Big Lots Stores, Inc. v. Zurich American Insurance Company
ORDER granting in part and denying in part 69 Motion for Summary Judgment; granting in part and denying in part 70 Motion for Partial Summary Judgment. This case is DISMISSED. Signed by Judge Algenon L. Marbley on 3/2/2017. (cw)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
BIG LOTS STORES, INC.,
AMERICAN GUARANTEE & LIABILITY :
Case No. 2:14-cv-02635
JUDGE ALGENON L. MARBLEY
Magistrate Judge Jolson
OPINION AND ORDER
This matter is before the Court on the Motion for Summary Judgment (Doc. 69)
of Defendant American Guarantee & Liability Insurance Company (“American Guarantee”) and
the Motion for Partial Summary Judgment (Doc. 70) of Plaintiff Big Lots Stores, Inc. (“Big
Lots”). For the following reasons, the Court GRANTS in part and DENIES in part American
Guarantee’s Motion and GRANTS in part and DENIES in part Big Lots’ Motion.
A. Factual Background.
1. The Insurance Policies.
Non-party Arch Insurance Company (“Arch”) provides Big Lots with primary-layer
commercial general liability insurance, which includes coverage for product liability claims.
(Second Am. Compl., Doc. 61, ¶ 2.) The Arch insurance policy (the “Arch Policy”) has limits of
$1,000,000 per occurrence and $4,000,000 in the aggregate for product-completed operations.
(Id. ¶ 14, Ex. 2.) The Arch Policy also has a self-insured retention (“SIR”)1 of $1,000,000. (Id.)
A self-insured retention is a feature of an insurance policy similar to a deductible, defined by Black’s Law
Dictionary as: “[t]he amount of an otherwise-covered loss that is not covered by an insurance policy and that usu.
must be paid before the insurer will pay benefits.” SIR, Black’s Law Dictionary (10th ed. 2014).
American Guarantee provides commercial liability umbrella insurance to Big Lots (the
“American Guarantee Policy”). (Id. ¶ 15.) The American Guarantee Policy affords Big Lots,
among other things, “Excess Follow Form Liability Insurance.” (Id., Ex. 3.) As a follow-form
excess insurance policy, the American Guarantee Policy “incorporates the terms and conditions
of the underlying insurance,” and defines “underlying insurance” to include the Arch Policy.
(Id.) The American Guarantee Policy has a $25,000,000 per occurrence limit and a $25,000,000
aggregate limit. (Id.) Additionally, the American Guarantee Policy has a Maintenance SIR
provision. (Id. ¶ 16, Ex. 3, Endorsement No. 14.) The Maintenance SIR is implicated if the
Arch Policy’s aggregate limit is reduced or exhausted. (See id., Ex. 3.) According to Big Lots,
this has not occurred. (Id. ¶ 17; see also Big Lots’ Mem. Opp’n Am. Guar.’s Mot. Summ. J.,
Doc. 75, at 17.)
As stated above, the American Guarantee Policy incorporates the Arch Policy’s terms
and conditions. (See Doc. 61 ¶ 15.) The American Guarantee Policy defines the term
“occurrence” as “a covered event as defined in the underlying insurance.” (Id. ¶ 51, Ex. 3,
Section V(B)(4) (emphasis in original).) Pursuant to the underlying Arch Policy, an
“occurrence” is “an accident, including continuous or repeated exposure to substantially the
same general harmful conditions.” (Id. ¶ 52, Ex. 2, Section V(13).)
2. The Underlying Lawsuits.
This insurance coverage dispute arises from a series of lawsuits filed against Big Lots
by plaintiffs in Illinois, New Jersey, Pennsylvania and Texas,2 alleging that they suffered
personal injuries caused by “large tabletop torches allegedly designed, tested, marketed and sold
Mejia v. Big Lots Stores, Inc., Case No. 5:13-cv-00504-HLH, United States District Court for Western District of
Texas; Shrum v. Big Lots Stores, Inc., et al., Case No. 14-3135, United States District Court for the Central District
of Illinois; Lacovara v. Big Lots Stores, Inc., Case No. 1:14-cv-01953-AMD, United States District Court for the
District of New Jersey; and Frick, et al. v. Big Lots Stores, Inc., Case No. 2:15-cv-00360-DSC; United States
in combination with allegedly improper fuel by Big Lots to consumers” (the “Torch Cases”).
(Id. ¶¶ 3, 18.)
The Torch Case plaintiffs’ allegations about the role Big Lots played in their injuries
differ. While several of the complaints contain allegations that Big Lots was involved in the
design and manufacture of the torches (see N.J. Compl., Doc. 70-7, ¶¶ 1, 17–18, 25–27; Penn.
Compl., Doc. 70-8, ¶¶ 7, 12), the other Torch Case plaintiffs allege that Big Lots only purchased
for resale, marketed, distributed and sold the torches. (See Tex. Compl., Doc. 70-5, ¶ 3.5; Ill.
Compl., Doc. 70-6, ¶¶ 24, 29.) With the exception of the New Jersey plaintiffs, the Torch Case
plaintiffs allege that other parties were also responsible for the torches’ malfunctioning.
