Longhorn Gasket and Supply Company, et al v United States Fire Insurance Company

Filing 476

ORDER ADOPTING REPORT AND RECOMMENDATIONS. Signed by Judge Rodney Gilstrap on 7/31/2015. (ch, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION

LGS TECHNOLOGIES, LP, as successor
in interest to LGS Technologies, Inc. f/k/a
LONGHORN GASKET AND SUPPLY
COMPANY, and LOMA ALTA
CORPORATION
Plaintiffs,1

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v.
UNITED STATES FIRE INSURANCE
COMPANY,
Defendant.

CAUSE NO. 2:07-CV-399

ORDER
Before the Court are the Report and Recommendation of the Court-Appointed Special
Master, Dkt. No. 455, Defendant United States Fire Insurance Company’s (“U.S. Fire’s”)
objections to the Special Master’s Report and Recommendation, Dkt. No. 471, and Intervenors
Trinity Lloyd’s Insurance Company and Trinity Universal Insurance Company’s (collectively,
“Trinity’s”) Response to U.S. Fire’s objections to the Special Master’s Report and
Recommendation, Dkt. No. 473.
The Special Master was assigned the duty of assisting the Court with the legal analysis of
the parties’ submissions.

In performance of his duties, the Special Master made certain

recommendations to the Court concerning (i) the second motion for partial summary judgment
filed by the LGS Plaintiffs; (ii) and (iii) the second and third motions for partial summary
judgment filed by Trinity; (iv) a motion to reconsider the Court’s ruling on extracontractual

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This case caption reflects the corrected names of the Plaintiffs in this case as ordered by the Court on August 18,
2014. (Dkt. No. 402).

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claims filed by the LGS Plaintiffs; and (v) objections to portions of the submitted evidence filed
by U.S. Fire.
The Special Master’s Report and Recommendation was issued on March 2, 2015. On
May 8, 2015, Trinity filed its Fourth Motion for Partial Summary Judgment, which relies upon
and adopts certain arguments and evidence in the LGS Plaintiffs’ second motion for summary
judgment. At that same time, U.S. Fire filed its own motion for summary judgment. These
motions are fully briefed and are pending before the Court.
In the meantime, the Court issued an Order to Show Cause on May 29, 2015, indicating
the Court intended to consider the Special Master’s Report and Recommendation and directing
the parties to show cause as to why it should not be adopted. The parties were given ten business
days to respond. U.S. Fire filed objections to the Special Master’s Report and Recommendation;
Trinity did not. Trinity responded to U.S. Fire’s objections. Dkt. Nos. 471, 473.
Thereafter, the LGS Plaintiffs filed a Stipulation of Dismissal with Prejudice. Dkt. No.
472. The LGS Plaintiffs are no longer a party to this action.
U.S. Fire contends the Special Master’s recommendation as it pertains to LGS’s second
motion for partial summary judgment has been mooted by US Fire’s settlement with LGS. The
contention is unavailing. Trinity has adopted and relied upon the evidence and arguments made
by the LGS Plaintiffs in Trinity’s now-pending fourth summary judgment motion. The Special
Master’s recommended findings are a partial underpinning of Trinity’s now-pending motion.
That evidence and those arguments are as applicable to Trinity standing in the shoes of LGS
under the doctrine of equitable subrogation as they are to the LGS Plaintiffs in the first instance.
And, of course, the litigation between Trinity and U.S. Fire is an ongoing case.

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For all of these reasons, all of the Special Master’s recommendations, including those
that pertain to LGS’s motion, remain relevant and ripe. U.S. Fire’s objections to mootness are
overruled. The Special Master’s recommendation regarding LGS’s second motion for summary
judgment is ADOPTED.
However, the Special Master’s recommendation regarding LGS’ motion to reconsider the
Court’s rulings on its extracontractual claims against U.S. Fire (Dkt. No. 395) is moot due to the
settlement between LGS and U.S. Fire. Therefore, that recommendation is REJECTED as moot.
U.S. Fire next seeks to revisit the Court’s 2010 order on summary judgment, specifically
the vertical exhaustion ruling, and the Special Master’s recommendations based on the Court’s
vertical exhaustion ruling. U.S. Fire also objects to the Special Master’s statement that the
Court’s Erie guess on that subject has since been proven correct by the Texas Supreme Court’s
decision in Lennar Corp. v. Markel Am. Inc. Co., 413, S.W.3d 750 (Tex. 2013).
U.S. Fire endeavors to distinguish Lennar and the Garcia case 2 on which Lennar and this
Court, rendering its Erie guess in 2010, relied. What U.S. Fire does not do is cite any Texas
authority that tells this Court its Erie guess was wrong, or that vertical exhaustion is not the law
in Texas. See Trammell Crow Residential Co. v. St. Paul Fire and Marine Ins. Co., No. 3:11-cv2853-N (order of Godbey, J., Jan. 12, 2014) (holding Texas law requires vertical exhaustion).
Moreover, U.S. Fire’s effort to distinguish Lennar as a case that “did not involve any excess
carriers or policies,” and only involved primary carriers is plainly wrong.

Lennar clearly

involved an umbrella carrier. The opinion states the sole remaining defendant in the Lennar case
was Markel American Insurance Company, “which had provided a $25 million commercial
umbrella policy.” Lennar, 413 S.W.3d at 752 (emphasis added).

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Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842 (Tex. 1994).

