support to Siemens, the Court ultimately is convinced that he simply did not understand its implication, which in any event is contrary to the overwhelming weight of the evidence.
* * *
In summary, if the determination of ambiguity properly is limited to the document itself, the Court holds that the clause unambiguously covers the Griffith and Shook claims. If the determination of ambiguity is not so limited, the Court holds as a matter of law and, alternatively, finds as a matter of fact,
that the clause covers those claims.
The next question is whether FFIC is entitled, as Allis' subrogee, to indemnification pursuant to the settlement agreement for the amounts spent in defending and settling Griffith and Shook.
FFIC asserts that in paying the Griffith and Shook settlements and defense costs, it was discharging obligations of Allis and, in consequence, that it is subrogated to Allis' right to indemnification by Siemens for those payments. Siemens rejoins that FFIC's payments were its own independent obligations as a result of the Allis-FFIC settlement, that Allis has no right of recovery against Siemens because the Griffith and Shook claims were not within the scope of Siemens' indemnity
and, in any case, that any right to subrogation has been waived. The contentions are without merit.
The Payments Were Not Independent Obligations
One who makes a payment that is the primary obligation of the payor, as distinguished from a payment of the debt of another, is not entitled to subrogation. E.g., Matter of Greenwald, 114 Bankr. 410, 413 (Bankr. S.D.N.Y. 1990). On the other hand, an insurer who pays a claim on behalf of its insured ordinarily is subrogated to the rights of the insured against third parties. Pennsylvania General Insurance Co. v. Austin Powder Co., 68 N.Y.2d 465, 471, 510 N.Y.S.2d 67, 70, 502 N.E.2d 982 (1986). Hence, Siemens necessarily contends that the bankruptcy and the Allis-Siemens settlement converted FFIC's obligation under the insurance policies to indemnify Allis into a primary obligation of FFIC. It is mistaken.
Allis was the insured under the FFIC policies when it entered Chapter 11. FFIC remained obligated, notwithstanding the filing, to discharge its duties as insurer for the benefit of the bankrupt estate. Although (a) the estate benefited from the automatic stay of 11 U.S.C. § 362, and (b) the product liability plaintiffs became the holders of unsecured and unliquidated claims against the estate whose rights were subject to impairment in the reorganization, the plaintiffs nevertheless retained claims against Allis' estate on which Allis was the primary obligor and for which it had insurance notwithstanding the filing.
The dispute between Allis and FFIC concerned the payment of premiums on the insurance policies. The settlement involved the conversion of those policies from retrospective premium to more conventional insurance. The bargain ultimately approved by the Bankruptcy Court involved substantial payments to FFIC for the insurance and the continuation of the coverage. FFIC's agreement to continue the coverage thus enabled the estate to satisfy the claims of Class 7 creditors and was one of the building blocks used to effect the reorganization of the debtor. In these circumstances, the suggestion that FFIC's discharge of its obligations under the policies satisfied its own primary obligation cannot withstand scrutiny. Its actions discharged the obligations of the bankrupt estate to the Class 7 creditors.
Siemens points to the application to the Bankruptcy Court for approval of the Allis-FFIC settlement, which summarized the settlement by saying that FFIC would "assume full responsibility and liability on any and all claims covered by the 1981-1987 insurance policies" and stated that the debtor was given "a full release from liability to over 500 product liability and other claimants." (Def. Tr. Br. 11) (quoting Braza Dep. Ex. 3, Application, PP 37, 42) Focusing on the word "liability," it argues that the settlement eliminated Allis' primary obligation on the products claims and substituted a primary obligation of FFIC. It argues that:
"Fireman's Fund did not pay on an obligation of Allis-Chalmers under the Plan and the two Trusts but did so pursuant to its own contractual obligation to Allis-Chalmers under the Plan and its settlement agreement with Allis-Chalmers . . ." (Def. Tr. Br. 61) (emphasis in original)
But this is too glib a view.
While the combined effect of the Allis-FFIC settlement and the confirmation of the Plan was to allow a reorganized Allis to emerge from Chapter 11, free of the claims of Class 7 creditors, the exposure for which FFIC remained liable came about by reason of Allis' manufacture of allegedly defective products and that exposure was a claim against the assets of the bankrupt estate. FFIC agreed, in exchange for premium payments by the estate, to cover that exposure, subject to the terms and conditions of its policies. Its position in this case is no different from that of any insurer that pays a claim made against its insured.
There Was No Waiver of Subrogation
Siemens appears also to argue that FFIC's right to subrogation was waived. While its position is not entirely clear, it seems to revolve around two provisions of the Allis-Siemens settlement agreement.
The first of the provisions relied upon is Section 7, which provides in relevant part:
7. Release of Siemens Energy. Except as specifically provided in this Agreement, Allis-Chalmers, for itself and as former Debtor-In-Possession, its parent, subsidiaries . . . insurers, successors, assigns and all others whom Allis-Chalmers may bind or control, and the Reorganization Trust and the Product Liability Trust, to the extent empowered by their Respective Trust Agreements, hereby release and forever discharge Siemens . . . and its divisions, officers, directors, employees, agents, representatives, insurers, successors and assigns for any and all claims, demands, actions, suits and liabilities of every kind and nature whatsoever, including, but not limited to, those claims specifically identified in the fourth paragraph of the recital section of this Agreement. Allis-Chalmers, the Reorganization Trust, and the Product Liability Trust acknowledge that this release extinguishes any and all existing claims, past, present or future, whether known or unknown, foreseen or unforeseen, without regard to whether such claims are liquidated or contingent, accrued or unaccrued, matured or unmatured, or whether they arise under or by virtue of contract, tort, statutory or other duties." (Granofsky Aff. Ex. 9, § 7) (emphasis added)