Stryker Corporation et al v. National Union Fire Insurance Company of Pittsburg

Filing 1092

OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)

UNITED STATES DISTRICT COURT F O R THE WESTERN DISTRICT OF MICHIGAN S O U T H E R N DIVISION

S T R Y K E R CORPORATION, et al., P l a i n t if f s , F ile No. 4:01-CV-157 v. H O N . ROBERT HOLMES BELL X L INSURANCE AMERICA INC., formerly k n o w n as WINTERTHUR INTERNATIONAL A M E R IC A INSURANCE COMPANY, et al., D e f e n d a n ts . / OPINION T h e motions before the Court arise under three related actions. Each of the three a c tio n s involves claims for indemnification by Stryker Corporation ("Stryker") and its s u b s id ia ry, Howmedica Osteonics Corporation ("Howmedica"), from their insurers for thirdp arty claims related to defective Duracon Uni-Knee products ("DUK Claims"). The insurers a re Defendants XL Insurance America, Inc. ("XLIA"), formerly known as Winterthur In te rn a tio n a l America Insurance Company and National Union Fire Insurance Company of P itts b u rg h ("National Union"). TIG Insurance Company ("TIG"), an excess insurer for P la in tif f s with respect to the DUK Claims, is not a party to this action. The three actions are: (1) Stryker v. XLIA, No. 4:01-cv-157 (Stryker I), in which Stryker sought indemnification f ro m XLIA and National Union for DUK Claims brought against Stryker; S tr y k e r v. XLIA, No. 1:05-cv-51 (Stryker II), in which Stryker sought indemnification f ro m XLIA, National Union, and TIG for DUK Claims brought against Pfizer, Inc. (" P f iz e r" ). Stryker is contractually obligated to defend and indemnify these claims

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p u rsu a n t to an Asset Purchase Agreement, and Pfizer brought suit against Stryker to e n f o rc e these obligations in Pfizer v. Stryker, No. 02-cv-8613 (S.D.N.Y.); and (3 ) T I G v. Stryker, No. 1:09-cv-156 (Stryker III), in which TIG seeks a declaratory ju d g m e n t against Stryker and XLIA that: (i) it is not liable to Stryker until the u n d e rlyin g insurance obligations have been exhausted, and (ii) the underlying in s u ra n c e obligations have not been exhausted.

The Court heard oral arguments on pending motions in these actions on September 21, 2009. T h e motions before the Court in this action, Stryker I, are Plaintiffs' motion for entry of final ju d g m e n t (Dkt. No. 1081) and Defendant XLIA's motion for partial summary judgment (D k t. No. 1072). For the reasons that follow, the Court will grant Plaintiffs' motion for entry o f final judgment and deny Defendant's motion for partial summary judgment. I. P la in tif f s allege that Defendant XLIA breached the terms of an insurance policy p ro v id in g Stryker insurance coverage for the DUK Claims. The Court bifurcated this matter in to two phases. On April 3, 2007, the first phase concluded when the Court issued an o p in io n determining that Stryker is entitled to coverage under the insurance policy and that D e f e n d a n t XLIA had and continues to have a duty to defend and indemnify Stryker. (Dkt. N o . 916, 04/03/2007 Op. 33.) As part of the second phase (the damages phase), on D e c em b e r 15, 2008, the Court granted partial judgment in favor of Stryker in the amount of $ 1 2 ,1 2 6 ,8 8 1 , representing Stryker's settlement costs for the DUK Claims and a portion of S tryk er's defense costs for the DUK Claims. (Stryker I, Dkt. No. 1055, 12/15/2008 Op., O rd e r & J.) The Court also awarded 12% prejudgment interest. (Id.) According to the p a r tie s , XLIA subsequently agreed not to contest the reasonableness of the remaining defense 2

c o s ts . Stryker therefore moves for entry of a final judgment that includes these costs. S t ry k e r I Judgment S tryk e r's DUK settlement costs: S tryk e r's DUK defense costs: 1 2 /1 5 /2 0 0 8 Partial Judgment: R e m a in in g defense costs: T o tal: $ 7,620,731 $ 4,506,150 $ 12,126,881 $ 1,727,779 $ 13,854,660 (not incl. prejudgment interest)

D e f en d a n t XLIA has filed a motion for partial summary judgment seeking to have the C o u rt declare that XLIA is not liable for Plaintiffs' settlement costs at issue in this action.1 X L IA contends that on February 2, 2009, it made a $26 million payment to Pfizer to settle P f iz e r's claims against Stryker in Pfizer v. Stryker ("Pfizer Settlement"). It further contends th a t at least $17 million of this payment is covered by the policy and exhausts the policy lim it. XLIA argues that the Court cannot, and should not, enter final judgment while its m o tio n for partial summary judgment is pending and while the issue of its liability for the f in a l judgment remains in dispute. Plaintiffs raise both procedural and substantive objections to Defendant's motion. A. Procedural Objections S tryk e r argues, first, that XLIA's motion is procedurally defective because it is u n tim e ly, having been filed after judgment and after the deadline for dispositive motions, and b e c a u s e it improperly seeks declaratory relief by a motion.

