United States District Court, M.D. North Carolina
MEMORANDUM OPINION AND ORDER
Catherine C. Eagles, District Judge.
diversity case, Zurich American Insurance Company seeks
declarations as to the scope and limits of its obligations to
its insured, Covil Corporation, in lawsuits arising from
Covil's sale or installation of asbestos-containing
materials. Zurich also sued a North Carolina estate with a
judgment against Covil, several North Carolina claimants with
pending asbestos lawsuits against Covil, and a number of
other insurance companies that may also have provided
coverage to Covil. Some of the insurers have filed
counterclaims or crossclaims seeking declarations of their
acting through a Receiver appointed in South Carolina state
court, and the NC claimants move to dismiss the complaint and
crossclaims or, in the alternative, to stay this lawsuit or
abstain pending resolution of a similar suit instituted by
the Receiver in South Carolina against most of the same
insurance companies. Covil contends that the Receiver and South
Carolina citizens with claims against Covil that are
potentially covered by the insurance policies at issue are
all necessary parties to this litigation. Thus, Covil
contends, the case should either be dismissed for failure to
join indispensable parties or because, if these parties are
joined and properly aligned, diversity of citizenship does
reasons that follow, Covil's motions to dismiss and to
abstain will be denied. Its alternative motions to stay
remain under consideration.
many years, Covil, a South Carolina corporation, sold and
distributed insulation products, including products that
contained asbestos. See, e.g., Finch v. Covil
Corp., __ F.Supp.3d __, 2019 WL 1934523, at *2-5 (M.D.
N.C. May 1, 2019). There are several personal injury suits
against Covil in North and South Carolina relating to the
distribution and/or installation of asbestos-containing
products. See, e.g., Mullinax v. Advance Auto
Parts, Inc., No. 1:16-cv-310 (W.D. N.C. Sept. 19, 2016);
Connor v. Norfolk S. Ry. Co., No. 1:17-cv-127 (M.D.
N.C. Feb. 15, 2017); Ellis v. Bridgestone Ams.,
Inc., No. 1:17-cv-942 (M.D. N.C. Oct. 18, 2017);
Whitehead v. Air & Liquid Sys. Corp., No.
1:18-cv-91 (M.D. N.C. Feb. 9, 2018); Doc. 8-2 at ¶¶
19-22. At least two courts--this court and a South Carolina
state court--have entered judgments against Covil.
See Final Amended Judgment, Finch v. Covil
Corp., No. 1:16-cv-1077, Doc. 525 (M.D. N.C. May 1,
2019); Doc. 8-2 at ¶ 21.
was dissolved in 1993. Doc. 26-1 at 2. It appears undisputed
that Covil has no officers, directors, or employees capable
of taking the actions required to obtain counsel or file or
defend any lawsuit and that, until recently, three of
Covil's insurers-- Zurich, Sentry Casualty Company, and
United States Fidelity and Guaranty Company-- controlled
Covil's defense in any underlying asbestos litigation.
See Doc. 8 at 5-6; Doc. 25 at 2-3; Doc. 26 at 2;
Doc. 41 at 1 (adopting Docs. 25 and 26).
October 2018, after a five-day trial in this Court, a jury
awarded $32, 700, 000 to one of the defendants here, Ann
Finch, executor of the estate of Franklin Finch, in a
wrongful death suit against Covil. See Final
Judgment, Finch, No. 1:16-cv-1077, Doc.
The jury found that Mr. Finch developed mesothelioma as a
result of exposure to asbestos-containing insulation Covil
sold to his employer. See Finch, 2019 WL 1934523, at
thereafter, in one of the lawsuits against Covil in South
Carolina state court, the plaintiffs moved for appointment of
a receiver. See Doc. 8-1 at 2. On November 2, 2018,
the state court appointed a receiver to administer
Covil's assets. See Id. at 2-4 (November 2, 2018
order of Chief Justice Toal).
days later, on November 6, 2018, Zurich brought the instant
lawsuit in this Court against Covil, other insurers who may
provide coverage to Covil, the Finch estate, and several
North Carolina citizens who are claimants against Covil or
the personal representatives of claimants in asbestos suits
in North Carolina federal courts. Doc. 1. The complaint, as
well as several counterclaims and crossclaims filed by
insurers, seeks declarations limiting and apportioning among
the insurers their obligations, if any, to cover Covil's
defense costs and indemnify Covil for the Finch
judgment and potential future judgments relating to its sale
of asbestos. See Id. at ¶¶ 37-57, pp.
11-12 ¶¶ 1-8; Doc. 10 at ¶¶ 81-113, pp.
19-20 ¶¶ (a)-(j); Doc. 12 at ¶¶ 73-99,
pp. 12-13 ¶¶ (A)-(K); Doc. 19 at pp. 14-15
¶¶ 35-43, p. 16 ¶¶ (A)-(E).
November 21, 2018, the Receiver filed suit on behalf of Covil
in South Carolina state court against the insurance companies
that are parties here, an additional insurance company,
several South Carolina citizens who are claimants against
Covil or the personal representatives of claimants in
underlying asbestos suits in South Carolina state courts.
