Home Ins. Co. v. American Home Products Corp., 85 Civ. 5206 (KTD).
| Decision Date | 14 April 1987 |
| Docket Number | 85 Civ. 5206 (KTD). |
| Citation | 665 F. Supp. 193 |
| Parties | The HOME INSURANCE COMPANY, Plaintiff, v. AMERICAN HOME PRODUCTS CORP., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Skadden, Arps, Slate, Meagher & Flom, New York City, for plaintiff; Sheila L. Birnbaum, Irene A. Sullivan, Timothy G. Reynolds, of counsel.
Donovan Leisure Newton & Irvine, New York City, for defendants American Home Products Corp. and Wyeth Laboratories, Inc.; Louis C. Lustenberger, Jr., Daniel J. Thomasch, of counsel.
Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, for defendant Liberty Mut. Ins. Corp.; Michael E. Twomey, Gary Hoppe, Michael L. Spafford, of counsel.
This cause of action concerns the rights and obligations owed under several insurance policies. Plaintiff, The Home Insurance Company ("Home"), brought an action for a declaratory judgment concerning the scope and nature of the coverage provided by a second-level excess liability insurance policy issued by Home to the defendants American Home Products Corporation and Wyeth Laboratories, Inc. (collectively "AHP"). Home also seeks a declaratory judgment concerning the nature and scope of the coverage provided by AHP's primary insurer, the defendant Liberty Mutual Insurance Company ("Liberty"). Home moves for summary judgment against Liberty and Home and AHP cross-move for summary judgment against each other. As discussed below, Home's motion for summary judgment against Liberty is denied; Home's motion for summary judgment against AHP is granted in part and denied in part; and AHP's motion for summary judgment against Home is granted in part and denied in part.
Plaintiff Home is an insurance company which provides excess liability insurance to corporations. Defendant AHP consists of American Home Products Corp. and its wholly-owned subsidiary, Wyeth Laboratories, Inc. AHP manufactures, sells, and distributes consumer products, including household products, prescription and non-prescription drugs, and drug-related products. Defendant Liberty is an insurance company which provides primary and excess liability insurance to corporations.
Both Liberty, as the primary and first-level excess insurer, and Home, as the second-level excess insurer, issued insurance policies to AHP for the policy year July 1, 1975 to July 1, 1976, (the "policy year"), which is at issue here.
The primary insurance policy issued by Liberty to AHP insured AHP for personal injury or property damage occurring during the policy year, in amounts of up to $25,000 per occurrence and $200,000 in the aggregate. Insuring Agreement II of that policy obligated Liberty, in pertinent part, to: (1) defend or make settlement for AHP against all suits alleging personal injury or property damage occurring during the policy year; and (2) pay all expenses incurred in such suits, including costs taxed against AHP and interest accruing between the time judgment is entered and the time Liberty tenders payment of the judgment to the court. The expenses so incurred, except settlements of claims and judgments on suits, were "payable by Liberty in addition to the applicable limits of liability of the policy." Plaintiff's Notice of Motion, Exh. E at 2.
The Liberty excess insurance policy issued to AHP for the policy year provided $3.5 million of coverage for damages for personal injury or property damage in addition to the underlying primary policy. Condition I provided that the excess policy was "subject to all of the terms and provisions of the underlying primary policy, other than Insuring Agreement II of that policy, except as such terms and provisions are inconsistent with the excess policy." Plaintiff's Notice of Motion, Exh. F at 1. The excess policy further provided that Liberty could settle any claim or suit that it deemed expedient, and that it was not obligated to pay any claim or defend any suit after its liability was exhausted by payment of judgments or settlements.
The Home excess insurance policy issued to AHP for the policy year provided $11.5 million of coverage for personal injury or property damage in addition to the underlying Liberty coverage. The Home policy defined the losses for which it was to indemnify AHP under the policy as "the amount payable in settlement of the liability of the Insured after making deductions for all recoveries and for other valid and collectible insurances ... and shall exclude all expenses and Costs." Plaintiff's Notice of Motion, Exh. D at 2. The Home policy defines "Costs" to include, inter alia, interest accruing after entry of a judgment and legal expenses. It provides further that, while Home is not obligated to "assume charge of the settlement or defense of any claim made or suit brought against AHP", Home does have the right to associate with AHP or Liberty, as AHP's underlying insurer, or both, "in the defense or control of any claim ... where the claim or suit involves or appears reasonably likely to involve Home, in which event AHP and Home shall co-operate in all things in the defense of such claim." Id. Finally, the Home policy excludes from coverage all "loss, damage or expense caused intentionally by or at the direction of the insured." Id. at 7.
No claim has ever been made against the Home excess coverage. Liberty's primary coverage has been exhausted and, to date, Liberty has paid claims amounting to approximately $1.4 million of the $3.7 million aggregate underlying coverage that it provides to AHP. To date, Liberty has defended AHP in all actions claiming personal or property damage relating to the policy year.
On June 29, 1984, a jury awarded a plaintiff $9.2 million in compensatory damages and $13 million in punitive damages against AHP for injuries sustained during the policy year as a result of plaintiff's ingestion of a drug manufactured and distributed by AHP. Marcus Batteast v. American Home Products Corp., No. 806 16808 (Circuit Court, Cook Co., Ill., June 29, 1984) ("Batteast"). That case is currently on appeal before the Illinois appellate courts. Liberty bore the expense of defending AHP in Batteast, and continues to pay the defense costs of the appeal.
Prior to the Batteast judgment, Liberty had already paid approximately $1.4 million in settlements and judgments in other actions relating to the policy year. In connection with efforts to settle the Batteast action prior to judgment, Liberty offered the remaining policy limits of its first level excess coverage, approximately $2.3 million, to AHP and Home. In light of the Batteast judgment, and the fact that it exceeded the remaining limits of the Liberty excess policy, Liberty and AHP subsequently negotiated an agreement regarding Liberty's tender of that remaining coverage toward the Batteast judgment. The agreement was reached in December 1984 and provided in pertinent part that:
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