Baxter International v. AXA Versicherung

Filing 138

Enter MEMORANDUM Opinion and Order Signed by the Honorable Elaine E. Bucklo on 9/18/2013. Mailed notice (jdh)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

BAXTER INTERNATIONAL, INC.
Plaintiff,
v.
AXA VERSICHERUNG AG,
Defendant.

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No. 11 C 9131

MEMORANDUM OPINION AND ORDER
AXA Versicherung AG (“AXA”) has moved for entry of an
order approving security in the amount of $5,725,489.
Baxter International, Inc. (“Baxter”) argues that this
amount will not be sufficient to secure payment of any
judgment that might be entered in this case.
For the reasons stated below, I deny AXA’s motion and
order AXA to post $15 million in security within fourteen
days from entry of this order.
I.
In its complaint, Baxter alleges that an insurance
policy on which AXA is the “Lead Insurer” covers the defense
and settlement costs for claims arising from the use of
contaminated blood products.

Baxter seeks coverage only for

losses relating to claimants who used a blood product

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distributed by the Immuno Group, which Baxter acquired in
1996, and were later infected with Hepatitis C.
AXA contends that Baxter’s losses are not covered under
the policy.
II.
The Illinois Insurance Code requires an unauthorized
foreign company, such as AXA, to register with the state or
post pre-judgment security “in an amount to be fixed by the
court sufficient to secure the payment of any final judgment
which may be rendered in [this] action.”

215 ILCS 5/123(5).

The parties disagree about the maximum recovery
available to Baxter in a suit against only the Lead Insurer.
AXA contends that any monetary judgment entered in this
action cannot exceed AXA’s share of the underlying policy
(i.e., 47.41 percent).

To the extent Baxter seeks

reimbursement for defense or settlement costs exceeding
AXA’s share of the policy, AXA argues that Baxter must sue
the other participating insurers.
Baxter counters that it may sue only AXA for breaching
the underlying policy and therefore must be able to recover
the full amount owed under the policy in this litigation.
A.
This dispute requires me to interpret three provisions
concerning AXA’s role as the “Lead Insurer” on a policy with
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four “participating insurers.”

The policy specifies that

German law applies to contractual disputes, so the following
provisions must be construed under German law.
1. The participating [i]nsurers acknowledge all
decisions by the Lead Insurer to be legally
binding for them. The companies are subject to
several liability in proportion to their shares
of the policy.
2. The Lead Insurer alone is the litigating party
and the party authorized to conduct litigation
in legal disputes arising from this insurance
policy.
The
participating
companies
acknowledge that final decisions in favor [of]
or against the Lead Insurer, and settlements
reached by the Lead Insurer after a complaint
has been filed, are legally binding for them.
Litigation costs are borne by the participating
insurers on a pro rata basis.
3. Legal actions may be limited to the Lead
Insurer’s share. At the request of one of the
participating [i]nsurers, the Policyholder is
obligated to include in the complaint, before
filing legal action, as many shares as is
necessary
for
reaching
the
jurisdictional
amount on appeal.
Dkt. No. 1-1 at 67, 69.
I have little trouble concluding that Baxter may sue
AXA alone for the full amount owed under the policy.

AXA’s

argument that Baxter must sue each participating insurer for
its share of the policy ignores AXA’s role as the only
contractually designated litigating party: “The Lead Insurer
alone is the litigating party and the party authorized to
conduct litigation in legal disputes arising from this

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insurance policy.”

Dkt. No. 1-1 at 67 (emphasis added).

Baxter must be able to recover the full amount owed under
the policy during litigation against the only possible
defendant.

Anything less would leave Baxter in a trap where

it could sue only AXA and recover only AXA’s share of the
policy.
The policy states twice that any settlement or judgment
in this litigation will be binding on the participating
insurers.

AXA argues that Baxter could use a binding

coverage determination in this case to collect directly from
participating insurers.

This argument fails because AXA is

the only litigating party; hence, Baxter cannot sue the
participating insurers directly.

Moreover, AXA ignores the

possibility that a settlement in which AXA fails to admit
that Baxter’s losses are covered would not bind the
participating insurers to anything even if Baxter had the
power to sue them.

A settlement or judgment will bind the

participating insurers only if Baxter’s suit against AXA is
for the full amount owed under the policy.
AXA’s argument is also at odds with the policy
provision stating that Baxter’s suit “may be limited to the
Lead Insurer’s share.”

