Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-4_15-ap-04136/USCOURTS-canb-4_15-ap-04136-0/pdf.json

Parties Involved:
Barry A. Chatz
Plaintiff
Continental Casualty Company
Defendant

Document Text:

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 IN THE UNITED STATES BANKRUPTCY COURT

 FOR THE NORTHERN DISTRICT OF CALIFORNIA

 OAKLAND DIVISION

In re CFB LIQUIDATING CORPORATION, Case No. 01-45483 rle

f/k/a CHICAGO FIRE BRICK CO., an Chapter 11

Illinois Corporation, et al., Jointly Administered

Debtors. ___________________________________

BARRY A. CHATZ, AS TRUSTEE FOR Adversary No. 15-4136

THE CFB/WFB LIQUIDATING TRUST, 

Plaintiff, 

v. 

CONTINENTAL CASUALTY COMPANY, 

Defendant.

___________________________________

MEMORANDUM DECISION ON CONTINENTAL CASUALTY COMPANY’S MOTION FOR 

 PARTIAL SUMMARY JUDGMENT 

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The following constitutes the

Memorandum Decision of the Court.

Signed November 21, 2016

______________________________________________

Roger L. Efremsky

U.S. Bankruptcy Judge

Entered on Docket 

November 21, 2016

EDWARD J. EMMONS, CLERK 

U.S. BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 15-04136 Doc# 44 Filed: 11/21/16 Entered: 11/21/16 16:36:12 Page 1 of 24
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I. Introduction

On March 9, 2016, Barry Chatz, as trustee for the CFB/WFB

Liquidating Trust (the “Trustee” and the “Trust”), filed his

First Amended Complaint against Continental Casualty Company

(“Continental”). The First Amended Complaint seeks damages for

breach of contract and declaratory relief regarding the

interpretation of the Joint Chapter 11 Plan of debtors CFB

Liquidating Corporation and WFB Liquidating Corporation (the

“Plan” and “Debtors”). Continental filed its Answer and a

Counterclaim in which Continental also seeks declaratory relief

regarding the interpretation of the Plan.1

On May 31, 2016, Continental filed its motion for partial

summary judgment on its Counterclaim (the “Summary Judgment

Motion”). The Summary Judgment Motion has been fully briefed. For

the reasons explained here, the Summary Judgment Motion is denied

because Continental’s interpretation of the relevant sections of

the Plan is incorrect. 

II. Background

a. Background Regarding the Chapter 11 Case

Debtors manufactured and distributed refractory products

some of which contained asbestos. As of the October 2001 petition

date, Debtors were defendants in numerous personal injury and

1 Continental states in its Counterclaim that its claims for

relief are non-core and it does not consent to the entry of final

orders by this court. AP Docket no. 19, ¶4. On the contrary, this

adversary proceeding is a core proceeding pursuant to 28 U.S.C.

§157(b)(2)(A). In re Pegasus Gold Corp., 394 F.3d 1189 (9th Cir.

2005); In re Wilshire Courtyard, 729 F.3d 1279 (9th Cir. 2013);

Plan, §15.4. 

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wrongful death lawsuits in which over 22,000 individuals asserted

asbestos personal injury claims against Debtors and their

affiliates. Main Case Docket no. 422, p. 7 (June 1, 2012

Disclosure Statement).

Debtors had purchased third party liability insurance

policies from a number of insurers. When they filed their chapter

11 cases, Debtors had not yet exhausted their primary and excess

insurance policies with coverage periods between November 25,

1959 and January 1, 1987 and these insurance policies were the

main assets of the estate. Disclosure Statement, p. 8-9.

During the case, Debtors negotiated “buyback” settlements

with three of their primary insurance carriers (Hartford Accident

and Indemnity Company, Bituminous Casualty Corporation, and ACE

Insurance Company) (the Settlements, Settlement Agreements, and

the Settling Insurers). The Debtors obtained approximately $11.5

million from these three Settlements. Debtors did not reach a

“buyback” settlement with Continental, their only other primary

insurance carrier.2 Disclosure Statement, p. 9-10. 

b. Background Regarding the Plan

Debtors’ Plan was filed in June 2012 and confirmed in

September 2012. Main Case Docket no. 421 (the Plan), Docket no.

