United States Court of Appeals
For the First Circuit
No. 02-2338
LIBERTY MUTUAL INSURANCE COMPANY and
LIBERTY MUTUAL FIRE INSURANCE COMPANY,
Plaintiffs,
v.
NIPPON SANSO K.K. and THE THERMOS COMPANY,
Defendants, Appellants/Cross-Claimants,
v.
HOUSEHOLD INTERNATIONAL, INC.,
Defendant, Appellee/Cross-Claimant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
Before
Boudin, Chief Judge,
Bownes, Senior Circuit Judge,
and Lipez, Circuit Judge.
David E. Springer with whom Dhananjai Shivakumar, Dennis M.
Kelleher, and Skadden, Arps, Slate, Meagher & Flom LLP were on
brief for appellants.
David M. Schiffman with whom Sidley Austin Brown & Wood,
Joseph L. Kociubes and Bingham & McCutchen LLP were on brief for
appellee.
June 9, 2003
BOUDIN, Chief Judge. This appeal is one phase of
commercial litigation that has lasted over a decade. It involves
liabilities pertaining to insurance coverage provided by Liberty
Mutual Insurance Company and an affiliate (jointly "Liberty").
There is now little factual dispute but the contractual provisions
(reprinted, in pertinent part, in an appendix to this opinion) are
complex. We begin with a summary description of the background and
procedural progress of the case, reserving detail for discussion of
the several remaining disputes.
In January 1989, Household International, Inc.
("Household"), decided to divest certain assets, either in spin-
offs to shareholders or through outright sales to third parties.
The Thermos Company ("Thermos") was one of the subsidiaries formed
as part of Household's reorganization plan, and various assets and
liabilities from the rest of Household were transferred to Thermos
through a series of assignment and assumption agreements ("A&A
agreements"). In June 1989, after an intensive weekend
negotiation, Household entered into a 139-page purchase agreement
("purchase agreement"), to sell Thermos to Nippon Sanso K.K. in a
cash-for-share transaction for $134 million (the latter two
entities collectively "Nippon").
The purchase agreement had to be completed quickly, yet
the underlying insurance policies--themselves only one aspect of
the purchase--were complex and covered a number of Household
-2-
companies including Thermos. Negotiations were conducted under
threat of a scheduled auction of Thermos by Household, and
apparently the negotiators lacked first-hand knowledge of the
insurance policies. Nevertheless, the purchase agreement made
quite specific arrangements to allocate the still-open burdens and
benefits of policy periods preceding the sale of Thermos.
For the purpose of the present disputes, it is critical
to understand just how pre-sale policy periods could have post-sale
consequences. Liberty Mutual insured Household for the years 1984-
1988.1 The insurance covered three lines--workers' compensation,
general liability and automobile claims–-each covered by a separate
policy. Each policy covered a one-year period (e.g., one policy
provided automobile coverage for 1984) and each policy was
occurrence-based, meaning that it insured against losses for
occurrences in one policy year regardless of the time of claim.
Subject to limitations periods, claims might easily be made long
after the policy year.
The premiums for each policy consisted of two elements.
The first is known as the initial premium, which is a projected
amount determined in advance of the policy year and based on
information submitted by Household to Liberty. This initial
1
The policies were formally issued to a subsidiary of
Household, and Household and all Household subsidiaries were listed
as named insureds, but this detail can be disregarded.
-3-
premium is paid to Liberty in installments over five years, and
these installments are known as deferred premiums.
The second element consists of "retrospective premium
adjustments," known as retros, which are adjustments to the initial
premium amount based on actual claims experience. Retros are
assessed annually, beginning approximately twenty months after the
policy period expires. For example, the 1984 automobile policy,
although covering only accidents occurring in 1984, may result in
retros in 1987, 1988, and so on. Because the actual claims
experience can (indeed probably will) diverge from the initial
projection, retros can result in either credits (refunds from
Liberty to Household) or debits (further payments by Household to
Liberty). Either way, retros do not alter the obligation to
complete the deferred payments of the initial premium.
