Radiator Specialty Co. v. Arrowood Indem. Co.

Citations: 800 S.E.2d 452; 253 N.C. App. 508; 2017 N.C. App. LEXIS 389; 2017 WL 2118660Docket: COA16-638

Court: Court of Appeals of North Carolina; May 16, 2017; North Carolina; State Appellate Court

Original Court Document: View Document

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The case involves Radiator Specialty Company, a diversified products manufacturer and seller, which has been involved in a legal dispute with multiple insurers regarding coverage under a complex multi-policy commercial liability insurance package. The company, which has been securing insurance since 1971, manufactured products containing benzene and asbestos for several years, leading to substantial litigation defense costs and liabilities from numerous related products-liability claims. After resolving coverage disputes with some insurers, Radiator Specialty seeks a declaratory judgment against its remaining solvent insurers to clarify their obligation to cover defense and indemnity costs for past and future claims related to benzene and asbestos. The appeal stems from interlocutory orders made by Judge W. David Lee in Mecklenburg County Superior Court.

The parties engaged in litigation regarding partial summary judgment on various insurance coverage issues, particularly related to progressive disease claims. The trial court issued fifteen orders addressing key matters such as the theory for triggering coverage under policies, the allocation of defense and indemnity costs across multiple policy periods, and the exhaustion of underlying coverage before excess or umbrella coverage applies. Prior to final judgments, the parties appealed six of these orders. The case involves complex insurance liability coverage questions, including the applicable theories for trigger, allocation, and exhaustion concerning decades-long, multi-carrier, multi-policy coverage. Certain insurers requested the dismissal of these appeals, arguing that the interlocutory orders do not significantly affect substantial rights, warranting immediate review. In contrast, the insured and one insurer sought immediate review based on the impact of the orders on their rights. The court dismissed the appeals and cross-appeals because the orders were not certified for immediate appeal under Rule 54(b), and no party adequately demonstrated how any order would cause irreparable harm without immediate review. The background highlights that Radiator Specialty Company (RSC), involved in manufacturing and selling products since 1971, has secured over one hundred insurance policies from twenty-five insurers, specifically for risks associated with benzene and asbestos-related claims. RSC has faced numerous liability claims and incurred significant costs, leading to a lawsuit against its remaining insurers for indemnification and reimbursement of defense costs. In 2015, RSC amended its complaint to include additional insurers and claims for bad faith and unfair practices, demanding a jury trial on all claims.

The litigation involved multiple theories of insurance coverage, with parties filing motions for partial summary judgment on various issues. Central disputes included the appropriate theory for triggering coverage for progressive disease claims. RSC and one insurer advocated for an “injury-in-fact” trigger, while other insurers supported an "exposure" trigger, which limits coverage to periods of actual exposure to hazardous substances like benzene or asbestos. 

Additionally, there was contention over how to allocate defense and indemnity costs across multiple policy periods. RSC favored an “all-sums” allocation approach, while insurers preferred a “pro-rata” allocation based on a time-on-the-risk model. The parties also disagreed on the method for exhausting underlying policies to trigger excess coverage, with two umbrella insurers arguing for “horizontal” exhaustion, requiring all underlying coverage to be exhausted before accessing excess policies, in contrast to the “vertical” exhaustion method, which allows access to excess coverage once any underlying policy is exhausted.

After five days of hearings, the trial court issued fifteen orders on 28 or 29 January 2016, of which eight are in the appellate record, including six orders relevant to the appeal. The court ruled in favor of the exposure trigger theory, pro-rata allocation of costs, and horizontal exhaustion for umbrella coverage. It also determined that RSC could not apply settlement payments to reduce Zurich's liability-retained limit without consent and that a coverage settlement with a primary insurer did not terminate United National's obligations under its excess policy.

RSC appealed several rulings, contesting the application of the exposure trigger, pro-rata allocation, and horizontal exhaustion method for Landmark’s umbrella coverage. Other parties also filed appeals and cross-appeals regarding various court orders.

RSC argues the court incorrectly ruled that it cannot use settlement payments and indemnity incurred without Zurich's consent to reduce the retained-liability limit of Zurich’s umbrella policy. Fireman’s Fund, in its cross-appeal, challenges the trial court's use of an exposure trigger instead of an injury-in-fact trigger. United National contends the court erred by ruling that RSC’s settlement with an underlying insurer does not terminate its coverage obligation for that policy period. Zurich alleges that the court mistakenly included a footnote in its Horizontal Exhaustion Order, suggesting its umbrella coverage may apply in situations other than complete horizontal exhaustion.

