CATHERINE C. BLAKE, District Judge.
National Union Fire Insurance Company of Pittsburgh, Pa. and American Home Assurance Company (collectively, "the Insurers") seek summary judgment to bar coverage for settlements made by the Porter Hayden Bodily Injury Trust ("the Trust") because (1) those settlements violate the "voluntary obligation" provision and (2) are unreasonable. Also pending before the court is Porter Hayden Company's ("Porter Hayden") motion for summary judgment. The issues in this case have been fully briefed, and oral argument was held on November 20, 2013. For the reasons stated below, the Insurers' motion for summary judgment will be granted in part—as to their ability to challenge the reasonableness of the Trust's settlements and as to Porter Hayden shouldering the ultimate burden of persuasion to show the settlements are reasonable—and otherwise denied. Porter Hayden's motion, as it pertains to whether the Trust pays claimants reasonable values to resolve claims and whether the Insurers have waived their right to object to settlements paid by the Trust, will be granted in part—as to the Insurers' waiver of the voluntary obligation provision—and otherwise denied.
Since Porter Hayden ceased installing asbestos-containing insulation materials, it has been sued by thousands of individuals for injuries related to asbestos exposure. In March 2002, following thousands of asbestos-related claims, Porter Hayden filed a petition for Chapter 11 bankruptcy 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"). Although the Insurers initially objected to the Plan, they eventually withdrew their objections in exchange for Porter Hayden's stipulation that confirmation of the Plan would not deprive them of any defenses under applicable non-bankruptcy law. (See Stipulation, ECF No. 132-13, at 3-4.)
The Plan established the Trust to resolve asbestos claims against Porter Hayden pursuant to Trust Distribution Procedures ("TDP"). The TDP outline "the qualifications for an asbestos claim, the evidence needed to support the existence of such a claim, standards ranking the relative severity of claims . . ., and an associated schedule of values for each severity-level of claim." (Porter Hayden's Mem. in Opp'n, ECF No. 349, at 5.) The TDP use the following categories of claims: "Bilateral Asbestos-Related Non-Malignant Disease (Level I), Disabling Severe Asbestosis (Level II), Other Cancer (Level III), Lung Cancer (Level IV)[,] and Mesothelioma (Level V)." (Insurers' Corrected Mot. for Summ. J., ECF No. 345, at 8.) According to the Insurers, Level I nonmalignant claims do not require a showing of physical impairment in the form of decreased lung function. (See id. at 10-11; see also Insurers' Reply, ECF No. 356, at 12-13.)
In February 2009, before the Trust began resolving claims, Porter Hayden wrote a letter to the Insurers, requesting their assistance in evaluating and resolving claims. (See Feb. 26, 2009, Letter from T. Dennis Feeley, ECF No. 344-10.) The letter indicates that Porter Hayden had already given the Insurers access to submissions through a claims database,
Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted "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." Fed. R. Civ. P. 56(a) (emphasis added). Whether a fact is material depends upon the substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Accordingly, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Id. "A party opposing a properly supported motion for summary judgment `may not rest upon the mere allegations or denials of [his] pleadings,' but rather must `set forth specific facts showing that there is a genuine issue for trial.'" Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) (alteration in original) (quoting Fed. R. Civ. P. 56(e)). The court must view the evidence in the light most favorable to the nonmovant and draw all justifiable inferences in his favor. Scott v. Harris, 550 U.S. 372, 378 (2007) (citation omitted); see also Greater Baltimore Ctr. for Pregnancy Concerns, Inc. v. Mayor and City Council of Baltimore, 721 F.3d 264, 283 (4th Cir. 2013) (citation omitted). At the same time, the court must not yield its obligation "to prevent factually unsupported claims and defenses from proceeding to trial." Bouchat, 346 F.3d at 526 (citation and internal quotation marks omitted).
The Insurers argue that the Trust assumed obligations to claimants without their consent, in violation of the policies' voluntary obligation provision.
