Allianz Ins. Co. v. Guidant Corp.
| Decision Date | 29 December 2008 |
| Docket Number | No. 2-07-0814.,2-07-0814. |
| Citation | 900 N.E.2d 1218 |
| Parties | ALLIANZ INSURANCE COMPANY, Zurich Specialties London Limited, Gerling Konzern Allgemeine Versicherungs — AG, Liberty International Insurance Company, American International Lines Insurance Company, Westchester Fire Insurance Company, and Lumbermens Mutual Casualty Company, Plaintiffs-Appellees, v. GUIDANT CORPORATION, Endovascular Technologies, Inc., Guidant Sales Corporation, Advance Cardiovascular Systems, Inc., and Origin Medsystems, Inc., Defendants-Appellants. |
| Court | United States Appellate Court of Illinois |
Hinkhouse, Richard McDermott, Sarah H. Dearing, Hinkhouse Williams Walsh LLP, Chicago, IL, for Appellee American International Speciality Lines Ins. Co.
J.C. Ditzler, Cozen O'Connor, Seattle, WA, for Appellee Gerling Konzern Allgemeine Versicherungs-AG, Liberty International Insurance Company and Zurich Specialties London Limited.
James K. Horstman, Mark A. Hooper, Cray, Huber, Horstman, Heil & Vanausdal LLC, Chicago, IL, for Westchester Fire Insurance Company.
This appeal involves the scope of insurance coverage for numerous product liability claims involving an implantable graft used in the repair of abdominal aortic aneurysms. The circuit court of Du Page County granted partial summary judgment in favor of plaintiffs, Allianz Insurance Company (Allianz) and other insurers. On appeal, defendants, Guidant Corporation (Guidant) and several of its affiliates, seek reversal of the trial court's ruling. For the reasons that follow, we affirm.1
I. BACKGROUND
The medical instrument at the center of this dispute is the "Ancure Endograft System" (Ancure Device), a Y-shaped, synthetic vascular graft with an accompanying delivery catheter. The Ancure Device is used in the repair of an abdominal aortic aneurysm, a potentially life-threatening condition arising from the development of a weak area in the abdominal portion of the wall of the aorta. As a result of this weakness, the artery balloons and, in more severe cases, ruptures. Abdominal aortic aneurysms generally require open abdominal surgery to repair. However, the Ancure Device provides an alternative to traditional "open repair" surgery. The device is implanted by making small incisions in the arteries of the patient's groin and threading the delivery catheter upward through blood vessels to where the graft is put in place to support the weakened area. The Ancure Device was developed by Endovascular Technologies, Inc. (EVT), in the 1990s. Guidant acquired EVT in 1997. In September 1999, the United States Food and Drug Administration (FDA) approved the Ancure Device for sale.
Allianz and Zurich Specialties London Limited (Zurich), Gerling Konzern Allgemeine Versicherungs—AG (Gerling), Liberty International Insurance Company (Liberty), American International Specialty Lines Insurance Company (AISLIC), Westchester Fire Insurance Company (Westchester), and Lumbermens Mutual Casualty Company (Lumbermens) (collectively the Excess Insurers and, together with Allianz, the Insurers),2 insured Guidant and four of its affiliates, Guidant Sales Corporation, Origin Medsystems, Inc., Advanced Cardiovascular Systems, Inc., and EVT (collectively the Affiliates and, together with Guidant, the Policyholders).
This litigation involves two distinct policy periods. The first policy period is from September 1, 2000, to September 1, 2001 (Year One). In July 2000, the Policyholders provided Allianz with a completed application for Year One coverage. After receiving and approving the application, Allianz, the first-layer carrier, issued a "claims made" commercial umbrella liability insurance policy.3 The policy provided limits of coverage of $25 million per occurrence and $25 million in the aggregate for claims in excess of a self-insured retention (SIR) of $5 million per occurrence and $8 million in the aggregate.4 Subsequent layers of Year One coverage were provided by Gerling, AISLIC, Lumbermens, and Westchester.
