Zurich Am. Ins. Co. v. Fluor Corp.

Full title: ZURICH AMERICAN INSURANCE COMPANY, Plaintiff, v. FLUOR CORPORATION, et…

Court: UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MISSOURI EASTERN DIVISION

Date published: Sep 21, 2020

No. 4:16CV00429 ERW (E.D. Mo. Sep. 21, 2020)

Opinion

No. 4:16CV00429 ERW

09-21-2020

ZURICH AMERICAN INSURANCE COMPANY, Plaintiff, v. FLUOR CORPORATION, et al., Defendants.

E. RICHARD WEBBER SENIOR UNITED STATES DISTRICT JUDGE

MEMORANDUM AND ORDER

This matter comes before the Court on Defendant/Counter-Claimant Fluor Corporation's Motion for Summary Judgment on Fluor's Second Cause of Action for Bad Faith Failure to Settle in its Counterclaim against Plaintiff/Counter-Defendant Zurich American Insurance Company [ECF No. 379]; Zurich's Motion for Partial Summary Judgment against Fluor with respect to the Second Count of Fluor's Counterclaim [ECF No. 386]; Fluor's Motion for Summary Judgment against Zurich with respect to the First, Second and Third Causes of Action in Zurich's Complaint [ECF No. 389]; and Zurich's Motion to Exclude the Declaration of John M. Wilson [ECF No. 455].

I. BACKGROUND

The following facts are derived from the evidence submitted by the parties regarding their Motions for Summary Judgment [ECF Nos. 379, 386, 389]. Because this Memorandum addresses several motions, including cross-motions for summary judgment, the Court has attempted to set forth only undisputed facts. In its substantive analysis, infra, the Court will recite additional pertinent facts, construing those facts and all reasonable inferences most strongly in favor of Zurich on Fluor's Motion, and vice versa.

Zurich issued a series of comprehensive general liability policies that cover periods from March 15, 1981, through June 1, 1985 (collectively, the "Zurich Policies"). ECF No. 381 at ¶ 1; ECF No. 396 at ¶ 1; ECF No. 395, Exs. 1-4. The Zurich Policies were issued to St. Joe Minerals Corp. ("St. Joe"), which operated a lead smelter facility in Herculaneum, Missouri. ECF No. 396 at ¶ 2. Each of the Zurich Policies provide that a "stockholder" of St. Joe is a "Person Insured" under the policy. Id. Fluor owned St. Joe during the policy periods from 1981-1985. Id. In 1994, Fluor sold its interest in St. Joe to the Renco Group, Inc., which renamed the company The Doe Run Resources Corporation ("Doe Run"). ECF No. 1 at ¶ 7; ECF No. 42 at ¶ 8.

Each of the Zurich Policies provide in relevant part, that Zurich:

shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false, or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient.

ECF No. 381 at ¶ 2. The Zurich Policies also provide that the insured "shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense." Id. at ¶ 3.¹ The Policies state that Zurich:

will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
A. bodily injury or
B. property damage
to which this insurance applies, caused by an occurrence[.]

Id. at ¶ 4.

1 The parties refer to this provision as the "no voluntary payment" provision of the Policies.

From 2002-2011, various lawsuits were filed by attorneys Mark Bronson and Gerson Smoger on behalf of plaintiffs ("Bronson/Smoger lawsuits") and alleged liability against defendants, including Fluor and Doe Run, based on claims of bodily-injury to various residents and children of Herculaneum, Missouri, caused by exposure to lead, metals and other toxic substances from the Doe Run Smelter, located in Herculaneum, Missouri. ECF No. 388 at ¶¶ 1-6; ECF No. 396 at 5-22.² During 2002 and 2003, Fluor tendered the Bronson/Smoger lawsuits captioned Warden, et al. v. Fluor Corporation, et al., Browning, et al. v. Fluor Corporation, et al., and Johnson, et al. v. Fluor Corporation, et al., to Zurich for a "full and complete defense" under each of the Zurich Policies. ECF No. 396 at ¶¶ 8-10. On September 5, 2005, Fluor and Doe Run tendered eight lawsuits, including Alexander, et al. v. Fluor Corporation, et al., Heilig, et al. v. Fluor Corporation, et al., Pedersen, et al. v. Fluor Corporation, et al. (the "Alexander/Pedersen/Heilig Litigation") to Zurich for a "full and complete defense" under the Zurich Policies. ECF No. 396 at ¶¶ 11-18. In 2009, 2010, and 2011, three additional Bronson/Smoger lawsuits (James, et al. v. Fluor Corporation, et al., Reece, et al. v. Fluor Corporation, et al., and Faulkner, et al. v. Fluor Corporation, et al.) were tendered by Fluor to Zurich for a "full and complete defense" under the Zurich Policies. ECF No. 381 at ¶¶ 12-14; ECF No. 396 at ¶¶ 19-22. In the tender letters sent to Zurich on behalf of Fluor for the Bronson/Smoger Lawsuits, Fluor designated Armstrong Teasdale as its independent defense counsel. ECF No. 388 at ¶ 7. Doe Run also tendered the Bronson/Smoger suits to Zurich, and designated Lewis Rice as its independent defense counsel. Id. at ¶ 8.

2 The Bronson/Smoger Lawsuits constitute a subset of the broader group of bodily injury and property damage claims arising from St. Joe's lead smelter that commenced in 1995, referred to in this Memorandum as the "Herculaneum Claims." See ECF No. 1 at ¶¶ 22-23.

Zurich agreed to defend Fluor and Doe Run in the Bronson/Smoger suits pursuant to a reservation of rights. ECF No. 381 at ¶¶15-24; ECF No. 388 at ¶ 9. Zurich reserved its right to disclaim coverage by way of certain enumerated exclusions. See ECF No. 388 at ¶¶ 10-19. For example, Zurich expressly disclaimed its defense and indemnity obligations under any Zurich Policy for the claims asserted by any named plaintiff not born or otherwise exposed to any alleged contaminants before February 4, 1985. Id. at ¶ 13.

In addition, among the rights Zurich reserved in connection with the Bronson/Smoger lawsuits, Zurich asserted that coverage was "not available if and to the extent that any insured has failed to satisfy any of the conditions precedent to coverage set forth in the Zurich/St. Joe policies," including "the duty to refrain from making voluntary payments or voluntarily assuming obligations (except at its own expense)." ECF No. 381 at ¶ 25. The Bronson/Smoger reservation of rights letters further stated that "Zurich reserves the right to withdraw from its agreement to defend Fluor and/or to seek to extinguish any alleged defense obligation if it becomes apparent that there is no potential for coverage of any of the claims asserted . . . ." See ECF No. 395, Exs. 72-73, 91-103.

Through November 2010, the pattern and practice for settlements of Bronson/Smoger lawsuits was that Doe Run, with contribution from Zurich, would settle the cases and secure releases from the settling plaintiffs on behalf of Doe Run and Fluor. ECF No. 388 at ¶ 61. Doe Run's independent defense counsel, Andrew Rothschild at Lewis Rice, took the lead on negotiating settlements with the Bronson/Smoger plaintiffs. ECF No. 388 at ¶ 30. Zurich did not communicate directly with Doe Run or Fluor (or their independent defense counsel). ECF No. 388 at ¶ 24; ECF No. 426 at ¶ 24. Instead, communications took place through each insured's coverage counsel. Id. Nor, did Zurich's representatives communicate directly with the Bronson/Smoger plaintiffs' counsel. ECF No. 388 at ¶ 66.³

3 Gerson Smoger, counsel for plaintiffs, testified Zurich never contacted plaintiffs "at any time." ECF No. 382-77, Ex. 75, 106: 12-22.

In prior mediated Bronson/Smoger settlements, at Doe Run's request, Zurich would agree to fund those plaintiffs who alleged exposure during the Zurich policy periods. ECF No. 388 at ¶ 62. Doe Run funded the remaining plaintiffs' settlements. Id. Fluor did not contribute to the settlements of the Bronson/Smoger Lawsuits. Id. at ¶ 40. Fluor's position was that it was not required to contribute as it was either indemnified by Doe Run or covered by insurance. Id. at ¶ 40; ECF No. 426 at ¶ 40.

In 2009, Doe Run challenged Fluor's position of non-payment. During the 2009 mediation, which resulted in settlement of the Bronson/Smoger cases referred to as the Browning/Dawson cases, Doe Run demanded Fluor contribute to Doe Run's settlement offer, or risk being carved out. ECF No. 388 at ¶ 49. Although Fluor refused to contribute, Zurich contributed funding and Doe Run included Fluor in the 2009 Browning/Dawson settlement. Id. at ¶¶ 50, 51.

Then, in 2010, Doe Run again sought contribution from Fluor in order to globally settle the remaining Bronson/Smoger lawsuits. ECF No. 388 at ¶ 38. Doe Run informed Fluor of the plaintiffs' global settlement demand of $60 million, Doe Run's global settlement offer of $42 million (and, later, Doe Run's increased offer of $44 million). ECF No. 388 at ¶¶ 96, 97; ECF No. 392-1, Ex. 7, 90: 2-9. On October 18, 2010, Andy Rothschild, Doe Run's independent defense counsel at Lewis Rice, called Jack Quinn, Fluor's independent defense counsel at Armstrong Teasdale, to inform him November 18, 2010, was the scheduled date for the Bronson/Smoger mediation. ECF No. 408-27 at 7. Mr. Rothschild again requested contribution from Fluor to any settlement that might be reached. ECF No. 408 at ¶ 98; ECF No. 408-27 at 7. He also informed Mr. Quinn that Zurich was not an impediment to Fluor making a contribution because Zurich had denied coverage for 38 of the 58 plaintiffs. ECF No. 408 at ¶ 98; ECF No. 408-27 at 7. Although Doe Run continued to seek Fluor's contribution, three days prior to the scheduled mediation, Flour told Doe Run that it should "not expect financial participation from Fluor" at the upcoming mediation. ECF No. 388 at ¶ 99; ECF No. 392-1, Ex. 656; ECF No. 392-1, Ex. 660.

Doe Run also informed Zurich of the scheduled November 18, 2010 mediation and plaintiffs' $60 million demand. ECF No. 381 at ¶¶ 35, 36. In response to Doe Run's notification, Zurich requested information from Doe Run relating to the Bronson/Smoger plaintiffs to determine the reasonable settlement value for those plaintiffs potentially covered under the Policies. ECF No. 388 at ¶¶ 113-16.

In October 2010, Doe Run's coverage counsel, Marc Halpern, proposed a funding mechanism for the global settlement of the Bronson-Smoger Lawsuits to Zurich that would include a release for both Fluor and Doe Run. ECF No. 381 at ¶ 39. Under Doe Run's proposal, Zurich would front 50% of any settlement that may be negotiated in connection with the upcoming mediation, while reserving the right to seek reimbursement for any contributions that did not fall within Zurich's indemnity obligation. Id.

Prior to mediation, on November 7, 2010, Randy Sinnott, Zurich's coverage counsel (in an email to various individuals at Zurich), addressed Doe Run's funding proposal. ECF No. 381 at ¶ 40; ECF No. 382-67. Coverage counsel concluded 21 of the 58 Bronson-Smoger plaintiffs were covered plaintiffs. ECF No. 382-67 at 5. And for these 21 plaintiffs, coverage counsel determined $19,913,791 was a "reasonable settlement value." Id. at 7-8. Coverage counsel further stated Zurich's available policy limits were $45 million. Id. at 7. Zurich's coverage counsel recommended Zurich accept Doe Run's funding proposal, and noted it was unlikely Doe Run could fund a global settlement on its own. ECF No. 381 at ¶ 40; ECF No. 382-67 at 11.

