in the supreme court of ohio international group insurance companies and arrowpoint capital...
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CASE No. ® ® - 1`/ 16
IN THE SUPREME COURT OF OHIO
GOODRICH CORPORATION,tka THE B.F. GOODRICH COMPANY
Plaintiff-Appellee
V.
COMMERCIAL UNION INSURANCECOMPANY and CERTAIN LONDONMARKET INSURERS and CENTURYINDEMNITY COMPANY, as successorto CIGNA Specialty Insurance Company,formerly known as California Union InsuranceCompany, and as successor to CCI InsuranceCompany, as successor to Insurance Companyof North America,
Defendants-Appellants.
On Appeal From TheCourt of AppealsNinth Appellate DistrictSummit County, OhioCase Nos. 23585, 23586
MEMORANDUM IN SUPPORT OF JURISDICTIONOF AMICUS CURIAE
COMPLEX INSURANCE CLAIMS LITIGATION ASSOCIATION
Paul A. Rose Ann Marie O'Brien (Ohio Bar # 0055508)Sallie Conley Lux DAVIS & YoUNG
BROUSE MCDOWELL One Cascade. Plaza, Suite 800388 South Main Street, Suite 500 Akron, OH 44308Akron, OH 44311 Telephone: (330)376-1717Telephone: (330) 535-5711 Facsimile: (330) 376-1797Facsimile: (330) 253-8601 E-mail: [email protected]
E-mail: [email protected] Counsel for Amicus Curiae Complex [email protected] Claims Litigation Association
Counsel for Goodrich Corporation
Suff1L1VIE 00'
Andrew M. ReidyCatherine J. SerafinHOWREY, SIMON, ARNOLD & WHITE1299 Pennsylvania Avenue, NWWashington, DC 20004-2402Telephone: (202) 383-7485Facsimile: (202) 383-0800E-mail: [email protected]
Counselfor Goodrich Corporation
Dennis J. BartekNatalie M. NieseBARTEKLAW OFFICE2300 East Market Street, Suite EAkron, OH 44312Telephone: (330) 784-8580Facsimile: (330) 784-8434E-mail: [email protected]
Counsel for Certain London Market Insurers
Laura A. FogganLena MirilovicWILEY REIN LLP1776 K Street, N.W.Washington, D.C. 20006Telephone: (202) 719-7000Facsimile: (202) 719-7207E-mail: [email protected]
Counsel for Amicus Curiae Complex InsuranceClaims Litigation Association
Irene C. Keyse-WalkerSusan M. AudeyTUCKER ELLIS & WEST LLP1150 Huntington Building925 Euclid AvenueCleveland, OH 44115-1414Telephone: (216) 592-5000Facsimile: (216) 592-5009E-mail: [email protected]
Robert V.P. Waterman, Jr.Thomas D. WatermanLANE & WATERMAN LLP220 North Main Street, Suite 600Davenport, IA 52801-1987Telephone: (563) 324-3246Facsimile: (563) 324-1616E-mail: [email protected]
Counsel for Commercial Union InsuranceCompany
Michael J. BaughmanCOHN BAUGHMAN & MARTIN333 W. Wacker Dr., Suite 900Chicago, IL 60606Telephone: (312) 753-6600Facsimile: (312) 753-6601E-mail: [email protected]
Daniel CarterJeffrey RupleBUCKLEY KING
1400 Bank One Center600 Superior Ave.Cleveland, OH 44 1 1 4-2652Telephone: (216) 363-1400Facsimile: (216) 579-1020E-mail: [email protected]
Counsel for Century Indemnity Company, assuccessor to CIGNA Specialty InsuranceCompany, formerly known as California UnionInsurance Company, and as successor to CCIInsurance Company, as successor to InsuranceCompany of North America
TABLE OF CONTENTS
TABLE OF CONTENTS ................................................................................................................. i
INTEREST OF AMICUS CURIAE ................................................................................................1
EXPLANATION OF WHY THIS CASE IS A CASE OF PUBLIC OR GREAT GENERALINTEREST ...........................................................................................................................2
STATEMENT OF THE CASE AND FACTS .................................................................................3
ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW ........................................................3
Proposition of Law No. I: A policvholder cannot establish coveraee underthe "sudden and accidental" exception to the pollution exclusion if itfails to carry its burden of proving the damage attributable to suddenand accidental events . ............................................................................................3
Proposition of Law No. II: Consistent with established Ohio law reauirins apolicyholder to fill the stap between a settlement amount and theprimary policy's limits before seeking coverage from excess insurers,and with Goodyear Tire & Rubber Co. v. Aetna Casualty & Surety Co.,2002-Ohio-2842, a non-settling insurer is entitled to set-offs forsettlements that the policyholder obtained from primary and otherexcess insurers . .................. .....................................................................................8
Proposition of Law No. III: Under Ohio's "reasonable justification"standard , a policyholder's bad faith claim will go forward only if therecord shows no circumstances that could be viewed as creating areasonable iustiffcation for the insurer's action . ..............................................13
CONCLUSION ..............................................................................................................................15
INTEREST OF AMICUS CURIAE
Pursuant to Ohio Supreme Court Rule III, § 5, the Complex Insurance Claims Litigation
Association ("CICLA") files this amicus curiae memorandum in support of jurisdiction. CICLA
is a trade association of major property and casualty insurers. CICLA members have entered
into liability insurance contracts in Ohio, and throughout the nation, containing provisions
similar or identical to those at issue in this appeal. Through amicus curiae participation, CICLA
seeks to assist courts in determining important questions of insurance contract interpretation.
