IMG Worldwide, Inc. et al v. Westchester Fire Insurance Company
Filing
220
Memorandum Opinion and Order denying Great Divide's Motion 210 for reconsideration. Great Divide is liable to Westchester for $7,996,655.57 plus the $1,160,629.09 in pre-judgment interest that Westchester was assessed for the time period prior to the date of the mandate issued by the Sixth Circuit Court of Appeals. This totals $9,157,284.66. Judge Donald C. Nugent(C,KA)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
IMG WORLDWIDE, INC., et al.,
Plaintiffs,
v.
WESTCHESTER FIRE INSURANCE
COMPANY,
Defendant.
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CASE NO. 1:11 CV 1594
JUDGE DONALD C. NUGENT
MEMORANDUM OPINION
AND ORDER
This case is before the Court once again on the Motion of Great Divide Insurance
Company For Reconsideration and Vacation in Part of the Court’s August 28, 2105
Memorandum Opinion and Order. (ECF #210). This motion was supported by a Memorandum
in Support and the Affidavit of Theodore M. Dunn Jr.. (ECF #210-1, 210-2). In it’s Response to
the motion for reconsideration, Westchester Fire Insurance Company (“Westchester”) included
its own cross-motion to dismiss defenses and counterclaims. (ECF #211, 212). Both issues have
been fully briefed and are ready for disposition. (ECF #211, 212, 214, 215).
Great Divide Insurance Company (“Great Divide”) argues that the Court’s ruling, which
held that Westchester is entitled to equitable indemnity from Great Divide, was premature, and
that Great Divide was entitled to discovery and an evidentiary hearing prior to any final ruling
on the issue. In support of this position, Great Divide cites to the minutes from prior status
conferences, supposedly memorializing their right to discovery, and to their opposition to
Westchester’s request for partial summary judgment reiterating their belief that they are entitled
to discovery and a hearing on disputed factual issues relating to their defenses.
The status conference notes of March 30, 3015 indicate that the Court stayed discovery
pending a ruling on motions for partial summary judgment which were anticipated to be filed
with respect to “the legal effect of settlement between Great Divide and IMG.” (ECF #198).
The parties filed motions for summary judgment which went beyond this limited question. Both
parties briefed not only the potential preclusive effect of the settlement, but also the viability of
the various equitable remedies sought by Westchester. Following briefing, but prior to the
issuance of this Court’s opinion, the Court held another status conference during which it
questioned whether the parties anticipated that the summary judgment motions would fully
resolve the matter, as it appeared to the Court that they would. As indicated in the status
minutes, the parties stated their belief that if recovery was allowed additional discovery would be
required prior to the issuance of a final judgment. (ECF #207). This was not a ruling or finding
by the Court, and was simply a memorialization of the parties’ representations as to their
understanding of the issues prior to the issuance of the Court’s opinion on the summary
judgment motions.1
Following the completion of briefing, the Court found that Westchester was entitled to
1
Indeed if the Court had made a different ruling on some of the other equitable causes of
action, it is very possible that some discovery may have been warranted to determine
contribution amounts or to quantify amounts attributable to an unjust enrichment claim.
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equitable indemnity for the defense costs it had been ordered to pay to IMG in connection with
the Gastaldi action. This decision was based on the applicable law, and the very specific
circumstances of this case, including the contracts at issue, the undisputed facts and procedural
history, and the binding rulings and findings of the Sixth Circuit Court of Appeals. The material
facts considered by the Court were either established by the Sixth Circuit in their prior opinion
remanding the case for consideration of the equitable claims, or were based on known facts
undisputed by the parties.
Nothing in the discovery sought by Great Divide would be material to the Court’s
determination on the issue of Great Divide’s liability to Westchester under a theory of equitable
indemnity. There may well be undiscovered facts that could affect Great Divide’s potential for
recovery against IMG, if any such recovery is possible, and the Court pointed out some potential
factual issues that could be relevant to that consideration.2 However, those potentially disputed
issues are not before the Court as part of this litigation, and were not decided by the Court in its
opinion. The only determination that is currently relevant is whether Great Divide is liable to
Westchester for the defense costs attributable to the Gastaldi litigation.
