Eli Lilly and Co. v. Home Ins. Co.
| Decision Date | 24 June 1986 |
| Docket Number | 84-5394,No. 84-5391,84-5391 |
| Citation | 254 U.S.App.D.C. 1,794 F.2d 710 |
| Parties | ELI LILLY AND COMPANY v. HOME INSURANCE COMPANY, et al. Firemen's Fund Insurance Company, Appellant 1 . to 84-5399. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
George Marshall Moriarty, Kenneth W. Erickson, Boston, Mass., Michael Nussbaum, Earl C. Dudley, Jr., Dennis M. Flannery, A. Stephen Hut, Jr., Washington, D.C., Sheila L. Birnbaum, New York City, Lawrence E. Carr, Jr., James F. Lee, Jr., Washington, D.C., James E. Rocap, III, Indianapolis, Ind., Stephen L. Nightingale, Washington, D.C., James P. Schaller, M. Elizabeth Medaglia, Brendan V. Sullivan, Jr., John J. Buckely, Jr., R. Harrison, Pledger, William John Hickey, Jr., Richard H. Gimer, Brian C. Shevlin, James C. Gregg and James E. Greene were on the supplemental brief following remand for appellants.
Theodore R. Boehm, Christopher G. Scanlon, Indianapolis, Ind., Ralph Earle II, and Michael A. Nardolilli, Washington, D.C., were on the supplemental brief following remand for appellee.
Before EDWARDS and SCALIA, Circuit Judges, and WRIGHT, Senior Circuit Judge. 2
Opinion for the court filed by Senior Circuit Judge WRIGHT.
In Eli Lilly & Co. v. Home Ins. Co., 764 F.2d 876 (D.C.Cir.1985) (Eli Lilly I ), this court certified several legal questions to the Supreme Court of Indiana concerning the scope of insurance coverage for the manufacturer of the drug DES. The Indiana court having issued an opinion answering our questions, the case is once again before us. The Indiana court held that under Indiana law extrinsic evidence would not be considered in construction of an ambiguous term in an insurance contract. Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d 467 (Ind.1985). It further held that in the case of the contract before this court "coverage is triggered at any point between ingestion of DES and the manifestation of a DES-related disease." Id. at 470-471. These holdings dictate affirmance of the order of the District Court granting appellee's summary judgment motion on its declaratory claim. 3
From the late 1940's until 1971 doctors often prescribed the drug DES (diethylstilbestrol) to pregnant women to help prevent miscarriages. In 1970, however, researchers reported a connection between ingestion of DES and development of cancers in the DES users' daughters who were in utero at the time the drug was taken. Massive tort litigation followed, much of it against appellee Eli Lilly, one of the largest manufacturers of DES. 4
From the time it first produced DES until 1976 Eli Lilly purchased some 242 insurance policies to cover its DES risks. All of these policies provided that the insurer would indemnify Lilly for its tort liabilities if the underlying tort suit were based on an "injury" that occurred during the policy period. 5 The term "injury" is not defined with precision in the policies themselves. See 2 Joint Appendix (JA) 96. Nor is the time at which injury "occurs" self-evident. Given that cancer often only develops when a DES daughter is between 15 and 25 years of age, Memorandum Opinion filed April 12, 1984 (Mem.Op.) at 4 n. * * * (D.D.C. Civil Action No. 82-669), 5 JA 697, it was not unusual for several insurance companies to have issued insurance policies to Lilly during the period between ingestion of DES and manifestation of the first diagnosable symptoms.
When Lilly notified its insurers of the DES claims filed against it, the insurers responded by adopting conflicting interpretations of the term "injury." See Eli Lilly I, 764 F.2d at 880. The general thrust of each insurance company's interpretation, however, was that some other insurance company was on the risk at the time the "injury" occurred. According to the District Court:
In general, those insurers at risk prior to the diagnosis of DES-related diseases took the position that policies in force on the "date of manifestation" of the injury covered DES claims. Similarly, those insurers whose policies were in force on the date of manifestation of DES-related injuries took the position that policies in force on the date of ingestion of DES covered DES claims.
Mem.Op. at 5 n. * *, 5 JA 698.
By contrast, Lilly maintained that the policies should be governed by the "multiple trigger" theory: the injury should be understood to have "occurred" at any time between exposure to DES and manifestation of symptoms of a DES-related disease.
