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MT. MCKINLEY INSURANCE COMPANY v. CORNING INCORPORATED

March 20, 2003

MT. MCKINLEY INSURANCE COMPANY, FORMERLY KNOWN AS GIBRALTAR CASUALTY COMPANY AND EVEREST REINSURANCE COMPANY, FORMERLY KNOW AS PRUDENTIAL REINSURANCE COMPANY, PLAINTIFFS,
v.
CORNING INCORPORATED; AIU INSURANCE COMPANY; ALLIANZ INSURANCE COMPANY; ALLSTATE INSURANCE COMPANY, AS SUCCESSOR-IN-INTEREST TO NORTHBROOK EXCESS & SURPLUS INSURANCE COMPANY, F/K/A NORTHBROOK INDEMNITY COMPANY; AMERICAN CENTENNIAL INSURANCE COMPANY; CENTURY INDEMNITY COMPANY, AS SUCCESSOR-IN-INTEREST TO THE INSURANCE COMPANY OF NORTH AMERICA AND CALIFORNIA UNION INSURANCE COMPANY; CERTAIN UNDERWRITERS AT LLOYD'S, LONDON AND CERTAIN LONDON MARKET INSURANCE COMPANIES; CONTINENTAL CASUALTY COMPANY; CONTINENTAL INSURANCE COMPANY; EMPLOYERS INSURANCE OF WAUSAU; EXECUTIVE RISK INDEMNITY, INC., AS SUCCESSOR-IN-INTEREST TO AMERICAN EXCESS INSURANCE COMPANY; FEDERAL INSURANCE COMPANY; FIREMAN'S FUND INSURANCE COMPANY; FIRST STATE INSURANCE COMPANY; GOVERNMENT EMPLOYEES INSURANCE COMPANY, A/K/A GEICO; GRANITE STATE INSURANCE COMPANY; GREAT AMERICAN INSURANCE COMPANY; HARTFORD ACCIDENT & INDEMNITY COMPANY; HIGHLANDS INSURANCE COMPANY; THE HOME INSURANCE COMPANY, ON ITS OWN BEHALF AND AS SUCCESSOR-IN-INTEREST TO CITY INSURANCE COMPANY; HUDSON INSURANCE COMPANY; KEMPER INSURANCE COMPANY, AS SUCCESSOR-IN-INTEREST TO LUMBERMENS MUTUAL CASUALTY COMPANY; LANDMARK INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; NATIONAL UNION FIRE INSURANCE COMPANY; NEW ENGLAND REINSURANCE CORPORATION, A/K/A NEW ENGLAND INSURANCE COMPANY; NORTH RIVER INSURANCE COMPANY; OLD REPUBLIC INSURANCE COMPANY; PACIFIC INSURANCE COMPANY; PURITAN EXCESS AND SURPLUS LINES INSURANCE COMPANY; REPUBLIC INSURANCE COMPANY; ROYAL INDEMNITY COMPANY; TRAVELERS CASUALTY & SURETY COMPANY, AS SUCCESSOR-IN-INTEREST TO AETNA CASUALTY & SURETY COMPANY; AND WESTCHESTER FIRE INSURANCE COMPANY, AS SUCCESSOR-IN-INTEREST TO INTERNATIONAL INSURANCE COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION AND ORDER

Two insurance companies, Mt. McKinley Insurance Company and Everest Reinsurance Company (collectively, the "Plaintiffs"), brought a declaratory action in New York state court on July 3, 2002, against Corning Incorporated ("Corning") and all of Corning's approximately thirty-five insurance carriers. Corning removed the action to federal court on the basis that it was related to the bankruptcy of Pittsburgh Corning Corporation ("PCC" or "Debtor"), a company fifty-percent owned by Corning.

Between July and November 2002, the Plaintiffs, Corning, and various of the defendant insurance companies briefed motions regarding the propriety of the removal and the propriety of Corning's additional motion to transfer this action to Pennsylvania, where the bankruptcy is pending. Corning alone of all the parties seeks to transfer the action to the bankruptcy court. Each of the other movants argues for a remand.

For the following reasons, that portion of the action that relates to the ten insurance policies against which the Debtor has made a claim (the "Affiliate Policies") is stayed. The remainder of the action will be remanded for lack of federal subject matter jurisdiction.

Background

This declaratory judgment action has been filed by two insurers against Corning and all of the insurers that wrote Corning's commercial general liability ("CGL") coverage from 1962 to 1985. The insurance carriers in this action issued primary and excess coverage to Corning through approximately forty-five contracts of insurance over the span of those twenty-three years.

Plaintiffs hope to determine the parties' respective obligations related to Corning's liability for personal injury claims arising from certain products containing asbestos. The claims against Corning have fallen into two general categories: claims based upon Corning's own manufacture of asbestos products marketed under the name Corhart ("Corhart Claims") and derivative claims based upon Corning's 50% ownership of the Debtor. The Debtor and Corning have been named in thousands of personal injury and wrongful death claims alleging exposure to Unibestos, an asbestos-containing pipe insulation manufactured and sold by the Debtor.

