Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

City of Phoenix v. First State Insurance Co.

United States District Court, D. Arizona

September 2, 2016

City of Phoenix, Plaintiff,
v.
First State Insurance Company; Twin City Fire Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Company, Defendants.

          ORDER

Neil V. Wake Senior United States District Judge.

         TABLE OF CONTENTS

         I. LEGAL STANDARD..............................................................................................1

         II. UNDISPUTED MATERIAL FACTS......................................................................2

         A Asbestos lawsuit against the City..................................................................2

         B. The City's liability insurance........................................................................2

         1. The Hartford's excess policies...........................................................3

         a. Duty to indemnify against liability.........................................3

         b. Duty to pay defense costs, but not to defend..........................4

         2. The Hartford's umbrella policies.......................................................5

         a. Duty to indemnify against liability and defense costs............6

         b. Duty to defend.........................................................................8

         C. The City's communication with The Hartford regarding the asbestos lawsuit ............................................ 9

         III. INTERPRETATION OF THE INSURANCE POLICIES .................................... 11

         A. Excess policies ............................................................................................ 12

         1. The Hartford has no duty to indemnify the City for any of the settlement. . .......................................... 12

         2. The Hartford has no duty to pay any of the City's defense costs because the City settled within its retained limit........ 14

         3. Alternatively, reimbursement of defense costs is allocated across policy periods and no year exceeds the City's retained limit, however calculated. . ......................................................................... 18

         B. Umbrella policies ........................................................................................ 23

         1. The Hartford has no duty to indemnify the City for any of the settlement or defense costs in this case. . ..... 24

         2. The Hartford had no duty to provide a defense. . ............................. 25

         IV. BAD FAITH ........................................................................................................... 27

         A. Processing of claim ..................................................................................... 28

         B. Denial of claim ............................................................................................ 29

         V. EXPERT TESTIMONY ......................................................................................... 30

         VI. MOTION TO TRANSFER .................................................................................... 33

         From 1981 to 1985, Defendants insured the City of Phoenix against liability for bodily injury occurring during that time. The insurance applied only to liability incurred above the City's $500, 000 self-insured retention. In 2013, a third party sued the City for bodily injury caused by asbestos exposure that occurred from 1967 to 1993. The City settled the lawsuit for $500, 000 and spent more than $1, 400, 000 in defense costs. Defendants denied coverage for these expenses. The City claims Defendants violated their policy terms and acted in bad faith.

         Before the Court are Defendants' Motion for Summary Judgment (Doc. 65), the City's competing Motion for Partial Summary Judgment (Doc. 68), and the parties' briefs and statements of facts. For the reasons explained in Parts I-IV below, Defendants' motion will be granted and the City's motion will be denied.

         Also before the Court is Defendants' Motion to Exclude Expert Testimony of Jeffrey Stempel (Doc. 67) and the accompanying briefs. Although summary judgment does not depend on whether Stempel's testimony is admissible, Defendants' motion to exclude will be granted in part, as explained in Part V below.

         Also before the Court is Defendants' Motion to Transfer Related Case (Doc. 78) and the accompanying briefs. For the reasons explained in Part VI below, the motion will be denied.

         I. LEGAL STANDARD

         Summary judgment is proper where there is no genuine dispute about a material fact. Fed.R.Civ.P. 56(a). A material fact is one that “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine dispute of material fact exists where “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

         The movant has the burden of showing the absence of any genuine dispute of material fact. Id. at 256. If that burden is met, the nonmovant must set forth “specific facts showing that there is a genuine issue for trial.” Id. In deciding a motion for summary judgment, the Court must not weigh evidence or make credibility determinations, and must draw all justifiable inferences in the nonmovant's favor. Id. at 255. Where the record, taken as a whole, could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).

         II. UNDISPUTED MATERIAL FACTS

         The following facts are drawn from undisputed portions of the parties' statements of facts (Docs. 66, 69) and attachments thereto.

         A. Asbestos lawsuit against the City

         In April 2013, Carlos Tarazon served a Notice of Claim on the City of Phoenix, alleging he had developed cancer from working for the City with asbestos-laden pipes from 1967 to at least 1993. The Notice offered to settle Mr. Tarazon's claims against the City for $10, 500, 000. After the offer expired, Mr. Tarazon died, and his surviving spouse sued the City and others in state court.

         In November 2014, Ms. Tarazon renewed the $10, 500, 000 settlement offer. Days later, she offered to settle for $7, 000, 000 instead. In April 2015, the City and Ms. Tarazon agreed to settle for $500, 000. The City ultimately spent $1, 486, 031.68 in attorney's fees and costs (collectively, “defense costs”), on top of the settlement payment.

         B. The City's liability insurance

         During the twenty-six years in which Mr. Tarazon was exposed to asbestos, the City was insured under a variety of policies. In the present lawsuit, the City seeks coverage only under policies in place during four of those years: from July 1, 1981 to July 1, 1985. Defendants, the issuers of those policies, are second- and third-tier subsidiaries of The Hartford Financial Services Group. (Doc. 5.) They will be individually and collectively referred to as “The Hartford.”

         The Hartford's policies insured the City against liability incurred above the City's $500, 000 self-insured retention. The self-insured retention was in place of prior primary insurance.[1] The policies were of two types: excess policies and umbrella policies. Excess policies were in place during all four years, and umbrella policies were in place during three of those years. Although policy terms differed slightly from year to year, the basic setup was the same. The policies in place during the first year are representative. (Doc. 69-2 at 2-25; Doc. 69-3 at 28-45.)

