Murphy-Brown, LLC v. ACE Am. Ins. Co.

1

2023 NCBC 51

MURPHY-BROWN, LLC and SMITHFIELD FOODS, INC., Plaintiffs, v. ACE AMERICAN INSURANCE COMPANY; ACE PROPERTY & CASUALTY INSURANCE COMPANY; AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY; GREAT AMERICAN INSURANCE COMPANY OF NEW YORK; XL INSURANCE AMERICA, INC.; and XL SPECIALTY INSURANCE COMPANY, Defendants.

No. 19 CVS 02793

Superior Court of North Carolina, Wake

August 7, 2023

Smith Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP, by Michael W. Mitchell, and Reed Smith, LLP, by Evan T. Knott John D. Shugrue, Andrew M. Barrios, David Cummings, and Ashley B. Jordan, for Plaintiffs Murphy-Brown, LLC, and Smithfield Foods, Inc.

Bailey & Dixon, LLP, by John T. Crook and David S. Coats, and Clyde

&amp Co. U.S. LLP, by Marianne May, Shane Calendar, Daren McNally Luke Barlow, and Thomas Carruthers, for Defendants ACE American Insurance Company and ACE Property & Casualty Insurance Company.

Maynard Nexsen, PC, by James W. Bryan, Brett Becker, and David S. Pokela, for Defendant American Guarantee &Liability Insurance Company.

Phelps Dunbar, LLP, by Thomas Contois, Justine Tate, Robert M. Kennedy, and Christy M. Maple, for Defendants XL Insurance America, Inc. and XL Specialty Insurance Company.

Cranfill Sumner & Hartzog, LLP, by Theodore B. Smyth, and Clyde &Co. US, LLP, by Bruce D. Celebrezze and Jason Chorley, for Great American Insurance Company of New York.

ORDER AND OPINION ON ACE AMERICAN INSURANCE COMPANY'S AMENDED MOTION FOR PARTIAL SUMMARY JUDGMENT ON THE ISSUE OF DEFENSE COSTS ALLOCATION

Mark A. Davis Special Superior Court Judge

THIS MATTER comes before the Court on Defendant ACE American Insurance Company's ("ACE") Amended Motion for Partial Summary Judgment on the Issue of Defense Costs Allocation ("Motion" or "Motion for Summary Judgment," ECF No. 674).

THE COURT, having considered the Motion, the briefs, arguments of counsel, and all appropriate matters of record, concludes that the Motion should be GRANTED, in part, and DENIED, in part.

FACTUAL AND PROCEDURAL BACKGROUND

1. "The Court does not make findings of fact on motions for summary judgment; rather, the Court summarizes material facts it considers to be uncontested." Hyosung USA Inc. v. Travelers Prop. Cas. Co. of Am., 2021 NCBC LEXIS 115, at **3 (N.C. Super. Ct. Dec. 16, 2021) (cleaned up).

2. The core set of facts underlying this litigation are not in dispute. 3. The Plaintiffs in this lawsuit are Smithfield Foods, Inc. ("Smithfield") and Smithfield's wholly owned subsidiary Murphy-Brown, LLC ("Murphy-Brown").^[1](Sec. Am. Compl. ["SAC"], ECF No. 444.2, ¶¶ 12-13.) "Smithfield is the largest hog and pork producer in the world." (SAC ¶ 13.)

4. In 2013, property owners in eastern North Carolina who lived close to Smithfield's farming operations began filing lawsuits against Plaintiffs^[2]-first in state court in 2013 and later in federal court beginning in 2014.^[3] (SAC ¶¶ 28-31.) Each of these lawsuits consisted of similar allegations-that is, the assertion by the property owners that Plaintiffs' hog farming operations had resulted in both physical invasions of their property and the loss of the use and enjoyment of that property. (SAC ¶¶ 33-35.) The property owners alleged that Plaintiffs' hog farming operations had resulted in nuisance conditions such as odor, dust, noise, insects and pests, and buzzards. (SAC ¶ 34.) The property owners also asserted that Plaintiffs' trucks had caused excessive traffic, odor, noise, dust, and light. (SAC ¶ 35.)

5. The United States District Court for the Eastern District of North Carolina conducted five "bellwether" trials. (SAC ¶¶ 40-47.) Each of these trials resulted in verdicts for the property owners against Smithfield and Murphy-Brown. (SAC ¶¶ 40-47.) On appeal from one of the resulting judgments, the United States Court of Appeals for the Fourth Circuit largely affirmed the judgment entered by the district court.^[4] McKiver v. Murphy-Brown, LLC, 980 F.3d 937 (4th Cir. 2020). Smithfield and Murphy-Brown subsequently entered into a global settlement with all of the property owners. (SAC ¶ 47.)

6. In the present lawsuit, Plaintiffs have sued various insurers who provided primary and excess insurance coverage for their operations between 2010 and 2015. Plaintiffs contend that these insurers should be held liable for the amounts Plaintiffs paid to settle the Underlying Lawsuits as well as the attorneys' fees and other costs Plaintiffs expended in defending the actions.

7. In order to analyze the present Motion, it is first necessary to understand the insurance coverage that Plaintiffs possessed during the years at issue.