460 (Confirmation Order). Sections 9.1-9.3 of the Plan

incorporated the Settlements. Section 8.1 of the Plan described

the liquidating trust to which the Settlement proceeds were

transferred and through which allowed asbestos personal injury

2

 Debtors also negotiated a similar settlement with their

excess insurance carrier Safety National Company. 

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claims, designated as Class 3 and Class 4 (the “Claims”), were to

be paid in accordance with the trust distribution procedures (the

“Trust Distribution Procedures”) which were also incorporated

into the Plan.

Pursuant to the Settlements, Debtors sold their policies to

the Settling Insurers free and clear of any liens, claims, 

interests, and encumbrances under Bankruptcy Code §363, with any

such liens, claims, interests, and encumbrances attaching to the

Settlement proceeds with the same priority and validity as they

held previously. In exchange, the Settling Insurers were granted

certain injunctive relief and releases. Plan, §7.3, §7.7, §9.

Each of the Settling Insurers paid in an amount that exceeded its

policy limits which were then “preserved for the exclusive

benefit” of the holders of asbestos personal injury claims. Plan

§9.1-9.3. Each Settlement Agreement provides, inter alia, that

the payment that the Settling Insurer made is the total it is

obligated to pay on account of any and all claims relating to its

policies, and that all “limits of liability are deemed fully and

properly exhausted.” Disclosure Statement, Ex. B, C, D.

c. Treatment of Continental in the Plan

The Plan also incorporated agreed upon treatment of

Continental’s insurance obligations. Section 8.3 is entitled

“Handling of Claims for which Continental May Have Financial

Responsibility.” This section is the focus of the dispute in this

Summary Judgment Motion and will be discussed in detail below. In

short, it (1) provides that the Trust will give Continental a

proposal for the payment of the liquidated value of the Claims

the Trust contends Continental is responsible for (the

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“Proposals”); (2) provides a structure and deadlines for

Continental to accept or reject any such Proposals; and (3) sets

out the consequences that flow from Continental’s response to a

Proposal. Plan, §8.3.

Section 16.19 of the Plan is entitled “Insurance

Neutrality.” It provides, in brief, that nothing in the Plan, the

Trust Distribution Procedures, or any Settlement Agreement shall

impair an insurer’s rights, Debtors’ rights, and/or the Trust’s

rights against the Settling Insurers except to the extent

impaired or limited in a Settlement Agreement and/or as expressly

provided in §7.3 of the Plan. Plan, §16.19.3

d. Background Regarding Continental’s Insurance Policies

Continental sold Debtors three primary-level comprehensive

general liability insurance policies which covered asbestos

personal injuries occurring from January 1, 1985 to January 1,

1988. Each policy provided $1 million in coverage. Approximately

$2.56 million in coverage under these three policies remained

available for payment of the Claims when the Plan was confirmed.

AP Docket no. 19, ¶5. 

The Trust attached copies of three Continental policies to

the first amended complaint. AP Docket no. 15, Ex. A-C. These

copies of the policies were missing pages, included duplicate

pages, and were, in part, illegible. The court requested complete

legible, copies. On September 23, 2016, the parties filed a joint

stipulation which attached revised versions of the three policies

to be substituted for the original exhibits. AP Docket no. 40,

3

 The Plan is also governed by Illinois law. Plan, §16.14.

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Ex. 1-3. The stipulation states that the parties believe that

“certain pages of the insuring agreements of the policies may be

missing.” The court notes that there are, in fact, missing pages

but whether the missing pages are only the referenced pages of

the “insuring agreements” is unknown.4

With respect to bodily injury liability, the record versions

of the 1985 and 1986 policies state: “The company will pay on

behalf of the insured all sums which the insured shall become

legally obligated to pay as damages because of bodily injury...to

which this insurance applies, caused by an occurrence...” AP

Docket no. 40, Ex. 1, Ex. 2. The record version of the 1987

policy does not include this language as it consists of seven

almost completely illegible pages. AP Docket no. 40, Ex. 3.

The record version of the 1986 policy includes a page

defining bodily injury as “bodily injury, sickness or disease

sustained by any person which occurs during the policy period,

including death at any time resulting therefrom.” AP Docket no.

