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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PA, et al., Plaintiffs v. PORTER HAYDEN COMPANY, Defendant : : : : : : : : : ...o0o...

CIV. NO. AMD 03-3408 (consolidated with AMD 03-3414)

MEMORANDUM OPINION In this long-running action, National Union Fire Insurance Co. of Pittsburgh, PA ("National Union") seeks a declaratory judgment that Porter Hayden Co. ("Porter Hayden"), a debtor in the bankruptcy court in this district, is not entitled to a defense or indemnity, in whole or in part as to each, for asbestos-related claims. The court has withdrawn the reference and taken jurisdiction over the action from the bankruptcy court, and has previously resolved certain issues bearing on Porter Hayden's entitlement to coverage. See Nat'l Union Fire Ins. Co. v. Porter Hayden Co., 331 B.R. 652 (D.Md. 2005). Now pending are cross-motions for summary judgment on issues arising from the creation of an innovative asbestos claims facility, as described below, as part of the Porter Hayden confirmed plan. The issues have been fully briefed and no hearing is necessary. For the reasons stated within, the court will grant Porter Hayden's motion and deny plaintiffs' motion. I. Porter Hayden is a Maryland corporation that sold and installed industrial insulation products containing asbestos fibers from the 1920s into the 1980s. In 1973, Porter Hayden ceased all of its installation operations; however, it continued selling insulation materials and

other products until 1982. In order to provide insurance coverage for its operations, Porter Hayden purchased four comprehensive general liability ("CGL") policies from National Union, which were in effect from April 1, 1984, to April 1, 1988.1 These CGL policies provided that: The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of A. bodily injury or B. property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage. In December 2000, Porter Hayden brought a declaratory judgment action in the Circuit Court for Baltimore City seeking coverage for tens of thousands of asbestos-related claims under two insurance policies issued by National Union covering the period from April 1, 1984, to April 1, 1986. In March 2002, while that suit was pending in state court, Porter Hayden filed for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland. On June 30, 2006, the Bankruptcy Court confirmed Porter Hayden's Third Amended Second Modified Plan of Reorganization ("the Plan"). The Plan established the Asbestos Bodily Injury Trust ("the Trust") in order to handle asbestos-related claims against Porter Hayden. The Trust was modeled after the procedures established in Kane v. Johns-Manville Corp., 843 F.2d 636, 641 (2d Cir. 1988) (using the Bankruptcy Court's "broad equitable powers" to channel asbestos-related personal injury claims against an insolvent corporation into a trust funded by the corporation's liquidated assets and authorizing injunctions for suits against an insolvent corporation). Pursuant to the Plan, asbestos claimants are enjoined from suing Porter Hayden in court; rather, they are required to submit
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These four CGLs include Policy Nos. 1524165 from 4/1/84 to 4/1/85; 1940385 from 4/1/85 to 4/1/86; 1803346 from 4/1/86 to 4/1/87; and 5010570 from 4/1/87 to 4/1/88.

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their claims to the Trust. The Trust specified qualifications for asbestos claims, processed claims of asbestos claimants, evaluated the severity of each claim, and disbursed settlement amounts based on the severity-level of each claim. The Trust was funded by assets, including access to the proceeds from any insurance policy that covers asbestos claims. The Bankruptcy Court appointed former Porter Hayden president, T. Dennis Feeley, as trustee. Porter Hayden has here moved for partial summary judgment for a declaration that National Union's obligation to defend Porter Hayden against policy holders' allegations of covered injury during a relevant policy period includes paying for costs incurred in handling claims presented to the Porter Hayden Asbestos Bodily Injury Trust. In its cross-motion, National Union seeks a declaration that (1) Porter Hayden has no legal obligation to pay damages arising out of asbestos bodily injury claims and, consequently, there is no coverage for such claims; (2) the "No Actions" clauses of the policies prohibit any action to enforce coverage for any claims under the Policies because Porter Hayden cannot be subjected to a final judgment for damages arising out of any asbestos-related bodily injury claims; (3) the Trust is not covered by the policies because (a) the Trust is not an insured and (b) National Union did not consent to an assignment; and (4) the Trust is not covered by the policies because there is no status of unilateral "successor in interest" to an insured under an insurance policy absent the express consent of the insurer to assign coverage. II. A. Cross motions for summary judgment "do not automatically empower the court to dispense with the determination whether questions of material fact exist." Lac Courte Oreilles Band of Lake Superior Chippewa Indians v. Voigt, 700 F.2d 341, 349 (7th Cir. 1983), cert. -3-

