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Fulton Boiler Works, Inc v. American Motorists Insurance Company

December 9, 2011

FULTON BOILER WORKS, INC., PLAINTIFF,
v.
AMERICAN MOTORISTS INSURANCE COMPANY; AMERICAN MANUFACTURERS MUTUAL INSURANCE COMPANY; ONEBEACON INSURANCE COMPANY, AS SUCCESSOR TO COMMERCIAL UNION INSURANCE COMPANY; EMPLOYERS INSURANCE COMPANY OF WAUSAU; TRAVELERS CASUALTY & SURETY COMPANY; AND NATIONWIDE MUTUAL INSURANCE COMPANY, DEFENDANTS



The opinion of the court was delivered by: David N. Hurd United States District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

On April 25, 2006, plaintiff Fulton Boiler Works, Inc. ("plaintiff" or "Fulton") filed this action in New York State Supreme Court, Oswego County, against defendants American Motorists Insurance Company, American Manufacturers Mutual Insurance Company (collectively "AMICO"),*fn1 and OneBeacon Insurance Company ("OneBeacon"). Dkt. No. 1, Ex. A. OneBeacon removed this action to federal court on September 18, 2006. Dkt. No. 1. On December 19, 2008-after the parties brought numerous counterclaims, cross-claims, and third-party complaints*fn2 -Fulton filed an amended complaint against defendants AMICO, OneBeacon, Employers Insurance Company of Wausau ("Wausau"), Travelers Casualty & Surety Company ("Travelers"), and Nationwide Mutual Insurance Company ("Nationwide") (collectively "defendants"). Dkt. No. 93.

Thereafter, OneBeacon filed a counterclaim against Fulton and cross-claims against AMICO, Wausau, Travelers, and Nationwide. Dkt. No. 95. AMICO then brought a counterclaim against Fulton and cross-claims against OneBeacon, Wausau, Travelers, and Nationwide. Dkt. No. 98. Travelers filed a counterclaim against Fulton as well as cross-claims against AMICO and OneBeacon. Dkt. No. 101.

Through its amended complaint, plaintiff asserts equitable estoppel/waiver against defendants and seeks a judgment declaring that defendants are obligated to fully defend and indemnify Fulton in connection with thousands of civil lawsuits filed against it (the "Asbestos Claims"). Plaintiff also seeks damages for defendants' alleged breach of contract as well as costs and fees related to this action. Generally, defendants maintain that Fulton is obligated to pay a pro rata share of the indemnity costs in connection with the Asbestos Claims.

On March 25, 2010, Fulton's first motion for partial summary judgment was granted in part and denied in part. Fulton Boiler Works, Inc. v. Am. Motorists Ins. Co., 2010 WL 1257943 (N.D.N.Y. Mar. 25, 2010) (Suddaby, J.).*fn3 Specifically, plaintiff's request that defendants be required to pay the full defense costs related to the Asbestos Claims was granted, but the request that defendants be required to pay fees and costs associated with this action was denied. Id. at *8. Defendants' cross-motions for summary judgment were all denied. Id. at *9.

Currently pending are: (1) Travelers' motion for summary judgment declaring that Fulton is obligated to pay a pro rata share of indemnity costs related to years it was uninsured (Dkt. No. 170); (2) AMICO's motion for partial summary judgment ordering Travelers to contribute a pro rata share of defense and indemnity costs related to claims for which it received a complaint, "written tender," and/or invoices from defense counsel (Dkt. No. 172); (3) Fulton's motion for partial summary judgment declaring that AMICO and OneBeacon must continue to fully indemnify Fulton and that Fulton cannot be allocated any share of indemnity costs (Dkt. No. 174); (4) OneBeacon's motion for partial summary judgment declaring that Fulton is obligated to pay a pro rata share of the indemnity costs for years it was uninsured (Dkt. No. 175); (5) OneBeacon's motion for partial summary judgment declaring that Travelers received proper notice of all underlying Asbestos Claims and must contribute a pro rata share of defense and indemnity costs based on its four years of coverage (Dkt. No. 178); (6) Wausau and Nationwide's cross-motion for partial summary judgment ordering Fulton to contribute to the indemnity costs (Dkt. No. 189)*fn4 ; and (7) Travelers' cross-motion for partial summary judgment declaring that it cannot be allocated defense and/or indemnity costs related to claims for which it was not provided proper notice (Dkt. No. 193).