A few days later, on November 10, 2010, Zurich responded to Doe Run's funding proposal by informing Doe Run that Zurich could not commit to any specific indemnity amount, "either as to plaintiff, dollar amount or percentage," but that Zurich planned to "attend and participate with Doe Run in the mediation." ECF No. 388 at ¶ 118; ECF No. 390-1, Ex. 570. On November 12, 2010, Marc Halpern, Doe Run's coverage counsel, emailed Zurich, requesting: 1) Zurich's consent to Doe Run's $44 million counteroffer to the Bronson/Smoger plaintiffs,⁴ and 2) Zurich's funding of 50% of the global settlement. ECF No. 390-1, Ex. 571. On November 15, 2010, Zurich responded it had no objection to Doe Run's counteroffer, but again declined to contribute to settlement in terms of a specific percentage or dollar amount. Id. Approximately an hour later, Doe Run sought clarification as to whether Zurich would fund any portion of the $44 million counteroffer. Id. Zurich reiterated to Doe Run it would not commit at that time to fund any portion of the $44 million. ECF No. 381 at ¶¶ 42,43; ECF No 390-1, Ex. 571; ECF No. 382-70 at 3-4; ECF No 388 at ¶118. Doe Run then communicated the following to Zurich: "The defense is conducted by Lewis Rice . . . . The defense is not conducted by Zurich. Zurich's obligation in this instance is, per its contract obligations, to head [sic] the request of defense counsel and to confirm funding." ECF No 390-1, Ex. 571.

4 Halpern's email actually stated Doe Run did not believe Zurich's consent was necessary for coverage but was seeking it out of an abundance of caution. ECF No. 408-4, Ex. 571.

Heading into mediation, Zurich's claims analyst, Bradley Rausa, conceded in his claims diary his biggest concern was that Zurich did not have the authority to commit to funding and could not get it. ECF No. 382-73 at 28. Earlier in 2010, Zurich's coverage counsel had recommended a reserve increase for the Bronson/Smoger litigation, but Zurich did not increase the reserves until 2011. ECF No. 381 at ¶¶ 32-34, 54; ECF No. 382-43 at 5. Eight days before mediation, Mr. Rausa acknowledged Zurich would not "be in any position to pay money or agree to pay money at the mediation." ECF No. 381 at ¶ 41; ECF No. 382-72 at 2. Mr. Rausa's claim notes further acknowledge Zurich was aware of the possibility of Doe Run settling without Fluor if Fluor failed to contribute. ECF No. 430-9, Ex. 89, at 6.

On November 18, 2010, the mediation of the Bronson/Smoger Lawsuits was conducted and representatives from Fluor, Doe Run, Zurich, and the underlying plaintiffs attended. ECF No. 381 at ¶ 45. Counsel for the Bronson/Smoger plaintiffs only communicated with the mediator or with Doe Run regarding settlement. ECF No. 388 at ¶ 140. Fluor's representatives kept to themselves at mediation to avoid demands for Fluor's contribution. ECF No. 408-30. Zurich told the mediator it did not have authority to commit any money toward settlement. ECF No. 381 at ¶ 46.

During the mediation, Zurich was advised that if plaintiffs' $60 million global demand to settle with all defendants (including Fluor) was not met, the plaintiffs would settle separately with Doe Run and "make up the difference" from Fluor. Id. at ¶ 47. Plaintiffs later made a separate offer of $53 million to Doe Run. ECF No. 388 at ¶ 156. The mediator informed Doe Run the global settlement amount of $53 million was to be kept confidential from Fluor as an express condition made by plaintiffs' counsel. Id. at ¶ 156-57.⁵ Doe Run conveyed the confidential settlement amounts negotiated to Zurich and stated the amounts could not be divulged to Fluor. Id. at ¶ 167. The mediator informed Fluor that Doe Run had reached an agreement in principle to settle with the plaintiffs. Id. at ¶ 164. Despite this tentative agreement, the Bronson/Smoger plaintiffs' $60 million global demand was not withdrawn until plaintiffs and Doe Run finalized settlement on December 13, 2010. ECF No. 430-43, Ex. 123, 105:2-106:11. Given that Fluor and Doe Run's interests had diverged, Zurich assigned Catherine Tetzlaff as Fluor's new claims adjuster. ECF No. 436-4, Exhibit 264.

5 In disputing Zurich's statement that the global settlement amount was to be kept confidential, Fluor cites to deposition testimony from plaintiffs' counsel that he could not recall whether terms of the deal could not be shared with Fluor. See ECF No. 430-43, Ex 123 at 58:9-17. However, Andy Rothschild, Doe Run's defense counsel testified as to his personal knowledge of the confidentiality requirement. See 392-1 Ex. 7, 111:18-24.

After mediation concluded, Zurich did not inform Fluor of the amount of the separate settlement offer of $53 million, or the $7 million delta (to meet plaintiffs' still pending $60 million demand). ECF No. 381 at ¶ 49. However, on December 7, 2010, Edward Dowd, counsel for one of the Doe Run entities, contacted Fluor's independent defense counsel, Jack Quinn. ECF No. 388 at ¶ 187. Mr. Dowd discussed Fluor's settlement opportunity with Mr. Quinn. Mr. Dowd informed Mr. Quinn Fluor could settle "pretty cheaply" for "a few million dollars." ECF No. 388 at ¶ 188. ECF No. 393-3, Ex. 13, Dowd Tr., 86:14-87:13, 101:2, 103:8-12. Mr. Dowd did not convey the specific number of plaintiffs' $53 million offer, but he indicated to Mr. Quinn the gap to settle was very small. ECF No. 448-5, Ex. E, Dowd Supp. Tr. 140:18-141:19. Mr. Dowd warned Mr. Quinn "about the threat of punitive damages in the City of St. Louis representing a lead smelter against a bunch of kids . . . ." ECF No. 388 at ¶ 189; ECF No. 393-3, Ex. 13, Dowd Tr. 87:23-88:14. Mr. Quinn's response to this overture was: "everybody's not as worried about lead as [Doe Run is]." ECF No. 388 at ¶ 190; ECF No. 393-3, Ex. 13, Dowd Tr. 88:8-14.

After talking with Mr. Dowd, Fluor's defense counsel, Mr. Quinn, summarized their phone conversation in an email to Fluor. ECF No. 392-1, Ex. 7, Ex. 672. Mr. Quinn stated he informed Mr. Dowd it would not do plaintiffs any good to contact Fluor about settlement because the cases were defensible, and Fluor had insurance for some of the cases as well as indemnification rights against Doe Run. Id. (emphasis added). Mr. Quinn also told Mr. Dowd that "Fluor [was] not paying either plaintiffs or [Doe Run] and [was] willing to go to trial." Id. It is undisputed Fluor never contributed funds to achieve a global settlement.

In this same time frame after mediation, on November 22, 2010, Doe Run's coverage counsel contacted Zurich and demanded Zurich commit to funding $26.5 million towards Doe Run's separate settlement of $53 million. ECF No. 388 at ¶ 181. On December 1, 2010, Zurich responded to Doe Run's request. ECF No 390-1, Ex. 573. Zurich did not commit to funding and told Doe Run that Fluor could not agree to any settlement favoring one of its insureds over the other. Id. On December 2, 2010, Doe Run contacted Zurich and demanded Zurich commit to funding for the 20 Bronson/Smoger plaintiffs Zurich conceded alleged exposure during the Policy periods. Id. In response, Zurich maintained it was entitled to fully investigate the claims and indicated it would respond to Doe Run when it completed its evaluation. Id.

A week later, on December 9, 2010, Zurich provided Doe Run with Zurich's evaluation of potential liability for the plaintiffs who were exposed to lead during the period of the Zurich policies. ECF No. 388-2, Ex. 2, Halpern Tr. 165:3-13, Ex. 17. Zurich clarified the numbers did not constitute an offer from Zurich and stated any resolution of the claims had to include Fluor. Id. On December 10, 2010, Zurich emailed Doe Run, invoking the cooperation and voluntary payments clauses within the Policies. ECF No. 388-2, Ex. 21. In response, Doe Run requested Zurich withdraw its reservation of rights pertaining to the Bronson/Smoger cases. ECF No. 388-2, Ex. 563.

On December 13, 2010, Doe Run finalized its separate settlement agreement for $53 million with the Bronson/Smoger plaintiffs. ECF No. 388 at ¶¶ 211, 212. Fluor was not included in that settlement. Id. at ¶ 211. The claims against Fluor in a portion of the Bronson/Smoger litigation-the Alexander/Pedersen/Heilig lawsuits-proceeded to trial and resulted in a judgment against Fluor and its related entities for $38,527,186 in compensatory damages, and $320 million in punitive damages. ECF No. 388 at ¶¶ 232-33.

Fluor appealed the verdict and judgment entered by the trial court, resulting in the appellate court decision styled Blanks v. Fluor Corporation. Id. at 234. In October 2014, Fluor globally settled with the Bronson/Smoger plaintiffs for approximately $300 million. ECF No. at ¶ 247. The few remaining other Herculaneum Claims were resolved prior to the initiation of this lawsuit. ECF No. 396 at ¶ 43; ECF No. 421 at ¶ 43. Prior to the resolution of the Herculaneum Claims at issue in this action, Zurich never filed an action seeking a court order determining coverage or terminating its duty to defend Fluor in the lawsuits. ECF No. 396 at ¶ 44.

On March 29, 2016, Zurich filed suit in this Court, asserting five separate claims in its Complaint. Zurich's first three Causes of Action seek declaratory judgments stating the Zurich Policies do not provide coverage for the defense or indemnity of Fluor's litigation. Zurich's Fourth Cause of Action seeks a declaration that the Zurich Policies were exhausted. Zurich's Fifth Cause of Action seeks indemnity or contribution from Fluor for defense fees paid by Zurich. Fluor filed a Counterclaim against Zurich asserting three Causes of Action: 1) Breach of the Duty to Defend; 2) Breach of the Covenant of Good Faith and Fair Dealing-Bad Faith Failure to Settle and Defend; and, 3) Unreasonable Refusal to Pay.

On September 30, 2019, this Court dismissed the portions of Zurich's First, Second, and Third Causes of Action seeking a declaration that Zurich's Policies do not provide indemnity coverage. Currently pending before the Court is Fluor's Motion for Summary Judgment against Zurich with respect to each element of Fluor's Bad Faith Failure to Settle ("BFFS") claim. Fluor has filed an additional Motion for Summary Judgment on the remaining portions of Zurich's First, Second, and Third Causes of Action.⁶ Zurich has filed a Motion for Partial Summary Judgment against Fluor on (1) Fluor's claim for bad faith failure to settle, pleaded in Count II; (2) Fluor's claim for bad faith failure to defend (also pleaded in Count II); and (3) Fluor's claim for prejudgment "interest and/or 'weighted average cost of capital." Zurich has also filed a Motion to Exclude Fluor's Declaration of John M. Wilson, filed in opposition to Zurich's Motion for Partial Summary Judgment on Fluor's BFFS claim. The Court will first address Zurich's Motion to Exclude the Declaration of John M. Wilson, and then turn to the three pending summary judgment motions.