Specifically, the Torch Case plaintiffs allege that Designco designed and manufactured the
torches (see Doc. 70-5 ¶ 3.5; Doc. 70-6 ¶¶ 15–16; Doc. 70-8 ¶ 7), that Bureau Veritas and the
affiliated BV India tested the torches for safety and compliance (see Doc. 70-5 ¶ 3.5; Doc. 706 ¶¶ 15–16), and that HOC produced the torch fuel that was incompatible for use with the
torches sold by Big Lots. (Doc. 70-8 ¶ 10.) One of the underlying complaints alleges that the
actions of Designco, HOC, Bureau Veritas and BV India—in addition to Big Lots’ purported
conduct—were proximate causes of the plaintiff’s injury. (See Doc. 70-6 ¶¶ 40, 44, 47, 57, 61,
Two of the Torch Cases (the Texas and Illinois actions) have settled, but the New Jersey
and Pennsylvania actions remain pending. (See Doc. 61 ¶¶ 24, 32, 40, 50.) Before the Texas
lawsuit settled, the United States District Court for the Western District of Texas issued an order
granting Big Lots partial summary judgment on the plaintiff’s product liability claims, holding
that Big Lots was a “non-manufacturing seller” of the torches. (See Ex. 1 to Am. Guar.’s Mem.
District Court for the Western District of Pennsylvania. (Exs. B-1 through B-4 to Big Lots’ Mot. Part. Summ. J.
Opp’n Big Lots’ Mot. Part. Summ. J., Doc. 76-1, at 1, 4 (emphasis added).) The Texas federal
court also opined that the plaintiff had not provided sufficient evidence to show that Big Lots
was in any way involved with the design of the torches. (Id. at 5.)
Currently, Big Lots and American Guarantee disagree about their “respective obligations
for payment of the settlement and costs of defense” in the settlement of the Texas action, and
American Guarantee has refused to participate in the settlement of the Illinois action. (See id.)
B. Procedural Background
On December 15, 2014, Big Lots filed a complaint for declaratory judgment against
Zurich American Insurance Company (“Zurich”). (Doc. 1.) Big Lots amended its complaint in
April 2015, adding American Guarantee, a wholly-owned subsidiary of Zurich, as a party. (Doc.
22.) Because American Guarantee ultimately asserted that “it alone was responsible for the
claim(s) processing, investigation, payment and/or other business decisions” related to the
insurance coverage dispute at issue, in March 2016, the parties stipulated to the dismissal without
prejudice of Zurich as a party. (Doc. 59 at 2.)
One month later, in April 2016, Big Lots filed its second amended complaint, bringing
claims for declaratory judgment, breach of contract and bad faith against American Guarantee.
(Doc. 61.) On June 13, 2016, both parties filed motions for summary judgment. (Docs. 69, 70.)
American Guarantee moves for summary judgment on all of Big Lots’ claims against it, while
Big Lots moves for partial summary judgment on its declaratory judgment and breach of contract
claims.3 Both motions are fully briefed and ripe for review by this Court.
According to Big Lots, “[r]esolution of Big Lots’ Third Cause of Action for Bad Faith has been reserved by
agreement of the Parties.” (Doc. 70 at 1.)
LAW AND ANALYSIS
A. Standard of Review
Federal Rule of Civil Procedure 56(a) provides, in relevant part, that summary judgment
is appropriate “if the movant shows that there is no genuine issue as to any material fact and the
movant is entitled to judgment as a matter of law.” A fact is deemed material only if it “might
affect the outcome of the lawsuit under the governing substantive law.” Wiley v. United States,
20 F.3d 222, 224 (6th Cir. 1994) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986)). The nonmoving party must then present “significant probative evidence” to show that
“there is [more than] some metaphysical doubt as to the material facts.” Moore v. Philip Morris
Cos., Inc., 8 F.3d 335, 340 (6th Cir. 1993). The mere possibility of a factual dispute is
insufficient to defeat a motion for summary judgment. See Mitchell v. Toledo Hosp., 964 F.2d
577, 582 (6th Cir. 1992). Summary judgment is inappropriate, however, “if the dispute about a
material fact is ‘genuine,’ that is, if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson, 477 U.S. at 248.
The necessary inquiry for this Court is “whether ‘the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so one-sided that one party must
prevail as a matter of law.’” Patton v. Bearden, 8 F.3d 343, 346 (6th Cir. 1993) (quoting
Anderson, 477 U.S. at 251–52). In evaluating such a motion, the evidence must be viewed in the
light most favorable to the nonmoving party. United States S.E.C. v. Sierra Brokerage Servs.,
Inc., 712 F.3d 321, 327 (6th Cir. 2013). The mere existence of a scintilla of evidence in support
of the opposing party’s position will be insufficient to survive the motion; there must be
evidence on which the jury could reasonably find for the opposing party. See Anderson, 477
U.S. at 251; Copeland v. Machulis, 57 F.3d 476, 479 (6th Cir. 1995).
The standard of review for cross-motions of summary judgment does not differ from the
standard applied when a motion is filed by only one party to the litigation. Taft Broad. Co. v.
United States, 929 F.2d 240, 248 (6th Cir. 1991). The fact that both parties have moved for
summary judgment does not mean that the court must grant judgment as a matter of law for one
side or the other; summary judgment in favor of either party is not proper if disputes remain as to
material facts. Rather, the court must evaluate each party’s motion on its own merits, taking care
in each instance to draw all reasonable inferences against the party whose motion is under
consideration. Id. (citing Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed.
Where, as here, the facts of the case are not in dispute, an insurance coverage action
involves solely legal issues and therefore is ripe for adjudication on summary judgment. See
Nat’l Credit Union, Admin. Bd. v. Cumis Ins. Soc’y, No. 1:11 CV 1739, 2015 WL 2250502, at *6
(N.D. Ohio May 13, 2015).
