Edmund V. Ludwig, District Judge.
Plaintiff General Refractories Company (GRC) and defendants Lexington Insurance Company and AIU insurance Company cross-move for partial summary judgment (doc. nos. 315, 360, 361 (sealed)). Fed. R. Civ. P. 56. Jurisdiction is diversity. 28 U.S.C. § 1332.
In 2004, plaintiff GRC sued its insurance carriers for a declaration of excess insurance coverage against asbestos-related claims. A manufacturer and supplier of asbestos-containing products, GRC is a defendant in numerous asbestos-related suits throughout the United States. Two of the insurance carriers are defendants Lexington and AIU.
As to each of these defendants, GRC moved for partial summary judgment (doc. nos. 277 and 278, respectively), because their policies of insurance did not contain an exclusion for asbestos products liability. Those motions were granted. (Orders and mem., June 20, 2011, doc. nos. 318-320.) Before those motions were ruled on, Lexington and AIU were permitted to amend their joint answer to add counterclaims for reformation and rescission of the policies. (Order, Mar. 24, 2011, doc. no. 304; Counterclaims, doc. no. 284 at 29-37.) On June 8, 2011, GRC again moved for partial summary judgment, contending that the counterclaims should be dismissed (doc. no. 315).
None of the policies or a policy endorsement contains an exclusion for claims related to asbestos products.
Discovery has been completed, and the following facts are not in dispute. From 1982 to 1986, Jennifer Romano of Marsh & McLennan was GRC's broker for the procurement of policies. GRC received Romano's March 30, 1984 letter requesting authorization to approach umbrella and excess insurance carriers to obtain policies for the August 1, 1984-85 period. On July 2, 1984, Romano submitted GRC's insurance application to Michael Bruzzi, vice president of Pacific Starr of New York, a managing general agent with authority to bind policies for Granite State Insurance Company. In the cover letter, Romano stated: "The current Umbrella program excludes asbestos and warrants the underlying aggregates will not be impaired by asbestos. We expect this condition to be duplicated for the 1984-85 program." Doctors Aff. 9/9/11, Ex. 17, doc. no. 361. On July 19, 1984, Bruzzi sent Marsh a telex of Granite State's quote for umbrella coverage that stated: "Terms and Conditions: Exclude all claims arising out of asbestos and no aggregate impairment of asbestos products."
Marsh also approached Lexington and AIU, which agreed to issue excess coverage for the August 1, 1984-85 period. Two binders were prepared on Marsh's letterhead and dated August 1, 1984 — one signed by Didi Devane on behalf of Lexington and the other signed by Albertha Garrett on behalf of AIU. Each binder stated: "Subject to: Following all wordings and coverages of first layer Umbrella with Granite State Ins. Co., including but not limited to: . . . Exclude asbestos and warrant U/L aggregate not exhausted by aggregate." Doctors Aff. 9/9/11, Ex. 24. Romano testified that someone else was responsible for preparing the binders and it was "possible that information [contained in the binder] was provided by the carrier." Romano dep. 278:15-279:6, Nov. 11, 2009, Conley Aff. 9/23/11, Ex. Q, doc. no. 372-1.
By letter of August 23, 1984, Marsh forwarded these binders, along with binders for the other four excess liability carriers on the risk during the 1984-85 period,
AIU issued its policy on August 6, 1984, but the policy did not specify an underlying umbrella policy. The single page policy included preprinted follow-form language:
Doctors Aff. 9/9/11, Ex. 30. On September 4, 1984, Lexington issued its policy. The policy referenced an underlying umbrella policy issued by "Century Indemnity" with the policy number to be advised, "TBA."
On May 2, 1985, Romano forwarded the Granite State, Lexington, and AIU policies to GRC, which GRC received. In the cover letter, Romano stated she had found "discrepancies" in the policies, including: "As you are well aware, asbestos is not covered in the Umbrella program, but Granite State omitted their exclusion." Doctors Aff. 9/9/11, Ex. 32. In regard to the AIU policy, Romano stated: "Should mention lead Umbrella carrier."
The record does not establish whether Romano, when she wrote the letter to Bruzzi, was acting as a broker for GRC. Romano testified: "I really don't have much memory working on the [GRC] account." Romano dep. 54:8-11, Nov. 11, 2009, Doctors Aff. 9/9/11, Ex. 14. She did not recall working with Bruzzi on the GRC account. She did not remember the letter at all and was "not sure that this was me necessarily proposing the language."
There is no testimony offering firsthand, personal knowledge about the negotiations, underwriting, binding, or clerical compilation of the policies issued for the 1984-85 period:
Barry Katz, GRC's Rule 30(b)(6) witness, testified to discussions concerning an asbestos exclusion in the Granite State policy: "I wasn't involved in those negotiations nor have I been able to find any facts relating what went on during those negotiations." Katz dep. 439:17-23, Apr. 20, 2010, Doctors Aff. 9/9/11, Ex. 6. Katz testified that "GRC does not have any independent facts as to what was involved in the original negotiations" and "what took place."
Joseph Mulvaney testified that he did not remember whether asbestos was covered. Mulvaney dep. 137:4-14, Nov. 12, 2009, Doctors Aff. 9/9/11, Ex. 3. Mulvaney could not recall any discussions with Marsh during 1982-86.
