Chemical Solvents, Inc. v. Greenwich Ins. Co.

• Court: Court of Appeals for the Sixth Circuit
• Decided: January 13, 2023
• Docket: 22-3324
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR PUBLICATION File Name: 23a0032n.06

Case No. 22-3324

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT FILED Jan 13, 2023 DEBORAH S. HUNT, Clerk ) CHEMICAL SOLVENTS, INC., ) Plaintiff-Appellant, ) ON APPEAL FROM THE UNITED ) STATES DISTRICT COURT FOR v. ) THE NORTHERN DISTRICT OF ) ) OHIO GREENWICH INSURANCE CO., et al., ) Defendants-Appellees. ) AMENDED OPINION

Before: MOORE, THAPAR, and LARSEN, Circuit Judges.

THAPAR, J., delivered the amended opinion of the court in which LARSEN, J., joined. MOORE, J. (pp. 6–11), delivered a separate dissenting opinion.

THAPAR, Circuit Judge. A lawsuit left Chemical Solvents liable for a hefty settlement

sum. Luckily for Chemical Solvents, its insurance policies covered that sum. But Chemical

Solvents claims its insurers later duped it into bearing some of the cost. We disagree and affirm.

I.

Two plaintiffs sued Chemical Solvents for bodily injury due to exposure to chemicals. The

suit eventually settled, and Chemical Solvents looked to its insurance policies with Greenwich

Insurance Company and Illinois National Insurance Company to fund the settlement.

Because the chemical exposure at issue in the suit occurred over a time period covered by

multiple insurance policies, divvying up funding for the settlement proved complicated. Chemical

Solvents targeted three policies to fund settlement payments: two Greenwich policies and one Case No. 22-3324, Chemical Solvents, Inc. v. Greenwich Ins. Co., et al.

Illinois National policy.1 The insurance companies then worked out for themselves the percentage

of liability for which each policy was responsible. Based on that reallocation, Illinois National

contributed additional funding from other policies that Chemical Solvents held with Illinois

National.

Complicating matters, Illinois National had a reinsurance contract with Alembic, Inc.,

another insurer. The contract didn’t apply to the targeted Illinois National policy, but it did apply

to the policies Illinois National drew on for contribution. So Illinois National billed Alembic for

reimbursement. But Alembic isn’t a typical insurer; it’s a group captive insurer, meaning its

insureds own and control it. And Chemical Solvents was one of its owners. So Chemical Solvents

ended up on the hook for a large portion of what Alembic owed to Illinois National.

Unhappy with that result, Chemical Solvents sued all three insurers, claiming they couldn’t

reallocate funding for the settlement—at least not in a way that would trigger the policies Alembic

reinsured. The district court granted summary judgment to the insurers. Chemical Solvents

appealed.

II.

We start, as we must, by confirming our jurisdiction over this case. Chemical Solvents

initially sued the insurers in state court. The insurers, led by Greenwich, removed the case to

federal district court, claiming diversity jurisdiction. In the notice of removal, Greenwich alleged

all necessary elements of diversity jurisdiction except Alembic’s citizenship. We remanded for

the district court to remedy that defect. See Chem. Solvents, Inc. v. Greenwich Ins. Co., No. 22-

3324, 2022 WL 4951245 (6th Cir. Oct. 4, 2022).

1 The third targeted policy was, more specifically, a policy from American International Specialty Lines Insurance Company, an affiliate of Illinois National.

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The parties sought rehearing, and their joint brief provided sufficient evidence to establish

Alembic’s place of incorporation and principal place of business are in the Cayman Islands. That

makes the parties completely diverse. See Coyne v. Am. Tobacco Co., 183 F.3d 488, 492–93 (6th

Cir. 1999); 28 U.S.C. §§ 1332 (c)(1), 1653. Thus, we grant rehearing, vacate our earlier judgment,

hold we have jurisdiction, and continue to the merits.

III.

Because the district court based its judgment on equitable doctrines, the parties dispute

whether we should review with fresh eyes or for abuse of discretion. Our court has yet to decide

this question. See, e.g., Clark v. Nissan Motor Mfg. Corp. U.S.A., No. 97-5956, 1998 WL 786892

at *2 n.6 (6th Cir. Oct. 26, 1998). But even under the less deferential standard of review, we

affirm. So we leave this question for another day.

Because this is a diversity case and only Ohio state-law claims are at issue, Ohio law

governs. Allstate Ins. Co. v. Thrifty Rent-A-Car Sys., Inc., 249 F.3d 450, 454 (6th Cir. 2001).

