Filed: Jan. 15, 2008
Latest Update: Mar. 02, 2020
Summary: RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 File Name: 08a0025p.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _ X Plaintiff, - AMERICAN ZURICH INSURANCE COMPANY, - - - No. 07-3097 v. , > COOPER TIRE & RUBBER COMPANY, - Defendant-Appellant, - - - - NATIONAL UNION FIRE INSURANCE COMPANY OF Defendant, - PITTSBURGH, PA, - - - Third Party-Defendant-Appellee. - MARSH USA, INC., N Appeal from the United States District Court for the Northern District of Ohio at To
Summary: RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 File Name: 08a0025p.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _ X Plaintiff, - AMERICAN ZURICH INSURANCE COMPANY, - - - No. 07-3097 v. , > COOPER TIRE & RUBBER COMPANY, - Defendant-Appellant, - - - - NATIONAL UNION FIRE INSURANCE COMPANY OF Defendant, - PITTSBURGH, PA, - - - Third Party-Defendant-Appellee. - MARSH USA, INC., N Appeal from the United States District Court for the Northern District of Ohio at Tol..
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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 08a0025p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
Plaintiff, -
AMERICAN ZURICH INSURANCE COMPANY,
-
-
-
No. 07-3097
v.
,
>
COOPER TIRE & RUBBER COMPANY, -
Defendant-Appellant, -
-
-
-
NATIONAL UNION FIRE INSURANCE COMPANY OF
Defendant, -
PITTSBURGH, PA,
-
-
-
Third Party-Defendant-Appellee. -
MARSH USA, INC.,
N
Appeal from the United States District Court
for the Northern District of Ohio at Toledo.
No. 04-07263—Jack Zouhary, District Judge.
Argued: October 26, 2007
Decided and Filed: January 15, 2008
Before: MERRITT, ROGERS, and McKEAGUE, Circuit Judges.
_________________
COUNSEL
ARGUED: Joseph P. Thacker, COOPER & WALINSKI, Toledo, Ohio, for Appellant. James D.
Wilson, WILSON YOUNG, Detroit, Michigan, for Appellee. ON BRIEF: Joseph P. Thacker,
COOPER & WALINSKI, Toledo, Ohio, for Appellant. James D. Wilson, WILSON YOUNG,
Detroit, Michigan, for Appellee.
_________________
OPINION
_________________
MERRITT, Circuit Judge. The issue on appeal in this diversity case is whether the district
court erred in dismissing the third-party complaint filed by an original defendant, Cooper Tire &
Rubber Company, against its insurance broker, Marsh USA and Marsh Placements Inc. (collectively
referred to as “Marsh”), after Cooper Tire voluntarily entered into a settlement with the parties to
the original complaint. The district court granted summary judgment for third-party defendants
1
No. 07-3097 American Zurich Ins. Co. v. Cooper Tire Page 2
& Rubber Co., et al.
Marsh, finding lack of an actual case or controversy between Marsh and Cooper Tire. Because we
find that the district court did not abuse its discretion in dismissing the third-party complaint in light
of the dismissal of the underlying action from which Cooper Tire’s third-party complaint derived,
we affirm the judgment of the district court. The third-party complaint was filed under the district
court’s “supplemental jurisdiction” and can go forward as an independent, nonindemnity action after
settlement of the original action only within the discretion of the court, as we will explain below.
I.
Marsh has been the insurance broker for Cooper Tire since the 1950s. Like most tire
manufacturers, Cooper Tire maintains layered insurance coverage to defend and protect it from
product liability claims. The first layer of insurance was a commercial umbrella policy issued by
National Union. The next layer of insurance was a commercial excess liability policy issued by
American Zurich. The coverage provided by American Zurich’s policy with Cooper Tire is
specifically in excess of the National Union policy. A third layer policy, not at issue here, provided
coverage in excess of the National Union and American Zurich policies. Due to a sharp increase
in the number of suits against Cooper Tire in the late 1990s, National Union notified American
Zurich in November 2002 that the National Union policy limits, as well as Cooper Tire’s self-
insurance, were near exhaustion for the period April 1998 to April 1999.
