TIMOTHY S. BLACK, District Judge.
This civil action is before the Court on the parties' cross-motions for summary judgment (Docs. 44, 45) and responsive memoranda (Docs. 50, 51, 52, 53).
This civil action centers on a dispute between an insurer and a named insured for premiums due and owing for insurance coverage. Plaintiff provided insurance coverage for dozens of asbestos lawsuits brought against Defendant, a named insured under polices of insurance issued by Plaintiff. The parent company with whom the insurance contracts were formed more than thirty years ago is no longer operational nor available to pay. Defendant refuses to remit payment of the premiums, claiming that it has no such contractual obligations to Plaintiff.
Liability and damages in this matter have been bifurcated. (Doc. 20). Both parties move for summary judgment on the issue of liability.
A motion for summary judgment should be granted if the evidence submitted to the Court demonstrates that there is no genuine issue as to any material fact, and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party has the burden of showing the absence of genuine disputes over facts which, under the substantive law governing the issue, might affect the outcome of the action. Celotex, 477 U.S. at 323. All facts and inferences must be construed in a light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
A party opposing a motion for summary judgment "may not rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 248 (1986).
First, the Court must determine what state law applies. Plaintiff maintains that the laws of Illinois or Ohio apply and Defendant maintains that the laws of Pennsylvania apply.
"[A] federal court in a diversity case applies the law of the state in which it sits." Jim White Agency Co. v. Nissan Motor Corp., 126 F.3d 832, 835 (6th Cir. 1997). The Supreme Court of Ohio has adopted the Restatement of Law (Second), Conflict of Laws, Section 187 in applying the choice of law provisions in contracts. Schulke Radio Productions, Ltd. v. Midwestern Broad. Co., 453 N.E.2d 683, 686 (Ohio 1983). If there is a dispute as to which law governs, Section 188 of the Restatement determines which law applies. Under Section 188, the Court should consider: (1) the place of contracting; (2) the place of negotiation; (3) the place of performance;
To help determine the state that has the most significant contacts, courts consider: (1) the needs of the interstate and international systems; (2) the relevant policies of the forum; (the relevant polices of other interested states and the relative interests of those states in the determination of the particular issue); (3) the protection of justified expectations; (4) the basic policies underlying the field of law; (5) certainty, predictability, and uniformity of result, and (6) ease in the determination and application for the law to be applied. Restatement (Second) of Conflict of Laws § 6.
Ohayon, 747 N.E.2d at 211 (quoting Restatement (Second) of Conflict of Laws at 610, § 193).
However, an actual conflict between Ohio law and the law of another jurisdiction must exist for a choice of law analysis to be undertaken. Glidden Co. v. Lumbermens Mut. Cas. Co., 861 N.E.2d 109, 115 (Ohio 2006). Where a party seeks to apply non-Ohio law, that party bears the burden to show the existence of a genuine conflict between Ohio law and the law of the foreign jurisdiction. ThorWorks Indus. v. E.I. DuPont De Nemours & Co., 606 F.Supp.2d 691 (N.D. Ohio 2008). In the absence of a true conflict between potentially applicable states' laws, a court sitting in Ohio should apply Ohio law. Elkins v. Am. Intern. Special Lines Ins. Co., 611 F.Supp.2d 752, 761 (S.D. Ohio 2009).
Here, there are three sources of potentially applicable state law: (1) Illinois law may apply because Plaintiff is organized under the law of Illinois, principally operates from Illinois, and suffered damages in Illinois; (2) Pennsylvania law may apply because Busy Beaver is domiciled and operates largely from that state; and (3) Ohio law may apply as the forum state law.
Cyclops, the original party to the Policies, was a Pennsylvania corporation. (Doc. 44, Ex. C at 19-21). Busy Beaver and BBAC
Defendant maintains that Plaintiff's breach of contract claim for all premiums due in 2007 or earlier is barred by Pennsylvania's four year statute of limitations. 42 Pa. C.S. § 5525.
The Supreme Court of Ohio has adopted the Restatement (Second) of Conflict of Laws as the governing law for conflicts issues regarding statutes of limitations in Ohio. Cole v. Mileti, 133 F.3d 433 (6th Cir. 1998).
Accordingly, Ohio's 15 year statute of limitations applies to the breach of contract claims.