According to Ohio law, when insured conduct extends over a time period covered by multiple

policies, the insured is entitled to target a specific policy or policies for coverage. Goodyear Tire

& Rubber Co. v. Aetna Cas. & Sur. Co., 769 N.E.2d 835, 841–42 (Ohio 2002). A targeted policy

is then responsible for “all sums” incurred as damages, up to the policy’s limit. Id. at 841. Then,

the targeted insurers can seek equitable contribution from other policies implicated in the relevant

period. Id.; see also Penn. Gen. Ins. Co. v. Park-Ohio Indus., 930 N.E.2d 800, 808 (Ohio 2010)

(“[A] claim may be made by the targeted insurer against a nontargeted insurer with applicable

insurance policies for contribution.”). This framework eliminates the need for the insured to figure

out how much of the relevant conduct each policy covers, while still allowing the insurers to obtain

contribution from all responsible parties.

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Here, the parties followed this “all sums” process. Chemical Solvents initially targeted

two Greenwich policies and one Illinois National policy to fund the settlement. And Greenwich

and Illinois National similarly complied with this approach by seeking equitable contribution from

the other Illinois National policies.

Nevertheless, Chemical Solvents argues that equitable contribution shouldn’t be allowed

here because it undermines the purpose of “all sums” when it leads to the insured reimbursing a

portion of its own settlement. Chemical Solvents makes two arguments to support that claim.

First, Chemical Solvents argues that the insured should never bear any financial burden

once the “all sums” doctrine kicks in. It’s true that the “all sums” doctrine rests on the idea that

insureds can expect their policies to cover the entire amount agreed to in the policy agreement.

Goodyear, 769 N.E.2d at 841. But that only explains why an insured can target policies up to their

limits rather than being forced to calculate relative liability itself. It doesn’t justify thwarting the

insurers’ later contribution attempts. As the Ohio Supreme Court said, the “all sums” doctrine

“promotes economy for the insured while still permitting insurers to seek contribution.” Id. “All

sums” shifts the burden of calculating relative liability, but it doesn’t absolve the insured of all

financial burden.

Second, Chemical Solvents claims that contribution is inequitable and therefore unjustified

when it would lead to the insured bearing a portion of the loss. True, “all sums” and contribution

are equitable doctrines. But no Ohio caselaw indicates that equity favors the insured’s financial

interests over equitable contribution.

Chemical Solvents points to caselaw from other states that carves out an exception to the

equitable-contribution rule when contribution is sought from the insured itself. See Aerojet-Gen.

Corp. v. Transport Indem. Co., 948 P.2d 909 (Cal. 1997); Zurich Am. Ins. Co. v. Ins. Co. of N.

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Am., No. 4:14-CV-1112 (CDP), 2018 WL 2117662 (E.D. Mo. May 8, 2018); Weyerhauser Co. v.

Fireman’s Fund Ins. Co., No. 06-CV-1189 (MJP), 2007 WL 4420938 (W.D. Wash. Dec. 17,

2007). But these authorities fail to move the needle. For one thing, we follow Ohio law here, not

that of other states, and Chemical Solvents hasn’t provided any Ohio law supporting such an

exception. See Allstate, 249 F.3d at 454. For another, even those jurisdictions only apply their

exception to uninsured or self-insured parties. See, e.g., Aerojet-Gen., 948 P.2d at 929–30

(“[Contribution has no] place between an insurer and an uninsured or ‘self-insured’ party.”). Here,

the insurers didn’t seek contribution from Chemical Solvents.2 They sought it from Illinois

National. No jurisdiction has prohibited contribution whenever an insured will face financial

consequences down the line. And given that Ohio hasn’t established this exception at all, we have

no basis for creating such a sweeping exception out of whole cloth.

***

In short, the insurers’ conduct in this case fits squarely in Ohio’s “all sums” framework.

We affirm.

2 Chemical Solvents argues Alembic is its self-insurer. But there is no Ohio law indicating that captive group insurers are self-insurers. Regardless, the insurers didn’t seek contribution from Alembic. Alembic was only implicated because of its independent contract with Illinois National, which Chemical Solvents doesn’t challenge.

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KAREN NELSON MOORE, Circuit Judge, dissenting. Ohio adopted an all-sums

insurance-allocation scheme in 2002. Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 769

N.E.2d 835, 841 (Ohio 2002). Under the all-sums approach, the insured can target a particular

policy to provide coverage for the entire sum of damages incurred, subject to the policy’s limit.

15A Couch on Ins. § 220:27 (3d ed. 2022). A fundamental aspect of all-sums is that, when using

the all-sums method, an insured is not responsible for periods of self-insurance or uninsurance.

Compare 15A Couch on Ins. § 220:28 (3d ed. 2022) with 15A Couch on Ins. § 220:31 (3d ed.

