             IN THE SUPREME COURT OF THE STATE OF DELAWARE


BORGWARNER, INC. and      §
BORGWARNER MORSE TEC LLC, §                             No. 413, 2016
                          §
     Defendants Below,    §                             Court Below—Superior Court
     Appellants,          §                             of the State of Delaware
                          §
     v.                   §                             C.A. No. N15M-05-009
                          §
FIRST STATE INSURANCE     §
COMPANY, NORTH RIVER      §
INSURANCE COMPANY, and    §
OWENS CORNING/FIBREBOARD §
ASBESTOS PERSONAL INJURY §
TRUST,                    §
                          §
     Plaintiffs Below,    §
     Appellees.           §

                                  Submitted: May 3, 2017
                                  Decided: May 17, 2017

Before STRINE, Chief Justice; VALIHURA, VAUGHN, and SEITZ, Justices;
BOUCHARD, Chancellor, constituting the Court en Banc.

                                               ORDER

          This 17th day of May, 2017, it appears to the Court that:

          (1)    BorgWarner, Inc. and BorgWarner Morse TEC LLC (“BorgWarner”)

have appealed from the Superior Court’s July 14, 2016 Opinion and Order, which

denied BorgWarner’s request for reconsideration of the Superior Court





    Sitting by designation under Del. Const. art. IV, § 12.
Commissioner’s March 22, 2016 Order granting in part BorgWarner’s motion to

compel the Owens Corning/Fibreboard Asbestos Personal Injury Trust (“Trust”) to

comply with a May 6, 2015 subpoena served by BorgWarner. The Commissioner’s

order also denied in part North River Insurance Company’s (“North River”) and First

State Insurance Company’s (“First State”) motion to quash the subpoena. We affirm

the Superior Court’s judgment, which refused to reconsider the Commissioner’s

Order, on the ground that North River waived any confidentiality protections by

using certain of the materials subject to subpoena in a later proceeding in federal

court.

         (2)   BorgWarner is a defendant in an Illinois state court action initiated by

its insurers. In the Illinois case, the parties dispute whether certain of BorgWarner’s

insurance policies required BorgWarner to obtain the written consent of its insurers

before incurring costs defending against asbestos claims. Although the Illinois court

ruled that the plain language of the policies required the prior written consent by its

insurers before incurring defense costs, the court nonetheless allowed the case to go

forward if BorgWarner could prove through insurance company custom and practice

that insureds are permitted to incur defense costs without first obtaining the insurer’s

consent.1



1
 Cont’l Cas. Co. v. BorgWarner, Inc., No. 04 CH 1708 (Ill. Cir. Ct. Sept. 30, 2013) (Super. Ct.
Docket Item 4) (Hearing Trans. at 149-53); see also Cont’l Cas. Co. v. BorgWarner, 2016 WL
1169107, at *1-2 (Del. Super. Mar. 22, 2016).
                                              2
       (3)    After the Illinois decision, BorgWarner issued a Delaware subpoena to

the Trust. The Trust was set up in 1985 as part of a settlement agreement—referred

to as the Wellington Agreement—to manage an avalanche of asbestos claims facing

insureds and their insurers. The Wellington Agreement established a non-profit

claims processing center that coordinated claim payments on behalf of asbestos

producers, and established arbitration procedures to resolve claims the parties could

not settle.2 BorgWarner sought materials from a private arbitration under the

Wellington Agreement between Owens-Corning and a number of its insurers, which

included North River. BorgWarner hoped to discover evidence used during the

private arbitration that supported its custom and practice claim in the Illinois suit.

After North River and First State objected to the subpoena,3 BorgWarner moved to

compel compliance in the Superior Court. North River and First State intervened

and responded by moving to quash the subpoena.

       (4)    After narrowing the scope of the subpoena to the information directly

relevant to the Illinois action, a Superior Court Commissioner found that confidential

information generated by the arbitration should be protected from subpoena.