40, Ex. 2, p. 18.5 The record versions of the 1985 and 1987

4 An insurance company is presumed to know the contents of

its own policies. Home Ins. Co. v. Cincinatti Ins. Co., 213

Ill.2d 307, 327 (2004). 

5 In Zurich Ins. Co. v. Raymark Industries, Inc., 118 Ill.2d

23, 45-46 (1987) the Illinois Supreme Court held that (1) an

insurer must provide coverage of asbestos-related claims if the

claimant suffered bodily injury, sickness or disease during the

policy period; (2) bodily injury takes place at or shortly after

the time a claimant is exposed to asbestos and continues

throughout a claimant’s exposure to asbestos; (3) an insurer

whose policy is in force at the time a claimant is exposed to

asbestos must provide coverage of that claim; and (4) each

carrier whose policy is triggered is jointly and severally liable

for the total indemnity and defense costs of a claim without

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policies do not include pages with this language. The record

version of the 1986 policy includes a page with an “other

insurance” provision which the record versions of the 1985 and

1987 policies lack. Nevertheless, Continental claims this

provision is in all its policies. AP Docket no. 27, p. 23.

e. Status of Allowed Asbestos Personal Injury Claims

As a result of the Settlements, plus the payment from

Debtors’ insolvent insurer Home Insurance Company, and the

settlement with its excess insurer Safety National, the Trust

initially had approximately $16 million to pay Claims according

to the Plan and the Trust Distribution Procedures (the “Insurance

Fund”).

The Trust Distribution Procedures establish a detailed

process for the submission and review of Claims and set forth the

requirements for proof of exposure to asbestos and illness.6 The

liquidated value of each Claim is determined pursuant to these

procedures and the holder of a Claim is entitled to receive a pro

rata share of that liquidated value based on the amount in the

Insurance Fund. The Trust Distribution Procedures establish four

disease levels and a set value for each one: $40,000 for

mesothelioma; $10,000 for lung cancer; $10,000 for certain other

proration, i.e., must pay all sums. For this case, this holding

means a person working for one of the Debtors who was exposed to

asbestos in 1985 suffered bodily injury at that time and

Continental’s obligation to pay all sums under its policies would

thus be triggered. See also, John Crane, Inc. v. Admiral Ins.

Co., 991 N.E. 2d 474 (2013) (following Raymark).

6

 The claim form requires significant detail. Main Case

Docket no. 482, Ex. B (Amended Trust Distribution Procedures).

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cancers; and $2,000 for asbestosis/pleural disease. Main Case

Docket no. 482.

In 2013, the Trust began to review Claims. In October 2015,

the Trust filed a motion for entry of an order approving and

allowing Claims which the court granted (the “Allowance Motion”

and the “Allowed Claims”). Main Case Docket nos. 533, 543. The

Allowance Motion stated that the Trust had received almost 28,000

Claims for review and had determined that approximately 14,000

Claims with a liquidated value of $46 million satisfied the Trust

Distribution Procedures’ requirements for allowance. The

Allowance Motion stated that the Trust was holding over $14

million from which to make pro rata distributions on the Allowed

Claims. Finally, because of anticipated litigation with

Continental, the Trust proposed to distribute 20% of the

liquidated value of the Allowed Claims (roughly $9.2 million) and

reserve the rest until Continental’s obligations were resolved.

Main Case Docket no. 533.7

f. Status of Claims Submitted to Continental

Between May and September 2015, the Trust submitted

Proposals to Continental regarding the payment of Allowed Claims

that triggered Continental’s policies as §8.3 of the Plan

provides. AP Docket no. 15, Ex. D, E, H, I. In each of these

Proposals, the Trust contended that Continental’s allocated

7

 The Trust’s Sur-Reply to the Summary Judgment Motion

states that the Trust has disbursed $7 million through the 20%

pro rata payment and still holds approximately $7.18 million,

including over $4 million remaining from the total Settlement

proceeds. AP Docket no. 35, p. 6. The Trust’s Post-Confirmation

Operating Report for Quarter Ending September 30, 2016 states it

now has a cash balance of $6.6 million. Main Case Docket no. 551.