B. There Have Been Multiple Occurrences Under the American Guarantee Policy.
As the insured, Big Lots bears the burden of demonstrating that it is covered by the
American Guarantee Policy. Inland Rivers Serv. Corp. v. Hartford Fire Ins. Co., 418 N.E.2d
1381, 1383 (Ohio 1981) (“It is undisputed that one seeking to recover on an insurance policy
generally has the burden of proving a loss and demonstrating coverage under the policy.”).
Because the American Guarantee Policy is an excess insurance policy, Big Lots must prove that
the limits of the underlying Arch Policy are exhausted and its SIRs satisfied. If the Torch Cases
present a single occurrence, then Arch’s obligations will terminate upon the exhaustion of its
$1,000,000 “per occurrence” coverage, thereby triggering American Guarantee’s excess
coverage obligation. But if they constitute separate occurrences, then American Guarantee’s
excess coverage obligation will not be triggered until Arch insures Big Lots up to its $4,000,000
aggregate limit. (See Doc. 61 ¶ 14.)
The central issue in this case is therefore whether there has been one occurrence or
multiple occurrences under the American Guarantee Policy. The number of occurrences under
an insurance policy is determined based on the language of the policies at issue, and the facts of
a particular case. See Westfield Ins. Co. v. Cont. Ins. Co., No. 1:13CV02367, 2015 WL 1549277,
at *4 (N.D. Ohio Apr. 6, 2015) (internal citation omitted).
With regard to the policy language, under Ohio law, the Court analyzes insurance
contracts the same as it would any other contract. Hybud Equip. Corp. v. Sphere Drake Ins. Co.,
Ltd., 597 N.E.2d 1096, 1102 (Ohio 1992). The Court’s role in contract interpretation “is to give
effect to the intent of the parties to the agreement.” Westfield Ins. Co. v. Custom Agri Sys., Inc.,
979 N.E.2d 269, 271 (Ohio 2012) (citation omitted). Where a policy term is clearly defined, the
Court will give it the plain meaning provided by the contract. Columbia Cas. Co. v. City of St.
Clairsville, No. 05-cv-898, 2007 WL 756706, at *13 (S.D. Ohio Mar. 8, 2007). An ambiguous
policy is to be liberally construed in favor of the insured. Hartzell Indus., Inc. v. Fed. Ins. Co.,
168 F. Supp. 2d 789, 793 (S.D. Ohio 2001) (citation omitted).
The term “occurrence” is clearly defined in the Arch Policy as “an accident, including
continuous or repeated exposure to substantially the same general harmful conditions” and
therefore should be given its plain meaning. (Doc. 61 Ex. 2, Section V(13).) Indeed, the Arch
Policy defines “occurrence” as it is commonly defined in insurance policies, and courts have not
found this definition ambiguous. See, e.g., Westfield Ins. Co., 2015 WL 1549277, at *4. While
Big Lots argues that the language of the Arch and American Guarantee Policies is “susceptible to
more than one interpretation” and thus should be construed “liberally in favor of the insured and
strictly against the insurer,” (Doc. 70 at 7 (quoting Faruque v. Provident Life & Acc. Co., 508
N.E.2d 949, 952 (Ohio 1987))), tellingly, Big Lots does not explain why the term “occurrence” is
ambiguous and simply argues that this Court should defer to its interpretation that the Torch
Cases all arise from a single occurrence. (See Doc. 70 at 7.) But the Court is not required to do
Because the policy language itself is unambiguous, the Court looks to the facts of this
particular case and analogous case law. But before doing so, the Court notes that a significant
portion of Big Lots’ briefing is dedicated to arguing about issues on which the parties actually
agree. For example, Big Lots argues that, by asserting that multiple occurrences have taken
place, American Guarantee is: (1) attempting to transform the American Guarantee Policy’s
coverage from a “per occurrence” to “per claim” policy; (2) advocating for a blanket rule that in
any case where there is a defective product, each sale of that product is an occurrence; and (3)
trying to obfuscate by not citing in its opening brief the test that should be applied to determine
the number of occurrences. (See Doc. 70 at 7–10; Doc. 75 at 6.) But in reality, the parties agree
that the American Guarantee Policy is a “per occurrence” policy and that the “cause test”
(discussed below) should apply; American Guarantee concedes both of these points. (See Doc.
76 at 7–8, 10; Doc. 80 at 2, 7.) Nor is American Guarantee arguing for a blanket rule that each
sale constitutes an occurrence in cases involving defective products.
(See Doc. 80 at 4.)
Because these are non-issues, the Court declines to analyze them and proceeds to the main
Nor is the Court required to defer to Arch’s interpretation of the policy. While Big Lots makes much of the fact
that “Arch has taken the position that the claims asserted in the Torch Cases arise from a single occurrence,” (Doc.
61 ¶ 55), it cites no case law to support its assertion that an excess carrier’s incorporation of the same words used in
another insurance policy evince an intent to be bound by the primary insurer’s interpretation of the policy. This is
likely because at least one court has found the opposite to be true: “An excess carrier’s intent to incorporate the
same words used in a separate agreement between the primary insurer and the insured does not imply an intent by
the excess carrier to accept decisions made by the primary carrier about the extent of its obligations under its own
agreement.” Allmerica Fin. Corp. v. Certain Underwriters at Lloyd’s, London, 871 N.E.2d 418, 428 (Mass. 2007).
inquiry: whether, under the “cause test,” a single occurrence or multiple occurrences have taken
place under the American Guarantee Policy.
