Allianz Ins. Co. v. Guidant Corp., No. 2-04-1038.
| Court | Supreme Court of Illinois |
| Writing for the Court | Grometer |
| Citation | 355 Ill. App.3d 721,839 N.E.2d 113 |
| Decision Date | 28 January 2005 |
| Docket Number | No. 2-04-1038. |
| Parties | ALLIANZ INSURANCE COMPANY, Plaintiff-Appellee, v. GUIDANT CORPORATION, Defendant-Appellant (Zurich Specialties London Ltd., Gerling Konzern Allgemeine Versicherungs-AG, Liberty International Insurance Company, Intervenors and Third-Party Plaintiffs-Appellees; American International Specialty Lines Insurance Company, Westchester Fire Insurance Company, Lumbermens Mutual Casualty Company, Third-Party Defendants-Appellees). |
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v.
GUIDANT CORPORATION, Defendant-Appellant (Zurich Specialties London Ltd., Gerling Konzern Allgemeine Versicherungs-AG, Liberty International Insurance Company, Intervenors and Third-Party Plaintiffs-Appellees; American International Specialty Lines Insurance Company, Westchester Fire Insurance Company, Lumbermens Mutual Casualty Company, Third-Party Defendants-Appellees).
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Mary Rose Alexander, Maaike S. Hudson, Paige S. Ormond, Latham & Watkins LLP, Chicago, G. Andrew Lundberg, Latham & Watkins LLP, Los Angeles, CA, Terry A. Ekl, Vincent C. Mancini, Connolly, Ekl & Williams, P.C., Clarendon Hills, for Guidant Corporation.
Lazar P. Raynal, Geoffrey A. Vance, McDermott, Will & Every, Chicago, Margaret H. Warner, Gregory A. Krauss, McDermott, Will & Emery, Washington, DC, for Allianz Insurance Company.
Josh M. Kantrow, Cozen O'Connor, Chicago, J.C. Ditzler, Jodi McDougall, Cozen O'Connor, Seattle, WA, for Gerling Konzern Allgemeine Versicherungs-AG, Liberty International Insurance Company, Zurich Specialties London Ltd.
Joseph A. Hinkhouse, Richard McDermott, Sarah H. Dearing, Lord, Bissell & Brook, LLP, Chicago, for American International Specialty Lines Insurance Company.
Lori E. Iwan, James K. Horstman, Douglas M. DeWitt, Iwan, Cray, Huber, Horstman & VanAusdal, LLC, Chicago, for Westchester Fire Insurance Company.
Michael W. Morrison, Tressler, Soderstrom, Maloney & Priess, Chicago, for Lumbermens Mutual Casualty Company.
Justice GROMETER delivered the opinion of the court:
Defendant, Guidant Corporation (Guidant), appeals an order of the circuit court of Du Page County denying its request for a partial stay of this insurance coverage lawsuit. We affirm.
Guidant, through its wholly owned subsidiary, Endovascular Technologies, Inc. (EVT), developed and manufactured a medical device known as the Ancure Endograft System (Ancure Device). In September 1999, the Food and Drug Administration (FDA) approved the Ancure Device for commercial sale. The Ancure Device was sold and distributed by Guidant Sales Corporation (GSC), another wholly owned subsidiary of Guidant. The Ancure Device was used to treat abdominal aortic aneurysms, a potentially life-threatening condition arising from the development of a weak area in the wall of the aorta. The Ancure Device, which is inserted through an incision in the patient's leg, uses a delivery system to place a woven fabric
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graft into the aorta to prevent rupture. Prior to the introduction of the Ancure Device, treating an abdominal aortic aneurysm required traditional surgery in which the patient's abdomen had to be cut open to allow the surgeon to reach the aorta.
After sales of the Ancure Device commenced, EVT became aware of various malfunctions associated with the delivery system used to place the graft. Some of these malfunctions resulted in the delivery system becoming improperly lodged in a patient's body, often requiring the removal of the delivery system by traditional open surgical repair. As a result, some EVT sales representatives informed doctors about a procedure involving breaking or cutting the handle of the Ancure Device's delivery system when the delivery system 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.
