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Sixth Circuit: Chubb Subsidiary Should Not Have to Cover Goodyear Tire's Legal Fees

Source: BestWire

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Posted on 21 Sep 2012 by Neilson

Chubb & Goodyear caseChubb subsidiary Federal Insurance Co. should not be required to cover legal costs Goodyear Tire and Rubber Co. incurred in a series of shareholder lawsuits because the tire manufacturer did not meet the explicit coverage requirements in its insurance policy, a federal appeals court in Cincinnati ruled.

In a terse four-page opinion, the U.S. Court of Appeals for the Sixth Circuit held that because Ohio-based Goodyear settled a portion of its claim for legal fees with its primary insurer, National Union Fire Insurance Co., it had failed to meet the liability limit that would trigger Federal Insurance's excess coverage. The court found that under the "plain terms of the insurance agreement" Goodyear was not entitled to receive coverage from Federal Insurance.

"The provision at issue here is where the rubber hits the road: the agreements insuring clause, under whose terms Federal undisputedly did not agree to provide the coverage that Goodyear now seeks," Judge Raymond Kethledge wrote. "Goodyear's arguments are merit less."

The underlying lawsuit involved Goodyear's 2003 announcement that it would restate its earnings for some prior years. Shareholders immediately filed class-action lawsuits against Goodyear and several of its officers and directors. The SEC also launched an investigation. The lawsuits were eventually dismissed. But by then, Goodyear's legal and accounting fees topped $30 million, according to the opinion.

Goodyear sought to recover those costs from National Union and Federal Insurance.

National Unions policy with Goodyear had an aggregate liability limit of $15 million, with a $5 million retention to be paid by Goodyear. Federals policy had an aggregate liability limit of $10 million in excess of the National Union policy and retention. Both insurers disputed whether the costs were covered by their respective policies. Goodyear responded by suing both insurers.

Goodyear eventually settled with National Union for a payment of $10 million. However, that settlement created problems for Goodyear in its attempt to collect from Federal Insurance.

Goodyear's policy with Federal Insurance stated the excess coverage would only begin after National Union paid out the full amount of its liability limit $15 million, rather than the $10 million that National Union paid.

Goodyear sought to have Federal Insurance provide coverage under several legal theories that found little traction with the appellate judges. One theory concerned an Ohio law that favored settlements over a contractual agreement. However, the Sixth Circuit found the law Goodyear cited applied to uninsured-motorist cases. "This is hardly an uninsured-motorist case," said Kethledge, writing on behalf of the three-judge panel.

The judges unanimously ruled to uphold the trial court's decision to throw out Goodyear's case. "What we have is an insurance agreement into which sophisticated parties freely entered. Per the general rule in Ohio ... we will enforce that agreement according to its terms," Kethledge wrote.

Earlier this week, the Sixth Circuit handed down another insurance-related case.

In that case, the appeals court rejected a Michigan-based industry association's claim against a Hartford Fire Insurance Co. employee fidelity policy, saying the limited liability corporation formed by the Tooling, Manufacturing and Technologies Association to handle commissions was left uncovered.

The Sixth Circuit's decision marked the latest in a multiyear legal battle over coverage. The case originated in Michigan state courts in 2009 after Hartford decided not to cover TMTA's claim filed against Hartford's CrimeShield insurance policy that is written to transfer the risk of employee theft from TMTA to Hartford. Soon after the policy was initiated, a TMTA employee began taking funds from the TMTA Insurance Agency, an LLC providing TMTA with much of its income.

Federal Insurance Co. currently has a Best's Financial Strength Rating of A++ (Superior). National Union Fire Insurance Co. has an A (Excellent) rating.

 


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