Ohio, like the majority of states, applies the “cause test” when determining the number of
occurrences under an insurance policy. See, e.g., Parker Hannifin Corp. v. Steadfast Ins. Co.,
445 F. Supp. 2d 827 (N.D. Ohio 2006). Under the cause test, the court considers “if there was
but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and
damages.”5 Mich. Chem. Corp. v. Am. Home Assurance Co., 728 F.2d 374, 379 n.5 (6th Cir.
1984) (quoting Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56, 61 (3d Cir. 1982)). If
there is, then there is a single occurrence under an insurance contract. Manor Care, Inc. v. First
Specialty Ins. Corp., No. 3:03CV7186, 2006 WL 2010782, at *4 (N.D. Ohio July 17, 2006). The
“converse is also true: Where there are multiple proximate causes, each is a separate occurrence
under an insurance contract.” Id.
Courts in various jurisdictions have applied the cause test and reached different
conclusions about the number of occurrences that took place under an insurance contract. In
Maurice Pincoffs Co. v. St. Paul Fire and Marine Insurance Co., the Fifth Circuit Court of
Appeals reversed the trial court’s holding that there had been a single occurrence where a
company sold and shipped eight loads of contaminated birdseed to feed and grain dealers. 447
F.2d 204, 205 (5th Cir. 1971). In determining that each of the eight sales of the contaminated
birdseed constituted an “occurrence” under the applicable insurance policy, the Fifth Circuit
We think that the ‘occurrence’ to which the policy must refer is the occurrence of
the events or incidents for which Pincoffs is liable. It was the sale of the
contaminated seed for which Pincoffs was liable. Although the cause of the
contamination is not clear, it seems apparent that Pincoffs received the seed in a
Proximate cause is defined as a “cause that directly produces an event and without which the event would not have
occurred.” Proximate Cause, Black’s Law Dictionary (10th ed. 2014).
contaminated condition and did not itself contaminate the seed. However, it was
not the act of contamination which subjected Pincoffs to liability. If Pincoffs had
destroyed the seed before sale, for instance, there would be no occurrence at all
for which the insured would be liable. But once a sale was made there would be
liability for any resulting damages. It was the sale that created the exposure to ‘a
condition which resulted in property damage neither expected nor intended from
the standpoint of the insured,’ under the definition of the policy. And for each of
the eight sales made by Pincoffs, there was a new exposure and another
Id. at 206 (emphasis added); see also Mich. Chem., 728 F.3d at 383 (holding that shipment of a
contaminated substance constituted the “act from which liability arose” and holding that each
shipment was a separate occurrence); Westfield Ins. Co., 2015 WL 1549277, at *7 (looking to the
immediate cause of injury to determine the number of occurrences and finding multiple
American Guarantee argues that Pincoffs, Michigan Chemical, and Westfield govern
the single vs. multiple occurrence inquiry in the product liability context. Big Lots contends that
these cases are factually distinguishable, because as in cases like Pincoffs, the only wrongdoing
on the part of the insured was the sale of the defective product. (Doc. 70 at 14.) Here, according
to Big Lots, it was the company’s alleged “chain of business decisions” that led to the underlying
injuries, and thus there are “other actions by [Big Lots] from which liability [can] flow.” (Id. at
13.) For example, the Torch Case plaintiffs allege that Big Lots was responsible for: (1) the
creation and approval of the torches’ design specifications; (2) improper testing of the torches;
and (3) the improper shelving of the torches with a recommended, yet allegedly incompatible,
torch fuel. (See id. at 15.) Thus, Big Lots argues, to determine whether there is a single
occurrence or multiple occurrences, the Court cannot only consider the “immediate event” giving
rise to Big Lots’ liability—the sale of the torches—but rather the “chain of business decisions”
which Big Lots alleges is the single, proximate, uninterrupted, and continuing cause of the
injuries alleged in the Torch Cases.
In support of its argument that Big Lots’ “chain of business decisions,” or its “unitary and
continuous development of an allegedly hazardous product,” was the single, proximate,
uninterrupted, and continuing cause of the injuries alleged in the Torch Cases (Doc. 81 at 3), Big
Lots cites Chemstar, Inc. v. Liberty Mutual Ins. Co., 41 F.3d 429 (9th Cir. 1994). In Chemstar,
rather than find that there were 28 separate occurrences—one for each claim asserted by a
homeowner who used lime plaster that was unsuitable for interior use—the Ninth Circuit
affirmed the district court’s holding that the single “underlying cause of the plaster pitting was
[the insured’s] failure to warn end-users that the high-periclase lime was unsuitable for indoor
use.” Id. at 431–32. There was no other cause or intervening business decision that interrupted
the insured’s failure to warn. Id. at 432. Similarly, in Republic Underwriters Insurance Co. v.
Moore, the Tenth Circuit reversed the district court’s determination that there had been two
separate occurences under the applicable insurance policies when contaminated food had been
prepared and served at two different places, causing physical injury. 493 F. App’x 907, 908
(10th Cir. 2012). Rather, the Tenth Circuit reasoned that there was a single occurrence, because
all of the plaintiffs’ injuries were “proximately caused by the restaurant’s ongoing preparation of
contaminated food.” Id. at 912.
