Playtex Family Products, Inc. v. St. Paul Surplus Lines Ins. Co., s. 88C-FE-166

CourtSuperior Court of Delaware
Citation564 A.2d 681
Docket NumberNos. 88C-FE-166,88C-JN-156,s. 88C-FE-166
PartiesPLAYTEX FAMILY PRODUCTS, INC., a Delaware corporation, and International Playtex, Inc., a dissolved Delaware Corporation, Plaintiffs, v. ST. PAUL SURPLUS LINES INSURANCE COMPANY, National Union Fire Insurance Company, International Insurance Company, Granite State Insurance Company and AIU Insurance Company, Defendants. Civ. A. . Submitted:
Decision Date27 January 1989

Walter L. Pepperman, II, and James Lawless, IV, Morris, Nichols, Arsht & Tunnell, Wilmington, and William J. McSherry, Jr., Bryan, Cave, McPheeters & McRoberts, New York City, for plaintiffs.

Wayne N. Elliott, Vernon R. Proctor, and Philip B. Obbard, Prickett, Jones, Elliott, Kristol & Schnee, Wilmington and Thomas P. Kane, Edward M. Laine, and Bethany K. Culp, Oppenheimer, Wolff & Donnelly, St. Paul, Minn., for defendants.

OPINION

CHANDLER, Vice-Chancellor. *

These consolidated cases arise from a disagreement over the meaning of a one sentence paragraph that appears in several insurance contracts. The plaintiffs, major corporate citizens of Delaware, are the subsidiary and the successor to the subsidiary of Esmark, Inc., an Illinois corporation which served as a holding company for a large number of manufacturing firms. The defendants were excess liability insurers for Esmark and its subsidiaries.

Before the Court is a deceptively simple issue: whether coverage is available under certain insurance contracts for punitive damages awarded against the plaintiffs. The contracts involved were "follow form" excess insurance policies which incorporated the terms of a policy of insurance provided by Mission National Insurance Co. ("Mission"). Regarding punitive damages, the Mission policy provided at general condition "S" that:

"It is the intention of the company and the named insured that punitive and exemplary damages be fully insured to the maximum extent permitted by law subject to the limits of liability ..." of the policy.

During the policy years in question here (1982-83 and 1983-84), the plaintiffs produced, among other products, tampons. Numerous claims have been made against the plaintiffs by tampon users who have developed toxic shock syndrome. Some of these claims involved or may involve punitive damages claims. In one claim, suit has resulted in a punitive damages award of $10,000,000 together with interest. O'Gilvie v. International Playtex, Inc., Kan.Dist.Ct., 609 F.Supp. 817 (1985) rev'd., 821 F.2d 1438 (1987), cert. denied, 486 U.S. 1032, 108 S.Ct. 2014, 100 L.Ed.2d 601 (1988) (the "O'Gilvie decision"). With respect to the O'Gilvie punitive damages award, which involved a Kansas resident who purchased and used one of plaintiffs' tampons in Kansas and as a result contracted toxic shock syndrome and died, the insurers denied liability under condition "S" of the Mission policy. Their position was that Kansas law, which prohibits the insurability of punitive damages, applied to relieve the insurers of any liability for punitive damages under the policy. On February 11, 1988, two of the insurers filed suit in Kansas seeking, among other things, a declaratory judgment that Kansas law applied to the O'Gilvie decision and that no insurance coverage was available for the award of punitive damages in that case. 1

On February 22, 1988, plaintiffs brought this declaratory judgment action seeking insurance benefits for the punitive damages awarded in O'Gilvie and a judicial declaration that Delaware law applies to general condition "S". Delaware law permits insurance for punitive damages awards. Whalen v. On Deck, Inc., Del.Supr., 514 A.2d 1072 (1986).

On June 2, 1988, the Kansas District Court ("the Kansas court") granted partial summary judgment to the insurers, finding that Kansas law applied and holding that no insurance coverage was available for punitive damages in the O'Gilvie case. St. Paul Surplus Lines Ins. Co. v. International Playtex, Inc., Kan.Dist.Ct., Case No. 88 C 463, Journal Entry of Partial Summary Judgment, Klein, J. (June 2, 1988). This decision is currently on appeal to the Kansas Supreme Court.

Plaintiffs have amended their complaint in this action and consolidated it with a related suit filed on June 22, 1988. In its present incarnation, plaintiffs seek:

1. A declaration that plaintiff Playtex Family Products is an insured under all of the insurance policies involved in this action;

2. A declaration that Delaware law applies to the contracts at issue with respect to all claims arising from toxic shock syndrome, and therefore that defendants are obligated to provide coverage for punitive damage judgments together with interest and expenses.

