IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

WICHITA FALLS DIVISION

VICTORIA KLEIN, et al., §

 §

Plaintiffs, §

 § Civil Action No. 7:03-CV-102-D

VS. § (Consolidated with 

 § Civil Action No. 7:09-CV-094-D)

FEDERAL INSURANCE CO., §

a/k/a CHUBB GROUP OF §

INSURANCE COMPANIES, et al., §

 §

Defendants. §

MEMORANDUM OPINION

 AND ORDER 

In this insurance coverage dispute between the plaintiffs in a certified class action

involving the administration of the vitamin E supplement E-Ferol Aqueous Solution (“EFerol”) and defendant Federal Insurance Co. (“Federal”), an excess liability carrier, both

parties move for summary judgment. For the reasons that follow, the court concludes as a

matter of law that the negligent conduct of one of the insureds is covered under the relevant

insurance policy and grants the class plaintiffs’ motion for summary judgment on the

question of insurance coverage. The court concludes, however, that, under Ohio law, the

class plaintiffs are not entitled to recover their attorney’s fees from Federal. Accordingly,

the court grants in part and denies in part both motions for summary judgment, and it enters

a Fed. R. Civ. P. 54(b) final judgment today in favor of the class plaintiffs.

 

 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 1 of 44 PageID 23615
I

This case is the subject of several prior memorandum opinions and orders.1

 The court

will therefore recount only the background facts2

 and procedural history that are pertinent to

this decision.

The class plaintiffs are members of a certified class of persons, or the legal

representatives of persons, who, during the period from November 1, 1983 until April 30,

1984, were administered E-Ferol and died or were injured as a result (“the class plaintiffs”

or the “E-Ferol Class”). Klein v. Fed. Ins. Co., 2014 WL 239652, at *1 (N.D. Tex. Jan. 22,

2014) (Fitzwater, C.J.) (“Klein V” ). In 2003 the class plaintiffs sued, among others, Revco

D.S., Inc. (“Revco”)3

 and Revco’s wholly owned subsidiary, Carter-Glogau Laboratories,

1

See, e.g., Klein v. Fed. Ins. Co., 2014 WL 4476556 (N.D. Tex. Sept. 11, 2014)

(Fitzwater, C.J.); Klein v. Fed Ins. Co., 2014 WL 239652 (N.D. Tex. Jan. 22, 2014)

(Fitzwater, C.J.); Klein v. Fed. Ins. Co., 2012 WL 2886679 (N.D. Tex. July 16, 2012)

(Fitzwater, C.J.); Klein v. O’Neal, Inc., 705 F.Supp.2d 632 (N.D. Tex. 2010) (Fitzwater,

C.J.); Klein v. O’Neal, Inc., 2009 WL 3573849 (N.D. Tex. Oct. 30, 2009) (Fitzwater, C.J.);

Klein v. O’Neal, Inc., 222 F.R.D. 564 (N.D. Tex. 2004) (Buchmeyer, J.). 

2

Because both parties move for summary judgment, the court will recount the

evidence that is undisputed, and, when it is necessary to set out evidence that is contested,

will do so favorably to the party who is the summary judgment nonmovant in the context of

that evidence. See, e.g., GoForIt Entm’t, LLC v. DigiMedia.com L.P., 750 F.Supp.2d 712,

718 n.4 (N.D. Tex. 2010) (Fitzwater, C.J.) (quoting AMX Corp. v. Pilote Films, 2007 WL

1695120, at *1 n.2 (N.D. Tex. June 5, 2007) (Fitzwater, J.)). 

3

In 1997 Revco merged with CVS Corporation and the new corporation was named

CVS Revco D.S., Inc. (“CVS Revco”). Klein V, 2014 WL 239652, at *1 n.3. After a

subsequent merger, the corporation’s name changed to CVS Caremark Corporation (“CVS

Caremark”).

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Inc. (“Carter-Glogau”),4

 alleging claims for negligence, strict liability, and negligent

misrepresentation. Id.

Defendant Federal issued Revco an excess liability policy (“Federal Policy”) for the

policy period June 1, 1983 to June 1, 1984. The Federal Policy follows certain terms and

provisions of Transit Casualty Company Policy No. UMB 950304 (“Transit Policy”). Under

the Transit Policy, coverage is provided for personal injury caused by an “Occurrence,”

which the Transit Policy defines as “an accident or event including continuous repeated

exposure to conditions, which results, during the policy period, in PERSONAL INJURY or

PROPERTY DAMAGE neither expected nor intended from the stand-point of the

INSURED.” Ps. 3/14/16 App. 71.