Dkt. No. 1-1 at 69.

The parties

logically would have used the word “must” rather than “may”
if Baxter were required to sue each participating insurer
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for its share of the policy.

The most natural reading of

the provision quoted above is that Baxter may choose to
limit its suit to AXA’s share of the policy, but need not do
so.1
Allowing Baxter to sue AXA for the full amount owed
under the policy does not subject AXA to joint and several
liability, which would be in tension with policy language
stating that the co-insurers are “subject to several
liability in proportion to their shares.”

Dkt. No. 1-1 at

67.
A German appellate court has held that a lead insurer
sued for the full amount owed under a policy where each coinsurer is subject only to several liability “must be
regarded as the obligor for the risk shares of the coinsurers”; however, “this does not mean that Defendant is
now subject to joint and several liability together with the
other co-insurers.”

OLG Breman [Court of Appeals of Breman]

Jan. 13, 1994, Case No. 2 U 104/93, VersR 1994, 709 (Ger.).
Thus, under German law, AXA can be sued for the full amount
owed under the policy, but it does not follow that AXA is

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The only circumstance in which Baxter may not limit its
suit to AXA’s share of the policy is when a participating
insurer requests that its share be “include[d] in the
complaint” in order to satisfy a “jurisdictional amount in
controversy.” Dkt. No. 1-1 at 69. Neither party elucidates
the meaning of this provision.
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therefore being subjected to de facto joint and several
liability.

Baxter also stipulates that should any share of

a judgment against AXA be uncollectible by AXA because a
participating insurer is insolvent, Baxter will repay (or
refrain from collecting from AXA) that portion of the
judgment.

This stipulation provides additional protection

for AXA against the risk of de facto joint and several
liability.
AXA cites one German case for the proposition that a
lead insurer arrangement is intended to reduce costs and
simplify handling of legal disputes.

OLG Cologne [Court of

Appeals of Cologne] Sept. 2, 2008, Case No. 9 U 151/07D, r+s
2008, 468 (Ger.).

This general proposition undermines AXA’s

proposal for serial litigation by Baxter against each
participating insurer because AXA’s approach would actually
increase costs and complicate handling of this dispute.
The OLG Cologne case further undermines AXA’s proposal
for serial litigation because the court strictly enforced a
so-called “litigation clause” against an insured in roughly
the same position as Baxter:
This litigation clause does not only create a
right but also an obligation for the insured to
sue only the leading party in case of a dispute.
This is a pactum de non petendo [an agreement not
to sue] that results in complaints against the coinsurer(s) being denied if they invoke this
clause. This is the situation here.
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Id.

A suit by Baxter against one of the participating

insurers would presumably be dismissed on similar grounds
because AXA is the only litigating party.

Thus, the OLG

Cologne case provides additional support for my conclusion
that Baxter’s only option is to sue AXA for the full amount
owed under the policy.
B.
In its complaint, Baxter alleges that it has incurred
“almost $12 million in defense costs fairly attributable to
Immuno products and covered under the AXA Policy” and
“millions of dollars in settlements paid or to be paid” to
claimants allegedly infected with Hepatitis C in connection
with using a contaminated blood product.
Baxter now estimates that it has incurred $15.8 million
in recoverable losses and argues that AXA should be ordered
to post a bond of at least $15 million to secure payment of
a possible judgment in this case.
AXA cites no cases holding that the specific losses
alleged in Baxter’s complaint (i.e., $12 million) impose a
ceiling on how much security AXA can be ordered to post.
The operative language in the statute is “an amount to be
fixed by the court sufficient to secure the payment of any
final judgment which may be rendered in [this] action.”

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215

ILCS 5/123(5).

This language confers considerable

discretion on district courts.

See Intl. Ins. Co. v. Caja

Nacional de Ahorro y Seguro, 293 F.3d 392, 401 (7th Cir.
2002).

I find based on the best information available that

security in the amount of $15 million will be sufficient to
secure any final judgment in this case.
IV.
AXA’s motion to post security in the amount of
$5,725,489 is DENIED for the reasons stated above.

I hereby

order AXA to post $15 million in security within fourteen
days from entry of this order.

ENTER ORDER:

_____________________________
Elaine E. Bucklo
United States District Judge

Dated: September 17, 2013

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