Eli Lilly & Co. v. Arch Ins. Co.

• Decision Date: 09 September 2015
• Docket Number: No. 1:13-cv-01770-LJM-TAB,1:13-cv-01770-LJM-TAB
• Parties: ELI LILLY AND COMPANY, and ELI LILLY DO BRASIL LTDA, Plaintiffs, v. ARCH INSURANCE COMPANY, ARCH SPECIALTY INSURANCE COMPANY, COMMERCIAL UNION INSURANCE COMPANY N/K/A ONEBEACON AMERICA INSURANCE COMPANY, ENDURANCE AMERICAN SPECIALTY INSURANCE COMPANY, LIBERTY INSURANCE UNDERWRITERS INC., LIBERTY MUTUAL FIRE INSURANCE COMPANY, LIBERTY MUTUAL INSURANCE COMPANY, RSUI INDEMNITY COMPANY, WESTCHESTER SURPLUS LINES INSURANCE CO., and XL INSURANCE AMERICA, INC., Defendants.
• Court: U.S. District Court — Southern District of Indiana

ELI LILLY AND COMPANY, and ELI LILLY DO BRASIL LTDA, Plaintiffs, v. ARCH INSURANCE COMPANY,ARCH SPECIALTY INSURANCE COMPANY,COMMERCIAL UNION INSURANCE COMPANYN/K/A ONEBEACON AMERICA INSURANCE COMPANY,ENDURANCE AMERICAN SPECIALTY INSURANCE COMPANY,LIBERTY INSURANCE UNDERWRITERS INC.,LIBERTY MUTUAL FIRE INSURANCE COMPANY,LIBERTY MUTUAL INSURANCE COMPANY,RSUI INDEMNITY COMPANY,WESTCHESTER SURPLUS LINES INSURANCE CO.,and XL INSURANCE AMERICA, INC., Defendants.

No. 1:13-cv-01770-LJM-TAB

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

September 9, 2015

ORDER ON MOTIONS TO DISMISS

Plaintiffs Eli Lilly and Company ("Eli Lilly") and Eli Lilly do Brasil Ltds. ("Lilly Brasil") (Plaintiffs, collectively, "Plaintiffs"), allege in the First Amended Complaint and Jury Demand ("First Amended Complaint") that they are entitled to insurance coverage and/or indemnity from the Defendants Arch Insurance Company, Arch Specialty Insurance Company (these two Defendants, collectively "Arch"), Commercial Union Insurance Company, Inc. l/k/a OneBeacon America Insurance Company, n/k/a Lamorak InsuranceCompany ("Lamorak")¹, Endurance American Specialty Insurance Company ("Endurance"), Liberty Insurance Underwriters Inc. ("LIU"), Liberty Mutual Fire Insurance Company ("Liberty Mutual Fire"), Liberty Mutual Insurance Company ("Liberty Mutual"), RSUI Indemnity Company ("RSUI"), Westchester Surplus Lines Insurance Co. ("Westchester"), and XL Insurance America, Inc. ("XLIA") (all Defendants collectively, "Defendants"), for claims brought against Lilly Brasil by certain citizens of Brazil and the government of the Federal Republic of Brazil in the Federal Republic of Brazil (the "underlying claims"). First Am. Compl. ¶¶ 1, 9. On March 20, 2015, LIU filed a motion to dismiss Count III of the First Amended Complaint. Dkt. No. 230. On the same day, Lamorak joined in the motion and included its own arguments, Dkt. No. 235; and Endurance, Westchester and RSUI joined in the motion without their own arguments (these four Defendants, collectively, "Joinder Defendants;" all moving Defendants, collectively, the "moving Defendants"). Dkt. Nos. 234, 241 & 242. To the extent that the Joinder Defendants seek the Court's leave to join LIU's motion to dismiss, it is GRANTED. Further, for the reasons stated herein, the Court GRANTS the motions to dismiss Count III, but without prejudice.

I. BACKGROUND & THE RELEVANT ALLEGATIONS²

On October 7, 2013, Plaintiffs filed a Complaint for declaratory judgment in state court. Dkt. No. 16-1, at 3. Therein, Plaintiffs sued eighteen³ of Eli Lilly's primary, umbrella and excess insurers seeking coverage for the underling claims. On November 6, 2013, Liberty Fire and Liberty Mutual removed the action to this Court.

On December 9, 2013, each Defendant answered the Complaint and asserted as an affirmative defense that Lilly Brasil was not their respective insured. See Lamorak Ans., Dkt. No. 79, Aff. Def. 1; LIU Ans., Dkt. No. 80, Aff. Def. 2; Arch Ins. Underwriter, Inc. Ans., Dkt. No. 80, Aff. Def. 6; Arch Specialty Ins. Co. Ans., Dkt. No. 82, Aff. Def. 6; XLIA Ans., Dkt. No. 83, Aff. Def. 5; Endurance Ans., Dkt. No. 84, Aff. Def. 2; Liberty Mutual & Liberty Fire Ans. Dkt. No. 85, Aff. Def. 5; RSUI Ans., Dkt. No. 86, Aff. Def. 2

On February 11, 2014, a Case Management Plan was approved by this Court. Dkt. No. 139. The Case Management Plan ordered the parties to identify the underlying claims and identify and collect the relevant policies. Policies were produced by Defendants on or before April 7, 2014. The Case Management Plan was stayed by certain Orders at Plaintiffs' request. Dkt. Nos. 165, 169 & 188.