Under Ohio law "[a] breach of contract occurs when a party demonstrates the existence of a binding contract or agreement; the nonbreaching party performed its contractual obligations; the other party failed to fulfill its contractual obligations without legal excuse; and the nonbreaching party suffered damages as a result of the breach." Spectrum Benefit Options, Inc. v. Med. Mut. of Ohio, 880 N.E.2d 926, 934 (Ohio App. 2007). Plaintiff maintains that Defendant has breached the contractual obligations of the Policies by refusing to meet the fundamental obligation of paying the premiums for the insurance coverage provided by Plaintiff.
The Policies and Confirmation Letters outline the terms of the retrospective premium program.
The combination of uncertified Policies and unexecuted Confirmation Letters illustrates that Plaintiff has not established all of the terms of the contract and is not entitled to relief.
Even if this Court were to conclude that Plaintiff established the specific terms of the contract, Defendant was never bound to the contract between Plaintiff and Cyclops because Defendant is not a successor. Defendant's insured status derives solely from its subsidiary relationship to Cyclops. When Cyclops negotiated the Policies, it contractually arranged to insure all of its subsidiaries. The definition of "named insured" includes all subsidiaries of Cyclops. (Doc. 44, Ex. E). Therefore, as part of the bargain negotiated between Plaintiff and Cyclops, Plaintiff was contractually obligated to insure that Busy Beaver and Cyclops were contractually obligated to pay for the insurance.
However, Defendant is not responsible for the retrospective premiums on the basis of successor liability because it is not a successor to Cyclops. The sale or transfer of all the assets of one company to another does not render the purchasing or receiving company responsible for the debts and liabilities of the selling company. Conr'l Ins. Co. v. Schneider, Inc., 873 A.2d 1286, 1291 (Pa. 2005). For a purchaser to even have the potential to be a successor, there must be a sale or transfer of all the assets of the selling company. Id.
Named insured status alone is not sufficient to create a contractual obligation to pay premiums. An express contractual promise to pay is required.
Here, there is no evidence that Defendant is jointly and/or severally liable with Cyclops or its successor, AK Steel Corporation. Only Cyclops (or any successor thereof, i.e., AK Steel) is responsible for premiums due.
The terms of the contract do not include an express contractual promise for Defendant to pay. Cyclops is the only named entity listed on the declarations page. (Doc. 44, Ex. A). Cyclops, through its broker, negotiated the contract and all the terms of the insurance program. (Doc. 44, Ex. B at 23). Cyclops is identified as the primary named insured. (Id., Ex. A). Only Cyclops' name and address are identified and Cyclops paid all the premiums. (Id., Ex. B at 23). Cyclops was the only entity making any adjusted premium payments, despite the fact that Busy Beaver remained a subsidiary until 1988. Plaintiff provided the required annual premium adjustment information directly to Cyclops. (Id. at 70, 76-77).
When Plaintiff and Cyclops entered into the insurance contracts, Plaintiff planned for the contingency that Cyclops might not be able to make payments and contractually required Cyclops to post a bond that would be collected in the event Cyclops did not pay the premium. (Doc. 44, Ex. B at 53-58; Ex. I). Even after the asbestos litigation began more recently in approximately 2005, Plaintiff's invoices were directed to Cyclops, identifying Cyclops' address and Cyclops as the account name. (Id., Ex. L). The invoices were stated in terms of a lump sum to be paid by Cyclops and not broken down further with an amount due from each insured. (Id.)
Plaintiff did not negotiate the right to seek contribution or payments from any of Cyclops' subsidiaries. The Confirmation Letters and their attachments indicate that premium payments shall be paid by Cyclops. For example, with respect to interim installment premiums, the 1981 letter states: "Interim installment premiums, as hereinafter set forth, shall be paid by Cyclops Corporation to CNA no later than the due date indicated. Payments to be sent to:" (Doc. 44, Ex. H). With respect to adjustments, Plaintiff retained the right to bill Cyclops, and no other entity: "However, if at any time prior to the first retro adjustment the indicated retro subject premium exceeds the collected retro subject premium, CNA retains the right to immediately bill Cyclops Corporation for the difference, subject to the plans standard premium." (Id., Ex. F). Although the language varies slightly in the unexecuted Confirmation Letters for different years, all of the letters contain some type of language allowing Plaintiff to pursue premium payments from Cyclops. (Id.)
