Schering Corp. v. Home Ins. Co., 79 CV 2817.

• Decision Date: 02 August 1982
• Docket Number: No. 79 CV 2817.,79 CV 2817.
• Citation: 544 F. Supp. 613
• Parties: SCHERING CORPORATION, Plaintiff, v. The HOME INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of New York

544 F. Supp. 613

SCHERING CORPORATION, Plaintiff, v. The HOME INSURANCE COMPANY, Defendant.

No. 79 CV 2817.

United States District Court, E. D. New York.

August 2, 1982.

Winthrop, Stimson, Putnam & Roberts by Edwin J. Wesely, Eloise L. Morgan, J. Kord Lagemann and Virginia G. Shubert, New York City, for plaintiff.

Skadden, Arps, Slate, Meagher & Flom, by William R. Meagher, Barry H. Garfinkel, Sheila L. Birnbaum, Diane S. Wilner, George Zimmerman and Barbara Wrubel, New York City, for defendant.

MEMORANDUM OF DECISION AND ORDER

NEAHER, District Judge.

This diversity action seeks a declaratory judgment, pursuant to 28 U.S.C. § 2201, to construe the coverage of excess liability insurance policies issued to plaintiff drug manufacturer ("Schering") by defendant insurance company ("Home"). Schering initiated the instant motion for summary judgment pursuant to Rule 56(a), F.R. Civ.P., seeking a determination of Home's contractual obligation to indemnify Schering for certain personal injury claims allegedly arising out of exposure in utero to dienestrol, a synthetic estrogenic substance.¹ Home vigorously opposed the motion, contending that the conflicting positions of the parties as to the intent and application of the insurance policies' coverage provision raise genuine issues of fact and that coverage under the policies cannot be determined absent factual resolution of the etiology and nature of dienestrol-related injury.²

Two months later, despite its prior position, Home instituted a cross-motion for summary judgment in its favor, F.R.Civ.P. 56(b), asserting that the claimed dienestrol-related injuries indisputably occurred contemporaneously with maternal ingestion during pregnancy, before the Home policies were issued to Schering. In opposition, Schering urged application of contra proferentum and successfully disputed Home's medical evidence while simultaneously arguing its irrelevancy. In the subsequent months, voluminous letters from the parties afforded the Court immediate notice of recent decisions construing comprehensive general liability ("CGL") policies similar to those presently at issue, in the context of asbestos-related personal injury claims. Finally, in June 1982, purporting to synthesize the fragmented submissions, Schering submitted a "summary memorandum," in which it primarily endeavors to persuade the Court to adopt the expansive principles articulated in Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034 (D.C.Cir.1981), cert. denied, ___ U.S. ___, 102 S.Ct. 1644, 71 L.Ed.2d 875 (1982). Now resisting summary judgment, Home has silently withdrawn its cross-motion by positing triable issues regarding Schering's reasonable expectations of coverage and contending that the coverage dispute requires development of a factual framework grounded upon medical and scientific data.

The parties brilliant but somewhat obfuscatory efforts notwithstanding, the Court finds this controversy readily resolvable by straightforward application of fundamental legal principles. Consideration of medical evidence is not a necessary predicate to interpretation of the coverage provision in Home's policies. From August 30, 1966 to February 7, 1976,³ Home agreed to indemnify Schering for losses sustained on account of personal injuries caused by or arising out of each event which "results in personal injury ... during the policy period." For the reasons which follow, the Court holds that personal injury "results" when it originates and when the individual claimant receives actual notice of the harm. Thus, either the inception or the claimant's discovery of personal injury triggers coverage under the policies at issue.

The material uncontroverted facts are as follows. Schering is a pharmaceutical company which manufactured and distributed dienestrol either directly or through a subsidiary from 1958 to 1971. Dienestrol was used therapeutically in support of high-risk pregnancies, primarily to prevent miscarriage, from the late 1940's to the early 1970's. Such therapy was discontinued when the federal Food and Drug Administration ("FDA") proscribed production of dienestrol for administration to pregnant women in 1971. Subsequent to the FDA ban, several product liability claims for alleged dienestrol-related injuries were brought against Schering. In the course of defending against these claims, Schering has incurred defense costs, entered into several settlements and had one judgment entered against it. In 1979, Schering settled an action involving a dienestrol-related injury that became manifest in 1974. Advised that the settlement had exhausted its $1,000,000 primary coverage for the year 1974, Schering requesting indemnification from Home for defense of certain outstanding 1974 claims. Affidavit of Spencer J. Rankin, Exhs. A, B. Reserving its rights relating to the issue of coverage, Home responded by contesting exhaustion of the aggregate limit in the underlying insurance policy and stating its interpretation of the coverage provision: Home's obligation to defend or indemnify Schering for dienestrol-related injuries does not arise when exposure to dienestrol occurred outside Home's policy period. Id., Exhs. C, D, E. Schering has paid over $1,000,000 in premiums to Home in consideration of insurance coverage from August 30, 1966 to February 7, 1977.

