Summary
In Alfa Laval, the Appellate Division noted that "the pro rata sharing of defense costs [between insurers] may be ordered when more than one policy is triggered by a claim," Alfa Laval, 954 N.Y.S.2d at 25, even though it did not take that step in that case.
Summary of this case from Columbus McKinnon Corp. v. Travelers Indem. Co.Opinion
No. 650667/09.
2011-11-18
TRAVELERS CASUALTY AND SURETY COMPANY (f/k/a The Aetna Casualty and Surety Company) and The Standard Fire Insurance Company, Plaintiffs, v. ALFA LAVAL, INC. (f/k/a The Delaval Separator Company ), Delaval Inc., Ace Property and Casualty Insurance Company, American Surety Company, National Union Fire Insurance Company of Pittsburgh, PA, Zurich American Insurance Company, Aviva Life and Annuity Company of New York (f/k/a Ocean Accident & Guarantee Corporation Ltd.) and ABC Companies 1–100 (fictitious names of corporations or other entities created by law), Defendants.
Graham Curtin, Robert Mauriello, Esq., for Plaintiff. Stewart Occhipinti, LLP, Frank S. Occhipinti, Esq., for Defendant DeLaval Inc.
Graham Curtin, Robert Mauriello, Esq., for Plaintiff. Stewart Occhipinti, LLP, Frank S. Occhipinti, Esq., for Defendant DeLaval Inc.
Hardin Kundla McKeon & Poletto, Stephen P. Murray, Esq., for Defendant One Beacon America Insurance.
Anderson Kill & Olick, P.C., William G. Passannante, Esq., for Alfa Laval Inc.
DEBRA A. JAMES, J.
Motions seq. nos. 005 and 007 are consolidated herein for disposition.
By motion seq. no. 005, defendant Alfa Laval Inc. (“Alfa”) moves pursuant to CPLR 3212 for partial summary judgment.
Plaintiffs Travelers Casualty and Surety Company and The Standard Fire Insurance Company cross-move pursuant to CPLR 2215 and 3212 for denial of Alfa's motion and for partial summary judgment against Alfa and its co-defendants.
By motion seq. no. 007, defendant TIG Insurance Company (“TIG”), the successor to American Surety Company of New York s/h/a American Surety Company, moves: to dismiss all claims and cross-claims against TIG; for a declaration that TIG has no obligation to pay anything to or on behalf of plaintiffs; and, to compel the production of a confidential settlement agreement as part of the record on the pending motions.
Defendant OneBeacon American Insurance Company (“OneBeacon”), which has been substituted for defendant Aviva Life and Annuity Company of New York (“Aviva”), cross-moves for partial summary judgment in its favor.
Plaintiff Travelers Casualty and Surety Company (“Travelers”) brought this action against Alfa and Alfa's other insurers seeking, inter alia, a judicial declaration that Travelers has no duty to defend and indemnify Alfa in connection with certain asbestos-related product liability claims purportedly covered under several liability policies and excess umbrella indemnity policies sold by Traveler's predecessor, Aetna Casualty and Surety Company, to Alfa's predecessor, The DeLaval Separator Company.
Three days after Travelers commenced this action, Alfa filed a declaratory judgment and breach of contract action against Travelers in the U.S. District Court for the Eastern District of Virginia (the “Virginia action”), which has been stayed by that court pending the outcome of this litigation. TIG had previously brought a suit against Alfa in Virginia ( TIG Insurance Company v. Alfa Laval, Inc. ., Civil Action No. 3:07CV683 [ED Va] ) which resulted in TIG's reaching a settlement with Alfa. It is that settlement that TIG now seeks to have produced and made a part of this record.
By motion seq. no. 005, Alfa seeks to compel Travelers to fully defend it in two pending out-of-state actions, Hawkins v. Alfa Laval, Inc. [US District Court, Western District of North Carolina] and Stewart v. Alfa Laval, Inc. [Virginia Circuit Court for City of Newport News], in which Travelers is currently providing Alfa with only a partial defense. In Hawkins, Alfa has been receiving partial payment for its defense from other insurance companies. In Stewart, part of the case against Alfa is based on its being the successor of Sharples, Inc. (“Sharples”).