Big Lots also relies heavily on Valley Forge Insurance Co. v. National Union Fire
Insurance Co., No. N10C-07-135, 2012 WL 1432524 (Del. Sup. Ct. Mar. 16, 2012). In Valley
Forge, the Delaware Superior Court held that the product liability claims at issue constituted a
“single occurrence” under the applicable insurance policy. Id. at *1. These product liability
claims arose after a number of consumers sustained serious injuries and even suffered death
when their chenille robes—which had been “spec’d, imported, inspected and sold” by the
insured—caught fire. See id. at *3–5. The court applied the cause test and determined that the
“single cause” of the losses for which the insured sought coverage was the insured’s “alleged
negligence and/or strict liability in connection with production and distribution of an
unreasonably dangerous product.” Id. at *7–9. According to the Valley Forge court, the “robe
itself was the alleged source of each claimant’s injuries and the subsequent loss sustained by [the
insured],” id. at *10 (emphasis added), and thus the single occurrence under the insurance policy
was the “continuous production and distribution into the stream-of-commerce” of the robes. Id.
Therefore, the insurer “misse[d] the mark” when it argued that the “involvement of multiple
defendants, different suppliers, inspectors, modes of transportation and raw materials” operated
together to create multiple occurrences. Id.
In short, American Guarantee urges the Court to adopt the reasoning set forth in the
Pincoffs, Michigan Chemical, and Westfield line of cases, while Big Lots refers the Court to the
Chemstar, Republic Underwriters, and Valley Forge line of authority. Before the Court can
embrace one line of precedent, however, a threshold issue must be resolved: whether Big Lots
was involved with the design and manufacture of the torches. Indeed, the Pincoffs court’s
decision that there had been multiple occurrences was based on the fact that Pincoffs could likely
only be held liable for the sale of the contaminated birdseed, see Pincoffs, 447 F.2d at 206, while
the Valley Forge court’s finding of a single occurrence was at least partially premised on the
insured’s role as a manufacturer of the defective product. Valley Forge, 2012 WL 1432524, at
As previously explained, while some of the Torch Case plaintiffs alleged that Big Lots
was involved in the design and manufacture of the torches (see Doc. 70-7 ¶¶ 1, 17–18, 25–27;
Doc. 70-8 ¶¶ 7, 12), others claimed that Big Lots only purchased for resale, marketed, distributed
and sold the torches. (See Doc. 70-5 ¶ 3.5; Doc. 70-6 ¶¶ 24, 29.) At oral argument, Big Lots
asserted that, because certain Torch Case plaintiffs alleged that Big Lots was more than just a
seller of the torches, this case is more akin to Valley Forge than Pincoffs. But while Big Lots
represented to the Court that all it had to consider at this juncture were allegations, the United
States District Court for the Western District of Texas has ruled that Big Lots was a nonmanufacturing seller of the torches. (Doc. 76-1 at 1, 4–5.) If, as Big Lots contended, all the
Court had to consider were the Torch Case plaintiffs’ allegations, and if the Court was free to
make a determination as to Big Lots’ role, whether Big Lots was involved in the manufacture
and design of the torches would be a genuine issue of material fact, precluding the Court from
determining the number of occurrences under the insurance policy. But given that the federal
district court in the Texas action (the “Mejia court”) held that Big Lots was a non-manufacturing
seller of the torches, that determination is binding on this Court. See United States v. Vasilakos,
508 F.3d 401, 406 (6th Cir. 2007) (citing Montana v. United States, 440 U.S. 147, 153 (1979)
(“Collateral estoppel precludes litigation of issues between parties or their privies previously
determined by a court of competent jurisdiction.”)).
In light of the Mejia court’s finding that Big Lots was merely a seller of the torches, this
Court finds that the Pincoffs line of cases is applicable here. Like the Pincoffs court, this Court
concludes that “the ‘occurrence’ to which the [Arch and American Guarantee Policies] must
refer is the occurrence of the events or incidents for which [Big Lots] is liable,” Pincoffs, at 447
F.2d at 206, and it was the sale of the torches for which Big Lots is liable. And for each sale of a
torch, there was a “new exposure and another occurrence.” Id. at 206. The Court notes that it is
focusing on each sale as the “act from which liability arose,” Mich. Chem., 728 F.3d at 383, not
creating a rule in products liability cases that each sale constitutes an “occurrence” under an
insurance policy. Also, contrary to Big Lots’ belief, the Court’s finding of multiple occurrences
does not transform the Arch and American Guarantee Policies from “per occurrence” to “per
claim” policies. (See Doc. 76 at 7–8.)
In addition to factually distinguishing the cases upon which it relies, Big Lots also argues
that the Court cannot adopt the reasoning of the Pincoffs, Michigan Chemical, and Westfield line
of authority because those cases apply the “liability event theory” version of the cause test,
looking to the “immediate event or events giving rise to liability to determine the number of
occurrences,” rather than “proximate cause theory” version of the cause test, which asks whether
there is a single proximate, uninterrupted, and continuing cause which resulted in all of the
injuries and damages in the Torch Cases. See Mitsui Sumitomo Ins. Co. of Am. v. Duke Univ.
Health Sys., Inc., 509 F. App’x 233, 238 (4th Cir. 2013). According to Big Lots, the courts that
apply the “liability event theory” version of the cause test take an overly narrow view of cause
and are only “nominally” applying the cause test. (See Doc. 70 at 12.)