The Federal Policy lists Revco as the “Named Insured” and, in addition, insures “all

subsidiary, affiliated, associated or allied companies [or] corporations[.]” Id. at 64. 

Although the Federal Policy insures both Revco and its wholly owned subsidiary, CarterGlogau, these corporations were considered separate insureds under the Federal Policy. Id.

at 72 (Transit Policy) (“Severability of Interest: The term “INSURED” is used severally and

not collectively except with respect to [certain insuring agreements and conditions].”); id. at

136 (testimony of Federal’s corporate representative agreeing that the Federal Policy has

separation of insureds clause). 

4

In December 1986 certain assets of Carter-Glogau were sold, including the use of the

name “Carter-Glogau Laboratories, Inc.” The class plaintiffs allege that the liabilities,

including the liability for E-Ferol claims, remained with the corporate entity, which was then

renamed Retrac, Inc. (“Retrac”).

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 3 of 44 PageID 23617
During the pendency of this class action, Federal filed suit in the Northern District of

Ohio (“Ohio Action”) against CVS Revco D.S., Inc. (“CVS Revco”), seeking a declaratory

judgment that Federal had no duty under the Federal Policy to defend or indemnify Revco

or CVS Revco in the E-Ferol class action. The Ohio Action was eventually transferred to

this court, and, under the terms of an October 7, 2009 “Non-Waiver Agreement” (“NWA”),

was consolidated with the certified E-Ferol class action pending in this court (“Consolidated

Declaratory Judgment Actions”). Klein V, 2014 WL 239652, at *1.5

On October 7, 2009, the same day the NWA was executed, the E-Ferol Class entered

into a Settlement Agreement and Release (“Settlement Agreement”) with Retrac, Inc.

(“Retrac”), among others, resolving the claims between the parties concerning the

manufacture and distribution of E-Ferol. The settlement was funded by liability insurance

from the class action defendants’ excess coverage insurance carriers. Federal, however, did

not participate in funding the class settlement.6

 It disputed that it had a duty to indemnify its

insureds (Carter-Glogau and Revco) for the class plaintiffs’ claims. Retrac and CVS Revco

5

On June 5, 2009 the class plaintiffs filed their second amended complaint, in which

they named Federal and another insurance company as defendants. They asserted a

declaratory judgment claim against Federal, seeking, inter alia, a declaration that Federal is

required by the terms of the Federal Policy “to indemnify CVS for any liability for injury or

death resulting from E-Ferol.” 2d Am. Compl. at 34. 

6

Two other excess insurers—International Insurance Co., a/k/a Westchester Fire

Insurance Co., n/k/a ACE USA, Inc. (“Westchester”) and Mission Insurance Co.

(“Mission”)—did not participate in funding the class action settlement. The class plaintiffs

have settled or dismissed their claims, however, against all defendants other than Federal. 

See Klein V, 2014 WL 239652, at *2 n.7.

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 4 of 44 PageID 23618
therefore agreed under the Settlement Agreement, 

subject to the [NWA] with Federal, [to] assign to the E-Ferol

class, by and through its Class Representatives: i) all of their

rights, if any, to seek indemnity coverage from Federal . . . for

the claims asserted against them in the Class Action; and ii) all

of their rights, if any, to seek attorney’s fees and costs if

prevailing in coverage action against Federal[.]

Ps. 4/12/16 App. 554. 

Under the NWA, executed concurrently with the Settlement Agreement, Federal

agreed to deposit the $15 million limits of the Federal Policy into an interest bearing escrow

account to be disbursed either to Federal or to the E-Ferol Class after a final judgment in the

Consolidated Declaratory Judgment Actions.7

 The NWA provides that the E-Ferol Class is

not required to “establish liability or damages in an adversarial trial or to obtain a judgment

or for the Defendants to pay a judgment as a condition of proving ‘coverage’ or prevailing

on ‘coverage’ issues in order to obtain the funds held in escrow pursuant to the terms of [the

NWA].” Ps. 3/14/16 App. 93. 

On April 9, 2010 the court approved the class settlement. Klein v. O’Neal, Inc., 705

F.Supp.2d 632 (N.D. Tex. 2010) (Fitzwater, C.J.) (“Klein III”). On April 13, 2011, under the

terms of the Settlement Agreement and NWA, CVS Revco and Retrac executed an

assignment that purported to assign to the class plaintiffs all of their rights to seek indemnity

coverage against Federal and the other non-settling insurers.

7

The NWA also provides a third option, not at issue here, under which a portion of the 

$15 million would be distributed to the E-Ferol Class.