3. Reimbursement for the payment of the award in O'Gilvie, together with interest.

This opinion addresses the insurers' motion to dismiss based on res judicata, lack of ripeness and failure to join indispensable parties. See Superior Court Civil Rule 12(c).

I. Res Judicata

The Kansas trial court found that:

"This court concludes that Kansas law should apply to determine the outcome of this dispute. It is a clearly expressed public policy of the State of Kansas that punitive damages for direct liability cannot be insured against. The punitive damages award in the O'Gilvie action was not based upon vicarious liability. So, even under Kansas law enacted after the action giving rise to the award in the O'Gilvie decision, defendants could not recover their punitive damages from plaintiffs. This controversy arises out of injuries in Kansas suffered by a Kansas resident resulting in her wrongful death. Providing for the award of punitive damages in civil actions is a significant method by which a state protects its citizens. This State's interest in protecting its citizens and its duty to protect its citizens is of the highest order. This interest would be undermined if Kansas law were not applied to the question presented in this action....

It is against the public policy of the State of Kansas to allow the defendants to pass on the cost of a punitive damages award based on International Playex Incorporated's direct liability to the plaintiffs [in the O'Gilvie action]. Therefore, plaintiffs are entitled to the relief requested ... that they are not obligated to indemnify the defendants for the punitive damages award which was assessed by a Kansas jury against International Playtex, Incorporated.... This court accordingly declares that plaintiffs are not obligated to indemnify International Playtex, Inc., for the punitive damages award in the O'Gilvie action.... This court expressly determines that there is no just reason for delay in entering a final judgment as set forth above and hereby expressly directs entry of final judgment as such."

Defendants here (plaintiffs in the Kansas action), seek to impose the bar of res judicata to those portions of plaintiffs' action concerning the insurability of the punitive damages award in the O'Gilvie case.

The Courts of this state have long recognized the utility of the res judicata doctrine in terms of judicial economy and fairness to litigants:

"The doctrine of res judicata is common to all civilized systems of jurisprudence, and is based upon the salutary concept that the solemn decisions of a competent court upon a disputed set of facts should forever set the controversy at rest ... the doctrine of res judicata, briefly stated, is that a decision of a court of competent jurisdiction may, in the absence of fraud and collusion, be raised as an absolute bar to the maintenance of a second suit in a different court upon the same matter by the same party, or his privies." Epstein v. Chatham Park, Inc., Del.Super., 153 A.2d 180, 184 (1959).

The Court in Chatham Park set out five requisites which must be met before the bar of res judicata is applied:

1. The court making the prior adjudication must have had jurisdiction over the subject matter of the suit and of the parties to it.

2. The parties to the prior action were the same as the parties, or their privies, in the pending case.

3. The prior cause of action was the same as that in the present case, or the issues necessarily decided in the prior action were the same as those raised in the pending case.

4. The issues in the prior action were decided adversely to the contentions of the plaintiffs in the pending case.

5. The prior decree is a final decree.

Epstein v. Chatham Park, Inc., supra; In re Asbestos Litigation, Del.Super., 517 A.2d 288, 291 (1986).

It is undisputed that requisites numbers 2 through 5 are met with respect to that portion of the plaintiffs' action that deals with punitive damages awarded in the O'Gilvie case. 2 The plaintiffs here have argued at great length that the opinion of the Kansas court was erroneous on numerous grounds, and that the principles of res judicata and full faith and credit require a de novo review by this Court of the matter decided by the Kansas court before the bar is applied. If this were the case, however, the doctrine of res judicata would be little more than a fiction. Under plaintiffs' scheme the trial level court of state number 2 (Delaware) would sit as an appellate court on the decision of the trial level (or higher) court of state number 1 (Kansas). If state 2's court decided that state 1's had applied the law erroneously, it would be free to set aside the decision and apply its own. If state 2's court agreed with state 1's, the plaintiff would theoretically then be free to raise the same argument before the courts of state 3, or 6, or 10. It is precisely this chain of never-ending litigation that the doctrine of res judicata is designed to prevent. Epstein v. Chatham Park, supra. Those issues pertaining to the correctness of the judgment of the Kansas court are currently on appeal before the Kansas Supreme Court. It is from that body, rather than here, that plaintiffs' relief, if any, from the substantive portions...

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