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Keystone Shipping Co. v. Home Insurance Co.

filed: February 18, 1988.

KEYSTONE SHIPPING COMPANY, APPELLANT
v.
THE HOME INSURANCE COMPANY, APPELLEE



On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil Action No. 85-6894.

Seitz, Hutchinson and Aldisert, Circuit Judges.

Author: Hutchinson

Opinion OF THE COURT

HUTCHINSON, Circuit Judge.

This is an admiralty case. It has its beginning in a January 31, 1975 allision in which appellant Keystone Shipping Company's (Keystone) chemical carrier S.S. EDGAR M. QUEENY (QUEENY) struck the crude oil tanker S.T. CORINTHOS (CORINTHOS) on the Delaware River near Marcus Hook, Pennsylvania. At the time of the allision, the CORINTHOS was discharging a cargo of crude oil at the BP/Sohio terminal. The accident resulted in numerous death and personal injuries, extensive damage to the refinery and surrounding properties, pollution in the Delaware River, the destruction of the CORINTHOS and damage to the QUEENY.*fn1 The incident spawned more than a decade of litigation and eight previous appeals to this Court.*fn2

Appellee, The Home Insurance Company (Home), is one of a number of insurance carriers who provided QUEENY marine insurance in varying amounts at various coverage levels. After protracted litigation which left a number of issues unresolved, all the QUEENY's insurers except Home agreed to pay B.P. Oil, Inc./Sohio Petroleum Company (BP/Sohio), the only remaining claimant, $30 million in full settlement.*fn3 Home refused to participate beyond $24.8 million. The other carriers went ahead and settled for $30 million, taking "loan receipts"*fn4 from appellant for $965,011.22. This represents Home's pro rata share of the settlement at the third excess policy level. Claiming Home had failed to meet an obligation to pay its share of a reasonable settlement, Keystone, for the benefit of the other contributing carriers, sought reimbursement from Home of the $965,011.22 evidenced by the loan receipts.*fn5

The district court refused Keystone's claim, stating, "Home's refusal to pay the $965,000-odd dollars was a reasonable business decision based on an honestly held belief that the $30 million settlement was too high." Jt. App. at 28. Keystone appealed this order, contending the $30 million settlement was reasonable and Home had an obligation to pay its full share of any reasonable settlement.

The district court had jurisdiction of this claim under 28 U.S.C.A. § 1333 (West 1966). We have appellate jurisdiction over the district court's order absolving Home of any further obligation under 28 U.S.C.A. § 1291 (West Supp. 1987).

Our scope of review with respect to Home's obligation to contribute toward the settlement is plenary. We review the district court's findings which underlie the determination that Home met its obligation to determine whether they are clearly erroneous.

We must reject Keystone's contention that Home had to contribute its full share of any reasonable settlement. Specifically, we hold that neither the insurance policies written in this case nor general law impose such an obligation upon Home, either as a co-insurer at the third excess level or as an underlying co-insurer at the lower coverage levels. A co-insurer like Home is not obliged to accept other co-insurers' evaluations of litigating prospects so long as its own evaluation is not unreasonably low and it has acted in good faith in advancing and adhering to that evaluation in the absence of a contract which can be construed to impose such an obligation. Because the district court found that both the $30 million settlement and Home's evaluation of the litigating chances at $24.8 million were within the bounds of reason, and that Home's $24.8 million evaluation was not held and advanced in bad faith, we will affirm.

As bareboat charterer of the QUEENY, Keystone purchased, over and above a primary marine liability policy, four excess liability policies from various participating insurers. The total coverage available from all of these policies, including the primary policy, was $70 million. Home's responsibility as a co-insurer participating at the third excess level liability policy is the subject of this lawsuit. That policy provided $10 million in excess coverage over the primary coverage of $5 million, the first excess policy of $20 million and a second excess policy in the amount of $10 million. Home had underwritten twenty percent, or $2 million, of coverage at this third excess level. In addition, Home was the sole insurer at the fourth excess level in the amount of $5 million and had also underwritten ten percent ($2,000,000) of the fifth excess policy of $20 million. Home's co-insurers at the third excess level were Insurance Company of North America (25 % or $2,500,000), Highlands Insurance Co. (20 % or $2,000,000), St. Paul Fire & Marine Insurance (15 % or $1,500,000), American International Group (10 % or $1,000,000) and Reliance Insurance Co. (10 % or $1,000,000).*fn6

By August, 1985, all claims had been resolved except BP/Sohio's. Keystone still had $56.2 million coverage available from all its insurers, plus a $5 million fund paid to the insurers by Bethlehem Steel and two other products liability defendants against the insurers' promise to indemnify them from further liability in a related products liability action. A number of legal issues remained unresolved.

Into this sea of uncertainties the district court tossed an order requiring the insurers to post a $32 million security deposit. BP/Sohio's maximum claim then stood at $37 million, including accrued interest to date, and its settlement demand was $33.6 million.*fn7

Settlement talks began in earnest. BP/Sohio became willing to close things out at $30 million. The others agreed, but Home balked beyond $24.8 million. Unwilling to litigate further, the other insurers put up Home's share of the settlement above $24.8 million, amounting to the $965,011.22 at issue here. The co-insurers accepted loan receipts from Keystone obligating it to bring suit in its name, as insured, against Home and to pay any funds recovered to the other insurers in accordance with their shares of ...


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