered policies
is unable to pay. Allocation results in the insured
bearing the risk of any of its insurers' inability to
pay, instead. There is logic in having the risk of
such defalcation fall on the insured, which purchased
the defaulting insurer's policy, rather than on
another insurer which was a stranger to the selection
process.
13
221 F.3d at 323 (emphasis added).
Having the allocation of indemnity fall on the insured when
an insurer becomes insolvent is also consistent with the
language of the insurance policies at issue.
There is no
dispute that this language specifies that coverage is limited to
bodily injury which occurs “during the policy period.”
See,
e.g., Continental Policy No. SMP 6087552, ECF No. 285-11 at 29.
Although offered in a slightly different context, this
conclusion is consistent with the Fourth Circuit’s observation
in Roberts that “an insurance company cannot be held liable for
periods of risk it never contracted to cover.”
668 F.3d at 109.
“It is a dispiriting but inescapable fact that sometimes really
bad things happen, and those responsible are either insolvent or
inadequately insured.
But that regrettable reality does not
allow us to ignore Maryland law, to hold an insurance company to
a contractual provision to which it never agreed. . . .”
Id. at
115.
The Court also finds no merit to WECCO’s second argument
that Non-Settled Insurers’ entitlement to these declarations
cannot be resolved at the summary judgment stage but, instead,
must be determined at trial.
The declarations sought are purely
legal in nature as evidenced by the fact that WECCO has
identified no additional evidence or facts that would need to be
developed at trial to resolve these issues.
14
Notably absent from
WECCO’s Opposition to the partial summary judgment motion is the
requisite affidavit explaining what additional discovery it
needed to oppose the motion.
See Fed. R. Civ. P. 56(d);
Streeter v. SSOE Sys., 732 F. Supp. 2d 569, 573 n.2 (D. Md.
2010) (noting that if a party opposes a motion for summary
judgment based on the need for additional factual development,
“it must show specific reasons by affidavit as to why it cannot
present facts essential to justify its opposition.”).
The Motion for Partial Summary Judgment will be granted and
the Court will issue the requested declarations.
IV. WECCO/HARTFORD’S MOTION FOR VOLUNTARY DISMISSAL
Having reached a settlement, WECCO and Hartford seek the
entry of an Order dismissing the claims between them and
substituting WECCO for Hartford in the remaining claims.
They
propose an order similar to the orders dismissing the other
Settled Insurers.
The Non-Settled Insurers do not object to the
dismissal and substitution, but take issue with three aspects of
the WECCO/Hartford Proposed Order.
First, Non-Settled Insurers suggest that the Proposed Order
ignores the Court’s choice of law ruling.
Like the previous
orders of dismissal, the WECCO/Hartford Proposed Order simply
states that WECCO “is obligated to participate in the defense
and indemnity of WECC[O] to the same extent that Hartford would
be obligated to participate under applicable law.”
15
WECCO/Hartford Proposed Order ¶ 5, ECF No. 283 (emphasis added).
Non-Settled Insurers argue that, now that the Court has
determined what the applicable law is, the order should reflect
that determination and should read “WECCO is to participate in
the shoes of Hartford in the defense and indemnity of WECCO on a
pro rata time-on-the-risk basis to the same extent that Hartford
would be obligated to participate under Maryland law . . . .”
Non-Settled Insurers’ Proposed Order ¶ 5, ECF No. 289-1.
The
Court finds that Non-Settled Insurers’ proposed language is an
accurate expression of the applicable law and will include that
language in its Order.
Second, Non-Settled Insurers take issue with the inclusion
in Paragraph 1 of the WECCO/Hartford Proposed Order that the
claims between WECCO and Hartford are dismissed “without effect
on WECC[O]’s claims against the remaining parties.”
Non-Settled
Insurers note that this language was not included in the
previous orders and, more significantly, is inconsistent with
the language of Paragraph 3 of the WECCO/Hartford Proposed Order
that provides that “[a]ny judgment or award obtained by WECC[O]
against another insurer shall be automatically reduced by the
amount, if any, that a Court determines by judgment that
Hartford would have been liable to pay such other insurer as a
result of that insurer’s claim so that the claim by that insurer
against Hartford is thereby satisfied and extinguished.”
16
In
their Reply, WECCO and Hartford ignore the fact that this
language was not in the previous orders, ignore the internal
inconsistency that this language creates, and simply note that
Paragraph 3 of their Proposed Order is nearly identical to
Paragraph 3 of the previous orders.
ECF No. 294 at 3.
That, of
course, is not the issue and the contested “without effect”
language will not be included in the Court’s Order.
Finally, Non-Settled Insurers note that, while not included
in the Proposed Order, the brief in support of the motion
included a footnote that would imply that WECCO and Hartford
take the position that WECCO was only assuming from Hartford
defense and indemnity costs incurred after the date of the
WECCO/Hartford settlement.
4 n.3).
ECF No. 289 (citing ECF No. 283-1 at
Non-Settled Insurers correctly respond that, as WECCO
is “stepping into the shoes” of Hartford, WECCO would assume
obligations already incurred as well as obligations to be
incurred in the future.
To clarify any confusion, real or
imagined, the Court will include the language requested by NonSettled Insurers regarding the time span of WECCO’s assumed
obligations.
V. CONCLUSION
For the above stated reasons, the Non-Settled Insurers’
Motion to Enforce will be denied, the Non-Settled Insurers’
Motion for Partial Summary Judgment will be granted, and the
17
Motion to Dismiss filed by WECCO and Hartford will be granted,
as modified.
A separate order will issue.
___________/s/_________________
William M. Nickerson
Senior United States District Judge
DATED: May 12, 2016
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