NC Federal Court Says Not All Asbestos Claimants Must Be Joined in Coverage Action

NORTH CAROLINA – In October 2018, a jury in the Middle District of North Carolina awarded more than $32 million in a claim against Covil Corporation based on a decedent’s exposure to asbestos-containing insulation sold by Covil. Since then, Covil, its insurers, and other parties who have brought asbestos claims against Covil have been engaged in litigation regarding how Covil’s only remaining assets — its insurance policies — will apply to the asbestos claims.

In the  decision, the federal district court denied Covil’s motion to dismiss a coverage action filed by Zurich American Insurance Company. Covil argued that its recently-appointed receiver was a necessary party to the action, as were several claimants from South Carolina who were not named defendants in Zurich’s coverage action. As to the receiver, the court observed that Covil was already acting through its receiver by participating in the litigation, and there was no need to add the receiver as an individual party.

As to the South Carolina claimants, the court noted that, underlying claimants are necessary parties when an insurer brings a declaratory judgment action against its insured. The courts presume that the insured defendant will not adequately protect the claimants’ interests. Moreover, coverage actions have the potential to eliminate a source of funds to compensate the claimants, and they are therefore entitled to some input in the coverage decision. Additionally, if not joined, claimants may not be bound by the court’s decision in the coverage action, thus causing the same issue to be litigated again in a later action.

However, the court did not find that reasoning persuasive here. Several North Carolina claimants were named as defendants in Zurich’s coverage action, and their interests were aligned with those of the South Carolina claimants. Further, Covil’s insurer had already filed a coverage action regarding the  claimants in South Carolina, and the federal district court there re-aligned the claimants as plaintiffs with Covil against the defendant insurers because it found that they shared the same objective of maximizing available coverage. The court noted that there was a risk the South Carolina claimants would not be bound by a decision in Zurich’s action, but Zurich assumed that risk by not including the South Carolina claimants. Thus, Zurich did not fail to add any necessary party, and Covil’s motion to dismiss was denied.