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Chubb unit not obligated to pay Goodyear under $10 million excess policy

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Chubb unit not obligated to pay Goodyear under $10 million excess policy

A Chubb Corp. unit is not obligated to pay Goodyear Tire & Rubber Co. under a $10 million excess policy because the limits of the underlying primary policy have not been reached, a federal appellate court ruled.

According to this week's ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Goodyear Tire & Rubber Co. v. National Union Fire Insurance Co. of Pittsburgh, Pa. and Federal Insurance Co., Akron, Ohio-based Goodyear announced on Oct. 22, 2003, that it would restate its earnings for some prior years.

The day after the announcement, shareholders filed class-action lawsuits against Goodyear and several of its officers and directors, and the Securities and Exchange Commission began an investigation.

Although the lawsuits eventually were dismissed and the investigation terminated, Goodyear incurred about $30 million in legal and accounting costs, according to a three-judge appellate panel's unanimous ruling.

National Union's policy with Goodyear had an aggregate liability limit of $15 million, with a $5 million retention to be paid by Goodyear. Federal's policy had an aggregate limit of $10 million in excess of the National Union policy and retention.

Goodyear sought recovery of those costs from National Union, a unit of New York-based American International Group Inc., and Federal, a unit of Warren, N.J.-based Chubb Corp., and eventually filed suit against both.

After several years of litigation, Goodyear released its claim against National Union in exchange for a $10 million payment, according to the ruling. But Goodyear's excess policy with Federal stated coverage attaches only after National Union pays the full amount of its liability limit, or $15 million, rather than the $10 million National Union paid. A district court granted Federal summary judgment dismissing the claim.

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The appellate court agreed Federal was not obligated to pay under the policy's terms.

“This is the latest in a series of recent cases in which one corporation asks us to disregard the plain terms of its insurance agreement with another corporation,” according to the ruling. “We deny the request here as we have elsewhere, and affirm.”

“The relevant provision of Federal's policy is undisputedly clear and unambiguous,” it states. “Even Goodyear admits that this provision is clear.”

It argues, however, that the court should enforce Ohio's “public policy favoring settlements” rather that “the undisputed meaning of the parties' agreements.” The two cases it provides in support of this argument, though, involve underinsured-motorist coverage.

“But this is hardly an underinsured-motorist case,” the ruling said. “What we have, instead, is an insurance agreement into which sophisticated parties freely entered.”

Goodyear also argues the court should disregard the exhaustion provisions because the National Union “less-than limits” settlement “did not prejudice Federal in anyway,” the ruling said. “But this case does not concern a mere notice or cooperation requirement, which perhaps we could wave off absent any real harm to the insurer.

“Rather, the provision at issue here is where the rubber hits the road: the agreement's insuring clause, under whose terms Federal undisputedly did not agree to provide the coverage that Goodyear now seeks. Goodyear's arguments are meritless,” the appellate court said in affirming the district court's ruling.

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