Mitsui Sumitomo Ins. Co. of America v. Automatic Elevator Co.
| Decision Date | 13 September 2011 |
| Docket Number | 1:09-CV-00480 |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | MITSUI SUMITOMO INSURANCE COMPANY OF AMERICA, Plaintiff, v. AUTOMATIC ELEVATOR COMPANY, INC. and DUKE UNIVERSITY HEALTH SYSTEM, INC., Defendants. |
This matter comes before the Court on the Motion for Summary Judgment by Duke University Health System, Inc. (Docket Entry 27) and Plaintiff Mitsui Sumitomo Insurance Company of America's Motion for Summary Judgment (Docket Entry 29). For the reasons set forth herein, the Court will deny summary judgment for Duke University Health System, Inc. ("Duke") and will grant summary judgment for Mitsui Sumitomo Insurance Company of America ("Mitsui Sumitomo").1
Mitsui Sumitomo and Duke seek a declaration of Mitsui Sumitomo's obligations under two insurance policies issued to Automatic Elevator and, to that end, have reached a stipulation of facts. (See Docket Entry 23.) The first policy (the "03-04Policy") was effective from August 1, 2003, to August 1, 2004. (Docket Entry 23-2 at 1.) The second policy (the "04-05 Policy") was effective from August 1, 2004, to August 1, 2005. (Docket Entry 23-3 at 1.)2 The Policies include a $1 million per occurrence limit and a $3 million aggregate limit (the "General Aggregate Limit"). (Docket Entry 23-2 at 8; Docket Entry 23-3 at 8.) An endorsement attached to each Policy entitled "Amendment - Aggregate Limits of Insurance (Per Elevator)" (the "Per Elevator Amendment") states that the General Aggregate Limit applies to each elevator. (Docket Entry 23-2 at 33; Docket Entry 23-3 at 33.)
Duke is pursuing claims for negligence and breach of contract against Automatic Elevator in the General Court of Justice, Superior Court Division, in Wake County, North Carolina, in a case styled Duke University Health System, Inc. v. Automatic Elevator Company, Inc., Case No. 08 CVS 011270 (the "Duke Indemnity Action"). That case arises from the mistaken application of used elevator hydraulic fluid in the cleaning of surgical instruments later utilized in surgeries at two facilities owned and/or operated by Duke - Duke Health Raleigh Hospital ("Duke Health") and Durham Regional Hospital ("Durham Regional"). (See Docket Entry 23.)3
This case began when Mitsui Sumitomo filed its Complaint seeking a declaratory judgment regarding its obligations to Automatic Elevator in the Duke Indemnity Action. (Docket Entry 1.) Mitsui Sumitomo subsequently filed an Amended Complaint. (Docket Entry 10.) That Amended Complaint asks this Court to declare that: (1) Mitsui Sumitomo does not have a duty to defend or indemnify Automatic Elevator with respect to the Duke Indemnity Action under the 03-04 Policy (id., ¶ 54(a)); (2) the underlying claims of the Duke Indemnity Action involve one "occurrence" as defined under the 04-05 Policy (id., ¶ 54(b)); (3) the available limit under the 04-05 Policy has been exhausted by settlement of the Underlying Claims (id., ¶ 54(c)); and (4) Mitsui Sumitomo has no further duty to defend or to indemnify Automatic Elevator with respect to the Duke Indemnity Action under the 04-05 Policy (id., ¶ 54(d)).4
Automatic Elevator worked with Duke on various elevator projects from 1978 through 2004. (Docket Entry 23, ¶ 5.) In January of 2004, Duke issued a purchase order to Automatic Elevatorto renovate two elevators located in the parking deck of Duke Health. (Id., ¶ 6.) Automatic Elevator commenced work on the first elevator ("Elevator 1") in April of 2004. (Id., ¶ 7.) During the course of its work, Automatic Elevator removed used hydraulic fluid from Elevator 1 and stored it in empty 15 gallon plastic barrels that Duke had made available to Automatic Elevator. (Id.) These plastic barrels previously contained surgical cleaning and lubricating solutions, including surgical detergents known as Mon Klenz and Klenzyme and a surgical lubricant known as Hinge Free, which Duke had purchased from Cardinal Health 200, Inc. ("Cardinal"). (Id.)
Automatic Elevator completed its work on Elevator 1 in June 2004. (Id., ¶ 8.) As part of its work on Elevator 1, Automatic Elevator employees transported the barrels containing used hydraulic fluid to a waste disposal site, where the barrels were poured out. (Id.) The interiors of the barrels were not cleaned after disposal of the used hydraulic fluid from Elevator 1. (Id.) On June 4, 2004, the North Carolina Department of Labor inspected and approved Automatic Elevator's work on Elevator 1. (Id., ¶ 9.)
