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CNH Industrial America LLC v. American Casualty Co. of Reading

Superior Court of Delaware

April 6, 2017

CNH INDUSTRIAL AMERICA LLC, Plaintiff,
v.
AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, et al. Defendants.

          Submitted: December 20, 2016

          Brian M. Rostocki, Esquire, and John C. Cordrey, Esquire, Reed Smith LLP, Wilmington, Delaware and James M. Davis, Esquire, Thomas A. Marrinson, Esquire, Evan T. Knott, Esquire, and Emily E. Garrison, Esquire, Reed Smith LLP, Chicago, Illinois. Attorneys for CNH Industrial America LLC.

          Neal J. Levitsky, Esquire, and Seth A. Niederman, Esquire, Fox Rothschild LLP, Wilmington, Delaware and Richard L. McConnell, Esquire, and Michael J. Gridley, Esquire, Wiley Rein LLP, Washington, DC. Attorneys for Travelers Indemnity Company.

          THE COURT'S DECISION ON DAMAGES

          ERIC M. DAVIS, JUDGE.

         I. INTRODUCTION AND BACKGROUND

         This is an insurance coverage case assigned to the Complex Commercial Litigation Division of the Court. Plaintiff CNH Industrial America LLC ("CNH") filed a declaratory relief and breach of contract case against several insurance companies, including Travelers Indemnity Company ("Travelers"). CNH's complaint alleges Travelers breached its duty to defend and indemnify CNH in underlying asbestos-related lawsuits.

         The Court has issued numerous decisions in this case. Among these, the Court has held that: (1) Wisconsin law applied to the policies;[1](2) CNH was the policies' proper assignee under 1994 reorganization agreements;[2] (3) Travelers has a duty to defend CNH;[3] (4) Travelers's July 6, 2015, payments extinguished applicable policy limits on the policies;[4] and (5) Travelers's conduct constituted a waiver on the issues of notice and cooperation, and that Travelers's duty to defend did not terminate until Travelers made the July 6, 2015 payment.[5]

         After these decisions, one matter remained open-the amounts Travelers may owe for defense costs incurred by CNH prior to July 6, 2015. Although "one matter, " the question as to what Travelers may owe on defense costs involved hundreds of suits and a multitude of open issues (factual and legal). The parties are well-represented in this litigation. As such, the parties' counsel significantly narrowed the issues before the scheduled trial date.[6] Moreover, the Court addressed some of the open matters at a pretrial conference conducted on November 14, 2016.

         By the date of trial, several issues still remained. First, while the parties had resolved a number of defense cost claims, CNH contends Travelers still owes it defense costs for 211 claims CNH has tendered to Travelers. Travelers disputes that it owes defense costs on the 211 claims, arguing that these claims do not meet the Court mandate for coverage (discussed below). Second, Travelers claims that certain defenses costs sought by CNH are unsubstantiated costs. CNH disagrees and contends that it has sufficient information to support the costs. Third, the parties cannot agree on whether the invoices submitted by Moran Reeves & Conn PC ("Moran Reeves") are reimbursable defense costs. Fourth, Travelers seeks production of CNH's settlement (the "CNA Settlement") with the CN A Defendants ("CNA"), a dismissed set of insurers in this case.[7] Travelers wants access to the CNA Settlement in order to determine what CNA paid as defense costs in order to establish set-off rights and prevent CNH from obtaining what Travelers considers an impermissible double recovery.

         The Court held a one-day trial in this civil action on December 12, 2016. The Court then had the parties submit supplemental memoranda on equitable set-off under Wisconsin law. The Court received the final post-trial paper on December 20, 2016. This is the Court's decision after trial.

         II. APPLICABLE LAW

         Wisconsin takes a four-corners' approach to determining the duty to defend-i.e., the duty to defend an insured is determined by comparing the allegations of the complaint to the terms of the insurance policy.[8] The duty to defend is based upon the nature of the claim and not the merits of the claim.[9] The duty to defend is based solely on the allegations "contained within the four corners of the complaint, " without resort to extrinsic facts or evidence.[10] The allegations of the complaint are to be construed liberally because "the duty to defend is triggered by arguable, as opposed to actual, coverage."[11] The Court is to resolve any doubt regarding the duty to defend in the insured's favor.[12] An insurer will have a duty to defend even in those situations where the claim against the insured lacks merit, is groundless, or even when the claim is false or fraudulent.[13]An insurer will have a duty to defend the entire suit if even one of the claims made in the lawsuit is covered under the applicable policy.[14]

         The consequences of breaching the duty to defend are substantial and an insurer who declines to defend does so at its peril.[15] Where an insurer improperly refuses to defend, it will be held to have waived any subsequent right to litigate coverage.[16] Wisconsin takes the "harsh view" that "an obligation to pay the entire settlement or judgment is the automatic consequence of a finding of a breach of the duty to defend."[17] An insurer's breach of the duty to defend constitutes "a breach of contract which renders [the insurer] liable to the insured for all damages that naturally flow from the breach."[18] "Damages which naturally flow from an insurer's breach of its duty to defend include: (1) the amount of the ... settlement against the insured plus interest; (2) costs and attorney fees incurred by the insured in defending the suit; and (3) any additional costs that the insured can show naturally resulted from the breach."[19]