On November 20, 2014, Arch filed a motion to dismiss or in the alternative for judgment on the pleadings ("Arch's MTD"). Dkt. Nos. 194 & 195. One of the issuesraised by that motion was whether or not Lilly Brasil was an insured under any policy issued by Arch to Eli Lilly. See id. Plaintiffs were granted three (3) extensions of time within which to respond to this motion to dismiss to an including February 2, 2015. See Dkt. Nos. 196, 199 & 210.

On January 23, 2015, instead of filing a response to Arch's MTD, Plaintiffs sought leave to file a first amended complaint, which was granted by the Court on January 27, 2015. Dkt. Nos. 211, 212 & 213. In Count III, Reformation was asserted for the first time in the First Amended Complaint against all Defendants. See Dkt. No. 213, First Am. Compl. ¶¶ 43-51. It appears that Count III was meant to be in the alternative because it states,

If, and to the extent, the policies are not reflective of the parties' intent that Eli Lilly and its subsidiaries - including Lilly do Brasil - should be, and are, insured against worldwide losses, including the Underlying Actions, equity demands that the policies are reformed to reflect the true intent of the parties and to correct a mutual mistake in the drafting of the policies.

First Am. Compl., ¶ 51. The remaining, relevant allegations in Count III are set forth here:

44. Arch has filed a motion for judgment on the pleadings (Doc. 194) alleging that there is no coverage under its policies for Lilly do Brasil because Lilly do Brasil is not a named insured. The other Defendant Insurers have raised this argument as one of many general affirmative defenses, but none have joined in Arch's motion.

45. However, Lilly has, for many years, and at all times relevant to this action, insured its world-wide operations and its subsidiaries through a single comprehensive program of excess insurance for its general, employer and auto liability. Affidavit of Lilly Risk Manager Mark Saltsgaver, ¶ 4, attached here as Ex. H.

46. Lilly sells products in over 120 countries around the world; it has subsidiaries in 44 countries outside of the United States and Puerto Rico; and 47% of its long-lived assets are located outside of the United States and Puerto Rico.

Saltsgaver Aff., ¶ 5. Profits and losses among Lilly's subsidiaries such as Lilly do Brasil go directly to the bottom line for Eli Lilly and Company, as such subsidiaries are included in the consolidated financial statements for the company, the annual reports, and on financial reports filed with the Securities and Exchange Commission. Id. at ¶ 7. With so much of its business and assets occurring, or being held, through its foreign subsidiaries, Lilly would never, knowingly, allow so much of its business to be uninsured or underinsured, as a result of there being no excess/umbrella coverage, as Arch now argues. Id. at ¶ 5.

47. The applications for, and correspondence about, the excess/umbrella Policies, make clear that Eli Lilly and Lilly do Brasil are both insured under the Policies against the Underlying Actions in Brazil, and/or that it was Lilly's and the Defendant Insurers' intent that Eli Lilly and Lilly do Brasil would both be covered.

48. JLT Limited, the world-wide and lead broker who placed the Policies, has confirmed that the Policies are, and were intended to be, responsive to claims around the world against Lilly and/or Lilly's subsidiaries like Lilly do Brasil. See the affidavits of Ian S. Pettman and Mike Brown, attached here as Exhibits "I" and "J." Mssrs. Pettman and Brown.

49. Likewise, the United States broker Allan R. Borgersen that was involved in placing this excess program confirms that the excess program was designed to provide worldwide coverage to Eli Lilly and all of its subsidiaries and/or affiliates such as Lilly do Brasil. Furthermore, it was his intent and expectation that the program would provide worldwide coverage to Eli Lilly and all of its subsidiaries and/or affiliates such as Lilly do Brasil.⁴

50. The conduct by the parties during the time of contracting, the applications for, the correspondence about, and the premiums paid for, the Policies, all show an understanding common to Lilly and the Defendants Insurers that the Policies would insure Eli Lilly and its subsidiaries against loss world-wide.

First. Am. Compl. ¶¶ 44-50.

There are no additional specifics in either of the referenced affidavits. See Dkt. Nos. 213-9, Pettman Aff.; 213-10, Brown Aff.

II. MOTION TO DISMISS STANDARD

Under the Supreme Court's directive in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), to survive the moving Defendants' motion for failure to state a claim upon which relief may be granted, Plaintiffs must provide the grounds for their entitlement to relief with more than labels, conclusions or a formulaic recitation of the elements of a cause of action. Id. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). The Court assumes that all the allegations in the First Amended Complaint are true, but the "allegations must be enough to raise a right to relief above the speculative level." Id. The touchstone is whether the First Amended Complaint gives the moving Defendants "fair notice of what the ... claim is and the grounds upon which it rests." Id. (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Legal conclusions or conclusory allegations are insufficient to state a claim for relief. See McCauley v. City of Chicago, 671 F.3d 611, 617 (7^th Cir. 2011). The Court may also consider documents attached to the First Amended Complaint and documents referenced in the Frist Amended Complaint, as well as take judicial notice of publicly available documents to decide the motion. See Williamson v. Curran, 714 F.3d 432, 436 (7^th Cir. 2013).

Count III alleged mistake; therefore, the moving Defendants argue it is subject to the heightened pleading standard of Rule 9(b) of the Federal Rules of Civil Procedure ("Rule 9(b)"). See Schleicher v. Wendt, 529 F. Supp. 2d 959, 961 (S.D. Ind. 2007). Rule 9(b) states: "In alleging fraud or mistake, a party must state with particularity thecircumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." To allege with particularity, Plaintiffs must allege "the who, what,...