However, these two inquiries do not seem mutually exclusive. Indeed, in its own briefs,
Big Lots concedes that both inquiries are part and parcel of the “cause test.” (Doc. 70 at 20
(“Under the cause test, the court asks if there was but one proximate, uninterrupted and
continuing cause which resulted in all of the injuries and damages” (internal quotation marks
omitted)); id. at 23 (“[I]n determining the ‘occurrence’ under the cause test, courts must look to
the acts for which the insured is liable.”).) Additionally, Big Lots cites Michigan Chemical as
stating what it considers is the proper iteration of the cause test, that is, the proximate cause
theory of the test. (Doc. 75 at 7.) But Big Lots overlooks the fact that—as American Guarantee
points out—“Pincoffs is part of the foundation of Michigan Chemical.” (Doc. 80 at 7.) In
Michigan Chemical, the Sixth Circuit Court of Appeals considered the “act from which liability
arose” when determining whether there was “one interrupted and continuing cause.” Mich.
Chem., 728 F.2d at 383. Ultimately, the Sixth Circuit held that because each shipment of
contaminated livestock feed created additional exposure to liability, there was not one
uninterrupted and continuing cause, and therefore there were multiple occurrences under the
relevant insurance policies. Id.
Even if the Court accepted that the only relevant question in determining the number of
occurrences is “if there was but one proximate, uninterrupted, and continuing cause which
resulted in all of the injuries and damages,” there was not a single proximate cause here. As
several of the Torch Case plaintiffs alleged, there were multiple proximate causes of the injuries
they suffered, including: (1) the creation and approval of the torches’ design specifications; (2)
the improper testing of the torches; and (3) the improper shelving of the torches with a
recommended, yet allegedly incompatible, torch fuel. (See Doc. 70 at 15; Docs. 70-5–70-8.)
Additionally, one of the Torch Cases alleges that the fuel manufacturer (HOC) supplied Big Lots
with a reformulated fuel that had a new, dangerously low flash point and failed to warn Big Lots
of the change, despite its knowledge that the fuel would be sold with incompatible torches.
(Doc. 80 at 10 (citing Doc. 70-5 ¶ 12.7).) This wrongdoing by HOC also constitutes an
intervening cause6 that interrupts Big Lots’ so-called “chain of business decisions,” meaning that
there is no single, proximate, uninterrupted cause that led to all of the injuries and damages in
the Torch Cases.
An intervening cause is an “event that comes between the initial event in a sequence and the end result, thereby
altering the natural course of events that might have connected a wrongful act to an injury; esp., an independent
agency’s act that destroys or severely weakens the causal connection between the defendant’s negligent act and the
wrongful injury. . . .” Intervening Cause, Black’s Law Dictionary (10th ed. 2014).
Finally, as American Guarantee argues, Big Lots’ assertion that a “chain of business
decisions” is the single, proximate, uninterrupted, and continuing cause of the Torch Case
plaintiffs’ injuries is fundamentally inconsistent. The “chain of business decisions” is an
“aggregation of causes” (Doc. 80 at 9) rather than a single cause. Further, Big Lots cites no case
law where a court found a “chain of business decisions” to constitute a single occurrence. (Id.)
Asked during oral argument which cases support its “chain of business decisions” as a “single
occurrence” theory, Big Lots referenced: (1) CHS Community Health Systems, Inc. v. Lexington
Insurance Co., No. 3:11-cv-00449, 2013 WL 650047 (M.D. Tenn. Dec. 9, 2013); (2)
Appalachian Insurance Co., 676 F.2d 56 (3d Cir. 1982); and (3) Chemstar, 41 F.3d 429 (9th Cir.
1994). These cases, however, are inapposite.
First and foremost, none of them references a “chain of business decisions” or holds that
a series of business decisions constitutes a single occurrence under an insurance policy when
applying the cause test. Second, both CHS and Appalachian address whether a particular
insurance policy is a “per occurrence” or “per claim” policy—a different issue than the number
of occurrences under an insurance policy. See CHS, 2013 WL 650047, at *5–8; Appalachian,
676 F.2d at 59. Also, in Appalachian, the Third Circuit Court of Appeals affirmed the district
court’s holding that an insurance company’s adoption of discriminatory employment policies
was a single occurrence under the relevant insurance policy. Appalachian, 676 F.2d at 60. It is
difficult to fathom Big Lots’ argument that the company’s one-time decision to adopt
discriminatory employment policies can constitute a “chain” of decisions. Notably, the Court
explicitly stated that it could “not even speculate” how the principles applied in Appalachian—a
case involving employment discrimination—“would apply, if at all” to product liability cases.
Id. at 62 n.14. Finally, similar to the Appalachian court, the Chemstar court found a lime plaster
company’s continuing failure to warn consumers of the plaster’s unsuitability for interior use to
be a single proximate cause, and also noted that there was no intervening proximate cause after
the failure to warn. Chemstar, 41 F.3d at 432. The failure to warn was a single act—not a
“chain of business decisions.” Additionally, unlike in the case sub judice, there was no
intervening cause in Chemstar.
It is also noteworthy that the Torch Case plaintiffs do not use the phrase “chain of
business decisions” in their complaints. Rather, this appears to be a term divined by Big Lots to
fit its single occurrence theory. This Court finds that to hold that a “chain of business decisions”
is a single proximate cause giving rise to a single occurrence under an insurance policy would
create a standard so general that it would present no standard at all, such that, as American
Guarantee argues, “almost any loss can be viewed as resulting from a’ chain of business
decisions.’” (Doc. 80 at 13.)
For all of these reasons, the Court finds that there have been multiple occurrences under the
American Guarantee Policy and GRANTS American Guarantee’s Motion for Summary
Judgment on this issue.