OneBeacon, AMICO, and Fulton have responded to the pending motions. Dkt. Nos. 187, 188, 190, 191, 201. OneBeacon, AMICO, Travelers, and Fulton filed reply briefs. Dkt. Nos. 202, 203, 204, 206. Fulton and Travelers filed supplemental memoranda. Dkt. Nos. 217, 218, 222. These fully briefed motions were considered on submit.

II. FACTUAL BACKGROUND

From 1949 until the mid-1970s, Fulton manufactured and sold boilers that contained asbestos parts. While the parties dispute whether Fulton purchased insurance prior to 1976,*fn5 it is generally agreed that a combination of comprehensive general liability policies issued by AMICO, OneBeacon, Travelers, and Wausau covered Fulton for asbestos exposure risks from 1976 until 1993. Specifically, Fulton was covered by Travelers from October 1976 through October 1980, OneBeacon from October 1980 through October 1983, Wausau from October 1983 through October 1984, and AMICO from October 1984 through September 1993-when an asbestos liability exclusion was added to the policy.

Beginning in the early 1990s, plaintiff has been named in thousands of civil lawsuits alleging exposure to asbestos from its boilers.*fn6 In 1991, Fulton retained its own counsel to monitor the incoming claims. Fulton also advised OneBeacon and AMICO, the only insurers known to Fulton at the time, of the pending litigation and requested defense. OneBeacon and AMICO agreed to defend Fulton. OneBeacon and AMICO assert, and plaintiff denies, that Fulton was advised in 1991 that it would be expected to pay its share of any costs related to claims arising from years in which Fulton was uninsured.

Fulton alleges that from 1992 to 2005, OneBeacon and AMICO shared all defense and indemnity costs related to the Asbestos Claims and did not ask plaintiff to contribute anything during that time period. Fulton further asserts that OneBeacon and AMICO exercised complete control over the defense strategy, ignored Fulton's "no-settle" policy, and settled claims that did not even involve Fulton boilers. OneBeacon and AMICO argue that Fulton agreed to pay one-third of the litigation costs in January 1995; was actively represented by counsel from 1991 until 2001; was repeatedly asked to contribute to any claims arising from uninsured periods; and was consulted prior to the resolution of the cases. None of the over 14,000 Asbestos Claims have gone to trial and at least fourteen (14) have settled to date.

In 1998, after the number of Asbestos Claims increased sharply, OneBeacon and AMICO entered into a cost-sharing agreement under which AMICO paid 75% of the defense costs and OneBeacon paid the remaining 25%. This agreement did not require Fulton to contribute to the litigation costs. In August 2001 AMICO circulated a proposed cost-sharing agreement that reflected the 75%--25% split between AMICO and OneBeacon, but allowed for modification in the event new insurers were identified. Importantly, the proposal only applied to defense costs and specifically noted that "[n]othing contained herein has, or shall be construed to have, any application to the indemnification for any Asbestos Bodily Injury Claims or any other kind of claim that has been or may be asserted against Fulton." Osias Certification, Ex. 17, Dkt. No. 174-5, ¶ 1(A) ("2001 Proposal").*fn7

Travelers' and Wausau's policies were discovered in October 2001 and December 2005, respectively. Thereafter, defendants agreed to what they describe as an "interim" modified cost-sharing agreement that divided the defense costs among AMICO (64.5%), OneBeacon (21.5%), Travelers (7%), and Wausau (7%). Again, there was no provision calling for Fulton to contribute, and the agreement related only to defense costs. In December 2005 Fulton was asked to contribute to the indemnity costs of the Asbestos Claims. Fulton has refused to pay such costs on a regular basis but admittedly contributed $18,200 toward a settlement in December 2005.

III. DISCUSSION

Jurisdiction in this case is based on the diversity of the parties, who agree that New York law is controlling. See Fulton Boiler Works, Inc., 2010 WL 1257943, at *5 (holding that New York law applies to this matter). The issues presented in the parties' motions are: (1) how to properly allocate the indemnity costs among the liable parties; (2) whether Fulton is obligated to pay a share of the indemnity costs based on its alleged lack of insurance from 1949 to October 1976; (3) whether equitable estoppel bars AMICO and OneBeacon from denying their obligation to fully indemnify Fulton; (4) whether Fulton can be allocated a share of indemnity costs for the years after 1993; and (5) whether Travelers has an obligation to contribute to the defense and indemnity costs related to underlying Asbestos Claims.*fn8