See Doc. 8-2 at ¶¶ 12-22, p. 26. The
complaint asserts breach of contract and bad faith claims
against several insurers, requesting as damages that they be
held jointly and severally liable for the Finch
judgment; a claim against the insurers seeking declarations
of their coverage obligations under certain policies issued
to Covil, specifically as they apply to the underlying
asbestos suits; a claim against the S.C. claimants for a
declaration limiting their recovery against Covil in certain
ways given that the insurance policies are Covil's only
assets; and an “anti-suit injunction” prohibiting
Zurich from prosecuting this lawsuit in the Middle District
of North Carolina. Id. at ¶¶ 43-76.
December 6, 2018, Sentry removed the South Carolina case
brought by the Receiver to the United States District Court
for the District of South Carolina. See Notice of
Removal, Covil Corp. v. Zurich Am. Ins. Co., No.
7:18-cv-03291-BHH, Doc. 1 (D.S.C.). Sentry also filed a
motion to realign the parties. Motion to Realign the
Co-Defendants, Covil Corp., No. 7:18-cv-03291-BHH,
Doc. 4. On December 20, Covil moved to remand for lack of
subject matter jurisdiction due to a lack of diversity.
Motion to Remand to State Court, Covil Corp., No.
7:18-cv-03291-BHH, Doc. 12. On June 14, 2019, the district
court granted Sentry's motion and realigned the S.C.
claimants as plaintiffs with Covil against the
defendant-insurers. Order, Covil Corp., No.
7:18-cv-03291-BHH, Doc. 67. Because the realignment
established diversity jurisdiction, the Court denied
Covil's motion for remand. Id. at 9-10.
Court will address additional facts as needed in the context
of the issues presented.
Covil's Motion to Dismiss for Failure to Join
Indispensable Parties 
The Receiver is not a Necessary or Indispensable
first maintains that the Receiver is a necessary and
indispensable party to this litigation and that Zurich's
failure to join the Receiver as a defendant is grounds for
dismissal. Doc. 8 at 11-12. The burden is on Covil to show
that the Receiver is a necessary party. Superior Perfs.,
Inc. v. Ewing, No. 1:14cv232, 2015 WL 790371, at *4
(M.D. N.C. Feb. 25, 2015).
statute, South Carolina law provides that a dissolved
corporation can sue or be sued in its own name,
notwithstanding the fact that it is dissolved. S.C. Code.
§ 33-14-105(c)(5). But there is little, if any, case law
discussing how a corporation with no officers, directors, or
employees can obtain counsel authorized to act on the
corporation's behalf or take the actions required to
prosecute or defend a lawsuit.
appears in this lawsuit through the Receiver. The Receiver
filed the pending motions to dismiss on behalf of Covil,
which explicitly state that Covil is “acting solely by
and through its duly appointed receiver.” Doc. 7 at 1.
The Receiver waived service of process for Covil, Doc. 49,
has filed briefs and motions on behalf of Covil, Docs. 7, 8,
28, 29, 34, 35, 36, 37, 40, 62, and counsel for Covil
“acting through [the] Receiver of Covil
Corporation” has “request[ed] that all pleadings
and papers [for Covil] be served” on them. Docs. 56,
57, 58, 60.
the parties agree that the Receiver can and is acting on
Covil's behalf pursuant to his appointment by the South
Carolina court. That order gave the Receiver “the power
and authority to fully administer all assets of Covil,
” including but not limited to “the right and
obligation to administer any insurance assets of Covil . . .
as well as any claims related to the actions or failure to
act of Covil's insurance carriers.” Doc. 8-1 at 2;
see also Kirven v. Lawrence, 137 S.E.2d 764, 768
(S.C. 1964) (“A receiver . . . has no power other than
that given him by the Order of appointment.”); In
re Fifty-Four First Mortg. Bonds, 15 S.C. 304, 314
(1881) (“The authority of a receiver rests only in the
orders of the court by which he is
appointed.”). This implicitly but nonetheless clearly
includes the authority to obtain and maximize insurance
coverage through litigation on Covil's behalf.
Receiver is fully participating in this litigation on behalf
of Covil, there is little reason to make the Receiver a
separate party. “[S]uits against receivers are normally
brought against the receivership entity or the property in
receivership, not the receiver personally.” 2 Business
& Commercial Litigation in Federal Courts § 17:87
(4th ed. Nov. 2018 update) (collecting authorities). “A
receiver has no unqualified right to appear and defend when
he or she has not been made a party, and whether the receiver
should be allowed to appear and defend actions is addressed
to the sound discretion of the court.” 75 Corpus Juris
Secundum Receivers § 412 (June 2019 update). The
Receiver has asserted no interest in the subject of this
declaratory judgment action outside his capacity as
Covil's Receiver, and there are no claims against him
personally or in his capacity as Receiver. Disposing of the
action without joining the Receiver as a separate party will
not “impair or impede [his] ability to protect”
any interest of his or “leave an existing party subject
to a substantial risk of incurring double, multiple, or
otherwise inconsistent obligations.” Fed.R.Civ.P.
19(a)(1)(B). Further, there is no indication that the Court
cannot “accord complete relief among the existing
parties” without joining the Receiver ...