367 F. Supp. 3d 123
S.D.N.Y.2018Background
- Columbus McKinnon (insured) sued Travelers and Liberty Mutual (insurers) seeking declarations that the insurers must defend and indemnify thousands of asbestos bodily-injury suits filed against Columbus McKinnon and reimburse defense/settlement costs. Policies at issue span 1958–1989 (Travelers earlier, Liberty Mutual later).
- Dispute centers on three categories of underlying suits: (A) suits naming Columbus McKinnon only in its individual capacity; (B) suits naming Columbus McKinnon both individually and as successor to after-acquired entities (LTI/Yale); and (C) suits naming Columbus McKinnon only as successor to after-acquired entities (or not naming it at all).
- Insurers previously shared defense costs under formal and informal cost‑sharing arrangements (e.g., a 1997 Mack Truck Agreement) and participated in defense work; Columbus McKinnon later formed a captive (CMIC) and asserted growing self-insurance exposure.
- In 2011 Columbus McKinnon replaced prior coordinating counsel with DLA Piper; insurers contend they were cut out and that DLA Piper’s rates are excessive; Columbus McKinnon contends insurers breached duties and thus it was justified in retaining counsel and handling defense.
- Magistrate Judge Freeman recommended, and Judge Marrero adopted, that (a) insurers have a duty to defend Bucket A and B claims but not Bucket C claims; (b) defense costs for Bucket A/B should be paid 100% by insurers during the defense stage and allocated pro rata between the two insurers by time on the risk (not charged to insured/captive at that stage); (c) insurers’ motions on cooperation/voluntary payments and capping DLA Piper’s rates were denied; and (d) indemnity rulings mirror the duty-to-defend conclusions (premature for A/B; no duty for C).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend for suits naming insured individually (Bucket A) | Insurers must defend 100% because underlying complaints could potentially implicate insured products (hoists) or insurers have actual knowledge of facts creating coverage possibility | Insurers say most claims arise from after-acquired entities, so no duty to defend | Court: Duty to defend triggered for Bucket A (reasonable possibility of coverage; insurers cannot hide behind complaint form) |
| Duty to defend for suits naming insured individually and as successor (Bucket B) | Same as Bucket A — intertwined allegations preclude parsing; duty to defend applies | Insurers argue they owe no duty where liability derives from after-acquired entities | Court: Duty to defend applies to Bucket B because covered and non-covered claims are intertwined and cannot be readily separated at defense stage |
| Duty to defend for suits naming insured only as successor (Bucket C) | Insured argued insurers had actual knowledge making coverage possible | Insurers: Bucket C claims are outside Policies because after-acquired entities were not insured; insurers established no possible basis for indemnity | Court: No duty to defend for Bucket C (insurers may obtain summary judgment as to those claims) |
| Allocation of defense costs (during defense stage) | Columbus: insurers must pay 100% of defense costs (insured should not share while defenses are pending) | Insurers: allocate pro rata including insured/captive based on time on the risk; insurers seek contribution from captive | Court: Insurers must cover 100% during defense stage, but between insurers costs allocated pro rata by time on the risk; insured/CMIC not required to pay during defense stage (except Mack Truck carve‑out) |
| Insured's cooperation & voluntary-payment breaches | Columbus: any breach excused because insurers breached first (repudiated duty); it was forced to act | Insurers: Columbus (via new counsel/Korman) obstructed communication, unilaterally replaced counsel and settled without consent, vitiating coverage | Held: Genuine disputes of material fact exist; summary judgment denied to insurers on cooperation/voluntary-payment defenses |
| Reasonableness of DLA Piper rates | Columbus: rates reasonable given national coordinating role, complexity, counsel expertise; presumption of reasonableness applies because insurers breached duty to defend | Insurers: expert analyses show DLA Piper rates exceed prevailing reasonable market rates and should be capped | Held: Disputed material facts and methodological flaws in insurers’ expert reports preclude summary judgment; insurers’ rate‑capping motions denied |
| Duty to indemnify | Columbus: indemnity obligation follows if duty to defend and eventual facts show coverage | Insurers: no duty to indemnify for claims arising solely from after-acquired entities | Held: Indemnity motion denied as premature for Bucket A/B (depends on merits of underlying cases); granted for Bucket C (no duty) |
Key Cases Cited
- Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640 (N.Y. 1993) (broad duty to defend whenever complaint suggests or insurer knows facts creating reasonable possibility of coverage)
- Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61 (N.Y. 1991) (insurer's actual knowledge of facts may trigger duty to defend despite pleadings' form)
- Frontier Insulation Contractors, Inc. v. Merchants Mut. Ins. Co., 91 N.Y.2d 169 (N.Y. 1997) (duty to defend standard; insurer knowledge can trigger duty)
- Burt Rigid Box, Inc. v. Travelers Property Casualty Corp., 302 F.3d 83 (2d Cir. 2002) (insurer must establish there is no possible factual or legal basis for indemnity to avoid duty to defend)
- Travelers Cas. & Sur. Co. v. Alfa Laval, Inc., 100 A.D.3d 451 (App. Div.) (insurers may avoid defending claims that are solely successor‑liability where no basis for coverage exists; where direct liability also alleged, duty to defend exists)
- Mount Vernon Fire Ins. Co. v. Munoz Trucking Corp., 213 F. Supp. 3d 594 (S.D.N.Y. 2016) (insured meets burden for duty to defend where complaint potentially brings claim within policy)
- Olin Corp. v. Ins. Co. of N. Am., 218 F. Supp. 3d 212 (S.D.N.Y. 2016) (where insurer breached duty to defend, insured's incurred defense fees are presumptively reasonable and insurer bears burden to show unreasonableness)