228 Md. 40, 48, 178 A.2d 872, 875 (1962). In that case, an insurer was notified of a proposed settlement, but it "declined by its silence to participate." Id. Thus, when the insurer "refused and National proceeded with reasonable prudence to settle the claim . . ., [the insurer] could no longer rely on provisions in the contract precluding a settlement without its consent or requiring a judgment against the insured." Id. at 49, 178 A.2d at 876; see also Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Porter Hayden Co., 408 B.R. 66, 78 (D. Md. 2009) (concluding that National Union could not invoke a "[n]o actions" clause to bar Porter Hayden's suit when National Union "had sufficient notice that claimants were seeking damages from Porter Hayden . . . but refused to participate" in the defense or settlement of those claims). Here, Porter Hayden notified the Insurers of the claims presented to the Trust, but like the insurers in Nat'l Paving and Nat'l Union Fire, "the Insurers simply chose not to respond." (Porter Hayden's Mem. in Opp'n at 9.)
The Insurers submitted additional briefing on Perini/Tompkins Joint Venture v. Ace Am. Ins. Co. to argue that they did not waive the voluntary obligation provision, but reliance on that case is inapposite and does not alter the above analysis. 738 F.3d 95, 106-07 (4th Cir. 2013) (deciding that the insurer did not waive its voluntary payment defense). In Perini, the insured did not notify the insurer of the claim filed against it, nor did the insured seek to obtain the insurer's consent prior to settling the claim. Id. at 99. Here, before the Trust began resolving claims, Porter Hayden notified the Insurers of claims presented to the Trust; indeed, it did so multiple times. Porter Hayden also sought the Insurers' assistance in evaluating and resolving claims. Thus, on the issue of whether the Insurers waived the voluntary obligation provision, Porter Hayden's motion for summary judgment will be granted, and the Insurers' motion will be denied.
Nevertheless, although the Insurers may not disclaim coverage under the voluntary obligation provision, they may challenge the reasonableness of the settlements. The Insurers preserved the right to challenge the settlements' reasonableness when they entered into the stipulation with Porter Hayden that confirmation of the Plan would not deprive them of any applicable non-bankruptcy law defenses. Moreover, Nat'l Paving suggests that even an insurer who refuses to defend the insured reserves the ability to challenge the reasonableness of the insured's settlement. See 228 Md. at 48, 178 A.2d at 875 (emphasis added) (stating that, "where there is a denial of liability and a refusal to defend on the part of the insurer," the insured may make a "reasonable compromise of the suit"); see also Gildenhorn v. Columbia Real Estate Title Ins. Co., 271 Md. 387, 394-95, 317 A.2d 836, 840 (1974).
Turning to which party has the burden of proof on reasonableness, the court determines the Insurers have the burden of production, but Porter Hayden has the ultimate burden of proof. According to the Insurers, the party seeking indemnification for a settlement has the burden to prove the settlement amount is reasonable; however, they cite federal admiralty cases that do not apply Maryland law. See Van Ommeren Bulk Shipping B.V. v. Cooper/T.Smith Stevedoring Co., Inc., 35 F.Supp.2d 469, 472 (D. Md. 1999); Am. Roll-On Roll-Off Carrier, LLC v. P & O Ports Baltimore, Inc., No. WDQ-03-3462, 2008 WL 2120704, at *2 (D. Md. Jan. 16, 2008). By contrast, Porter Hayden cites Port E. Transfer v. Liberty Mut. Ins. Co., 330 Md. 376, 624 A.2d 520 (1993), for the proposition that, under Maryland law, a breaching party challenging the reasonableness of a settlement has the burden of proof; but Porter Hayden conflates the concepts of burden of proof and burden of production. In Port E. Transfer, the U.S. District Court for the District of Maryland certified to the Maryland Court of Appeals "a question involving the required elements of a contract claim brought by an insurer against its insured for unpaid retrospective premiums and involving the allocations of burdens of proof and production of evidence in such an action." Id. at 377, 624 A.2d at 520. Under the retrospective premium arrangement, the insurer had to investigate, settle, and provide the defense for all covered claims. Id. at 378, 624 A.2d at 520. The insurer responded to "hundreds of claims," keeping the insured "regularly apprised of the status of those claims." Id., 624 A.2d at 521. But when the insurer sought additional premiums from the insured, the insured declined to pay. Id. at 378-79, 624 A.2d at 521. The Maryland Court of Appeals held:
Id. at 386, 624 A.2d at 524-25. Thus, the Maryland Court of Appeals placed "the burden of production of evidence of violation"—but not the burden of persuasion—on the challenging party.
