Insurer Owes No Duty in Hospital Records Fire

(CN) - A Tyco subsidiary that ran the sprinkler system in a storage facility that burned down must reimburse its insurer by nearly $9.5 million, a federal judge ruled.

Diversified Records Services, a large document storage warehouse complex in West Pittston, Pa., had ordered a sprinkler system from SimplexGrinnell, a subsidiary of the world's largest fire protection and security company, Tyco International, in 1995.

Two years later a multi-day fire destroyed three of Diversified's large warehouses and millions of corporate documents. Grinnell sprinklers had been installed but not turned on at the time because one of the alarm systems had not yet been connected.

An adjuster's conservative estimate put the May 2007 fire's damage at $8 million.

That same month, TIG Insurance had issued Grinnell an excess liability policy for 1997-98. The policy also covered occurrences from June 1993 to July 1997. Exclusion 7 of the policy, however, specifically left out "any claims resulting from an occurrence of which the named insured had actual or constructive notice prior to the commencement of coverage under this policy."

In 1998 and 1999, First Union Corp., Mobil Oil Corp., Brooklyn Hospital Center, and others whose documents were destroyed in the fire sued Diversified and Grinnell. Diversified and its property insurer sued Grinnell in the Court of Common Pleas of Luzerne County, Penn. All but the Brooklyn Hospital suit were consolidated into a single action.

In 2002, Brooklyn Hospital and Grinnell agreed to accept the liability verdict for the First Union and Mobil trials, wherein the jury assessed 60 percent fault to Diversified and 40 percent to Grinnell, and awarded First Union more than $20.5 million and nearly $20.8 million to Mobil.

Grinnell's 1996-97 insurers paid nearly $33 million to First Union and more than $31.6 million to Mobil in 2006, plus nearly $67.4 million to settle the consolidated suits.

Brooklyn Hospital filed a complaint against Grinnell to recover damages in 2007. TIG reserved its rights to participate based on Exclusion 7 and filed a complaint in 2008, seeking a determination of its rights or duties under the TIG policy. Later that year, the hospital's claim settled in principle for $20.5 million. The deal required Grinnell's insurers to pay $9.1 million, Grinnell to pay nearly $3.6 million, and TIG to pay more than $7.8 million.

TIG asked the court to declare that it has no duty to indemnify Grinnell for its loss in the settlement and to order Grinnell to reimburse TIG for its portion of the settlement payment, plus interest. Grinnell countered, asking the court to declare that its loss in the settlement is covered under the TIG policy and to order TIG to reimburse Grinnell's portion, plus interest.

After U.S. District Judge A. Richard Caputo granted TIG's motion for summary judgment on exclusion 7 earlier this year, the insurer sought clarification of the order and to grant it additional relief

Caputo partially denied TIG's motion on April 8, tossing aside its claim that the funding agreement "clearly articulates the parties' intent" to apply a 5 percent per annum interest rate for any interest awarded because it makes "no distinction" betwe en pre- and post-judgment interest.

"In sum, TIG's motion will be granted insofar as it requests the court to declare that TIG owed no duty to idemnify Grinnell for the Brooklyn Hospital settlement and order Grinnell to reimburse the $7,840,699.69 paid by TIG in connection with the Brooklyn Hospital settlement, along with pre-judgment interest of $1,637,954.49 and post-judgment interest," the judge wrote. "However, TIG's motion will be denied to the extent that it seeks the court to impose 5 percent post-judgment interest. Grinnell will be ordered to reimburse TIG $7,840,699.69, along with $1,637,954.49 in pre-judgment interest, and pay 0.14 percent post-judgment interest on $9,478,654.18, to be computed daily and compounded annually, until the judgment is paid in full pursuant to 28 U.S.C. § 1961. These actions are consistent with the court's January 23, 2013 order entering judgment in TIG's favor on counts I and II of its amended complaint."

With 69,000 employees in over 1,000 locations worldwide, Tyco 's revenue totaled $17.36 billion in 2011.

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