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percentage of the liquidated value of each Claim was 100% of the

liquidated value of each Claim.8

According to Continental’s Summary Judgment Motion and the

Trust’s Opposition, the Trust has submitted Proposals to

Continental covering 1,133 Allowed Claims with a liquidated value

of $7.9 million (the “Tendered Claims”). AP Docket no. 27, p. 11;

AP Docket no. 32, p. 16. In addition, the Trust’s Opposition

states that there are 12,365 Allowed Claims with a liquidated

value of $38.1 million which the Trust has not tendered to

Continental (the “Non-Tendered Claims”) and among the NonTendered Claims, 1,037 Allowed Claims, with a liquidated value of

$14.9 million, involve occupational exposure to asbestos prior to

the start of the coverage period for Continental’s policies,

i.e., before January 1, 1985. AP Docket no. 32, p. 16.

III. Summary Judgment Standard

Rule 56 of the Federal Rules of Civil Procedure, applicable

here by Federal Rule of Bankruptcy Procedure 7056, provides that

“[t]he court shall grant summary judgment if the movant shows

that there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” At the

summary judgment stage, the court’s function is not to weigh

evidence and determine the truth of the matter, but to determine

whether there is a genuine issue for trial. Fed.R.Bankr.P. 7056;

Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). 

Continental’s counterclaim seeks a declaratory judgment

8 The Trust continued to submit Proposals for the payment of

Tendered Claims after it filed this Adversary Proceeding. AP

Docket no. 32, p. 16.

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under 28 U.S.C. §2201 regarding interpretation of certain

provisions of the Plan.

The court has discretion to grant declaratory relief in

appropriate circumstances such as this one. U.S. v. State of

Wash., 759 F.2d 1353, 1357 (9th Cir. 1985) (noting declaratory

relief should be denied when it will neither serve a useful

purpose in clarifying or settling the legal relations in issue

nor terminate the proceedings and afford relief from the

uncertainty and controversy faced by the parties).

Neither party claims that there are disputed facts and

neither claims the Plan is ambiguous. Nevertheless, Continental

suggests that if the court finds the Plan is ambiguous,

Continental will provide extrinsic evidence that will support its

version of the drafting intent of §8.3 and the related Plan

provisions. This will not be necessary and §16.11 of the Plan9

precludes it as does Illinois law. See Air Safety, Inc. v.

Teachers Realty Corp., 185 Ill.2d 457, 462 (1999) (stating if

language of contract is facially unambiguous, contract is

interpreted as a matter of law without parol evidence).

a. Continental’s Summary Judgment Argument

Continental’s Counterclaim seeks a declaratory judgment

regarding the interpretation of §8.3 of the Plan. Specifically,

by this Summary Judgment Motion, Continental wants the court to

find:

a) The Trust is “required” as a “condition precedent to

9 The Plan provides that parol evidence is not admissible in

an action regarding the Plan or any of its provisions. Plan,

§16.11.

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recovering against Continental with respect to any trust

claim,” to tender to Continental...the allocated percentage

of that liquidated value for which the liquidating trust

contends Continental is responsible; 

b) That [the phrase] “allocated percentage” in §8.3 of the

Plan does not permit the Trust to seek the full liquidated

value from Continental without allocating a percentage also

to the trust fund received from other primary insurers; 

c) Continental owes no recovery to the Trust with respect to

any Trust Claim absent an allocated percentage proposed to

Continental; 

d) The Trustee did not comply with the above referenced 

tender requirements set forth in §8.3 of the Plan. 

AP Docket no. 27, AP Docket no. 19, ¶18.10

The thrust of Continental’s summary judgment argument is

that by proposing an “allocated percentage” of 100% of the

liquidated value of the Tendered Claims, the Trust is trying to

hold Continental liable for more than its fair share of each

Tendered Claim. Continental argues that the Trust has to assign

to Continental only that portion of each Tendered Claim for which

Continental would have financial responsibility under a post hoc

equitable contribution action. AP Docket no. 27, p. 15.

Continental contends that the precise allocation method is not

yet at issue but, somewhat inconsistently, also contends that the

Trust had to perform an equitable contribution analysis for each

Tendered Claim and make an allocation based on it in any Proposal

sent to Continental. AP Docket no. 34, p. 16. Accordingly,

10 Paragraph 18 of the Counterclaim continues with

subparagraphs (e)-(g) addressing issues beyond this Summary

Judgment Motion. 

