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Wasau Underwriters Insurance Co. v. United Plastics Group

February 10, 2010

WASAU UNDERWRITERS INSURANCE COMPANY, ET AL., PLAINTIFF,
v.
UNITED PLASTICS GROUP, INC., DEFENDANT.



The opinion of the court was delivered by: Honorable David H. Coar

MEMORANDUM OPINION AND ORDER

Before this Court is a Motion for Summary Judgment filed by Intervenor Ohio Casualty Company ("Ohio Casualty"), an excess liability insurer incorporated in Ohio, against Defendants Microtherm, Inc. ("Microtherm"), a Texas-based water heater manufacturer, and United Plastics Group, Inc. ("UPG"), a component manufacturer operating principally in Illinois. Ohio Casualty seeks summary judgment in its favor, claiming that its excess insurance policy does not cover Microtherm's $26.5 million judgment against UPG, as assessed by a jury in an underlying tort case. For the reasons stated below, Ohio Casualty's Motion for Summary Judgment is DENIED.

FACTS*fn1

Microtherm is a manufacturer of "Seisco" water heaters. In 2001, the company sold 3,900 water heaters containing plastic chambers supplied by UPG. UPG made the chambers out of Zytel, a Dupont plastic with a recommended temperature range for molding. UPG used a significantly lower melt temperature than Dupont recommended, resulting in defective chambers that caused the failure of hundreds of Microtherm's water heaters.

By the time the underlying suit came to trial in Texas state court in 2004, about 600 UPG chambers in Microtherm's heaters had ruptured. The majority of these failures occurred after Ohio Casualty's policy had expired in September 2002; only 65 to 75 heaters stopped working while the policy was still in effect. The ruptures rendered the water heaters inoperative, usually -- but not always -- by shorting their circuit boards. On occasion, the ruptures caused the heaters to leak, damaging carpets or other personal property. Approximately 52 to 60 of the 65 to 75 failures occurring during Ohio Casualty's policy period resulted in damage to circuit boards or other property. The ensuing frustration with Microtherm's products led to a steep decline in business for the company.

Microtherm filed suit in Texas state court against UPG, alongside other component manufacturers, complaining of faulty components. A jury found in favor of Microtherm, issuing damages findings on a defendant-by-defendant divisible basis. Damages against UPG amounted to $26.5 million: $1.1 million for the cost of repairing or replacing the water heaters, $330,000 for punitive damages, and the remainder for lost profits resulting from customer dissatisfaction with Microtherm. The jury also issued a special verdict finding that UPG had knowingly misrepresented the quality of its product by failing to disclose that it had disregarded Dupont's recommendations.

Wasau Insurance Company ("Wasau"), UPG's primary liability insurer, brought this suit in federal district court, seeking a declaration that the tort judgment was not covered by Wasau's insurance policy. See Wasau Underwriters Ins. Co. v. United Plastics Group, No. 04 C 6543, 2006 WL 2633248 (N.D. Ill. Sept. 11, 2006). Ohio Casualty, UPG's excess liability insurer, intervened in Wasau's suit, seeking a similar declaration. Wasau ultimately settled with UPG, leaving Ohio Casualty to pursue the case alone.

The district judge, relying primarily on the record of the Texas case, ruled in a bench trial that Ohio Casualty was liable on its excess policy for the damages assessed by the Texas jury. Id. at *12.

On appeal, the Seventh Circuit reversed and remanded. See Wasau Underwriters Ins. v. United Plastics Group, 512 F.3d 953 (7th. Cir. 2008) ("Wasau II"). It held that the extent of Ohio Casualty's coverage turned on key issues that were not tried by the district court. Specifically, the district court should have removed from coverage those portions of the award arising from (1) UPG chamber failures that did not damage Microtherm circuit boards or other surrounding property, or (2) harm that was either expected or intended by UPG, as these costs did not fall under Ohio Casualty's insurance policy. See id. at 956, 958-61. Although Ohio Casualty's policy covered damages arising from business losses suffered by Microtherm, the Seventh Circuit held that the district court should have determined how much of the judgment was attributable to lost profits arising from failures occurring within Ohio Casualty's policy period, as opposed to after its expiration. See id. at 958-59.The Seventh Circuit disapproved of the district judge's assumption that these key factors had been resolved by the Texas jury. See id. at 959. As the Circuit Court pointed out, these issues are specifically germane to insurance coverage, and thus not relevant to, nor presented at, the Texas trial. See id.

Substantive issues in this diversity suit are governed by Illinois law.

LEGAL STANDARD

Summary judgment is appropriate if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The party seeking summary judgment bears the burden of establishing that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the movant meets this burden, the non-movant must set forth specific facts (a "scintilla of evidence" is insufficient) demonstrating that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Anderson, 477 U.S. at 252.

When reviewing a motion for summary judgment, the court must view the facts in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. See Schuster v. Lucent Tech., Inc., 327 F.3d 569, 573 (7th Cir. 2003). At summary judgment, the "court's role is not to evaluate the weight of the evidence, to judge the credibility of witnesses, or to determine the truth of the matter, but instead to determine whether there is a ...


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