In July 2004, Automatic Elevator commenced work on the second elevator ("Elevator 2"). (Id., ¶ 10.) As part of its work, Automatic Elevator removed used hydraulic fluid from Elevator 2 and stored it in the same plastic barrels that had been used to store the hydraulic fluid removed from Elevator 1. (Id.) The barrels were then stored in an area of the Duke Health parking deck whichhad been designated as Automatic Elevator's equipment storage/work area by Duke Health representatives. (Id.)
Automatic Elevator completed its work on Elevator 2 on or around September 15, 2004. (Id., ¶ 11.) The 15 gallon plastic barrels containing used hydraulic fluid were left in Automatic Elevator's designated storage area in the Duke Health parking deck for pick up at a later time. (Id.) The barrels were wrapped in plastic shrink wrap and were placed on a loading pallet. (Id.) On September 15, 2004, Elevator 2 was inspected and was approved by the North Carolina Department of Labor. (Id.)
In late September 2004, a Duke Health employee observed the plastic barrels and mistakenly believed that they were unopened containers of surgical detergents and/or lubricants supplied to Duke Health by Cardinal. (Id., ¶ 12.) The Duke Health employee requested that Cardinal pick up the plastic barrels and return them to Cardinal's warehouse. (Id.) On or about October 2, 2004, Cardinal employees picked up the plastic barrels from the Duke Health parking deck. (Id., ¶ 13.)
On November 4, 2004, Cardinal sold and delivered a barrel labeled as "Mon Klenz" to Duke Health. (Id., ¶ 14.) However, this barrel contained used hydraulic fluid. (Id.) On November 9, 2004, Cardinal sold and delivered a second barrel labeled as "Mon Klenz" to Duke Health. (Id.) This barrel also contained used hydraulic fluid. (Id.) On November 24, 2004, Cardinal sold and delivered two barrels labeled as "Mon Klenz" to a separate hospital owned and/or operated by Duke, Durham Regional. (Id.) These barrelscontained used hydraulic fluid as well. (Id.) All the foregoing barrels were sold by Cardinal under the mistaken impression that they contained surgical detergents and lubricants. (Id.)
Duke Health and Durham Regional mistakenly used the hydraulic fluid to clean surgical instruments. (Id., ¶ 15.) Hundreds of surgical instruments were exposed to the used hydraulic fluid at Durham Regional in December 2004 through the instrument washing process. (Id., ¶ 16.) At Durham Regional, the used hydraulic fluid was used in the cleaning process in three different washing machines. (Id.) Similarly, hundreds of surgical instruments were exposed to hydraulic fluid at Duke Health in November and December 2004 through the instrument washing process. (Id., ¶ 17.) At Duke Health, the used hydraulic fluid was used in the cleaning process in two different washing machines. (Id.) On December 22, 2004, employees of Durham Regional discovered that the plastic barrels, which supposedly contained surgical detergents, actually contained used hydraulic fluid. (Id., ¶ 18.) On December 29, 2004, the same discovery was made at Duke Health. (Id.)
On January 4, 2005, Duke sent a letter to 3,650 patients who may have had surgical procedures using the instruments that had been washed in hydraulic fluid advising them of the situation. (Id., ¶ 19.) On February 23, 2005, the North Carolina Department of Labor, Division of Occupational Safety and Health, issued a citation to Automatic Elevator, categorized as "Non-Serious," based on Automatic Elevator's failure to properly dispose of the barrels containing used hydraulic fluid removed from Elevator 2. (Id.,¶ 20.) Automatic Elevator did not contest this citation and complied with instructions for remediation. (Id.)
After Duke issued its letter of January 4, 2005, approximately 150 patients asserted claims against Duke, Cardinal and Automatic Elevator alleging various injuries resulting from potential exposure to hydraulic fluid. (Id., ¶ 21.) The theories of liability asserted against Duke, Cardinal and Automatic Elevator included negligence, negligent infliction of emotional distress and loss of consortium. (Id., ¶ 22.)
On or about January 5, 2005, Automatic Elevator tendered some of the underlying claims to Mitsui Sumitomo for defense and indemnity. (Id., ¶ 23.) In response, Mitsui Sumitomo provided a defense to Automatic Elevator under the 04-05 Policy. (Id., ¶ 24.) In May 2008, Mitsui Sumitomo made available $1 million under the 04-05 Policy for payment of Automatic Elevator's settlement of the underlying claims. (Id., ¶ 25.)
As of May 2008, Duke entered into settlement agreements with approximately 127 claimants resolving any and all liability for an amount in excess of $6 million. (Id., ¶ 27.) Thirty-eight of the 127 claims settled by Duke arose out of surgeries performed at Durham Regional. (Id., ¶ 28.) These surgeries took place at various times between November 30, 2004, and December 24, 2004. (Id.) Eighty-nine patient claims settled by Duke arose out of surgeries performed at Duke Health. (Id., ¶ 29.) These surgeries took place at various times between November 5, 2004, and December 30, 2004. (Id.)
Under the Policies, coverage for claims due to bodily injury or property damage arises only if "(1) [t]he 'bodily injury' or 'property damage' is caused by an 'occurrence' that takes place in the ...
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