Thus, one set of issues posed by the sale concerned post-
sale responsibility--as between Household and Nippon--for amounts
owed or coming due as a result of policies covering the pre-sale
years. These issues included (1) who was responsible for paying
deferred premiums still unpaid at the time of sale, and (2) who
would pay retro debits and/or benefit from retro credits as actual
claims experience generated new retros.
To the extent that Nippon was responsible for any of
these payments, a second set of issues concerned the proper
allocation of Thermos's proportionate share as between it and
-4-
Household. Before the sale each single policy covered a number of
Household businesses, including operations that were retained by
Household or otherwise disposed of under the plan of
reorganization. Prior to Household's 1989 reorganization, it
internally allocated retros to each profit center, including the
Thermos operations; it made the internal allocation according to a
method known as the "traditional method."
The purchase agreement explicitly addresses retros and
the allocation of retros between Thermos and other Household units;
but the provisions are more usefully described in conjunction with
the analysis of legal issues later in this decision. See purchase
agreement § 5.10(b). In addition, the purchase agreement contains
a representation by Household that, while arguably unclear in its
literal language,2 both sides now treat as warranting that the
initial premium (including deferred installments) due Liberty for
the pre-sale policy years had already been paid. The agreement
also contains an indemnification clause: section 9.2 obligated
Household to indemnify Nippon against "all Losses and Claims based
upon, arising out of, or resulting from . . . any failure of
2
"All such policies are in full force and effect, all premiums
with respect thereto covering all periods up to and including the
Closing Date have been paid . . . . Such policies are sufficient
for compliance with all requirements of law . . . and will remain
in full force and effect through the respective dates set forth in
Schedule 3.12 without the payment of additional premiums."
Purchase agreement § 3.12.
-5-
[Household] to perform in all material respects [its] obligation
under [the purchase agreement]."
After the sale of Thermos, Household continued to
provide, for a fee, certain administrative services with respect to
the insurance policies written by Liberty. Household apportioned
to Nippon a share of the credit and debit retros, and it also
billed Nippon for a portion of the deferred premiums; all of these
apportionments were done according to the traditional method.
Nippon paid the assessments, including about $1.6 million in
deferred premiums, until around March 1992 when Household, taking
the view that Nippon should pay Liberty directly for deferred
premiums and retro debits, tired of this middleman function and
stopped paying Liberty on Nippon's behalf.
Liberty then sued Household in the federal district court
in Massachusetts in May 1992. Roughly at the same time, Nippon
stopped reimbursing Household for retros and deferred premiums.
Household reacted by suing Nippon in state court in Illinois. The
two actions were effectively consolidated in the district court
litigation when Liberty added Nippon as a defendant in the Liberty-
Household suit and the two defendants--Household and Nippon--filed
cross claims against each other. The parties agree that Illinois
law supplies the substantive rules of decision.
In September 1997, after a two-week bench trial, the
district court issued a decision on a set of issues between
-6-
Household and Nippon. Among other rulings, it determined that
Household rather than Nippon was liable for all of the deferred
premiums and owed Nippon $1.6 million in restitution; that as to
the allocation of retros, Household had improperly used the
traditional method instead of the so-called "share formula"
provided in the purchase agreement; that the allocation of debits
and credits should be computed for each policy individually; and,
finally, that Household did not owe Nippon attorneys' fees under
the indemnification clause.
In March 1999, the district court made additional
pertinent rulings. Most important, it decided that under the terms
of the purchase agreement, Nippon had an obligation to pay retro
debits but did not have a right to receive retro credits which
instead accrued to Household's benefit. The court also rejected
Nippon's claim for prejudgment interest on the $1.6 million
restitution of deferred premiums that Household had mistakenly
collected from Nippon. The court also declined to reconsider
earlier rulings. A final judgment was entered after Liberty and
Household settled the disputes between them.
Nippon has now appealed, making three claims: first, that
as to retros, it is entitled as to each policy to offset debits
against credits and also to retain any net credits; second, that it
is entitled to prejudgment interest on the $1.6 million in deferred
premiums restored to it; and third, that it is entitled to
-7-
attorneys' fees and other litigation expenses. Our review is de
novo as to questions of law and for clear error as to fact-findings
by the district court. Fed. R. Civ. P. 52; Principal Mut. Life
Ins. Co. v. Racal-Datacom, Inc., 233 F.3d 1, 3 (1st Cir. 2000).