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 5 of 44 PageID 23619
 In their fifth amended complaint, the class plaintiffs seek a judgment declaring that

the Federal Policy covers the liability and damages allegations by the class plaintiffs, and that

Federal, among others, must indemnify the class plaintiffs, as assignees of Carter-Glogau

(now Retrac) and Revco, to the full extent of the $110 million settlement, as set out in the

Settlement Agreement. They also seek to recover damages and attorney’s fees. 

Federal and the class plaintiffs have each filed a motion for summary judgment, and

the court has heard oral argument.

II

When a party moves for summary judgment on a claim on which the opposing party

will bear the burden of proof at trial, the moving party can meet its summary judgment

obligation by pointing the court to the absence of admissible evidence to support the

opposing party’s claim. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the

moving party does so, the opposing party must go beyond its pleadings and designate specific

facts showing there is a genuine issue for trial. See id. at 324; Little v. Liquid Air Corp., 37

F.3d 1069, 1075 (5th Cir. 1994) (en banc) ( per curiam). An issue is genuine if the evidence

is such that a reasonable jury could return a verdict in the opposing party’s favor. Anderson

v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The opposing party’s failure to produce

proof as to any essential element of a claim renders all other facts immaterial. See TruGreen

Landcare, L.L.C. v. Scott, 512 F.Supp.2d 613, 623 (N.D. Tex. 2007) (Fitzwater, J.). 

Summary judgment is mandatory if the opposing party fails to meet this burden. Little, 37

F.3d at 1076.

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 6 of 44 PageID 23620
When a party moves for summary judgment on a claim on which it will have the

burden of proof at trial, however, it “must establish ‘beyond peradventure all of the essential

elements of the claim or defense.’” Bank One, Tex., N.A. v. Prudential Ins. Co. of Am., 878

F.Supp. 943, 962 (N.D. Tex. 1995) (Fitzwater, J.) (quoting Fontenot v. Upjohn Co., 780 F.2d

1190, 1194 (5th Cir. 1986)). This means that the moving party must demonstrate that there

are no genuine and material fact disputes and that it is entitled to summary judgment as a

matter of law. See Martin v. Alamo Cmty. Coll. Dist., 353 F.3d 409, 412 (5th Cir. 2003). 

“The court has noted that the ‘beyond peradventure’ standard is ‘heavy.’” Carolina Cas. Ins.

Co. v. Sowell, 603 F.Supp.2d 914, 923-24 (N.D. Tex. 2009) (Fitzwater, C.J.) (quoting Cont’l

Cas. Co. v. St. Paul Fire & Marine Ins. Co., 2007 WL 2403656, at *10 (N.D. Tex. Aug. 23,

2007) (Fitzwater, J.)). 

III

The court turns first to the class plaintiffs’ motion for summary judgment, which

presents the question whether the Federal Policy provides coverage based on Revco’s

negligent supervision of its subsidiary, Carter-Glogau (now Retrac), in the manufacturing and

marketing of E-Ferol.

A

Under both Texas and Ohio law,8

 the insured has the burden of proving coverage

8

Although the court decides below that Ohio law controls with respect to the class

plaintiffs’ claim for attorney’s fees, the court need not resolve the choice-of-law question for

purposes of the class plaintiffs’ coverage claim because the law regarding the allocation of

burdens of proof in the insurance coverage context is the same in Ohio and Texas.

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 7 of 44 PageID 23621
under an insurance policy. See Harken Exploration Co. v. Sphere Drake Ins. PLC, 261 F.3d

466, 471 (5th Cir. 2001) (“The insured bears the initial burden of showing that the claim

against her is potentially within the insurance policy’s scope of coverage.” (citations omitted)

(Texas law)); Chi. Title Ins. Co. v. Huntington Nat’l Bank, 719 N.E.2d 955, 959 (Ohio 1999)

(“One who seeks to recover on an insurance policy generally has the burden of demonstrating

coverage under the policy and then proving a loss.” (citation omitted)). But when an insurer

denies liability coverage based on a policy exclusion, the insurer must plead the policy

exclusion as an affirmative defense and must demonstrate that the exclusion applies. Tex.

Ins. Code Ann. § 554.002 (West 2009) (“Language of exclusion in the contract or an

exception to coverage claimed by the insurer . . . constitutes an avoidance or an affirmative

defense.”); Cont’l Ins. Co. v. Louis Marx & Co., 415 N.E.2d 315, 317 (Ohio 1980) (“[A]

defense based on an exception or exclusion in an insurance policy is an affirmative one, and

the burden is cast on the insurer to establish it.”). 

