Millennium Holdings, LLC v. The Glidden Company ( 2016 )


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  • This opinion is uncorrected and subject to revision before
    publication in the New York Reports.
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    No. 38
    Millennium Holdings LLC,
    Plaintiff,
    The Northern Assurance Company of
    America,
    Appellant,
    Certain Underwriters at Lloyd's,
    et al.,
    Intervenors-Appellants,
    v.
    The Glidden Company, &c., et al.,
    Respondents.
    Carl S. Kravitz, for appellant.
    Maura Monaghan, for respondents.
    United Policyholders; Complex Insurance Claims
    Litigation Association, amici curiae.
    ABDUS-SALAAM, J.:
    In this action, appellants insurance companies seek to
    be subrogated to the right of their insured, plaintiff Millennium
    Holdings LLC (Millennium), to indemnification against
    respondents, the Glidden Company, now known as Akzo Nobel Paints
    LLC, following the insurance companies' satisfaction of
    Millennium's obligations pursuant to monetary settlements reached
    in certain lead paint related cases.   The courts below, applying
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    the antisubrogation rule, held that the insurance companies could
    not subrogate.   We disagree, and hold that the antisubrogation
    rule does not apply in this case.
    I.
    The complex corporate history of the parties is central
    to resolving this indemnification dispute.   The Glidden company,
    incorporated in Ohio in 1917, made, marketed and sold lead paint,
    including, until 1958, lead pigment.   Glidden was bought by SCM
    Corporation (SCM) in 1967.   SCM placed Glidden's operations in a
    division entitled the Glidden-Durkee Division.   Between 1962 and
    1970, primary and excess insurance policies were issued to
    Glidden, and thereafter the Glidden-Durkee Division of SCM, by
    the appellant insurance companies, including certain underwriters
    at Lloyd's, London and certain London Market Insurance Companies
    (the London Insurers), as well as the predecessor of Northern
    Assurance Company of America (collectively, where appropriate,
    the Insurers).   A number of the policies issued between 1963 and
    1968 provide the Insurers with a right to subrogation, whereby,
    after paying a claim on behalf of its insured, an insurer may
    seek to enforce the insured's rights against another entity to
    recover its loss (see Federal Ins. Co. v Arthur Andersen & Co.,
    75 NY2d 366, 372 [1990]).
    In 1986, Hanson Trust PLC purchased SCM in a hostile
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    takeover.1     SCM adopted a Plan of Liquidation and Dissolution,
    where it distributed its remaining assets and liabilities between
    20 "fan companies," entitled HSCM 1 through 20.     SCM placed the
    assets and liabilities of the Glidden paints business into
    HSCM-6.     SCM memorialized this distribution in a Memorandum of
    Distribution and Liquidation which expressly noted that the
    insurance policies issued to Glidden and SCM were excluded from
    the distribution to HSCM-6.     Thus, the insurance policies that
    were issued to SCM and Glidden were not included in the assets of
    the Glidden paints business which were distributed to HSCM-6.
    Following the distribution of assets to HSCM-6, the stock of
    HSCM-6 and all remaining undistributed assets of SCM were placed
    in HSCM-20, including the insurance policies issued by the
    Insurers.2
    As relevant to this appeal, the critical moment in the
    corporate history of the parties occurred in 1986, when HSCM-20
    entered into a purchase agreement under which it sold all the
    stock in HSCM-6 to ICI American Holdings (1986 Purchase
    Agreement).     Although ICI American Holdings held all the HSCM-6
    stock, HSCM-20 retained the insurance policies.     The 1986
    Purchase Agreement also included certain indemnity obligations,
    1
    Prior to Hanson's acquisition of SCM, SCM placed its
    pigments business into a subsidiary, ABC Chemicals Inc. SCM
    retained its paints business.
    2
    This distribution to HSCM-20 also included ABC Chemicals
    Inc.