Credits and Debits. The trickiest question is the offset
of credits against debits and retention of net credits. Recall
that an individual policy (say, automobile coverage for accidents
occurring in 1984) will likely result in a series of retro
adjustments in each later year as claims are made; for one later
year, this might be a debit obligating Household or Thermos to pay
Liberty a further premium adjustment and for the next year it might
be a credit resulting in a refund by Liberty. Nippon concedes that
it is responsible under the purchase agreement for debits, but it
wants to be able, as to any policy, to reduce debits owed to
Liberty by credits from years when Liberty must make refunds (and
also to retain any net credits).
The district court decided this issue in favor of
Household. It pointed out that in section 5.10(b), the purchase
agreement provides that Nippon would pay outright (or reimburse
Household) its defined "share" of "any self retention or deductible
(including . . . any retrospectively-rated premium adjustments
[i.e., retros])," subject to a proviso that Nippon is obligated to
pay to Household "no more than the self retention or deductible
amounts" actually paid by Household to Liberty. The court pointed
-8-
out that Nippon is the only one required to "pay or bear" and that
nothing in this agreement, or elsewhere, said that retro credits
should accrue to Nippon.
On this issue the purchase agreement is hardly a model
of lucidity-–the price of drafting a complex document over a
weekend–-but we broaden the focus and come to a different result.
The language stressed by the district court comes from only one
part of the section governing insurance. Even taken by itself,
subsection (b) of section 5.10 inflicts on Nippon Sanso K.K.
liability for "any retrospectively-rated premium adjustments"
attributable to Thermos; and because such adjustments can include
credits as well as debits, this language does not clearly indicate
that Nippon is liable for debits but Household keeps all the
credits. One could equally well urge that Nippon is responsible
for any net obligation to Liberty under each policy.
Recognizing that the contract does not deal expressly
with "credits" (or "debits" for that matter), our obligation is to
take the relevant insurance provisions as a whole and give them a
sensible reading in light of their language and the discerned
purpose of the parties. See, e.g., Shelton v. Andres, 478 N.E.2d
311, 314 (Ill. 1985); 2 Farnsworth, Farnsworth on Contracts,
§ 7.10, at 276-77 (2d ed. 1998). Of course, if there were precise
contract language on point, that would govern; but, failing that
and also lacking here any extrinsic evidence that the parties
-9-
explicitly discussed the debit/credit issue and arrived at a
solution, we must interpolate. Whether the result is an actual
rendition of what the parties agreed or what reasonable parties in
that position would have intended is often a blurred distinction.
See id. §§ 7.9, 7.11, at 273-74, 280.
Here, subsection (b) is part of a broader whole–-section
5.10–-intended to address a peculiar problem posed by a number of
elements: that Household's individual policies each covered both
Thermos and other companies that were retained or otherwise
disposed of by Household; that claimants could be litigating or
even bringing new claims after the sale but for pre-sale events;
and that retrospective adjustments of the premiums for pre-sale
policy years could and probably would occur after the sale. Thus,
the simple carrying over of existing insurer-insured relations that
would exist where a sold or spun-off company simply carried its own
insurance and took the policy with it could not work in this
instance.
The purchase agreement starts in section 5.10(a) with the
premise that the policies for pre-sale years were contracts between
Liberty and Household and "have not been assigned to" Nippon Sanso
K.K. or Thermos. See also purchase agreement § 5.10(d). Then, the
same subsection provides in substance that Household will assist
Nippon in "pursuing any rights" that Thermos might have under the
policies covering claims pertaining to Thermos' pre-sale
-10-
operations, including the right (so far as the insurer permitted)
to claim directly against the insurer and "to receive directly any
recoveries thereunder." Subsection (c) provides inter alia that if
instead Household gets the money, it shall pay the money over to
Nippon.
