American Hallmark Insurance Company of Texas v. Kraff's Men's Wear Co Inc et al

Filing 84

ORDER denying 59 Motion for Settlement and granting 69 77 Stipulated Motions to Dismiss. All claims that have been asserted, or may be asserted between Plaintiff and Kraff's; Plaintiff and Daniel Johnson; and Plaintiff and Travelers are dismissed with prejudice with each party bearing its own attorney fees and costs. Signed by Chief Judge Thomas O. Rice. (BF, Paralegal)

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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WASHINGTON

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AMERICAN HALLMARK INSURANCE
COMPANY OF TEXAS, a Texas Corp.,

NO: 1:15-CV-3104-TOR

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Plaintiff,
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v.
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KRAFF’S MEN’S WEAR CO., INC., a
Washington corporation; DANIEL P.
JOHNSON, a Washington resident;
TRAVELERS CASUALTY INSURANCE
COMPANY OF AMERICA, a Connecticut
corporation; THE TRAVELERS INDEMNITY
COMPANY, a Connecticut corporation; THE
CHARTER OAK FIRE INSURANCE
COMPANY, a Connecticut corporation;
TRANSPORTATION INSURANCE
COMPANY, an Illinois corporation;
CONTINENTAL CASUALTY COMPANY, an
Illinois corporation, AMERICAN CASUALTY
COMPANY OF READING
PENNSYLVANIA, an Illinois corporation; and
HARTFORD CASUALTY INSURANCE
COMPANY, a Connecticut corporation,

ORDER DENYING
CONTINENTAL’S REQUEST
FOR CLAIMS-BAR ORDER;
GRANTING STIPULATED
MOTIONS TO DISMISS

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Defendants.
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ORDER DENYING CONTINENTAL’S REQUEST FOR CLAIMS-BAR
ORDER; GRANTING STIPULATED MOTIONS TO DISMISS ~ 1

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BEFORE THE COURT is Third Party Defendants Continental Casualty

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Company, Transportation Insurance Company, and American Casualty Company

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of Reading Pennsylvania’s Motion to Approve Settlement (ECF No. 59), and the

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parties Stipulated Motions to Dismiss (ECF Nos. 69; 77). These matters were

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submitted for consideration without oral argument. The Court has reviewed the

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record and files herein, and is fully informed.

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Per the parties’ stipulation, the Motions to Dismiss (ECF Nos. 69; 77) are

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GRANTED. For the reasons discussed below, the Motion to Approve Settlement

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is DENIED.

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BACKGROUND
1. Parties; Claims

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The instant action involves a suit for contribution amongst insurers.

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American Hallmark Insurance Company of Texas (“Hallmark”) filed the instant

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suit for declaratory relief as to who will ultimately be liable for damages arising

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out of a suit by Pendleton Woolen Mills (“Pendleton”) against its insured Kraff’s

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Men’s Wear Co. and Daniel Johnson (the insured parties, collectively “Kraff’s”).

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Hallmark named Kraff’s; Traveler’s Casualty Insurance Company of America, the

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Travelers Indemnity Company, the Charter Oak Fire Insurance Company

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(collectively “Travelers”); Transportation Insurance Company, Continental

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ORDER DENYING CONTINENTAL’S REQUEST FOR CLAIMS-BAR
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Casualty Company, American Casualty Company of Reading, PA (collectively

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“Continental”); and Hartford Casualty Insurance Company (“Hartford”).

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Travelers filed an answer and asserted cross and counter claims, requesting

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declaratory relief that it does not owe any coverage obligations, and seeking

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contribution and subrogation against all defendants.1 ECF No. 37 at 42-44. Per

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stipulated Motions to Dismiss, the Court dismissed Hallmark’s claims against

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Continental and Pendleton. ECF Nos. 52, 53. In this Order, the Court is also

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dismissing claims between Hallmark and Kraff’s and between Hallmark and

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Travelers per their respective Joint Stipulated Motions (ECF Nos. 69; 77).

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2. Underlying Litigation

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The underlying financial obligations arise out of litigation between

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Pendleton and Kraff’s, where Pendleton asserted Kraff’s was liable for numerous

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violations of copyright and trademark rights, among other claims. The parties had

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a lengthy business relationship dating back to the 1940s. However, in the

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underlying litigation, Pendleton’s complaint alleges that, on September 18, 2012,

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Pendleton expressly revoked and withdrew the prior permission to use copyright-

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protected fabric and blanket designs in any commercial manner. ECF No. 1-1 at

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counter-claims. ECF No. 34. Apparently, Hartford has not filed an Answer.

Continental also filed an Answer, but did not assert any cross-claims or

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20-21, ¶ 98. The complaint also alleges that in “a subsequent letter dated

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December 4, 2012, Pendleton allowed Kraff’s a firm one (1) year sell-through

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period to exhaust its inventory of products manufactured using Pendleton’s fabric

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and copyrighted designs and informed Kraff’s that any subsequent sales would be

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considered infringement of Pendleton’s copyrights.” ECF No. 1-1 at 20-21, ¶ 98.

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In the underlying complaint, Pendleton alleged 25 counts of copyright

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infringement, asserting that “since December 5, 2013, [Kraff’s] willfully infringed

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and are continuing to willfully infringe” Pendleton’s copyrights by selling

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Pendleton goods. See ECF Nos. 1-1 ¶¶ 107-281; 59. However, the remaining

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claims do not include a date range. See ECF No. 1-1 at ¶¶ 282-325.
Kraff’s insurers Hartford, Travelers, and Hallmark tendered a defense with

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reservation of rights; but Kraff’s insurer Continental refused to tender a defense,

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arguing the alleged actionable conduct did not take place during the effective dates

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of coverage.2

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//

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bearing policy number 4024077646, with effective dates from August 20 2010 to

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August 20, 2011; August 20, 2011 to August 20, 2012, and August 20, 2012 to

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August 20, 2013. See ECF No. 59 at 3.