         In Wisconsin, breach of contract damages are only recoverable to the extent that they are established to a reasonable degree of certainty.[20] "However, such damages need not be ascertainable with absolute exactness or mathematical precision."[21] The evidence is adequate if it allows the trier of fact to make a fair and reasonable approximation.[22] The party seeking damages bears the burden, by a preponderance of the evidence, of proving the damages to reasonable degree of certainty.[23]

         III. DISCUSSION

         A. Covered and Uncovered Claims

         i. Travelers owed a duty to defend on the following cases.

         The Court has held that Travelers' duty to defend applies to those complaints which either refer to a J.I. Case Company product or do not refer to a brand name.[24] The Court also held that Travelers' duty to defend does not apply to complaints which only refer to International Harvester, New Holland, or another non-J.I. Case Company brand.[25] The Court notes that J.I. Case Company eventually became Case Corporation in 2002 and, in 2004, Case Corporation changed its name to CNH, the plaintiff here.[26]

         As stated above, the parties narrowed their dispute over covered claims to 211 of the 722 cases CNH has forwarded to Travelers. CNH, as the insured, bears the burden of proof to show that the underlying claims triggered Travelers's duty to defend. CNH provided 211 exhibits containing summonses, complaints, and other information for support.[27] The Court has reviewed all of the 211 complaints at issue.

         In 200 cases, [28] the plaintiffs complaint sued CNH as "CNH America LLC, f/k/a CASE International Harvester"[29] or "CNH America LLC, f/k/a CASE New Holland North America, Inc."[30] The Court finds that these complaints do not only refer to International Harvester, New Holland, or another non-J.L Case Company. The complaints make use of liberal notice pleading and are "short" on facts. This works in favor of CNH and against Travelers. Under Wisconsin law, the complaint and its allegations are to be construed liberally and a duty to defend is triggered by "arguable" as opposed to "actual" coverage. Moreover, the Court is to resolve any doubt regarding the duty to defend in CNH's favor. The Court finds these 200 complaints arguably are covered under the relevant policies. Accordingly, the 200 complaints triggered Travelers' duty to defend these suits.[31]

         In five cases (Carson; Devore; Meindl; Raffray, and Slwup), CNH is sued individually as well as a successor-in-interest.[32] These complaints also make generalized allegations against all defendants, making it impossible for the Court to determine exactly why CNH was being sued. The complaints cannot, however, be read to refer to only International Harvester, New Holland or another non-J.I. Case Company brand. As mentioned above, J.I. Case renamed itself CNH as part of its corporate reorganization. The Court finds that these complaints are arguably covered under the Travelers' polices. As such, these five complaints also triggered Travelers's duty to defend under Wisconsin law.

         In Ubry, plaintiff sued Defendant New Holland Agriculture/CNH.[33] As with the other asbestos complaints, the plaintiffs make use of notice pleading and make allegations that, arguably, support a claim against CNH regarding a J.I. Case Company product (read CNH as successor to J.I. Case Company) and/or do not refer to a brand name. In any event, Ubry cannot be read to refer to only International Harvester, New Holland or another non-J.I. Case Company brand. The Court finds that CNH has met its burden of proof to show that Ubry is covered under Wisconsin law. As such, Travelers's duty to defend is triggered.

         ii. Travelers did not owe a duty to defend on the following cases.

         The Court finds that CNH has not met its burden of proof in five cases. The Court finds that two cases, Adam and Reed, did not trigger Travelers's duty to defend because CNH was neither sued individually nor as a successor to Case. In Adam, [34] plaintiff contended that:

Defendant, CNH America LLC, successor to International Harvester Co., manufactured, produced, sold and/or supplied, either directly or indirectly in the geographical area in which Plaintiff worked, and/or to the employers of Plaintiff and/or to the contractors on job sites on which Plaintiff was employed, including but limited to any and all asbestos-containing products.

         In Reed, plaintiff sued CNH America LLC as successor to International Harvester Company for the following:

Defendant, CNH AMERICA LLC (successor to INTERNATIONAL HARVESTER COMPANY) is a corporation doing business in the Commonwealth of Pennsylvania. At all times material hereto, Defendant, CNH America LLC, manufactured, produced, sold and/or supplied, either directly or indirectly in the geographical area in which Plaintiff worked, and/or to the employers of Plaintiff and/or to the contractors on job sites on which Plaintiff was employed, asbestos-containing products, including but not limited to International Harvester Company farm equipment.[35]

         CNH has not met its burden to show that these claims are covered by Wisconsin law. Adam and Reed do not allege liability against a J.I. Case Company product or do not refer to a brand name. The complaints, as written, refer only to International Harvester. In this context, the Court cannot read "any and all asbestos-containing products" in Adam or "asbestos-containing products, including but not limited to International Harvester Company farm equipment" in Reed to relate to any product other than an International Harvester product.

