American Precision Industries, Inc. v. Federal Insurance Company et al
ORDER granting in part and denying in part 33 Motion for Discovery; granting 35 Motion for Joinder; granting in part and denying in part 36 Motion for Discovery. Signed by Hon. H. Kenneth Schroeder Jr. on 3/8/2018. (HKG)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
AMERICAN PRECISION INDUSTRIES,
FEDERAL INSURANCE COMPANY,
FIREMAN’S FUND INSURANCE
COMPANY, and NORTH RIVER
DECISION AND ORDER
This case was referred to the undersigned by the Hon. Richard J. Arcara,
in accordance with 28 U.S.C. § 636(b)(1)(A), for all pretrial matters. Dkt. No. 8.
American Precision Industries, Inc. (“API”) commenced this action on
December 16, 2014, seeking a declaration that the defendant Insurers, Federal
Insurance Company (“Federal”), Fireman’s Fund Insurance (“Fireman’s), and North
River Insurance Company (“North River”), must defend and indemnify API “in
connection with [all pending and future] asbestos-related claims asserted against API,”
and reimburse defense fees and costs and settlement amounts “previously incurred by
API in connection with these [asbestos-related claims].” Dkt. No. 1, ¶ 33. Currently
before this Court is Federal’s First Motion for an Order Decreeing Certain Matters
Admitted (Dkt. No. 33), North River’s Motion for Joinder (Dkt. No. 35), and Fireman’s
Motion for an Order Deeming Certain Matters Admitted (Dkt. No. 36).
Federal sold API five annual comprehensive general liability insurance
policies covering the period from April 1, 1992 through April 1, 1997. Dkt. Nos. 33-10,
33-11, 33-12, 33-13, 33-14. Fireman’s is alleged to have sold API consecutive primary
comprehensive general liability insurance policies covering April 1, 1985 through April 1,
1989. Dkt. No. 1, ¶¶ 8-10. Finally, North River allegedly issued a primary
comprehensive general liability insurance policy covering the period from December 31,
1974 through December 31, 1977. Dkt. No. 1, ¶ 7.
API was formed as a corporation under New York law in 1946. Dkt. No.
33-7, p. 6. In 1996, API formed three subsidiary companies: API AirTech, Inc.
(“AirTech”), API Basco, Inc. (“Basco”), and API Heat Transfer, Inc. (“Heat Transfer”).
Dkt. No. 33-7, p. 6. In 1997, API transferred certain assets to AirTech and Basco in
return for all outstanding shares of those companies. Dkt. No. 33-1, p. 6-7. That same
year, API transferred all of the outstanding shares of AirTech and Basco to Heat
Transfer in return for all of the shares of Heat Transfer. Dkt. No. 33-1, p. 8. API never
transferred any asbestos liabilities to Heat Transfer, AirTech, or Basco during these
transactions. Dkt. No. 33-1, p. 2; Dkt. No. 37, p. 6.
Thereafter, Heat Transfer merged into AirTech and the surviving company
retained the name Heat Transfer. Dkt. No. 33-7, pp. 8-9. At the end of 1998, Basco,
and two other entities, API Ketema, Inc., and API Schmid-Bretten Inc., merged into
Heat Transfer. Dkt. No. 33, p. 9. At that time, API owned all of Heat Transfer as a
subsidiary. Dkt. No. 333-7, p. 9. In 2002, API sold Heat Transfer to API Heat Transfer
Technologies Corporation. Dkt. No. 33-7, p. 10.
According to the Complaint, API has been named as a defendant in
hundreds of asbestos claims in numerous states since approximately 2002. Dkt. No. 1,
¶ 13. These asbestos claims allege third-party bodily injuries resulting from exposure to
asbestos contained in products manufactured and/or sold by API, specifically, in heat
exchangers manufactured and/or sold by API. Dkt. No. 1, ¶¶ 14-15. The alleged thirdparty bodily injuries occurred during one or more of the periods covered by the policies
issued by the defendant Insurers. Dkt. No. 1, ¶ 16.
The defendant Insurers allege that “it has become abundantly clear during
this lawsuit that API is actually seeking reimbursement of the defense costs it incurred
in connection with underlying asbestos suits against companies other than API.” Dkt.
No. 33-1, p. 4. According to Federal, of the 753 underlying asbestos suits identified by
API in its “bordereaux” or claims report (Dkt. No. 37-1, p. 5; Dkt. No. 33-6), API was a
named defendant in only one lawsuit. Dkt. No. 33-1, p. 4. In the vast majority of cases,
the named defendant was Heat Transfer, not API. Dkt. No. 33-1, p. 1.