Travelers, which argues that no adjudication should be made now because discovery has not yet taken place, is cross-moving for two declarations. One, that it has no duty to defend or indemnify Alfa with respect to asbestos claims brought against Alfa in its capacity as successor to Sharples, since Alfa did not acquire Sharples until 1988, well after the last Travelers policy lapsed in 1980. The other, that with respect to those asbestos claims potentially covered by a Travelers policy, Travelers' liability is limited to a pro rata percentage based upon its “time on the risk.” The main issue raised by Travelers' cross-motion (seq. no. 005) is whether Travelers should pay Alfa's defense costs in full now and seek contribution from Alfa's other insurers later (known as the “joint and several” approach), or whether Travelers should continue doing with court approval what it has been doing up to now unilaterally—paying only that portion of the defense costs which purportedly represents its pro rata share of the risk in each action brought against Alfa (the “allocation” method).
Both the allocation method espoused by Travelers and the joint and several approach advocated by Alfa are legally valid methods of apportioning liability when there are multiple insurers (see Continental Casualty Co. v. Rapid–American Corporation, 80 N.Y.2d 640 [1993] ). It is up to the court to determine which of the two methods is the proper one in each case under the particular circumstances of that case (see Olin Corporation v. Insurance Company of North America, 221 F.3d 307, 322–325 [2d Cir2000] ).
Generally, where the policies are concurrent, the joint and several method is indicated (see Consolidated Edison Company of New York, Inc. v. Allstate Insurance Company, 98 N.Y.2d 208, 223 [2002] ), whereas pro rata allocation is indicated where the policies are successive and it cannot be readily ascertained during which coverage period (or periods) the insurers' liability was triggered (see id., 98 N.Y.2d at 223–225, 746 N.Y.S.2d 622, 774 N.E.2d 687).
Nonetheless, such are not the only factors. In determining which is the proper method to use in a particular case, the court should be guided by “ordinary principles of common sense and fairness” when exercising its discretion (cf. Brazeau v. Zon, n.o.r., 2007 WL 2903617, *35 [WDNY 2007]; see also Gentile v. County of Suffolk, 129 F.R.D. 435, 448–449 [EDNY 1990], affd 926 F.2d 142 [2d Cir1991] ).
Upon examining all the circumstances of this case, the court has concluded that it would be highly impractical to allocate the insurers' liability for defending Alfa in the plethora of pending suits against it.
According to Alfa's Vice President of Finance, Stephen D. Pratt, since 2002 approximately 1,300 asbestos suits have been brought against Alfa nationwide, and about 650 of those are currently active. Although Alfa and its predecessors had other insurance, Travelers (and its predecessor) was the primary insurer, both in time period (1962 to 1980) and total policy limits. Most of those 650 cases, which are scattered all over the country, allegedly involve different co-defendants and insurers, so Travelers' pro rata share would be different in each one. It is important to remember that the instant litigation is only about Alfa's defense costs. When each of the asbestos cases reaches trial or settles, it will be necessary to go through the entire allocation process for indemnification purposes. To conduct the necessary discovery and duplicate that process now seems like a needless waste of judicial resources.
Finally, because this is about defense rather than indemnification, the applicable standards favor Alfa. The duty to defend “is a much broader duty than the duty to indemnify ... [T]he duty to indemnify does not turn on the pleadings but rather on whether the loss as established by the facts is covered by the policy[; t]he duty to defend is decided solely on the allegations in the complaint which must be accepted by a court as true” ( Continental Casualty Co. v. Employers Insurance Company of Wausau, 60 A.D.3d 128, 142, 871 N.Y.S.2d 48 [1st Dept 2008], lv den 13 N.Y.3d 710 [2009], citing Atlantic Mutual Insurance Co. v. Terk Tech. Corp., 309 A.D.2d 22, 28, 763 N.Y.S.2d 56 [1st Dept 2003] ).
