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CERTAINTEED CORP. v. FEDERAL INS. CO.

November 17, 1995

CERTAINTEED CORPORATION AND BAY MILLS, LTD.
v.
FEDERAL INSURANCE CO.



The opinion of the court was delivered by: RENDELL

 Plaintiff CertainTeed Corporation ("CertainTeed") moves for partial summary judgment seeking a declaration that defendant Federal Insurance Co. ("Federal") had a duty to defend it in the case of Carlson v. Bay Mills, Ltd. et al, no. C2-92-001350 (Tenth Judicial District, County of Wright, State of Minnesota) ("Carlson "). In the underlying complaint, plaintiff Bay Mills Ltd. ("Bay Mills") made a separate claim against Federal, seeking coverage under its policy for CertainTeed's indemnification claim against Bay Mills. In addition, both CertainTeed and Bay Mills asserted claims of bad faith against Federal arising out of its activities as insurer in the Carlson matter. Federal moves for summary judgment with regard to CertainTeed's claim of Federal's duty to defend, Bay Mills' demand for coverage of the indemnification claim, and the claims regarding Federal's bad faith. For the reasons stated below, CertainTeed's Motion for Partial Summary Judgment is denied. Federal's Motion for Summary Judgment with regard to its duty to defend and indemnify CertainTeed is granted; its motion for summary judgment with regard to plaintiffs' allegations of bad faith is denied.

 I. Factual Background

 A. The Parties

 CertainTeed and Bay Mills seek insurance coverage under a policy issued to Bay Mills by Federal for claims made against CertainTeed in the Carlson litigation, a products liability action. At all relevant times, Bay Mills was owned by CertainTeed through two intermediary holding companies. CertainTeed Ltd., a non-operating Canadian holding company, held the stock of Bay Mills. All of the stock of CertainTeed Ltd. was owned by CRT, Inc., a non-operating Delaware holding company, and all of the stock of CRT, Inc. was owned by CertainTeed. *fn1"

 On July 6, 1992, Matthew Carlson commenced a lawsuit in the Tenth Judicial District, County of Wright, State of Minnesota. Carlson brought this suit for injuries he received while a passenger in a car that collided with a runaway horse on August 31, 1991. The horse had escaped from a pasture which was enclosed by Bayguard electric fence tape. Bay Mills manufactured and sold the Bayguard tape.

 In the original complaint, Carlson sued only Bay Mills; CertainTeed was not named as a defendant. Pursuant to insurance policies issued by Federal to Bay Mills, Federal undertook the defense of Bay Mills in the Carlson action. On December 21, 1992, the court granted leave to Carlson to amend the complaint to add CertainTeed as a defendant. On January 28, 1994, Carlson filed a second amended complaint in which he identified CertainTeed as the "ultimate parent of Bay Mills" and alleged that Bay Mills and CertainTeed were liable due to negligence, breach of warranty, strict liability and fraud committed by each of them. A separate count claimed that Bay Mills and CertainTeed exercised joint control over the manufacture of the tape and that their conduct constituted a joint venture. CertainTeed undertook its own representation and defense of the claim, making no demand on Federal to defend it.

 However, Bay Mills and CertainTeed contend that on April 18, 1994, they requested Federal to settle the Carlson litigation on behalf of both Bay Mills and CertainTeed under the Bay Mills policies. *fn2" On or about June 2, 1994, Carlson's claim against Bay Mills was settled pursuant to a Pierringer Release. *fn3" On June 16, 1994, CertainTeed demanded indemnification from Bay Mills for the costs of defense as well as any settlement or verdict. On or about the same day, Bay Mills tendered CertainTeed's claim against it to Federal, demanding that Federal agree to defend and indemnify Bay Mills with respect to CertainTeed's claim for indemnity and contribution. On June 20, 1994, Federal declined Bay Mills' request that Federal defend and indemnify CertainTeed with respect to any settlement CertainTeed might negotiate with Matthew Carlson or any adverse verdict that might be rendered by a jury. CertainTeed did not assert a claim for contribution or indemnification against Bay Mills during the Carlson litigation.

 Federal based its denial upon the fact that CertainTeed was not a named insured or additional insured under the policies issued to Bay Mills. Federal also contended that the release nullified any claims of other defendants against Bay Mills for contribution or indemnity. Federal claims, therefore, that it was justified in declining Bay Mills' request that Federal defend and indemnify CertainTeed with respect to the settlement CertainTeed negotiated with Matthew Carlson or any adverse jury verdict because, pursuant to the release, Bay Mills was immunized from any indirect liability in the Carlson matter on account of claims for contribution or indemnity. Federal also contends that, because CertainTeed was neither listed as an insured under the policies, nor entitled to indemnification in light of the Pierringer Release, CertainTeed's claim of bad faith must be dismissed as a matter of law.

 B. The Policies

 Federal issued a Commercial General Liability Policy ("CGL") to Bay Mills effective February 1, 1991 to February 1, 1992. Federal also issued a Commercial Excess Umbrella Policy ("CEU") to Bay Mills, effective for the same dates. The relevant language of the "WHO IS INSURED" section of the primary policy provides:

 
1. If you are:
 
....
 
b. A partnership or joint venture, you are an insured. Your members, your partners, and their spouses are also insureds, but only with respect to the conduct of your business.
 
c. An organization other than a partnership or joint venture, you are insured. Your executive officers and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds but only with respect to their liability as stockholders.
 
LIMITATION ON WHO IS INSURED
 
No one is an insured for the conduct of any current or past partnership or joint venture that is not shown as a named insured in the Declarations.

 The relevant language of the CEU incorporates the coverage for stockholders provided by the CGL, and also provides that the following persons are insureds under the excess policy: "any officer, director, stockholder or employee of yours while acting within the scope of their duties as ...


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