In National Union Fire Ins. Co. of Pittsburgh, Pa. v. Porter Hayden Co, No. AMD-03-23408, 2009 U.S. Dist. LEXIS 61992 (D. Md. July 7, 2009), National Union contended that its insured, Porter Hayden, a debtor in bankruptcy, was not entitled to a defense or indemnity for asbestos-related claims.
Porter Hayden sold and installed industrial insulation products containing asbestos fibers from the 1920s until the 1980s. Porter Hayden held four consecutive CGL policies with National Union, which were in effect from April 1, 1984, to April 1, 1988. When coverage was denied, Porter Hayden brought a declaratory judgment action seeking coverage for tens of thousands of asbestos-related claims under the policies.
Subsequently, Porter Hayden filed for reorganization under Chapter 11. The Bankruptcy Court confirmed Porter Hayden's plan establishing the Asbestos Bodily Injury Trust to handle asbestos-related claims against Porter Hayden. Under the Plan, asbestos claimants were enjoined from suing Porter Hayden, but could submit their claims to the Trust. The Trust was funded by assets, including access to the proceeds from any insurance policy that covered asbestos claims.
The parties cross-moved for summary judgment. National Union argued it had no legal obligation to pay damages for asbestos-related claims filed with the Trust because: (1) Porter Hayden was not legally obligated to the asbestos claimants; (2) Porter Hayden improperly assigned the policies to the Trust; (3) there was no "suit" against the insured; and (4) the "No action" provision precluded coverage.
The district court rejected each argument. First, Porter Hayden had an underlying, though contingent, legal obligation to the asbestos claimants because it committed tortuous acts. Moreover, the bankruptcy court's discharge order did not eliminate Porter Hayden or National Union's legal obligation to asbestos claimants. A discharge order from a bankruptcy court only released a debtor from personal liability. Porter Hayden's discharge, however, did not release, i.e., surrender a cause of action against, National Union from liability to the asbestos claimants.
Regarding assignments, each of the policies provided that "[a]n assignment of interest under this policy shall not bind the company until its consent is endorsed hereon." The plain language of the Plan, however, did not indicate that Porter Hayden "assigned" any "interest" under the policies to the Trust. Instead, under the Plan, Porter Hayden delegated to the Trust the management of the asbestos claims. Nothing in the policies prohibited such a delegation.
National Union contended it had no duty to defend because there was no "suit . . . seeking damages." Porter Hayden argued the term "suit" was not limited to complaints filed in a court; rather, "suit" encompassed claims filed with the Trust. The court agreed because claims submitted to the Trust sought damages for Porter Hayden's liability.
Finally, National Union argued the "No action" clause barred coverage. According to National Union, the "No action" clause required either: (1) a judgment against Porter Hayden after trial: or (2) a written agreement between Porter Hayden and National Union in order for an action to lie against National Union. Again, the Court disagreed. A claimant need not have obtained a judicial judgment against Porter Hayden as a condition precedent to a suit by Porter Hayden against National Union. Further, National Union refused to enter an agreement with Porter Hayden consenting to an action for coverage.