CICLA has a unique perspective on the issues presented and respectfully submits that this
Court should accept jurisdiction of this case. This case involves important questions regarding
the "sudden and accidental" exception to the pollution exclusion, the appropriate rule for
settlement set-offs in long tail cases and the standard for an insurer's bad faitli liability under
Ohio law. The lower courts' rulings on these issues conflict with longstanding precedent from
this Court, as well as other Ohio decisions and courts nationwide. The decision also conflicts
with Ohio rules of insurance contract interpretation and public policy as expressed by the courts
in this State. Given the importance of preserving well-settled principles of insurance contract
interpretation and establishing guidance on important recurring insurance issues, CICLA is
vitally interested in this case. I
1 CICLA submits this amicus curiae brief on behalf of the following member companies: Chubb& Son, A Division of Federal Insurance Company; Liberty Mutual Insurance Company; and TIGInsurance Company. This brief is not submitted on behalf of member companies AmericanInternational Group Insurance Companies and Arrowpoint Capital Corporation (formerly Royal& SunAlliance USA, Inc.), whose members or affiliates are or were parties to this case, or onbehalf of The Travelers Indemnity Company and Travelers Casualty and Surety Company.
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EXPLANATION OF WHY THIS CASE IS ACASE OF PUBLIC OR GREAT GENERAL INTEREST
This case presents at least three questions of significant general interest.2 First, this case
presents the question of the policyholder's burden of proof in establishing coverage under the
"sudden and accidental" exception to the pollution exclusion. The appellate court ruled that
there was coverage for all alleged datnage under the "sudden and accidental" exception even
though the policyholder failed to prove what portion of the underlying damage is attributable to a
few isolated sudden discharges of pollutants, as opposed to decades of gradual discharges of
pollutants. This Court should accept jurisdiction of this case to reaffirm that, under Ohio law,
coverage under the "sudden and accidental" exception to the pollution exclusion is limited to
damage that is directly attributable to "sudden and accidental" spills. This Court's guidance is
also needed to clarify that, under established law concerning the burden of proof, an insured's
failure to establish the amount of covered damage precludes coverage under the exception.
Second, this case presents the issue of the proper rule for set-offs avaifable to non-settling
insurers for settlement payments made by other insurers for long-tail claims involving damage or
injury occurring over many years and implicating numerous insurers and policies. Although the
policyholder received $55.8 million in settlements with other insurers, including lower level
excess insurers, the trial court in this case did not allow the non-settling insurers any set-off
beyond the $20 million limit of the primary policy. Under Ohio law, a policyholder must fill the
gap between the limits of underlying settled policies and non-settling excess policies. In
addition, this result would conflict with the approach that this Court adopted in Goodyear Tire &
Rubber Co. v. Aetna Casualty & Surety Co., 95 Ohio St.3d 512, 2002-Ohio-2842, 769 N.E.2d
2 Although this appeal raises several additional issues, CICLA addresses only those concerningthe sudden and accidental exception to the pollution exclusion, settlement set-offs, and bad faith.
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835, which permitted an "all sums" allocation, subject to a "chosen" or "targeted" insurer's
ability to seek contribution from other insurers. This Court should take jurisdiction of this case
to clarify the proper rule for settlement set-offs in the context of long-tail claims.
Third, this case presents the issue of the proper standard for bad faith claims against
insurers. The trial court improperly expanded the scope of bad faith claims against insurers
under Ohio law by allowing the insured's bad faith claim to be considered by the jury despite
evidence that the insurer had multiple reasonable grounds to decline coverage. Consistent with
longstanding Ohio law, the appellate court should have vacated the bad faith judgment because
there was "reasonable justification" for the insurer's denial of coverage. This Court's guidance
is also needed on this issue to restore uniformity in Ohio law.