It is noted at the outset that an insurer's obligation to indemnify is not as broad as its obligation to defend. Bovis v. Crab Meadow Enters., Ltd., 67 A.D.3d 846, 848 (N.Y. App. Div. 2d Dep't 2009). Consequently, "[a]n insurer may be contractually bound to defend even though it may not be ultimately bound to indemnify, either because its insured is not factually or legally liable or because the occurrence is later proven to be outside the policy's coverage." N.Y. Funeral Chapels, Inc. v. Globe Indem. Co., 33 F. Supp. 2d 294, 298 (S.D.N.Y. 1999) (internal quotation marks and alteration omitted). Therefore, the previous order obligating defendants to continue to fully defend Fulton has no bearing on defendants' obligations to indemnify Fulton.

A. Motion for Summary Judgment-Legal Standard

The entry of summary judgment is warranted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett,477 U.S. 317, 322, 106 S. Ct. 2548, 2552 (1986) (citing Fed. R. Civ. P. 56(c)); see also Anderson v. Liberty Lobby, Inc.,477 U.S. 242, 247, 106 S. Ct. 2505, 2509--10 (1986). A fact is "material" for purposes of this inquiry if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248, 106 S. Ct. at 2510; see also Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir. 2005). A material fact is genuinely in dispute "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S. Ct. at 2510.

When summary judgment is sought, the moving party bears the initial burden of demonstrating that there is no genuine issue of material fact to be decided with respect to any essential element of the claim. Id. at 250 n.4, 106 S. Ct. at 2511 n.4. The failure to meet this burden warrants denial of the motion. Id. In the event this initial burden is met, the opposing party must show, through affidavits or otherwise, that there is a material issue of fact for trial. Id. at 250, 106 S. Ct. at 2511; Fed. R. Civ. P. 56(e).

When deciding a summary judgment motion, a court must resolve any ambiguities and draw all inferences from the facts in a light most favorable to the nonmoving party. Jeffreys, 426 F.3d at 553. Summary judgment is inappropriate where "review of the record reveals sufficient evidence for a rational trier of fact to find in the [non-movant's] favor." Treglia v. Town of Manlius, 313 F.3d 713, 719 (2d Cir. 2002) (citation omitted); see also Anderson, 477 U.S. at 250, 106 S. Ct. at 2511 (summary judgment is appropriate only when "there can be but one reasonable conclusion as to the verdict").

B. Proper Allocation of Indemnity Costs

The parties cite substantially the same case law in their arguments regarding the proper approach to allocating indemnity costs. Further, they agree that a pro rata allocation of indemnity costs is consistent with the comprehensive general liability policies involved. The parties instead dispute which parties should be included in such an allocation and to what extent. The relevant law regarding allocation is outlined here for the sake of clarity.

Initially, the scope of the underlying Asbestos Claims must be defined in order to determine which policies, if any, are implicated. When determining if numerous claims are to be treated as multiple individual occurrences or grouped together as a single broad occurrence, courts are to consider "whether there is a close temporal and spatial relationship between the incidents giving rise to injury or loss, and whether the incidents can be viewed as part of the same causal continuum, without intervening agents or factors." Appalachian Ins. Co. v. Gen. Electric Co., 8 N.Y.3d 162, 171--72 (N.Y. 2007). In the Appalachian case, for example, the court held that the policy language was consistent with treating numerous asbestos exposure claims as multiple independent occurrences (separate exposures and injuries) as opposed to a single occurrence (plaintiff's prolonged failure to warn of asbestos). Id. at 173--74. Similarly, the Asbestos Claims here must be considered as multiple independent occurrences rather than grouped into a single broad occurrence. Indeed, the claims arise from different time periods and allege exposure at different locations from different boilers.

Next, the time period of a particular claimed injury must be defined. Generally, a comprehensive general liability policy is "triggered by an injury-in-fact during the policy period." Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178, 1194 (2d Cir. 1995), modified on denial of reh'g, 85 F.3d 49 (2d Cir. 1996). In other words, "where the evidence establishes a progressive bodily disease [e.g. asbestosis, pleural plaques, or cancer], with injury-in-fact recurring throughout the disease process, all policies in effect at any time during that process are triggered." Id. at 1197. Indeed, "New York recognizes that whenever the facts show ...


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