Great Divide’s contract with IMG states that it has the “right and duty to defend the
insured against any ‘suit’ seeking damages” for “property damage” to which their insurance
2
The Court indicated that there may be some evidence of bad faith by IMG in the language
of the IMG/Great Divide settlement because IMG represented that it had not assigned or
transferred or purported to assigns or transfer any of the released rights in the agreement to
a third party. This was stated in the settlement contract even though IMG had assigned
those rights to Westchester via the granting of subrogation rights in the excess insurance
policy. See, Aetna Casualty & Surety Co. v. Hensgen, 22 Ohio St. 2d 83. This statement
was not the basis for the Court’s finding that Great Divide was liable to Westchester for
equitable indemnity, but was only meant to raise the possibility that Great Divide could
have a potential claim against IMG in a separate action.
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applies. The Sixth Circuit held that the Gastaldi action was a suit seeking damages for “property
damage” and that Great Divide “wrongly” or “improperly” denied coverage. (ECF #169, pgs.
13-15). It further found that under the terms of its insurance policy, Great Divide is responsible
for defending IMG in covered lawsuits. (ECF #169, pg. 3). This Court is bound by the Sixth
Circuit’s opinion. Further, the settlement agreement between IMG and Great Divide
acknowledges that the Gastaldi settlement included “payment of sums that IMG[] became
legally obligated to pay” and that the Agreement exhausted the Great Divide policy “due to a
payment for ‘property damage’ caused by an ‘occurrence’ under the Policy.” (ECF #146-2 at 1,
3 ).3 Great Divide’s contract with IMG also makes clear that its duty to defend ends only when it
has used up the applicable limit of insurance in the payment of judgments or settlement. This
did not occur until after all of IMG’s defense costs had already been incurred.2
Under the terms of Westchester’s contract with IMG, Westchester was an excess carrier
and it’s duty to defend was secondary to Great Divide’s duty to defend. Great Divide has not
disputed or otherwise challenged these basic facts and conclusions. No further discovery has
been suggested that would be aimed at discrediting or disputing these facts. These facts
conclusively establish that Great Divide was primarily liable for the defense costs associated
with the Gastaldi action. Further, there has been no argument that if Great Divide had paid the
defense costs incurred prior to making the payment that exhausted its liability coverage in
3
An insurer/insured’s agreement that policy limits were exhausted is presumptive, if not
conclusive, evidence that there was coverage under the settled policy. Elliott Co. v. Liberty
Mut. Ins. Co., 434 F.Supp.2d 483, 499-500 (N.D. Ohio 2006).
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connection with the “Gastaldi” action, Westchester would not have had any legal liability for
payment of defense costs.
“It is well settled that one secondarily liable, who is forced to pay because of the refusal,
or failure after demand, of the one primarily liable to discharge the obligation, has the right of
indemnity from the one primarily liable.” Aetna Cas. & Sur. Co. V. Buckeye Union Cas. Co., 157
Ohio St. 385, 393 (1952), 105 N.E.2d 568, 572, citing Globe Indemnity Co. v. Schmitt, 142 Ohio
St. 595, 53 N. E. (2d), 790; Maryland Casualty Co. v. Frederick Co., 142 Ohio St., 605, 53 N. E.
(2d), 795; Losito v. Kruse, Jr., 136 Ohio St., 183, 24 N. E. (2d), 705, 126 A. L. R., 1194; Herron
v. City of Youngstown, 136 Ohio St., 190, 24 N. E. (2d), 708. Further, there are several
additional cases that hold that a settlement between an insured and a primary carrier should not
alter the liability of the excess carrier. In other words, an excess carrier should be placed in the
same position it would have been in absent any settlement between the insured and the primary
carrier. See, e.g., One Beacon america Ins. Co. v. American Motorist Ins. Co., 679 F.3d 456 (6th
Cir. 2012); Bondex Int’l Inc. v. Hartford Acc. And Indemn. Co., 2007 WL 405938, *5 (N.D.