STATEMENT OF THE CASE AND FACTS
CICLA adopts and incorporates by reference the facts set forth in the Memorandum in
Support of Jurisdiction filed by Commercial Union Insurance Company and in the Memorandum
in Support of Jurisdiction filed by Certain London Market Insurers.
ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW
Proposition of Law No. I: A policyholder cannot establish coverage under the"sudden and accidental" exception to the pollution exclusion if it fails to carry itsburden of proving the damage attributable to sudden and accidental events.
The policyholder in this case has identified only isolated events in its more than 50-year
history that arguably involved "sudden and accidental" discharges of pollution within the scope
of the "sudden and accidental" exception to the pollution exclusion. Moreover, the policyholder
has been unable to establish the amount of property damage attributable to these events.
Nevertheless, the lower courts held that the policyholder was entitled to full indemnity for its
routine pollution-related activities. If allowed to stand, the effect of this ruling would be to
eviscerate Ohio precedent establishing a policyholder's burden to prove coverage under an
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insurance policy. It also would effectively negate the pollution exclusion in the policyholder's
insurance agreement. This Court should take jurisdiction of this case to clarify that settled
principles governing contract law and burden of proof preclude this result.
The lower courts ruled in this case that coverage existed under the policies for all alleged
property damage simply because the policyholder had identified isolated "sudden and
accidental" polluting events that arguably fell within the exception to the pollution exclusion.3
The lower courts' rulings on this issue conflict with established Ohio law, which places the
burden on the plaintiff to prove the existence and extent of its damages. See, e.g., Broadvue
Motors, Inc. v. Chief of Police (8th Dist. 1999), 135 Ohio App.3d 405, 410, 734 N.E.2d 417
(holding that, under Ohio law, a plaintiff "bears the burden of proving damages," which "must be
shown with a reasonable degree of certainty" because "[a] plaintiff may not recover speculative
damages"). Likewise, Ohio courts hold that, under a general liability insurance policy that
contains a pollution exclusion, "[t]he burden is upon the policyholder to establish that the
exception to the pollution exclusion is applicable." U.S. Indus., Inc. v. Ins. Co. of N. Am. (9th
Dist. 1996), 110 Ohio App.3d 361, 366, 674 N.E.2d 414; accord Plasticolors, Inc. v. Cincinnati
Ins. Co. (11th Dist. 1992), 85 Ohio App.3d 547, 620 N.E.2d 856 ("the burden is upon the
[policyholder] to establish that the exception to the pollution is applicable"); M& MMetals Int'l,
Inc. v. Cont'l Cas. Co., lst Dist. Nos. C-06055 1, C-060571, 2008-Ohio-1114 (same). Although
the policyholder in this case does not expressly seek to overturn this precedent, acceptance of its
3 Ohio courts recognize that the pollution exclusion bars coverage whenever a policyholderregularly discharges pollutants as part of its routine business operations, as happened in theinstant case. See Employers Ins. of Wausau v. Amcast Indus. Corp. (2d Dist. 1998), 126 OhioApp.3d 124, 130, 709 N.E.2d 932 (affirming summary judgment on the pollution exclusionwhere contamination resulted from "multiple releases occurring over a period of years, which,collectively, could not be considered sudden and accidental."); Hybud Equip. Corp, v. SphereDrake Ins. Co. (1992), 64 Ohio St.3d 657, 667, 597 N.E.2d 1096 (no coverage for pollution"related to the operation of' a landfill "over an extended period of time").
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arguments would have the practical effect of doing so. The position that a policyholder has the
burden of proving that a "sudden and accidental" event existed, but does not have the burden of
proving the quantum of damages related to that event, is contradictory and inconsistent with
basic contract and insurance law principles governing proof of damages.
The burden of proving coverage under a general liability insurance policy requires the
policyholder to establish both the existence and the amount of coverage. Accordingly, failure to
prove the amount of damages attributable to a coverage provision is fatal to a claim. See, e.g.,
Golden Eagle Refinery Co. v. Associated Int'l Ins. Co. (2d Dist. 2001), 85 Ca1.App.4th 1300,
1314-15 ("where both covered and not covered events cause damages a failure to differentiate
and allocate is fatal to a claim for indemnity"); Highlands Ins. Co. v. Aerovox Inc. (1997), 2124
Mass. 226, 676 N.E.2d 801 (concluding that the policyholder has the burden of proving that a
"sudden and accidental" release caused an appreciable amount of damage that could be
quantified). This result is consistent with this Court's ruling that coverage under the "sudden and
accidental" exception to the pollution exclusion is limited to damage that is directly attributable
to "sudden and accidental" spills. See Hybud Equip. Corp. v. Sphere Drake Ins. Co. (1992), 64
Ohio St.3d 657, 667, 597 N.E.2d 1096 (no coverage for pollution "related to the operation of' a
landfill "over an extended period of time"); see also, U.S. Indus., Inc., 110 Ohio App.3d at 366
(stating that the "exception covers only those damages caused by an abrupt release"); Sanborn
Plastics Corp. v. St. Paul Fire & Marine Ins. Co. (11th Dist. 1993), 84 Ohio App.3d 302, 314,
616 N.E.2d 988 (holding that the insurer's duty to defend was limited to the one release of
pollutants that appeared to fall under the "sudden and accidental" exception to the pollution
exclusion because "any further extension of the duty to defend would violate the specific
requirements of the policies").
