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National Union Fire Insurance Co. of Pittsburgh, PA v. Donaldson Co., Inc.

United States District Court, D. Minnesota

December 6, 2017

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, and AMERICAN HOME ASSURANCE COMPANY, Plaintiffs/Counter Defendants,
v.
DONALDSON COMPANY, INC., Defendant/Cross Defendant/Cross Claimant/Counter Claimant,
v.
FEDERAL INSURANCE COMPANY, Defendant/Cross Claimant/Counter Claimant/Cross Defendant.

          CODY S. MOON, KELLY L. STOLTZ, AND MATTHEW J. FINK, NICOLAIDES FINK THORPE MICHAELIDES SULLIVAN LLP, AND PATRICK D. REILLY, ERSTAD & RIEMER, PA, FOR PLAINTIFFS.

          DAVID J.F. GROSS, MATTHEW B. KILBY, AND RIKKE A. DIERSSEN-MORICE, FAEGRE BAKER DANIELS LLP, AND GARY J. HAUGEN, LEORA ITMAN, AND MARGARET S. BROWNELL, MASLON LLP, FOR DEFENDANT DONALDSON COMPANY, INC.

          BETH A. JENSON PROUTY AND SARAH E. BUSHNELL, ARTHUR, CHAPMAN KETTERING, SMETAK & PIKALA, PA, AND DANIEL J. CUNNINGHAM, TRESSLER LLP, FOR DEFENDANT FEDERAL INSURANCE COMPANY.

          MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS' MOTION FOR ENTRY OF JUDGMENT

          JOHN R. TUNHEIM CHIEF JUDGE UNITED STATES DISTRICT COURT

         This is the Court's oldest open civil case. It is a 7-year old insurance dispute stemming from a 17-year old product-liability action in which Plaintiff National Union Fire Insurance Company of Pittsburgh, PA (“National Union”), Plaintiff American Home Assurance Company (“American Home”) (collectively, “AIG”), and Defendant Federal Insurance Company (“Federal”) paid a $6 million settlement on behalf of Defendant Donaldson Company, Inc. (“Donaldson”) in the underlying product-liability action. This litigation has been about that $6 million settlement: who owes who, how much, and why.

         Over the last five years, the Court has issued orders resolving all claims. Now, AIG moves for entry of judgment against Federal and Donaldson for amounts they owe to AIG, including pre- and post-judgment interest. Because all claims have been adjudicated, the Court will grant AIG's motion and enter money judgments for AIG against Donaldson and Federal, including pre- and post-judgment interest.

         BACKGROUND [1]

         I. FACTUAL BACKGROUND

         Throughout the 1990s, Donaldson designed and manufactured plastic air-intake ducts for the air-intake system on trucks used in the logging and construction industries. Donaldson I, 2012 WL 1072329, at *1. Starting in 2001, lawsuits began being filed against Donaldson alleging that its air-intake ducts had walls that were too thin, which purportedly caused the ducts to soften and melt, causing engine failure and engine damage. Id. In one such lawsuit in Mississippi state court, Arender v. Burroughs Diesel, Inc., the plaintiff truck-purchasers (Arender and others) asserted claims against Donaldson, and the defendant truck-seller (Burroughs) asserted a cross-claim against Donaldson for damages from the allegedly defective ducts. Id. at *2.

         AIG insured Donaldson from 1996 to 2002, with six largely identical general commercial-liability insurance policies, effective for consecutive annual periods from July 31, 1996, to July 31, 2002. Id. at *2. Each policy contained a $1 million per-occurrence limit and a $500, 000 per-occurrence deductible for property damage. Id. During the same time, Federal insured Donaldson as Donaldson's excess insurer - providing coverage for losses that exceeded the limits of Donaldson's policies with its primary insurers, including AIG. Id. at *3.