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    due to successor liability concerns.   Under section 9.1 (c) of
    the 1986 Purchase Agreement, HSCM-20 agreed to indemnify ICI
    American Holdings for an eight-year period between 1986 and 1994
    for claims arising from:
    "product safety or liability, health or
    welfare conditions or matters arising from or
    relating to acts, omissions, events or
    conditions of or relating to the Business,
    the Predecessor Business or the Former
    Business occurring or existing prior to the
    Closing or otherwise arising out of or
    relating to the conduct of the Business, the
    Predecessor Business or the Former Business
    prior to the Closing."3
    Under section 9.3 of the 1986 Purchase Agreement, ICI
    American Holdings agreed to indemnify HSCM-20 after 1994,
    "from, against, and in respect of any Claims
    relating to the Business arising from or
    relating to the acts, omissions, events or
    conditions of or relating to the Business,
    the Predecessor Business or the Former
    Business occurring or existing prior to, on
    or after the Closing or otherwise arising out
    of or relating to the conduct of the
    Business, the Predecessor Business or the
    Former Business prior to, on or after the
    Closing arising against Indemnitees for
    matters referred to in Section 9.1 (b), 9.1
    (c) or 9.1 (e) to the extent that [ICI
    American Holdings] would not be entitled to
    3
    HSCM-20 and ICI American Holdings agreed that the amount
    of the indemnity for this initial eight-year period would
    decrease gradually, until it expired in 1994.
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    indemnity under Sections 9.14 and 9.2.5"
    Through a series of corporate transactions, HSCM-20
    became plaintiff Millennium, and ICI American Holdings assigned
    HSCM-6 to an entity that became Akzo Nobel Paints (ANP).
    Accordingly, based on the 1986 Purchase Agreement, Millennium and
    its predecessors were required to indemnify ANP and its
    predecessors from 1986 to 1994.   In turn, ANP and its
    predecessors were required to indemnify Millennium and its
    predecessors from 1994 onward.6
    Commencing in 1987, a number of lawsuits were filed
    across the nation against the predecessors of Millennium and ANP,
    alleging either personal injury or property damage from the lead
    paint they produced, or that the lead paint was a public nuisance
    requiring abatement (hereinafter the Lead Cases).    Between 1987
    4
    Section 9.1 concerns the indemnification obligations of
    HSCM-20, as the seller, and defines Business, Predecessor
    Business, and Former Business. Those definitions are not
    relevant for purposes of this appeal.
    5
    Section 9.2 outlines the periods applicable to and the
    limitations upon HSCM-20's indemnification obligations.
    6
    At the same time the 1986 Purchase Agreement was entered
    into, Hanson -- the purchaser of SCM -- attempted to enter into a
    Side Letter Agreement, under which it purported to provide ICI
    American Holdings with the benefit of the insurance policies that
    had applied to SCM and Glidden. Notably, this transfer was later
    invalidated by the Ohio Supreme Court in an indemnity action
    between Glidden and certain comprehensive general liability
    insurers. That Court held that Hanson was not a named insured in
    the relevant policies and consequently could not transfer the
    policies to ICI American Holdings (see Glidden Co. v Lumbermens
    Mut. Cas. Co., 112 Ohio St 3d 470, 477 [Ohio 2006]).
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    and 1994, pursuant to the 1986 Purchase Agreement's
    indemnification provision, ANP's predecessors were indemnified by
    Millennium's predecessors for their defense costs in the Lead
    Cases.   However, when the indemnity obligation flipped in 1994,
    ANP's predecessor refused to indemnify Millennium's predecessor,
    claiming it was not obligated to do so under the 1986 Purchase
    Agreement.    As a result, in 1994, ANP's predecessor and
    Millennium's predecessor commenced actions against each other in
    both New York and Ohio state courts to resolve the dispute.7
    That litigation settled in 2000, and the settlement agreement
    incorporated a Novation Agreement, whereby ANP acquired ICI
    American Holdings's indemnity obligation under section 9.3 of the
    1986 Purchase Agreement.    The parties amended the 1986 Purchase
    Agreement consistent with the settlement (the Amended Purchase
    Agreement).    The settlement, however, expressly left open the
    parties' indemnification obligations regarding the Lead Cases.
    During pendency of the 1994 litigation, the London
    Insurers agreed to pay the defense costs of both Millennium and
    7
    ANP's predecessor essentially argued that it was not
    obligated to indemnify Millennium's predecessor for "pigment"
    claims versus "paint" claims; in ANP's predecessor's view, since
    the remnants of any of Glidden's pigments business had been
    transferred to ABC Chemicals prior to ICI American Holdings's
    purchase of HSCM-6, the indemnification provisions did not cover
    pigment claims. Apparently, plaintiffs in the Lead Cases made
    distinctions between lead-based paint and lead-pigment
    manufacturers, generally pursuing lead-pigment manufacturers
    rather than lead-based paint manufacturers due to difficulty in
    determining the actual manufacturers for the paint at issue.