6 Fluor also asks that the Court hear oral argument on both of its Motions for Summary Judgment. The Court declines to do so as it finds the parties have extensively and sufficiently briefed their motions for summary judgment.

II. ZURICH'S MOTION TO EXCLUDE THE DECLARATION OF JOHN M. WILSON

Zurich has filed a Motion [ECF No. 455] to Exclude the Declaration of John M. Wilson. Because this motion addresses the record the Court may consider in ruling on the parties' summary judgment motions, it is considered first. See Wells Dairy, Inc. v. Travelers Indem. Co. of Ill., 241 F. Supp. 2d. 945, 955-56 (N.D. Iowa 2003).

After the close of discovery, John Wilson, Fluor's coverage counsel and one of its counsel of record in this case, submitted a declaration ("Wilson Declaration") in opposition to Zurich's motion for Partial Summary Judgment. In his Declaration, Mr. Wilson avers that he "make[s] this declaration to rebut the false evidence offered by Zurich's claim handler, Catherine Tetzlaff . . . ." ECF No. 427 at ¶ 2.

After the November 2010 mediation, at which Doe Run tentatively agreed to settle with plaintiffs separately, Zurich assigned Ms. Tetzlaff as Fluor's new claims handler. In the instant litigation, Ms. Tetzlaff submitted an affidavit on May 30, 2019, and was deposed in her individual capacity on June 5, 2019, and January 9, 2020. In her June 2019 deposition Ms. Tetzlaff testified when she initially spoke with Mr. Wilson, he told her there were no settlement opportunities for Fluor and Fluor was preparing for trial. ECF No. 392-2, Ex. 8 Tr. 78:14-79:4 (June 5, 2019). In her January 9, 2020 deposition, Ms. Tetzlaff again testified that Mr. Wilson conveyed to her that there were no settlement opportunities for Fluor. ECF No. 393-9, Ex. 19, Tetzlaff Tr. 51:3-23 (Jan. 9, 2020). Ms. Tetzlaff also testified that Fluor thought the Alexander/Pedersen/Heilig litigation would be ripe to take to trial and a good test case. ECF No. 435-8, Ex. 243, Tetzlaff Tr. 43:9-25 (Jan. 9, 2020).

Fluor contends Mr. Wilson's Declaration was rendered necessary late in this litigation to rebut the new details proffered Ms. Tetzlaff in her January 2020 deposition. Fluor asserts these new details were not previously revealed in Ms. Tetzlaff's declaration or her June 2019 deposition. The Court finds Fluor's proffered explanation disingenuous. Ms. Tetzlaff's January 2020 testimony contains the same fundamental allegations her June 2019 deposition included-that Mr. Wilson told her there were no opportunities for Fluor to settle and that Fluor was focused on trial. Thus, the purported need to rebut Ms. Tetzlaff's testimony actually arose in mid-2019, but Fluor delayed Mr. Wilson's rebuttal until after discovery was closed. Moreover, Mr. Wilson's (and Fluor's) explanation falls flat as the information provided by Mr. Wilson in his declaration goes broadly beyond a mere rebuttal of Ms. Tetzlaff's testimony. The declaration includes references to other documents and conversations, including Fluor's alleged request Zurich contribute to settlement during a November 12, 2010 teleconference between Fluor and Zurich, and two phone calls with Zurich's coverage counsel, Randy Sinnott, in which Mr. Wilson alleges he demanded Zurich settle on behalf of Fluor. Notably, as Zurich points out, Fluor did not identify either conversation with Mr. Sinnott in Fluor's response to Zurich's interrogatory, which specifically asked if "Fluor or its independent counsel [made] a demand on Zurich."

Zurich argues Mr. Wilson's declaration should be excluded under Federal Rule of Civil Procedure 37(c)(1) because Fluor did not properly disclose Mr. Wilson as a witness in accordance with Rule 26(a) and Fluor cannot establish its violation of Rule 26 was substantially justified or is harmless. Zurich also contends the Declaration also runs afoul of the ethical prohibition of attorneys as witnesses as stated in the Missouri Rule of Professional Conduct 4-3.7(a).

At the outset of litigation, Rule 26(a) requires each party to disclose:

the name and, if known, the address and telephone number of each individual likely to have discoverable information—along with the subject of that information—that the disclosing party may use to support its claims or defenses . . . .

Fed. R. Civ. P. 26(a)(1)(A)(i). Rule 26(e) requires a party to supplement or correct these disclosures "in a timely manner if the party learns that in some material respect the disclosure . . . is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing." Fed. R. Civ. P. 26(e)(1)(A).

Rule 37(c)(1) applies when a party fails to comply with Rule 26(a) and then seeks to use the information "on a motion, at a hearing, or at a trial." Fed. R. Civ. P. 37(c)(1). If a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence, unless the failure was substantially justified or is harmless. Id.

In Fluor's Initial Disclosures served on October 31, 2016, and its Supplemental Disclosures served on June 1, 2017, and June 4, 2019, Fluor did not specifically identify Mr. Wilson as an individual "likely to have discoverable information." Fluor also did not identify Mr. Wilson as a potential witness in any of its interrogatory responses or supplemental responses. However, in each of Fluor's Initial and Supplemental Rule 26 Disclosures, Fluor incorporated by reference all individuals disclosed by Zurich in its Disclosures to the extent the individuals possessed information that Fluor might use to support its claims and/or defenses. Zurich's Initial Disclosures and Supplemental Disclosures all identified Mr. Wilson as a potential witness.

Although the Court finds Fluor's purported justification for the submission of the Wilson Declaration disingenuous as discussed above, the Court reluctantly concludes Fluor did not violate Rule 26, warranting Rule 37 sanctions. Because John Wilson was named in Zurich's Initial and Supplemental Disclosures as a possible witness, and he was incorporated by reference in Fluor's Initial Disclosure and Supplemental Disclosures, the Court has an insufficient basis to exclude the John Wilson's Declaration under Rule 26. Because the Court finds Fluor did not violate Rule 26, it will not consider the Rule 37 sanction of excluding the Declaration.

As mentioned above, Zurich proffers an alternate basis for excluding the Wilson Declaration. Zurich suggests the Declaration violates Missouri Rule of Professional Conduct 4-3.7. Rule 4-3.7(a) prohibits a lawyer from acting as an advocate "at a trial in which the lawyer is likely to be a necessary witness." Mo. R. Prof'l Conduct 4-3.7(a) (emphasis added). Because Rule 4-3.7(a) specifically applies to "trials," and does not apply to pre-trial proceedings away from the jury, there is no issue with Mr. Wilson serving in a dual role, as both a witness and an advocate. See Droste v. Julien, 477 F.3d 1030, 1036 (8th Cir. 2007).

The Court will therefore deny Zurich's Motion to Exclude the Declaration of John M. Wilson. Although determining Fluor technically complied with Rule 26, the Court clarifies that its ruling is made in the context of ascertaining the record for summary judgment purposes. The Court's decision in no way indicates the Court will condone Mr. Wilson as both an advocate and witness at trial.

III. DISCUSSION

A. Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment shall be entered "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In ruling on a motion for summary judgment, the Court is required to view the facts in the light most favorable to the non- moving party and must give that party the benefit of all reasonable inferences to be drawn from the underlying facts. AgriStor Leasing v. Farrow, 826 F.2d 732, 734 (8th Cir. 1987). The moving party bears the initial burden of showing both the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); Fed. R. Civ. P. 56(c).

Once the moving party has met its burden, the non-moving party may not rest on the allegations of his pleadings but must set forth specific facts, by affidavit or other evidence, showing that a genuine issue of material fact exists. Fed. R. Civ. P. 56(e); Anderson, 477 U.S. at 257; Heisler v. Metro. Council, 339 F.3d 622, 626 (8th Cir. 2003). Rule 56(c) "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

As provided in subdivisions (a) and (b) of Rule 56 of the Federal Rules of Civil Procedure, any party may move for summary judgment without regard to whether the movant is a claimant or a defending party. See Fed. R. Civ. P. 56(a)-(b). When cross motions for summary judgment are filed, each summary judgment motion must be evaluated independently to determine whether a genuine issue of material fact exists and whether the movant is entitled to judgment as a matter of law. Jones-El v. Godert, No. 2:18-CV-65-JMB, 2019 WL 6727492, at *7 (E.D. Mo. Dec. 11, 2019); Husinga v. Fed.-Mogul Ignition Co., 519 F. Supp. 2d 929, 942 (S.D. Iowa 2007). Where a court confronts cross motions for summary judgment, the court views the record in the light most favorable to plaintiff when considering defendant's motion, and the court views the record in the light most favorable to defendant when considering plaintiff's motion. Weber v. Travelers Home & Marine Ins. Co., 801 F. Supp. 2d 819, 825 (D. Minn. 2011).

"[T]he filing of cross motions for summary judgment does not necessarily indicate that there is no dispute as to a material fact, or have the effect of submitting the cause to a plenary determination on the merits." Wermager v. Cormorant Twp. Bd., 716 F.2d 1211, 1214 (8th Cir. 1983). "In determining the appropriateness of summary judgment, the relevant inquiry is whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Jones-El, 2019 WL 6727492, at *7 (internal quotations omitted); Anderson, 477 U.S. at 251-52.

In ruling on a motion for summary judgment, the Court may not "weigh the evidence in the summary judgment record, decide credibility questions, or determine the truth of any factual issue." Kampouris v. St. Louis Symphony Soc., 210 F.3d 845, 847 (8th Cir. 2000). The Court instead "perform[s] only a gatekeeper function of determining whether there is evidence in the summary judgment record generating a genuine issue of material fact for trial on each essential element of a claim." Id. Material facts are those "that might affect the outcome of the suit under the governing law," and a genuine dispute over a material fact is one "such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248.

B. Bad Faith Failure to Settle

Zurich and Fluor have filed cross-motions for summary judgment as to Fluor's Second Cause of Action for Bad Faith Failure to Settle ("BFFS"). "The cause of action for bad faith failure to settle is based on the proposition that an insurance company, 'having assumed control of the right to settle claims against the insured, may become liable in excess of its undertaking under the policy provisions if it fails to exercise good faith in considering offers to compromise the claim for an amount within the policy limits.'" Purscell v. TICO Ins. Co., 959 F. Supp. 2d 1195, 1200 (W.D. Mo. 2013), aff'd, 790 F.3d 842 (8th Cir. 2015) (quoting Ganaway v. Shelter Mut. Ins. Co., 795 S.W.2d 554, 556 (Mo. Ct. App. 1990).

To prove its bad faith failure-to-settle claim under Missouri law, Fluor is required to show Zurich: (1) reserved the exclusive right to contest or settle any claims brought against Fluor; (2) prohibited Fluor from voluntarily assuming any liability or settling any claims without consent; and (3) was guilty of fraud or bad faith in refusing to settle a claim within the policy limits. Purscell, 790 F.3d at 846-47 (citing Scottsdale Ins. Co. v. Addison Ins. Co., 448 S.W.3d 818, 827 (Mo. banc 2014)).

