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Case: 1:13-cv-06126 Document #: 4 Filed: 08/28/13 Page 1 of 9 PageID #:6

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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIYISION
HENNESSY INDUSTzuES, INC., for itself and as successor-in-interest to Ammco Tools, Inc., a Delaware corporation,

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Plaintiff,
v.

l3cv6 126 Judge Marvin E. AsPen


Magistrate JeffreY Cole

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, A


Pennsylvania Corporation, Defendant.

COMPLAINT
Plaintife Hennessy Industries, lnc., for itself and as successor-in-interest to Ammco
Tools, Inc., (collectively ooHennessy") by its attorneys, and for its Complaint against Defendant National Union Fire Insurance Company of Pittsburgh, Pa. ('National Union") states as follows:

NATURE OF ACTION

l.

Hennessy brings this action against National Union pursuant to

2l5ILCS

5/155.

National Union, itself and through its agent Resolute Management, Inc. ("Resolute"), has
unreasonably and vexatiously refused

to pay settlements, attorneys' fees and costs,

expert

witness fees, and other defense expenses in connection with underlying lawsuits against
Hennessy alleging bodily injury from asbestos exposure.

2.

In 2008, National Union and Hennessy entered into a confidential Cost Sharing

Agreement ("CSA") further defining the parties' rights and obligations under policies of
insurance issued and/or sold by National Union to Hennessy. The CSA is governed by Illinois

law and contains an arbitration provision providing for certain disputes between Hennessy and

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National Union to be submitted to binding arbitration governed by the Federal Arbitration Act, 9
U.S.C. Sec. 1.

3.

Pursuant to the procedure outlined in the CSA, Hennessy sent a letter to National

Union identiffing numerous disputes involving payments improperly withheld by National


Union and other breaches of the CSA and demanding that National Union engage in arbitration to resolve these disputes. Illinois law forbids the arbitration of bad faith claims under 215 ILCS

5i155.

See, e.g.,Amerisure

Mut. Ins. Co. v. Global Reinsurance Corp. of Am.,399

I11.

App. 3d

610,619 (Ill. App. Ct. 1st Dist. 2010).

PARTIES

4.

Hennessy

is a Delaware corporation with its principal place of

business in

Tennessee. Hennessy's corporate headquarters is located in Nashville, Tennessee. Hennessy is

the successor-in-interest to policies of insurance issued in Illinois to Ammco Tools, Inc., which
had its headquarters in Illinois.

5.
companies

National Union is a Pennsylvania corporation with its principal place of business


insurance

in New York, New York. National Union is a member of the AIG Group of

("AIG") and is licensed by the Illinois Department of Insurance to do business in

Illinois.

JURISDICTION AND YENUE

6.
$75,000.

This Court has subject matter jurisdiction pursuant to 28 U.S.C. g 1332(a)(1)

because there is complete diversity between the parties and the amount

in controversy exceeds

7.

This Court has personal jurisdiction over National Union because

it

transacts

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business in the State, is licensed by the Illinois Insurance Department, and issued contracts to

provide insurance to Hennessy, which, at the time of issuance, had its principal place of business in Illinois.

8.

Venue is proper pursuant to 28 U.S.C. $ 1391(b)(3) because National Union is

subject to personal jurisdiction in this

judicial district. BACKGROUND

9.
country.

Underlying plaintiffs have brought hundreds

of

lawsuits against Hennessy


throughout the

alleging bodily injuries from exposure

to

asbestos

in various jurisdictions

10.

Those plaintiffs allege exposure to asbestos as a result of the operation of brake

shoe arcing machines and brake drum lathes manufactured by Ammco, Hennessy's predecessor

in interest. None of the machines themselves contain asbestos. The use of the brake shoe arcing
machine in conjunction with brake shoes, an unknown percentage of which may have contained
asbestos, is alleged to have caused

injury.
insurance

11.
1984

National Union issued two primary commercial general liability

policies to Ammco: (1) Policy

No.GLA

116-09-93, covering the policy period of August

l,

to August 1, 1985, with limits of liability of $l million each occurrence and in

the

aggregate; and (2) Policy No. GLA 117-09-68, covering the policy period of August 1, 1985 to

August 1, 1986, with limits of liability of $1 million each occurrence and in the aggregate
("National Union Policies").

12.

Pursuant to acquisition and merger, Hennessy succeeded to Ammco's rights under

the National Union Policies.

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13.

In April 2008, Hennessy and its primary insurers, National Union and Zurich

American Insurance Company, as successor

in

interest

to Zuich Insurance

Company, U.S.

Branch, entered into the CSA, defining inter alia the rights and obligations of the parties under
the National Union Policies in connection with the underlying asbestos claims.

14. 15.

The CSA contains an arbitration provision, which by its terms and pursuant to law

does not include claims brought under 215

ILCS 51155.

In April 2011, National Union and other AIG insurance companies entered into a

transaction with National lndemnity Company ("NICO") whereby, according to filings with the Securities and Exchange Commission, AIG paid NICO $1.65 billion for a reinsurance policy to cover "the bulk of AIG's net domestic asbestos liabilities," valued at $3.5 billion.

16. 17.

Additionally, effective January 1,2011, NICO assumed responsibility for claims-

handling related to National Union's asbestos liabilities.