The appealability of these interlocutory orders is at issue. Several insurers, including Landmark, National Union, United National, and Zurich, argue that the appeals are premature and should be dismissed to allow the trial court to resolve all matters before appellate review. They assert that the orders are interlocutory, do not impact substantial rights, and would not cause harm without a final judgment. In contrast, RSC and Fireman’s Fund argue for immediate review, claiming the orders affect substantial rights, particularly regarding insurance defense in ongoing claims.

Fireman’s Fund claims the orders represent a final judgment for appeal purposes, while RSC argues that multiple orders would irreparably affect its rights without immediate review. However, the court finds that these orders are interlocutory, rejecting Fireman’s Fund's argument that they constitute a final judgment. The court clarifies that a final judgment disposes of all issues for all parties, while interlocutory orders leave some matters unresolved. Despite RSC’s pending attorney’s fees request, significant non-collateral issues remain, including unresolved damages and RSC’s claims against National Union, confirming the interlocutory nature of the orders.

Landmark, National Union, United National, and Zurich argue that the court lacks jurisdiction over the appeals and cross-appeals because the orders in question do not irreparably affect substantial rights without immediate appellate review. Conversely, RSC and Fireman’s Fund assert their right to appeal, claiming the orders do impact substantial rights. An appellate court is obligated to dismiss an appeal when there is no right to appeal. Generally, immediate appeals from interlocutory orders are not allowed to avoid premature appeals, permitting cases to conclude fully in trial courts before reaching the appellate division. However, exceptions exist: one allows immediate appeal if the trial court certifies an order as a final judgment for some claims or parties under Rule 54(b), and the other permits appeal if an order affects a substantial right, which could be lost if not reviewed prior to the final judgment.

In this case, as no orders are certified under Rule 54(b), RSC and Fireman’s Fund must demonstrate how each order affects a substantial right and would cause injury if not corrected before the final judgment. The burden lies with the appellants to present valid grounds for the interlocutory appeal, while the court will not create arguments on their behalf. To meet this burden, RSC and Fireman’s Fund must provide sufficient facts and arguments in their briefs to show that the challenged order affects a substantial right, rather than merely asserting it. If they fail to demonstrate this, their appeal will be dismissed. Specifically, RSC claims that the orders affect its substantial right to "duty-to-defend coverage for currently pending lawsuits," asserting that the orders significantly limit its ability to secure defense from insurers in ongoing products liability cases.

RSC cites Cinoman v. Univ. of N. Carolina to argue that an interlocutory order regarding an insurer's duty to defend in a pending claim affects a substantial right warranting immediate appeal. However, RSC fails to apply or relate the facts of Cinoman to its own case, lacking sufficient grounds to assert that the ruling in Cinoman governs here. In Cinoman, the plaintiffs appealed an interlocutory injunction that stayed their declaratory judgment action on whether UNC owed them defense in a medical malpractice suit, which involved a substantial right justifying immediate review. In contrast, RSC's appeal does not involve a stayed declaratory judgment action regarding a specific insurer's duty to defend in a particular claim. Instead, RSC seeks a declaration regarding the defense obligations of multiple insurers for numerous unspecified past and future claims. RSC does not provide relevant facts about any pending claims, such as denial of coverage or potential damages exceeding policy limits, which undermines its argument. The court has previously acknowledged that an insured may seek interlocutory review when a specific claim is pending and the insurer’s duty to defend is in question, as established in Lambe Realty Inv. Inc. v. Allstate Ins. Co. However, RSC's situation does not align with these criteria, as it does not involve an identified claim against it.

In Enter. Leasing Co. v. Williams, the North Carolina Court of Appeals recognized a substantial right for an insured when an order stated that an insurer had “no duty to defend” in a pending claim. The court has also allowed review of interlocutory orders that impact the duty-to-defend issue, as seen in Cinoman. However, the substantial right exception has not been extended to orders addressing ancillary coverage disputes related to multiple unidentified claims, as indicated in Paradigm Consultants, where the court found no substantial right because the order did not determine the insurer's ultimate duty to defend.

In the current matter, the orders being appealed by RSC determine the appropriate theory for triggering coverage and the cost allocation method for numerous unidentified claims, but they do not directly resolve the ultimate duty-to-defend issue for any specific claim. RSC did not present a legal argument to justify expanding the substantial right exception to these types of orders, which differ from cases like Enterprise Leasing Co. and Cinoman, where the appeals concerned a specific pending claim.