C. The Maintenance SIR Is Not Implicated Here.7
As set forth above, the American Guarantee Policy has a Maintenance SIR provision,
which reads as follows:
Maintenance Self Insured Retention Applicable to Coverage A – After Underlying
Aggregate Limits Are Reduced or Exhausted
1. If the limits of the underlying insurance have been reduced solely by payment of
loss for which coverage is afforded under this policy, this policy will drop down to
become immediately excess of the reduced underlying limits or
As Big Lots correctly notes, the issue of whether the Maintenance SIR has been triggered can be resolved
independent of the “occurrence” issue. (See Doc. 70 at 26.)
2. If the limits of the underlying insurance have been exhausted solely by payment of
loss for which coverage is afforded under this policy, this policy will continue in
force as underlying insurance.
3. If the aggregate limits of underlying insurance have been reduced or exhausted
solely by the payment of loss for which coverage is afforded under this policy, our
obligations under F.1 and 2. above to drop down or continue in force as underlying
insurance shall be subject to the Retained Amount listed in this endorsement.
Retained Amount means the amount of damages applicable to each occurrence for
which the insured is responsible that is shown in the Scheduled of Retained Amount in
this endorsement. Retained Amount includes defense costs.
(Doc. 61 ¶ 16, Ex. 3, Endorsement No. 14 (emphasis in original).) The Maintenance SIR
Endorsement lists the retained amount as $1,000,000 per occurrence and $2,000,000 in the
aggregate. (Id. Ex. 3, Endorsement No. 14.) The Endorsement added only subparagraph 3;
subparagraphs 1 and 2 were in the original American Guarantee Policy. (See Doc. 70 at 24; Doc.
76 at 22.) The parties disagree about whether subparagraph 3 of the Maintenance SIR has been
Helpful to the determination of this issue is a brief background of the difference between
“excess” and “drop down” coverage. As stated above, the primary Arch Policy has a “per
occurrence” limit of $1,000,000 and an aggregate limit of $4,000,000. (See Doc. 61, Ex. 2.) In
the event that Arch’s “per occurrence” limit is exhausted, American Guarantee is required to
provide excess coverage, in the event of an additional occurrence. (See Doc. 70 at 20.) But if
Arch reaches its aggregate limit, then American Guarantee is required to “drop down” and
provide primary coverage for subsequent claims. (Id.) Because secondary carriers do not want
to provide first-dollar coverage, when they are asked to “drop down” and serve as primary layer
insurers, they employ Maintenance SIRs, which require a certain level of self-insurance in the
event of aggregate exhaustion. (See id. at 20–21.)
Big Lots argues that, under the plain language of the American Guarantee Policy, when
Arch’s $4,000,000 aggregate limit is exhausted, American Guarantee provides “drop down”
coverage and replaces Arch as the underlying insurance. (See id., Ex. 3 at 10 (Section II-F).)
Because Arch’s aggregate limit has not been exhausted, according to Big Lots, the Maintenance
SIR has not been implicated. (See Doc. 61 ¶ 17; Doc. 70 at 23–24.)
In response, American Guarantee argues that it is Big Lots that ignores the plain language
of the Maintenance SIR, which clearly states that it applies after the underlying aggregate limits
are reduced or exhausted. (Doc. 61 ¶ 16, Ex. 3, Endorsement No. 14 (emphasis added).)
According to American Guarantee, Big Lots ignores the words “reduced” and “or” and would
like the Court to do the same—which it cannot do. See, e.g., Sherwin-Williams Co. v. Travelers
Cas. & Sur. Co., No. 82867, 2003 WL 22671621, at *4 (Ohio Ct. App. Nov. 13, 2003)
(“Insurance contracts should be interpreted in a way that renders all the provisions meaningful
and not mere surplusage.”). Based on the language of the Maintenance SIR, American
Guarantee argues that any payment made under the Arch Policy “will necessarily either reduce
or exhaust the Arch Policy’s aggregate limits,” and thus the Maintenance SIR is not implicated
solely when the Arch Policy’s aggregate limits are exhausted. (Doc. 76 at 23.) In further
support of its argument, American Guarantee notes (and Big Lots acknowledges) that the
Maintenance SIR is a manuscript endorsement, or a custom endorsement negotiated between the
parties—meaning that the SIR’s terms are not automatically construed against the insurer. (See
Doc. 76 at 23.) Additionally, American Guarantee deems Big Lots’ discussion of “dropping
down” versus providing excess coverage irrelevant, as it allegedly addresses the issue in a
“vacuum”—overlooking the fact that the Maintenance SIR Endorsement provides a different
meaning for dropping down: “providing excess coverage at a lower point than usual, not taking
the place of underlying coverage.” (Id. at 24.)
But according to Big Lots, the term “drop down” in the Maintenance SIR has the
meaning that is typical in the industry, and that the Maintenance SIR applies only in a narrow
situation. Big Lots explains Section II(F)(1) of the Maintenance SIR as follows:
[I]n most cases (including the instant case) [American Guarantee] will not be
asked to provide coverage until [Arch] answers for $1 million in liability coverage
[(its occurrence limit).] In some cases, however, the $4 million aggregate limit of
the primary-layer policy may have been eroded (or reduced) by other claims, such
that the primary layer coverage available for a claim is less than $1 million. For
instance, if Big Lots’ primary insurer had already paid $3.5 million across other
unrelated covered claims, Big Lots would only have $500,000 in primary layer
insurance available. [American Guarantee] would still be obligated to provide
coverage in excess of the $1 million underlying limit. However, Big Lots would
be left with a $500,000 coverage gap. To address this situation, Section II(F)(1) of
the [American Guarantee] Policy provides:
If the limits of underlying insurance have been reduced solely by
payment of loss for which coverage is afforded under this policy,
this policy will drop down to become immediately excess of the
reduced underlying limits.