         Between 2005 and 2008, the Arender claims settled for $214, 408.56 in total, distributed among several plaintiffs (the Arender settlements). (Joint Stip., May 18, 2015, Docket No. 376.) But the Burroughs cross-claim took longer to settle. A first mediation in October 2009 failed to resolve it. Donaldson I, 2012 WL 1072329, at *5. In the lead-up to a second mediation in February 2010, AIG sent Donaldson a letter on January 21, 2010, in which AIG stated that, while Donaldson had satisfied one $500, 000 deductible, the Burroughs cross-claim implicated all six of Donaldson's annual policies with AIG. (Decl. of Cody S. Moon (“Moon Decl.”) ¶ 20, Ex. 19 at 3-4, Docket No. 462.) The letter further stated that Donaldson “has not satisfied” the unpaid deductibles and asked Donaldson to be prepared to contribute up to $2.5 million toward the Burroughs settlement “to satisfy Donaldson's deductible obligations.” (Id.) On February 9, 2010, AIG emailed Federal, stating that AIG was willing to contribute to the Burroughs settlement “additional sums allocable to” Federal's policies “under a reservation of rights.” (Decl. of Cody S. Moon ¶ 7, Ex. E, Oct. 24, 2011, Docket No. 110.) AIG stated that it “reserve[d] the right[ ] to recoup any settlement payment that is allocable to [Federal].” (Id.)

         On February 22, 2010, the Burroughs cross-claim settled for $6 million (the Burroughs settlement). Donaldson I, 2012 WL 1072329, at *5. AIG contributed $3, 548, 387.10 toward the settlement and Federal contributed $2, 451, 612.90; Donaldson paid nothing. Id. AIG invoiced Donaldson on June 24, 2010, for $2, 483, 870.97 in unpaid deductibles for AIG's contribution to the Burroughs settlement. (Decl. of Rikke Dierssen-Morice ¶ 2, Ex. 1, Oct. 5, 2015, Docket No. 395.) AIG brought this action against Donaldson in December 2010. (See Compl., Dec. 21, 2010, Docket No. 1.) AIG added Federal as a defendant in June 2011. (See Am. Compl., June 28, 2011, Docket No. 45.)

         II. PROCEDURAL HISTORY

         Over the last seven years, AIG, Donaldson, and Federal have vigorously disputed the proper allocation of the $6 million Burroughs settlement among the three of them. First, there was a dispute over how many “lots” of goods the Burroughs litigation involved, and thus how many “occurrences” the Burroughs settlement implicated. Donaldson, I, 2012 WL 1072329, at *14; Donaldson II, 2015 WL 1292561, at *9. More lots - and thus more occurrences - would mean that Donaldson would owe more $500, 000 deductibles. Second, there was a dispute over how many of Donaldson's policies the Burroughs settlement implicated. Donaldson II, 2015 WL 1292561, at *6. Again, more policies implicated would mean more deductibles owed by Donaldson. Third, the parties disputed the timing of both when Donaldson received sufficient notice under its policies of the Burroughs property damage and when the damage occurred, thereby affecting which annual policy or policies were implicated, which in turn would affect AIG and Federal's obligations. Donaldson I, 2012 WL 1072329, at *13.

         Many of the aforementioned disputes have involved the Batch Clause Endorsement in Donaldson's policies with AIG (and thus incorporated into Donaldson's excess policies with Federal), which combines certain property damage that might otherwise be subject to separate deductibles into one “occurrence.” Id. at *3. The Clause states:

Section V-Definitions [12/13]-Occurrence, is amended to add new paragraph:
As respects ‘Products Completed Operations Hazard' all . . . “property damage” arising out of and attributable directly or indirectly to the continuous, repeated or related exposure to substantially the same general conditions affecting one lot of goods or products manufactured, sold, handled or distributed by you or others trading under your name, shall be deemed to result from a single “occurrence.” Such “occurrence” will be deemed to occur with the first injury notified to you during the policy period.

(Compl., Ex. A, Endorsement No. 20 Revised, at 57.)

         On March 23, 2015, the Court made the following findings and conclusions. First, the Burroughs settlement implicated two “lots” of products, and therefore the damages paid for in the Burroughs settlement were caused by two occurrences. Donaldson II, 2015 WL 1292561, at *9-12. And second, Donaldson received notice of the underlying property damage during the 1999-2000 policy year. Id. at *12.[2]

         After the Court's March 23, 2015, Order, while Donaldson's counterclaims remained pending, AIG brought a motion for entry of judgment on the claims that had already been decided. Donaldson III, 2016 WL 4186930, at *3. The Court denied AIG's request, holding that, under Federal Rule of Civil Procedure 54, entry of partial judgment was not justified. Id. at *3-4. Later, the Court granted AIG summary judgment on Donaldson's counterclaims. D ...


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