It does not seek to avoid payment of Stryker's defense costs or of the prejudgment in te re s t awarded in this action. 3

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X L IA 's motion is titled a motion for "partial summary judgment and for declaratory re lie f ," and XLIA contends that it is moving for relief pursuant to Rule 56(b) of the Federal R u le s of Civil Procedure. However, the motion does not argue the Rule 56 standard for su m m a ry judgment, nor does it indicate the claim on which it seeks summary judgment. R e g a r d i n g the timing of its motion, XLIA contends that it filed the motion shortly after p aying Pfizer the settlement in February and it could not have filed it any sooner. XLIA c o n te n d s that Rule 56(b) permits a party may move for summary judgment "at any time." F ed . R. Civ. P. 56(b).2 T o the extent that XLIA's motion seeks "declaratory relief," Plaintiffs argue that such re lie f may be considered only "upon the filing of an appropriate pleading." 28 U.S.C. § 2201(a). Generally, motions are not "pleadings." See Fed. R. Civ. P. 7(a) (listing p le a d in g s as complaints, answers, claims, and counterclaims). XLIA contends that it does n o t seek to add a counterclaim for declaratory relief; it argues that a new counterclaim is u n n e c es s a ry because a motion for summary judgment would accomplish the same purpose. B e c au s e the Court has already awarded judgment, the Court agrees that a motion for su m m ary judgment is inappropriate. XLIA offers no precedent or authority for a summary ju d g m e n t motion made after judgment (or partial judgment) has already entered. Granting X L IA relief on its motion would require the Court to amend or vacate its previous judgment

The new Rule 56(b), which is set to take effect December 1, 2009, states that a party m a y move for summary judgment "until 30 days after the close of discovery[.]" Fed. R. Civ. P . 56(b) (effective Dec. 1, 2009). 4

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a g a in s t XLIA. It appears that the proper approach is for XLIA to move for relief from ju d g m e n t pursuant to Rule 60(b). See Fed. R. Civ. P. 60(b) (allowing a Court to grant a party re lief from a judgment, if the motion is made within a reasonable time, based on "newly d is c o v e re d evidence," or if the judgment has been satisfied, or for "any other reason that ju s tif ie s relief"). XLIA contends, in the alternative, that the Court can recharacterize its motion as a m o tio n for relief from judgment or for reconsideration, and there does not appear to be any p r o c e d u ra l reason why the Court could not do so. Nevertheless, the Court finds that re c h ara c te riz in g Defendant's motion would be futile because it fails as a substantive matter f o r the reasons that follow. B . Substantive Objections P lain tiff s' substantive objections relate to the specific amounts paid by XLIA as part o f the Pfizer Settlement. On April 20, 2005, the District Court for the Southern District of N e w York entered a $17.7 million interlocutory judgment in favor of Pfizer in Pfizer v. S tr y k er , Pfizer's suit against Stryker for indemnification from DUK Claims brought against P fi z e r. The judgment included Pfizer's settlement costs for the DUK Claims, Pfizer's d e f en s e costs for defending the DUK Claims, and Pfizer's attorney's fees pursuing in d e m n if ic a tio n from Stryker, as well as prejudgment interest. The judgment was

in te rlo c u to ry in nature because certain of Stryker's counterclaims remained pending.

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T h e parties agree that the liability limit of the XLIA policy is effectively $17 million.3 X L IA contends that its payment of the Pfizer Settlement meets the $17 million limit as f o l lo w s : P fiz e r v. Stryker Settlement P fize r's DUK settlement costs P fize r's DUK defense costs P f iz e r 's attorney's fees in Pfizer v. Stryker S u b to ta l: " S u p p le m e n t a r y Payments" T o t a l Pfizer Settlement: $ 1 2 ,8 4 0 ,1 1 1 $ 1 ,1 0 5 ,5 4 5 $ 3 ,0 5 4 ,3 4 4 $ 1 7 ,0 0 0 ,0 0 0 $ 9 ,0 0 0 ,0 0 0
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$ 2 6 ,0 0 0 ,0 0 0

S tryk er argues that, even if the $12.8 million in Pfizer's settlement costs that are part o f the Pfizer Settlement applies toward the policy limits, that amount is not in itself sufficient to exhaust the $17 million limit of the policy. The parties disagree as to whether XLIA's p aym en t of Pfizer's defense costs for defending the DUK Claims or of Pfizer's attorney's f e es in the Pfizer v. Stryker action also apply toward the policy limits. XLIA contends that th e se costs apply because they are covered under the policy. Stryker contends that they do n o t apply because they are consequential damages for XLIA's breach of its duty to defend.