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    - 7 -                        No. 38
    ANP under an Interim Defense Agreement.   However, the London
    Insurers terminated that funding agreement in 2000, and sought a
    declaration in Ohio state court that they were not required to
    provide ANP with a defense and indemnification in the Lead Cases,
    based on the subject policies.    In 2006, the Ohio Supreme Court
    held that ANP was not covered under the relevant policies "by
    operation of law or by contract," as it was not a named insured
    on any of the relevant policies and, additionally, its subsequent
    purchase of HSCM-6 included an assumption of liabilities (Glidden
    Co. v Lumbermens Mut. Cas. Co., 112 Ohio St 3d 470, 470, 474-475
    [Ohio 2006]).8
    Thereafter, in 2008, Millennium commenced this action
    seeking indemnification from ANP for fees and claims associated
    with the Lead Cases.9   After procedural history not directly
    relevant here, ANP asserted certain counterclaims.10   The London
    Insurers filed a motion to intervene in the action.    While that
    motion was pending, Millennium's settlement of a California lead
    8
    As mentioned, this decision also invalidated Hanson's
    Side Letter Agreement attempting to provide ICI American Holdings
    with the benefits of SCM's insurance policies.
    9
    Subsequently, in January 2009, Millennium filed for
    chapter 11 bankruptcy.
    10
    Specifically, ANP counterclaimed for a declaration that
    it was not obligated to indemnify Millennium for pigment-related
    claims. It also alleged that Millennium had made
    misrepresentations in the 1986 Purchase Agreement which entitled
    it to set-off any indemnification claims. Additionally, ANP
    asserted two causes of action for breach of Millennium's
    contractual obligation to indemnify ANP.
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    case, referred to as the Santa Clara Action, was approved by the
    federal bankruptcy court for the sum of $8.5 million.   The London
    Insurers contributed approximately $2.8 million and Northern
    Assurance contributed approximately $370,000 (roughly $3.2
    million collectively) to Millennium's satisfaction of this
    settlement.   Millennium and ANP then entered into a settlement
    agreement to resolve their claims in this action, under which ANP
    agreed to pay Millennium $3 million in satisfaction of all claims
    between them, and to terminate any obligations under the Amended
    Purchase Agreement.   The settlement agreement did not impact the
    Insurers' subrogation rights under the 1986 Purchase Agreement.
    Following execution of that settlement agreement,
    Supreme Court granted the London Insurers' earlier motion to
    intervene in this action, and thereafter Millennium and the
    London Insurers filed a second amended complaint.   The London
    Insurers sought a declaration that they were entitled to
    subrogate (both equitably and contractually) to Millennium's
    indemnification rights in the 1986 Purchase Agreement and, as a
    result, recover from ANP amounts that were paid by the London
    Insurers on behalf of Millennium in connection with the Lead
    Cases.11   At that juncture, the London Insurers' claim against
    ANP for subrogation was the only remaining claim in this action,
    as ANP and Millennium's settlement resolved the claims between
    11
    The Insurers assert that they have paid over $15 million
    to Millennium in connection with the Lead Cases.
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    them.     Later, Northern Assurance joined this action as a
    plaintiff when its separate indemnification action against ANP,
    seeking its contribution to the Santa Clara Settlement, was
    consolidated with this action.     The Insurers moved for partial
    summary judgment on liability and ANP cross-moved for summary
    judgment dismissing the complaints.12     Specifically, as relevant
    here, ANP argued, and the courts below agreed, that the Insurers'
    subrogation claim was barred by the exception to subrogation --
    the antisubrogation rule.     Although Supreme Court determined that
    under the 1986 Purchase Agreement ANP was not an insured, it
    concluded that because the Insurers sought to recover for the
    very risk they insured, the antisubrogation rule would prohibit
    the Insurers' right of subrogation.      The Appellate Division
    affirmed for the reasons stated by Supreme Court (see 121 AD3d
    444 [1st Dept 2014]), and we now reverse.
