Schering Corp. v. Home Ins. Co.

• Decision Date: 21 June 1983
• Docket Number: No. 1314,D,1314
• Citation: 712 F.2d 4
• Parties: SCHERING CORPORATION, Plaintiff-Appellee-Cross-Appellant, v. HOME INSURANCE COMPANY, Defendant-Appellant-Cross-Appellee. ockets 83-7056, 83-7102.
• Court: U.S. Court of Appeals — Second Circuit

Page 4

712 F.2d 4

SCHERING CORPORATION, Plaintiff-Appellee-Cross-Appellant, v. HOME INSURANCE COMPANY, Defendant-Appellant-Cross-Appellee.

No. 1314, Dockets 83-7056, 83-7102.

United States Court of Appeals Second Circuit.

Submitted June 1, 1983.

Decided June 21, 1983.

Skadden, Arps, Slate, Meagher & Flom, New York City (Barry H. Garfinkel, Sheila L. Birnbaum, Irene A. Sullivan, Barbara Wrubel, Jeffrey S. Lichtman, New York City, of counsel), for defendant-appellant-cross-appellee.

Winthrop, Stimson, Putnam & Roberts, New York City (Edwin J. Wesely, Eloise L. Morgan, Virginia G. Shubert, Susan J. Kohlmann, Henry R. Simon, New York City, of counsel), for plaintiff-appellee-cross-appellant.

Brobeck, Phleger & Harrison, San Francisco, Cal. (E. Judge Elderkin, William R. Irwin, Donald W. Brown, Tom M. Freeman, L. Christopher Vejnoska, San Francisco, Cal., of counsel) and Anderson, Russell, Kill & Olick, P.C., New York City (Eugene R. Anderson, Jerold Oshinsky, New York City, of counsel), for amici curiae Fireboard Corp., et al.

Santarelli & Gimer, Washington, D.C. (Richard H. Gimer, Washington, D.C., of counsel); Hall, Henry, Oliver & McReavy, San Francisco, Cal. (Stephen McReavy, Lee H. Cliff, Jeffrey Kaufman, San Francisco, Cal., of counsel); Wilmer, Cutler & Pickering, Washington, D.C. (Dennis M. Flannery, Carol H. Fishman, Washington, D.C., of counsel) and Dinsmore & Shohl, Cincinnati, Ohio (Gerald V. Weigle, Jr., Janet R. Eaton, David H. Beaver, Cincinnati, Ohio, of counsel), for amici curiae Commercial Union Ins. Companies, Firemen's Fund Ins. Co.; Ins. Co. of North America, and Liberty Mut. Ins. Co.

Covington & Burling, Washington, D.C. (Robert N. Sayler, Edward J. Beder, Jr., John G. Buchanan, III, Washington, D.C. of counsel); Clifford & Warnke, Washington, D.C. (Harold D. Murry, Jr., John G. Calender, Washington, D.C., of counsel); Rogovin, Huge & Lenzner, Washington, D.C. (Harry Huge, Saul B. Goodman, Washington, D.C., of counsel); Cravath, Swaine & Moore, New York City (Robert S. Rifkind, Louis M. Solomon, New York City, of counsel); The Upjohn Co., Kalamazoo, Mich., (Kenneth M. Cyrus, Kalamazoo, Mich., of counsel); Slade & Pellman, New York City (John F. Triggs, Anthony P. Coles, New York City, of counsel) and E.R. Squibb & Sons, Inc., Princeton, N.J. (Robert C. Johnston, Princeton, N.J., of counsel), for amici curiae The Upjohn Co., Abbott Laboratories, Emons Industries, Inc. and E.R. Squibb & Sons, Inc.

Day, Berry & Howard, Hartford, Conn. (Thomas J. Groark, Allan B. Taylor and Eve Cutler Rosen, Hartford, Conn., of counsel) for amicus curiae Aetna Cas. & Sur. Co.

Before KAUFMAN, PRATT and GIBSON, ^* Circuit Judges.

KAUFMAN, Circuit Judge:

When a motion for summary judgment presents complex legal issues with far-reaching implications, a judge must balance two competing goals. Confronted with the prospect of lengthy pre-trial proceedings that postpone the day of judgment, the district court must conserve judicial resources by promptly resolving those matters in which "no genuine issue as to any material fact" is presented. Fed.R.Civ.P. 56(c). At the same time, justice requires careful consideration of the entire posture of the case so the "drastic device" of summary judgment, Heyman v. Commerce and Industry Co., 524 F.2d 1317, 1320 (2d Cir.1975), is not precipitously imposed.

In its understandable zeal to resolve non-perspicuous issues of interpretation, a district court may at times lose sight of the need for restraint. Justice must be both rapid and fair. Matters which our system of conflict resolution reserves for full exposition at trial may not be consigned to cursory disposition. This Court has on numerous occasions set forth the standards which judges must follow in deciding whether to grant summary judgment. See, e.g., Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 444-45 (2d Cir.1980); SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir.1978); Home Insurance Co. v. Aetna Casualty & Surety Co., 528 F.2d 1388, 1390 (2d Cir.1976); Heyman v. Commerce and Industry Co., supra, 524 F.2d at 1319-20. Because we believe the court below misapplied these guidelines in the present dispute, we reverse its grant of summary judgment in this declaratory judgment action and remand for further proceedings.

