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Covil Corp. v. Zurich American Insurance Co.

United States District Court, D. South Carolina, Spartanburg Division

June 14, 2019

Covil Corporation By Its Duly Appointed, Receiver, Peter D. Protopapas, Plaintiff,
Zurich American Insurance Company; Sentry Casualty Company; United States Fidelity and Guaranty Company; TIG Insurance Company, As Successor in Interest to Fairmont Specialty Insurance Company, F/K/A Ranger Insurance Company; Hartford Accident And Indemnity Company; First State Insurance Company; Timothy W. Howe, Personal Representative Of Wayne Erwin Howe; Jeannette Howe; Jerry Crawford; Denver Taylor And Janice Taylor; and James Coleman Sizemore, Personal Representative Of James Calvin Sizemore, Defendants.


          Bruce Howe Hendricks United States District Judge.

         This matter is before the Court for review of Defendant Sentry Insurance a Mutual Company's (incorrectly identified as “Sentry Casualty Company;” hereinafter, “Sentry”) Motion to Realign the Co-Defendants (ECF No. 4), and Plaintiff Covil Corporation's (hereinafter, “Covil”) Motion to Remand (ECF No. 12). For the reasons set forth in this Order, Sentry's Motion to Realign is granted, and Covil's Motion to Remand is denied.


         On November 27, 2018, Covil, by its duly appointed receiver, Peter D. Protopapas (“Receiver”), filed a Complaint against Sentry, Zurich American Insurance Company (“Zurich”), United States Fidelity and Guaranty Company (“USF&G”), TIG Insurance Company (“TIG”), Hartford Accident and Indemnity Company (“Hartford”), and First State Insurance Company (“First State”) (collectively “Carrier Defendants”), seeking declaratory relief in the Spartanburg County Court of Common Pleas. Covil, a now defunct company, alleges that it is the subject of multiple claims and/or law suits arising out of its role as an installer of thermal insulation which contained asbestos, such installations having taken place from approximately 1964 until 1986. (Compl. ¶ 1, ECF Nos. 1-1 & 1-2.) Count I of the Complaint alleges a breach of contract against Zurich, Sentry, and USF&G-which collectively controlled Covil's defense in an underlying wrongful death suit (“Finch suit”)- for their declination to resolve the suit within policy limits, despite the opportunity to do so, resulting in a verdict entered against Covil in October 2018 in the amount of $32, 700, 000, plus $5, 633, 358.89 in pre-judgment interest. (Id. ¶¶ 43-50.) Count II alleges bad faith against Zurich and USF&G for failing or refusing to resolve the Finch suit within their policy limits, for allowing Covil to receive an adverse verdict of $32, 700, 000 in the Finch suit, and for failing to protect the interests of Covil and its claimants and creditors. (Id. ¶¶ 51-54.) Count III seeks declaratory judgments against Sentry, Zurich, USF&G, TIG and Hartford, that their relevant general liability and umbrella policies (“Covil Insurance Policies”) provide coverage for the respective policy periods, and that such coverage encompasses all asbestos suits against Covil that allege bodily injury, personal injury, injurious exposure, progression of injury and/or disease, manifestation of illness, or death during the policy periods, including both a duty to defend and a duty to indemnify. (Id. ¶¶ 55-66.) Count IV seeks declaratory judgments against Timothy W. Howe, personal representative of Wayne Erwin Howe, Jeannette Howe, Jerry Crawford, Denver and Janice Taylor, and James Coleman Sizemore, personal representative of James Calvin Sizemore (collectively, “Individual Defendants” or “Non-Diverse Defendants”), each of whom had or have asbestos related claims against Covil (“underlying actions”). (Id. ¶¶ 67-70.) In light of the $32, 700, 000 verdict in the Finch suit, and in light of the fact that the Covil Insurance Policies allegedly are the only assets of Covil available to pay for asbestos suits, Covil seeks a declaration and order:

[T]hat certain rights and interests of the individually-named defendants be limited and curtailed as follows: (i) that any judgment obtained against Covil in a Covil asbestos suit be limited to all sums that may be collected from defendants Zurich, Sentry, USF&G, TIG and Hartford, individually or collectively; (ii) that punitive or exemplary damages are not awardable against the Receiver or the Receiver acting on behalf of Covil pursuant to South Carolina Code § 15-65-10; and (iii) that any judgment obtained against Covil that is or may be subject to an aggregate limit of any insurance policy or policies issued to Covil must fairly and equitably take into account such other judgments that may be outstanding at the time of such judgment.

(Id. ¶ 70.) Count V seeks an anti-suit injunction against Zurich, which brought a parallel declaratory judgment action in United States District Court for the Middle District of North Carolina. (Id. ¶¶ 71-76.) Covil alleges that Zurich brought the parallel action in an effort to truncate and limit the rights and powers of the Receiver, and to impair or impede the rights of the Individual Defendants and all other claimants, known and unknown, against Covil, as well as the rights of the Receiver. (Id. ¶ 72.) Covil further asserts that the issuance of an antisuit injunction is necessary and appropriate so that Covil may ascertain the parties' rights and obligations under the Covil Insurance Policies in this action, which is more comprehensive than the parallel action, and in order to obviate a multiplicity of actions which would otherwise result from allowing duplicative litigation involving the same issues and the same parties to proceed simultaneously. (Id. ¶¶ 73-76.)

         Sentry removed the action to this Court on December 6, 2018. (ECF No. 1.) In its contemporaneously filed Motion to Realign the Co-Defendants, Sentry petitions the Court to realign the Non-Diverse Defendants with Covil as plaintiffs in this action, which would leave only the Carrier Defendants as defendants to the action, thereby creating complete diversity. (See ECF No. 4.) On December 20, 2018, Covil filed an Opposition to the Motion to Realign (ECF No. 11) and a Motion to Remand (ECF No. 12) the matter to state court. The Individual Defendants filed Oppositions to the Motion to Realign (ECF Nos. 21, 22, 23) on December 26, 2018. Sentry and Zurich filed Replies in Support of the Motion to Realign (ECF Nos. 25 & 26) on January 7, 2019. On January 14, 2019, Sentry and Zurich/TIG filed Oppositions to the Motion to Remand (ECF Nos. 32 & 33). On January 22 and 24, 2019 respectively, Covil and the Individual Defendants filed Replies in Support of the Motion to Remand (ECF Nos. 45 & 49). Both motions are ripe for consideration and the Court now issues the following ruling.


         A. Motion to Realign Co-Defendants

         The United States Supreme Court has stated, with regard to realignment of parties in a diversity action:

To sustain diversity jurisdiction there must exist an actual, substantial controversy between citizens of different states, all of whom on one side of the controversy are citizens of different states from all parties on the other side. Diversity jurisdiction cannot be conferred upon the federal courts by the parties' own determination of who are plaintiffs and who defendants. It is our duty, as it is that of the lower federal courts, to look beyond the pleadings and arrange the parties according to their sides in the dispute. Litigation is the pursuit of practical ends, not a game of chess. Whether the necessary collision of interests exists, is therefore not to be determined by mechanical rules. It must be ascertained from the principal purpose of the suit and the primary and controlling matter in dispute.

Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69 (1941) (emphasis added) (citations and internal quotation marks omitted). The Fourth Circuit has adopted the “principal purpose test” for evaluating how parties should be aligned:

Application of the principal purpose test entails two steps. First, the court must determine the primary issue in the controversy. Next, the court should align the parties according to their positions with respect to the primary issue. If the alignment differs from that in the complaint, ...

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