In re Silicone Implant Ins. Coverage Lit.

• Decision Date: 24 September 2002
• Parties: In re SILICONE IMPLANT INSURANCE COVERAGE LITIGATION.
• Court: Minnesota Court of Appeals

652 N.W.2d 46

In re SILICONE IMPLANT INSURANCE COVERAGE LITIGATION.

Nos. C5-01-1546, C5-01-1742, C4-01-1778, C1-01-1821, C8-01-1850, C7-01-1869, C1-01-1897, C3-01-1920, C3-01-1738, C4-01-1747, C9-01-1811, C4-01-1828, C2-01-1861, C6-01-1894, C9-01-1906, C7-01-1922, C3-01-1965, C3-01-1741, C6-01-1748, C0-01-1812, C6-01-1829, C4-01-1862, CX-01-1896, C3-01-1917 and C2-01-1925.

Court of Appeals of Minnesota.

September 24, 2002.

Dale I. Larson, Douglas L. Skor, Larson, King, LLP, St. Paul, MN; and David F. Herr, Gary J. Haugen, Maslon Edelman Borman & Brand, LLP, Minneapolis, MN; and Robert N. Sayler, Covington & Burling, Washington, DC, for 3M Company.

Frederick W. Morris, Robert P. Thavis, Jeffrey A. Eyers, Leonard, Street & Deinard, Minneapolis, MN, for W. Haagman & Company.

Ted E. Sullivan, William L. Davidson, Lind, Jensen, Sullivan & Peterson, P.A., Minneapolis, MN; and Edward M. Kay,

Clausen Miller, P.C., Chicago, IL, for Old Republic Insurance Company.

Thomas D. Jensen, Lind, Jensen, Sullivan & Peterson, P.A., Minneapolis, MN, for Employers Mutual Casualty Company, The Home Insurance Company, Utica Mutual Insurance Co., Mt. McKinley Insurance Co., and Everest Reinsurance Co.

Sylvia Ivey Zinn, Burke Ellingson, Brendel & Zinn, Ltd., St. Paul, MN, for Columbia Casualty Company, The Continental Insurance Company, and Harbor Insurance Company.

Thomas S. Fraser, Richard D. Snyder, Fredrikson & Byron, P.A., Minneapolis, MN; and Clifton S. Elgarten, Crowell & Moring LLP, Washington, DC, for Century Indemnity Co., ACE Europe, SA-NV, and United States Fire Insurance Co.

John M. Anderson, Charles E. Lundberg, Christopher R. Morris, Bassford, Lockhart, Truesdell & Briggs, P.A., Minneapolis, MN; and Paul N. Farquharson, Semmes, Bowen & Semmes, P.C., Baltimore, MD, for Federal Insurance Co.

John J. McDonald, William M. Hart, Melissa Dosick Riethof, Meagher & Geer, P.L.L.P., Minneapolis, MN, for Westport Insurance Corporation.

Dyan J. Ebert, Quinlivan & Hughes, P.A., St. Cloud, MN, for TIG Insurance Company.

Dale O. Thornsjo, Johnson & Condon, P.A., Minneapolis, MN, for Interstate Fire & Casualty Company and Chicago Insurance Company.

Lawrence R. King, Larson & King, St. Paul, MN, for Lakeside Insurance, Ltd. and Seaside Insurance, Ltd.

Robert L. McCollum, McCollum, Crowley, Vehanen, Moschet & Miller, Ltd., Bloomington, MN; and Norman C. Kleinberg, Hughes Hubbard & Reed LLP, New York City, for First State Insurance Company

and Twin City Fire Insurance Company.

John M. Anderson, Charles E. Lundberg, Christopher R. Morris, Bassford, Lockhart, Truesdell & Briggs P.A., Minneapolis, MN, for Executive Risk Indemnity, Inc. and Victoria Versicherung AG.

Jerome B. Abrams, Abrams & Smith, Minneapolis, MN, for Swiss Reinsurance Company and European General Insurance Company.

Richard A. Kaplan, George O. Ludcke, Daniel C. Bryden, Kelly & Berens, P.A., Minneapolis, MN, for Republic Western Insurance Company.

Considered and decided by TOUSSAINT, Chief Judge, HARTEN, Judge, and WILLIS, Judge.

OPINION

TOUSSAINT, Chief Judge.

In this dispute, the parties seek resolution of insurance coverage and other issues. 3M had been sued by women who claimed that their silicone-gel breast implants, manufactured by 3M, caused them injury. 3M settled the suits and then turned to its liability insurers for coverage. After extensive proceedings, the district court resolved the claims. 3M and the insurers brought separate appeals from the district court's posttrial orders and final partial judgment, and this court consolidated the appeals.

3M contends that (a) the policies in effect at the time of the implantations provided full coverage to the policy limits; (b) all of the excess policies provided coverage for defense costs; (c) the district court erred in denying its motion to amend its counterclaim to add a claim for punitive damages; and (d) the district court abused its discretion in denying 3M additional equitable relief.

