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NATIONAL UNION FIRE INSURANCE CO. v. AMERICAN RE-INS. CO.

January 3, 2005.

NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PENNSYLVANIA, Plaintiff,
v.
AMERICAN RE-INSURANCE CO., Defendant.



The opinion of the court was delivered by: DENNY CHIN, District Judge

OPINION

In this diversity action for breach of contract, two insurance companies dispute the applicability of a pollution exclusion clause of a reinsurance policy. Defendant American Re-Insurance Company ("American Re") moves for summary judgment pursuant to Fed.R.Civ.P. 56 and plaintiff National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union") cross-moves to strike American Re's second affirmative defense. For the reasons that follow, National Union's motion to strike is granted and American Re's motion for summary judgment is denied. STATEMENT OF THE CASE

  A. The Facts

  The facts are drawn from the pleadings, various affidavits, and the parties' Rule 56.1 statements. They are largely undisputed and are summarized as follows:
1. The Milacron Policy
  National Union is an insurance company organized and licensed under the laws of Pennsylvania, with its principal place of business in New York. (Pl.'s 56.1 Statement ¶ 1).*fn1 For a period commencing on April 1, 1994, National Union's underwriting office in Cleveland, Ohio issued a primary commercial general liability policy (the "Milacron policy") to Cincinnati Milacron, Inc. ("Milacron"), an Ohio corporation that manufactures, designs, and sells, among other things, machine tools, plastic injection molding machines, coordinate measuring machines, and flexible manufacturing systems. (Miller Aff. Ex. 1). The Milacron policy provided Milacron with coverage of up to $5 million after Milacron's $5 million self-insured aggregate retention was exhausted. (Pl.'s 56.1 Statement ¶ 4). The Milacron policy contained a pollution exclusion clause (the "National Union pollution exclusion"), titled a "Total Pollution Exclusion." (Id.). The National Union pollution exclusion excludes: Bodily injury or property damage which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, disposal, seepage, migration, release or escape of pollutants at any time.

 (Id.; Jacobi Aff. Ex. A). The term "pollutants" is defined as "any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste. Waste includes material to be recycled, reconditioned or reclaimed." (Jacobi Aff. Ex. A).

  2. The Reinsurance Policy

  American Re is a reinsurance company organized and licensed under the laws of Delaware, with its principal place of business in New Jersey. (Pl.'s 56.1 Statement ¶ 2). On March 1, 1994, National Union's Cleveland, Ohio office sought facultative reinsurance on the Milacron policy from American Re's Columbus, Ohio office.*fn2 (Id. ¶ 5). After an exchange of facsimiles between the parties, an agreement was reached for American Re to reinsure the Milacron policy. (Id. ¶ 5). The certificate of facultative reinsurance that American Re issued to National Union (the "reinsurance policy") provided $4 million in coverage to National Union in excess of the first $1 million of National Union's coverage. (Def.'s 56.1 Statement ¶¶ 3, 5). The reinsurance policy included separate asbestos and pollution exclusion clauses. (Id. ¶ 5; Miller Aff. Ex. 3). The pollution exclusion clause attached to the reinsurance policy (the "American Re pollution exclusion") excludes coverage for:
A. The contamination of any environment by pollutants that are introduced at any time, anywhere, in any way;
B. Any bodily injury, personal injury, property damage, costs of other loss of damage arising out of such contamination, including but not limited to cleaning or remedying or detoxifying such contamination; or
C. Payment of sums related to (1) the investigation or defense of any loss, injury or damage or (2) payment of any cost, fine or penalty or (3) payment of any expense involving a claim or suit related to A or B above.
(Miller Aff. Ex. 3). "Contamination" is defined as "any unclean or unsafe or damaging or injurious or unhealthful condition arising out of the presence of pollutants, whether permanent or transient in any environment." (Id.). "Environment" is defined as:
any person, any manmade object or feature, animals, crops and vegetation, land, bodies of water, underground water or water table supplies, air and other feature of the earth or its atmosphere, whether or not altered, developed or cultivated, including, but not limited to any of the above, owned, controlled, or occupied by the insured.
(Id.). "Pollutants" is defined as "smoke, vapors, soot, fumes, acids, sounds, alkalies, chemicals, liquids, solids, gases, thermal pollutants, and all other irritants or contaminants." (Id.). The parties agree that the effective date of the reinsurance policy is April 1, 1994, although the date at the bottom of the first page of the reinsurance policy and each of the endorsements — including the asbestos and pollution exclusions — is July 18, 1994. (Id.; Pl.'s 56.1 Statement ¶ 5). American Re did not provide a copy of the American Re pollution exclusion in its initial facsimile to National Union, but American Re did inform National Union in facsimiles on March 28 and 31, 1994 that the reinsurance would include exclusions for asbestos and pollution.*fn3 (Jacobi Aff. Exs. E, G).