Of course, in exchange, Household understandably wanted
Nippon to be responsible for additional payments required for
coverage as to Thermos since Nippon was receiving the benefit of
the protection as to Thermos. Thus, having given Nippon rights
under subsections (a), (c), and (d), subsection (b) of the same
section is devoted to protecting Household by providing that Nippon
will reimburse Household for its expenses in relation to the
insurance coverage for Thermos and that Nippon will bear or
reimburse Household for Thermos' "share" of retro adjustments.
There is more detail but this is the thrust of the provision.3
Against this background, we hold that the purchase
agreement gives Nippon, in relation to the coverage Liberty
provided Thermos, the benefit of retro credits as well as the
liability for retro debits under each individual policy. Although
subsection (b) is phrased to provide protection for Household, it
3
The final proviso of section 5.10(b), earlier mentioned,
makes clear that Nippon's liability to Household for "self
retention" amounts–-e.g., retro debits owed to Liberty–-will be "no
more than" Household's payments to Liberty for Thermos coverage.
Nippon relies upon this language to show that debits should be
reduced by credits, but that argument is not necessary to our own
analysis.
-11-
is part of the larger scheme of section 5.10 that aims to make
Nippon bear the costs and get the benefits of the policies with
respect to Thermos. Those benefits include retro credits as well
as the insurer's reimbursements for third-party claims exceeding
deductibles; this might even be implied by the reference in
subsection (a) to Thermos' "rights" under the policies.
Further, as to every policy each later year will generate
a separate credit or debit (or occasionally zero) depending on how
far new claims experience indicates that the initial premium
overestimated (for credits) or underestimated (for debits) the risk
of claims. Each retro, whether paid to or received from Liberty,
is only a further refinement designed to make the ultimate premium
for the policy year more closely match the ultimate claims
experience. To impose liability on Nippon for debits but to say
that Household keeps the credits is an improbable arrangement and
invites bizarre results.4
Given the structure of the insurance provisions, one
might think that Nippon should also bear the cost of the initial
premium, an impression reinforced (wrongly, for deferral is merely
4
The easiest example is to imagine two different "experience"
years, say, 1987 and 1988, pertaining to the 1984 automobile
policy. On Household's reading, it would keep a credit of $10
generated in 1987 and Nippon would pay a debit of $10 generated in
1988; and yet if the underlying claims had come in a different
order, so that each year alone generated a zero adjustment, neither
company would pay (or receive refunds). In both examples, of
course, Liberty's position remains the same.
-12-
a financing mechanism) by the fact that the initial premium is paid
over five years. Having chosen not to appeal the district court's
contrary ruling, Household cannot now dispute that it, rather than
Nippon, is responsible for the initial premium. Rather, Household
argues in the converse that, because it bears the initial premium,
it should also get the benefit of retro credits, which could be
viewed as a partial return of the premium that it has already paid
or is paying.
To this there are two answers. The first is that
Household itself already benefitted from the initial premium,
because that premium allowed Thermos to be covered in the years
when it was still owned by Household. Second, while Nippon also
benefits from the initial premium because these are occurrence-
based policies, whatever implicit obligation (based on the logic of
section 5.10) might otherwise be imputed to Nippon to share in the
initial premium is explicitly negated elsewhere: in the separate
warranty provision of the contract, Household itself warranted
(inaccurately) that the deferred premiums had been paid in full.
Purchase agreement § 3.12. Thus any benefit Nippon got from the
discharge of the deferred premiums was bargained for and presumably
reflected in the purchase price.
As it happens, although we do not rely upon this fact,
Household's initial practice after the sale tends to bear out our
understanding. While Household continued to act as middleman, it
-13-
charged Thermos for any deferred premiums that Household had paid
in respect of Thermos' coverage (apparently unaware of its
warranty), but it also gave Nippon retro credits. When tripped up
as to the former error by discovery of the warranty, Household
sought to recoup by claiming entitlement to the credits. But the
credits, in our view, are properly paired with the debits under the
insurance provision of the contract, and Household's obligation as
to deferred premiums stems from its own explicit warranty.