Alfa makes much of Travelers acting unilaterally in paying only a percentage of the defense costs without prior court approval. However, Alfa too has acted unilaterally in seeking payment of its defense costs from its other insurers instead of judicial aid in compelling Travelers to defend it fully. Under the joint and several approach, in order to prevent double recovery the insured is supposed to pick only one of its insurers to defend it, and that insurer then later seeks contribution from the others. Nonetheless, Alfa's conduct does not relieve Travelers of its obligation to defend Alfa in the Hawkins case (see Continental Casualty Co. v. Rapid–American Corporation, supra, 80 N.Y.2d at 652, 593 N.Y.S.2d 966, 609 N.E.2d 506). Double recovery will be avoided by reducing Travelers' liability for Alfa's defense by the amounts obtained by Alfa from the other insurers.
With respect to Traveler's disavowal of its obligation to defend Alfa against claims asserted against it in its capacity as Sharples' successor, the court finds Travelers is entitled to only part of the relief it seeks.
The duty to defend requires “each insurer to defend if there is an asserted occurrence covered by its policy ..., and the insured should not be denied initial recourse to a carrier merely because another carrier may also be responsible.... That is the litigation insurance' the insured has purchased” (Continental Casualty Co. v. Rapid–American Corporation, supra, 80 N.Y.2d at 655–656, 593 N.Y.S.2d 966, 609 N.E.2d 506, citations omitted). “The obligation to defend is readily understood and its requirement is clear—the insurer must afford a defense to the insured for covered as well as non-covered claims if the latter are intertwined with covered claims” (Federal Insurance Company v. Kozlowski, 18 A.D.3d 33, 41, 792 N.Y.S.2d 397 [1st Dept 2005] ). “Indeed, an insurer has a duty to defend even if facts outside the four corners of those pleadings indicate that the claim may be meritless or not covered.'... An insurer's duty to defend, however, ends if it established as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision” (Burt Rigid Box, Inc. v. Travelers Property Casualty Corp., 302 F.3d 83, 97 [2d Cir2002], citations omitted; Continental Casualty Company v. Employers Insurance Company of Wausau, supra, 60 A.D.3d at 135, 871 N.Y.S.2d 48).
Based on the foregoing, the court finds that where Alfa is a defendant solely because of its acquisition of Sharples, Travelers meets the test and need not provide a defense, but where, as in Stewart, Alfa is charged with direct liability as well as vicarious, Travelers must provide it with a complete defense, subject to Travelers' potential recoupment from contribution, if appropriate, after the conclusion of the underlying case. However, Travelers' obligation to defend Alfa in these cases does not encompass payment of expenses incurred in connection with Alfa's defense of claims asserted against it as Sharples' successor. “The obligation to pay expenses ... is not as easily defined or applied. Under this type of defense coverage, the insurer is entitled to differentiate between covered and non-covered claims” (Federal Insurance Co. v. Kozlowski, supra, 18 A.D.3d 33 at 41, 792 N.Y.S.2d 397).
By mot. seq. no. 007, TIG argues that all claims against it must be dismissed because it has already settled its liability under the pertinent policies with Alfa, with the result that Alfa now stands in TIG's shoes with respect to any liability under those policies for contribution. In seeking disclosure of its settlement with Alfa to support its position, TIG contends that Alfa waived its right to confidentiality by partially disclosing the contents of that settlement in the Virginia Action. Alfa opposes the disclosure, arguing that the settlement agreement is immaterial to the instant litigation and that Alfa's limited disclosure in the Virginia Action was insufficient to effect a waiver of its right to confidentiality.
“Under a pro rata allocation scheme, an unsettled insurer cannot be held liable for more than its pro rata share and, therefore, contribution claims against settled insurers are extinguished.... As a result, Travelers would only be liable for whatever pro rata share ... is determined by the court, and thus would not be entitled to any relief from [TIG]” ( Travelers Casualty and Surety Company v. Honeywell International, Inc., 26 Misc.3d 1202(A), 906 N.Y.S.2d 734 [Sup Ct, N.Y. Co, Tolub, J, 2006], affd 48 A.D.3d 225, 851 N.Y.S.2d 426 [1st Dept 2008], citing United States Fidelity & Guaranty Company v. Treadwell Corporation, 58 F Supp 2d 77 [SDNY 1999] ). “[T]he contract of settlement an insurer enters into with the insured cannot affect the rights of another insurer who is not a party to it” (Maryland Casualty Co. v. W.R. Grace and Co., 218 F.3d 204, 210–211 [2d Cir2000] ).