Lilly filed a declaratory judgment action in the District Court in March 1982. After extensive discovery, Lilly filed a motion for summary judgment in March 1983. Purporting to rely on Indiana law, the District Court granted Lilly's motion on April 12, 1984. The court held that (1) each insurer on the risk between the initial ingestion of DES and the manifestation of a DES-related disease is liable to Lilly for indemnification, (2) each insurer is liable in full once coverage under its policy is triggered, (3) Lilly can apply only one policy's limit to each injury, and (4) Lilly may select the policy under which it is to be indemnified (subject to the provisions in the policies governing allocation of liability when more than one policy covers an injury). See Mem.Op. at 22-23, 5 JA 715-716. The insurers appealed.
On appeal the insurers argued that under Indiana law they should be allowed to introduce extrinsic evidence of the parties' actual intent in adopting the policies, their course of conduct in applying the policies, Lilly's sophistication and strength as a bargaining partner, and the etiology of DES-related illnesses. The insurance companies therefore argued that summary judgment had been improvidently granted because there were genuine factual disputes on three material issues: (1) the authorship of the policies, (2) the actual intent of the parties on the question of multiple trigger liability, and (3) the views of medical experts on when injury actually "occurs."
In reviewing these challenges this court agreed with the District Court that the law of Indiana governs the case. A review of Indiana cases, however, suggested that the law of that state was unsettled on the question whether extrinsic evidence is admissible to construe an ambiguous trigger provision in an insurance contract and on the issue of which interpretation a court should adopt if it did not admit such extrinsic evidence. Consequently, in an opinion issued June 18, 1985 a divided panel of this court (Wright, Tamm, 6 and Wald) certified three questions of law to the Indiana Supreme Court. 7
On September 12, 1985 the Supreme Court of Indiana issued its opinion responding to this court's certification. A petition for rehearing was denied on November 19, 1985, and the case was remanded to this court.
The Indiana court answered two of the three questions certified by this court. First, the Indiana court held that it would not consider extrinsic evidence to determine the meaning of the trigger provisions of Lilly's insurance. 8 The court grounded this rule against admitting extrinsic evidence on two alternative rationales. First, the court cited the policy of construing ambiguous policy language against the insurer. It hinted that this interpretive policy rested, in part, on the more general rule that construction should favor the non-drafter. 482 N.E.2d at 470. But the court also relied on the policy of construing ambiguous language in this manner because it "further[s] the policy's basic purpose of indemnity." Id. Finally, the Indiana court partially justified the policy of promoting indemnity on the basis of its tendency to conform with the "reasonable expectations" of the insured. Id.
The Indiana court also held that, given the trigger provisions involved in this litigation, the policies' "coverage is triggered at any point between ingestion of DES and the manifestation of a DES-related disease." Id. at 471 (the "multiple trigger" theory). The rationale for this rule was the same as the rationale for exclusion of extrinsic evidence: to further insurance policies' "dominant" purpose of providing indemnification. See id.
The only limitation the Indiana court imposed on the multiple trigger thesis was that the insurance policy must first be found to be "ambiguous" before its special rules of construction will apply. Id. at 470. The court, however, specifically held the language of the policies covering Eli Lilly to be ambiguous.
Broadly stated, the insurers make three arguments as to why the Indiana opinion does not require this court to affirm the judgment of the District Court. First, appellants argue that, notwithstanding its seemingly clear holding, evidence of authorship, actual intent, and etiology is still admissible under the Indiana opinion. Second, and in the alternative, the insurers argue that if Indiana has established a rule of substantive law excluding evidence of authorship, intent, and etiology, the law is unconstitutional. Finally, a handful of the insurers argue that the District Court lacked personal jurisdiction over them and that venue was not proper in the Dnstrict of Columbia. We address these arguments seriatim.
Appellants contend that the Indiana court made evidence of authorship a material issue in construing insurance contracts. They read the Indiana opinion to make the insurer's authorship of a policy a necessary predicate of the general rule that ambiguities in such policies are to be construed against the insurer and, by implication, a necessary predicate of the court's conclusion that the multiple trigger interpretation should be applied here.
Appellants further argue that, although the Indiana court could determine the substantive law and thereby define the material issues in this case, that court could not determine what...
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