An insured must show more than just negligence on the part of an insurer to establish the bad faith element of the claim. See Zumwalt v. Utils. Ins. Co., 228 S.W.2d 750, 753 (Mo. 1950). "The evidence must establish that insurer intentionally disregarded the insured's best interests in an effort to escape its full responsibility under the policy." Rinehart v. Shelter Gen. Ins. Co., 261 S.W.3d 583, 595 (Mo. Ct. App. 2008) (citing Zumwalt, 228 S.W.2d at 754). 'If the interests of the insurer and the insured conflict, then the insurer must "sacrifice its interest in favor of the [insured].'" Purscell, 959 F. Supp. 2d at 1200 (quoting Zumwalt 228 S.W.2d at 756).

Implicit in the "refusing" aspect of the third element of BFFS is a showing the insurer had a reasonable opportunity to settle within the policy limits. Purscell, 790 F.3d at 847. The Missouri Supreme Court in Scottsdale Ins. Co. v. Addison Ins. Co. recognized that if an insurer disregards an insured's demand to settle, this fact is "highly relevant in determining whether an insurer acted in bad faith in refusing to settle." 448 S.W.3d at 827 n.5; United Fire & Cas. Co. v. Advantage Workers Comp. Ins. Co., No. 16-CV-00466-W-DW, 2017 WL 2964723, at *6 (W.D. Mo. June 26, 2017).

Bad faith is provable by both circumstantial and direct evidence, and what constitutes bad faith will depend on the specific facts in each case. Zumwalt 228 S.W.2d at 754. Bad faith is generally a question of fact because it requires consideration of the insurer's "state of mind." Truck Ins. Exch. v. Prairie Framing, LLC., 162 S.W.3d 64, 95 (Mo. Ct. App. 2005).

C. Fluor's Motion for Summary Judgment on Fluor's Bad Faith Failure to Settle Claim

Against Zurich

Fluor contends it is entitled to summary judgment on each element of its Second Cause of Action for bad faith failure to settle against Zurich, and therefore, Fluor is entitled to summary judgment of its entire claim.⁷ In opposition to Fluor's Motion, Zurich contends Fluor cannot establish any of the elements of its claim for BFFS.

7 Fluor clarifies it is not moving to adjudicate punitive damages as part of its instant motion. To obtain punitive damages, Fluor would be required to meet a higher burden to prove Zurich's culpable mental state, "either by a wanton, willful or outrageous act, or reckless disregard for an act's consequences (from which evil motive is inferred)." Johnson v. Allstate Ins. Co., 262 S.W.3d 655, 666 (Mo. Ct. App. 2008); see also Shobe v. Kelly, 279 S.W.3d 203, 212 (Mo. Ct. App. 2009) ("[a] punitive damages award requires more than the showing for bad faith") (citation omitted).

1. First and Second Elements of BFFS

The first two elements of BFFS require a showing that the insurer (1) reserved the exclusive right to contest or settle any claims brought against the insured; and (2) prohibited the insured from voluntarily assuming any liability or settling any claims without the insurer's consent. Scottsdale, 448 S.W.3d at 827. Fluor contends that the first two elements of BFFS are conclusively established by the language of the Zurich Policies and Zurich's reservation of rights letters.

Specifically, Fluor points to the provisions of the Zurich Policies stating the insured "shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense," and providing that Zurich has the right to "settle[ ] any claim or suit as it deems expedient." Fluor also relies on Zurich's reservation of rights letters for the Bronson/Smoger lawsuits, which asserted coverage is "not available if and to the extent that any insured has failed to satisfy any of the conditions precedent to coverage set forth in the Zurich/St. Joe policies," including "the duty to refrain from making voluntary payments or voluntarily assuming obligations (except at its own expense)." ECF No. 381 at ¶¶ 25, 27. Fluor contends this language establishes the first and second elements of BFFS as a matter of law.

In opposition to Fluor's motion, Zurich disputes Fluor's allegation that an insurer's assumption of "control" required by the first two elements can be established merely by looking to the language of the liability policy. Zurich argues this would render the control elements a "hollow formality" met by every commercial liability insurer issuing a policy. Zurich contends Fluor cannot establish the first two elements of BFFS as 1) Zurich never assumed actual control over the negotiation and settlement of the Bronson/Smoger cases, and 2) Zurich did not prevent its insureds from settling the Bronson/Smoger suits. Zurich asserts the insureds, Doe Run and Fluor, controlled the defense and settlement of claims through their respective independent defense counsel, who were not subject to Zurich's direction and were barred from communicating with Zurich. Zurich argues its role was narrowly limited to contributing funds to the Bronson/Smoger settlements negotiated by its insureds for the portion of plaintiffs potentially covered under the Zurich Policies. Zurich argues it lacked the "total control" over the settlement process required under Missouri law for a BFFS claim.

In its Reply, Fluor reasserts that, under Missouri law, it is the insurer's rights under the policies, not the insurer's actual conduct, that determine the first two elements of BFFS.

The Missouri Supreme Court first recognized a cause of action in tort for bad faith failure to settle in Zumwalt v. Utilities Insurance Co., 360 Mo. 362, 228 S.W.2d 750 (1950). After conducting an extensive review of cases from other states and from the federal courts, the Zumwalt court observed:

[T]he weight of authority is that where the insurer in a liability policy reserves the exclusive right to contest or settle any claim brought against the assured, and prohibits him from voluntarily assuming any liability or settling any claims without the insurer's consent, except at his own costs, and the provisions of the policy provide that the insurer may compromise or settle such a claim within the policy limits, no action will lie against the insurer for the amount of the judgment recovered against the insured in excess of the policy limits, unless the insurer is guilty of fraud or bad faith in refusing to settle a claim within the limits of the policy.

Zumwalt, 228 S.W.2d at 753. Zumwalt, however, did not specifically articulate the required elements of the claim of bad faith failure to settle. Following the Zumwalt decision in 1950, Missouri Courts attempted to set forth the elements of BFFS, often coming to different conclusions on the tort's exact requirements. In 2014, the Missouri Supreme Court, in Scottsdale Ins. Co. v. Addison Ins. Co., after recognizing the above passage from Zumwalt, set forth three required elements of BFFS. 448 S.W.3d 818, 827 (Mo. 2014).

Fluor cites to Scottsdale, and its recitation of the passage from Zumwalt, in arguing the Court need to look no further than the Zurich Policies' language to determine the first two elements of BFFS. As acknowledged in Zumwalt, the Court finds a liability policy's language is certainly relevant to BFFS as certain policy provisions may give rise to the insurer's fiduciary duty to the insured, including the duty to settle claims in good faith. See Freeman v. Leader Nat'l Ins. Co., 58 S.W.3d 590, 598 (Mo. Ct. App. 1983).⁸ However, the Court declines to adopt an interpretation of Scottsdale that bars the Court from also considering the insurer's actual conduct in controlling litigation and settlement. Fluor fails to provide persuasive authority that the court may not also consider the insurer's conduct in assuming control of the litigation.

8 A policy containing language vesting the insurer with the right to control litigation and settlement gives rise to a fiduciary relationship between insurer and insured. Freeman, 58 S.W.3d at 598. Thus, an absence of this language in a policy can be dispositive of a claim for BFFS against the insurer as no fiduciary duty exists. See Quick v. Nat'l Auto Credit, 65 F.3d 741, 746 (8th Cir. 1995).

The Court's review of Missouri BFFS cases confirms courts consider an insurer's actions in assuming control of litigation and settlement when evaluating a claim for BFFS. For example, in Advantage Bldgs. & Exteriors, Inc. v. Mid-Continent Cas. Co., the Missouri Court of Appeals determined the insured offered substantial evidence on each element of its claim to make a submissible case of BFFS. 449 S.W.3d 16, 25 (Mo. Ct. App. 2014). In its analysis, the Advantage court discussed the actual conduct of the insurer, Mid-Continent, in controlling the litigation and settlement opportunities. The court stated that the evidence at trial "showed that the insurer accepted the defense of the lawsuit against the insured, hired a lawyer to defend the lawsuit, and thereafter assumed control over the negotiation, settlement, and legal proceedings." Id. at 26. The court noted "Mid-Continent controlled the negotiations for nearly two years and participated in mediations during that time . . . [and] continued to control the defense of the claim until . . . four days before the trial date . . . ." Id.

The Court finds other Missouri cases instructive in concluding an insurer's conduct may be considered in evaluating the first two elements of BFFS. In Blount v. Nationwide Agribusiness Ins., the District Court evaluated whether the insured had properly pleaded a prima facie case of BFFS. 413 F. Supp. 3d 933, 937-38 (W.D. Mo. 2019). In concluding the elements of BFFS were properly pleaded, the Court relied on allegations of the insurer's conduct in negotiating settlement but did not discuss the policy language. Id. at 935-38. In addition, several Missouri Courts have determined when an insurer has denied coverage and refused to defend a claim tendered by its insured, the insured alleging BFFS is not required to plead the conduct of the insurer in controlling the litigation and settlement. See Shobe, 279 S.W.3d at 210-11; Columbia Cas. Co. v. HIAR Holding, L.L.C., No. SC93026, 2013 WL 4080770, at *13 (Mo. Aug. 13, 2013) (en banc); Cincinnati Ins. Co. v. Missouri Highways, No. 4:12-CV-01484-NKL, 2013 WL 12097460, at *2 (W.D. Mo. Nov. 4, 2013). The reasoning in these cases indicates Missouri courts consider an insurer's conduct in controlling litigation and settlement. If the language of the liability policies alone could satisfy the first two BFFS elements, the courts would simply have examined the policies, and would not have found it necessary to relieve the insured of the usual requirement of pleading the insurer's conduct in controlling litigation. Accordingly, in examining the first and second elements of BFFS, the Court will consider not only the Policies' provisions, but also Zurich's conduct in controlling the Bronson/Smoger litigation and settlement.⁹

9 Fluor asserts this Court previously ruled (in its Memorandum and Order dated September 30, 2019) that the language of the Zurich Policies satisfies the first two elements of BFFS as a matter of law. In the Court's prior ruling, it addressed a different motion and a different issue-whether summary judgment should be granted with regard to Zurich's affirmative indemnity defenses to Fluor's BFFS claim. In the Court's analysis supporting its grant of summary judgment against Zurich, the Court examined the language of the Zurich Policies, noting it vested Zurich with the "right to control litigation and settlement, giving rise to a fiduciary relationship between the parties" and affirmed "Fluor's duty to refrain from voluntarily assuming obligations." ECF No. 322 at 16. Fluor relies on this excerpt of the Court's prior analysis for purposes of its instant motion, stating Fluor's entitlement to summary judgment on the first two elements of BFFS is "settled." ECF No. 380 at 24. However, Fluor ignores the Court's explicit clarification that followed the above passage in its previous ruling. The Court made clear the scope of its analysis and ruling was limited to its determination on Zurich's affirmative defenses and did not extend to a determination as to any of the elements of BFFS. See ECF No. 322 at 18 n.10 ("[T]he issue in this Motion is whether Zurich may assert certain affirmative defenses to Fluor's BFFS claim, not whether Fluor has sufficiently established BFFS.") Having already explicitly disclaimed any ruling on the elements of BFFS in its prior order, the Court rejects Fluor's erroneous distortion in support of its instant motion.

Here, as discussed above, Fluor has offered the language of the Policies and Zurich's reservation of rights as evidence Zurich had the contractual right to control settlement and prohibit Fluor from unilaterally settling. In response to Fluor's Motion, Zurich has set forth evidence in support of its argument that its insureds, Doe Run and Fluor, exercised actual control over the litigation and settlement of the Bronson/Smoger suits-not Zurich.