Prejudgment Interest. As already noted, Household had
billed Nippon for deferred portions of the initial premium due to
Liberty. Nippon has now been awarded judgment against Household
for about $1.6 million in these deferred premiums. In the district
court, Household argued that, at the time of the reorganization and
before the sale, Thermos had assumed liability for the deferred
payments under the pertinent A&A agreement. In its 1997 decision,
the district court said that the A&A agreement was silent and,
noting that the purchase agreement warranted that all premiums had
been paid as of the date of closing, ruled that this obligation
remained with Household.
The merits of the ruling are not before us because
Household has not appealed it. Instead, it is Nippon who claims
that the district court erred in failing also to award prejudgment
interest on the refunded premiums, which interest (Nippon says) now
amounts to approximately $1 million. Nippon relies primarily upon
-14-
the indemnification provision of the purchase agreement insuring
Nippon against all losses due to Household's breach of the purchase
agreement. Nippon regards the time-value of the $1.6 million as a
loss inflicted by Household's wrongful billing of the $1.6 million
to Nippon, and section 1.11A of the purchase agreement defines loss
to include lost "interest."
The difficulty with Nippon's indemnification theory is
that the purchase agreement contains a non-survival clause with
respect to warranties, which clause provides that the warranties
terminated as of the closing and "cease[ed] to be of further force
and effect"--save warranties specifically enumerated. Purchase
agreement § 9.1. The "premiums paid" warranty was not among those
preserved as a basis for post-closing liability. To treat the
improper billing (post-closing) by Household of deferred premiums
as itself a breach of the warranty and as triggering
indemnification appears to contradict the no-survival provision.5
Moreover, the indemnification provision upon which Nippon relies
lists the warranties for which indemnification is available, and
again the "premiums paid" warranty is not among the ones named as
eligible. Purchase agreement §§ 3.12, 9.2(a)(ii).
5
This does not mean that the district court was wrong in
considering the warranty when it concluded that the purchase
agreement did not transfer to Nippon Household's pre-existing
responsibility to pay deferred premiums. Our own intuition is the
same as the district court's, namely, that the warranty could not
be a basis for recovery but could still cast light on what other
contractual provisions did or did not do.
-15-
Nippon argues that the charging of deferred premiums also
violated a different provision of the purchase agreement, namely,
section 5.10(b) which obligates Household to charge Nippon its
share of the retros and–-implicitly, according to Nippon–-nothing
more. We agree with the district court that the retro share
formula simply "does not apply" to responsibility for initial
premiums, whether deferred or otherwise. Indeed, Nippon's opening
brief said that Household's improper charging of deferred premiums
is "a violation of the contract that had nothing to do with retro
share calculations." In any event, Nippon's argument, not made in
the opening brief but only in the reply, is waived. Keeler v.
Putnam Fiduciary Trust Co., 238 F.3d 5, 10 (1st Cir. 2001).
Once past the indemnification clause, whether prejudgment
interest should be awarded is, under Illinois law, left to the
discretion of the judge. In re Wernick, 535 N.E.2d 876, 887-89
(Ill. 1989). The underlying award of $1.6 million rested upon a
restitution theory–-that the liability for deferred premiums was
that of Household, had not been shifted from it, and had been
mistakenly billed to Nippon–-but the district court also found that
this was not a bad faith error nor one equitably warranting
prejudgment interest.
In the district court, Nippon urged that it was entitled
to prejudgment interest on equitable grounds as well as under the
indemnification clause. In this court, Nippon has seemingly
-16-
abandoned any challenge to the district court's rejection of this
equitable argument. At least it fails to develop it in any serious
way, which leads to the same result. See Prisma Zona Exploratoria
de Puerto Rico, Inc. v. Calderon, 310 F.3d 1, 8 (1st Cir. 2002).
Attorneys' Fees & Litigation Expenses. Nippon also
sought attorneys' fees and litigation expenses in the district
court. Attorneys' fees and costs are included as compensable loss
under the purchase agreement's indemnification provision so far as
they are "based upon, arising out of, or resulting from . . . any
failure of [Household] to perform in all material respects [its]
obligations." Purchase agreement § 9.2; see also id. § 1.11A. We
have already noted that the billing of the deferred premiums,
although mistaken and requiring restitution, was not a breach of
the purchase agreement except as to the expired warranty; and thus
Nippon cannot be reimbursed for attorneys' fees for that breach.