Under the policy, the liability limit is $15 million after a $2 million self-insured re te n tio n . However, the Court determined that XLIA is not entitled to the self-insured re te n tio n because it breached its duty to defend Stryker. (Dkt. No. 949, 01/04/2008 Op. 121 8 .) T h is amount includes prejudgment interest. None of the parties contends that this p o rtio n of the settlement applies toward the policy limit. 6
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T h is Court held in Stryker II that XLIA was required, as part of the Insured Contract c o v e ra g e in the policy, to indemnify Stryker for the liabilities that Stryker assumed under an A s s e t Purchase Agreement with Pfizer. (Stryker II, Dkt. No. 161, 01/08/2009 Am. Op. 9-15.) Because Stryker's assumed liabilities include an obligation to indemnify and defend Pfizer, th e Court held that Stryker (and therefore XLIA) assumed liability for Pfizer's defense costs f o r defending the DUK Claims. (Id. at 14-15.) Pfizer's attorney's fees in Pfizer v. Stryker a re also covered under XLIA's policy because, according to the parties, there is a fee-shifting c lau se in the Asset Purchase Agreement. S tryk e r contends that Pfizer's defense and prosecution costs do not exhaust the policy lim its because they are consequential damages for XLIA's breach of its duty to defend the D U K Claims. Under Michigan law, consequential damages do not erode the limits of an in s u ra n c e policy. See Stockdale v. Jamison, 330 N.W.2d 389, 392-93 (1982) ("An insurer's d u ty to defend is independent of its duty to pay, and damages for breach of that duty are not lim ite d to the face amount of the policy. . . . [W]e do not see any justification for a special ru le limiting the amount of damages recoverable for an insurer's failure to defend or any re a so n why it should not be held to be responsible, just as any other party to a contract who f a ils to perform it, for all the loss arising naturally from the breach."). The Court has already d e te rm in e d that XLIA breached its duty to Stryker to defend the DUK Claims brought a g a in s t Pfizer. (Stryker II, Dkt. No. 161, 01/08/2009 Am. Op. 17.) One consequence of this b re a ch is that Pfizer, rather than XLIA, defended the DUK Claims. Had XLIA undertaken

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th e defense of these claims, there is no dispute that such costs would have been excluded f r o m the policy limits. The policy provides that "all expenses [XLIA] incur[s] in the defense o f any suit or claim are in addition to [the] Limits of Insurance." (XLIA Policy § II.B.) Now th a t XLIA has paid for these costs, it cannot preclude Stryker from recovering additional a m o u n ts under the policy by applying these costs to the policy limits. See Jim-Bob, Inc. v. M e h lin g , 443 N.W.2d 451, 463 (Mich. Ct. App. 1989) ("It is well settled that the appropriate m e a su re of damages for breach of a contract . . . is that which would place the injured party in as good a position as it would have been in had the promised performance been r e n d e r ed ." ). Because the Court finds that these costs do not apply to the policy limit, the re lie f sought by XLIA is not warranted because it has not shown that the remainder of the P f iz e r Settlement exhausts its policy. E v e n assuming that the Pfizer Settlement partially exhausts XLIA's policy, to avoid lia b ility for the settlement costs in Stryker I, XLIA must contend with the rule in Capitol R e p ro d u c tio n , Inc. v. Hartford Insurance Co., 800 F.2d 617 (6th Cir. 1986). The Court has a lre a d y determined, in Stryker I and Stryker II, that Capital Reproduction and the Michigan c a s es that it cites are the controlling law with respect to the applicability of an insurer's p o lic y limits in circumstances where the insurer has breached its duty to defend: U n d e r Michigan law, when an insurer fails to fulfill its duty to defend an insured, it b e c o m e s liable for the full extent of the judgment against the insured. "If the insurer h a d an obligation to defend and failed to fulfill that obligation, then, like any other p a rty who fails to perform its contractual obligation, it becomes liable for all f o re se e a b le damages flowing from the breach . . . . An insurer's duty to defend is in d e p e n d e n t of its duty to pay, and damages for breach of that duty are not limited to 8