Placing the burden of proving damages on the party seeking recovery is not novel.
Rather, it is black-letter law that a party seeking recovery for breach of contract must prove not
only that the defendant breached the contract, but also the measure of damages caused by that
breach. See, e.g., Arko-Plastics v. Drake Indus. (11th Dist. 1996), 115 Ohio App.3d 221, 226,
685 N.E.2d 246 (stating that the party seeking damages in a breach of contract action "bears the
burden of proving the nature and extent of his damages in order to be entitled to compensation").
Indeed, it is prudent and appropriate to place this burden on a policyholder, as opposed to the
insurer, because the policyholder has the best access to the relevant evidence. See, e.g., JE. on
Behalf of G.E. v. State Dept. ofHuman Servs. (1993), 131 N.J. 552, 569-70, 622 A.2d 227
("burdens of persuasion and production [are generally imposed] on the party best able to satisfy
those burdens ... the party with ... access to relevant information should bear those evidentiary
burdens."); Fireman's Fund Ins. Cos. v. Ex-Cell-D Corp. (E.D. Mich. 1988), 702 F. Supp. 1317,
1328 (holding that "[i]t would impose an undue burden on [the insurer] to require it to ferret out
evidence" of the nature of the insured's polluting activities at "twelve sites in four states over a
period of seven years"); 2 Kenneth S. Broun, et al., McCormick on Evidence 428-29 (4th ed.
1992) ("[W]here the facts with regard to an issue lie peculiarly in the knowledge of a party, that
party has the burden of proving the issue.").
In conflict with these settled principles, the lower courts here allowed the policyholder to
recover all of its loss simply by pointing to a few "sudden vid accidental" events that occurred
during long-standing and routine pollution, and without proving the extent of damages associated
with these allegedly covered events. Upholding this ruling would turn the law of damages on its
head by placing the burden on the insurer to prove a negative-the amount of a policyholder's
damages that was not caused by such events. Moreover, the lower court's approach has the
practical result of shifting the burden of proof from the insured to the insurer. That approach-
as demonstrated by the results below-renders the established burden of proof meaningless and
effectively negates the application of the exclusion.
The appellate court also inappropriately grafted a theory of "concurrent causation" onto
the policies to create coverage for the policyholder's pollution-related liabilities, despite its
failure to carry its burden of establishing coverage. Contrary to the policyholder's suggestion,
Ohio courts have not previously applied a theory of "concurrent causation" to avoid application
of a pollution exclusion in a liability insurance policy.4 There is good reason for this-applying
a"concurrent causation" scheme would allow policyholders to obtain coverage for decades of
routine polluting, irrespective of a pollution exclusion that bars coverage, by pointing to one
isolated accidental discharge of pollutants. This Court should not allow policyholders to rewrite
the terms of bargained-for insurance contracts in this manner. See, e.g., Hybud, 64 Ohio St.3d at
665 ("if the language of the policy's provisions is clear and unambiguous, this court may not
`resort to construction of that language"') (citation omitted).
Moreover, the purpose behind the "sudden and accidental" exception to the pollution
exclusion supports the straightforward enforcement of its terms. As this Court has recognized,
enforcement of the exclusion "encourages diligence by placing the financial burden for gradual
or long-term pollution upon the entity best able to foresee and stop it." Id. at 667; accord Waste
Mgmt of Carolinas, Inc. v. Peerless Ins. Co. (1986), 315 N.C. 688, 697, 340 S.E.2d 374. In
4 The policyholder's and appellate court's rationale for applying a concurrent cause theory reliesalmost exclusively on first-party property coverage cases that bear no relevance to this third-party liability case. See, e.g., Standard Fire Ins. Co. v. Spectrum Cmty. Ass'n (4th Dist. 2006),141 Cal.App.4th 1117, 1136 (noting that "attempting to apply principles of first party propertyinsurance contract interpretation to third party liability insurance contracts" is like "mixingapples and oranges"); PortAuth. ofN.Y. & N.J. v. AffiliatedFMIns. Co. (3d Cir. 2002), 311 F.3d226, 233 ("The fundamental differences between [third-party] liability policies and first-partycontracts make the multitude of appellate court opinions in [liability cases] unhelpful inresolving the issues presented in this [first-party property] case.").
