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LLC v. United States Fire Insurance Co.

United States District Court, W.D. Missouri, Southern Division

January 14, 2020

O'REILLY AUTO ENTERPRISES, LLC, Plaintiff,
v.
UNITED STATES FIRE INSURANCE COMPANY, WESTCHESTER SURPLUS LINE INSURANCE COMPANY, CONTINENTAL CASUALTY COMPANY, COLUMBIA CASUALTY COMPANY, Defendants.

          ORDER

          ROSEANN A. KETCHMARK, JUDGE UNITED STATES DISTRICT COURT

         Before the Court is Defendant United States Fire Insurance Company's Motion for Summary Judgment on Count I. (Doc. 184.) The motion is fully briefed. (Docs. 185, 204, 214.) Oral argument on the motion was held on January 9, 2020. (Docket Entry 226.) For the reasons below, the motion for summary judgment on Count I is DENIED.

         I. Background

         Plaintiff O'Reilly Auto Enterprises, LLC (“Plaintiff” or “O'Reilly”) brings this insurance dispute lawsuit against four insurance carriers relating to coverage for certain asbestos personal injury lawsuits. Defendant United States Fire Insurance Company (“U.S. Fire”) is a primary insurance carrier, and the remaining three defendants are excess/umbrella carriers: Westchester Surplus Lines Insurance Company (“Westchester”), Continental Casualty Company (“Continental”), and Columbia Casualty Company (“Columbia”). Plaintiff's First Amended Complaint asserts two counts: Breach of Contract/Vexatious Refusal against U.S. Fire (Count I) and Declaratory Judgment against all defendants (Count II). In the pending motion, U.S. Fire seeks summary judgment on Count I of Plaintiff's Amended Complaint.

         Plaintiff is the successor-in-interest to Grand Auto, Inc. (“Grand Auto”). Industrial Indemnity, San Francisco, CA (“Industrial Indemnity”) issued two polices to Grand Auto identified as Policy No. SG851-5539 (“Policy 5539”) and Policy No. SG857-2271 (“Policy 2271”) (collectively, the “U.S. Fire Policies”). U.S. Fire holds Industrial Indemnity's rights and obligations under the U.S. Fire Policies.[1] Policy 5539 provided coverage for the period of May 22, 1984, to May 22, 1987. Policy 2271, at the time it was issued, provided coverage for the period of May 22, 1987, to May 22, 1990.

         At some point prior to November 1, 2012, U.S. Fire provided Plaintiff with a defense and indemnity for asbestos-related bodily injury lawsuits filed against Grand Auto (the “Asbestos Suits”) under the U.S. Fire Policies. In correspondence dated November 1, 2012, U.S. Fire incorrectly declared Policy 5539 to be exhausted. U.S. Fire's declaration of exhaustion was based on a mistaken belief that Policy 5539 had total limits of $1, 500, 000 for Policy's 5539 three-year term. However, Endorsement 11, which was effective May 22, 1985, had increased the total limits for the three-year term to $2, 500, 000. As a result of the incorrect declaration of exhaustion of Policy 5539 on November 1, 2012, U.S. Fire began allocating all losses for the Asbestos Suits to Policy 2271. In correspondence dated August 14, 2013, U.S. Fire incorrectly declared Policy 2271 to be exhausted, and as of that date, stopped providing Plaintiff with defense and indemnity for the Asbestos Suits.

         U.S. Fire denies that it had a copy of Endorsement 11 in its files at the time it declared Policy 5539 exhausted and submits an affidavit indicating that its best re-creation of Policy 5539 as of September 6, 2013, did not include Endorsement 11. According to U.S. Fire, the original Policy 5539 was delivered to Plaintiff and U.S. Fire does not maintain the original files. At the time U.S. Fire received discovery requests from Plaintiff during this litigation, Endorsement 11 as well as other documents showing an aggregate limit of $2.5 million were in U.S. Fire's possession.

         Plaintiff filed this lawsuit in November 2016, which U.S. Fire subsequently removed to this Court. In October 2018, U.S. Fire and Plaintiff entered into a Partial Release and Settlement Agreement (“Partial Settlement”). Under the terms of the Partial Settlement, U.S. Fire paid Plaintiff a certain sum and agreed it would provide Plaintiff with a defense and indemnity for “all pending and future asbestos lawsuits” until the aggregate policy limits of Policy 5539 and Policy 2271 are exhausted. At oral argument, the parties represented to the Court that as of that date (January 9, 2020), the policy limits of Policy 5539 and Policy 2271 are not yet exhausted.

         The relevant portions of the Partial Settlement are as follows:

RECITALS
M. Subsequent to the filing of [this lawsuit], O'Reilly and U.S. Fire have determined that the annual aggregate limits of liability under [Policy 5539] were $500, 000 for the annual period May 22, 1984 to May 22, 1985, $1, 000, 000 for the annual period May 22, 1985 to May 22, 1986, and $1, 000, 000 for the annual period May 22, 1986 to May 22, 1987.
P. O'Reilly and U.S. Fire have agreed to settle and resolve O'Reilly's claim for vexatious refusal to pay and defend claims under [Policy 2271] and/or [Policy 5539] on the terms and conditions stated herein.
AGREEMENT
1. Payment to O'Reilly: . . . U.S. Fire . . . will pay O'Reilly [$984, 130.78] . . . [which] represents reimbursement to O'Reilly for payments it made in excess of $50, 000.00 per claim for settlements and defense costs incurred to ...

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