Applying the reasoning of Port E. Transfer to the present case, the court recognizes the difficulties inherent in requiring a party settling many claims to show the reasonableness of each settlement. See 330 Md. at 386, 624 A.2d at 524-25.
Next, the court cannot at this time determine whether the Trust's settlements are reasonable or unreasonable as a matter of law. The Insurers argue that the Trust's settlements are unreasonable for two reasons: "First, the Trust's payments to claimants with unimpaired nonmalignant claims who would not be paid at all in the tort system are patently unreasonable because there is no underlying legal liability for the claim. Second, the Trust's wildly inflated payments of up to 20 times what the claim would be worth in the tort systems also are unreasonable as a matter of law." (Insurers' Corrected Mot. for Summ. J. at 19.) The Insurers' first argument must be rejected, as their expert, Dr. Charles H. Mullin ("Mullin"), concedes that at least some Level I nonmalignant claims may become compensable in the Maryland tort system. (Id. 12, 22 n.6.) Given this concession, the court cannot conclude that all Level I claims are noncompensable and, therefore, payment of those claims was unreasonable. Responding to Porter Hayden in the tort system or the process by which the Trust resolves claims, Porter Hayden may satisfy its burden of proof by providing the same kind of evidence. In other words, the kind of evidence Porter Hayden must present to satisfy its burden of proof depends on the kind of evidence first presented by the Insurers. the Insurers' second argument, Porter Hayden posits that the Insurers looked at tort values between 1998 and early 2001, and "[a]sbestos settlement values in the tort system have increased significantly since 2001." (Porter Hayden's Mem. in Opp'n at 23-24.) In addition, according to Porter Hayden, the Insurers do not consider how the Trust helped avoid expensive defense costs: "Porter Hayden spent an average of $4.75 million per year on defense costs for asbestos claims in the tort system and the amount was growing each year . . . ." (Id. at 24.) In light of those issues, the court cannot decide that the Trust's settlements are unreasonable as a matter of law. In sum, to the extent that the Insurers seek summary judgment declaring the settlements unreasonable, their motion will be denied.
Porter Hayden's motion for summary judgment, as it relates to whether the settlements are reasonable as a matter of law, also will be denied. Porter Hayden argues for summary judgment declaring the settlements reasonable because (1) the Insurers waived the opportunity to challenge reasonableness and (2) the Trust's settlement values are presumptively reasonable. As explained above, however, the Insurers may indeed challenge the settlements' reasonableness. Turning to Porter Hayden's second argument, the court rejects the suggestion that TDP values are presumptively reasonable just by virtue of the fact that they were approved by the bankruptcy court as part of the reorganization plan. (See Porter Hayden's Mot. for Summ. J. at 8.) The court reiterates that the Insurers have the burden of production at trial; if they satisfy this burden, then Porter Hayden has the ultimate burden of proof to show the settlements are reasonable.
Finally, the court notes that the question remains whether, under either side's valuation, some or all of Porter Hayden's primary insurance policies are in fact exhausted under the horizontal exhaustion rule, as set forth in the court's January 2, 2014, Memorandum.
For the reasons stated above, the Insurers' motion for summary judgment will be granted in part and denied in part, and Porter Hayden's motion for summary judgment—as it pertains to the reasonableness of the Trust's settlements and whether the Insurers have waived their right to object to those settlements—will be granted in part and denied in part. A separate order follows.
The Insurers argue that Porter Hayden's expert witness, Christopher P. Makuc—who relies on the database for his opinions—cannot testify as to whether the database meets all the Rule 803(6) requirements. Upon review of Robert Capritti's declaration, however, the court determines the database meets all the above requirements. (See Decl. of Capritti, ECF No. 133-8.) Further, the database is admissible pursuant to Rule 1006, under which a "proponent may use a summary, chart, or calculation to prove the content of voluminous writings, recordings, or photographs that cannot be conveniently examined in court." Fed. R. Evid. 1006.