2022). Those periods cannot be assessed to the insured party and must be divided among the

insurance companies on the risk during the relevant period. Ohio has rejected efforts to overturn

that rule in favor of a pro rata approach. Pennsylvania Gen. Ins. Co. v. Park-Ohio Indus., 930

N.E.2d 800, 807 (Ohio 2010). Here, the question is whether Ohio’s all-sums rule permits insurers

to seek equitable contribution from an insured party for periods of self-insurance.

I. STANDARD OF REVIEW

We review de novo grants of summary judgment. K.V.G. Props., Inc. v. Westfield Ins. Co.,

900 F.3d 818, 821 (6th Cir. 2018). “Where there are no disputed, material facts, we determine, de

novo, whether the district court properly applied the substantive law.” Farhat v. Jopke, 370 F.3d

580, 588 (6th Cir. 2004). This court has applied this standard of review to decisions involving

equitable contribution. OneBeacon Am. Ins. Co. v. Am. Motorists Ins. Co., 679 F.3d 456, 458–59

(6th Cir. 2012); IMG Worldwide, Inc. v. Great Divide Ins. Co., 704 F. App’x 562, 565 (6th Cir.

2017). We review de novo decisions to grant a declaratory judgment. Scottsdale Ins. Co. v.

Flowers, 513 F.3d 546, 563 (6th Cir. 2008).

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II. ANALYSIS

The district court characterized the question at issue as “whether an insured has the right

to prevent a targeted insurer from seeking equitable contribution from a nontargeted insurer when

there is a negative financial impact on the insured.” R. 70 (Order Granting Summ. J. at 11) (Page

ID #2575). It determined that there was not such a right. In support of its conclusion, it relied

heavily on an Ohio Court of Appeals case, Resco Holdings, L.L.C. v. AIU Ins. Co., 112 N.E.3d

503 (Ohio Ct. App. 2018). In Resco Holdings, the insured party, Rust Engineering Company,

sought a declaratory judgment against five insurance companies with which it had policies, seeking

coverage for bodily injury claims. Id. at 506. Rust filed for summary judgment against four of

those insurance companies but not the fifth, National Union, because Rust was required to

indemnify National Union for any costs incurred. Id. at 507. The trial court issued the declaratory

judgment and let the four other insurance companies determine what amounts they had to

contribute to the cost of the claims. Id.. These four insurance companies settled with Rust, which

dismissed its claims against National Union. Id. The insurance companies continued to litigate

their crossclaims for equitable contribution against National Union, and ultimately the trial court

assigned a particular percentage of the liability to National Union. Id. On appeal, the Ohio Court

of Appeals held that the trial court had not erred by granting the other insurers’ equitable

contribution claims against National Union. Id.

The district court found “persuasive the fact that the Resco Holdings court understood that

the plaintiff would ultimately be responsible for any liability assigned to the nontargeted

defendant.” R. 70 (Order Granting Summ. J. at 12) (Page ID #2576). By the time the litigation

reached the Ohio Court of Appeals, however, the insured was no longer a party to the case. R. 65-

3 (Ohio Ct. Com. Pleas Order Denying Summ. J. in Resco Holdings at 7) (Page ID #2527). The

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appellate briefs in Resco Holdings did not address the argument that National Union should not be

subject to contribution at all; they addressed only the methodology by which the trial court

calculated its contribution. Appellant Brief, Resco Holdings LLC v. AIU Ins. Co., 112 N.E.3d 503

(Ohio Ct. App. 2018) (No. 106234). The Ohio courts have not clearly answered the question

presented here, and thus we must make an “Erie guess” as to how the Ohio Supreme Court would

rule. See, e.g., Conlin v. Mortg. Elec. Registration Sys., Inc., 714 F.3d 355, 358–59 (6th Cir. 2013).

The Ohio Supreme Court, when it adopted the all-sums rule, approvingly referenced and

cited Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034 (D.C. Cir. 1981). Goodyear, 769 N.E.2d

at 841. In Keene, the D.C. Circuit adopted the all-sums rule and held that the insured party, which

had periods of self-insurance or uninsurance in between policies, ought not to be held responsible

for a pro rata share of the liability from an asbestos exposure suit because then it would be deprived

of insurance coverage it had paid for. Keene, 667 F.2d at 1047–48. The Goodyear court stated

that “[l]ike the insured in Keene, we are persuaded that Goodyear expected complete security from

each policy that it purchased.” Goodyear, 769 N.E.2d at 841. The Goodyear court also cited a

Washington case in which the Washington Supreme Court held that “[o]nce coverage is triggered

in one or more policy periods, those policies provide full coverage for all continuing damage,

without any allocation between insurer and insured.” Am. Nat’l Fire Ins. Co. v. B & L Trucking

& Constr. Co., 951 P.2d 250, 256–57 (Wash. 1998). See Goodyear, 769 N.E.2d at 841. The

Goodyear dissent explicitly raised the issue of uninsured years, noting that “for some periods of

time during the continuous pollution, the insured may have acted as self-insured and should

therefore bear its portion of the allocation of the total damages.” Id. at 846. The Goodyear court

thus was fully aware that adopting the all-sums rule precluded such contribution from the insured.

