Free Motion to Dismiss for Failure to State a Claim - District Court of Delaware - Delaware

Case 1 :04-cv-01294-JJ F Document 66-2 Filed 03/13/2006 Page 1 of 4
I I I South Wacker Drive
GR|PP() gz ELDEN LLC
—~———— · am ok com
Q www aww
entree I ""°l§l§l§i§;}§§2
SLELDEN ToC¤llWrllerDreet
tau; 1o4·ns4
lt¤be'°9*l¤l>¤ei¤en.com
February 8, 12006
VIA E•MAIL
Christopher M. Beehhold, Esq. Lawrence W. Hcnke, Esq.
THOMPSON HINE Flowservc US Iue.
312 Walnut Street 521i5 N. O’Conncr Blvd.
l4th Floor Suite 2300
Cincinnati, OH 45202-4089 Irving, Texas 75039
Re: Bo;g·Warneri ~
Dear Chris and Larry:
This letter responds to Bechl1old's letter to me dated January 23, 2006, and
supersedes my letter to you dated March I I, 2005.
Let me say at the outset that CNA is disappointed in Flowserve’s rdection ofthe ecst-
sharing proposal contained in my e·mail of January 4, 2006. With the Illinois Supreme Court’s
denial ofFIowserve’s petition for leave to appeal, Judge Flynrfspre Mild allocation ruling is the
law ofthe case, and it makes very good sense in our judgment to agree on an interim cost-
sharing agacemcnt between Flowserve and the umbrchla carriers.
Because Flowserve has given notice that it is unwilling to participate in any such
agreement, CNA is compelled to take unilateral action.
On behalf of Continental Insurance Company ("ClC”) and Columbia Casualty Company
(“Columbia“) (collectively, "CNA“), umbrella carriers for Borg-Warner Corporation -
("Borg—Warner”), please note the following with respect to all current and future asbestos .
lawsuits brought against Flowserve US Inc. (“Flowscrve") for alleged injury from asbestos- l
containing products manufactured or sold by Borg-Warner.
1. Under the CIC and Columbia umbrella policies (which are all described in and
attached is ctws pending tumors dcelanucryjudgrueut action.
et al, v. Boggwarner lm., gg gl., No. 04 CH 0l78 (IU). CIC and Columbia have no duty to
defend these asbestos lawsuits. Instead, CIC and Columbia have the right, but not the duty. to
defend the lawsuits, and if they elect not to defend, they have the right to participate in the
investigation, settlement and defense ofthe lawsuits. The policies also provide that, if the
rszvcvr L A L _ __ ; A

Case 1 :04-cv-01 294-.1.1 F Document 66-2 Filed 03/13/2006 Page 2 of 4
.. ‘ t' t"
Q Li .—...;_~_l
··» . Z Christopher M. Bechhold, Esq.
. Lawrence Hcnke, Es .
Q R I P P O February 8, 2006 q
St E L D E N Pagc 2
insurers elect not to defend, they shall reimburse the insured for reasonable and necessary
defense costs incurred with the written consent of the insurer. Such reimbursement counts
against the aggregate limits ofthe policies.
2. As you are aware from my previous communications (sec my 12/14/05 e-mail),
there are policy limits remaining in only two ofthe CNA umbrella policies, CIC Policy
No. LX 6332888 (9/l/7 l -9/1I73) and Columbia Policy No. UMB 6891300 (1/I/83-1/I/84).
These policies have provisions regarding defense rights and obllgatlons similar to those
described in the preceding paragraph.
3. Effective March 15, 2006, CIC and Columbia notify you that, until further notice,
with respect to all pending and fixture asbestos lawsuits described above (with the exception of
cases described in paragraph 8, below), they shall not assume any defense duty, but instead elect
to participate in the investigation, settlement and defense ofthe lawsuits, pursuant to the
provisions in their respective umbrella policies.
4. For defense of these lawsuits, we strongly encourage you to continue to use
existing counsel (both national and local), since they are experienced and knowledgeable in the
defense of these claims. To the extent Flowserve elects to retain new counsel, CNA should be
consulted in advance and counsel informed that they must follow CNA’s Litigation Management
Guidelines, a copy of which is attached. CNA does not consent to expenditures of defense costs
absent advance approval or if those expenditures are not in compliance with the Litigation
Management Guidelines. For cases served on Flowserve alter Match 15, 2006, in addition to
retaining defense counsel, Flowscrve also has the obligation to give notice of all new lawsuits or
claims to CNA immediately upon receipt. Please direct all such notices to William Adamski,
CNA Plaza, Floor l9 South, Chicago, Illinois 60685.
5. In accordance with our policy tcrmsand conditions, CNA hereby informs you that
it wishes to continue to participate in the defense and settlement of thwe eases, including
participation in all conference. calls with defense counsel to discuss strategy and to consider and
approve settlement proposals. Finally, just so there is no misunderstanding, in controlling the
defense ofthe asbestos lawsuits aherlvlarch 15, 2006, Flowserve has a duty of good faith and
fair dealing with respect to CNA and other umbrella insurers. 'l`ltis means that Flowservc not
only must involve CNA in settlement discussions with defense counsel, but must also agree to s
reasonable settlement proposals with underlying plaintiffs and not employ tactics (such as
confessions of judgment) designed to prejudice CNA and other umbrella insurers.
6. Absent Flowserve’s consent to a cost·sharing agreement, CIC and Continental
will pay their pro rata shares of reasonable settlements and judgments for which they have given
their approval in conference calls with Flowserve and defense counsel. Such pro rata shares will
be computed based on the initial exposure dates ofthe plaintlll`(s) and, for group settlements, on
the allocation of the settlement to each plaintiff] all as agreed by the panics. For all such
aszruvt ‘