The insurers jointly argue that (a) the policies were triggered shortly before the underlying plaintiffs exhibited overt symptoms of their diseases rather than at the time of implantations; (b) the damages were continuous and should be allocated through the time the underlying plaintiffs filed their lawsuits or died; (c) the judgment-reduction undertaking ought to he enforced; (d) where 3M waived coverage for implant ruptures as excludable expected-and-intended damages, supplemental payments to plaintiffs with both disease and ruptured implants should not be covered; (e) the district court erred in awarding 3M its coverage-action fees and costs; and (f) the district court abused its discretion in instructing the jury on risk of loss and waiver in connection with the insurers' misrepresentation claim.

Finally, individual insurers argue that as to their particular policies: (a) defense costs were excluded from their excess policies; (b) defense costs were in addition to policy limits; (c) the $5,000 deductible in the relevant underlying layer applied to each implant claim and applied to the excess layers; (d) claims against 3M's subsidiary that manufactured the implants were not covered because 3M did not give the notice necessary to make the subsidiary a named insured; and (e) the prejudgment interest awarded 3M should be calculated from the date the insurers were presented with a claim for reimbursement.

Because (a) the policies were triggered by injuries occurring both around the time of the implantations and afterwards; (b) damages were continuous, requiring allocation pro rata by time on the risk; (c) the allocation period should end at the time the underlying plaintiffs filed their lawsuits or died; (d) in light of the allocation ruling, this court need not reach the judgment-reduction issue; (e) the district court properly interpreted the defense-cost provisions of the excess policies; (f) the $5,000 deductible applies per claim but does not apply to the excess policies; (g) 3M complied with the named insured provisions; (h) the prejudgment interest should be calculated from the earlier of the dates on which the individual insurers' policies were reached by 3M's payment of covered costs or its obligation to pay such costs; (i) 3M waived coverage for excludable expected-and-intended damages for implant ruptures and may not recover for supplemental payments it made for mixed disease and rupture claims; (j) attorney fees are not recoverable absent statutory authorization or breach of a contractual duty to defend; (k) the district court did not err in denying 3M's motion to add a punitive-damages claim; (l) the district court did not abuse its discretion in denying 3M's request for additional equitable relief; and (m) the district courts instruction on risk of loss and waiver was harmless error, we affirm in part and reverse in part.

FACTS

In 1977, 3M Company acquired McGhan Medical Corporation, which manufactured silicone-gel breast implants. Seven years later, in 1984, 3M sold the business. It has not manufactured or sold breast implants since then, although some products 3M had manufactured were sold by the purchaser of the business in 1985 and perhaps later.

Beginning in 1992, plaintiffs began bringing claims against 3M, alleging that the implants caused various diseases. It is undisputed that many women who received the implants between 1977 and 1985 later became ill with some sort of autoimmune or other systemic disease. They suffered from a wide variety of symptoms, including joint pain and stiffness, muscle weakness, numbness, fatigue, irritable-bowel symptoms, flu-like symptoms, burning, itching, sleep disturbance, and memory loss. Although 3M asserted there was no reliable evidence of medical causation, several plaintiffs obtained large verdicts. 3M, which settled many individual cases and participated in a global settlement, asserts that its defense and settlement costs exceed $1 billion.

From 1977 to 1985, 3M purchased occurrence insurance with coverage of approximately $1.48 billion. Under the occurrence policies, claims can be made after the policy period but coverage is triggered only if bodily injury or property damage occurred during the policy period.

In 1977, Travelers Insurance Co. provided 3M's primary occurrence policy. From 1978 through 1985, Lakeside Insurance Limited, a "captive" insurance company owned by 3M, provided 3M's primary occurrence insurance policy. 3M also had layers of excess policies over the primary layer each year. Typically, several different insurers issued policies within the same excess layer, with each providing a percentage or "quota share" of the coverage limit in that layer. These excess occurrence policies were triggered only after the underlying primary policy and lower-level policies in a particular year had been exhausted. They generally adopt the same provisions, or "follow form," of the relevant primary layer, absent specific exclusions to the contrary. Generally, the excess occurrence policies issued to 3M from 1977 to 1985 do not contain a duty to defend, but they contain differing provisions as to the duty to pay defense costs.

After 1985, due to a change in the worldwide insurance market, occurrence insurance was no longer widely available, and 3M purchased claims-made insurance. Unlike occurrence policies, the insured may make a claim on a claims-made policy only during the policy period. Coverage is further limited on a claims-made policy by the use of a retroactive date, which defines the period during which injury must take place in order to be covered. 3M's claims-made policies contained retroactive dates of November 27, 1985, May 1, 1986, and January 1, 1986, and were intended to dovetail with the occurrence policies.

In 1992, 3M retained coverage counsel and designated its principal insurance broker as its litigation consultant to help map a strategy for maximizing insurance coverage. In April 1992, 3M reported the implant...