Under federal law, a company is required to file a medical device report (MDR) with the FDA when it appears that a device has malfunctioned in such a way that it may have caused or contributed to a death or serious injury, or has malfunctioned and would be likely to cause or contribute to a death or serious injury if the malfunction were to recur. 21 U.S.C. § 360i(a)(1) (2000). When placement of the Ancure Device required additional surgical procedures, an MDR was required to be filed with the FDA. On March 16, 2001, EVT suspended commercial sales of the Ancure Device and recalled those devices remaining in circulation "after discovering a number of regulatory deficiencies relating to the Ancure System." By that time, more than 7,600 Ancure Devices had been sold. On June 12, 2003, EVT pleaded guilty to 10 felonies relating to the Ancure Device, including misbranding and making false statements to government regulators. See http://www.usdoj.gov/usao/can/press/html/2003_06_12_endovascular.html. In connection with the plea agreement, EVT agreed that it "knowingly and intentionally misled [the] FDA about the frequency with which the delivery system of the Ancure Device malfunctioned." EVT also acknowledged:
"Between September 30, 1999 and March 16, 2001, defendant filed 172 MDRs for the delivery system of the Ancure Device.
On or about March 23, 2001, defendant disclosed to [the] FDA the existence of approximately 2,628 additional MDRs concerning the delivery system of the Ancure Device that had not been previously reported to FDA as required by law. Among these 2,628 MDRs that had not been timely filed were 12 deaths and 57 conversions to traditional open surgical repair."
As a result of the plea agreement, EVT agreed to pay 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. Although the Ancure Device was returned to the market following further FDA review, Guidant and some of its subsidiaries, including EVT and GSC, faced numerous lawsuits for injuries allegedly suffered by individuals as a result of the implantation or attempted implantation of the Ancure Device (the underlying claims).
According to plaintiff Allianz Insurance Company's complaint, it began issuing insurance coverage to Guidant in 1997. Relevant here, Allianz, Guidant's first-layer carrier, issued to Guidant policy number ULA 4100422 for the period September 1,
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2000, through September 1, 2001, and the period September 1, 2001, through September 1, 2002. EVT and GSC were named insureds under the Allianz policy. In addition, six additional insurers, Zurich Specialties London Limited (Zurich), Gerling Konzern Allgemeine Versicherungs-AG (Gerling), Liberty Mutual Insurance Company (Liberty), American International Specialty Lines Insurance Company (AISLIC), Westchester Fire Insurance Company (Westchester), and Lumbermens Mutual Casualty Company (Lumbermens) provided Guidant with excess product liability coverage during the same time periods.
In or about July 2000, in conjunction with the policy renewal commencing September 1, 2000, Guidant provided Allianz with information regarding the nature of its business and the nature and extent of any losses it faces, to allow Allianz to underwrite the risk. At the same time, Guidant completed an application for insurance coverage containing questions regarding underwriting the risk. In or about June 2001, Guidant provided Allianz with additional information in conjunction with the policy renewal beginning September 1, 2001. For instance, Guidant was posed the following questions and gave the following answers on its 2000 and 2001 applications:
"21. Are there any integrated or batch occurrences or claims, whether or not reported to an insurance carrier as an integrated or batch occurrence, during the past 10 years or since the inception of the Applicants' first Bermuda market excess liability policy (which ever is longer) which have cost or are reasonably expected to cost more than $2 million U.S. (or equivalent)?
YES () NO (X)
22. Are the Applicants aware of any actual, alleged or suspected cause, event or condition associated with on-going completed, divested and/or discontinued operations/entities that might reasonably be expected to give rise to a liability loss or damages including indemnity and expense in excess of U.S. $2 million (or equivalent), aggregating as one loss all liability losses attributable directly or indirectly to the same actual, alleged or suspected cause, event or condition.
YES () NO (X)
To the best of our knowledge
If YES, please describe fully,
23. Are the Applicants aware of any actual, alleged or suspected defect, hazard or failure to warn or such, associated with present, invested and/or discontinued goods or products manufactured, sold, tested, handled or distributed by the Applicants, or similar products, which might reasonably be expected to give rise to a liability loss or damages including indemnity and expense in excess of U.S. $2 million (or actual, alleged or suspected defect, hazard or failure to warm [sic])?
YES () NO (X)
To the best of our knowledge" (Emphases in original.)
At various times between August 2001 and September 2003, Guidant advised Allianz of the underlying claims arising out of the Ancure Device. By a letter dated October 20, 2003, Allianz disclaimed liability for these claims. On November 6, 2003, Allianz filed a four-count complaint against Guidant. Relevant here, count I of Allianz's complaint alleged common-law fraud on the basis that Guidant made "false representations and concealed and failed to disclose the status of the Ancure product defects and claims arising therefrom
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in the course of Guidant's application for the 2000 issuance of Allianz Policy Number ULA 4100422, and also in the course of its application for the 2001 renewal of Allianz Policy Number ULA 4100422," knowing that such representations were false, in order to secure insurance from Allianz.
In addition, count IV of Allianz's complaint sought a declaration that the policies issued to Guidant do not provide coverage for claims, losses, or liabilities related to the Ancure Device. Count IV was divided into two...
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