Case 1 :04-cv-01 294-.1.1 F Document 66-2 Filed 03/13/2006 Page 3 of 4
. ` { ufl
.. ,~‘t. Q., Christopher M. Bcchhold, Esq.
<¤¤~···¤ ’.£§’.§;i:$°8“;3§z~E‘“·
8tE L D E N Page 3 ’
settlements, Flowscrve shall in the iirst instance calculate thepro rata shares of all panics and
timely inform them ofthe amounts required to fund each settlement. CIC and Columbia will
then make an independent determination ofthe correct amount of their pro ram shares. CIC and
Columbia reserve the right to decline participation in a settlement if they were not timely given
an opportunity to participate in settlement discussions; or if discovery has shown that their
policies have no indemnity obligations for tlte particular claim(s). In any event, because there
are only three years remaining of unexhausted CNA coverage, CNA's pro ram shares can be
based on a maximum of three years of coverage divided by the total number of years of
exposure, sickness or disease, as provided under goveming lllinois law. (Because of Judge
Flynn’s ruling, it will be necessary, as an interim measure, to exclude the Home’s year from thc
denominator of any calculations became Home is insolvent.)
7. For defense ofthe asbestos lawsuits, absent Flowservc 's consent to a cost-sharing
agreement, CIC and Columbia will pay their pro ram shares of reasonable and necessary defense
costs, subject to the conditions in paragraphs 4 and 5,, above. Thepro ram shares will be based
on the umbrella policy block alleged by Borgwamer inc. in the Illinois declaratoryjudgmcnt
action, which begins lll/51. Accordingly, CNA’spro ram share of defense costs will be 8.82%,
which is computed on the basis ofthrce years of unexlraustcd CNA policies divided by 34 years
(1/I/SI-l /l/86, lass one year of I-lorne's coverage). Finally, CNA will not reimburse counsel for
fees or expenses incurred in the prosecution or defense of any indemnification or contribution
claims asserted by Flowserve against Bums international Services Corp. ("Burns”) or vice versa.
Such claims, as Chris Bechhold informed Judge Flynn at a hearing a few months ago, are
properly asserted in Flowscrve’s separate litigation against Burns that is pending in Delaware.
8. : With respect only to cases against Flowserve which have settled
prior tg Mggh Q5, 20Q6 (bg; wggh _ltay_g gg; yet been [ugtlgd), CIC and Columbia will work with
other Borg·Wamer insurers to fully iitnd these settlements, subject to a complete reservation of
rights, including the right of recoupment against other insurers or against Flowscrve, as the case
may bc.
9. _ CIC and Columbia will commit themselves to working with national counsel,
local defense counsel, Borg·Warner‘s other umbrella insurers, and with Flowserve, to insure a -
smooth transition after March 15, 2006. ln particular, if Flowserve wishes to reconsider its
rejection of an interim cost-sharing agreement, we believe that could be very helpful for all ,
parties.
l0. The foregoing is subject to complete and reciprocal reservations of rights under
the insurance policies, the common law, and otherwise, including the right to rcallocate any
payments made in accordance with the final decision in the illinois declaratory judgment action.
All previous reservations of rights letters are hereby incorporated by reference.
85270vl ’ {
r
t l
l

Case 1 :04-cv-01 294-.1.1 F Document 66-2 Filed 03/13/2006 Page 4 of 4
~ * Christopher M. Bcchhold, Esq.
¤¤·¤’·’<> 's:t“£§°t";£“;2·E*“·
& E L D E N page 4 ’
Please contact me if you have any questions or comments. I am also copying counsel for
BorgWamer Inc., Bums and York, as well as the current national defense counsel and counsel
for Borg··Warner’s other umbrella carriers, Royal, Imperial, Unlgard (Seaton) and London.
Very truly yo
%7%“
Irving C,. Faber
ICFlljt`
Attachment
cc: Edward B. Mueller
Steven B. Varick
Lee Epstein
Fred L. Alvarez °
Lisa S. Brogan ‘
Patrick Shine
Steven Hake .
John P. Buckley
Marc Gaffrey
(w/attach., vla e·mail)
mm: _ I I
l