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contrast, if the exclusion is not enforced, "insureds will be tempted (at the margin) to engage in
harm-generating (or reckless) behavior." Charter Oil Co. v. Am. Employers' Ins. Co. (D.C. Cir.
1995), 69 F.3d 1160, 1166. The public has a stake in preserving disincentives for pollution.
Thus, sound policy supports application of the pollution exclusion-generally, and in this case-
to decrease the risk of preventable pollution.
For these reasons, this Court should grant jurisdiction in this case to clarify the
policyholder's burden of establishing the existence and amount of coverage under the "sudden
and accidental" exception to the pollution exclusion.
Pronosition of Law No. II: Consistent with established Ohio law requiring a policyholderto fill the gap between a settlement amount and the primary policy's limits before seekingcoverage from excess insurers, and with Goodyear Tire & Rubber Co. v. Aetna Casualty &Surety Co., 2002-Ohio-2842, a non-settling insurer is entitled to set-offs for settlements thatthe policyholder obtained from primary and other excess insurers.
The lower courts denied the non-settling excess insurers any set-off beyond the $20
million limit of the primary policy, although the policyholder settled with a number of primary
and lower-level excess insurers. Yet Ohio law requires a policyholder to fill the gap between a
settlement amount and any underlying policy's limits before seeking coverage from its excess
insurers. Further, the premise of the "all sums" allocation method this Court applied in
Goodyear Tire & Rubber Co. v. Aetna Casualty & Surety Co. 2002-Ohio-2842, depends on a
"chosen" or "targeted" insurer's ability to seek contribution from other insurers. If upheld, the
appellate court's decision would encourage policyholders in long-tail cases, involving damage or
injury occurring over many years and implicating numerous insurers and policies, to strategically
settle with certain insurers and then seek windfall "all sums" judgments against remaining non-
settling insurers. This Court's guidance on the difficult allocation questions that can arise from
settlements in long tail claims would be valuable to both policyholders and insurers.
Under Ohio law, if a policyholder settles with a primary insurer for less than the full
limits of that insurer's policies, the policyholder must itself fill the gap between the settlement
amount and the primary policy's limits before seeking coverage from its excess insurers. See,
e.g., Fulmer v. Insura Prop. & Cas. Co. (2002), 94 Ohio St.3d 85, 95-97, 760 N.E.2d 392
(holding that an insured satisfies the exhaustion requirement of her underinsured rnotorist
coverage by receiving "any" settlement offer from the tortfeasor's insurer and retaining the right
to proceed against her own insurer "for those amounts in excess of the tortfeasor's available
policy limits"); Triplett v. Rosen (Dec. 29, 1992), 10th Dist. Nos. 92AP-816, 92AP-817, 1992
WL 394867, at *7 ("Since [the excess insurer] contractually agreed to be liable only for amounts
in excess of the underlying insurance company's policy liniits, [the excess insurer's] position is
not affected by any settlement agreement between the plaintiffs and the primary insurance
carrier."). 5 Consistent with this principle, excess insurers are entitled to a set-off in the amount
of the policy limits of any underlying coverage. Thus, in GenCorp, Inc. v. AIUInsurance Co.
(N.D. Ohio 2003), 297 F. Supp. 2d 995, 999, aff'd (6th Cir. 2005) 138 Fed. App'x 732, the
federal district court, applying Ohio law, held that the non-settling excess insurers' policies were
not triggered where the policyholder's maximum liability for environmental contamination did
not exceed the full policy limits of all settled underlying policies;6 accord Koppers Co. v. Aetna
5 Ohio courts have repeatedly recognized that an excess insurer has no obligation to providecoverage until the limits of the primary insurance has been exhausted, even where the primaryinsurer has become insolvent. See, e.g., Revco D.S., Inc. v. Gov't Employees Ins. Co. (N.D. Ohio1991), 791 F. Supp. 1254, 1264-69, aff'd, (6th Cir. 1992), 968 F.2d 1216; Wurth v. Ideal Mut.Ins. Co. ( 12th Dist. 1987), 34 Ohio App.3d 325, 327-28, 518 N.E.2d 607.
6 The GenCorp court expressly held that it was not determining whether "settlement credits," a"term of art" from "the law of other states," were allowed under Ohio law. Id at 1001. Instead,it phrased the matter as whether or not the policyholder's excess insurance policies weretriggered. The conceptual issue is the same, however, as either excess insurers must be allowed"credits" or "set-offs" for the full limits of settled policies in underlying layers or thepolicyholder must be required to exhaust its underlying coverage in each settled policy yearbefore triggering its excess policies.