Home's insurance policies state, in pertinent part:

"I. COVERAGE

The Company hereby agrees, subject to the limitations, terms and conditions hereinafter mentioned, to indemnify the Insured for all sums which the Insured shall be obligated to pay by reason of the liability

(a) imposed upon the Insured by law,

or

(b) assumed under contract or agreement by the Named Insured and/or any officer, director, stockholder, partner or employee of the Named Insured, while acting in his capacity as such for damages, direct or consequential and expenses, all as more fully defined by the term `ultimate net loss' on account of:—

(i) Personal injuries, including death at any time resulting therefrom,

* * * * * *

caused by or arising out of each occurrence happening anywhere in the world.

* * * * * *

THIS POLICY IS SUBJECT TO THE FOLLOWING DEFINITIONS:

* * * * * *

2. PERSONAL INJURIES

The term `Personal Injuries' wherever used herein means bodily injury, mental injury, mental anguish, shock, sickness, disease, disability, false arrest, false imprisonment, wrongful eviction, detention, malicious prosecution, discrimination (except where it is a violation of a statute or regulation prohibiting such), humiliation; also libel, slander or defamation of character or invasion of rights of privacy, except that which arises out of any Advertising activities.

* * * * * *

5. OCCURRENCE

The term `occurrence' wherever used herein shall mean an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in personal injury ... during the policy period. All such exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence.

6. ULTIMATE NET LOSS

The term `Ultimate Net Loss' shall mean the total sum which the Insured, or any company as his insurer, or both, become obligated to pay by reason of personal injury ... claims, either through adjudication or compromise, and shall also include hospital, medical and funeral charges and all sums paid as salaries, wages, compensation, fees, charges and law costs, premiums on attachment or appeal bonds, interest, expenses for doctors, lawyers, nurses and investigators and other persons, and for litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of any occurrence covered hereunder, excluding only the salaries of the Insured's or of any underlying insurer's permanent employees."

By their terms, the policies cover Schering's excess liability for personal injuries "caused by or arising out of each occurrence." The contractual definition of "occurrence", then, which essentially adopts the text of the standard CGL policy drafted in 1966 by the Mutual Insurance Rating Bureau and the National Bureau of Casualty Underwriters, is at the heart of this litigation. The parties do not dispute and there can be no question that the occurrence clause requires indemnification when personal injury—not the causative event— "results" during the policy period. Therefore, prenatal exposure to dienestrol, the event from which dienestrol-related injury necessarily arises, cannot trigger coverage under Home's policies. Rather, to activate Home's contractual obligation, an injury must be caused by or arise from exposure.

In this regard, the Court finds inapposite decisions construing CGL policies in the context of asbestos-related diseases. See, e.g., Eagle-Picher Indus., Inc. v. Liberty Mut. Life Ins. Co., 682 F.2d 12 (1st Cir. 1982); Keene Corp. v. Insurance Co. of N. Am., supra; Porter v. American Optical Corp., 641 F.2d 1128 (5th Cir.), cert. denied, ___ U.S. ___, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981); Insurance Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. 1980), cert. denied, ___ U.S. ___, 102 S.Ct. 686, 71 L.Ed.2d 650 (1981). These cases were decided after presentation of extensive medical evidence on the pathogenesis of asbestos-related diseases, and the decisions were based on findings that such diseases involve a progressive injurious process resulting from repeated exposures to asbestos over typically long periods of time. In contrast, no such determination can be made in this case because no evidence has been presented on the nature of the claimed personal injuries allegedly resulting from prenatal exposure to dienestrol. Yet it is not subject to dispute that the entire ingestion of dienestrol occurs during pregnancy, so that none of the problems attending lengthy and repeated exposures to a noxious substance exist.

The precise nature of...