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because the Trust’s Proposals with an “allocated percentage” of

100% are, in Continental’s view, invalid, Continental’s 90-day

time period to respond under §8.3 of the Plan has not begun to

run. AP Docket no. 27.

b. The Trust’s Summary Judgment Argument

The Trust argues that the language of §8.3 of the Plan is

clear. It simply provides that the Trust is to make a Proposal to

Continental stating the allocated percentage of the liquidated

value of the Tendered Claims that the Trust contends is

appropriate; it does not preclude the Trust from contending that

Continental’s allocated percentage is 100% of the liquidated

value of the Tendered Claims. AP Docket no. 32.

The Trust also argues that, while the language of §8.3 does

not require its Proposals to allocate as Continental insists,

there is in fact no basis for equitable contribution because

there is no unjust enrichment of the sort equitable contribution

is designed to ameliorate. The Trust explains that when the Plan

was confirmed, the number and the value of the Claims that would

be allowed was unknown and whether any Allowed Claims would ever

trigger Continental’s policies was also unknown. Now, on the

other hand, there are Allowed Claims with a liquidated value of

$46 million and the Insurance Fund initially held $16 million

from which to make pro rata payments on these Allowed Claims. The

Trust points out that the $7.9 million in Tendered Claims fully

exhaust the $2.56 million available under Continental’s policies

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under any conceivable allocation method.11 Based on this, the

Trust asserts there is no unjust enrichment to the Trust from an

allocated percentage of 100% on the Tendered Claims. Accordingly,

Continental was required to accept or reject the Trust’s

Proposals as the Plan provides.12 AP Docket no. 32, no. 35.

IV. Discussion

a. Interpretation of the Plan

A chapter 11 plan is a contract to which general rules of

contract interpretation apply. In re Bartleson, 253 B.R. 75, 79

(9th Cir. BAP 2000) (citing Hillis Motors, Inc. v. Hawaii Auto.

Dealers’ Ass’n, 997 F.2d 581, 588 (9th Cir. 1993)). Under

Illinois law, the basic rules of contract interpretation are well

settled. The primary objective is to give effect to the intention

of the parties and a court will look first to the language of the

contract to determine the parties’ intent; a contract must be

construed as a whole, viewing each provision in light of the

other provisions; the parties’ intent is not determined by

viewing a clause or provision in isolation. Thompson v. Gordon,

241 Ill.2d 428, 441 (2011) (citing Gallagher v. Lenart, 226

Ill.2d 208, 232 (2007)). When parties agree to and insert

11 The Trust asserts that (1) a “time on the risk”

allocation method would impose at least a 10.7% liability on

Continental based on its three years of coverage so its share of

the Allowed Claims would exceed its $2.56 million policy limits

by at least $1.5 million; (2) a “pro rata by limits” allocation

method would impose a liability of 18% of the policies issued by

the solvent insurers which also exceeds Continental’s policy

limits. AP Docket no. 35, p. 7.

12 The Trust also argues that Continental’s interpretation

amounts to an effort to modify the Plan which Bankruptcy Code

§1127 and §1141 preclude. AP Docket nos. 32 and 35.

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language in a contract, it is presumed that it was done

purposefully, so that the language employed is to be given

effect. Id. at 442 (citing Fidelity National Title Ins. Co. of

New York v. Westhaven Properties Partnership, 386 Ill.App.3d 201,

215 (2007)). 

Where a technical term in a contract does not have a

commonly understood meaning, it is to be given its technical

meaning. Loeffel Steel Products, Inc. v. Delta Brands, Inc., 379

F.Supp.2d 968, 976 (N.D.Ill. 2005) (citing Restatement (Second)

of Contracts §202(3)(b)(1981)). 

b. Section 8.3 of the Plan

Section 8.3 of the Plan begins by stating that it modifies

and supplements the Trust Distribution Procedures and controls

with respect to “the handling of Claims or an allocated portion

thereof, for which the Liquidating Trust contends that

Continental may have financial responsibility.” It then states,

in relevant part: 

The Liquidating Trust, as a condition precedent to

recovering against Continental with respect to any Trust

Claim, shall be required to tender to Continental in

writing, a copy of the Proof of Claim ... along with any

supporting materials, along with a Notice indicating the

liquidated value of the Claim, as determined by the

Liquidating Trust, and the allocated percentage of the

liquidated value for which the Liquidating Trust contends

Continental is responsible.