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Cas. & Sur. Co. (3d Cir. 1996), 98 F.3d 1440, 1454 (acknowledging "the widely-followed rule
that the policyholder may recover on the excess policy for a proven loss to the extent it exceeds
the primary policy's limits"); Stonewall Ins. Co. v. Nat'l Gypsum Co. (S.D.N.Y. Mar. 4, 1992),
No. 86 Civ. 9671, 1992 WL 47363, at * 1(explaining that, "should any contribution from [the
settling insurer] be required, the insurers will have the right to deduct from their payments to [the
policyholder] the amount, if any, that would have been required from [the settling insurer] before
the settlement agreement took effect").
Applying set-offs is fully consistent with this Court's holding in Goodyear that:
[f]or each site, [the policyholder] should be permitted to choose,from the pool of triggered primary policies, a single primary policyagainst which it desires to make a claim. In the event that thispolicy does not cover [the policyholder's] entire claim, then [thepolicyholder] may pursue coverage under other primary or excessinsurance policies.
Goodyear, 2002-Ohio-2842, at ¶ 12. Although Goodyear suggests that a policyholder may
choose which policy may be responsive to a claim, the decision does not allow the policyholder
to make one choice for purposes of collecting settlements from insurers in underlying coverage
layers and then switch to a different choice when pursuing excess insurers in order to gain a
tactical advantage and monetary windfall. Accordingly, the GenCorp court applied Goodyear to
find that a policyholder that contends that all of its primary and umbrella-layer insurers are
responsible for its environmental liabilities, and then settles and releases virtually all of them
from all liability under their policies, has chosen to apply its liabilities across multiple policy
years, rather than a single year. 297 F. Supp. 2d at 1007. Likewise, the policyholder in this case
made its choice to broadly allocate its liabilities by settling with a majority of its insurers. It
should not now be allowed to assert a contradictory position and target a single non-settling
insurer for "all sums" coverage, notwithstanding its settlements with other insurers.
In fact, the lower court's ruling in this case is inconsistent with both its own purported
reasoning and this Court's decision in Goodyear. This Court justified its "all sums" conclusion
in Goodyear, in part, by explaining that targeted insurers may "obtain[ ] contribution from other
applicable primary insurance policies as they deem necessary." Goodyear, 2002-Ohio-2842, at
¶ 11; see also Keene Corp. v. Ins. Co. ofN. Am. (D.C. Cir. 1981), 667 F.2d 1034, 1050
(explaining that "[w]hen more than one policy applies to a loss, the `other insurance' provisions
of each policy provide a scheme by which the insurers' liability is to be apportioned"). Yet,
because the policyholder's other primary, umbrella and excess insurers have already settled, no
contribution action against them may be possible. See, e.g., Rumpke Sanitary Landfill, Ine. v.
Motorists Mut. Ins. Co. (Jan. 20, 1993), Hamilton Ct. Com. Pl. No. A9101617, slip op. at 1-2,
unreported (granting settled insurers' motions to dismiss with prejudice cross-claims for
contribution or indemnity filed against them by non-settling insurers); Koppers, 98 F.3d at 1453
("such an action would defeat the finality of the settlement").7 Unless the policyholder stands
behind the amounts it voluntarily compromised, targeted insurers are left unfairly "holding the
bag." This Court should accept review and adopt the well-reasoned approach of GenCorp,
which is fully consistent with Ohio law and applies a set-off for the limits of each settled policy.
7 A set-off of the settled insurer's limits is necessary to ensure a non-settling insurer is not forcedto pay amounts properly allocable to a settled insurer without any recourse. A claim against thesettled insurer would only serve to increase litigation and eliminate incentives to settle. If asettled insurer were forced to litigate a contribution action, then it would be litigating the verydefenses and issues that it sought to avoid through settlement. Likewise, in the absence of a set-off rule, non-settling insurers might be forced to object to proposed settlements between thepolicyholder and its other insurers to protect their future contribution rights, thus hindering thesettlement process. In contrast, a set-off rule helps to decrease litigation, promote appropriatesettlements and avoid the potential for collusive settlements. See, e.g., Koppers, 98 F.3d at 1453-54 ("Courts have adopted this rule because it encourages settlement and allows the insured toobtain the benefit of its bargain with the excess insurer, while at the same time preventing theinsured from obtaining a double recovery.").
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Here, the lower court myopically focused on the irrelevant issue of whether the non-
settling insurers were required to prove what amount of the policyholder's settlements with other
insurers encompassed the "same damages" alleged in the policyholder's complaint. As the
GenCorp court recognized, a notice of settlement or voluntary dismissal from the litigation
indicates that at least some portion of a settlemeit pertained to the litigation. See 297 F. Supp.