A dispute arose because National Union had applied approximately $11 million of legal
defense costs toward depletion of the aggregate policy limit but American Zurich claimed that the
National Union policy required National Union to pay defense costs in addition to the stated limits
of the policy. Under this interpretation of the National Union policy, American Zurich maintained
that National Union had not yet met its policy aggregate, thereby relieving American Zurich from
an obligation to begin paying out under its excess liability policy. In May 2004, American Zurich
filed a declaratory judgment action against National Union and Cooper Tire seeking a declaration
that (1) National Union’s legal defense costs did not deplete the aggregate policy limit of the
National Union policy, but would have to be paid over and above the policy limits; (2) the American
Zurich policy would not be triggered until the National Union policy limits are exhausted by the
payments of settlements and claims only, excluding any defense costs in the policy aggregate; (3)
any defense costs paid by American Zurich would deplete the per-occurrence and aggregate limits
of the American Zurich policy; (4) it could recover any amounts already paid out under its excess
liability policy and (5) it was entitled to an accounting of all amounts paid by National Union on
Cooper Tire’s behalf. (J.A. at 18 (American Zurich’s complaint); J.A. at 12 (American Zurich’s
Amended Complaint)).
In response, Cooper Tire, as defendant, in addition to a counterclaim against American
Zurich and a cross-claim against National Union, filed a third-party complaint on October 28, 2004
(J.A. at 105) (amended on February 15, 2005) (J.A. at 116), against its insurance broker, Marsh,
alleging that Marsh executed an unauthorized retroactive modification of the American Zurich
policy in April 2002 known as “Endorsement 17.”1 Specifically, Cooper Tire claims that the
1
Endorsement 17 to the American Zurich policy is entitled “Defense within Limit Endorsement.” It states that:
In consideration of the premium charged, it is hereby understood and agreed that with the effect for
04/01/98, Section VI, “Ultimate net loss” of the policy is deleted in its entirety and replaced with the
following:
“Ultimate net loss” means the total of all sums including costs which the insured or any organization
as it insurer, or both, shall become legally obligated to pay, whether by adjudication or settlement,
because of an occurrence covered under the terms of the governing underlying insurance policy and
to which this policy applies; but “ultimate net loss” shall not include the amount of any recoveries,
No. 07-3097 American Zurich Ins. Co. v. Cooper Tire Page 3
& Rubber Co., et al.
American Zurich excess liability policy expressly provided that American Zurich would pay defense
costs in addition to the per-occurrence and aggregate policy limits but that Marsh had, through
executing Endorsement 17, authorized a change to the policy converting it to a “defense within
limits” policy without the knowledge of or notice to Cooper Tire. Cooper Tire claims it did not, and
continues not to, approve of the change to the policy effected by Endorsement 17.
Cooper Tire’s third-party complaint against Marsh was brought pursuant to the district
court’s Supplemental Jurisdiction under 28 U.S.C. § 1367(a).2 It stated three causes of action
against Marsh in its First Amended Third-Party Complaint (J.A. at 116): (1) negligence; (2) breach
of contract and (3) breach of fiduciary duty. According to the third-party complaint, liability on the
part of Marsh under each cause of action was predicated on a finding in the underlying action that
Endorsement 17 was valid. Count I - Negligence reads:
If the Court finds Endorsement No. 17 to be valid and binding on Cooper Tire, Marsh
breached its duty . . . In that event, Cooper Tire will be forced, as a direct and
proximate result of Marsh’s failure to act in Cooper Tire’s best interest and to
procure an insurance program approved by Cooper Tire, to pay for the defense of
underlying products liability claims from its own assets and fill in gaps in coverage
between the layers of excess insurance coverage.
First Amended Third-Party Complaint at 6, J.A. at 121 (emphasis added). Count II – Breach of
Contract reads in a similar manner:
If the Court finds Endorsement No. 17 to be valid and binding on Cooper Tire, then
Marsh breached its contractual duties . . . Cooper Tire will be forced, as a direct and
proximate result of Marsh’s breach of contractual duties, to pay for the defense of
underlying products liability claims from its own assets and fill in gaps in coverage
between the layers of excess insurance coverage
First Amended Third-Party Complaint at 7 ( J.A. at 122) (emphasis added). And Count III - Breach
of Fiduciary Duty also reads similarly:
If the Court finds Endorsement No. 17 to be valid and binding on Cooper Tire, Marsh
breached its duty to act in Cooper Tire’s best interests . . . As a direct and proximate
salvages or other insurance (other than underlying insurance or insurance written specifically to apply
to this policy), whether collectible or not.