Plan, §8.3 (emphasis added).

Section 8.3 limits the number of Claims that may be

submitted to Continental to 660 in any quarter and 2,500 in any

calendar year. The section gives Continental 90 days to inform

the Trust whether it accepts or rejects the terms of any Proposal

and describes what the Trust may do if Continental rejects a

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Proposal: the Trust may pay the Claim and then recover from

Continental.

Continental argues that the phrase “allocated percentage” in

§8.3 of the Plan must be given a technical, insurance-specific

meaning which necessarily excludes an allocated percentage of

100%. Based on this interpretation, Continental declined to

respond to any Tendered Claim on its merits. The court disagrees

with Continental’s interpretation; it is contrary to the plain

and obvious meaning of the language in §8.3. 

First, “allocate” is a word with a commonly understood

meaning; it is not a technical term. As used here, it simply

means to assign. The question before the court also concerns use

of the phrase “allocated percentage” in the Plan, not in an

insurance policy. Second, giving “allocate” an insurance-specific

meaning - if there is one - does not lead to the conclusion

Continental urges. See Caterpillar v. Century Indemnity Co., 2007

WL 7947740 (Ill. App.3d Feb. 2, 2007), at *4 (applying Illinois

law, court finds that insurance policy language dictates an “all

sums allocation” of defense costs, not a “pro rata allocation;”

court notes “all sums allocation” is the controlling law in

Illinois under Raymark). Accordingly, an “allocated percentage of

100%” of the liquidated value of an Allowed Claim is no different

than an “all sums allocation.”

Third, use of the word “tender” in §8.3 does not show that

an insurance-specific meaning must be given to the word

“allocate.” As it is used in §8.3 of the Plan, “tender” simply

means the Trust will present a Proposal for the payment of

certain Allowed Claims - based on the Trust’s contention as to

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the proper amount Continental must pay. The word “tender” in §8.3

does not have a technical meaning which it might have in another

context, i.e., a coverage dispute. See American Nat’l Fire Ins.

Co. v. Nat’l Union Fire Ins. Co., 343 Ill.App.3d 93, 97 (2003)

(discussing targeted tender doctrine under Illinois law). Here

“tender” simply means the Trust will give Continental a Proposal

stating the Trust’s contention regarding Continental’s financial

responsibility to pay the Tendered Claims.

Based on the foregoing, the Trust’s interpretation of §8.3

is the appropriate one. An “allocated percentage of 100%” is an

allocation. Continental had an obligation to respond to the

Trust’s Proposals regarding the Tendered Claims as provided by

§8.3 of the Plan.

c. Equitable Contribution

The parties agree that under Zurich Ins. Co. v. Raymark

Industries, Inc., 118 Ill.2d. 23 (1987), each primary insurer is

jointly and severally liable to pay “all sums” on covered claims

that trigger its policies. Continental argues that §8.3 of the

Plan abrogates this rule and requires the Trust to perform a

theoretical equitable contribution calculation for each Tendered

Claim and its Proposals must necessarily employ some such

allocation method - but excluding 100% - before Continental has

any responsibility to respond to any Tendered Claim. 

In insurance law, “the right to contribution is an equitable

principle arising among co-insurers which permits one who has

paid the entire loss to receive reimbursement from another

insurer liable for the loss.” Royal Globe v. Aetna, 82 Ill.App.3d

1003, 1005 (1980) (finding claim for declaratory relief for

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contribution stated). Equitable contribution applies to policies

that insure the same entities, the same interests, and the same

risks. Id. These three elements must be met before the insurance

can be considered concurrent or double. Home Ins. Co. v.

Cincinnati Ins. Co., 213 Ill.2d 307, 316 (2004) (citing Royal

Globe and Couch on Insurance 3d §218.3 (rev. 2004)). In order for

a settling insurer to recover from another insurer under an

equitable contribution theory, the settling insurer must prove

(1) all facts necessary to the claimant’s recovery against the

insured; (2) the reasonableness of the amount paid to the

insured; and (3) an identity between the policies as to parties

and insurable interests and risks. Schal Bovis, Inc. v. Casualty

Ins. Co., 315 Ill.App.3d 353, 362 (citing Royal Globe, noting

that excess carriers and primary carriers insure different

risks). 

c. Equitable Contribution and Allocation Methods

Continental argues that the “other insurance” clause in its

policies supports its entitlement to contribution. AP Docket no.