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The Court rejects U.S. Fire’s arguments regarding its vertical exhaustion finding, rejects
its efforts to distinguish Lennar¸ and rejects U.S. Fire’s objections to the Special Master’s
recommendations which rely on vertical exhaustion. The Court ADOPTS the Special Master’s
recommendations.
U.S. Fire renews its evidentiary objections to the Marcus Carroll affidavit and
accompanying exhibits. Its arguments are rejected. The affidavit and exhibits are admissible, if
not for the reasons the Special Master stated, then at a minimum because they meet the elements
of the residual exception in Fed. R. Evid. 807. The Special Master’s recommendation regarding
those evidentiary objections is ACCEPTED.
U.S. Fire also interposes other objections raising alleged fact questions that it says
preclude summary judgment and require a trial – specifically the issue of when LGS asbestoscontaining gaskets were sold and to which facilities. The Court notes that the Special Master
thoroughly considered these issues and discussed them in his Report. The Court agrees with the
Special Master’s analysis and rejects U.S. Fire’s objections.
First, U.S. Fire is essentially asking for mini-trials on this topic. U.S. Fire is not entitled
to such mini-trials. The Court has already so ruled. Second, the issues U.S. Fire attempts to
raise do not create genuine issues for trial, and they are insufficiently material. The issue here is
simply whether the primary insurer exhausted its policy limits so as to put the umbrella policy in
play. Whether and when LGS sold asbestos-containing gaskets is immaterial to whether there
are claims that have already been paid by Trinity sufficient to exhaust its coverage.

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exposure information put forward by LGS was to comply with Judge Folsom’s 2010 Order to
group claimants into occurrences in order to establish exhaustion of the primary policy and
spiking into the excess layer. So spiked, there is no genuine issue for trial on LGS’ sales history

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of asbestos-containing gaskets that matters for determining how much Trinity may have paid in
settlement claims that properly belongs in U.S. Fire’s excess layer. Third, the Court notes that
although U.S. Fire believes there are issues of fact regarding when asbestos-containing gaskets
were sold and to which facilities, U.S. Fire presents no evidence to controvert LGS’s sales
records, despite having had access to defense counsel’s files for years. See Dkt. No. 316, Exh. F
at pp. 258-60.
The Court therefore overrules U.S. Fire’s objection on the grounds that issues of fact
preclude summary judgment. The Court ACCEPTS the Special Master’s recommendation.
U.S. Fire raises an objection to the Special Master’s statement that Trinity had presented
a “compelling argument” for U.S. Fire’s duty to defend. This is a statement by the Special
Master with a thorough supporting analysis, but is not a recommendation per se. In fact, the only
recommended finding pertaining to a duty to defend is that the Court deny Trinity’s motion for
summary judgment.

The Court ACCEPTS that recommendation.

Therefore, U.S. Fire’s

objections to the Special Master’s statements and reasoning need not be ruled on at this time.
For the reasons stated above, the Court accepts the Special Master’s recommendation and
GRANTS IN PART and DENIES IN PART Plaintiffs’ LGS Technologies, LP, as successor in
interest to LGS Technologies, Inc., f/k/a Longhorn Gasket and Supply Company, and Loma Alta
Corporation’s Second Motion for Partial Summary Judgment on the grounds and for the reasons
stated in the Special Master’s Report. Dkt. No. 126.
The Court accepts the Special Master’s recommendation and DENIES Intervenors’
Trinity Lloyd’s Insurance Company and Trinity Universal Insurance Company’s Second Motion
for Partial Summary Judgment. Dkt. No. 250.

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The Court accepts the Special Master’s recommendation and DENIES Intervenors’
Trinity Lloyd’s Insurance Company and Trinity Universal Insurance Company’s Third Motion
for Partial Summary Judgment. Dkt. No. 110.
The Court accepts the Special Master’s recommendation and OVERRULES Defendant
United States Fire Insurance Company’s Objections to Portions of Evidence attached to
Plaintiffs’ Second Motion for Partial Summary Judgment. Dkt. No. 295, and OVERRULES IN
PART Defendant United States Fire Insurance Company’s Objections to Portions of Evidence
attached to Intervenors’ Second Motion for Partial Summary Judgment (as it concerns the
identical evidentiary submissions) on the grounds and for the reasons stated in the Special
Master’s Report. Dkt. No. 296.
The Court accepts the Special Master’s recommendation and SUSTAINS IN PART
Defendant United States Fire Insurance Company’s Objections to Portions of Evidence attached
to Intervenors’ Second Motion for Partial Summary Judgment (as it concerns Paragraph 6 of the
Nikki Stowers affidavit (found at Dkt. 250-1)) on the grounds and for the reasons stated in the
Special Master’s Report. Dkt. No. 296.
The Court accepts the Special Master’s recommendation and OVERRULES Defendant
United States Fire Insurance Company’s Objections to Portions of Evidence attached to
Intervenors’ Third Motion for Partial Summary Judgment. Dkt. No. 297.

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.

The Court rejects as moot the Special Master’s recommendation regarding Plaintiffs’
Motion to Reconsider Ruling on Extracontractual Claims and DENIES that motion. Dkt. No.
395.

SIGNED this 19th day of December, 2011.
So ORDERED and SIGNED this 31st day of July, 2015.

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RODNEY GILSTRAP
UNITED STATES DISTRICT JUDGE

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