Federal requested that API admit that it is “named as a defendant in only
one of the 753 Underlying Asbestos Suits identified in the bordereaux” and if API’s
response was anything other than an unequivocal admission, “identify each and every
Underlying Asbestos Suit in which API is named [as a] defendant.” Dkt. No. 33-7, p.
13, ¶ 32. API objected to the request on the ground “that it seeks information with no
relevance to this action because the liabilities for the underlying Asbestos Suits belong
to API, rather than the improperly named defendants.” Dkt. No. 33-7, p. 13, ¶ 32.
Federal also sought an admission from API that Basco, Heat Transfer, and AirTech are
not named insureds or additional insureds under any of the Federal Policies. Dkt. No.
33-7, pp. 15-16, ¶¶ 38-42. API objected to these requests “on the grounds that [they
seek] legal conclusion[s], rather than . . . fact[s], and ha[ve] no relevance to this
litigation because [Basco, . . . Heat Transfer, and AirTech have] no liabilities for the
Underlying Asbestos Suits.” Dkt. No. 33-7, ¶¶ 38-42.
Federal further requested that API admit that it is “seeking reimbursement
for amounts it spent for the defense of non-API entities in 752 Underlying Asbestos
Suits” to which API objected on the ground “that the phrase ‘non-API entities’ is vague
and ambiguous.” Dkt. No. 33-7, ¶ 33. API admitted that “it seeks, among other things,
coverage for amounts expended to defend actions alleging liabilities retained by API in
1996 in lawsuits improperly naming other entities as defendants.” Dkt. No. 33-7, ¶ 33.
API had a nearly identical response to Federal’s request that API admit that it “is
seeking defense for non-API entities in current and future Underlying Asbestos Suits.”
Dkt. No. 33-7, p. 14, ¶ 34.
Attempts on behalf of the parties to resolve the discovery dispute were
unsuccessful. API takes the legal position that because API retained all pre-1997
asbestos liabilities in connection with its 1997 reorganization, it is entitled to coverage
for amounts it spent to defend Basco, AirTech, and Heat Transfer because API owns
the liabilities of those companies. Dkt. No. 37, p. 9. In this regard, according to API,
“API seeks recovery of amounts it spent to defend its own liabilities regardless of the
incorrectly named defendants.” Dkt. No. 37, p. 13 (emphasis in the original). Federal
argues that API’s relevance objection is improper at this juncture in the litigation; and
that, in any event, “the requested matter is relevant [from] Federal’s legal perspective
[because] no coverage is owed for defense of non-insured entities regardless of
whether the underlying plaintiffs sued the wrong entities.” Dkt. No. 33-1, p. 6.
Federal, along with Fireman’s and North River, now seek an Order from
this Court deeming the following matters admitted: that API is named as a defendant in
only one of the 753 Underlying Asbestos Suits (“Request No. 32") (Dkt. No. 33-5, ¶ 32);
that “API is seeking reimbursement for amounts it spent for the defense of non-API
entities in 752 Underlying Asbestos Suits” (“Request No. 33") (Dkt. No. 33-5, ¶ 33); and
that Heat Transfer, AirTech, and Basco are not insured under the defendant Insurers’
policies (“Remaining Requests”) (Dkt. No. 33-5, ¶¶ 40-42, 50, 57-59, 67, 74-76, 84).
Generally, whether certain matter are discoverable is determined by the
broad standard of relevance. See Oppenheimer Fund., Inc. v. Sanders, 437 U.S. 340,
351 (1978). The Federal Rules of Civil Procedure require discovery “of any
nonprivileged matter that is relevant to any party’s claim or defense . . . .” Fed. R. Civ.
Pro. 26(b)(1). “The burden of demonstrating relevance is on the party seeking
discovery. . . . Once relevance has been shown, it is up to the responding party to
justify curtailing discovery.” Trilegiant Corp. v. Sitel Corp., 275 F.R.D. 428, 431
(S.D.N.Y. 2011) (citation omitted).
Defendants move under Federal Rule of Civil Procedure 36 to have the
matters cited above deemed admitted. The purpose of Rule 36 is to “expedite trial by
removing uncontested issues” of fact. Moosman v. Joseph P. Blitz, Inc., 358 F.2d 686,
688 (2d Cir. 1966). Under Rule 36(a):
A party may serve on any other party a written request to admit, for
purposes of the pending action only, the truth of any matters within the
scope of Rule 26(b)(1) relating to:
(A) facts, the application of law to fact, or opinions about either; and
(B) the genuineness of any described documents.
The requesting party may move to determine the sufficiency of an
answer or objection. Unless the court finds an objection justified, it
must order that an answer be served. On finding that an answer
does not comply with this rule, the court may order either that the
matter is admitted or that an amended answer be served.
Fed. R. Civ. P. 36.