2d at 998. Accordingly, the GenCorp court applied set-offs in the amount of the settled policies'
limits without inquiring into the precise scope of the settlement agreements. See id. (noting the
policyholder settled with its primary insurers for "undisclosed amounts" and that
"[c]onfidentiality agreements prevent disclosure of the terms of these settlements"). This
approach ensures that insureds must accept both the benefits and risks of voluntary settlement.
In contrast, the lower court's ruling encourages policyholders to characterize their
settlement payments in a strained manner to maximize their ability to collect from other insurers,
turning the settlement agreement into a tactical document for strategic use in subsequent
litigation. Indeed, this is precisely what appears to have happened here. The policyholder
argued, and the lower courts concluded, that the policyholder did not receive a "double recovery"
because the jury's determination of damages against the appellants was arguably not for the
"same damages" encompassed by the settlements.$ The settlements, however, pertained only to
release of one type of pollutant at one site, and most were directly prompted by the coverage
litigation initiated by the policyholder.
8 In fact, upholding the result in the court below would allow the policyholder to walk away withmore than double its actual damages, an unjust reward for its environmental contamination. SeeHybud, 64 Ohio St. 3d at 667 (holding that, as a matter of public policy, polluters should notprofit from their conduct at the expense of insurers); 15 Couch on Insurance (3d Ed. 2005)§ 217:1 (explaining that policyholders are not "entitled to recover twice for the same loss"because "insureds should not be encouraged to cause or increase a loss by the fact that they willprofit due to multiple recovery").
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This Court should take jurisdiction of this case to clarify the appropriate rule for
settlement set-offs under Ohio law. In particular, this Court should clarify that Goodyear does
not change a non-settling insurer's right to a set-off to account for the share of liability properly
allocable to any settled policies.
Proposition of Law No. III: Under Ohio's "reasonable justification" standard, apolicyholder's bad faith claim will go forrvard only if the record shows nocircumstances that could be viewed as creating a reasonable justification for theinsurer's action.
The lower courts improperly expanded the scope of bad faith claims against insurers
under Ohio law by allowing the policyholder's bad fa.ith claim to be considered by the jury
despite the various reasonable coverage defenses raised by Commercial Union. This result is
inconsistent with established Ohio law holding that a policyholder's bad faith claim will not
survive where the insurer had a "reasonable justification" for its actions. If upheld, the ruling
would generate uncertainty for insurers, which are often required to interpret and apply unsettled
areas of the law in making coverage determinations. This Court's guidance is needed to reaffirm
settled Ohio law on this issue.
In Ohio, it is "well established that an allegation of bad faith made against an insurance
carrier for its handling a claim for coverage will survive only if the record shows that there were
no circumstances in the case which could be viewed as creating a reasonable justification for that
carrier's actions." Addington v. Allstate Ins. Co. (9th Dist. 2001), 142 Ohio App.3d 677, 680,
756 N.E.2d 750 (citing Zoppo v. Homestead Ins. Co. (1994), 71 Ohio St.3d 552, 644 N.E.2d
397); see also Morland v. Allstate Ins. Co. (Feb. 3, 2000), 7th Dist. No. 266, 2000 WL 184600,
at * 3("[T]he very factual dispute that operated to get [the insureds] breach of contract claim to
the jury also operated to preclude his bad faith claim."); Tokles & Son, Inc. v. Midwestern Indem.
Co. (1992), 65 Ohio St.3d 621, 605 N.E.2d 936. The reasonableness of the insurer's
determination must be judged against the circumstances as they existed when the insurer made
its decision, not through the application of "20-20 hindsight." Although an insurer's denial of
coverage may eventually turn out to have been incorrect, the wrongful denial does not provide a
basis for a bad faith claim unless the insurer's actions were "arbitrary or capricious." See, e.g.,
Hoskins v. Aetna Life Ins. Co. (1983), 6 Ohio St.3d 272, 277, 452 N.E.2d 1315.
There are sound reasons for the application of such a rule. When making coverage
determinations, insurers are often required to interpret and apply unsettled areas of the law. The
prevalence of insurance-based declaratory judgment actions in Ohio and elsewhere, along with
the varying conclusions by courts in those actions, exemplifies the fact that reasonable entities
often reach differing conclusions about an insurer's coverage obligations. If, however, insurers
could be found liable for extra-contractual obligations simply for making a reasonable mistake in
determining coverage, insurers would face a "strict liability" of sorts with respect to their claims
handling practices. Any time an insurer denied coverage, the insurer would face a risk that the
denial was wrongful and therefore in bad faith. This would harm the insurance mechanism and,
ultimately, the public.