8. Plaintiffs' first layer of coverage during the relevant policy periods consisted of commercial general liability policies and business auto policies.^[5] Each of the Primary Policies is described below.

9. ACE issued a commercial general liability policy ("GL Policy") and a business auto policy to Plaintiffs for the policy period of 30 April 2010 through 30 April 2011. ("ACE Auto Policy," ECF No. 515.1; "ACE GL Policy," ECF No. 515.2.)

10. Old Republic Insurance Company ("ORIC") issued a GL policy and a business auto policy to Plaintiffs for four consecutive policy years from 30 April 2011 to 30 April 2015. ("ORIC Policies," ECF Nos. 515.3-10.) Although ORIC was originally named as a defendant in this lawsuit, it ultimately entered into a settlement with Plaintiffs, resulting in a dismissal of all claims asserted by Plaintiffs against it. ("ORIC Dismissal," ECF No. 508.)

11. The ACE GL Policy and the ORIC GL Policies (collectively, the "Primary GL Policies") were essentially "fronting policies," meaning that they constituted a form of self-insurance in which the insured's deductible amount equaled the policy limits of $5 million. (ACE GL Policy; ORIC GL Policies, ECF Nos. 515.7-10.)

12. The ACE Auto Policy and the ORIC Auto Policies (collectively, the "Primary Auto Policies") each have policy limits of $2 million with a deductible of $1 million, with the exception of one ORIC policy for the period of 30 April 2014 through 30 April 2015, which has a policy limit of $3 million and a deductible of $1 million. (ACE Auto Policy; ORIC Auto Policies, ECF Nos. 515.3-6.)

13. Plaintiffs also possessed several layers of excess insurance coverage during the relevant time period. However, although the excess coverage available to Plaintiffs is highly relevant to several other issues in this case, it has no bearing on the present Motion. Therefore, the Court need not describe the excess coverage in any degree of detail.

14. Plaintiffs filed an initial Complaint in this action on 5 March 2019. (ECF No. 4.) On the following day, this lawsuit was designated as a mandatory complex business case. (ECF No. 3.)

15. Plaintiffs filed an Amended Complaint on 19 March 2019. (ECF No. 9.) On 12 January 2021, the Court granted leave for Plaintiffs to file a Second Amended Complaint, which is currently the operative pleading in this matter. (ECF No. 453.)

16. The SAC contains seven claims: (1) a breach of contract claim against ACE for breach of its duty to defend the Underlying Lawsuits under the ACE Auto Policy; (2) a breach of contract claim against ORIC for breach of its duty to defend the Underlying Lawsuits under the ORIC Auto Policies; (3) a claim seeking a declaratory judgment that ACE and ORIC are "obligated to defend and/or reimburse the . . . defense costs incurred by [Plaintiffs]" from the Underlying Lawsuits; (4) a claim seeking a declaratory judgment that "ACE is estopped from asserting any coverage defenses" under the ACE Auto Policy; (5) a claim seeking a declaratory judgment that "ORIC is estopped from asserting any coverage defenses" under the ORIC Auto Policies; (6) a breach of contract claim against all Defendants for breach of their duty to indemnify Plaintiffs "under their respective Policies in connection with the settlement made by [Plaintiffs] with the [Underlying] Claimants"; and (7) a breach of contract claim against all Defendants with respect to their duty to indemnify for "fail[ing] and refus[ing] to make the full limits of their respective policies available so as to enable [Plaintiffs] to settle the [Underlying Lawsuits]." (SAC ¶¶ 73-121.)

17. On 22 December 2020, this Court entered partial summary judgment for Plaintiffs on their first and second claims, ruling that ORIC and ACE's "failure to provide a defense [in the Underlying Lawsuits] constitutes a breach of their respective duties to defend." Murphy-Brown, LLC v. Ace Am. Ins. Co., 2020 NCBC LEXIS 154, at **4-25 (N.C. Super. Ct. Dec. 22, 2020). The Court concluded "that a duty to defend exists under Defendants' Primary Auto Polices[.]" (22 December 2020 Order and Opinion, at pp. 43-44.)

18. Following a settlement of all claims between Plaintiffs and ORIC, Plaintiffs filed a voluntary dismissal of its claims against ORIC on 1 November 2021. (ORIC Dismissal, ECF No. 508.)

19. On 5 August 2022, the Court entered an Order and Opinion that addressed various motions for summary judgment filed by the parties on a variety of issues in this case-all but one of which are irrelevant to the present Motion. (ECF No. 646.) The one relevant ruling made by the Court in that Opinion was that the Court granted Plaintiffs' Motion requesting a ruling that ACE was estopped from asserting coverage defenses based on its breach of the duty to defend. (ECF No. 646, at pp. 60-61.)

20. On 3 March 2023, ACE filed the Motion that is currently before the Court. (ECF No. 674.) 21. The Motion came before the Court for a hearing on 18 July 2023 and is now ripe for decision.

LEGAL STANDARD

I. Summary Judgment

22. It is well established that "[s]ummary judgment is proper 'if the pleadings, depositions, answers to...