Potential indemnitor not indispensable party for PCB insurance case / diversity jurisdiction maintained.

A district court for the Northern District of Illinois, applying the Federal Rules of Civil Procedure and Illinois law, held that a potential indemnitor to a party is not indispensable to a coverage dispute, and thus, not required to be joined, especially where there is no contractual relationship between the potential indemnitor and the insured.

Plaintiff, Magnetek, Inc. (“Magnetek”) was the successor by merger to Universal Manufacturing Corp. (“UMC”), having acquired UMC from its former parent Farley / Northwest Industries, Inc. (“Farley”).  At the time, Farley was a subsidiary of Fruit of the Loom, Inc.  UMC acquired the rights to certain insurance policies, including a least seven policies issued by The Travelers Indemnity Company and The Travelers Casualty and Surety Company f/k/a The Aetna Casualty and Surety Company (“Travelers”).  UMC manufactured florescent light fixtures and ballasts, some of which incorporated PCBs purchased from the Monsanto Company (“Monsanto”).  UMC executed a “Special Undertaking by Purchasers of [PCBs]” which required UMC to defend and indemnify Monsanto for liabilities, claims, and damages arising out of or in connection with the PCBs.

Monsanto was sued by numerous claimants alleging bodily injury and property damage related to PCBs.  Monsanto’s successors demanded that Magnetek, as UMC’s successor, defend and indemnify them in connection with all PCB-related litigation.  Magnetek notified Travelers of the demand and requested that Travelers provide a defense and indemnify Magnetek under the policies.  Travelers did not accept Magnetek’s tender and instead alleged that Velsicol Chemical, LLC (“Velsicol”) was obligated to defend and indemnify Magnetek for the claims as a result of a settlement agreement between Travelers and Velsicol.  The settlement agreement was the result of a coverage dispute between Fruit of the Loom and Travelers in 1999.

Velsicol and Travelers filed suit in the Circuit Court of Cook County, Illinois against Magnetek seeking a declaration that Magnetek had no coverage under the policies.  Magnetek removed the case to federal court on the basis of diversity jurisdiction even though Magnetek and Velsicol were both citizens of Delaware.  Magnetek argued that Velsicol was either a fraudulently jointed or nominal plaintiff or should be realigned as a defendant.  The court disagreed and the case was remanded to state court.  Magnetek then filed the instant coverage case only against Travelers in federal court.

Travelers moved to dismiss the federal case for failure to join a party under Fed. R. Civ. P. 19.  The court disagreed with Travelers’ assertion that deciding the coverage case without Velsicol’s input would impair Velsicol’s ability to protect its interests.  According to the court,  (1) the coverage case was based exclusively on Magnetek’s contracts with Travelers; (2) “potential indemnitors [which the court stated was all Velsicol was at that point] have never been considered indispensable, or even parties whose joinder is required if feasible;” and (3) equity and good conscious required that the action proceed among the existing parties. The court noted that without destroying diversity, Travelers could implead Velsicol as a third-party defendant under Rule 14(a) or that Velsicol could intervene as a defendant under Rule 24.  Magnetek, Inc. v. The Travelers Indem. Co., No. 17 C 3173 (N.D. Ill. Dec. 7, 2017).