[ECF Doc. # 70-3 at Pg ID 1335.] In other words, Section II(F)(1) requires
[American Guarantee] to fill the coverage gap. This provision requires [American
Guarantee] to “drop down” below its normal $1 million attachment point and
provide “coverage immediately excess of the reduced underlying limits [the
reduced underlying limits being $500,000 in the foregoing example].”
(Doc. 81 at 14.)
Thus, Big Lots contends that Section II(F)(1) of the Maintenance SIR addresses
American Guarantee’s “drop down” obligations when the Arch Policy’s limits have been
reduced, but not exhausted. Section II(F)(2) sets forth American Guarantee’s obligation to
“continue in force” as the underlying insurer when the Arch Policy’s limits are completely
exhausted. And Section II(F)(3), added by the Maintenance SIR Endorsement, protects
American Guarantee in the event that it has to drop down or continue in force as the primary
insurer if the Arch Policy’s aggregate limits are reduced or exhausted by subjecting Big Lots to
the Retained Amount. (See Doc. 81 at 15.)
Based on the plain language of the Maintenance SIR, American Guarantee’s obligations
to drop down or continue in force as underlying insurance are only subject to the Retained
Amount when the Arch Policy’s aggregate limits have been reduced or exhausted. It is
undisputed that this has not occurred. Rather, Arch has paid its $1,000,000 “per occurrence”
limit and American Guarantee is simply providing excess coverage; it is not “dropping down” or
“continuing in force” as the underlying insurer. (See id. at 18.) And this Court agrees with Big
Lots that the “Maintenance SIR is never implicated where [American Guarantee] is simply
providing excess (as opposed to drop-down or primary layer) coverage.” (Id. at 19.)
Big Lots’ interpretation makes sense because it does not render any words or subsections
in the Maintenance SIR superfluous. Sherwin-Williams Co., 2003 WL 22671621, at *4.
Because insurance policies must be construed to give every word meaning, it follows that, by
adding the word “aggregate” in front of the word “limits” in subparagraph 3 of the Maintenance
SIR, the parties intended that the Retained Amount be paid only when Arch’s aggregate limits
were reduced or exhausted, not every time that Arch reached its “per occurrence” limit. See Fed.
Ins. Co. v. Cintas Corp., No. 1:04-cv-00697, 2006 WL 1476206, at *7 (S.D. Ohio May 25, 2006)
(noting “principles of construction direct courts to give meaning to all policy provisions and
avoid interpretations that render any part of the contract superfluous.”). Moreover, from a
practical standpoint, providing American Guarantee with an additional layer of protection in this
narrow circumstance seems much more reasonable than Big Lots agreeing to pay American
Guarantee $1,000,000 every time that American Guarantee is called upon to provide excess
coverage. (See Doc. 81 at 16.)
For all of these reasons, the Court GRANTS Big Lots summary judgment on its claim for
a declaratory judgment that the Maintenance SIR has not been triggered here. American
Guarantee’s motion for summary judgment on this point is DENIED.
D. American Guarantee Did Not Engage in Bad Faith Conduct.
Although Big Lots alludes that the parties have agreed to resolve Big Lots’ bad faith
claim by agreement (see Doc. 70 at 1), both parties have provided some briefing on the issue and
thus the Court will address it.
An insurer fails to exercise good faith when it refuses to pay a claim without “reasonable
justification.” Retail Ventures, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 691 F.3d 821,
834 (6th Cir. 2012) (quoting Zoppo v. Homestead Ins. Co., 644 N.E.2d 397, 399–400 (Ohio
1994)). Denial of a claim may be reasonably justified when “the claim was fairly debatable and
the refusal was premised on either the status of the law at the time of the denial or the facts that
gave rise to the claim.” Tokles & Son, Inc. v. Midwestern Indemn. Co., 605 N.E.2d 936, 943
Aside from reiterating its disagreement on the merits with American Guarantee’s
interpretation of the term “occurrence” and the language of the Maintenance SIR, Big Lots does
not articulate any reason that American Guarantee’s position is not “fairly debatable.” (See Doc.
75 at 15–17.) Given that there is an abundance of case law dedicated to sorting out these
issues—particularly the single vs. multiple occurrences issue—Big Lots would be hard-pressed
to convince the Court that American Guarantee’s positions lack any legal basis. In fact, the
Court agrees with American Guarantee’s interpretation of its excess insurance policy on the
number of occurrences issue.8 For these reasons, the Court GRANTS summary judgment in
favor of American Guarantee on Big Lots’ bad faith claim.
For the foregoing reasons, the Court GRANTS in part and DENIES in part American
Guarantee’s Motion and GRANTS in part and DENIES in part Big Lots’ Motion. This case is
IT IS SO ORDERED.
s/ Algenon L. Marbley
ALGENON L. MARBLEY
UNITED STATES DISTRICT JUDGE
Dated: March 2, 2017
Although the Court disagrees with American Guarantee’s interpretation of the Maintenance SIR, contrary to Big
Lots’ assertion, it is not so “tortured and inappropriate” as to rise to the level of bad faith. (See Doc. 75 at 16.)
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