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Certain Underwriters At Lloyd's London v. Ashland

March 12, 2009

CERTAIN UNDERWRITERS AT LLOYD'S LONDON, AND CERTAIN LONDON MARKET INSURANCE COMPANIES, APPELLANTS,
v.
ASHLAND, INC., APPELLEE.



Appeal from the Superior Court of the District of Columbia (CA1796-07) (Hon. Maurice A. Ross, Trial Judge).

The opinion of the court was delivered by: King, Senior Judge

Argued November 19, 2008

Before WASHINGTON, Chief Judge, FISHER, Associate Judge, and KING, Senior Judge.

Appellants, Certain Underwriters at Lloyd's, London and Certain London Market Insurance Companies (collectively, the "London Insurers"), appeal a trial court decision affirming an arbitrator's award in favor of appellee, Ashland, Inc. ("Ashland"). The arbitrator ruled that § 7 (g) of a Coverage-in-Place Agreement ("CIP Agreement") between the parties placed a $10 million cap on payments owed by the London Insurers to Ashland in any given year. The arbitrator also ruled that under § 7 (f) of the CIP Agreement, the London Insurers were required to pay interest on any payments rolled over based on the cap imposed by § 7 (g). The London Insurers argue that the trial court erred in affirming the arbitrator's decision because the arbitrator exceeded his authority in ruling on the § 7 (f) interest issue, which the London Insurers argue was not properly submitted to the arbitrator. The London Insurers also argue that the trial court erred in affirming the arbitrator's decision because the § 7 (f) interest issue is too speculative and too remote, and therefore does not present a live case or controversy. Because we must give great weight to the arbitrator's determination of the scope of the issues submitted for arbitration and because the interest issue under § 7 (f) of the CIP Agreement is a live case or controversy, we disagree and affirm.

I. Relevant Facts

Riley Stoker Corporation ("Riley Stoker"), a manufacturer of industrial boilers and a subsidiary of Ashland, has been named as a defendant in thousands of lawsuits that allege bodily injuries arising from exposure to asbestos contained in commercial boilers manufactured, installed, maintained and/or repaired by Riley Stoker. Liberty Mutual Insurance Company provided the primary insurance for Riley Stoker's asbestos products claims, while the London Insurers provided all or most of the excess insurance.In 1996, Ashland approached the London Insurers regarding insurance coverage for asbestos claims upon exhaustion of Liberty Mutual Insurance Company's primary coverage.

On April 21, 1998, the London Insurers and Ashland entered into a CIP Agreement regarding insurance coverage for asbestos claims against Riley Stoker. Section 7 (f) of the CIP Agreement addresses interest payments due on late payments made by the London Insurers.*fn1 Section 7 (g) of the CIP Agreement places a $10 million cap on payments made by the London Insurers in any single calendar year.*fn2 Pursuant to § 11 of the CIP Agreement, Ashland and the London Insurers agreed that all disputes (except disputes relating to exhaustion of primary insurance coverage) would be subject to binding arbitration in Washington, D.C., pursuant to the Commercial Arbitration Rules of the American Arbitration Association.*fn3

In 2001, the London Insurers determined that Ashland's billing statements under the CIP Agreement for that year might reach the § 7 (g) $10 million cap for the first time. On December 20, 2002, the London Insurers informed Ashland that it would invoke § 7 (g) of the CIP Agreementto roll forward all payments due in 2002 in excess of the $10 million limit to the next year. The London Insurers and Ashland disputed the meaning of § 7 (g) of the CIP Agreement. The London Insurers contended that under § 7 (g) of the CIP Agreement, payments from the London Insurers to Ashland were capped at $10 million per year, with the excess rolled over to the following year for payment, subject to that year's cap. Under the London Insurers' interpretation, they could never pay more than $10 million in any calendar year. Ashland contended, on the other hand, that under § 7 (g) of the CIP Agreement the London Insurers would have to pay all amounts deferred in any one year by January 1 of the following year along with up to $10 million in additional costs that year, should they be incurred.

While this dispute was ongoing, Ashland sent quarterly invoices to the London Insurers that billed the London Insurers for both the principal amounts that it believed were owed under the CIP Agreement and for interest on the principal that had been rolled over under § 7 (g) of the CIP Agreement. The London Insurers disputed their obligation to pay interest on principal amounts due under § 7 (g) of the CIP Agreement in letters dated February 11, 2003, July 16, 2003, May 12, 2004, August 20, 2004, February 1, 2005, and May 24, 2006, stating that "[w]e do not consider Ashland's interest claim to be well-founded" and "Ashland's interest claim is inconsistent with the terms of the [CIP Agreement]." In these letters, the London Insurers argued that they did not owe interest on unpaid principal amounts because "by operation of the annual cap, these amounts could not have been paid, even if they were proven."

1. Arbitration Proceedings

The London Insurers and Ashland were unable to resolve their dispute over the meaning of § 7 (f) and § 7 (g) of the CIP Agreement. On July 21, 2004, Ashland invoked § 11 of the CIP Agreement and filed a Demand for Arbitration with the American Arbitration Association.Ashland stated in its Demand for Arbitration:

The Agreement contains the following provision [§ 7 (g)] relating to payments made by the London Insurers to Ashland: "The London Market Insurers shall not be required to make payments to Ashland in excess of U.S. $10 million in any single calendar year pursuant to this Agreement. Any amounts due Ashland under this Agreement in excess of U.S. $10 million in any single calendar year shall roll forward to the next succeeding calendar year." When read in context with the rest of the Agreement, this provision provides that, if the amount due to Ashland for a calendar year's defense and indemnity costs exceeds $10 million, then the full amount of the excess is to be paid in the succeeding calendar year. However, the London Insurers have interpreted this provision to limit their total payment to $10 million per year, regardless of the calendar year that the defense and indemnity costs were incurred. Based on this interpretation, the London Insurers contend that defense and indemnity payments may be "roll[ed] forward" for multiple years. As a result, the London Insurers have failed to pay the full amount owing to Ashland and therefore are in breach of the Agreement and the policies. The amount owed by the London Insurers through March 31, 2004 is at least $17 million, exclusive of interest. Accordingly, Ashland seeks money damages for the breach of contract and a declaratory judgment setting forth Ashland's rights and [the London Insurers'] obligations under the Agreement and the policies.

The American Arbitration Association appointed the Honorable Raymond D. Williamson as the sole arbitrator of the dispute.

Arbitration proceedings continued for nearly two years, during which time Ashland and the London Insurers engaged in discovery. During discovery, Ashland and the London Insurers deposed various witnesses, who responded to questions regarding how interest payments under ยง 7 (f) would apply ...


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