However, Nippon also seeks attorneys' fees for a
different breach of the agreement: Household's breach of the
provision governing allocation of retros as between Nippon and
other business covered by the same policies. The district court
ruled that there was such a breach by Household because, as already
noted, it made allocations of retros based on its traditional
method. In doing so, Household ignored an explicit provision of
the agreement that specified the so-called "share formula" for
allocating retros. Purchase agreement § 5.10(b). The details of
-17-
the dispute need not be described because Household has not
appealed from the district court's finding of violation; but
Household does defend against Nippon's claim that Nippon's
attorneys' fees should be paid.
The district court refused to award Nippon attorneys'
fees, conceding that Household had breached the allocation
provision but saying that "no damages [in the form of attorney's
fees] resulted from this breach." The district court's reasoning
was as follows:
However, Nippon Sanso and Thermos are
not entitled to litigation costs and expenses
under section 9.2 because their losses did not
result from [Household's] breach. Even if
[Household] had attempted to calculate Nippon
Sanso's share under section 5.10(b) from the
outset, this litigation would have proceeded
in the same way with the same expenses. The
primary focus of phase I of this case has been
the definition of the share percentage and its
application, as to which the parties simply
had very different interpretations.
Therefore, [Household's] breach of section
5.10 did not cause this litigation nor its
cost.
This critique does not fully answer Nippon's claim.
Litigation may have been inevitable because the parties disagreed
about varying provisions and could not settle the case; but
Household was responsible for conduct violating the share
allocation formula and the litigation embraced that issue. To the
extent that Nippon incurred attorneys' fees to resolve the share
allocation issue, there is no obvious reason why they should not
-18-
constitute losses due to Household's breach, whether the breach and
the litigation were inevitable or not. The indemnification clause
does not make Household's bad faith or equities in favor of Nippon
a condition of Nippon's recovery.
Of course, this does not make Household liable for
Nippon's litigation expenses in resolving other disputed issues and
the allocation error may have been a very small part of litigation
that has spanned over ten years. Household argues that early on it
conceded its breach in using the traditional method, suggesting
that Nippon's expenses on this issue were slight or unnecessary;
but Nippon points to some evidence to the contrary and the district
court made no findings on this point. On remand, the district
court must decide what portion, if any, of Nippon's reasonable
litigation costs as to the allocation issue is over and above what
it would have incurred anyway because of disputes on other issues.
Further, Nippon argues that the dispute was not limited
to the question of whether the traditional method or the share
formula of allocation should be used; Nippon says that litigation
was required to settle a dispute concerning, inter alia, the proper
numerator to be used in implementing the share formula. That
dispute was itself settled by the district court in Nippon's favor,
so Nippon claims that its attorneys' fees as to this issue are also
covered by the indemnification clause.
-19-
Since Household apparently did not use the share formula
at all, arguably this interpretive dispute, even though entailing
litigation, may not be a breach of the purchase agreement
warranting indemnification; yet on the other hand if Household's
interpretation of the formula in the litigation below did not
conform to the requirements of the contract, then perhaps that
misinterpretation would have been breach and indemnification would
be due. But these wrinkles are for the parties and the district
court on remand.
This case is about money, but only money, and should have
been settled (each party being right on some part of the case)
early in the district court process. The cost of not settling,
which both sides now bear, is attorneys' fees incurred over many
years-–most of them beyond any claim of reimbursement--and the
continuing distraction of busy executives. We have been forced to
remand on one narrow issue which in the nature of things is not
susceptible to a perfect answer. Before more of the district
court's time is consumed in this endeavor, counsel ought to call
their principals' attention to the cost and settle what remains.
The judgment of the district court is affirmed as to the
denial of prejudgment interest and the denial of attorneys' fees
attributable to Household's mistaken billing of deferred premiums,
reversed as to the refusal to assign retro credits to Nippon
although without disturbing the prior ruling that the allocation of
-20-
retros should be calculated separately as to each policy, vacated
as to the denial of attorneys' fees and litigation expenses on the
share allocation issue, and remanded for proceedings consistent
with this decision.