Zurich points to evidence that it only had limited communications with the Fluor and Doe Run's independent defense counsel regarding the lawsuits. It is undisputed Doe Run was represented by independent counsel at Lewis Rice and Fluor was represented by independent counsel at Armstrong Teasdale. The record indicates Fluor's independent defense counsel at Armstrong Teasdale did not directly communicate with Zurich. ECF No. 408, Ex. 3 (Quinn Tr.) 32:21-33:14, 157:18-24; Ex. 10, (Kozak Tr.) 48:6-25. Instead, throughout the Bronson/Smoger litigation, Zurich was limited to communicating with its insureds and their independent defense counsel through the conduit of each insured's coverage counsel. Zurich also did not communicate directly with counsel for the Bronson/Smoger plaintiffs.

In addition, the Court finds the record provides evidence that Doe Run and Fluor, under the direction of Doe Run, exercised control over litigation and settlement with the Bronson/Smoger plaintiffs. It is undisputed that Doe Run's independent defense counsel, Andrew Rothschild of Lewis Rice, took the lead in negotiating settlements with the plaintiffs. In Bronson/Smoger settlements mediated prior to November 2010, Doe Run handled the negotiations and settled the cases on behalf of itself and Fluor, while Zurich's role was to contribute sums for potentially covered plaintiffs.

Further, with regard to the November 2010 mediation, the record shows Doe Run scheduled the mediation, advised Zurich of plaintiffs' $60 million demand, and suggested $42 and $44 million counteroffers to plaintiffs. Evidencing the insureds' control over settlement, Doe Run proposed a funding mechanism for the global settlement of the Bronson/Smoger suits to Zurich. When Zurich indicated its consent to the amount of Doe Run's proposed counteroffer, but declined to commit funding, Doe Run emphasized to Zurich the defense was conducted by Doe Run's defense counsel at Lewis Rice and not by Zurich; and that it was Zurich's contract obligation to heed the requests of Doe Run and confirm funding.

In determining the appropriateness of summary judgment, "the relevant inquiry is whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law. Jones-El, 2019 WL 6727492, at *7. Upon review of the record, in a light most favorable to the non-movant Zurich, the Court finds Zurich has set forth sufficient additional evidence creating a genuine issue of material fact as to whether Zurich controlled the litigation and settlement of the Bronson/Smoger lawsuits and prohibited Fluor from settling. The Court will therefore deny Fluor's motion for summary judgment on the first two elements of its Second Cause of Action for BFFS.

2. Third element of BFFS

As Fluor asks the Court to grant summary judgment with respect to each element of BFFS, the Court will now turn to the third element of Fluor's BFFS claim.

Fluor argues the undisputed material facts establish Zurich acted in its own best interests and breached its good faith duty to settle for Fluor in November-December 2010. Fluor asserts Zurich acted in bad faith by departing from its prior precedent of contributing funds to Bronson/Smoger settlements and refusing to meaningfully participate in the November 2010 mediation.

Fluor also asserts Zurich acted in bad faith by failing to keep Fluor fully informed about settlement opportunities. Fluor argues that although the global demand by plaintiffs for $60 million remained open after mediation until Doe Run finalized its separate agreement to pay plaintiffs $53 million, it is undisputed Zurich never informed Fluor of the $7 million delta. Fluor contends that had Zurich notified it of the $7 million delta necessary to include Fluor in the global settlement, Fluor could have protected itself.

In response to Fluor's motion (and as the basis for its own motion for summary judgment), Zurich alleges Fluor's motion should be denied as Fluor cannot establish the third element of BFFS-and Zurich's cross motion for summary judgment should be granted as no reasonable jury could find Zurich acted in bad faith based on the undisputed facts of this case.

Zurich disputes Fluor's argument that it failed to meaningfully participate in settlement of the Bronson/Smoger suits. Zurich contends it never failed or refused to settle in bad faith. According to Zurich, Fluor's refusal to comply with Doe Run's demands that Fluor contribute funds doomed Fluor's settlement opportunity in November-December 2010. Zurich also argues Fluor kept a low profile at mediation to avoid demands that it contribute. Zurich disputes that it refused to contribute to the global settlement as alleged by Fluor. Zurich suggests it did not commit to funding before mediation as it was engaged in the process of procuring information and calculating the reasonable settlement value for potentially covered plaintiffs. Zurich also suggests that it could not contribute to a settlement after mediation as it could not agree to any settlement that would favor one of its insureds over another.

Zurich also disputes Fluor's contention Zurich acted in bad faith by failing to disclose settlement opportunities. Zurich claims it was barred from disclosing details of Doe Run's separate settlement to Fluor by plaintiffs. Zurich rejects Fluor's contention that Fluor was unable to protect itself because Zurich withheld the $7 million delta to settle the Bronson/Smoger cases. Zurich points out Fluor was fully aware it had an opportunity to settle with the Bronson/Smoger plaintiffs for a few million dollars, but never made a demand on Zurich to settle as Fluor was confident in its trial position. Finally, Zurich argues it is undisputed Fluor never made a demand on Zurich to settle the Bronson/Smoger claims-a highly relevant consideration in evaluating whether an insurer acted in bad faith.

In response to Zurich's argument, Fluor disputes Zurich needed to conduct plaintiff-specific analysis to contribute funds to the global settlement prior to mediation. Fluor also contends it demanded Zurich settle the Bronson/Smoger lawsuits.

To establish the third element of BFFS, the insured must show the insurer acted in bad faith in refusing to settle a claim within the policy limits. The insured must establish that the insurer intentionally disregarded the insured's best interests in an effort to escape its full responsibility under the policy. Rinehart, 261 S.W.3d at 595 (citing Zumwalt, 228 S.W.2d at 754). An insurer's disregard of an insured's demand to settle is a highly relevant factor in determining bad faith. Scottsdale, 448 S.W.3d at 827 n.5. Examples of circumstances that indicate an insurer's bad faith in refusing to settle include the insurer's refusal to consider a settlement offer and not advising an insured of the existence of settlement offers. Johnson v. Allstate Ins. Co., 262 S.W.3d 655, 662 (Mo. App. W.D. 2008).

As noted above, Fluor argues Zurich acted in bad faith by refusing to meaningfully participate in the November 2010 mediation and failing to keep Fluor apprised of settlement opportunities. The Court has carefully reviewed the record and finds the following support for Fluor's contentions. Here, the evidence reflects that prior to the November 2010 mediation, Zurich ignored its coverage counsel's recommendation to increase Zurich's reserves for the Bronson/Smoger litigation. Zurich also disregarded its coverage counsel's analysis and recommendation to accept Doe Run's funding proposal for the global settlement. Instead, Zurich departed from its prior precedent of paying settlements for covered Bronson/Smoger plaintiffs and failed to commit funding. Zurich attended the November 2010 mediation without settlement authority, even though Zurich was aware of the risk that Doe Run might settle out and leave Fluor to defend the cases. It is also undisputed Zurich did not inform Fluor of the $7 million opportunity to be included in the global settlement.

The Court now turns to the opposing evidence set forth by Zurich in response to Fluor's assertions. In doing so, the Court is aware that a motion for summary judgment is a not trial of fact issues, but is for purpose of determining whether, in fact, there are any genuine issues as to material facts. Neff v. World Pub. Co., 349 F.2d 235, 239 (8th Cir. 1965). To determine whether a factual dispute is genuine, this Court must ask whether, given the record before it, no reasonable jury could find in favor of the non-movant Zurich on the third element of BFFS.

As noted above, Zurich contends Fluor's failure to contribute funds doomed its global settlement opportunity. In support of its argument, Zurich provides evidence that, on multiple occasions, Doe Run requested Fluor contribute to any settlement that might be reached at the November 18, 2010 mediation or risk the possibility Doe Run would not include Fluor in the settlement. The record further reflects Doe Run informed Fluor that Zurich was not an impediment to making a contribution because Zurich had denied coverage for thirty-eight of the fifty-eight plaintiffs.¹⁰ Nevertheless, in response to Zurich's requests, Flour told Doe Run not to expect financial participation from Fluor at the upcoming mediation. Moreover, the record reflects that, at the November 2010 mediation, Fluor's representatives were concerned that Fluor "popping its head up might lead to demands for Fluor's money." ECF No. 408-30.

10 John Quinn, independent defense counsel for Fluor, conceded Fluor only had insurance for some of the Bronson/Smoger cases.

With regard to Fluor's contention that Zurich acted in bad faith by failing to inform Fluor of settlement opportunities, Zurich offers evidence in opposition that Fluor was aware of the $7 million delta. The record reflects that on December 7, 2010, counsel for Doe Run, Ed Dowd, informed Fluor it could still settle "pretty cheaply" for a few million dollars. The record further reflects Fluor responded that it was not paying the plaintiffs or Doe Run and was willing to go to trial. Fluor also stated to it would do no good for plaintiffs to contact Fluor because Fluor thought the cases were defensible and not everyone was as worried about lead as Doe Run.

In further support of Zurich's contention that Fluor preferred to go to trial versus contribute funds to a global settlement, Zurich offers the testimony of Catherine Tetzlaff, the Zurich claims adjuster provided to Fluor after the November 2010 mediation. Ms. Tetzlaff testified that after she was assigned to Fluor, John Wilson, coverage counsel for Fluor, told her there were no settlement opportunities for Fluor and that the Alexander/Pederson/Heilig case was ripe to take to trial. Fluor argues Ms. Tetzlaff's testimony is false and offers the declaration of John Wilson in rebuttal. In his Declaration, Mr. Wilson states he never suggested to Ms. Tetzlaff that "Fluor did not want to settle the Bronson/Smoger Lawsuits." Id. at ¶ 15.¹¹

11 The Court notes that although Mr. Wilson states in his Declaration he never suggested to Ms. Tetzlaff that Fluor did not want to settle, he also avoids directly refuting her testimony. Mr. Wilson does not deny he told Ms. Tetzlaff there were "no settlement opportunities for Fluor," or that he stated the Alexander/Pedersen/Heilig cases were ripe to take to trial and good test cases. Moreover, in his Declaration, Mr. Wilson describes his initial conversation with Ms. Tetzlaff and appears to indicate that he expressed to her that Fluor wanted to settle the cases. Upon a careful reading of his averment, however, Mr. Wilson actually states he informed Ms. Tetzlaff Fluor did not know the details of ongoing settlement discussions, and then makes the observation, "However, as I had previously told Zurich's outside coverage counsel, Fluor remained very interested in Zurich settling and protecting Fluor's interests, so that Fluor would not be left to defend the Bronson-Smoger Lawsuits alone." ECF No. 427 at ¶ 10. It appears to the Court that Mr. Wilson merely is making a contemporaneous comment to the Court about a prior communication to a different individual, and not that he actually conveyed Fluor's alleged desire to settle (or his previous communication) to Ms. Tetzlaff. Although Mr. Wilson's Declaration seems to engage in verbal gymnastics, the Court will consider Mr. Wilson's conversations with Ms. Tetlaff as a disputed issue of fact for purposes of summary judgment.