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The insurers argue that they have an unqualified right to contribution. In Goodyear, the

Ohio Supreme Court recognized the possibility of contribution, stating that “insurers bear the

burden of obtaining contribution from other applicable primary insurance policies as they deem

necessary.” 769 N.E.2d at 841. And in Park-Ohio, the court used language that is not explicit as

to whether there is an unqualified right of contribution; when citing the Goodyear decision, the

Ohio Supreme Court noted that Goodyear “permit[s] insurers to seek contribution . . . when

possible.” Park-Ohio, 930 N.E.2d at 806, 807. It also, in passing, referred to the “right to

contribution” in several places. Id. at 805, 807. Neither case establishes an unqualified right to

contribution. The insurers’ argument would reduce the all-sums rule to a purely administrative

rule, permitting insured parties to target specific insurers or policies and then permitting insurers

to sue the insured for contribution for a pro rata share of the liability anyway. This is inconsistent

with the language of Goodyear and the cases upon which the Ohio Supreme Court supported its

adoption of the all-sums method. The Washington State and D.C. Circuit cases were primary

references of the Ohio Supreme Court in its decision to adopt the all-sums rule, and it is likely that

the Ohio Supreme Court would hold similarly. California courts, which also use the all-sums rule,

similarly decline to apportion liability among insurers and their insured, including insured parties

who bought fronting policies. See Aerojet-General Corp. v. Transp. Indem. Co., 948 P.2d 909

(Cal. 1998). In Aerojet, the California Supreme Court held that a company that had purchased

“fronting policies,” a form of self-insurance, from another company, could not be forced to make

an equitable contribution to its own defense when it had other insurance policies available. Id. at

930. “Equitable contribution applies only between insurers, and only in the absence of contract.

It therefore has no place between insurer and insured, which have contracted the one with the other.

Neither does it have any place between an insurer and an uninsured or ‘selfinsured’ party.” Id.

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(emphasis in original) (citations omitted). It is a defining feature of the all-sums rule that uninsured

or self-insured parties are not held responsible for their pro rata share of the liability in continuous

injury cases. 15A Couch on Ins. § 220:28 (3d ed. 2022). For these reasons, it is likely that the

Ohio Supreme Court would hold that self-insured or uninsured parties cannot be forced to bear a

pro rata share of the liability because they would otherwise be denied the “complete security” they

expected and paid for when they purchased insurance. See Goodyear, 769 N.E.2d at 841.

The next question is whether Chemical Solvents was a self-insured party that could not be

targeted for contribution via its fronting policy with Illinois National. After entering Alembic, the

group captive, Chemical Solvents purchased insurance policies from Illinois National that were

then immediately reinsured by Alembic. This tactic is called “fronting,” which is a form of self-

insurance that uses “an insurer to issue . . . an insurance policy[] on behalf of a self-insured

organization . . . without the intention of bearing any of the risk. The risk of loss is transferred

back to the self-insured . . . with an indemnity or reinsurance agreement.” Corwin v.

DaimlerChrysler Ins. Co., 819 N.W.2d 68, 72 n.3 (Michigan Ct. App. 2012) (ellipses in original)

(quotation omitted); see also Weyerhauser Co. v. Fireman’s Fund Ins. Co., No. C06-1189MJP,

2007 WL 4420938, at *2 (W.D. Wash. Dec. 17, 2007). Here, the policies that Chemical Solvents

obtained with Illinois National for the years 2007 to 2019 are just such fronting policies. This

complex arrangement between Chemical Solvents, Alembic, and Illinois National constitutes a

method of self-insurance, under which Chemical Solvents is ultimately responsible for paying

most of the costs for claims made against it. Because Chemical Solvents was a self-insured party,

it cannot be sued for equitable contribution—including through its fronting policy with Illinois

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III. CONCLUSION

I would reverse the district court and grant Chemical Solvents’ motion for partial summary

judgment on its declaratory judgment claim and breach of contract claim. I would also remand to

the district court for consideration of Illinois National’s motion for summary judgment on its

counterclaim against Greenwich Insurance regarding whether it should have been subject to

equitable contribution. I respectfully dissent.

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