NICO delegated its claim-handling responsibilities to its affiliate, Resolute

Management, Inc (ooResolute"). Both NICO and Resolute are direct or indirect wholly-owned subsidiaries of Berkshire Hathaway.

18.

Since

at least April 2011, Resolute has acted as the third-party claims

administrator of National Union's obligations under the CSA and the National Union Policies
and all communications regarding Hennessy's claims have been with employees of Resolute.

19.

Berkshire Hathaway profits by investing the money paid by AIG to assume the

asbestos liabilities and then

by delaying payment and/or breaching its insuring

obligations.

Berkshire Hathaway's Chairman, Warren Buffet, refers


policyholders as the "float."

to the money NICO

owes to

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20.

In his 2011 letter to shareholders accompanying the 2011 Berkshire Hathaway

Annual Report, Buffet described this scheme:

Our insurance operations continued their delivery of costless capital that funds a myriad of other opportunities. This business produces "float" - money thqt doesn't belong to tts, but that we get to invest for Berkshire's benefit. And if we pay out less in losses and expenses than we receive in premiums, we additionally earn an underwriting profit, meaning thot float costs us less than nothing.
(Emphasis added).

21. 22.

Included in the "costless capital" or oofloat" that Buffet refers to is more than $2.5

million National Union owes under the CSA. Before Resolute assumed claims-handling responsibility for National Union's

liabilities, National Union generally (although not entirely) complied with the CSA. Since April
2011, Resolute has caused National Union repeatedly to breach its obligations under the CSA,
the National Union Policies and

Illinois law.

23.

The breaches include, inter alia,National Union's failure to pay its share of

settlements payments advanced

by Hennessy and subject to reimbursement under the CSA;

National Union's wrongful and arbitrary failure to pay a significant portion of the fees of
Hennessy's defense counsel, all of who are insurer "panel counsel" selected and approved by

Z'xrch and National Union; and National Union's failure to cooperate with Hennessy by
providing usual and customary claims communications, including timely notices of withdrawal
from cases or denials ofcoverage, loss runs, and defense cost detail.

24.

Hennessy has sent National Union various notices demanding payment as well as

a demand for arbitration identifring National Union's breaches and the damages flowing from
those breaches.

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COUNT I (Vexatious And Unreasonable Conduct Aeainst National U+ion)

25. 26.

Hennessy incorporates and realleges the allegations in Paragraphs 1 through 24 as

and for Paragraph 25, as

if the

same were

fully

set out herein.

215 ILCS 51155 provides as follows: $ 155. Attorney fees.

(1) In any action by or against a company wherein there is in issue the liability of the company on a policy or policies of insurance or the amount of loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees, other costs, plus an amount not to exceed any one of the following amounts:
60Yo of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of costs;

(a)

(b)
(c)

$6o,ooo;

the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action.

27. 28. 29.

Under applicable law, the totality

of the circumstances

determines whether

National Union acted vexatiously and unreasonably.

Viewing the totality of the circumstances, National Union's conduct, through the

actions of its agent, Resolute, was, and continues to be, vexatious and umeasonable.

National Union's unreasonable conduct is evidenced by, among other things, its

and Resolute's flagrant and entirely unjustified refusal to honor its obligations under the National

Union Policies, the CSA and applicable Illinois law.

30.

Rather than pay as required under the CSA, National Union Policies and

applicable Illinois law, National Union has forced Hennessy to pay settlements and defense costs

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and to bring an arbitration as a prerequisite to any recovery.

31. 32.
when

There isno bonafide dispute as to National Union's obligations to Hennessy.

It would defeat the purpose of $ 155 to allow National Union to

escape a penalty

it has jeopardized the coverage

that National Union agreed to provide in the National

Union Policies and in the CSA.

WHEREF'ORE, the plaintiff, Hennessy, respectfully requests that this Court enter
judgment in its favor and against National Union; award
penalties pursuant to

it all of its attorneys'

fees, costs and

2l5ILCS 5/155 for National Union's vexatious and

unreasonable conduct;

and award all other just and proper relief.

DEMAND FOR JURY TRIAL


Pursuant to Federal Rule of Civil Procedure 38(b), Hennessy hereby demands a trial by

jury on all issues so triable. HENNESSY INDUSTRIES, [NC., for itself and as successor-in-interest to Ammco Tools,
Inc.

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Angela R. Elbert (#6236964) aelbert@ngelaw.com Jason A. Frye (#6292848) jfrye@ngelaw.com NEAL, GERBER & EISENBERG, IIP Two North LaSalle Street, Suite 1700 Chicago, IL 60602 (312)26e-8000

-AndGita F. Rothschild (Pro Hac Vice pending) Brian J. Osias (Pro Hac Vice pending)

MCCARTER & ENGLISH I.Ip


Four Gateway Center

Mulberry St. Newark, New Jersey 07102


100

(e73) 63e-7e69

Dated: August 28,2013

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NOTIFICATION AS TO AFFILIATES
Pursuant to Local Rule 3.2 and Rule 7.1 of the Federal Rules of

Civil Procedure, Plaintiff


and

Hennessy Industries,

Inc. respectfully submits this corporate disclosure statement

notification as to affiliates: Hennessy Industries, Inc. is a wholly-owned indirect subsidiary of


Danaher Corporation. Danaher Corporation is publicly traded.