Based upon this record, the Court cannot conclude no reasonable jury could find in favor of Zurich on the third element. Construing the evidence of record in a light most favorable to Zurich, the Court finds a jury could conclude Fluor's opportunity to be included in the global settlement was thwarted by its own refusal to heed Doe Run's demands and contribute funds for those plaintiffs Zurich denied were covered under the Policies. A jury could also conclude Fluor sought to avoid engaging with the other parties at the November 2010 mediation to escape being presented with a demand for contribution. Moreover, although Fluor claims Zurich failed to disclose information that would have enabled Fluor to take steps to settle the Bronson/Smoger claims after mediation, a reasonable jury could find Fluor was aware of the delta to settle, but chose not to contribute funds or demand settlement as Fluor was confident in its trial position.

Based on the above, the Court finds Zurich has established a genuine issue of material fact for trial as to the third element of Fluor's Motion for BFFS. The Court will therefore deny Fluor's motion for summary judgment on the third element and Fluor's Second Cause of Action for BFFS. The Court will now discuss Zurich's cross-motion for summary judgment below.

D. Zurich's Motion for Partial Summary Judgment Against Fluor

Zurich moves for partial summary judgment on the Second Count of Fluor's Counterclaim. Specifically, Zurich seeks summary judgment on Fluor's claim that: (1) Zurich engaged in bad faith failure to settle; and (2) Zurich engaged in what Fluor calls "bad faith failure to defend" ("BFFD"). In addition, Zurich seeks summary judgment on Fluor's claims for prejudgment interest, which Fluor denominates as "weighted average cost of capital." The Court will first address Zurich's cross motion for summary judgment on Fluor's BFFS claim, and then discuss Zurich's arguments regarding Fluor's BFFD claim and Fluor's request for weighted average cost of capital.

1. Zurich's Motion for Partial Summary Judgment on Fluor's Bad Faith Failure to

Settle Claim

Zurich contends it is entitled to summary judgment on Fluor's counterclaim for bad faith failure to settle because the uncontroverted facts establish Fluor cannot prove any of the elements of BFFS. Fluor counters Zurich relies on legally erroneous arguments with regard to the first two elements of BFFS, and the indisputable facts set forth by Fluor establish the third element in Fluor's favor-that Zurich breached its good faith duty to settle.

First and Second Elements

As discussed above, the first two elements of BFFS require a showing that the insurer (1) reserved the exclusive right to contest or settle any claims brought against the insured; and (2) prohibited the insured from voluntarily assuming any liability or settling any claims without the insurer's consent. Zurich contends that to establish the first two elements of BFFS in Missouri, Fluor must show Zurich assumed total and exclusive control of the litigation and settlement process. Zurich argues it has set forth undisputed evidence showing Doe Run and Fluor's independent defense counsel, not Zurich, controlled the litigation and settlement of the Bronson/Smoger lawsuits. Zurich further claims that because it defended Fluor under a reservation of rights, it forfeited its right to control Fluor's defense. Without exclusive control, Zurich argues no viable BFFS claim can be maintained by Fluor.

As a threshold issue, the Court will address Zurich's proposition that because Zurich defended under a reservation of rights, it forfeited its control of the defense of the Bronson/Smoger litigation as a matter of law. In support of this contention, Zurich cites to Allen v. Bryers, 512 SW.3d 17, 32 (Mo. banc 2016). Not only is Zurich's reliance on Allen for its proposition misplaced, but the circumstances in Allen are distinguishable from this action.

In Allen, an insurer received notification of an injured party's intent to file a negligence suit against its insured. Id. at 24. Before suit was even filed against its insured, the insurer set forth a full reservation of rights, disclaimed any coverage under the policy in connection with the claim, and filed a declaratory judgment action to determine coverage in federal court. Id. Shortly thereafter, the injured claimant sent a demand letter to the insurer, seeking the policy limit, which the insurer rejected. Id. As a result of the filing of the declaratory judgment action, the insurer's reservation of rights, and the insurer's rejection of claimant's demand to settle, the injured party and the insured entered into a § 537.065 agreement¹² and the injured claimant filed suit against the insured. Id. at 24-25. Shortly after suit was filed, the insured rejected the insurer's reservation of rights defense. Id. The insurer declined its option to defend without reservation, and later attempted and failed to intervene in the personal injury action against the insured. Id. at 25-26. The personal injury action resulted in a judgment against the insured. Id. In a later garnishment action against the insurer, the insurer challenged the denial of its opportunity to intervene and litigate coverage in the underlying tort action. Id. at 29.

12 Mo. Rev. Stat. 537.065 (2000) allows a claimant and a tortfeasor to contract to limit recovery to specified assets or insurance coverage. See Hunter v. Moore, 486 S.W.3d 919, 922 n.2 (Mo. banc 2016).

In addressing the insurer's challenge, the Missouri Court of Appeals found the insurer had an opportunity to manage and control the underlying tort action, but had declined to do so. Id. at 23, 32. The Court noted that, instead of defending its insured, the insurer asserted a full reservation of rights, denied coverage, and filed a declaratory judgment action before the personal injury suit was even filed. Id. at 31-32. The court concluded the insurer's filing of the declaratory judgment action, and subsequent choice to pursue declaratory judgment instead of foregoing its reservation of rights defense after the insured rejected it, constituted a wrongful refusal to defend. Id. at 33. Therefore, the court concluded the insurer waived control of any defense of the underlying tort action. Id. at 32.

Allen's conclusion that the insurer waived its right to and ceased to control the underlying tort litigation was founded on the circumstances of that case-where the insurer asserted there was no coverage, filed a declaratory judgment action, and refused to defend without reservation. The Court finds Allen inapposite to the facts in this case. Here, Zurich did not file a declaratory judgment action regarding coverage before or during the Bronson/Smoger suits, and Fluor accepted Zurich's reservation of rights defense. The Court further finds Allen does not support Zurich's proposition that when an insurer defends under a reservation of rights, the insurer automatically ceases to control the litigation as required to show BFFS. In Allen, the insurer ceased to control the litigation because it filed a declaratory judgment action and refused to defend without reservation, not simply because it originally elected to defend under a reservation of rights. Under Zurich's proposition, every insurer defending under a reservation of rights would escape liability for BFFS. Neither Missouri law nor common sense supports such a legal conclusion.

In a similar argument, Zurich maintains that to satisfy the elements of BFFS in Missouri, an insurer must exercise total, exclusive control over the defense of a claim against its insured. As just addressed by the Court, under such a proposition, every insurer defending under a reservation of rights-where independent defense counsel is retained-would fail the "total" control test and escape liability for BFFS. This Court finds that Zurich fails to support its proposition with applicable Missouri case law and declines to adopt Zurich's proposed test in evaluating BFFS.¹³

13 Zurich cites specifically to Quick v. Nat'l Auto Credit, 65 F.3d 741, 746 (8^th Cir. 1995), as authority for its argument that total control over settlement by the insurer is required to prevail on a BFFS claim. However, Quick did not debate the degree of control the insurer exercised over negotiations and settlement. In Quick, the court never reached a discussion of BFFS elements as it determined that the self-insured car rental agency had no fiduciary duty to its lessee (to give good faith consideration to offers to settle). Id.

As discussed above in Section C (1) addressing Fluor's Cross-Motion for summary judgment, Zurich has set forth evidence that the insureds-Doe Run and Fluor-exercised control over the negotiation and settlement of the Bronson/Smoger suits through their separate, independent defense counsel. As recounted above, the record establishes that Zurich did not directly contact its insureds' independent defense counsel, the insureds, or plaintiffs' counsel. Moreover, Zurich proffers evidence that Doe Run negotiated and settled prior mediated Bronson/Smoger cases on behalf of all defendants, including Fluor. The record also shows Doe Run proposed the funding mechanism for November 2010 global settlement of the Bronson/Smoger cases and contested Zurich's right to control the defense.

To determine the appropriateness of summary judgment, the Court must consider whether the above evidence proffered by Zurich is so one-sided that Zurich must prevail as a matter of law on the first two elements of BFFS. Jones-El, 2019 WL 6727492, at *7. To do so, the Court must also examine the opposing evidence set forth by Fluor (in its Response in Opposition to Zurich's Motion, as well as Fluor's own Motion) that Zurich exercised significant control over settlement of the lawsuits.¹⁴

14 In Fluor's Response in Opposition to Zurich's Motion for Partial Summary Judgment [ECF No. 425], Fluor incorporates by reference its Reply in support of Fluor's Motion for Summary Judgment on Fluor's bad faith failure to settle claim. ECF No. 425 at 5 n.2.

Fluor asserts Zurich insisted during the Bronson/Smoger suits that its insureds obtain Zurich's consent for any settlements. Fluor points to the testimony of Doe Run's coverage counsel, Marc Halpern, that Zurich had taken the position over the years in pretty much every case, that Doe Run could not negotiate or achieve settlements without Zurich's consent. ECF No. 429-46, Ex. 75, Halpern Tr. 33:10-24. Fluor provides evidence of notes produced by Zurich, indicating Zurich understood it controlled the opportunity for settlement leading up to the November 2010 mediation. Zurich specifically concluded, "We can control outcome . . . We have ability to say what $ level we will participate in." ECF No. 423-15, Ex. 149, at 2; ECF No. 429-49, Ex.78, at 2.

Moreover, Zurich's coverage counsel conceded that "while Doe Run did have 'control' over the settlement negotiations with the plaintiffs, Zurich practically had control over whether the settlement could be accepted because it controlled the funding." ECF No. 382-102, Exhibit 100, at 19; ECF No. 429-47, Exhibit 76, at 19. In earlier pleadings filed in this action, Zurich stated that it maintained its right to direct the litigation and its common interest with Fluor through 2013. ECF No. 124 at 13. The record also reflects that, following the November 2010 mediation, Zurich warned its other insured-Doe Run-that Zurich was fully defending the Bronson/Smoger lawsuits and therefore had the right to settle the cases, and Doe Run would be in breach of the contract if it unilaterally settled the claims. ECF No. 382-25, Exhibit 25, at 2-3.

It is not the function of this Court to "weigh the evidence" presented by Zurich and Fluor to determine whether Zurich exercised control over the Bronson/Smoger litigation and the November 2010 settlement opportunity and prevented Fluor from settling. See Kammueller v. Loomis, Fargo & Co., 383 F.3d 779, 784 (8th Cir. 2004). Rather, this Court's "function is to determine whether a dispute about a material fact is genuine . . . ." Quick v. Donaldson Co., Inc., 90 F.3d 1372, 1376-77 (8th Cir. 1996). Here, viewing the evidence in a light most favorable to Fluor, the Court finds the existence of a genuine issue of material fact exists, warranting submission to a jury. The Court accordingly denies Zurich's Motion for Partial Summary Judgment as to the first two elements of Fluor's BFFS claim.

Third Element of BFFS

Now the Court will turn to Zurich's request for summary judgment on the third element of Fluor's BFFS claim. Zurich alleges its cross motion should be granted on the third element as no reasonable jury could find Zurich acted in bad faith based on the undisputed facts of this case. The Court will not repeat the parties' extensive arguments and detailed evidence in support of those arguments. They are summarized above in the Court's discussion of Fluor's motion for summary judgment on the third element. Instead, the Court will directly address whether Zurich has successfully established it is entitled to summary judgment.