    12
    Prior to oral argument on the summary judgment motions
    in Supreme Court, an Ohio state trial court decided a pending
    action, wherein the Insurers sought to recoup their respective
    contributions to the Santa Clara Settlement from Millennium. The
    court held that the Insurers' settlement payment in the Santa
    Clara action was not required under the relevant policies, and
    thus was a voluntary payment. The court there reasoned that
    because the nuisance claim advanced by the Santa Clara plaintiffs
    was for "remediation of a public health hazard" not "an action
    for damages for injuries caused to plaintiffs' property,"
    coverage for that claim was unavailable because the policies
    issued by the Insurers covered property damage, rather than
    public health hazards. Thus, the court concluded that because
    the Insurers were not required to make the settlement payment,
    they were not entitled to reimbursement from Millennium of their
    $3.2 million contribution. The Insurers did not appeal this Ohio
    court order.
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    II.
    Subrogation, generally, may arise either contractually
    or under the doctrine of equitable subrogation.    The purpose of
    subrogation is to "allocate[] responsibility for the loss to the
    person who in equity and good conscience ought to pay it, in the
    interest of avoiding absolution of a wrongdoer from liability
    simply because the insured had the foresight to procure insurance
    coverage" (North Star Reins. Corp. v Continental Ins. Co., 82
    NY2d 281, 294 [1993]).    Equitable subrogation "'entitles an
    insurer to stand in the shoes of its insured to seek
    indemnification from third parties whose wrongdoing has caused a
    loss for which the insurer is bound to reimburse'" (ELRAC, Inc. v
    Ward, 96 NY2d 58, 75 [2001], quoting North Star Reins. Corp., 82
    NY2d 281, 294 [1993] [additional internal quotation marks
    omitted]).   Subrogation rights may also be preserved by the
    parties to a contract -- as is the case in some of the insurance
    policies at issue here.
    However, the antisubrogation rule is an exception to
    the right of subrogation (see Pennsylvania Gen. Ins. Co. v Austin
    Powder Co., 68 NY2d 465, 468 [1986]).    Under that rule, "an
    'insurer has no right of subrogation against its own insured for
    a claim arising from the very risk for which the insured was
    covered . . . even where the insured has expressly agreed to
    indemnify the party from whom the insurer's rights are derived'"
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    (ELRAC, Inc., 96 NY2d at 76, quoting Pennsylvania Gen. Ins. Co.,
    68 NY2d at 468).   In effect, "an insurer may not step into the
    shoes of its insured to sue a third-party tortfeasor . . . for
    damages arising from the same risk covered by the policy" (ELRAC,
    Inc., 96 NY2d at 76), even where there is an express subrogation
    agreement (see Jefferson Ins. Co. of N.Y. v Travelers Indem.
    Co.,92 NY2d 363, 373 [1998]).    The two primary purposes of the
    antisubrogation rule are to avoid "a conflict of interest that
    would undercut the insurer's incentive to provide an insured with
    a vigorous defense" and "to prohibit an insurer from passing its
    loss to its own insured" (id.).
    Insurers are barred under the antisubrogation rule from
    seeking subrogation from a named insured or additional insureds
    (see Pennsylvania Gen. Ins. Co., 68 NY2d at 471).    Conversely,
    subrogation is typically permissible where the third party is not
    a named or additional insured (see e.g. St. John's Univ., N.Y. v
    Butler Rogers Baskett Architects, P.C., 92 AD3d 761, 764 [2d Dept
    2012]; Utica Mut. Ins. Co. v Brooklyn Navy Yard Dev. Corp., 52
    AD3d 821, 822-823 [2d Dept 2008]; Insurance Corp. of N.Y. v
    Cohoes Realty Assoc., L.P., 50 AD3d 1228, 1230 [3d Dept    2008]).
    In Jefferson Ins. Co., however, where an insurer sought
    subrogation against a permissive operator of a covered vehicle,
    we held that the antisubrogation rule applied even though the
    permissive user was not specifically named as an insured or an
    additional insured, and despite the operator's agreement to
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    indemnify the named insured.   We reasoned that, although the
    operator was not named on the policy, the operator qualified as
    an insured because the policy covered permissive users of the
    vehicle, and that the distinction between a named insured and a
    permissive user was "immaterial for purposes of application of
    the antisubrogation rule" (id. at 375).   Accordingly, we
    concluded that application of the antisubrogation rule was
    appropriate, observing that the insurer "should not [have] be[en]
    surprised to pay claims that it covered" (id.).