This Court finds that the defendant Insurers have demonstrated that
Request Nos. 32, 40-42, 50, 57-59, 67, 74-76, 84 are relevant in that they directly bear
on the issue of whether the parties named in the underlying claims are covered under
the insurance policies issued to API. “It is well established under New York law that a
policyholder bears the burden of showing that the insurance contract covers the loss.”
Morgan Stanley Group Inc. v. New England Ins. Co., 225 F.3d 270, 276 (2d Cir. 2000);
Consol. Edison Co. of New York, Inc. v. Allstate Ins. Co., 98 N.Y.2d 208, 218 (N.Y. Ct.
App. 2002). In this regard, API will ultimately need to prove that the past, present, and
future asbestos-related claims for which it seeks reimbursement, defense, and/or
indemnification are covered under the defendant Insurers’ policies. Thus, contrary to
API’s arguments, the identity of the defendants in the asbestos-related claims and that
of the named and additional insureds is entirely relevant to Defendants’ “coverage
obligations,” and their defense that they are not obligated to cover the losses under the
policies issued to API. Dkt. No. 37, p. 11.
The fact that the process of identifying the named defendants and
insureds may be “burdensome” does not change the fact that it is necessary for API to
prevail in this action. API has already created the bordereaux or claims report
enumerating all of the asbestos-related claims for which it asserts the defendant
Insurers are responsible. API claims that its bordereaux does not identify the specific
defendants or products in the asbestos lawsuits listed and that to respond to the
Requests, “it would have to work with its defense counsel in each asbestos lawsuit to
ensure [he or she] had reviewed every operative pleading,” and would have to “pull files
for nearly 600 closed matters.” Dkt. No. 37, p. 11. Moreover, as noted below, whatever
burden this task might place on API or its counsel must be weighed against the
significant amount at stake in this litigation, roughly $6.5 million, based on the
API apparently seeks over $6.5 million for defense expenses from the
defendant Insurers. Dkt. No. 39, p. 5. Federal argues, and this Court agrees, that
“[g]iven the significant amount of the defense costs, it is difficult to believe that [API’s]
defense counsel did not perform the rudimentary task [of ascertaining the named
defendants] at the outset of each lawsuit.” Dkt. No. 39, p. 5. Even if no such inquiry
was made before undertaking the defense of these cases, the fact remains that API is
in the best position to identify the named defendants in each of the asbestos-related
claims for which it seeks coverage and to determine if Heat Transfer, AirTech, and/or
Basco are named or additional insureds under the alleged policies, issues absolutely
central to this declaratory judgment action. Accordingly, API is directed to answer
Federal Request Nos. 32, 40-42, 50, 57-59, 67, 74-76, 84, and the analogous Requests
from Fireman’s and North River, within 45 days of this Decision and Order.
Regarding Federal Request No. 33, calling for an admission that “API is
seeking reimbursement for amounts it spent for the defense of non-API entities in 752
Underlying Asbestos Suits,” this Court finds that API’s response was sufficient given the
vague and misleading term “non-API entities.” Defendants define “non-API entities” as:
“any and all entities not named American Precision Industries Inc. for whom API
expended money to defend underlying Asbestos Suits for which API is seeking
reimbursement in this Declaratory Judgment Action, and/or any and all entities not
named American Precision Industries for whom API is seeking a defense in the
Declaratory Judgment Action for in current and future Underlying Asbestos Suits.” Dkt.
No. 33-5, p. 4.
API objected to Defendants definition of “non-API entities” and provided
the following response:
API specifically objects to this request on the ground that the phrase “nonAPI entities” is vague and ambiguous. Subject to and without waiving its
objections, API admits that it seeks, among other things, coverage for
amounts expended to defend actions alleging liabilities retained by API in
1996 in lawsuits improperly naming other entities as defendants.
Dkt. No. 33-7, p. 14. API’s response is both legally and factually sufficient. API cannot
be compelled to abandon its legal theory that the liabilities of Basco, Heat Transfer, and
AirTech are in fact API’s own liabilities. Therefore, defendants’ motion to deem this
matter admitted is denied.
Based on the foregoing, North River’s Motion for Joinder (Dkt. No. 35) is
GRANTED; and Federal’s and Fireman’s Motions for relief under Federal Rule of Civil
Procedure 36 (Dkt. Nos. 33 & 36) are GRANTED IN PART and DENIED IN PART. API
is hereby directed to answer Federal Request Nos. 32, 40-42, 50, 57-59, 67, 74-76, 84,
and the analogous Requests from Fireman’s and North River, within 45 days of this
Decision and Order.
Buffalo, New York
March 8, 2018
s/ H. Kenneth Schroeder, Jr.
H. KENNETH SCHROEDER, JR.
United States Magistrate Judge
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