  3. The Milacron Lawsuits

  In or about 1996, several employees or former employees of General Motors Corporation ("GM") who worked at various plants in Flint, Michigan filed lawsuits in Michigan against GM and Milacron alleging that they had contracted respiratory illnesses from exposure to certain metalworking fluids Milacron supplied to GM over an extended period of time. (Def.'s 56.1 Statement ¶¶ 6, 7; Jacobi Aff. Exs. I, J). In addition to supplying GM with chemicals, from about 1988, Milacron acted as a chemical manager for GM and provided on-site employees who measured concentration levels and mixed fluids. (Def's 56.1 Statement ¶ 7). Claimants were allegedly exposed to machining and/or metal working fluids that were fed to the machines by lines from open pits containing coolant, antibacterial and anti-fungal agents, and other hazardous substances. (Pl.'s 56.1 Statement ¶ 7). The claimants also alleged that Milacron mismanaged the open pits by failing to (1) conduct the metalworking operations behind air tight doors; (2) use blowers to push mist-filled air away from workers; and (3) monitor and control the presence and/or growth of bacteria and/or fungus in the metalworking fluids. (Id. ¶¶ 7, 8). The claimants alleged various theories of liability, including products liability and negligence for bodily injury. (Def.'s 56.1 Statement ¶ 6). At least four separate lawsuits, including three class actions, were filed in various courts in Michigan. (Jacobi Aff. Exs. I, J, L).

  At the conclusion of discovery, National Union determined that there was a high probability of a verdict in favor of the plaintiff employees and attempted to settle the claims against Milacron. (Pl.'s 56.1 Statement ¶ 10). National Union considered the application of the National Union pollution exclusion when contemplating whether to settle the Milacron claims and determined that a settlement was in its best interest, notwithstanding National Union's pollution exclusion. (Id. ¶ 11). In or about February 2003, Milacron settled with the underlying claimants, agreeing to pay approximately $19 million. (Id. ¶ 10).

  4. National Union Seeks Reimbursement

  Following the settlement, National Union billed American Re for its purported share under the reinsurance policy. (Id. ¶ 12). National Union submitted proofs in support of its claim for reimbursement in the amount of $4,277,654.57, representing American Re's share of the loss.*fn4 (Id.). Subsequent to its submission, representatives from National Union met with representatives from American Re and discussed, among other things, the two pollution exclusion policies. (Id.). American Re denied coverage in a letter dated July 17, 2003. (Id. ¶ 13; Miller Aff. Ex. 4). According to American Re, it denied coverage because, inter alia:
[T]he pollution exclusion in the [reinsurance policy] clearly indicates an intent between the parties that [American Re's] liability would not follow that of [National Union's] with respect to the application of [National Union's] pollution exclusion. The [American Re] exclusion clearly evidences the intent to exclude coverage for claims alleging bodily injury to persons exposed to chemicals.
(Miller Aff. Ex. 4). After additional discussion, the parties were unable to agree on the applicability of the respective pollution exclusions and this lawsuit followed. (Pl.'s 56.1 Statement ¶ 14).

  B. Procedural History

  National Union filed this action on September 10, 2003, alleging breach of contract. The case was assigned to the Honorable Kimba M. Wood. On December 24, 2003, American Re moved for summary judgment. On January 21, 2004, National Union moved to strike American Re's second affirmative defense, which asserted that the American Re pollution exclusion bars coverage of National Union's reinsurance claims. On April 27, 2004, after reviewing the briefing on the motions, Judge Wood stayed discovery. On October 14, 2004, Judge Wood recused herself from the case and it was re-assigned to the undersigned.

  DISCUSSION

  American Re moves for summary judgment arguing that National Union's claim for reimbursement is barred based on the pollution exclusion in the reinsurance policy. National Union cross-moves to strike American Re's second affirmative defense. National Union essentially makes two arguments: first, that American Re's pollution exclusion clause does not bar coverage of injuries arising from indoor exposure to fumes from routine industrial work; and second, under the "follow the fortunes" doctrine, American Re is required to follow National Union's good faith settlement decision. American Re argues that the American Re pollution exclusion clause is broader than the National ...


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