The court has examined TIG's settlement agreement with Alfa in camera. Given that the fact of settlement in itself is sufficient to warrant dismissal of the claims and cross-claims asserted against TIG herein, the court sees no need to disclose the agreement and its terms other than to state that the agreement obligates TIG to make certain payments directly to Alfa in satisfaction of TIG's duty to defend and indemnify Alfa pursuant to TIG's insurance policies. In practical terms, Travelers and the other insurers shall not be impacted by the dismissal of their claims against TIG, since when the contribution calculations are made TIG will be included in the allocation of risk, and any amounts which Travelers or the other co-insurers are entitled to recoup from TIG in contribution would just be offset against the amount they are obligated to pay to Alfa. In this context, it is noteworthy that Alfa opposes only that branch of TIG's motion which seeks disclosure of the settlement agreement. It does not oppose TIG's motion to the extent that it seeks dismissal of all claims against it.
Like Travelers, OneBeacon in its cross-motion (seq. no. 007) argues that any adjudication at this juncture is premature because no discovery has been had, but if the court is inclined to entertain summary judgment at this point, it wants the same two declarations as Travelers: (i) that it has no liability with respect to any claims stemming from Alfa's 1988 acquisition of Sharples since the last policy issued to Alfa by OneBeacon's predecessor expired in 1951, and (ii) that any potential liability OneBeacon has for Alfa's defense in pertinent asbestos claims brought against Alfa is limited to a pro rata percentage based upon its “time on the risk.”
The same analysis discussed above with respect to Travelers also applies to OneBeacon. OneBeacon shall provide Alfa with a full defense against those claims which fall primarily under its policies rather than Travelers' or another insurer's and seek contribution from the relevant co-insurers, if any, at the conclusion of each case.
The court agrees with Travelers and OneBeacon that it is impossible at this juncture to adjudicate their liability for Alfa's defense against any specific asbestos claims brought against Alfa (other than Hawkins ). Thus, the rulings made herein are purely conceptual. The parties themselves shall work out the specifics of each case in which the primary insurer disclaims liability for Alfa's defense in accordance with this decision. If there is any disagreement on a particular case, counsel shall contact the Clerk of the Part to arrange for a conference to resolve the issue.
Accordingly, Alfa's motion for partial summary judgment (seq. no. 005) is granted only to the extent that the court finds Travelers is obligated to provide Alfa with a complete defense against those claims brought against Alfa (such as Hawkins ) which arguably fall within the scope of an applicable Travelers' policy.
Plaintiffs' cross-motion for partial summary judgment (seq. no. 005) is granted only to the extent that the court finds Travelers need not defend Alfa against those claims brought against Alfa solely based on Alfa's acquisition of Sharples, and which Travelers “establishe[s] as a matter of law [has] no possible factual or legal basis on which [Travelers] might eventually be obligated to indemnify [Alfa] under any policy provision” ( see Burt Rigid Box, Inc. v. Travelers Property Casualty Corp., supra ).
TIG's motion (seq. no. 007) is granted only to the extent that the court finds TIG has no obligation to Alfa other than the obligations specified in their settlement agreement, and no liability for contribution to any other insurer. As discussed above, to the extent TIG seeks to disclose its settlement agreement with Alfa and make it part of the record, TIG's motion is denied. The Clerk is hereby directed to enter judgment dismissing the complaint as against TIG. The remaining claims in the complaint are hereby severed.
OneBeacon's cross-motion for partial summary judgment (seq. no. 007) is granted only to the extent that the court finds OneBeacon is not liable for Alfa's defense, either directly or through contribution, against those claims brought against Alfa solely based on Alfa's acquisition of Sharples, and which OneBeacon “establishe[s] as a matter of law [has] no possible factual or legal basis on which [OneBeacon] might eventually be obligated to indemnify [Alfa] under any policy provision” ( see Burt Rigid Box, Inc. v. Travelers Property Casualty Corp., supra ).
The court notes that although OneBeacon was substituted as a party defendant for Aviva more than a year ago, the caption in this case has yet to be amended. Hence, OneBeacon's counsel shall serve a copy of this order with notice of entry upon the Clerk of the Court and the Trial Support Office (Room 158), which are hereby directed to amend their records to reflect such change in the caption herein.
This decision constitutes the order of the court.