Ethicon, Inc. v. Aetna Cas. and Sur. Co., 85 CIV. 7640 (PKL).

Citation688 F. Supp. 119
Decision Date14 June 1988
Docket NumberNo. 85 CIV. 7640 (PKL).,85 CIV. 7640 (PKL).
PartiesETHICON, INC., Plaintiff, v. The AETNA CASUALTY AND SURETY COMPANY, Defendant.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

Patterson, Belknap, Webb & Tyler, New York City (David F. Dobbins, Robert P. Lobue, Craig Stewart, of counsel), for plaintiff.

Rivkin, Radler, Dunne & Bayh, Uniondale, N.Y. (Erica B. Garay, Daniel Gammerman, Thomas M. Gandolfo, of counsel), for defendant.

OPINION & ORDER

LEISURE, District Judge:

This is a diversity action brought pursuant to 28 U.S.C. § 1332 involving the liability of The Aetna Casualty and Surety Company ("Aetna") to Ethicon, Inc. ("Ethicon"), a subsidiary of Johnson & Johnson ("J & J"), for a claim asserted by Ethicon under insurance policies issued by Aetna. Ethicon seeks indemnification for money paid in satisfaction of an $18,900,000 judgment rendered against it in Handgards, Inc. v. Ethicon, Inc., 552 F.Supp. 820 (N.D.Cal. 1982), aff'd, 743 F.2d 1282 (9th Cir.1984), cert. denied, 469 U.S. 1190, 105 S.Ct. 963, 83 L.Ed.2d 968 (1985). Aetna has disclaimed coverage and refuses to indemnify Ethicon. Aetna has moved for partial summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure on the issue of date of loss, claiming that if Aetna must indemnify Ethicon, only the policy in effect in 1962 can be the basis for recovery. Ethicon has cross-moved for summary judgment on the issue of date of loss, claiming that Aetna is liable on policies in force from 1961 to 1974, inclusive. The only issue before the Court is what policies may potentially be triggered by the claims allegedly constituting malicious prosecution under the Aetna policies. For the reasons stated below, the cross-motions of Aetna and Ethicon are granted in part and denied in part.

FACTUAL BACKGROUND

The following facts are derived from the affidavits and Local Rule 3(g) statements of the parties, a Stipulation of Facts the parties have agreed to, and documentary exhibits submitted to the Court.

The origins of this case date back to 1962, and the underlying lawsuits by and against Ethicon comprise a long and tortuous history. In October, 1962, Ethicon filed two patent infringement actions alleging infringement of the Gerard patent method, a process by which disposable plastic gloves were made by using a heat seal. The two actions were consolidated,1 and the suit was dismissed because of a prior use of the Gerard method. The dismissal was affirmed by the Ninth Circuit. Ethicon, Inc. v. Handgards, Inc., 432 F.2d 438 (9th Cir.1970), cert. denied, 402 U.S. 929, 91 S.Ct. 1525, 28 L.Ed.2d 863, reh'g denied, 403 U.S. 912, 91 S.Ct. 2204, 29 L.Ed.2d 690 (1971).2

On January 24, 1967, Ethicon filed an action against T. Hamil Reidy ("Reidy") in Chicago, Illinois, for allegedly infringing the Gerard patent. Reidy was the chief executive officer of the predecessor corporations of Handgards. The action was transferred to the Northern District of California and dismissed without prejudice by the court. (Order, March 18, 1968, Index No. 67 C 123). Stip. Facts ¶ 13.

In June, 1968, after the dismissal of Ethicon's patent action, Handgards filed a complaint against Ethicon and J & J alleging that Ethicon and J & J had violated, inter alia, sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, by conspiring to restrain trade in the disposable glove market from 1961 until the suit was commenced. The antitrust action was tried before a jury in January and February of 1976. In July of 1976, the court entered judgment awarding Handgards $6,219,000 after trebling. Stip. Facts ¶ 27. In 1979, the judgment was reversed by the Ninth Circuit because of erroneous jury instructions, and remanded for a new trial. Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th Cir.1979), cert. denied, 444 U.S. 1025, 100 S.Ct. 688, 62 L.Ed.2d 659 (1980).

Following remand, Handgards moved to amend its complaint to assert a claim for common law malicious prosecution. The motion, opposed by Ethicon, was denied, and the case went to trial on the antitrust issues. The district court awarded Handgards a judgment of $11,826,936.10 after trebling, plus interest and attorney's fees. The district court's decision was affirmed on appeal. 743 F.2d 1282 (9th Cir.1984), cert. denied, 469 U.S. 1190, 105 S.Ct. 963, 83 L.Ed.2d 968 (1985). After the denial of certiorari, Ethicon and Handgards agreed to settle the amount owing on the judgment at $18,900,000.