Based upon the record before it, the Court finds a triable issue of fact exists as to whether Zurich acted in bad faith regarding the November-December 2010 settlement opportunity. Fluor has presented evidence that prior to the November 2010 mediation, Zurich rejected its coverage counsel's recommendation to increase reserves for the Bronson/Smoger claims. The record also establishes Zurich's coverage counsel recommended Zurich accept Doe Run's global funding proposal based upon available policy limits and the reasonable settlement value of plaintiffs potentially covered by the Policies. However, Zurich disregarded this advice, and not only declined Doe Run's proposal for a percentage contribution, but also declined to contribute funds for potentially covered plaintiffs as it had in prior mediated Bronson/Smoger settlements. Moreover, the record reflects, in rejecting Doe Run's proposal, Zurich was aware Doe Run might settle separately if Fluor did not contribute and that Doe Run could not likely fund plaintiffs' $60 million offer on its own. ECF No. 382-102, Ex. 100, at 19. It is also undisputed Zurich had no settlement authority when it attended the November 2010 mediation.

Although Zurich argues it did not commit funding because it needed to investigate the number of covered plaintiffs, Fluor offers evidence disputing this excuse. Here, the record shows Zurich's coverage counsel, Jolynn Pollard, had already provided individual summaries of the Bronson/Smoger suits to Zurich on June 30, 2010. ECF No. 431-15, Exhibit 146. Moreover, the record also reflects that even after completing its plaintiff-specific investigation and evaluation on December 1, 2010, Zurich still did not commit to funding.¹⁵

15 Zurich claims it was prevented from committing funding after mediation because its other insured-Fluor-was not included in Doe Run's separate settlement. However, there is a genuine dispute as to Zurich's claim as Fluor provides evidence that in a similar situation, in 2009, Doe Run threatened to carve Fluor out of the Browning/Dawson settlement, but Zurich nonetheless contributed funding-and Fluor was included in the settlement.

Finally, in support of its motion for summary judgement on the third element of BFFS, Zurich offers evidence Fluor never made a demand upon Zurich to settle the Bronson/Smoger suits. Zurich argues the absence of such a demand is persuasive evidence Zurich did not act in bad faith. In Fluor's Response in Opposition to Zurich's Partial Motion for Summary Judgment, Fluor disputes this assertion, stating it made various demands on Zurich to settle the cases. The Court has examined the evidence offered by Fluor and finds many of Fluor's proffered examples fail to constitute clear and specific demands.¹⁶ However, Fluor further offers the Declaration of its coverage counsel, John Wilson, in opposition. Mr. Wilson avers that on November 12, 2010, he told Zurich to be prepared to contribute to a settlement, and later reiterated Fluor's demand for settlement in two other telephone conversations with Zurich. ECF No. 427 at ¶¶ 6,7.

16 In Bonner v. Automobile Club Inter-Insurance Exchange, the Missouri Court of Appeals determined that no demand for settlement had been made where the statements regarding settlement were "overly vague as to what settlement is sought" and did not "contain[] any information from which an amount of settlement can be gleaned." 899 S.W. 2d 925, 928 (Mo. Ct. App. 1995); Purscell, 959 F. Supp. 2d at 1202. Although Bonner preceded Scottsdale, 448 S.W. 3d at 827, which clarified that a demand for settlement is a highly relevant factor, not an essential element of BFFS, the Court finds Bonner instructive in evaluating whether a demand is sufficient under Missouri law. Here, Fluor maintains it demanded Zurich settle, but the Court finds Fluor's allegations of its purported demands too vague to constitute a definitive demand for settlement. For example, Fluor alleges it demanded settlement in a November 12, 2010 conversation between Zurich's claims analyst, Zurich's counsel and Fluor. Fluor cites to the following notes of this conversation, made by Zurich's claims analyst, Brad Rausa: "DR hinted that if Fl doesn't contribute, DR would settle out and leave Fl to defend case;" "Release language-complete release of all [defendants];" and "Prefer that [Fluor] not have to take lead on defense." ECF No. 430-9 at 6. The Court does not find these notes constitute a specific and clear demand by Fluor.

To determine whether a genuine issue of fact exists, the Court considers whether no reasonable jury could find in favor of non-movant Fluor on the third element of BFFS. Construing the evidence recited above in a light most favorable to Fluor, the Court finds a reasonable jury could find in Fluor's favor and conclude Zurich had a reasonable opportunity to settle but acted in bad faith in failing to contribute funding to the global settlement. Moreover, as the parties offer opposing evidence on the existence of a demand for settlement by Fluor, this clearly constitutes a disputed issue for trial.¹⁷ As with Fluor's cross-motion for summary judgment, the Court will deny Zurich's Motion for Partial Summary Judgment on Fluor's third element of BFFS and on Fluor's Second Cause of Action for BFFS.

17 As noted previously in discussing Zurich's Motion to Exclude the Wilson Declaration, Rule 4-3.7(a) prohibits a lawyer from acting as an advocate at a trial in which the lawyer is likely to be a necessary witness. Should Fluor seek to present Mr. Wilson's testimony at trial, Mr. Wilson will be required to step down as an attorney in this case in favor of admission of this evidence in order to comply with the ethical rule.

In denying the parties' cross motions, the Court echoes the guidance articulated in Zumwalt, that "[b]ad faith is . . . a state of mind, indicated by acts and circumstances . . . . Each case must stand and be determined upon its particular state of facts." Zumwalt, 228 S.W.2d at 754. The question of bad faith is inherently factual, rendering the Court's ability to determine its existence as a matter of law elusive. See Truck Ins. Exch., 162 S.W.3d at 95 ("We can envision a fact situation where we could decide as a matter of law that an insurer was guilty of acting in bad faith regarding its refusal to settle. But this is not such a case."). This is a complex case with an extensive litigation history. It is made even more complex as the insurer is defending under a reservation of rights for two insured defendants with a conflict of interest between them. The Court has diligently reviewed the voluminous pleadings and evidence presented. Both parties ask the Court to make multiple inferences regarding the other's state of mind in order to prevail on their motion. However, cases where the underlying issue is one of motivation, intent, or some other subjective fact are particularly inappropriate for summary judgment, Ganaway, 795 S.W.2d at 562, and this Court finds the facts submitted here require submission to a jury.

2. Fluor's Bad Faith Failure to Defend Claim

Fluor's Second Cause of Action in its Counterclaim is entitled "Breach of the Covenant of Good Faith and Fair Dealing-Bad Faith Failure to Settle and Defend." ECF No. 42 (emphasis added). Fluor seeks punitive damages on its claims in Count Two. In its motion for Partial Summary Judgment, Zurich argues it is entitled to summary judgment on, and asks the Court to dismiss Fluor's Bad Faith Failure to Defend claim with prejudice. Fluor argues dismissal is proper as, in Missouri, there is no tort for bad faith failure to defend. Zurich further contends that to the extent Fluor's bad faith failure to defend is any claim at all-it is duplicative of Fluor's Breach of the Duty to Defend claim in Count One of Fluor's Counterclaim, and Fluor's Unreasonable Refusal to Pay claim in Count Three.

In response, Fluor does not oppose the arguments offered by Zurich to bar its bad faith failure to defend claim. Instead, Fluor maintains it did not plead bad faith failure to defend as a standalone cause and does not intend to make such a claim. Fluor states its Second Cause of Action is for bad faith failure to settle and it seeks relief only under that theory.

A claim for bad faith failure to defend and indemnify is actionable only as a breach of contract claim and not as a tort claim. Cincinnati Ins. Co., 2013 WL 12097460, at *1; See also Quick,65 F.3d at 744 ("In Missouri, a breach of the duty to defend sounds in contract, while a breach of the duty to settle sounds in tort."). Punitive damages are not recoverable under Missouri law for breaches of contract, "even where the breach is intentional, willful, wanton or malicious." Peterson v. Continental Boiler Works, Inc., 783 S.W.2d 896, 903 (Mo. banc 1990). '"An insured cannot recast a contract claim as a . . . tort claim under Missouri law."' Hullverson Law Firm, P.C. v. Liberty Ins. Underwriters, Inc., No. 4:12-CV-1994 CAS, 2013 WL 3802517, at *1 (E.D. Mo. July 22, 2013) (quoting Wiles v. Capitol Indem. Corp., 280 F.3d 868, 870 (8th Cir. 2002)).

By asserting a bad faith failure to defend in its Second Cause of Action, Fluor is either attempting to recast a breach of contract claim as a tort claim seeking punitive damages, or duplicating its Breach of Duty to Defend claim expressly plead in Count One or Fluor's Unreasonable Refusal to Pay claim in Count Three. As a result, Fluor's counterclaim for bad faith refusal to defend is either redundant, and so may be stricken under Federal Rule of Procedure 12(f) or is subject to dismissal as an impermissible attempt to convert a breach of contract claim to a tort claim. See Cincinnati Ins. Co., 2013 WL 12097460, at *1; Fed. R. Civ. P. 12(f). Under either theory, Fluor's Bad Faith Failure to Defend Cause of Action is dismissed with prejudice.

Fluor asserts its bad faith duty to defend claim was not pleaded as a standalone cause. Fluor asks the Court not to strike the allegations related to bad faith failure to defend listed in the Second Cause of Action as they "relate to a viable cause of action." ECF No. 425 at 2. Fluor does not identify which viable cause of action it is referencing. To the extent the allegations relate to Fluor's Breach of Duty to Defend claim in Count One, or Unreasonable Refusal to Pay claim in Count Three, the Court will allow the allegations to remain. However, the allegations do not give rise to a tort claim or punitive damages, and therefore will be deemed stricken with regard to the BFFS claim in Count Two.

3. Fluor's prayer for damages -Weighted Cost of Capital

In its Motion for Partial Summary Judgment, Zurich seeks summary judgment on Fluor's request for weighted average cost of capital, as set forth in Fluor's proposed Amended Counterclaim. Zurich argues Fluor's request for "weighted average cost of capital" (WACC) is equivalent to a claim for prejudgment interest and is barred under Missouri law. At the time Zurich filed its Motion for Partial Summary Judgment, Fluor's Motion to Amend Counterclaim was still pending before the Court. In its Memorandum and Order [ECF No. 399] denying Fluor's Motion to Amend, the Court noted Fluor's proposed Amended Counterclaim's prayer for judgment sought to amend the paragraphs seeking consequential damages for each cause of action asserted by Fluor. Specifically, for Counts One, Two, and Three, Fluor amended its Counterclaim by adding a new request for damages it denominated as "the resulting lost weighted cost of capital." The Court, however, found Fluor failed to establish the good cause required by Rule 16(b) for amendment, and denied Fluor's Motion for Leave to Amend. Accordingly, the Court has previously ruled on this issue, denying amendment of Fluor's Counterclaim and barring the inclusion of Fluor's request for "weighted average cost of capital" ("WACC") damages. Thus, the Court need not address the parties' respective arguments and will deny Zurich's request for summary judgment as to the WACC damages as moot.¹⁸

18 In its Response in Opposition to Zurich's Motion for Partial Summary Judgment, Fluor's argument improperly ignores the Court's ruling on Fluor's Motion to Amend (which was filed prior to Fluor's Response in Opposition), denying amendment of Fluor's Counterclaim to include WACC damages. Instead of acknowledging the Court's explicit ruling, Fluor offers arguments distorting the Court's explicit language of denial in an attempt to reinsert the issue of WACC. As noted above, the Court will not address Fluor's further arguments on WACC damages.