J.A. at 421. The Endorsement is signed by an “Authorized Representative” and dated April 12, 2002, although the
effective date on the Endorsement is April 1, 1998.
2
28 U.S.C. § 1367(a) provides as follows:
(a) Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute,
in any civil action of which the district courts have original jurisdiction, the district courts shall have
supplemental jurisdiction over all other claims that are so related to claims in the action within such
original jurisdiction that they form part of the same case or controversy under Article III of the United
States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or
intervention of additional parties.
The district court stated in its opinion that it had diversity jurisdiction pursuant to 28 U.S.C. § 1332.
However, because both Cooper Tire and Marsh USA are incorporated in Delaware, the complete
diversity required by § 1332 is lacking, and the district court had jurisdiction, if at all, under 28 U.S.C.
§ 1367.
No. 07-3097 American Zurich Ins. Co. v. Cooper Tire Page 4
& Rubber Co., et al.
result of Marsh’s failure to act in Cooper Tire’s best interest and to procure an
insurance program approved by Cooper Tire, Cooper Tire will be forced to fill in
potential gaps in coverage between the layers of excess insurance coverage and pay
for the defense of underlying products liability claims from its own assets.
First Amended Third-Party Complaint at 7-8 (J.A. at 122-23) (emphasis added).
Cooper Tire requested a judgment declaring (1) that Marsh is responsible to pay all costs that
Cooper Tire incurs as a result of the district court’s ruling in the underlying declaratory judgment
action brought by American Zurich Insurance against National Union Insurance and Cooper Tire;
(2) that Cooper Tire be awarded all legal fees and costs incurred by Cooper Tire in defending against
American Zurich’s action and in bringing the Third-Party Complaint against Marsh and (3) that
Cooper Tire be awarded any other relief that the court deems just and reasonable. (J.A. at 123). The
request for relief was also predicated on the court’s finding that Endorsement 17 was valid. It
specifically requests that the Court enter an Order “Declaring that Marsh is responsible to pay all
costs that Cooper Tire incurs as a result of the Court’s ruling [in the underlying action concerning
the validity of Endorsement 17] . . . .” First Amended Third-Party Complaint at 8 (J.A. at 123)
(emphasis added).
After Cooper Tire filed its third-party complaint, the parties to the original complaint,
American Zurich, National Union and Cooper Tire, reached a settlement. Thereafter, a Stipulated
Order of Dismissal was entered in the underlying action (J.A. at 266). The settlement agreement,
which did not include Marsh, provided for dismissal of all claims with prejudice except for
American Zurich’s claims seeking a declaration that defense costs erode the limits of its policy with
Cooper Tire – the substance of Endorsement 17 – which was dismissed without prejudice.
Essentially, under the terms of the settlement agreement, the parties agreed to disagree for now on
the validity of Endorsement 17; no resolution of that issue was reached among the parties. In
addition, the Order of Dismissal specifically noted that it did not affect Cooper Tire’s third-party
complaint against Marsh.
The action between Cooper Tire and Marsh continued, and the district court, without ruling
on the merits of Cooper Tire’s claims, granted summary judgment to Marsh on the ground that no
case or controversy or justiciable issue existed because Cooper Tire had premised any liability on
the part of Marsh on a ruling in the underlying case concerning the validity of Endorsement 17.
(J.A. at 453) The district court found Cooper Tire’s complaint essentially moot because the district
court in the underlying action neither ruled on any issues due to the parties’ stipulated dismissal, nor
did the parties come to an agreement on Endorsement 17's validity in the settlement agreement.
Without a ruling that Cooper Tire was liable to American Zurich in the underlying complaint, the
basis for the third-party complaint ceased to exist.
On appeal, Cooper Tire now claims that a ruling on Endorsement 17 is not necessary to
adjudicate its third-party complaint against Marsh because Marsh is liable to it for the mere
existence of Endorsement 17, regardless of its validity. Cooper Tire seeks to declare Endorsement
17 void based on the lack of authority by its agent, Marsh, to modify the insurance contract between
Cooper Tire and American Zurich through the execution of Endorsement 17. Cooper Tire claims
that Marsh violated both contractual terms and long-standing practices between Marsh and Cooper
Tire by authorizing the endorsement without notifying Cooper Tire and argues that it never would
have been a defendant in the underlying suit between American Zurich and National Union if Marsh
had fulfilled its contractual and fiduciary duties to Cooper Tire. Cooper Tire claims it has suffered
legal costs in defending the underlying suit and has lost its “peace of mind” regarding its insurance
coverage as it may still be liable for covering gaps in its coverage due to the dispute between
American Zurich and National Union about when American Zurich’s coverage will be exhausted.