Ohio, Feb. 1, 2007). While, for the reasons outlined in this Court’s prior opinions, it would have
been more proper and more equitable to accomplish this directive by disallowing IMG’s request
for defense costs from Westchester, the Sixth Circuit precluded this result. Therefore, the only
remaining solution that comports with Ohio law, and the law of the case as set forth in the Court
of Appeals’ decision is to allow Westchester to recover the costs from the primary insurer, Great
Divide, and to allow the primary insurer to explore any claim it may have under the terms of its
settlement agreement with IMG in a different action. Therefore, based on the established
undisputed facts, the findings of the Court of Appeals, and the current state of the law in Ohio,
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Great Divide is liable to Westchester for the full amount of the defense costs under the principle
of equitable indemnity.
Great Divide raises several affirmative defenses, all of which are either belied by the
conclusively established facts, or are unsupported by the law. Westchester has moved to strike
these defenses. (ECF # 211). That motion is denied; it is not necessary to strike the defenses
though they are not effective in preventing Great Divide’s liability, under the circumstances of
this case. The Sixth Circuit has found that the issue of Westchester’s right to equitable relief
against Great Divide was properly raised and preserved and that the Court should rule on the
merits of that claim. Great Divide’s various arguments relating to allegedly improper notice or
untimeliness of the equitable claims fail based on the undisputed evidence already before the
Court. No discovery is needed to address these issues.
There is no dispute that Great Divide was notified by IMG of the underlying Gastaldi
lawsuit, including the amount of the defense costs incurred long before any lawsuit was brought
against Westchester for coverage. Great Divide had every opportunity to challenge coverage,
responsibility for defense costs, and the amounts associated with those liabilities. They, in fact,
settled those issues indicating that they were exhausting their coverage for property damage
under their policy and contributed some defense costs. The only notification and right to
participate requirements discussed in the cases cited by Great Divide relate to notice of and
participation in the underlying action giving rise to coverage, which in this case would be the
Gastaldi action. There are no cited cases that say a primary carrier has the right to participate in
the litigation or settlement discussions between an insured and an excess carrier with respect to
the coverage provided by the excess carrier. Further, Westchester correctly points out that a
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claim for indemnity does not arise until the indemnified liability is assessed. In this case that did
not occur until the Sixth Circuit assessed liability against Westchester for defense costs.
Westchester timely attempted to file a claim against Great Divide even prior to the assessment of
costs. This Court denied the attempt as moot because it did not assess any costs against
Westchester. When the Sixth Circuit reversed this decision, Westchester timely filed its thirdparty complaint seeking equitable relief and Great Divide was officially added to the action.
In fact, even before any claim for indemnity was triggered, Great Divide was an active
participant in the case. They were fully involved in the briefing and arguments made at the
Court of Appeals and had every opportunity to advance their own position prior to any
assessment of defense costs against Westchester. No discovery is needed for this Court to
determine that Westchester timely raised its claims for equitable relief against Great Divide; that
Great Divide was fully aware of and was permitted to participate in the underlying Gastaldi
action; or, that, as a matter of law, Great Divide was not entitled to any right of participation in
Westchester’s litigation with IMG over the coverage provided in its excess insurance policy.
Great Divide’s defenses challenging the balance of equities at stake are equally
unavailing, and do not require additional discovery. This Court has already found that
Westchester’s denial of benefits and failure to provide defense costs was done in good faith. The
Sixth Circuit, noting this determination, found it irrelevant to the defense costs issue but did not
overturn the finding. Further, Great Divide also originally denied coverage, and it had the
primary duty to pay those costs, so it cannot now be heard to argue that failure to pay by a
secondary is somehow worse than a failure to pay by the primary. Great Divide’s eventual
settlement does not change this fact. Westchester cannot be penalized for pursuing a good faith
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challenge, and Great Divide cannot be additionally rewarded for making a business decision to
settle a claim for less than its full value. As this Court has made clear in its opinion, Great
Divide suffers an inequity through this decision, which was forced by the Court of Appeals
opinion summarily eliminating any set-off or other adjustment to the defense costs based on
IMG’s actions and agreements. However, as previously explained, because of the Court of
Appeals’ decision, this Court may only consider the balance of equities as between Great Divide
and Westchester. As set forth above and in the prior opinion, those equities clearly fall in favor
of Westchester, and none of the requested discovery is aimed at challenging the basis of that
decision.