To facilitate understanding of the issues raised for our consideration, we set forth the facts in some detail, mindful that ambiguities must be resolved and reasonable inferences drawn in favor of the party against whom summary judgment is sought. Heyman v. Commerce and Industry Co., supra, 524 F.2d at 1320.

I

This controversy arose from a dispute between Schering Corporation ("Schering"), a drug manufacturer, and its excess liability insurer, Home Insurance Company ("Home"). At stake is Home's potential liability for untold millions of dollars in payment for claims by plaintiffs who assert injury from Schering's synthetic estrogen product, dienestrol ("DEN"). The story of DEN is a tragic tale of modern medicine as well as a word of caution to insurers to anticipate potential problems created by unscrutinized standard clauses in policies.

In 1958, Schering commenced the manufacture and distribution of DEN either directly or through a subsidiary. Synthetic estrogens such as DEN and its chemical cousin, the well-known diethylstilbesterol ("DES"), have been prescribed to women since the early 1940's for a variety of reasons. In particular, DEN was widely administered to patients with high-risk pregnancies for the purpose of preventing miscarriages.

While thousands of doctors were dispensing synthetic estrogens to millions of expectant mothers, Schering and Home entered into an important series of contracts. From August 30, 1966 to February 7, 1976, Schering paid Home over $1,000,000 in premiums for excess liability coverage. Unable to anticipate the tidal wave of controversy, anguish, and, finally, litigation, that would soon inundate the makers and users of both DES and DEN, Schering and its insurer concluded standard-form comprehensive general liability ("CGL") contracts. The critical provision of this type of policy is the stipulation that the insurer agreed to indemnify the manufacturer for liability when use of its products resulted in personal injury during the policy period. The pertinent language is set forth in the margin. ¹

In 1971, an association between synthetic estrogens and clear-cell vaginal adenocarcinoma (a cancer of glandular tissues in the vagina) in daughters of women who had taken DES was reported in the medical literature. Herbst, Ulfelder & Poskanzer, Adenocarcinoma of the Vagina, 284 New England J.Med. 878 (1971). Later that year, the Food and Drug Administration (FDA) proscribed the use of DEN (as well as DES) in the treatment of pregnant women. Although DES and DEN continue to be marketed for purposes other than preventing miscarriages, their deleterious effects on female offspring of women who took the drugs while with child (commonly referred to as "DES daughters") are well documented. Since the initial study and FDA banning order, maternal ingestion has been associated with adenosis (abnormal presence of glandular epithelial cells or tissue in the vagina or cervix), structural abnormalities of the cervix and vagina, surgical interventions such as vaginectomies, and a host of other afflictions (infertility, anxiety, embarrassment, mental anguish, and other psychological sequela).

Filial redress for injuries suffered while in utero promises to be expensive for both manufacturers and insurers. The instant case arose because the settlement of a single DES daughter action exhausted Schering's primary liability of $1 million for the year 1974. Numerous other actions against Schering and its fellow manufacturers are pending. See Brief of Amici Curiae The Upjohn Company, Abbott Laboratories, Emons Industries, Inc. and E.R. Squibb & Sons, Inc. When Schering turned to its secondary liability insurer, Home, for further indemnification, the parties disagreed over whether the terms of the policies required Home to pay for these injuries. Insured and insurer professed divergent views on when DEN injury or damage "occurred"--before 1966, when pregnant mothers consumed the substance, or later, during the policy period, when the unfortunate daughters discerned the extent of the harm innocently inflicted on them by well-meaning mothers and their physicians. Predictably, litigation followed.

II

Schering initially sought a declaratory judgment pursuant to 28 U.S.C. § 2201 for a statement of its rights under the insurance policies. On May 6, 1980, the trial court approved a stipulation in which the parties agreed to dismissal of Schering's complaint without prejudice. The action proceeded on counterclaims filed on January 16, 1980 by Home. The litigation was to resolve, inter alia, the issue whether Home was obligated to defend or indemnify Schering for any loss from prenatal use of DEN "which resulted, was discovered or became manifest" during the policy period. Schering's motion for summary judgment was filed November 10, 1980.

Appellee's original contention was that the proper interpretation of the key words "results in personal injury ... during the policy period" required appellant to indemnify Schering for losses sustained from claims for injuries which became manifest during the policy period. But, the injuries to daughters of DES users become manifest only some years after the onset of menses, when the ill-fated offspring mature and discover the extent of the damage visited upon them.

During the pendency of the action a deus ex machina in the form of an opinion of the District of Columbia Circuit persuaded Schering to modify its theory. In Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034 (D.C.Cir.1981), cert. denied, 455 U.S. 1007, 102 S.Ct. 1644, 71 L.Ed.2d 875 (1982), the court construed CGL policies similar to the ones issued by Home,...