th e face amount of the policy." Stockdale v. Jamison, 416 Mich. 217, 330 N.W.2d 3 8 9 , 392 (1982). One basis for this rule seems to lie in the law's reluctance to allow th e insurer to benefit from the uncertainty created when it renounces its duty. Thus, a n insured is not "required to prove that the amount of the judgment in excess of the p o lic y limits was caused by the failure of the insurer to provide a reasonable defense, sinc e if the insurer had provided a reasonable defense as required by its contract, there w o u ld be no need for anyone to attempt to offer proofs on that illusive subject." M a y n a rd v. Sauseda, 121 Mich. App. 644, 329 N.W.2d 774, 779 (1982). This general ru le applies as well to settlements. Detroit Edison v. Michigan Mut. Ins. Co., 102 M ic h . App. 136, 144, 301 N.W.2d 832 (1980). Capitol Reprod., 800 F.2d at 624. In both Stryker I and Stryker II, this Court held that the ru le in Capitol Reproduction precludes XLIA from invoking the self-insured retention limit in its policy. Though Capitol Reproduction specifically involved the applicability of a selfin s u re d retention limit, the Court cannot meaningfully distinguish a self-insured retention lim it from any other type of policy limit for purposes of applying the general rule that, where th e insurer breaches its duty to defend, it becomes liable for the "full extent of the judgment" o r the full settlement, regardless of "the face amount of the policy." Id. X L IA argues that the settlement costs in Stryker I are not consequential damages e x e m p t from the policy limit because the settlements were not caused by XLIA's breach of th e duty to defend, but this argument runs counter to Capitol Reproduction, wherein the court im p lic itly acknowledged that the full amount of a judgment or settlement binding the insured f o llo w in g breach of the insurer's duty to defend may not be entirely the result of that breach. S e e id. Nevertheless, the court indicated that an insurer that breaches its duty to defend is lia b le for the full judgment and settlement costs in excess of policy limits because the insured s h o u ld not be required to "prove that the amount . . . in excess of the policy limits was caused 9

b y the failure of the insurer to provide a reasonable defense . . . ." Id. The same concern a p p lies here. Stryker should not be required to prove that the portion of the settlement costs in Stryker I that exceeds XLIA's policy limits was caused by the failure of XLIA to provide a reasonable defense. Finally, XLIA argues that Stryker will not suffer any "loss" or damage by costs in e x c e s s of XLIA's policy limits because TIG's coverage remains available to cover those c o sts . However, this argument assumes that XLIA has properly exhausted its policy limit. T o recover excess settlement costs in Stryker I from TIG, Stryker would, in effect, be re q u ire d to make the same type of showing that Capitol Reproduction indicates an insured s h o u ld not be required to make, i.e. what the portion of the settlement costs applied to X L IA 's policy limits were not caused by XLIA's breach. Moreover, XLIA has not offered an y basis or authority for requiring or allowing Stryker to, in effect, recover from TIG a m o u n ts exceeding XLIA's policy for which TIG would not otherwise be liable in the a b s e n c e of XLIA's breach. See Stockdale, 330 N.W.2d at 392 ("If the insurer had an o b lig a tio n to defend and failed to fulfill that obligation, then, like any other party who fails to perform its contractual obligations, it becomes liable for all foreseeable damages flowing f ro m the breach."). For the foregoing reasons, XLIA's motion for partial summary judgment must be d e n ie d . The Court declines to recharacterize it as a motion for reconsideration or for relief f ro m judgment because XLIA has not shown that such relief is warranted.

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II. W ith respect to Plaintiffs' motion for entry of final judgment, Stryker seeks to add to th e Court's previous partial judgment an amount of attorney's fees that is not in dispute by th e parties. Thus, the Court will grant Plaintiffs' motion for entry of final judgment. The C o u rt notes that, subsequent to filing its motion, on September 21, 2009, Plaintiffs filed a n o tic e of corrected proposed judgment contending that the amount in its original proposed j u d g m e n t is incorrect because the amount of one of the settlement claims was improperly c a lc u la te d . (Dkt. No. 1090.) While XLIA has not responded to this "notice," the Court notes th a t this correction makes the total amount of settlement costs consistent with the amount in th is Court's earlier opinion and order granting partial judgment. (Dkt. No. 1055, 12/15/2008 O p . 3.) XLIA has not objected to any other amounts in the proposed final judgment. The C o u rt will, therefore, use the corrected amount in its order. The Court also notes that, while it has awarded Plaintiffs prejudgment interest, Plaintiffs' motion for entry of final judgment d o e s not include a calculation of that amount. The Court will, therefore, enter judgment on th e amount in Plaintiffs' motion; in the event that the parties disagree on the calculation of p re ju d g m e n t interest, a party should file a motion pursuant to Rule 60(a) of the Federal Rules o f Civil Procedure. See Pogor v. Makita U.S.A., Inc., 135 F.3d 384, 388 (6th Cir. 1998). A n order and final judgment will be entered that are consistent with this opinion.

Dated: October 7, 2009

/s/ Robert Holmes Bell ROBERT HOLMES BELL UNITED STATES DISTRICT JUDGE

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