Continental issued three successive insurance policies to Kraff’s, each

ORDER DENYING CONTINENTAL’S REQUEST FOR CLAIMS-BAR
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3. Settlements
On August 29, 2016, Pendleton settled with Kraff’s for $425,000.00 (the

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“first settlement”). Kraff’s paid $25,000 of the settlement, while Hallmark,

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Travelers, and Hartford evenly split the remaining $400,000 and attorney fees of

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$264,500 (about $221,500 each). See ECF Nos. 64 at 2; 65-1 at 3. Continental did

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not join the agreement. See ECF No. 65 at 2. Kraff’s retained its right to pursue a

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claim against Continental, as did the settling insurance companies for contribution

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against Continental. See ECF No. 65-1 at 6-7.

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About one month later, Continental entered into a settlement agreement with

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Kraff’s, whereby Continental would pay $70,000 to Kraff’s in return for a release

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of all claims (the “second settlement”). See ECF No. 59 at 1. However, the

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agreement is contingent on the Court imposing a claims-bar order preventing

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contribution claims by the other insurers against Continental. ECF No. 59 at 1.

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Continental now requests the Court enter such an order, but Hartford and Travelers

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oppose the motion. ECF Nos. 59; 64; 66. This issue is now before the Court.

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DISCUSSION
Insurance companies share joint and severable liability where the underlying

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insurance agreements provide coverage. Puget Sound Energy v. Certain

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Underwriters at Lloyd’s, London, 134 Wash. App. 228, 250 (2006). In the interest

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of encouraging early settlement, courts may impose a claims-bar order protecting

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settling parties from future contribution claims against co-defendants. Id.; Bank of

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Am. v. Travelers Indem. Co., 2009 WL 529227, at *1 (W.D. Wash. Mar. 2, 2009);

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Franklin v. Kaypro Corp., 884 F.2d 1222, 1231 (9th Cir. 1989).

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In the context of settling federal security litigation, the Ninth Circuit
recognized the importance of a claims-bar order:
[Without a claims-bar order protecting settling parties,] partial settlement of
any federal securities question before trial is, as a practical matter,
impossible. Any single defendant who refuses to settle, for whatever reason,
forces all others to trial. Anyone foolish enough to settle without barring
contribution is courting disaster. They are allowing the total damages from
which their ultimate share will be derived to be determined in a trial where
they are not even represented.

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Franklin, 884 F.2d at 1229 (quoting In re Nucorp Energy Sec. Litig., 661 F. Supp.

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1403, 1408 (S.D. Cal. 1987)). As the Western District of Washington has noted:

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In multi-party litigation, bar orders can be an essential component of a
partial settlement . . . The public policy favoring settlement and the Court’s
interest in expeditiously clearing complex litigation from its docket must,
however, be “tempered by the need to assure factual fairness and the correct
application of legal principles” when considering a contribution bar. A bar
order is appropriate only where the proposed settlement is reasonable and
the interests of the non-settling defendants are protected.
Bank of Am., 2009 WL at *1 (quoting Franklin, 884 F.2d at 1225, 1231).
The Court is declining to exercise the power to impose a claims-bar order.

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Under the facts presented, it is questionable as to whether granting a claims-bar

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request would further the public policy of encouraging settlement, and equity does

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not demand the order be entered. In this instance, a claims-bar order would reward

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parties that hold out on settling rather than the parties that entered into a settlement

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in the first instance. It also extinguishes Travelers cross claims seeking

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contribution and subrogation against Continental. ECF No. 37 at 42-44. Travelers

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is entitled to its day in court and a purported settlement between Kraff’s and

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Continental does not change that.

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On review, the balance tips in favor of not allowing a claims-bar order.

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While a claims-bar order would encourage later settlements by those not party to

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the first settlement, the overall effect would be to encourage an insurer to drag its

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feet rather than settle in hopes that it can strike a bargain with the insured. Here

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Hallmark, Travelers, and Hartford paid over $220,000 each, while Continental

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would only pay $70,000 for whatever claims Kraff’s carved out from the first

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settlement. Travelers is entitled to pursue contribution irrespective of

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Continental’s subsequent settlement with the insured.

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ACCORDINGLY, IT IS HEREBY ORDERED:

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1.

Third Party Defendants Continental Casualty Company, Transportation

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Insurance Company, and American Casualty Company of Reading PA’s

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Motion to Approve Settlement (ECF No. 59) is DENIED.

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2.

The parties’ Stipulated Motions to Dismiss (ECF Nos. 69; 77) are

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GRANTED. All claims that have been asserted, or may be asserted

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between Plaintiff and Kraff’s, Plaintiff and Daniel Johnson, and Plaintiff

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and Travelers are dismissed with prejudice with each party bearing its

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own attorney fees and costs. This dismissal does not affect any

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remaining claims in this matter including any other claims that have been

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brought by any other party.

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The District Court Executive is hereby directed to enter this Order and
furnish copies to counsel.
DATED July 27, 2017.

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THOMAS O. RICE
Chief United States District Judge

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ORDER DENYING CONTINENTAL’S REQUEST FOR CLAIMS-BAR
ORDER; GRANTING STIPULATED MOTIONS TO DISMISS ~ 8