Eli Lilly and Co. v. Zurich American Ins. Co., 104CV0446SEBVSS.
| Decision Date | 12 December 2005 |
| Docket Number | No. 104CV0446SEBVSS.,104CV0446SEBVSS. |
| Citation | 405 F.Supp.2d 948 |
| Parties | ELI LILLY AND COMPANY, Plaintiff, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Southern District of Indiana |
Christopher G. Scanlon, Daniel Ryan Roy, Paul A. Wolfla, Baker & Daniels, Indianapolis, IN, for Plaintiff.
Stephen J. Peters, Stewart & Irwin PC, Indianapolis, IN, Karen M. Dixon, Michael M. Marick, Meckler Bulger & Tilson, Chicago, IL, for Defendant.
ENTRY
This matter is before the court on competing motions for summary judgment. For the reasons discussed in this entry, we grant Plaintiff's Motion for Partial Summary Judgment on its claim of breach of contract and grant in part Defendant's Motion for Summary Judgment on Plaintiff's claim of bad faith.
Summary judgment is to be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In determining summary judgment, the court views all evidence and draws reasonable inferences in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-51, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The scope of coverage provided by an insurance policy, however, is a question of law particularly appropriate for resolution at the summary judgment stage since factual disputes, if any, are ordinarily limited to the amount of loss for which an insurer may be liable. See Duane Reade, Inc. v. St. Paul Fire and Marine Ins. Co., 411 F.3d 384, 389 (2nd Cir.2005); National Fire and Casualty Co. v. West by and Through Norris, 107 F.3d 531, 534-535 (7th Cir.1997); Hurst-Rosche Engineers, Inc. v. Commercial Union Ins. Co., 51 F.3d 1336, 1342 (7th Cir. 1995).
Eli Lilly and Company ("Lilly") purchased an insurance policy ("Zurich Policy") from Zurich American Insurance Company ("Zurich") for the period January 1, 2001, through January 1, 2002. The material terms of the Policy are not in dispute. The Zurich Policy is a claims made excess liability policy providing comprehensive general liability coverage of up to $7 million for a loss over and above $3 million.
The Zurich Policy obligates the Defendant to indemnify Lilly, subject to the policy limits and underlying threshold amount, for the amount Lilly pays in settlement of claims of liability for damages on account of alleged injury. The policy language which describes the coverage provides as follows:
In the event that a claim or claims are first made, in writing, against the Insured during the period of this Policy arising from a Loss which took place on or after 1st January, 1992 (hereinafter referred to as the Retroactive Date), where allowable, Underwriters will indemnify the Insured, subject to the Limits of Liability set forth in the Declarations and the applicable provisions of this Policy, for that amount of the ULTIMATE NET SUM PAYABLE in excess of the UNDERLYING AMOUNTS OBLIGATIONS OF THE INSURED which the Insured shall be obligated to pay by reason of the liability:
for damages on account of:
resulting from each Loss, but only such Personal Injuries, Property Damage and Advertising Injury, neither expected nor intended by the Insured, as respects the claim or claims that are first made, in writing, against the Insured during the period of this Policy.
It is agreed that a claim or claims first made against the Insured shall be the first written demand made against the Insured for money or services in respect of such injury or damage as is insured by this Policy and the date of a claim or claims first made shall be the date of the first such written demand against the Insured.
The Zurich Policy defines "Ultimate Net Sum Payable" as follows:
The words "ULTIMATE NET SUM PAYABLE", wherever used in this Policy, mean the total sum the Insured is obligated, either through adjudication or compromise, to pay as damages in respect of any Loss that would, in accordance with the Declarations, Insuring Agreements, Definitions, Exclusions and Conditions of this Policy, be covered by this Policy including investigation, adjustment, experts, appraisal, legal, appeal and any defense costs and expenses (referred to in this Policy as "Costs and Expenses") paid or incurred by the Insured or paid or incurred by Underwriters on behalf of the Insured.
The following shall not be included within the meaning of ULTIMATE NET SUM PAYABLE:
a) such "Costs and Expenses" which the Insured, or on whose behalf any insurer, has paid or incurred or is obligated to pay as respects the UNDERLYING AMOUNTS:
b) salaries of the Insured's or any insurers; permanent employees.