         1. The Hartford's excess policies

         Under the excess policies, The Hartford agreed to (1) indemnify the City against liability incurred above $500, 000 but not above $1, 000, 000 and (2) pay a share of the City's defense costs in cases where liability is adjusted for more than $500, 000. Although The Hartford had a right to associate with the City at its own cost in the defense of claims likely to exceed $500, 000, it had no duty to do so.

         a. Duty to indemnify against liability

         According to the declarations page, the excess policies covered “excess liability” above the City's $500, 000 self-insured retention. (Doc. 69-2 at 2.) The self-insured retention was referred to as the “retained limit.” (Id. at 3-4, 14.) In the basic insuring clause, The Hartford agreed to indemnify the City for “ultimate net loss” due to bodily injury liability in excess of the “retained limit”:

. . . [T]he [Hartford] agrees with the [City] and will indemnify the [City] for ultimate net loss in excess of the retained limit hereinafter stated which the [City] shall become legally obligated to pay by reason of liability imposed by law, or liability assumed by contract, insofar as the [City] may legally do so for damages because of . . . bodily injury liability . . . .

(Id. at 3.) “Ultimate net loss” meant settlements or judgments for which the City is liable, including court-awarded fees and costs but excluding loss adjustment expenses:

“Ultimate Net Loss” means the sum actually paid or payable in cash in the settlement or satisfaction of losses for which the [City] is liable either by adjudication or compromise . . . and includes attorney's fees, court costs and interest on any judgment or award, but excludes all loss adjustment expenses and all salaries of employees and office expenses of the [City], [The Hartford] or any underlying insurer so incurred.

(Id. at 10.)

         Coverage extended to liability “caused by an occurrence, during the policy period.” (Id. at 3.) “Occurrence” included “an accident, or event including continuous or repeated exposure to conditions, which results during the policy term, in bodily injury.” (Id. at 9.) Coverage was limited to $500, 000 above the retained limit. (Id. at 2, 14.) The City paid a premium of $132, 060. (Id. at 2.)

         b. Duty to pay defense costs, but not to defend

         The excess policies contained a separate section titled “Defense, Settlement and Supplementary Payments.” (Doc. 69-2 at 3.) This section gave The Hartford the right to associate with the City in defending claims “reasonably likely” to involve The Hartford:

The [Hartford] shall have the right and opportunity to associate with the [City] in the defense and control of any claim or proceeding arising out of an occurrence reasonably likely to involve [The Hartford]. In such event, the [City] and [The Hartford] shall cooperate fully.

(Id.) It also prohibited the City from incurring costs on behalf of The Hartford without its consent, which could not be unreasonably withheld, in defending claims that “appear likely” to exceed the retained limit:

Should any occurrence appear likely to exceed the retained limit, no loss expense or legal expense shall be incurred on behalf of [The Hartford] without its prior consent. Such consent shall not be unreasonably withheld.

(Id.)

         The section also identified two circumstances governing The Hartford's duty to contribute to the City's defense costs. First, as to claims against the City that are “adjusted” for equal to or less than the retained limit, The Hartford would pay no defense costs:

Should any claim arising from such occurrence be adjusted prior to trial court judgment for a total amount not more than the retained limit, then no loss expenses or legal expenses shall be payable by [The Hartford].

(Id.) Second, as to claims against the City that “might be adjusted” for more than the retained limit, The Hartford would pay a share of defense costs in proportion to any liability incurred above the retained limit, with the caveat that the City would pay no more than the retained limit in defense costs:

However, should the total amount for which such claim might be adjusted prior to such judgment exceed the retained limit, then if [The Hartford] consents to further trial court proceedings, it shall contribute to legal expenses in the ratio which its proportion of the liability for the judgment rendered, or settlement made, bears to the whole amount of said judgment or settlement, however in no event shall the [City's] participation in such legal expenses exceed the retained limit . . . .

(Id.) Although The Hartford had a duty in some circumstances to reimburse the City for some costs spent in litigation, it never had a duty to participate in the defense of claims during litigation.

         2. The Hartford's umbrella policies

         Under the umbrella policies, The Hartford agreed to indemnify the City against liability and defense costs incurred above the excess policies' limit, as well as certain other liability and defense costs. The Hartford also had the option to provide a defense or leave it to the City to provide its own defense. Either way, the defense costs incurred by either the City or The Hartford were part of the ultimate net loss that The Hartford must indemnify up to the umbrella policies' limit.

         a. Duty to indemnify against liability and defense costs

         The umbrella policies insured the City in two ways. First, they added a layer of excess insurance, covering types of liability that fell within the scope of the excess policies but exceeded the excess policies' upper limit. For this reason, the declarations page contained a schedule of “Underlying Insurance Policies” that listed the excess policies' $500, 000 limit, which was itself “excess of” the City's $500, 000 self-insured retention. (Doc. 69-3 at 28.) Second, the umbrella policies covered types of liability that fell outside the scope of the excess policies but exceeded a smaller self-insured retention. For this reason, the declarations page listed a separate $25, 000 “self-insured retention.” (Id.)

         Dual coverage is typical of umbrella policies. “Umbrella policies differ from standard excess insurance policies in that they are designed to fill gaps in coverage both vertically (by providing excess coverage) and horizontally (by providing primary coverage).” Commercial Union Ins. Co. v. Walbrook Ins. Co., 7 F.3d 1047, 1053 (1st Cir. 1993). Interpretive issues may relate to one type of coverage but not the other. E.g., Coleman Co. v. California Union Ins. Co., 960 F.2d 1529, 1530 n.1 (10th Cir. 1992) (“The issue before us relates solely to the excess component of the umbrella policy.”).

         Accordingly, in the basic insuring clause, The Hartford agreed to indemnify the City for “ultimate net loss” due to bodily injury in excess of “the underlying limit or ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.