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An Allegheny County jury found an $80 million global settlement of more than 500 claims relating to the release of radiation at two Pennsylvania nuclear plants was fair and reasonable, paving the way for the insurance company to have to cover the settlement paid out by two companies that ran the plants. The insurance company had argued the defendants never should have settled, particularly without the insurer’s consent, because the plaintiffs’ claims were based on “junk science” and the defendants would have won at trial. The trial before Judge Robert J. Colville began in earnest Sept. 6 and went to the 12-member jury Sept. 19. They deliberated for two hours before coming back 11-1 with a finding the settlements were fair and reasonable. The underlying case involved in Babcock & Wilcox v. American Nuclear Insurers has a long and storied past that resulted this month in a three-week trial consisting mainly of litigators testifying as to why settlements are made and why this one in particular was or was not fair and reasonable. In 1971, Babcock & Wilcox purchased two nuclear power plants — one in Apollo, Pa., and the other in Parks Township, Pa., from Atlantic Richfield Co. (Arco). The seller agreed to indemnify B&W for obligations arising from events before 1971. In 1994, the parents of Tina Hall, a 24-year-old who died of cancer allegedly from radiation exposure, sued B&W and Arco along with four other plaintiffs for bodily injury, property damage, medical monitoring and punitive damages. Over more than a decade, the claims grew to 245 additional personal injury plaintiffs, 100 property damage plaintiffs and several derivative claims from family members. The two companies were insured by American Nuclear Insurers, or ANI. The insurer initially hired Pepper Hamilton to defend both companies, over the objections of the two companies, which said they may have disputes among themselves as to indemnification of the claims. A bellwether case of eight plaintiffs was tried in the U.S. District Court for the Eastern District of Pennsylvania in 1998. During pretrial proceedings, the plaintiffs offered to settle the case for $100 million for all claimants, but, according to B&W’s court papers, ANI would not entertain the possibility of a settlement. The jury in the bellwether case awarded the eight claimants $36.7 million. The plaintiffs, who were represented by the late Fred Baron of Baron & Budd, increased their settlement demand to $125 million plus $10 million in punitives. ANI again refused to settle and the parties were ordered to mediation by the judge, according to court documents. ANI then sued B&W and Arco in New York regarding its coverage requirements. In 1999, a Western District of Pennsylvania judge granted B&W and Arco’s request for a new trial, but based on what the companies said were “narrow evidentiary grounds.” “When we tried our case over the last few weeks, that was a significant bone of contention as to the significance of that [bellwether] trial as a predictor of future litigation risk because ANI’s position was the trial was set aside and was not much of a predictor,” K&L Gates’ Neal Brendel, counsel for B&W in the latest trial, said. A second trial never happened however, because B&W entered bankruptcy in Louisiana in 2000 because of mounting asbestos claims. A potential global settlement in Hall was reached during the bankruptcy, but ANI objected even though its counsel’s estimated settlement ranges encompassed the proposed settlement amount. The bankruptcy court rejected ANI’s objection and said the settlement was fair and reasonable and that ANI engaged in bad faith, forfeiting its rights to approve settlements, according to court documents. Appeals on the issue delayed the bankruptcy longer than B&W could afford, however, so it reorganized without settling the Hall litigation, saving that for the trial court, the company said in court papers. Brendel said that when the settlement in bankruptcy court collapsed, the bankruptcy judge’s opinion became a nullity. By the time B&W came out of bankruptcy, ANI had allowed B&W to pick separate counsel, so B&W was represented by Paul Hastings and Arco by Dechert. Another mediation was held, but ANI was removed for failure to meaningfully participate, according to court papers. Arco and B&W decided to settle the claims on their own and out of their own pockets. In 2008, B&W paid $52.5 million and Arco paid $27.5 million and the two companies settled any claims against one another. The settlement was approved in the Western District in April 2009. The two companies then looked to be reimbursed by ANI. In 2001, through a declaratory judgment action, Allegheny Common Pleas Court Judge R. Stanton Wettick Jr. determined a total of $320 million in insurance coverage may be available for the Hall litigation. In a July 2011 opinion in advance of the B&W trial, Wettick said, “The issue that I address is under what circumstances will a court require an insurance company, whose policy is found to provide coverage, to reimburse an insured that settled the underlying litigation over the objections of the insurance company.” ANI argued the insureds needed to prove bad faith, where the insureds argued the settlement just had to be fair and reasonable. Wettick sided with the insureds. ANI had been operating under a reservation of rights, which played into Wettick’s answer to the above question. He said allowing the settlement in such a situation protects both parties. It allows the insurance company to continue to make decisions. “However, if the insurance company wants to preserve the option of questioning coverage, it cannot prevent the insured from protecting its interests in capping liability through a settlement that is fair and reasonable,” Wettick said. In an order accompanying the opinion, Wettick said a finding that the settlement was fair and reasonable would require ANI to reimburse B&W and Arco the $80 million unless ANI can show there is no coverage under the policies for reasons unrelated to the provisions giving the insurer sole right to settle. According to ANI’s pretrial memorandum, B&W and Arco had to prove at trial the settlements were fair and reasonable “in order to foist these settlements on ANI.” The insurer said the companies wouldn’t be able to do that because “the radiation injury claims in the Hall action were premised on junk science.” Brendel said he and other plaintiffs counsel in this case typically defend these types of underlying claims, so they had to be careful to disagree with ANI too much on that point. He said they argued that they understood ANI’s position, but other evidence, including the first bellwether verdict, showed there was cause to settle the case. In-house attorneys from B&W and Arco testified as to why they settled, as did Dechert’s Robert Heim, who represented Arco in the underlying matters. Ellen Kittredge Scott of Pepper Hamilton also testified as to her firm’s settlement figure estimates. B&W and Arco’s expert witness was litigation attorney John R. McGinley of Eckert Seamans Cherin & Mellott in Pittsburgh. ANI’s attorney expert witness was John L. Watson of Denver. Brendel said the plaintiffs’ view of the case was that they had to weigh the litigation risk. He said they argued it didn’t matter whether they would have won at trial. They had to look at the potential for a verdict in excess of coverage, punitive damages exposure, the appeal of the underlying cases to the jury and the fact that Baron was the plaintiffs lawyer. ANI, Brendel said, argued radiation doesn’t cause cancer and that the companies would have won the underlying trial based on technical and scientific defenses. Brendel said there was a lot of testimony at this month’s trial about what scientific evidence would have been offered to rebut the plaintiffs in the radiation cases. An attorney for ANI, Jon Hogue of Murray Hogue & Lannis in Pittsburgh, did not return a call for comment. The company was also represented by attorneys at Simpson Thacher & Bartlett. James A. Dattilo of Dattilo & Associates in Pittsburgh represented Arco. He said the case is not over yet, “but the verdict puts B&W and Arco in a much better position.” B&W and Arco filed post-trial motions Thursday seeking more than $11 million in prejudgment interest. Brendel said they would also be seeking attorney fees and costs that hadn’t already been paid by ANI. The insurer had paid $44 million to cover some of Paul Hastings and Dechert’s fees and costs, but the insurer had refused to pay for anything related to the bankruptcy or settlement negotiations, Brendel said.

Contact Gina Passarella at 215-557-2494 or at [email protected]. Follow her on Twitter @GPassarellaTLI.

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