The pending motion practice largely hinges on the extent to which the Debtor's liability is covered by Corning's various insurance policies. The insurance policies issued to Corning between 1974 and 1985 specifically exclude PCC from coverage, but the ten pre-1974 policies for excess coverage appear to include coverage for companies affiliated with Corning. These ten Affiliate Policies constitute only a small portion of the policies at issue in this action, however, and only five of the defendants (or defendant groups) issued policies to Corning between 1962 and 1974 for excess coverage. The ten Affiliate Policies were issued by American Home Assurance Company, Continental Casualty Company, The Home Insurance Company, Travelers Casualty & Surety Company, and finally Certain London Market Insurance Companies (collectively "Affiliate Insurers").

Motions to remand have been made by the Plaintiffs; Certain London Market Insurance Companies, a group that purports to consist of an additional eighteen separate insurance syndicates (collectively, "London Market Insurers"); Continental Casualty, Continental Insurance and Pacific Insurance (collectively "Continental"); and Lumbermens Mutual Casualty Company ("Lumbermens"). Lumbermens' policy is for primary coverage and is issued solely to Corning. The Debtor has not made any claim under the policies issued by the Plaintiffs or Lumbermens.

Defendants Employers Insurance, AIU Insurance, American Home, Granite State, Landmark Insurance, Lexington Insurance, National Union Fire, North River Company, and Kemper Insurance have joined in the motions to remand.

The Plaintiffs' policies at issue here are an umbrella policy and five excess policies that identify Corning as the insured. Plaintiffs did not issue any policies to Corning before 1974, and each of the Plaintiffs' policies includes or incorporates provisions excluding the Debtor from coverage.

According to Plaintiffs, the issues of New York law that will likely be decided in this case include whether asbestos-related tort claims, such as a failure to warn, fall within the "products hazard" or "premises-operations" coverage in the Corning policies; the date insurance coverage was triggered; the method of allocating losses occurring over several years under successive insurance policies; and the number of occurrences.

Corning resists the motion to remand principally by pointing to its integrated insurance program. According to Corning, it has a multi-tiered insurance program, consisting of a layer of primary insurance, followed by successive layers of excess policies (issued by nearly forty different insurers). Many of these policies, including the "following form" excess policies, are by their nature interdependent. Therefore, according to Corning, how issues of policy interpretation are decided directly affects how coverage will be exhausted and how responsibility will be apportioned and allocated among the insurers. Corning describes this interlocking coverage as "block" coverage. It contends that a declaration as to the interpretation or application of one of these policies may have a "domino effect," dictating the rights and obligations of other surrounding carriers in the "block," as well as Corning and the Debtor.

Relying on its block coverage theory, Corning contends that this entire action is either a "core" proceeding or "related to" PCC's bankruptcy estate and, as a result, should be transferred to the District Court for the Western District of Pennsylvania for referral to the bankruptcy court. A description of those parts of the bankruptcy proceeding that are relevant to these motions follows. PCC's Bankruptcy Corning and another company, PPG Industries, Inc. ("PPG")*fn1 each own one-half of PCC. From approximately 1962 until 1972, PCC manufactured and sold Unibestos. Faced with numerous lawsuits alleging asbestos-related bodily injury claims, on April 16, 2000 PCC filed a voluntary petition for bankruptcy in the United States Bankruptcy Court for the Western District of Pennsylvania pursuant to Chapter 11 of Title 11 of the United States Code.

In its bankruptcy reorganization, PCC looked to its insurance coverage to create a trust for the payment of asbestos-related claims. A press release issued on May 14, 2002 announced a plan of reorganization for the Debtor that would create a $2.7 billion trust for the benefit of asbestos claimants, funded in part by contributions from PPG and insurers. That proposal does not call for a contribution from any of the policies of insurance issued to Corning, and Corning was not a party to the plan.

On July 25, 2002, three weeks after the instant action was filed, Corning filed an adversary proceeding in the Bankruptcy Court against the Debtor and all of Corning's excess carriers, essentially each of the parties to the instant lawsuit. Among other things, Corning seeks a declaration that PCC has no rights under Corning's policies. In addition to seeking a declaration of rights, Corning asserted additional state law claims for alleged breach of contract, anticipatory breach of contract and bad faith against certain carriers.

On October 11, 2002, the Debtor served its Answer with Counterclaim and Cross-claims in the adversary proceeding filed by Corning. The Debtor asserts that it is entitled to coverage as a named insured in ten Affiliate Policies. Corning's Affiliate Policies identify the "Named Assured" as including, for example, "subsidiary, associated, affiliated companies or owned and controlled companies." These ten excess insurance policies provide in the aggregate at least $225 million in insurance coverage.

The Debtor seeks a declaration of the respective rights, duties and liabilities of Corning, the Affiliate Insurers, and itself. The Debtor asserts that any payment to Corning under the Affiliate Policies will reduce the amount of insurance available to the Debtor under these policies. Among other things, the Debtor seeks a declaration that each Affiliate Insurer has a duty to pay all of the defense costs and sums that the Debtor is obligated to pay with respect to every Unibestos claim in which any portion of the injury process is alleged to have occurred during the effective period of the policy.

In its counterclaim and cross-claims, the Debtor has asserted that its claim of right to coverage under the Affiliate Policies is a core proceeding.*fn2 PCC has not made any claims under Corning's insurance other than its claims under the Affiliate Policies and does not contend that ...


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