Accordingly, Defendant was not contractually bound by the Policies or Confirmation Letters.
A court may look to the parties' course of conduct as evidence of their construction of a contract when the contract language is unclear. Shifrin v. Forest City Ent., Inc., 597 N.E.2d 499, 501 (Ohio 1992). Where the contract language is clear and unambiguous, however, courts may not create a new contract by finding an intent not expressed by the contractual language. Id.
The overall "course of conduct" during the contract period demonstrates that Plaintiff had virtually no dealings with Defendant in relation to the insurance program or collection of premiums. For example, even after Plaintiff provided a defense and indemnity to Defendant in the asbestos litigation between 2005 and 2009, it sent no premium adjustments and no bills to Defendant. When Plaintiff advised Defendant that the insurance was retrospectively rated, Defendant inquired further about the program and requested premium adjustment information from Plaintiff. Plaintiff refused to provide information directly to Defendant, stating: "With respect to the premium payment and premium adjustment information that you requested, CNA believes that it would be more appropriate for you to request that information from A.K. Steel, the company that is the successor to Cyclops Corporation. The contact information for A.K. Steel is as follows:" (Doc. 50, Ex. K). Accordingly, Plaintiff has never treated Defendant as having rights and obligations identical to that of Cyclops.
Moreover, premiums were adjusted in 2009, 2010, and 2011, but no adjustment information was ever provided to Defendant, and Plaintiff's invoices were addressed only to Cyclops. It was not until September 1, 2011, just months before this lawsuit was filed, that Plaintiff provided Defendant with the 2005-2011 rating plan adjustments and demanded millions of dollars in adjusted premiums from Defendant. (Doc. 44, Ex. Q).
The overall course of conduct demonstrates that Plaintiff had virtually no dealings with Defendant and Plaintiff never treated Defendant as if it had rights or obligations like Cyclops.
Even if Defendant made an express contractual promise to pay, Plaintiff breached its agreement with Cyclops by failing to make annual premium adjustments from 2005 to 2009, and when Plaintiff began making adjustments in 2009, it failed to provide Defendant with the adjustment information until September 2011. Plaintiff's annual calculations and sharing of the information with Cyclops or whomever it thought responsible for payment was a material aspect of the retrospective premium plan. Plaintiff's breach relieves Defendant of any obligation to pay.
Plaintiff claims that its failure to calculate retrospective premiums in a timely manner is not a material breach and therefore does not excuse Defendant from performance. Performance under a contract is excused by a counter-party's failure to perform only where that counter-party's breach of contract is material. Freeman Indus. Prods. v. Armor Metal Group, 952 N.E.2d 543, 552 (Ohio App. 2011). The Court looks to the Second Restatement of Contracts to determine if the counter-party's breach was material. Rhodes v. Rhodes Indus., Inc., 595 N.E.2d 441, 447 (Ohio App. 1991). The Restatement provides the following factors to determine whether a counterparty's breach was material and therefore excuses continued performance:
Rest. 2d of Contracts § 241.
In determining whether a certain breach is material, courts consider whether the non-breaching party is deprived of an expected benefit and whether the breaching party can cure the breach. Widmer Eng. Inc. v. Dufalla, 837 A.2d 459, 467-68 (Super. Pa. 2003).
The purpose of the annual premium adjustment calculations was to provide both contracting parties with financial data as to the cost of the premiums for each year and the ability to protect future premiums and engage in financial planning. The insured was to have the ability to challenge the retrospective premium calculations by having its own audit performed to resolve any discrepancies in the calculations and sharing of that information with Cyclops, or whomever it thought responsible for payment was a material aspect of the premium plan. Plaintiff's failure to make timely adjustments and share that information with Defendant deprived Defendant of the opportunity to make plans for its financial future. This included depriving Defendant of the opportunity to consider whether to seek coverage if the anticipated premium adjustments financially outweighed the anticipated indemnity and defense benefits. Instead, Plaintiff waited until fourteen years of premium adjustments had piled up, and announced that millions of dollars were due, before demanding payment from Defendant.
Accordingly, the Court finds that even if the terms of the contract were properly established and Defendant was a successor under the policy, Plaintiff's material breach relieves Defendant of any obligation to pay.