It is so ordered.
-21-
APPENDIX
Section 1.11A. "Loss" shall mean any loss, damage,
liability cost and expense, including, without limitation, any
interest, fine, court cost, reasonable investigation cost, penalty
and attorneys' and expert witnesses' fees, disbursements and
expenses, subtracting from any Loss any insurance proceeds actually
received by any person or entity incurring a Loss.
Section 3.12. Insurance. Schedule 3.12 hereto sets
forth, as of the date hereof, a list of all currently effective
insurance policies relating to the Leisure Products and Houseware
Business issued in favor of Household, Thermos UK, Thermos Pty.,
CTP, Thermos and/or TDR, the identity of the respective insurance
carriers, the respective policy periods and the respective limits
and retentions. All such policies are in full force and effect,
all premiums with respect thereto covering all periods up to and
including the Closing Date have been paid, and no notice of
cancellation or termination has been received with respect to any
such policy. Such policies are sufficient for compliance with all
requirements of law and with all agreements to which Thermos UK,
Thermos Pty., CTP, Thermos or TDR is a party; are valid,
outstanding and enforceable policies; and will remain in full force
and effect through the respective dates set forth in Schedule 3.12
without the payment of additional premiums. Schedule 3.12
identifies all risks which Thermos UK, CTP, Thermos Pty. or TDR,
-22-
each of their respective Boards of Directors or officers, have
designated as being self-insured and the Sellers represent and
warrant that the reserves set aside for such risks are adequate to
pay all self-insured claims or amounts that come due under the
policies referred to in Section 5.10 in respect of claims and
estimated non-claims expenses attributed to the Leisure Products
and Houseware Business. None of Household, Thermos UK, CTP,
Thermos, Thermos Pty., or TDR have been refused any insurance with
respect to its assets or operations, nor has its coverage been
limited, by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance since January
1, 1986.
* * *
Section 5.10. Insurance. (a) From and after the
Closing, Household shall use reasonable efforts (which shall not
require acceptance of adverse changes in its existing insurance
policies), subject to the terms of the Household Insurance
Policies (as hereinafter defined), to assist Buyer, CTP, Thermos,
Thermos Pty. and TDR in pursuing any rights Buyer, CTP, Thermos,
Thermos Pty., and TDR may have under any insurance policies
maintained at any time prior to the Closing by Household and its
predecessors and its affiliates and their predecessors
(collectively, the "Household Insurance Policies"), covering any
loss, liability, claim, damage or expense relating to the assets,
-23-
business, operations, conduct, products and employees (including
former employees) of Thermos UK, CTP, Thermos, Thermos Pty., TDR
and each of their respective predecessors that relates to or arises
out of occurrences prior to the Closing (an "Insurance Claim").
Household agrees to use reasonable efforts so that Buyer, CTP,
Thermos, Thermos Pty. and TDR shall have the right, power and
authority, subject to any required consent of the carriers under
the Household Insurance Policies, in the name of Household or any
of its affiliates to make directly any Insurance Claims under the
Household Insurance Policies and to receive directly recoveries
thereunder. Buyer and Sellers recognize that the Household
Insurance Policies have not been assigned to Buyer, Thermos,
Thermos Pty., CTP or TDR.