         The Court also finds that CNH has not met its burden of proof to show three cases, Cervenka, Nelson, and Williams, triggered Travelers's duty to defend. In these three cases, the allegations contained in the four corners of the complaints do not mention J.I. Case Company, J.I. Case Company products, or CNH as a successor to J.I. Case Company. If submitted to Travelers, Travelers would have denied coverage as the complaints do not allege even "arguable" coverage. To support its position on December 12, 2016, CNH presented extrinsic evidence. Under Wisconsin law, however, the Court cannot consider such evidence in determining whether the duty to defend was triggered.

         In Cervenka, J.I. Case Company, J.I. Case Company products, or CNH as a successor to J.I. Case Company are not listed in the allegations to the initial complaint filed on November 19, 2006; instead, several Does were listed.[36] CNH attached a later-dated summons January 13, 2009, that was issued to CNH America LLC.[37] CNH did not provide to the Court a copy of the purportedly later amended complaint identifying CNH America LLC.

         In Williams, J.I. Case Company, J.I. Case Company products or CNH as a successor to J.I. Case Company are not listed in the allegations to the initial complaint.[38] Like Cervenka, Plaintiffs listed several Does. A later-dated summons was sent to CNH regarding Case Corporation. CNH did not provide to the Court a copy of the purportedly later amended complaint identifying Case Corporation.

         Last, in Nelson, [39] CNH provided underlying plaintiffs' attorney's affidavit to a Motion to Amend its complaint. In the Affidavit, the attorney states "that upon information and belief, the Decedent, VanRobert Nelson, worked at various job locations where asbestos-containing products of Case New Holland Inc., [etc.] were used."[40] No covered entity was listed in the complaint CNH attached. Moreover, J.I. Case Company, J.I. Case Company products or CNH as a successor to J.I. Case Company are not listed in the allegations in the complaint.

         Read together, coverage could be construed in CNH's favor once the underlying plaintiff found out the identity of one of the numerous Does listed in the complaints, and sued it. Wisconsin law requires a complaint and summons to be issued together.[41] Wisconsin law, however, requires the Court to only look at the complaint. No extrinsic evidence is to be considered. CNH has not attached an amended complaint for the Court's consideration. The Court has not found, nor have the parties supplied, case law suggesting that a summons comprises part of the complaint. At this point, the Court is not in a position to disregard Wisconsin's four-corners' focus. Accordingly, the Court finds that CNH has not met its burden of proof to show that Cervenka, Nelson, and Williams triggered Travelers's duty to defend.

         In sum, 200 cases triggered Traveler's duty to defend because the underlying plaintiffs allege claims against Case; five cases triggered Travelers's duty to defend because CNH is listed as a defendant individually; one case triggered Travelers's duty to defend because it alleged claims against New Holland/CNH, and the Court could not discern from reviewing the four corners which entity the underlying plaintiff sued; and five cases are not covered because CNH has not met its burden of proof to show coverage was triggered. Travelers must reimburse CNH for 206 of the 211 claims.

         B. CNH'S PAYMENTS TO MORAN REEVES ARE RECOVERABLE

         The next category of costs concerns payments CNH made to Moran Reeves. Moran Reeves is an asbestos defense firm which did lead counsel and discovery work for CNH.

         On September 19, 2013, CNH entered into a Flat Fee Agreement with Moran Reeves to serve as CNH's national asbestos discovery counsel.[42] CNH agreed to pay Moran Reeves $21, 350/month to coordinate discovery responses.[43] CNH made its first payment under the Flat Fee Agreement on October 2013.[44] In total, CNH seeks $101, 559.18 that Moran Reeves billed as part of the Flat Fee Agreement. Over the Flat Fee Agreement's lifetime, CNH paid Moran Reeves $493, 450.00.[45]

         CNH attached Flat Fee invoices as Exhibits E and F to the Rohrman Moran Reeves Affidavit.[46] Pursuant to the Flat Fee Agreement, Moran Reeves submitted case-specific invoices to CNH reflecting who worked on the case, what the matter entailed, the attorney's billing rate, and the hours worked.[47] CNH would then zero out that invoice, and notate that the claim was payable pursuant to the Flat Fee.[48]

         In addition, CNH paid Moran Reeves at its hourly rates for all work, including its discovery work, on cases in which Moran Reeves was lead defense counsel.[49] CNH's Pre-Flat Fee Invoices are attached as Exhibit D to the Rohrman Moran Reeves Affidavit.[50] Moran Reeves was lead defense counsel before and after the parties entered into the Flat Fee Arrangement. CNH's Post-Flat Fee Invoices are attached as Exhibits G and H. CNH has provided a spreadsheet showing the: underlying plaintiffs name, the invoice number, the date the invoice was filed, arid the amount of the invoice.[51] ...


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