denied, 464 U.S. 805 (1983). "Rather, the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987). The court may grant summary judgment in favor of one party or deny both motions. See Shook v. United States, 713 F.2d 662, 665 (11th Cir. 1983). Here, the court agrees with the parties that, fundamentally, issues of law are presented, and that no genuine disputes of material fact exist. Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The parties' cross-motions posit the same question: whether, as a matter of law, National Union's obligation to defend Porter Hayden against policy holders' allegations of covered injury during a relevant policy period includes paying for costs incurred in handling claims presented to the Trust. Porter Hayden contends that it does. National Union contends that it does not. B. In Maryland, courts construing the terms of coverage under an insurance policy must apply the terms of the insurance contract itself. Mitchell v. Md. Cas., 595 A.2d 469, 475 (Md. 1991); Mut. Fire, Marine, & Inland Ins. v. Vollmer, 508 A.2d 130, 133 (Md. 1986). Courts may construe unambiguous contracts as a matter of law. Pac. Indem. v. Interstate Fire & Cas., 488 A.2d 486, 489 (Md. 1985). Courts give the words of the insurance contract their usual, ordinary, and accepted meaning unless the parties intended to use the words in the policy in a technical sense. Mitchell, 595 A.2d at 475; Cheney v. Bell Nat'l Life, 556 A.2d 1135, 1138 (Md. 1989). A word's ordinary definition is that which a reasonably prudent layperson would attach to the word. Pac. Indem., 488 A.2d at 488. Unlike other jurisdictions, Maryland does not construe an insurance policy against the insurer. Cheney, 556 A.2d at 1138. Rather, courts ascertain the -4-

parties' intentions from the policy as a whole. Id.; Pac. Indem., 488 A.2d at 488-89. Only in the event of an ambiguity are courts allowed to consider extrinsic evidence as to the meaning of the policy. Id. "Legally obligated" It is undisputed that the insurance policies issued to Porter Hayden are liability policies, requiring National Union to provide coverage to Porter Hayden whenever Porter Hayden is legally obligated to pay damages to third parties. The policies provide, The Company [National Union] will pay on behalf of the Insured [Porter Hayden] all sums which the Insured shall become legally obligated to pay damages because of a. bodily injury or b. property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient. Porter Hayden's Mot. for Summ. J. Exh. B at Coverage I (emphasis added). The parties dispute the definition and scope of the term "legally obligated" in light of Porter Hayden's bankruptcy reorganization. Porter Hayden argues that its bankruptcy and subsequent reorganization do not alter National Union's contractual obligation to defend pursuant to the insurance policies. National Union, on the other hand, argues that it has no legal obligation to pay damages for asbestos-related claims brought to the Trust because (1) asbestos claimants are enjoined from bringing any legal proceedings against Porter Hayden, i.e., Porter Hayden is not legally obligated to the claimants, (2) Porter Hayden's impermissible assignment of the policies to the Trust resulted in the forfeiture of all pre-existing insurance, and (3) the Trust is neither an insured under the terms of the policies nor Porter Hayden's successor in interest. -5-

First, Porter Hayden is legally obligated to the asbestos claimants under Maryland law. The Maryland Court of Appeals has clearly stated: The term "legally liable" to pay damages depends not upon when, and if, a judicial determination is made, but, generally, upon the creation of circumstances by and/or between parties, whereby the parties, or one or the other of them, can enforce rights through legal process. Parties often become legally obligated ("liable") to pay by way of contract, i.e., construction contracts, leases, insurance contracts, etc., or by committing tortious acts. The verdict of a jury and the judgment of a court are merely a determination that a legal obligation existed, and continues to exist. The verdict of a jury and the judgment of the court do not, of themselves, create the underlying legal obligation. The underlying legal obligation changes into judgment form

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