Expanding insurers' risk of bad faith liability would adversely affect the integrity of the
insurance underwriting process as a whole. Insurance can cover risks, even very large ones, that
can be actuarially predicted over a large number of insureds, See N. River Ins. Co. v. Cy
Thompson Transp. Agency, Inc. (lst Cir. 1988), 840 F.2d 139, 142 (recognizing that coverage is
tailored to the risks defined in the insurance policy). If an insurer risked liability for bad faith
every time coverage was uncertain due to reasonable issues of law or fact, this would
dramatically alter the risks assumed under the policy. Ultimately, this could affect the
affordability and availability of insurance.
Here, Commercial Union based its coverage denial on a number of coverage defenses,
including late notice, no "occurrence," non-exhaustion of primary coverage and the pollution
exclusion, B.F. Goodrich Co. v. Commercial Union Insurance Co. (Dec. 19, 2001), Summit Ct.
Com. Pl. No. 1999 02 0410, 2001 WL 1692410, at * 1, that involve complicated issues of law
and for which insurers and policyholders routinely reach reasonable-but differing-
conclusions. Indeed, Commercial Union's motion for summary judgment on the issue of late
notice was granted by the Court of Common Pleas, but reversed by the appellate court on the
grounds that it presented issues of fact for the jury. B.F. Goodrich Co. v. Commercial Union Ins.
Co., 9th Dist. No. 20936, 2002-Ohio-5033, at ¶ 36. Moreover, the parties' motions for directed
verdicts with respect to Commercial Union's other coverage defenses were also denied on the
basis that there were factual issues for the jury to decide. See Commercial Union Brief on
Appeal at 6-7 (citing Transcript p. 3529-3 1). These rulings establish that there was a "reasonable
justification" for asserting these coverage defenses. Allowing the policyholder's bad faith claim
against Commercial Union to go forward would vitiate the "reasonable justification" doctrine in
Ohio. Accordingly, this Court should accept jurisdiction to clarify longstanding Ohio law on the
"reasonable justification" doctrine.
CONCLUSION
For all of the reasons set forth above, this Court should accept jurisdiction to review the
decision of the Ninth Appellate District.
Ann Marie O'Brien (Ohio Bar # 0055508)DAVIS & YouNcOne Cascade Plaza, Suite 800Akron, OH 44308Telephone: (330) 376-1717Facsimile: (330) 376-1797E-mail: [email protected]
Laura A. FogganLena MirilovicWILEY REIN LLP1776 K Street, N.W.Washington, D.C. 20006Telephone: (202) 719-7000Facsimile: (202) 719-7049E-mail: [email protected]
Counsel for Amicus Curiae ComplexInsurance Claims Litigation Association
CERTIFICATE OF SERVICE
I certify that a copy of this Memorandum in Support of Jurisdiction of Amicus Curiae
Complex Insurance Claims Litigation Association has been served this'VIILday of August, 2008
by U.S. Mail, postage prepaid, upon the following:
Paul A. Rose
Sallie Conley LuxBROUSE MCDOWELL388 South Main Street, Suite 500Akron, OH 44311
Andrew M. ReidyCatherine J. SerafmHOWREY, SIMGN, ARNOLD & WHITE
1299 Pennsylvania Avenue, NWWashington, DC 20004-2402
Irene C. Keyse-WalkerSusan M. AudeyTUCKER ELLIS & WEST LLP
1150 Huntington Building925 Euclid AvenueCleveland, OH 44115-1414
Robert V.P. Waterman, Jr.Thomas D. WatermanLANE & WATERMAN LLP220 North Main Street, Suite 600Davenport, IA 52801-1987
Counsel for Goodrich Corporation
Dennis J. BartekNatalie M. NieseBARTEK LAW OFFICE2300 East Market Street, Suite EAkron, OH 44312
Counsel for Certain London Market Insurers
Counsel for Commercial Union InsuranceCompany
Michael J. BaughmanCGHN BAUGHMAN & MARTIN333 W. Wacker Dr., Suite 900
Chicago, IL 60606
Daniel CarterJeffrey RupleBUCKLEY KING
1400 Bank One Center600 Superior Ave.Cleveland, OH 44114-2652
Counsel for Century Indemnity Company, assuccessor to CIGNA Specialty InsuranceCompany, formerly known as California UnionInsurance Company, and as successor to CCIInsurance Company, as successor to InsuranceCompany of North America
Ann Marie (YBrien (Ohio Bar # 0055508)DAVIS & YOUNG
One Cascade Plaza, Suite 800Akron, OH 44308Telephone: (330) 376-1717Facsimile: (330) 376-1797E-mail: [email protected]
Counsel for Amicus Curiae ComplexInsurance Claims Litigation Association