E. Fluor's Motion for Summary Judgment on Zurich's First, Second, and Third Causes of

Action

Fluor has filed an additional Motion, asking the Court to grant summary judgment as to the remaining portions of Zurich's First, Second, and Third Causes of Action.¹⁹ The First, Second, and Third Causes of Action in Zurich's Complaint each seek a declaration that Zurich had no duty to defend the Herculaneum Claims.²⁰ Fluor argues because there is no legitimate dispute Zurich had a duty to defend Fluor in the Herculaneum claims at issue here, the declarations sought by Zurich fail as a matter of law.

19 In its Memorandum and Order dated September 30, 2019, the Court dismissed Zurich's First, Second and Third Causes of Action insofar as they sought a declaration that Zurich's Policies do not provide coverage for the indemnity of the Herculaneum Lawsuits. At that time, the Court noted Fluor was not seeking dismissal of the portions of Zurich's First, Second and Third Causes regarding Zurich's defense of Fluor.

20 Specifically, the first cause of action states "Zurich is entitled to a judicial declaration that the Zurich Policies did not and do not provide coverage for the defense . . . of the Alexander/Pedersen/Heilig litigation." ECF No. 1 at ¶ 32. The second cause of action seeks a declaration that "Fluor was not and is not entitled to defense . . . under the Zurich Policies for the Herculaneum Claims based upon the reservations of rights asserted by Zurich in response to the Fluor tenders . . . ." Id. at ¶ 36. The third cause of action alleges "Zurich is entitled to a declaratory judgment declaring that: Fluor - that is, New Fluor, has no right to defense . . . from Zurich for the Herculaneum Claims because it is not an insured under the Zurich Policies." Id. at ¶ 42.

Fluor contends the Herculaneum Claims triggered Zurich's duty to defend under the Policies at the outset of each case and Zurich acknowledged this duty and defended the claims. Fluor further asserts that Zurich's duty, once triggered at the outset, continued until all the Herculaneum Claims were resolved in 2014 as Zurich never attempted to extinguish its duty to defend before the claims were settled. Specifically, Fluor argues Zurich never took the required step of obtaining a court's determination that the claims were not covered under the Policies. Moreover, Fluor argues that even if Zurich obtains a declaration from this Court extinguishing its duty to defend, Zurich would only be relieved of its duty to defend going forward, not retroactively.

In response, Zurich maintains Fluor has failed to establish Zurich had a duty to defend. Zurich argues its decision to defend Fluor in the Herculaneum Claims did not constitute an admission by Zurich that coverage existed. Zurich also disputes that a court declaration was required to terminate its duty to defend. Zurich argues that during the litigation, additional facts came to light extinguishing Zurich's duty to defend without the need to seek a court's ruling. Zurich then discusses the various bases upon which it challenges coverage under the Policies.

In its Reply, Fluor claims Zurich confirmed its duty to defend by providing a defense, reimbursing Fluor for defense fees and costs, and contributing to settlements for potentially covered plaintiffs. Fluor argues that while an insurer defending under a reservation of rights may be able to extricate itself from its duty to defend its insured based on facts that came to light during litigation, the insurer must still take affirmative steps to effectuate the termination through the courts. Moreover, Fluor argues because Zurich never took any steps to withdraw from or terminate its duty to defend Fluor, the coverage arguments offered by Zurich in its Response are irrelevant.

'"The duty to defend is broader than the duty to indemnify.'" McCormack Baron Mgmt. Servs., Inc. v. Am. Guarantee & Liab. Ins. Co., 989 S.W.2d 168, 170 (Mo. 1999) (quoting Butters v. City of Indep., 513 S.W.2d 418, 424 (Mo. banc 1974)). "To suggest that the insured must prove the insurer's obligation to pay before the insurer is required to provide a defense would make [the duty to defend] provision a hollow promise . . . ." McCormack, 989 S.W.2d at 170. "The duty to defend arises whenever there is a potential or possible liability to pay based on the facts at the outset of the case and is not dependant [sic] on the probable liability to pay based on the facts ascertained through trial." Id. The duty to defend potentially insured claims arises "even though claims beyond coverage may also be present." Advantage, 449 S.W.3d at 22 (citing Truck Ins. Exch., 162 S.W.3d at 79).

The duty to defend is determined at the outset by comparing the language of the insurance policy with the allegations in the complaint. McCormack, 989 S.W.2d at 170; see Butters, 513 S.W.2d at 424; Zipkin v. Freeman, 436 S.W.2d 753, 754 (Mo. banc 1968). If the complaint merely alleges facts that give rise to a claim potentially within the policy's coverage, the insurer has a duty to defend. McCormack, 989 S.W.2d at 170-71; see Butters, 513 S.W.2d at 424; Zipkin, 436 S.W.2d at 754. Any uncertainty as to the policy's coverage should be decided in favor of the insured. Liberty Mut. Ins. Co. v. FAG Bearings Corp., 153 F.3d 919, 924 (8th Cir. 1998) (citing Reliance Ins. Co. v. Shenandoah South, Inc., 81 F.3d 789, 791-92 (8th Cir. 1996)).

If there is any possibility of coverage-no matter how unlikely that possibility may be-the duty to defend persists. Charter Oak Fire Ins. Co. v. Nelson, No. 13-6085-CV-SJ-ODS, 2014 WL 5107025, at *5 (W.D. Mo. Oct. 10, 2014). "To extricate itself from a duty to defend the insured, the insurance company must prove that there is no possibility of coverage." Kirk v. Cont'l W. Ins. Co., 123 S.W.3d 259, 264 (Mo. Ct. App. 2003) (citing McCormack, 989 S.W.2d at 170); see also Zurich Am. Ins. Co. v. U.S. Eng'g. Co., No. 18-cv-00933, 2012 WL 13028219, at *4 (W.D. Mo. May 30, 2012) ("[O]nce it is determined that an insurance policy does not provide coverage for a claim, an insurer's duty to defend expires.").

In addition, a court's declaratory judgment ruling that a claim is not covered only relieves the defending insurer of its duty to defend the case going forward, it does not nullify the initial determination that the claim was potentially covered. Liberty Mut. Ins. Co., 153 F.3d at 923-24. Thus, when a defending insurer obtains a court's declaration a claim is not covered under a policy, the insurer is only relieved of its duty to defend from the date of the court's order, not retroactively.

As noted above, the duty to defend arises whenever there is a potential liability to pay based on the facts at the outset of the case and is determined by comparing the language of the insurance policy with the allegations in the complaint. The determination is made by the insurer when the claim is tendered by the insured.

Here, Fluor tendered the Herculaneum claims at issue in this matter to Zurich. Zurich, faced with uncertainty about coverage, activated its right to defend under the Policies, and reserved its right to seek a declaration that it had no duty to defend.²¹ In agreeing to defend Fluor, Zurich issued reservation of rights letters which acknowledged the allegations of the Herculaneum complaints. The letters stated the complaints alleged liability against Fluor and Doe Run, based on claims of bodily-injury to various residents and children of Herculaneum, Missouri, caused by exposure to lead, metals and other toxic substances from the Doe Run Smelter. The reservation of rights letters also acknowledge the Zurich Policies:

21 The Court notes at the time most of the claims at issue here were tendered to Zurich, Zurich was aware of a California court's ruling in 2004 regarding Zurich's duty to defend a different set of Herculaneum claims. In Zurich Ins. Co. v. Hartford Accident and Indemnity Co. et. al., Case No. 791336, Superior Court of California, County of Orange, the Superior Court determined that Zurich had a duty to defend Fluor in the Herculaneum actions because "[t]he complaints in the Herculaneum actions contain allegations that could lead to liability being imposed on Fluor as the 100% shareholder of St. Joe from 1981 to 1994." ECF No. 395 at ¶ 12; ECF No. 395-5 at 12. The court underscored that finding in a subsequent order, ruling that Zurich has a "100% duty" to defend Fluor under the Policies. ECF No. 395-5 at 15.

generally provide that Zurich will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of:

A. bodily injury or
B. property damage

to which this insurance applies, caused by an occurrence, and [Zurich] shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage . . . .

See ECF No. 395, Exhibits 72-73, 88-103.

Comparing the allegations of the complaints to the language of the Policies, Zurich's duty to defend was triggered when it was faced with what Zurich itself characterized in its reservation of rights letters as "potentially implicated claims." Further, the record reflects that in defending Fluor, Zurich considered a portion of the plaintiffs in the Herculaneum claims as potentially covered under its Policies when evaluating its contribution to settlements.

The reservation of rights letters also permitted Zurich "the right to withdraw from its agreement to defend Fluor and/or to seek to extinguish any alleged defense obligation if it becomes apparent that there is no potential for coverage of any of the claims asserted . . . ." See ECF No. 395, Exs. 72-73, 91-103. It is undisputed, however, Zurich did not exercise its "right to withdraw" from defending Fluor or "seek to extinguish" its defense obligation by obtaining a judicial declaration before the Herculaneum claims at issue here were resolved. Because the possibility of coverage arose when the Herculaneum Claims were tendered, and persisted until the Claims were resolved, the Court finds Zurich's duty to defend Fluor continued until the resolution of the lawsuits.

When a defending insurer seeks a declaratory judgment regarding coverage under the policy, the court's role is to eliminate uncertainty prospectively as to the insurer's continuing obligation to provide a defense. See Liberty Mut. Ins. Co., 153 F.3d at 923- 924. Any resolution of the question of coverage will not retroactively eliminate the insurer's duty to defend the insured. Id. Zurich is no longer under a continuing obligation to defend the Herculaneum Claims, which were resolved prior to the filing of this suit. Therefore, based on the facts, the Court cannot provide prospective relief as to Zurich's duty to defend, and in accordance with Missouri law, the Court may not provide retrospective relief and nullify the consequences of Zurich's initial determination that the claims may have been potentially covered. Therefore, the Court will grant summary judgment against Zurich with respect to Zurich's First, Second, and Third Causes of Action in its Complaint.

Accordingly,

IT IS HEREBY ORDERED that Fluor Corporation's Motion for Summary Judgment on Fluor's Second Cause of Action for Bad Faith Failure to Settle in its Counterclaim [ECF No. 379] is DENIED.

IT IS FURTHER ORDERED that Zurich's Motion for Partial Summary Judgment against Fluor [ECF No. 386] is GRANTED in part and DENIED in part as follows: Zurich's Motion for Summary Judgment on Fluor's Second Cause of Action for Bad Faith Failure to Settle in its Counterclaim is DENIED. Zurich's Motion for Summary Judgment on Fluor's Second Cause of Action for Bad Faith Failure to Defend is GRANTED, and Fluor's claim for Bad Faith Failure to Defend is DISMISSED with prejudice. Zurich's Motion for Summary Judgment on Fluor's request for Weighted Average Cost of Capital damages is DENIED as moot.

IT IS FURTHER ORDERED that Fluor's Motion for Summary Judgment against Zurich with respect to the First, Second and Third Causes of Action in Zurich's Complaint [ECF No. 389] is GRANTED. Zurich's First, Second, and Third Causes of Action are DISMISSED with prejudice.

IT IS FURTHER ORDERED that Fluor's requests for oral argument on its Motions for Summary Judgment are DENIED.

IT IS FURTHER ORDERED that Zurich's Motion to Exclude the Declaration of John M. Wilson [ECF No. 455] is DENIED.

Dated this 21st Day of September 2020.

/s/_________

E. RICHARD WEBBER

SENIOR UNITED STATES DISTRICT JUDGE