No. 07-3097 American Zurich Ins. Co. v. Cooper Tire Page 5
& Rubber Co., et al.
Despite these claims of injury, Cooper Tire did not request to amend its third-party complaint
against Marsh to reflect that Marsh’s alleged liability no longer rested on a ruling concerning the
validity of Endorsement 17.
II.
The district court based its ruling primarily on a finding of no actual case or controversy
remaining between Cooper Tire and Marsh after settlement of the underlying action. While we
agree with the district court’s outcome in the case below, we base our holding on the alternative
ground that it was well within the district court’s discretion, given its supplemental jurisdiction over
the third-party complaint, to dismiss Cooper Tire’s third-party complaint after settlement of the
original action from which Cooper Tire’s claims derived. However, because we rely on this
alternative jurisdictional ground, such dismissal will be without prejudice.
Federal Rule of Civil Procedure 14, which governs third-party practice, allows a third party
complaint to be served upon “a person not a party to the action who is or may be liable to the third-
party plaintiff for all or part of the plaintiff's claim against the third-party plaintiff.” Fed. R. Civ. P.
14(a).3 The purpose of Rule 14 is to permit additional parties whose rights may be affected by the
decision in the original action to be joined so as to expedite the final determination of the rights and
liabilities of all the interested parties in one suit. Dishong v. Peabody Corp., 219 F.R.D. 382, 385
(E.D. Va. 2003); see also Nova Prods., Inc. v. Kisma Video, Inc.,
220 F.R.D. 238, 240 (S.D.N.Y.
2004) (“The underlying principle behind impleader is to promote judicial efficiency by permitting
the adjudication of several claims in a single action, and thus to eliminate circuitous, duplicative
actions.”) (citations and internal quotations omitted).
Third-party pleading is appropriate only where the third-party defendant’s liability to the
third-party plaintiff is dependent on the outcome of the main claim; one that merely arises out of the
same set of facts does not allow a third-party defendant to be impleaded. A defendant attempting
to transfer the liability asserted against him by the original plaintiff to the third-party defendant is
therefore the essential criterion of a third-party claim. Correlatively, a defendant’s claim against a
third-party defendant cannot simply be an independent or related claim, but must be based upon the
original plaintiff’s claim against the defendant. See Stiber v. United States, 60 F.R.D. 668, 670 (E.D.
Pa.1973) (“Under Rule 14, the liability of the third-party must be dependent on the outcome of the
main claim.”). Rule 14(a) does not allow a third-party complaint to be founded on a defendant’s
independent cause of action against a third-party defendant, even though arising out of the same
occurrence underlying plaintiff’s claim, because a third-party complaint must be founded on a third
party’s actual or potential liability to the defendant for all or part of the plaintiff’s claim against the
defendant. United States v. Olavarrieta,
812 F.2d 640, 643 (11th Cir. 1987).
Underlying Rule 14 is a desire “to promote economy by avoiding the situation where a
defendant has been adjudicated liable and then must bring a totally new action against a third party
who may be liable to him for all or part of the original plaintiff's claim against him.” 6 Wright,
Miller, Kane, Fed. Prac. & Proc.: Civ.2d § 1441 at 289-90 (2d ed.1990)). The third-party complaint
is in the nature of an indemnity or contribution claim. Accordingly, it is rare that a court renders
judgment in favor of the defendant or dismisses the underlying action but nonetheless chooses to
address a third-party claim. Ultimately, a court has the discretion to dismiss a third-party claim after
3
Effective December 1, 2007, the language of Rule 14 (and other Federal Rules of Civil Procedure) has been
amended as part of the general restyling of the Civil Rules to make them more easily understood and to make style and
terminology consistent throughout the rules. The changes are intended to be stylistic only. Advisory Committee Notes
to 2007 Amendment. For purposes of this opinion, the language of former Rule 14, as it existed at the time of the
proceeding below, will be used.