27, p. 18, AP Docket no. 40, Ex. 2, p. 19. This provision is

relevant when Continental’s insurance policies and some other

insurance policies apply to a loss; the provision requires a

reference to the other insurance policies to determine whether

“contribution by equal shares” or “contribution by limits” is

theoretically involved.13

13 See Ins. Co. of North America v. Home and Auto Ins. Co.,

256 Ill.App.3d 801, 802 (1993) (describing coverage disputes

regarding “other insurance” issues as “a dimly lit underworld

where many have lost their way”). 

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Continental asserts that the Trust is in possession of the

policies of the three Settling Insurers and so was required to

perform an equitable contribution analysis in advance of making a

Proposal for the payment of each Tendered Claim using some

unspecified allocation method based on these other policies and

the facts of each Tendered Claim.14

In an action by a settling insurer seeking equitable

contribution from another insurer, the burden is on the insurer

seeking contribution to prove the requisite factual predicates

for it. Cincinnati Ins. Co. v. Boller Const., Inc., 2006 WL

695459, *18 (N.D.Ill. 2006). Continental equates the Trust to

this theoretical settling insurer and posits that the Trust must

perform an equitable contribution calculation for Continental’s

benefit because the Trust is holding the Insurance Fund created

by the sale of the Settling Insurers’ policies, and in effect,

stands in their shoes. 

Section 8.3 does not impose this burden on the Trust for the

benefit of Continental. The language of §8.3 gives the Trust

flexibility; it allows the Trust to state its contention

regarding the allocated percentage Continental must pay. When it

14 The Trust points out that Continental has failed to ask

for the Settling Insurers’ policies and has repeatedly failed to

state an allocation method it finds acceptable. AP Docket no. 35,

p. 9, no. 36, ¶21. In its Counterclaim, Continental alleges that

it will ask the court to specify the proper allocation method,

“e.g., by time on the risk, limits [sic], equal shares, time

multiplied by limits, or some other equitable method” after the

parties have presented arguments, authorities, and evidence. AP

Docket no. 19, ¶21. This suggests Continental would have

responded to any Proposal that had used an allocated percentage

of less than 100% in the same obstructionist fashion it has used

in response to the Proposals. 

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negotiated the terms of the Plan, Continental was well aware of

the terms of the Settlements and their effect on Continental’s

equitable contribution rights.15 Continental could have insisted

on language in the Plan that achieved the goal it now seeks. It

failed to do so. The Plan will not be rewritten now to achieve

this end. 

d. Unjust Enrichment

Continental argues that use of an allocated percentage of

100% creates unjust enrichment to the Trust which equitable

contribution is designed to correct. For several reasons,

Continental’s effort to use an equitable doctrine offends the

equitable principles in play here. Continental is not being asked

to pay more than its fair share. 

First, Continental’s approach would require the Trust to

spread each Tendered Claim among each Settling Insurer’s coverage

- an undertaking that would seem to delay the closing of this

case by many years and at significant administrative expense. To

claim that this sort of delay is warranted by an equitable

principle is astounding. The delay benefits only Continental and

burdens the Trust and its beneficiaries. 

15 In November 2009, Continental filed an objection to an

early version of Debtors’ disclosure statement in which the

settlement with two of the Settling Insurers was discussed. Main

Case Docket no. 262. At that time, Continental complained that

the plan was unconfirmable and “the criteria contained in the

Trust Distribution Procedures would permit legions of claimants

to recover for claims that could not pass muster under applicable

nonbankruptcy law against the bankruptcy estate of a defendant

with little or no liability in the tort system. Worse yet, the

Plan would permit the Liquidating Trustee to completely usurp the

judicial function with further degradations of the payment

criteria.” Main Case Docket no. 262, p. 8.