(b) Buyer agrees to reimburse, indemnify and hold
Household and its affiliates harmless for reasonable costs and
expenses incurred after the Closing Date to carry out any
obligations pursuant to this Section 5.10 or as a result of
Insurance Claims being made. Notwithstanding any prior agreement
between Household and Thermos UK, CTP, Thermos Pty., Thermos or TDR
to the contrary, Buyer will pay and bear (or if paid by Household,
reimburse, indemnify and hold Household and its affiliates harmless
for) all amounts relating to its "Share" (as defined below) of any
self retention or deductible (including without limitation, any
retrospectively-rated premium adjustments or retentions) and any
-24-
gaps in or limits on coverage applicable to an Insurance Claim
asserted at any time in effect at such time with respect to the
applicable Household Insurance Policy. In the event that any legal
action, arbitration, negotiation or other proceedings are required
for CTP, Thermos, Thermos Pty. or TDR to assert coverage against
any insurer or to perfect its Insurance Claim, (i) Buyer shall, to
the extent possible, do so or (ii) if Buyer is not permitted to
assert coverage or perfect an Insurance Claim, Household shall do
so and, in either event, Buyer shall hold harmless and indemnify
Household and its affiliates for any costs and expenses that they
might incur because of such action. The Buyer’s "Share" of any
self retention or deductible shall be determined reasonably by
Household to be that percentage of the self retention or deductible
under any Household Insurance Policy for the period covered by such
Policy determined by dividing the aggregate amount of Insurance
Claims made by Buyer and Thermos with respect to such Policy and
such period, by the aggregate amount of Insurance Claims made by
all insureds under such Policy with respect to such Policy and such
period, calculated at the time each Insurance Claim is made by
Buyer or Thermos; provided that Buyer shall be obligated to pay to
Household no more than the self retention or deductible amounts
actually paid by it in respect of Insurance Claims made by Buyer or
Thermos.
-25-
(c) Household shall use reasonable efforts (i) to
cooperate fully and to cause its affiliates to cooperate fully with
Buyer, CTP, Thermos, TDR and Thermos Pty. in submitting good faith
Insurance Claims on behalf of Buyer, CTP, Thermos, TDR and Thermos
Pty. under the Household Insurance Policies, (ii) to execute any
and all agreements and other documents which are reasonably
necessary or appropriate in connection with any of the foregoing,
including maintaining and reporting quarterly reductions in the
amount of the aggregate limits, if applicable, under such insurance
policies and assigning to Buyer, CTP, Thermos, TDR and Thermos Pty.
any right to receive payments in respect of Insurance Claims under
all such policies in the event consent to such assignment can be or
is obtained from any insurer (if applicable) and (iii) to pay
promptly over to Buyer any and all amounts received by Household or
its affiliates under such policies with respect to Insurance
Claims.
(d) Household and its affiliates shall retain custody of
the Household Insurance Policies and any and all service contracts,
claim settlements and all other insurance records relating thereto
and Buyer, CTP, Thermos, Thermos Pty. and TDR shall have access to
and the right to make copies of all such documents and records upon
reasonable request to Household or its affiliates. If Household
desires to destroy any such policies or records it shall first
notify Buyer who shall have the right to cause the same to be
-26-
delivered promptly to it upon reimbursing Household for reasonable
expenses incurred in connection therewith.
* * *
Section 9.1. Survival Periods. . . . All
representations and warranties of the parties contained in this
Agreement or in any Schedule hereto, or any certificate, document
or other instrument delivered in connection herewith shall
terminate and cease to be of further force and effect as of the
Closing, except that each representation and warranty set forth in
Section 3.1; Section 3.18 [with exceptions]; Section 3.19 [with
exceptions]; Section 3.20; and Section 3.22, shall survive the
Closing until the third anniversary of the Closing Date, and the
representations and warranties contained in or made pursuant to
Section 3.16, and the obligations of Seller and Buyer to indemnify
each other pursuant to Section 5.12, shall survive the Closing Date
and continue at all times thereafter until the expiration of the
applicable statute of limitations with respect thereto.
* * *
Section 9.2. Agreement to Indemnify. (a) Upon the
terms and subject to the conditions of this Article IX, Sellers
hereby agree to indemnify, defend and hold harmless Buyer and its
officers, directors and subsidiaries (collectively, the "Buyer
Group"), from and against all Losses and Claims based upon, arising
out of, or resulting from (i) any failure of the Sellers to perform
-27-
in all material respects their obligations under this Agreement,
(ii) any breach by Sellers of any representation or warranty set
forth in Section 3.1; Section 3.16; Section 3.18 [with exceptions];
Section 3.19 [with exceptions]; Section 3.20; and Section 3.22, and
(iii) any Excluded Liability.
-28-