Allianz later issued a policy providing coverage to the Policyholders for the second policy period, from September 1, 2001, to September 1, 2002 (Year Two). This policy provided limits of coverage of $25 million per occurrence and $25 million in the aggregate for claims in excess of an SIR of $5 million per occurrence and $10 million in the aggregate. The Excess Insurers issued various one-year policies in excess of the Allianz policy for Year Two. During both Year One and Year Two, the policies issued by the Excess Insurers "followed form" to the Allianz policies, that is, the Excess Insurers' policies adopted virtually the same terms and conditions as the Allianz policies. The issues presented in this appeal involve coverage issued by the Insurers to the Policyholders for Year One.
The Allianz policies contain, and the non-Allianz policies incorporate, the following "Batch Clause," which is the focus of the instant litigation:
"It is agreed that the policy section, Definitions, (6) `Occurrence', with respect to `products-completed operations hazard' is amended to include the following[:]
The term `batch' means all products which have the same known or suspected defect or deficiency which is identified by the same advisory memorandum[.]
The term `advisory memorandum' is any communication issued by you to inform health professionals or other appropriate persons or firms of a risk of `bodily injury' or `property damage' from a product in use[.]
Coverage does not apply to any loss, claim, or `suit' which arises out of a defect or deficiency which was known or suspected prior to the retroactive date shown in this policy[.]
When this endorsement is attached to your policy, all losses arising from a single `batch' of your product will be considered to be one `occurrence[.]' Therefore, when multiple losses are considered to be one `occurrence' you must only meet a single `self-insured retention' amount[.] Likewise, our limit of liability due to `bodily injury' and `property damage' is limited to that of a single `occurrence[.]'
All claims made by persons or organization [sic] seeking damages because of `bodily injury' or `property damage' arising out of one batch will be deemed to have been made at the time the first of those claims is made against you[.]"
Soon after the Ancure Device was approved by the FDA, EVT became aware of various malfunctions in the delivery catheter that was used to insert the graft. Some of these malfunctions resulted in the delivery system becoming improperly lodged in patients' bodies, often requiring the removal of the delivery system by traditional open surgical repair. In response to these problems with the delivery system, some EVT sales representatives developed a procedure to break or cut the handle of the delivery system when it became lodged and could not be removed without resorting to traditional open surgical repair. This procedure, which became known as the "Handle-Breaking Technique," was not presented to the FDA for approval.
On March 16, 2001, Guidant issued a press release stating that it was voluntarily halting the production and sale of the Ancure Device. According to the press release, this action was taken "as a result of Guidant's identification of certain deficiencies in the company's ANCURE-related regulatory processes and communications with the [FDA]." The press release explained that these deficiencies "are limited to * * * regulatory issues associated with the deployment system of the product" and that patients already implanted with the Ancure Device "are not affected by this action." At the time of the recall, more than 7,600 devices had already been sold. Guidant followed up the press release with three "Dear Doctor" letters. Those letters were issued on March 21, 2001, March 31, 2001, and May 2, 2001.
Meanwhile, the FDA initiated an investigation into EVT regarding its failure to make certain disclosures about the performance of the Ancure Device. In 2003, the federal government filed criminal charges and a civil action against EVT for failing to report problems with the Ancure Device. On June 12, 2003, EVT pleaded guilty to 10 charges, including misbranding and making false statements to government regulators. As a result of the plea agreement, EVT paid the federal government $92.4 million, which included a forfeiture of $10.9 million, a criminal fine of $32.5 million, and a civil settlement of $49 million.
After the Insurers' policies took effect on September 1, 2000, the Policyholders began to receive product liability claims involving the Ancure Device. For purposes of the coverage issue presented under the claims-made policies at issue here, the underlying Ancure claims fall into three categories: claims made in Year One, claims made in Year Two, and claims made after the termination of the Year Two policies.
Two Ancure claims were made during Year One-the Carter claim and the Krupa claim. In handwritten letters dated March 9, 2001, and April 7, 2001, Harry Carter alleged that the Ancure Device had failed to "stay deployed properly when inserted into [his] aorta and left and right femoral iliac artery." Carter further alleged that "the right branch closed up, shutting off blood flow through the right iliac artery"...
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