The Transit Policy, as to which the Federal Policy follows form, provides insurance

coverage for “PERSONAL INJURY. . . caused by an OCCURRENCE, as hereinafter

defined.” Ps. 3/14/16 App. 69. As noted above, the term “OCCURRENCE” is defined as

“an accident or event including continuous repeated exposure to conditions, which results,

during the policy period, in PERSONAL INJURY or PROPERTY DAMAGE neither

expected nor intended from the stand-point of the INSURED.” Id. at 71. The court will

assume arguendo that the question whether the insured expected or intended the E-Ferol

Class’s injuries is a question of insurance coverage for which the class plaintiffs bear the

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 8 of 44 PageID 23622
burden of proof.

B

The class plaintiffs contend that Revco and Carter-Glogau are separate insureds under

the Federal Policy; that Federal’s corporate representative [Steven Jakubowski] agreed that

the Federal Policy has a separation of insureds clause; that Revco was unaware of the

development, manufacture, and distribution of E-Ferol until the day before the product was

recalled9

; that Revco’s negligent failure to use ordinary care to oversee, monitor, and

supervise Carter-Glogau proximately caused the class plaintiffs’ injuries; and that, under the

separation of insureds clause, Federal not only insures Revco and Carter-Glogau as if each

was covered by a separate insurance policy, but Federal cannot impute the acts of one to the

other by virtue of their having been insured by the same policy. In other words, the class

plaintiffs maintain that they are entitled to coverage under the Federal Policy as a result of

Revco’s negligence alone, and that any intentional conduct on the part of Carter-Glogau does

not impede Federal’s obligation to cover Revco’s liability.

In response, Federal does not dispute that Revco and Carter-Glogau were separately

insured under the Federal Policy10 or that Revco’s conduct in relation to the development,

9

At oral argument, Federal disputed that Revco knew only on the eve of the recall

about the drug E-Ferol, arguing that Carter-Glogau notified Revco’s claims department of

the Spokane adverse reaction report in January 1984. Federal does not contend, however,

that Revco’s conduct, either before or after it allegedly received the Spokane report in

January 1984, amounted to more than negligence.

10See Hrg. Tr. 36 (“[W]e acknowledge that [Revco and Carter-Glogau] were separate

insureds.”).

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 9 of 44 PageID 23623
manufacture, and distribution of E-Ferol was negligent. It relies instead on language in the

Settlement Agreement to contend that the class plaintiffs’ agreement to dismiss their claims

against Revco and CVS Revco and to release these defendants without any liability precludes

the class plaintiffs from seeking coverage under the Federal Policy based on Revco’s

negligent acts. Federal contends that “CVS has nothing for which to seek insurance coverage

and Class Plaintiffs cannot use the Separation of Insureds provision to avoid their burden to

establish that Carter-Glogau is entitled to coverage under the Federal Policy,” because the

NWA states that Federal is agreeing to participate “in funding the Class Settlement”; the

Federal Policy provides that Federal will indemnify the insured for “all sums which the

insured shall be obligated to pay by reason of liability imposed upon the insured by law or

liability assumed by the insured under contract or agreement for damages and expenses”; and

CVS Revco and Revco were dismissed and released from liability and are not responsible

for paying any portion of the class settlement. D. 4/12/16 Br. 31-32 (emphasis added). 

The class plaintiffs argue in reply that Federal has improperly quoted the Settlement

Agreement and that the release of CVS Revco was “subject to” the assignment of all of

Revco’s rights against Federal as set out in the NWA and in Sections X.A. and X.B of the

Settlement Agreement. The class plaintiffs contend that “[t]he release of Revco D.S., Inc.

and its successors, CVS Revco D.S., Inc. and CVS Caremark, Inc. was subject to the

assignment to the class plaintiffs of all of their rights to indemnity under the Federal [P]olicy

before they were released.” Ps. 5/3/16 Reply 5 (emphasis added).

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 10 of 44 PageID 23624
C

The Transit Policy contains a “Severability of Interest” clause that states “[t]he term

‘INSURED’ is used severally and not collectively except with respect to [certain insuring

agreements and conditions].” Ps. 3/13/16 App. 72. Under Texas and Ohio law,

when an insurance policy has a separation of insureds or

severability of interests clause, each insured against whom a

claim is brought is treated as if it was the only insured under the

policy. The intent of the severability clause is to provide each

insured with separate coverage, as if each were separately

insured with a distinct policy, subject to the liability limits of the

policy. The severability clause serves to provide coverage when

there is an “innocent” insured who did not commit the conduct

excluded by the policy. In Walker [v. Lumbermens Mutual

Casualty Co., 491 S.W.2d 696 (Tex. Civ. App. 1973, no writ)],

for example, [an insurance coverage dispute in which the

insurance policy contained an exclusion for intentional harm

caused by the insured as well as a severability clause,] the court

of appeals held that an exclusion that denied coverage for

intentional acts of “the insured” did not apply to the father of the

son who committed the intentional acts; therefore, the father was

not denied coverage under the insurance policy. 