According to the Commissioner, whose decision was adopted by the Superior Court,

the public policy of Delaware favors arbitration, and allowing third parties to



2
 N. River Ins. Co. v. CIGNA Reins. Co., 52 F.3d 1194, 1201 (3d Cir. 1995).
3
 The Trust also objected, arguing that it could not provide the documents until the insurers’
objections were resolved.
                                             3
subpoena confidential arbitration materials would undermine the State’s interest in

ensuring “speedy, efficient and secure arbitration to resolve disputes.”4 But, the

Commissioner also ruled that North River waived the confidentiality of certain

arbitration materials because it used those materials in later federal court litigation

with another insurer.5        As the Commissioner found, “North River cannot use

evidence that was created during [arbitration proceedings] in litigation where it was

the plaintiff and then argue it is still confidential and not subject to disclosure in

unrelated litigation.”6

       (5)     On appeal to our Court, BorgWarner initially challenged the

Commissioner’s order, adopted by the Superior Court, on two main grounds: (a) the

materials generated by the Wellington Agreement arbitration were not confidential,

and the public interest in promoting arbitration did not outweigh the court’s interest

in enforcing subpoenas; and (b) the scope of the waiver should have extended to all

arbitration materials relating to the same subject matter, as opposed to the narrower

categories of materials in the Commissioner’s order. At oral argument before our

Court, however, BorgWarner narrowed the focus of its subpoena to the testimony of

the three individuals relied on in the federal court proceedings—Graves Hewitt,




4
  Cont’l Cas. Co., 2016 WL 1169107, at *3.
5
  N. River Ins. Co. v. Phila. Reins. Corp., 831 F. Supp. 1132 (D.N.J. 1993), aff’d in part, rev’d in
part sub nom. N. River Ins. Co. v. CIGNA Reins. Co., 52 F.3d 1194 (3d Cir. 1995).
6
  Cont’l Cas. Co., 2016 WL 1169107, at *4.
                                                 4
Claude James Ayliffe, and William G. Carson. The Third Circuit referred to their

testimony in its decision:

          After examining the policy language, the arbitrator determined, “The
          word ‘consent’ and associated words employed in [the insurance
          policy] are not to be given their plain or literal meanings....” Arb. Op.
          at 23. Having implicitly found an ambiguity, he looked to extrinsic
          evidence to explain the meaning of consented-to costs. He noted that
          credible evidence established that these words have particular meaning
          within the insurance industry and relied on testimony that the condition
          of consent is a term of art within the insurance industry. Id. For
          example, Graves Hewitt, an insurance consultant and former Chief
          Executive Officer of First State Insurance Company, stated that it
          would be “very rare” for an insured to make a formal request of an
          insurer for consent. Id. at 20. C. James Ayliffe, a retired British
          insurance executive “whose substantial career was involved within the
          American insurance market,” testified that he had never experienced a
          case where the insured would go to the excess carrier for consent to
          costs being incurred. Id. And William G. Carson, Director of Home
          Office Underwriting for Crum & Forster, explained that a policy
          requirement that written consent be obtained before costs are incurred
          does not necessarily constitute a condition to the payment of costs. Id.
          Therefore, on the basis of the language of the policy and industry
          practice, the arbitrator concluded that the inconsistent provisions could
          not establish an express exclusion of coverage. Id. at 23. We believe
          the arbitrator’s interpretation is not unreasonable under Ohio law and
          gives effect to the inconsistent requirements of prior consent and
          exhaustion of underlying limits in the policy.7

          (6)    BorgWarner stated at oral argument that it would be satisfied with the

testimony of these individuals. Because of the narrowing of the dispute at oral

argument, we need not reach the other issues raised in this appeal because it can now

be decided solely on the grounds of waiver found by the Commissioner. The



7
    N. River Ins. Co., 52 F.3d at 1209 (footnote omitted).
                                                   5
Commissioner ordered that the Trust produce “all evidence in its possession used by

North River under the Wellington ADR, in whatever form, that has been publicly

disclosed, released, or used in other previous litigation.”8 Neither North River nor

First State challenged the Commissioner’s ruling on appeal. Now that BorgWarner

has narrowed its request to the testimony of the three individuals, we find that

BorgWarner’s revised request falls squarely within the Commissioner’s Order.

Thus, to the extent the testimony of the three individuals exists, the Trust must

produce complete copies of their testimony to BorgWarner under the confidentiality

agreement in place between the parties in the Illinois action.

          NOW, THEREFORE, IT IS ORDERED that the Commissioner’s March 22,

2016 Order as adopted by the Superior Court in its July 14, 2016 Opinion and Order,

is AFFIRMED.

                                              BY THE COURT:

                                              /s/ Collins J. Seitz, Jr.
                                                     Justice




8
    Id. at *5.
                                          6