The Zurich Policy includes endorsement language which excludes coverage for "products liability" and "completed operations liability" hazards. The language of the exclusionary endorsement states, in relevant part:
This Policy is amended in that notwithstanding anything contained herein to the contrary, it shall not apply to —
i) the Products Liability Hazard;
ii) the Completed Operations Liability Hazard.
Lilly also maintained insurance policies with other providers to fill in some of the gaps in coverage existing in the Zurich policy. These included a similar comprehensive liability policy covering the first million dollars of loss on any claim and an umbrella policy with general liability coverage attaching after the first $10 million and products liability and completed operations liability coverage attaching above the first $25 million.
Lilly manufactures, markets and sells the chemotherapy drug known as Gemzar. Lilly sells Gemzar in a powdered form to wholesalers, who in turn sell the drug to other wholesalers or health care providers.
Beginning in August 2001, Lilly and others were named as defendants in over 200 lawsuits ("Courtney Litigation") resulting from the actions of Robert R. Courtney ("Courtney"), a pharmacist who operated an oncological pharmacy in Kansas City, Missouri. Courtney's pharmacy practice was unique; he did not fill prescriptions to the general public in the familiar fashion. Rather, Courtney received and processed custom-formulated prescriptions from physicians treating cancer patients, which he used as a formula or recipe to make or reconstitute the usual injectable liquid formula called for by the prescription. Gemzar was one of the cancerfighting ingredients often called for in the prescriptions handled by Courtney. Had Courtney followed the doctors' orders, he would have utilized the specified amounts of Gemzar (or other chemotherapy drugs), together with the correct amounts of saline solution, to create an injectable chemotherapy prescription. Instead, as a criminal investigation revealed, Courtney diluted the active ingredient (Gemzar, in Lilly's case) by adding more saline solution than was called for, which yielded an intravenous solution containing substantially less of the active chemotherapy drug than prescribed.
On August 23, 2001, Courtney was indicted in eight counts of product tampering, adulteration and misbranding of six doses of chemotherapy drugs prepared by him between May and August of 2001. In February 2002, after affected patients had filed civil litigation arising out of his criminal conduct, Courtney pled guilty to the criminal charges. The civil litigation claims brought by the affected patients included claims against Lilly and another pharmaceutical manufacturer, which alleged that Lilly either should have known or did know of Courtney's actions and the dangers they posed, and that Lilly and the other pharmaceutical manufacturer should have warned or otherwise notified plaintiffs and others. Plaintiffs also alleged a variety of personal injuries and resultant damages arising from the conduct of which they complained.
Lilly notified its insurance carriers of the Courtney Litigation. With respect to Zurich, Lilly provided written notice of the claims in a letter dated December 18, 2001. Zurich acknowledged receipt of Lilly's written notice on February 14, 2002. Lilly settled the Courtney Litigation in October 2002 for an amount substantially in excess of $10 million. Lilly then requested, from Zurich and its other insurers, reimbursement of the amounts paid in defending and settling the Courtney Litigation. Zurich denied Lilly's claim under the policy exclusions for product liability hazards and completed operations hazards. That denial by Zurich prompted this lawsuit by Lilly, who claims entitlement to coverage and who further asserts that Zurich's denial was in bad faith.
Lilly claims coverage of this claim is provided for in the Zurich Policy and that it should be reimbursed for the money it expended to settle the Courtney Litigation. The Courtney Litigation was based on the harm caused to the patients by Courtney's dilution of the prescribed chemotherapy drugs. The dilution was a wrongful act by Robert Courtney, a pharmacist not in the employ of Lilly. Lilly's alleged responsibility arose from the patients' claims that, through accounting procedures used to monitor the use of its drugs, Lilly knew or should have known of the dilution and should have acted, but did not, upon that information to protect the patients. There has been no claim that the product, Gemzar, was itself the cause of any harm.
The Zurich Policy is a general liability policy intended to cover costs and damages resulting from claims arising out of a wide...
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