On or about June 15, 1984, Ethicon first notified Aetna of its claim under the personal injury liability insurance policy issued by defendant to J & J and its subsidiaries for the year 1968. By letter dated November 9, 1984, Aetna disclaimed coverage on the grounds that, inter alia, J & J's failure to notify Aetna contravened the policy requirement that written notice of claim be given as soon as practicable; the policy provided no coverage for injury arising out of wilful violation of a penal statute for antitrust damages; and the insured at no time informed Aetna that it was seeking coverage for intentional and malicious acts it had committed.

On September 26, 1985, Ethicon filed this suit seeking indemnification under successive comprehensive general liability insurance, excess indemnity and excess overlayer indemnity policies in force from 1961 to 1974. Only one policy was in effect when the original patent action was commenced in 1962. This was policy # 38 AL 5000 ("the 1961 policy")3 issued to "Johnson & Johnson et al." effective January 1, 1961, through January 1, 1964. Endorsement 32 of the 1961 policy required Aetna to pay on behalf of J & J and its subsidiaries:

all sums which the insured shall become legally obligated to pay as damages because of injury sustained by any person, or organization and arising out of the following hazards in the conduct of the named insured's business ...:
* * * * * *
Hazard A. False arrest, detention or imprisonment, or malicious prosecution.

Endorsement 32 stated that "this endorsement applies only to injury occurring on and after the effective date hereof, during the policy period...."

The 1961 policy was replaced by policy # 38 AL 9608,4 effective January 1, 1964 through January 1, 1967 ("the 1964 policy"). Endorsement 41 of the 1964 policy deals with personal injury liability coverage and uses substantially the same language as Endorsement 32 of the 1961 policy.

The 1964 policy was replaced by policy # 38 AL 128800,5 effective January 1, 1967, through January 1, 1970 ("the 1967 policy"). Endorsement 37 of the 1967 policy deals with personal injury liability, but the form and language of the endorsement are substantially different from that used in the previous policies:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury (herein called "personal injury") sustained by any person or organization and arising out of one or more of the following offenses: Group A — False arrest, detention or imprisonment, or malicious prosecution;
* * * * * *
if such offense is committed during the policy period....

The 1967 policy was replaced by policy # 38 AL 138750,6 effective January 1, 1970, through January 1, 1973 ("the 1970 policy"). Endorsement 37 of this policy deals with personal injury liability in substantially the same terms as the 1967 policy. The 1970 policy was in turn replaced by policy # 38 AL 144156,7 effective January 1, 1973, through January 1, 1974 ("the 1973 policy"). The 1973 policy contained language virtually identical to that used in the 1967 and 1970 policies.

In addition to the basic coverage provided by the Comprehensive General Liability (CGL) policies described above, J & J and its subsidiaries carried excess indemnity or umbrella policies. The relevant language of each umbrella policy commencing on January 1 of 1964,8 1967,9 1970,10 and 197311 is substantially the same. The 1964 policy provides that Aetna "will indemnify the Insured for all sums which the Insured shall become legally obligated to pay as damages and expenses ... because of personal injury or property damage, caused by an occurrence anywhere in the world." "Personal injury" is defined as including "injury arising out of false arrest, detention or imprisonment, malicious prosecution...."

In addition to the umbrella policies, Ethicon secured two excess overlayer policies. The first, # 38 XN 1/SC,12 was effective January 1, 1970, through January 1, 1973, and the second, # 38 XN 07,13 was effective January 1, 1973, through January 1, 1974. Both policies incorporate by reference the controlling underlying policy in effect at the time, and in both cases, the controlling underlying policy was the umbrella policy then in effect.

Ethicon now asserts that the gravamen of the claim on which judgment was rendered against it in the antitrust action was that Ethicon had maintained the patent action in bad faith and that the antitrust violation therefore constitutes a malicious prosecution under the Aetna policies. Although Aetna disputes this contention, for the purposes of this motion, Aetna has agreed to put aside the issue of whether the patent action on which the antitrust recovery was based is a "malicious prosecution" under the policies. The sole issue is thus what policies, if any, were triggered by $18,900,000 judgment against Ethicon.

DISCUSSION

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with 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." As the Supreme Court has noted, "summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which were designed `to secure the...

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