No. 07-3097 American Zurich Ins. Co. v. Cooper Tire Page 6
& Rubber Co., et al.
the original claims of the plaintiff have been settled, and relegate the third-party plaintiff to a
separate suit. Propps v. Weihe, Black & Jeffries, 582 F.2d 1354, 1355 (4th Cir.1978). See also 6
Wright, Miller, Kane, Fed. Prac. & Proc.: Civ. 2d § 1444 at 340-44 (2d ed. 1990).
Cooper Tire contends that its claims against Marsh arise because Marsh allowed
Endorsement 17 to be executed and it failed to keep Cooper Tire informed of the existence of
Endorsement 17. Cooper Tire claims that these claims should now proceed regardless of the
validity of Endorsement 17. In fact, Cooper Tire’s counsel agreed at oral argument that the claims
are no longer derivative of the underlying action, but instead stand on their own. In other words,
Cooper Tire contends that its claims against Marsh would exist even if the underlying action had
been litigated and Endorsement 17 was found to be not valid or if the declaratory judgment by
American Zurich had never been filed. Cooper Tire now claims that its third-party suit is not
dependent upon the validity of Endorsement 17 and asserts claims separate and independent of the
underlying action, which should proceed even in light of the settlement and dismissal of the original
action that spawned Cooper Tire’s third-party complaint against Marsh.
Cooper Tire’s complaint, as filed, seeks only to declare Marsh liable if Endorsement 17 is
found valid. It then voluntarily settled with American Zurich and National Union in the underlying
action, but did not reach resolution on the issue of the validity of Endorsement 17 – the basis for its
third-party complaint. Despite settling the underlying action without resolving the validity of
Endorsement 17, it still seeks to recover from Marsh. However, no basis for recovery remains in
the third-party complaint. To the extent that Cooper Tire has separate and independent claims
against Marsh independent of the validity of Endorsement 17 that may be adjudicated within the
parameters of the third-party complaint, as Cooper Tire now claims, those claims were never
asserted in the third-party complaint, or in any amended third-party complaint, as separate and
independent claims. Furthermore, even if they had been adequately pled in the complaint, with the
settlement of the underlying action, it was entirely within the discretion of the district court whether
to allow any independent and separate claims to proceed. We find no abuse of discretion in its
decision not to do so.
Cooper Tire’s third-party complaint was entirely proper when it was filed pursuant to the
district court’s supplemental jurisdiction under 28 U.S.C. § 1367(a) and Rule14(a). The claim was
clearly derivative of the original action and Marsh’s liability was made dependent on the outcome
of the litigation in the original action between Cooper Tire, American Zurich and National Union.
However, once the underlying action was settled, the continuing viability of Cooper Tire’s third-
party complaint, as a derivative action, came under question and the district court did not abuse its
discretion in dismissing the action. See Bjorgung v. Whitetail Resort, Civ. Act. No. 1:03-CV-2114,
2007 WL 2906267 at *5 (M.D. Pa. Sept. 28, 2007).
Cooper Tire also argues on appeal that the district court erred in not (1) allowing Cooper Tire
to amend its complaint or (2) reading the complaint without the contingency concerning the validity
of Endorsement 17. As for amending the complaint, Cooper Tire never requested to amend its
complaint after its First Amended Third-Party Complaint was filed in February 2005, so the district
court could not have erred in not allowing Cooper Tire to amend its complaint when no such request
was ever made to the court. The district court was not required to sua sponte understand that Cooper
Tire was asking for something other than what it had requested in its complaint. As for reading the
complaint in a manner different from that presented, it was Cooper Tire’s choice and strategic
decision to present its complaint against Marsh as a declaratory judgment action contingent on the
outcome of the underlying action. Cooper Tire could have brought an action against Marsh and
American Zurich that was simply for damages based on the actions of those two parties in
negotiating, executing and authorizing Endorsement 17. It was also Cooper Tire’s choice to agree
No. 07-3097 American Zurich Ins. Co. v. Cooper Tire Page 7
& Rubber Co., et al.
to the Stipulated Order of Dismissal that dismissed its counterclaim against American Zurich with
prejudice (J.A. at 267).
For the foregoing reasons, the judgment of the district court is affirmed and the claims of
Cooper Tire & Rubber Company should be dismissed without prejudice.
