Lawyers in Insurance Coverage Group Score a Win in Case Seeking Unaggregated Coverage
Lawyers in White and Williams' Insurance Coverage and Bad Faith practice group scored a significant victory on behalf of its client, Century Indemnity Company, on November 28, 2011, when the United States Court of Appeals for the Sixth Circuit affirmed the dismissal of Bondex International, Inc. v. Hartford, et al. The Sixth Circuit rejected an attempt by the plaintiffs to obtain unaggregated coverage with respect to asbestos-related bodily injury claims arising from products sold by a predecessor entity, The Reardon Company (Old Reardon), whose assets and liabilities had been acquired by the plaintiffs in an asset purchase transaction in 1966.
The plaintiffs’ primary insurers entered into a Claims Handling Agreement (CHA) with the plaintiffs in 1993, under which they provided defense and indemnity to the plaintiffs with respect to asbestos-related bodily injury claims, including claims arising from Old Reardon products. As payments under the CHA exhausted the Products Hazard aggregate limits of the primary policies, the plaintiffs sought, and received, coverage from their umbrella and/or excess insurers, eventually exhausting the applicable aggregate limits in the policies issued by those insurers as well.
On July 3, 2003, the plaintiffs filed a complaint for declaratory judgment and breach of contract, alleging that certain primary and excess insurers had improperly exhausted their policies by “misclassifying” claims arising from Old Reardon products as subject to the Products Hazard aggregate limits. The plaintiffs argued that Old Reardon was not a “Named Insured” under the insurer-defendants’ policies, that products of Old Reardon were not “Named Insured Products,” and therefore, claims involving Old Reardon products did not fall within the “Products Hazard,” which is limited to claims arising out of the “Named Insured’s Products.”
The district court granted summary judgment to the insurer-defendants, and dismissed the plaintiffs’ claims in their entirety. Applying Ohio law, the district court determined that the 1966 asset purchase agreement constituted a de facto merger between Old Reardon and plaintiff RPM (the absorbing entity), such that the policy term “Named Insured” included Old Reardon and the Products Hazard aggregate applied to the claims involving Old Reardon products.
The Sixth Circuit affirmed, holding that Old Reardon was a “Named Insured” within the plain meaning of the policies. The court held that “Named Insured” includes not only organizations identified in the policy declarations, but also “any other company under their control and active management at the inception date of [the] policy.” The court held that by focusing on “the inception date of th[e] policy,” the term “Named Insured” takes a snapshot of companies under the Named Insured’s control and active management at the time the policies took effect. The court held that, although Old Reardon was no longer a separate corporate entity after the 1966 purchase agreement and dissolution, the same “association of persons for carrying on a commercial enterprise”—and thus, the same company under the plain meaning of that term—continued as a division of plaintiffs. The court concluded, “[b]ecause the temporal element of ‘Named Insured’ looks to the date of inception, it does not matter that [plaintiffs] did not control Old Reardon prior to the 1966 purchase agreement; it only matters that they controlled and actively managed the company at the onset of the relevant policies, the first of which took effect in 1973.” Because the Sixth Circuit concluded that Old Reardon was a “Named Insured” within the plain meaning of the policies, it did not reach the de facto merger issued relied upon by the district court.
RPM and Bondex have filed a petition for a rehearing before the Sixth Circuit panel that decided the appeal.
Patti Santelle argued the appeal on behalf of Century Indemnity Company, with Shane Heskin and Michael DiFebbo on the brief. The appellate team also included Adam Berardi and Jennifer Supplee.
