Insurance – Duty to Defend & Indemnify – Asbestos Claims – Settlement Conference – Enforceable Oral Agreement

SPX Corp. v. Liberty Mutual Insurance Co. (Lawyers Weekly No. 11-07-0343, 24 pp.) (Wanda G. Bryant, J.) Appealed from Mecklenburg County Superior Court. (W. Erwin Spainhour, J.) N.C. App. Click here for the full text of the opinion.

Holding: A settlement conference mediated by the trial judge is not subject to the rules applicable to court-ordered mediation. The trial court did not err in enforcing an oral settlement agreement.

We affirm judgment for plaintiff.

Plaintiff’s predecessor is the subject of numerous asbestos claims. Defendants are the insurers that insured plaintiff’s predecessor (plaintiff) at different times. The trial court ruled that defendants owe plaintiff a duty to defend the asbestos claims.

Wausau’s Appeal

The trial court correctly applied New York law when it held that the defendant-insurers were required to pay 100 percent of any defense costs but that, if any insurer was required to pay more than its fair share of defense costs, it could seek contribution from the other insurers.

Where defendant Employers Insurance Co. of Wausau (Wausau) sought and received a ruling on its right to contribution – which necessarily requires that there was a matter to resolve –  Wausau was judicially estopped from arguing that there was no justiciable controversy because plaintiff had never tendered a complete claim for defense costs to Wausau.

Under New York law, there are a number of approved methods of deciding the proper allocation of defense costs. Summary judgment is one such method. Wausau was not entitled to a trial on the correct way to allocate defense costs.

Travelers’ Appeal

Even though defendant Travelers Indemnity Co. (Travelers) is headquartered in Connecticut, and even though plaintiff had moved its headquarters from New York to Connecticut by the time Travelers began providing coverage to plaintiff, New York law nevertheless governs the Travelers policies.

The Travelers policies were all delivered to and accepted by plaintiff’s designated insurance broker, J&H, which was located in New York City. J&H was employed by plaintiff, not by insurers, and was responsible for all of plaintiff’s insurance matters.

Because receipt and acceptance of the policies, the last act to make a binding contract, occurred in New York, the law of that state controls the interpretation of the policies.

Liberty’s Appeal

The trial judge mediated settlement negotiations between defendant Liberty Mutual Insurance Co. (Liberty) and plaintiff. The parties reached an oral agreement but did not reduce it to writing.

Liberty contended that its agreement was conditioned upon approval by Liberty’s management. Neither plaintiff nor the judge understood there to be any conditions.

A month after the settlement was reached, Liberty informed plaintiff that its management would not approve the settlement terms, so there was no agreement.

The trial judge said he believed Liberty’s representatives had asserted they had authority to bind the company. The court entered a show cause order, requiring Liberty to show cause why the settlement agreement should not be enforced and why the court should not order sanctions or other relief.

After a hearing on the show cause order, the trial court ordered the settlement agreement enforced and sanctioned Liberty by dismissing any defenses related to policy deductibles.

On appeal, Liberty argues that, if the mediation between plaintiff and Liberty was governed by G.S. § 7A-38.1, the order enforcing it was error. On the other hand, plaintiff asserts that the parties merely engaged in a settlement conference conducted by the trial court within its inherent authority to manage the cases before it.

Section 7A-38.1 applies only to “a pretrial, court-ordered conference of the parties to a civil action and their representatives conducted by a mediator.” G.S. § 7A-38.1(b)(1).

Further, subsection (e) specifies which cases fall under the purview of the statute: “(e) Cases selected for mediated settlement conferences.  – The senior resident superior court judge of any participating district may order a mediated settlement conference for any superior court civil action pending in the district. The senior resident superior court judge may by local rule order all cases, not otherwise exempted by the Supreme Court rule, to mediated settlement conference.”

The record contains no such order entered by the senior superior court judge of the twenty-sixth judicial district. Further, the process authorized by the statute is only one possible route by which a trial court and parties may pursue pretrial resolution.

Liberty notes numerous instances in which it, plaintiff, and the trial court referred to the process engaged in as a “court-ordered mediation,” but a slip of the tongue or misnomer cannot overcome statutory requirements and transform a settlement conference into a court-ordered mediation under § 7A-38.1.

The parties stipulated that “the entire settlement conference [is to] be confidential” and that all “offers” and “promises” would be “inadmissible for any purposes in any legal proceeding.” Thus, Liberty asserts that these stipulations should have prevented the trial court from considering the discussions that occurred during the settlement process in determining whether an oral agreement was actually reached.

Liberty made no such arguments before the trial court, and, in fact, compelled the trial court to consider the very evidence it now objects to. At the hearing on the show cause order, Liberty presented affidavits and called witnesses to testify about what occurred during the settlement conference. We believe this is a clear instance of invited error.

Liberty, having presented the trial court with evidence about what was said and done at the settlement conference, may not now be heard to complain that the trial court considered that very evidence.

Liberty also complains that the trial court resolved a disputed factual issue, namely whether Liberty informed the judge or plaintiff that the settlement agreement was contingent upon approval by Liberty’s management, based upon his own personal knowledge. Liberty asserts that there is no authority for a trial court to rely on personal knowledge to resolve such issues and that doing so violates Canon 3(C) of the Code of Judicial Conduct (requiring that judges disqualify themselves if they have “personal knowledge of disputed evidentiary facts concerning the proceedings”).

The order states that it is based on “the parties’ briefs, the affidavits of record, the testimony of witnesses, and the arguments of counsel.” Where both competent and incompetent evidence is before the trial court, we assume that the trial court, when functioning as the finder of facts, relied solely upon the competent evidence and disregarded the incompetent evidence.

Liberty further argues the trial court erred in refusing to recuse himself from resolving disputed factual issues about which he had personal knowledge. We disagree.

A party may not argue its substantive point in the trial court with full knowledge of the alleged ground for disqualification, and then, upon losing on the merits, resort to a motion for recusal.

Finally, Liberty contends the trial court erred in sanctioning Liberty for inappropriate negotiating conduct. We disagree.

The trial court noted that the stipulations executed prior to the settlement conference required the physical attendance of party representatives having the authority to settle the dispute or who could “promptly communicate during the conference with person having the decision-making authority to settle the action.” Liberty violated this requirement because it did not ensure that those of its representatives present at the settlement conference were able to authorize a final settlement.

Liberty agreed to the stipulations yet now argues on appeal that its representatives were only able to make a contingent settlement offer. This willful violation of the very terms Liberty stipulated to frustrated the orderly and efficient resolution of the dispute between these parties and the resulting additional hearings, orders, and other proceedings. We see no error in the trial court’s imposition of sanctions.

Affirmed.