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Second, there are Allowed Claims with a liquidated value of

$46 million and the Trust was funded with $16 million, $11.5

million of which came from the Settling Insurers. There are 1,133

Tendered Claims with a liquidated value of $7.9 million and

Continental has $2.56 million in available coverage. There are

12,365 Non-Tendered Claims with a liquidated value of $38.1

million. Of these 12,365 Non-Tendered Claims, there are 1,037

claims with a liquidated value of $14.9 million that do not

trigger Continental’s policies. Standing alone, this $14.9

million group of Non-Tendered Claims exhausts the remaining

coverage under the Settling Insurers’ policies. Based on this

calculation, the Trust determined that under any allocation

theory, Continental will be required to pay its $2.56 million in

policy limits on the Tendered Claims. Accordingly, the Trust made

the prudent decision to refrain from performing what it

determined was a pointless and expensive exercise. Section 8.3

does not mandate this and the court will not compel the Trust to

undertake it now. There is clearly no threat of unjust enrichment

to the Trust, the Settling Insurers, or the holders of the

Allowed Claims. Any unjust enrichment would be only Continental’s

if its approach were employed.

e. Exhaustion

Continental concedes that an allocated percentage of 100% is

appropriate if the Settling Insurers’ policies are exhausted.16

However, Continental argues that the Settling Insurers’ policies

16 Continental also acknowledges that an allocated

percentage of 100% is appropriate where a Claim triggers only its

policies. AP Docket no. 34, p. 18.

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are not exhausted because the Trust is still holding their policy

proceeds in the Insurance Fund. According to Continental, because

the holders of Allowed Claims have vested rights in the Insurance

Fund, the Trust must perform some sort of allocation analysis to

respect Continental’s equitable contribution rights. 

The Trust argues that the court need not find that the

Settling Insurers’ policies are exhausted to rule in the Trust’s

favor on the interpretation of §8.3, but certainly can make this

finding on this record. Here, the Settling Insurers each paid

more than their policy limits and obtained releases from the

estate; these Settlements are equivalent to fully paying their

policy limits for the exclusive benefit of the holders of Allowed

Claims. The Trust argues that the Settling Insurers have thus

completely fulfilled their obligations as insurers and their

policies are, in effect, exhausted.

However, under Illinois law, the holders of Allowed Claims

may have an interest in the policy proceeds which were

transferred to the Trust. See In re Allied Products Corp., 2004

WL 635212, at *6-7 (N.D. Ill. Mar.31, 2004) (finding that for

purposes of adequate protection, claimants had an interest in the

policies the debtor proposed to sell back to its insurers in a

manner that diluted the claimants right to adequate protection).

Section 9 of the Plan is in accord with this.

While the existence of the Insurance Fund held by the Trust

may suggest that the Settling Insurers’ policies are not

technically exhausted, this fact alone is insufficient to require

the Trust to perform what is ultimately a pointless equitable

contribution analysis and propose an allocation that Continental

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may or may not find acceptable. The Plan does not require it, and

in fact, specifically permits the Trust to submit Proposals to

Continental based on the Trust’s contention regarding

Continental’s obligations.

Continental also argues that the Trust’s position makes

Continental’s obligations equivalent to those of the Settling

Insurers under their “buyback” Settlements. This is incorrect.

The Settling Insurers each paid more than their policy limits in

2012. Continental has no such obligation and the Trust is not

seeking to impose one. The Settling Insurers each performed their

obligations under the Settlements as of the effective date of the

Plan in 2012. Now, some four years later, Continental is instead

asking for a strained interpretation of the Plan that appears

designed to prolong the life of the Trust for Continental’s

benefit, and at the expense of the Trust and the holders of

Allowed Claims. It is worth remembering that the Claimants were

injured in the 1980's, that this case has been pending since

2001, and imposing further unnecessary delay in compensating the

Claimants or their estates is, on these facts, unfair.

V. Conclusion

Section 8.3 of the Plan says the Trust is to make a Proposal

to Continental of the allocated percentage of the liquidated

value of the Claims for which the Trust contends Continental is

responsible. An allocated percentage of 100% is an allocation.

The Trust made Proposals to Continental that conformed to the

terms of the Plan and Continental had a duty under the Plan to

respond to the Proposals made by the Trust. In addition, the

undisputed facts show there is no basis to require an equitable

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contribution analysis because there is no unjust enrichment to

the Trust by proceeding in this fashion.

A separate order will be entered conforming to this

memorandum decision. 

 * * * * * * End of Memorandum Decision * * * * * 

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Court Service List: 

No service required.

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