Plaintiff contends, as an alternative to its breach of contract claim, that Defendant can be held liable for the retrospective premiums on the basis of unjust enrichment.
Unjust enrichment is an equitable doctrine that allows recovery where a Plaintiff can establish: "(1) a benefit conferred by a plaintiff upon a defendant; (2) knowledge by the defendant of the benefit; and (3) retention of the benefit by the defendant under circumstances where it would be unjust to do so without payment." Hambleton v. R.G. Barry Corp., 465 N.E.2d 1298, 1302 (Ohio 1984).
Here, Plaintiff seeks recourse under the terms of written insurance policies and Confirmation Letters. The provision of insurance coverage to Cyclops and other entities arose from the Policies. The retrospective premiums exist only through the terms of the Policies and Confirmation Letters. Plaintiff has recourse through the terms of those agreements against the named insured responsible for the premiums — Cyclops (or its successor-in-interest AK Steel).
Additionally, Defendant is not obligated to pay retrospective premiums by virtue of being a beneficiary of the Policies negotiated between Plaintiff and Cyclops. Numerous courts have held that a party is not obligated to pay premiums simply by virtue of being named an insured or receiving coverage under an insurance policy. It would distort the analysis and holdings of these cases to recognize an unjust enrichment theory when no direct contractual claim exists.
The Confirmation Letters were addressed to Cyclops, refer to billing Cyclops, and allow Plaintiff to pursue premium payments from Cyclops. (Doc. 44, Ex. F). There is no similar language by which Plaintiff contractually arranged for itself to directly pursue any subsidiary of Cyclops for premium payments. Moreover, the language in the Confirmation Letters was entirely consistent with the practice and course of dealing between Plaintiff and Cyclops for decades. Where there is a specific contract governing the relationship of the parties, the doctrine of unjust enrichment does not apply. See, e.g., Aultman Hosp. Assn. v. Cmty. Mut. Ins. Co., 544 N.E.2d 920, 924 (Ohio 1989) (generally there can be no recovery on an unjust enrichment claim if there is an express contract covering the same subject); Mitchell v. Moore, 729 A.2d 1200, 1203 (Pa. Super 1999) ("We may not make a finding of unjust enrichment ... where a written or express contract between parties exists.").
Plaintiff negotiated an insurance contract with Cyclops for the provision of insurance coverage to Cyclops and all of its subsidiaries. Pursuant to that contract, as confirmed by the Confirmation Letters and the course of dealing between the parties, Cyclops was the only insured responsible for premium payments.
Accordingly, Plaintiff has no viable unjust enrichment claim as a matter of law.
Accordingly, for the foregoing reasons, there being no genuine issue as to any material fact, and Defendant being entitled to judgment as a matter of law, Plaintiff's motion for summary judgment (Doc. 45) is
At least one court in the Southern District of Ohio when directly presented with the issue determined that the 1988 revision of Section 142 should apply. Curl v. Greenlee Textron, Inc., 404 F.Supp.2d 1001, 1011 (S.D. Ohio Dec. 16, 2005). Other federal courts have continued to apply the original 1971 version of Section 142 both pre and post Curl. See, e.g., Cole v. Mileti, 133 F.3d 433, 437 (6th Cir. 1998); Dudek v. Thomas & Thomas Attorneys, 702 F.Supp.2d 826, 834 n.8 (N.D. Ohio Mar. 22, 2010). Perhaps more significantly, most Ohio courts have continued to apply the 1971 version of the Restatement (Second) of Conflict of Laws, Section 142. See, e.g., Capital One Bank, N.A. v. Rodgers, No. CT2009-049, 2010 Ohio App. LEXIS 3723 (Ohio App. Sept. 14, 2010). In the absence of direction from the Supreme Court of Ohio, this Court will follow the majority position adopted by both state and federal courts applying Ohio law.
(Doc. 44, Ex. B at 27).
The Court finds that: (1) Plaintiff has legal remedies available under the Policies and therefore the equitable doctrine does not apply; (2) given the facts, specifically that Plaintiff waited fourteen years to demand payment, Plaintiff does not come with clean hands; and (3) Plaintiff has failed to establish that Defendant's conduct was reprehensible, grossly inequitable, or unconscionable.
Accordingly, the unclean hands doctrine does not apply.