Finally, although, the motion to reconsider does not ask the Court to change its opinion
on the potential preclusive effect of the settlement agreement between Great Divide and IMG, it
challenges the Court’s holding on the equitable indemnity claim because the Court mentioned
potential bad faith on the part of IMG when determining that the settlement agreement is not
binding as against Westchester. A finding of bad faith by IMG or Great Divide in their
settlement agreement is not necessary to the Court’s determination. The Court cited Krischbaum
v. Dillon, 58 Ohio St.3d 58, 69-70, 567 N.E.2d 1291, 1302 (1991), for the proposition that a
settlement agreement is enforceable absent evidence of collusion or bad faith to the detriment of
the non-settling party. However, the Court also stated that the settlement agreement can only be
enforceable as between the contracting parties. Westchester was not a party to the contract and
cannot be held to its terms. Further, even if a showing of collusion or bad faith to the detriment
of the non-settling party was required, the evidence currently before the Court is sufficient to
show that IMG’s settlement contract amounted to bad faith vis a vis Westchester as it
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unilaterally terminated Westchester’s contractual subrogation rights by entering into the
settlement agreement with Great Divide. IMG has clearly shown that at the time it entered into
the settlement agreement, it had no intention of accepting Great Divide’s $250,000.00
contribution to its defense costs in full satisfaction of Great Divide’s liability (which, as set forth
above, equaled the full amount of the defense cost totaling nearly eight million dollars). Instead,
having eliminated Westchester’s right of subrogation, it immediately and continuously pursued
Westchester for the remaining defense costs. This on it face is evidence of IMG’s bad faith vis a
vis Westchester. There is no allegation that Westchester consented to the release of its
subrogated rights, and there is no evidence sought in discovery that would alter this conclusion,
in the absence of such an allegation. Any issue of bad faith as between IMG and Great Divide is
not relevant to the settlement’s effect on Westchester and is not an issue that is material to the
Court’s decision on the issue of indemnity.
Following briefing on the Motion for Reconsideration, Great Divide filed a Motion for
Clarification of the court’s October 20, 2015 Minute Order challenging the Court’s ability to
assess damages, even in case of a liability finding, without further discovery.3 There is,
however, nothing material remaining to be discovered. The amount of defense costs has been
stipulated to be $8,246,655.57. Because IMG recovered $250,000.00 in its original settlement
with Great Divide, the judgment amount against Westchester was $7,996,655.57, plus prejudgment interest of $1,160,629.09 through the date of the Sixth Circuit mandate, with a daily
3
That motion has been denied. The status minutes were clear on their face and the
arguments raised within the motion were not directed at clarifying the order, but were an
additional attempt to argue their motion for reconsideration and delay the entry of a final
judgment in this action.
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amount to be assessed thereafter until judgment was entered or the liability was paid.
There was a statement of undisputed facts filed by Westchester in connection with its
Motion for Summary Judgment indicating that it had paid IMG the full amount of defense costs
plus pre-judgment interest of $1,160,629.09 on or about September 15, 2014. (ECF #201). Great
Divide did not dispute or otherwise challenge this statement in any of its subsequent filings. In
their joint motion for entry of amended final judgment, IMG and Westchester indicated that the
judgment was paid by stating “after entry [of the amended final judgment] IMG intends to file a
Satisfaction of Judgment.” (ECF # 172). Though Great Divide is asking the Court to put
Westchester to the proof of their payment, they have submitted signed court filings indicating the
payments have been made, and Great Divide has offered no evidence or argument that would
bring this fact into question. Further, they have cited no cases that would indicate that a valid
enforceable judgment is an insufficient basis upon which to bring an indemnity claim. Whether
or not they have fully satisfied the judgment, Westchester had a valid and enforceable judgment
entered against it in the above stated amount. There is, therefore, no legitimate factual dispute as
to the amount of damages at issue in the third-party complaint and no additional discovery is
needed.
For the reasons set forth above, Great Divide’s Motion for Reconsideration is denied.
Great Divide is liable to Westchester for $7,996,655.57 plus the $1,160,629.09 in pre-judgment
interest that Westchester was assessed for the time period prior to the date of the mandate issued
by the Sixth Circuit Court of Appeals. This totals $9,157,284.66.
Date:
IT IS SO ORDERED.
/s/ Donald C. Nugent
DONALD C. NUGENT
United States District Judge
October 26, 2015
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