Furthermore, RSC failed to demonstrate how delaying the appeals would compel it to settle cases prematurely or hinder its defense in ongoing claims. The court maintains a restrictive interpretation of the substantial right exception to the general prohibition on immediate appeals from interlocutory orders. Each interlocutory order must be evaluated individually to ascertain whether a substantial right would be jeopardized by delaying the appeal. In this case, the Trigger Order and Allocation Order specifically address coverage theories and cost allocations for numerous past and future claims against RSC. Lastly, the Zurich Indemnity Obligations Order established that Zurich has no duty to indemnify RSC until RSC shows it has exhausted its liability-retained limit under Zurich's umbrella policy, which cannot be diminished through costs incurred without Zurich's consent.

Zurich’s insurance policy offered $5 million in umbrella liability coverage per occurrence and annually, with a $10,000 retained limit for the policy period from November 13, 1982, to November 13, 1983. The court determined in the Landmark Partial Summary Judgment Order that Landmark's umbrella policies might obligate RSC to a defense in benzene-related claims if all underlying policies are exhausted. These policies provided umbrella coverage of $10 million or $8 million per occurrence and annual aggregate, also with a $10,000 retained limit, for periods from October 8, 2003, to May 1, 2014. RSC noted in a footnote that thirty-nine benzene claims were pending as of October 31, 2016, and argued that various orders restricted its right to insurance defense. Specifically, RSC claimed the Allocation Order limited insurers' duty to defend to a minor portion of litigation costs, the Trigger Order narrowed the number of policies available by using a restrictive exposure trigger, and the Landmark and Zurich Horizontal Exhaustion Orders impacted its ability to count certain settlements towards exhausting limits. However, RSC failed to provide sufficient details on how these orders affected its defense rights, did not identify any pending claims or specific facts related to benzene or asbestos claims, nor demonstrated how insurers denied coverage or the nature of any alleged injuries. The court, unable to ascertain which policies may be implicated or the extent of RSC's coverage entitlements, found RSC did not support its argument for appellate review regarding substantial rights. Consequently, the appeals were dismissed, as RSC did not adequately demonstrate the relevance of its claims to warrant further examination.

Fireman’s Fund argues that the Trigger Order impacts its substantial rights by applying an exposure trigger that absolves certain insurers of their duty to defend in pending claims. However, Fireman’s Fund fails to provide specific evidence of how this application would affect any particular claim. The court recognizes the Trigger Order’s potential implications for defense duties but finds that Fireman’s Fund has not adequately demonstrated the practical effects on pending claims. National Union contends that Fireman’s Fund cannot claim appellate jurisdiction based on substantial rights since the trial court ruled that Fireman’s Fund owed no duty to defend RSC without its consent. The court agrees, referencing Peterson v. Dillman, where a similar argument was rejected because the order allowed but did not compel the insurer to defend. The court concludes that Fireman’s Fund’s ability to defend does not equate to a duty that implicates substantial rights. Furthermore, Fireman’s Fund has not shown how the Trigger Order would cause injury if not reviewed before final judgment. As a result, the court finds that applying the Trigger Order does not affect Fireman’s Fund's substantial rights, precluding appellate jurisdiction. United National and Zurich also fail to demonstrate substantial rights affected and seek dismissal of the appeals. Consequently, all related appeals and cross-appeals are dismissed. The court notes that RSC and Fireman’s Fund could have sought Rule 54(b) certification for interlocutory orders, which was not pursued, leaving the orders subject to modification until a final judgment is reached.

N.C. Gen. Stat. 1A-1, Rule 54(b) allows for the revision of any order or decision prior to the entry of a final judgment that resolves all claims and parties' rights and liabilities. Interlocutory orders may be modified during the case's pendency to address its needs. A petition for a writ of certiorari filed by Fireman’s Fund, joined by RSC, requesting appellate review of interlocutory orders deemed unappealable has been denied. The court emphasizes the prohibition against interlocutory appeals to prevent delays and encourage complete resolution of cases before they reach appellate courts. Significant issues such as damages are still disputed, and it remains unclear if other claims have been resolved. The court concludes that this case should be reviewed in its entirety rather than piecemeal. The six orders on appeal are deemed interlocutory and were not certified for immediate review under Rule 54(b). No party demonstrated how any order impacts substantial rights or causes injury without immediate review. RSC failed to show how the orders would irreparably affect its right to insurance defense regarding pending benzene claims, as it did not provide sufficient facts or evidence. Fireman’s Fund cannot claim that the Trigger Order affects its rights because it has no defense obligation without RSC's consent. The appeals and cross-appeals are dismissed, allowing for comprehensive resolution of all issues before any appellate review. Judges Dillon and Zachary concur in the dismissal.