    The antisubrogation rule, therefore, requires a showing
    that the party the insurer is seeking to enforce its right of
    subrogation against is its insured, an additional insured, or a
    party who is intended to be covered by the insurance policy in
    some other way, such as the permissive user in Jefferson.     Here,
    as recognized by the courts below, ANP and its predecessor were
    not insured under the relevant insurance policies.    When SCM
    transferred the assets and liabilities of its paints business to
    HSCM-6 (ANP's predecessor), the insurance policies that had
    applied to SCM were specifically excluded from that distribution.
    The insurance policies were placed in HSCM-20, a predecessor of
    Millennium.   Hence, ANP was never insured by the Insurers.   Thus,
    the principal element for application of the antisubrogation rule
    -- that the insurer seeks to enforce its right of subrogation
    against its own insured, additional insured, or a party intended
    to be covered by the insurance policy -- is absent.
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    Despite concluding, as we do here, that ANP was not
    insured by the Insurers, the courts below determined that, based
    on Jefferson, the antisubrogation rule should apply.   However,
    our holding in that case did not extend application of the
    antisubrogation rule to non-insured parties, for in Jefferson,
    the vehicle operator was insured as a permissive user because the
    policy expressly covered permissive users.   In this case, ANP was
    not covered by the Insurers, and thus Jefferson is
    distinguishable.
    The essential element of the antisubrogation rule is
    that the party to which the insurer seeks to subrogate is covered
    by the relevant insurance policy.   The rule also requires that
    the insurer seek to enforce its right of subrogation against that
    covered party on a risk insured by the policy (see Pennsylvania
    Gen. Ins. Co., 68 NY2d at 468).   If we were to extend application
    of the antisubrogation rule to all non-covered third parties, an
    insurer who fulfills its obligation to pay on the risks insured
    by the relevant policy would essentially be foreclosed from the
    ability to subrogate.   For this reason it is essential, absent a
    policy reason supporting application of the antisubrogation rule,
    that the third party against whom the insurer seeks to exercise
    its right of subrogation is not covered by the relevant insurance
    policy.
    The contexts in which courts of this state have
    extended the antisubrogation rule to third parties who are not
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    covered by the insurance policy are limited and distinguishable
    from this circumstance.    The application of the antisubrogation
    rule in those cases was primarily based on a policy concern --
    namely, the existence of a conflict of interest, one of the
    primary purposes underlying the antisubrogation rule.   Thus, the
    antisubrogation rule has been applied by the Appellate Division
    Departments to an insured's employee for whom the insured is
    vicariously liable (see Medical Liab. Mut. Ins. Co. v Schurig,
    211 AD2d 518, 518 [1st Dept 1995], lv denied 86 NY2d 703 [1995]),
    an insured property owner's real estate managers (see Kerr v
    Louisville Hous., 2 AD3d 924, 927 [3d Dept 2003]), and the
    president and principal shareholder of a closely held corporation
    (see Fireman's Ins. Co. of Newark, N.J. v Wheeler, 165 AD2d 141,
    144-145 [3d Dept 1991]).   Here, however, the policy concerns
    underpinning the antisubrogation rule are not implicated as no
    conflict of interest arises.   Since ANP is not an insured, there
    is no risk that the Insurers will shirk their obligation to one
    insured in favor of the other.   There is no reason to apply the
    antisubrogation rule under these facts, and the courts below
    erred in granting ANP's motion for summary judgment on that
    basis.
    Accordingly, the order of the Appellate Division should
    be reversed, with costs, ANP's motion for summary judgment on its
    antisubrogation defense is denied, and the case remitted to the
    Appellate Division for consideration of issues raised but not
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    determined on the appeal to that court.
    *   *   *   *   *     *   *   *     *      *   *   *   *   *   *   *   *
    Order reversed, with costs, motion by The Glidden Company n/k/a
    Akzo Nobel Paints LLC for summary judgment on its antisubrogation
    affirmative defense denied and case remitted to the Appellate
    Division, First Department, for consideration of issues raised
    but not determined on the appeal to that court. Opinion by Judge
    Abdus-Salaam. Chief Judge DiFiore and Judges Pigott, Rivera,
    Stein and Fahey concur. Judge Garcia took no part.
    Decided May 5, 2016
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Document Info

Docket Number: 38

Judges: Abdus-Salaam, DiFiore, Fahey, Garcia, Pigott, Rivera, Stein

Filed Date: 5/5/2016

Precedential Status: Precedential

Modified Date: 11/12/2024