Bruzzi, Granite State's Rule 30(b)(6) witness regarding underwriting, testified that he did not "remember being involved in any way in the sale of the policies" to GRC. Bruzzi dep. 66:11-15, June 29, 2010, Conley Aff. 9/23/11, Ex. H; Bruzzi dep. 31:3-5, 31:22-25, 32:3-7, 42:5-10, June 29, 2010, Doctor's 9/9/11, Ex. 19. When asked to assume an asbestos exclusion should have been part of the Granite State policy, Bruzzi testified that the omission "had to be a clerical error somewhere in the process of issuing the policy."
John Gibson, Lexington's Rule 30(b)(6) witness regarding underwriting, testified that he stopped working for Lexington in 1982. He offered no testimony from personal knowledge about the 1984-85 insurance transaction or the underwriting of the Lexington policy. He offered numerous opinions concerning Lexington's intent not to insure asbestos risks and its underwriting policies, practices, and procedures in general. However, he was unable to state facts in support of those opinions. Gibson dep. 7:13-15, Oct. 14, 2009, Doctors Aff. 9/9/11, Ex. 25.
Paul Sanchez, AIU's Rule 30(b)(6) witness regarding underwriting, testified that he did not work for AIU in 1984-85. He did not know what AIU's underwriting procedures or policies were during that time. Sanchez dep. 35:16-36:4, Jan. 20, 2010, Conley Aff. 9/23/11, Ex. E. He had no involvement with AIU. Sanchez. dep. 33:5-12, 34:12-17, 35:16-23, Jan. 20, 2010, Doctors Aff. 9/9/11, Ex. 12.
Defendants maintain that the policies should be reformed in order to carry out the intent and agreement of the parties to exclude any claims related to asbestos. Defendants submit that the omission of such an exclusion was due to a "fundamental mistake" — an "erroneous belief shared by GRC, Lexington and AIU" — that the Granite State policy contained an asbestos exclusion endorsement. Defs. sur-reply br., doc. no 387 at 2. Defendants formulate this question somewhat differently in their counterclaims, stating that the Granite State, Lexington, and AIU policies each "inadvertently failed to include its own endorsement excluding coverage for claims arising out of exposure to asbestos," and the Lexington and AIU policies "not only followed form to, but also relied on" the Granite State policy. Counterclaims, ¶¶ 9, 16, 23.
An insurance contract may be reformed to correspond to the understanding of the parties where the mistake is mutual between the parties. Recent authority for this well known principle does not exist. What follows has not been overruled or criticized.
Defendants, which have the burden of proof for reformation based on mutual mistake, must point out record evidence beyond the pleadings showing a genuine trial issue.
The Lexington and AIU binders provide some evidence of the parties' discussions before the insurance contracts were executed. "A binder offers temporary protection for the insured pending the investigation of the risk by the insurance company until a formal policy of insurance is issued."
The policies could be viewed as inconsistent with the binders, as suggested by defendants, but only if an agreement to the binders' terms and conditions were established. No such agreement has been shown here. The record does not contain testimony from any witness offering firsthand, personal knowledge about what the parties knew, intended, understood, and agreed in regard to the binders for the 1984-85 period.
Defendants submit voluminous documents concerning GRC's insurance in various policy periods both before and after 1984-85.
The proffered mistake, a clerical error, is also speculative. That the policies did not contain an asbestos exclusion is no more indicative of a clerical mistake in compiling the policies than a prior agreement to insure asbestos liability. The record does not show that either possibility is more likely than the other. Absent a mutual mistake warranting equitable relief, the policies cannot be rewritten in order to give effect to the parties' conflicting views about the underwriting history of the policies.
Defendants controlled the contents of their policies.
Next, relief can be granted for mutual mistake only if it is not a mistake for which the party claiming reformation or rescission bears the risk.
In addition, reformation and rescission may be granted only when the contracting parties can be restored to their former positions.
An order accompanies this memorandum. That order holds that reformation or rescission of the Lexington and AIU policies is not granted and defendants' counterclaims for such relief will be dismissed with prejudice. The question of whether the Granite State policy should be deemed to contain an asbestos-related exclusion has not been presented or decided.
On June 7, 2010, nearly six years after this litigation had commenced, fact discovery closed. (Orders, Jan. 21, 2010 and Feb. 19, 2008, doc. nos. 239, 199.) During that time, defendants Lexington and AIU contended that their policies contained exclusions for asbestos products liability. On October 22 and November 2, 2010, GRC moved for partial summary judgment as to each of these defendants (doc. nos. 277 and 278, respectively), because their policies did not contain such an exclusion. Defendants changed course. On November 22, 2010, defendants moved to amend their answer to state counterclaims for reformation and rescission of their policies, submitting that "no further discovery is required regarding the counterclaims." (Defs. br., doc. no. 284 at 8-9.) They were permitted to amend the answer. (Order, Mar. 24, 2011, doc. no. 304; Counterclaims, doc. no. 284 at 29-37.) GRC's motions for summary judgment were granted. (Orders and mem., June 20, 2011, doc. nos. 318-320.)
On June 8, 2011, before the court had ruled on the summary judgment motions, GRC again moved for partial summary judgment requesting dismissal of the amended counterclaims. (Doc. no. 315.) On July 11, 2011, defendants' response to the motion was due. (Order, June 9, 2011, doc. no. 317.) By July 8, 2011 letter, defendants requested and were granted an enlargement of the deadline to July 20, 2011. (Order, July 11, 2011, doc. no. 328.) On July 19, 2011, defendants made their first request for additional discovery to support the counterclaims, which plaintiff opposed. (July 19, 22, and 29, 2011 letters, doc. nos. 332, 336, 351.) After a conference, defendants were granted limited discovery and were directed to respond to the motion for summary judgment by September 9, 2011. (Order, Aug. 3, 2011, doc. no. 352.)