Bituminous Cas. Corp. v. Maxey, 110 S.W.3d 203, 210 (Tex. App. 2003, pet. denied)

(citations omitted); see also State Farm Fire & Cas. Ins. Co. v. Keegan, 209 F.3d 767, 769

(5th Cir. 2000) (“a severability clause serves to provide coverage in a situation . . . where

there exists an ‘innocent’ insured who did not commit the conduct excluded under the

policy.”); Liberty Mut. Ins. Co. v. Evans, 1994 WL 184032, at *2 (Ohio Ct. App. 1974) (“A

clause in a liability insurance policy providing for severability of interests requires that the

term ‘the insured’ be construed severally and not collectively. This has the effect of

considering additional insureds as if separately covered by a policy of their own.” (citation

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 11 of 44 PageID 23625
omitted)); cf. Safeco Ins. Co. of Am. v. White, 913 N.E.2d 426, 436 (Ohio 2009) (“[W]e hold

that insurance-policy exclusions that preclude coverage for injuries expected or intended by

an insured, or injuries arising out of or caused by an insured’s intentional or illegal acts, do

not preclude coverage for the negligent actions of other insureds under the same policy that

are predicated on the commission of those intentional or illegal acts, e.g., negligent hiring or

negligent supervision.”). 

The class plaintiffs maintain, and Federal does not dispute, that the legal effect of the

severability of interest clause in the Transit Policy is that the allegedly intentional conduct

of Carter-Glogau cannot be imputed to Revco. Accordingly, the class plaintiffs can establish

coverage under the Federal Policy based on the negligent conduct of Revco alone; they are

not also required to establish coverage for Carter-Glogau’s conduct.

D

The class plaintiffs point out, and Federal does not dispute, that 

(1) there is a separation of insured clause in the Federal/Transit

policies as admitted by its corporate representative; (2) that

Revco was negligent in its supervision of Carter, which was a

proximate cause of the injury suffered by class plaintiffs; and (3)

that under the separation of insured clause, the determination of

whether Carter-Glogau committed an intentional tort or not has

no bearing on the fact that Federal must cover the liability of

Revco separately.

Ps. 5/3/16 Reply 3 (citations omitted); see also Hrg. Tr. 36 (acknowledging that Revco and

Carter-Glogau are separate insureds under the Federal Policy). Federal essentially argues in

response that the class plaintiffs cannot prove coverage under the Federal Policy based on

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 12 of 44 PageID 23626
the conduct of Revco because Revco was dismissed and released from the class action by the

Settlement Agreement, and, as a result, was not obligated to pay any portion of the class

settlement. Federal’s argument lacks force for several reasons.

1

The court begins with Settlement Agreement, which is a contract that provides that

it is to be interpreted according to Texas law. See Ps. 4/12/16 App. 559. 

Under Texas law, the court’s primary concern when interpreting

a contract is to ascertain the parties’ intentions as expressed

objectively in the contract. In doing so, the court must examine

and consider the entire writing in an effort to harmonize and

give effect to all contractual provisions, so that none will be

rendered meaningless. Language should be given its plain and

grammatical meaning unless it definitely appears that the

parties’ intention would thereby be defeated. Where the

contract can be given a definite legal meaning or interpretation,

it is not ambiguous, and the court will construe it as a matter of

law. 

Keith v. J.D. Byrider Sys., LLC, 2015 WL 3539555, at *6 (N.D. Tex. June 5, 2015)

(Fitzwater, J.) (citations omitted). 

2

The Settlement Agreement provides in Section IX:

Representative Plaintiffs agree that CVS Revco D.S., Inc.,

because it is the successor corporation to Revco D.S., Inc., has

no liability with respect to any claims filed in the Klein Action;

therefore, they will dismiss CVS Revco, D.S. Inc. from this suit

with prejudice upon the Effective Date of this Agreement,

subject to the Non-Waiver Agreement entered into with Federal

and Section X.A. and Section X.B. below. Accordingly, neither

CVS Revco D.S., Inc. nor any of its predecessors or successorsin-interest, including, without limitation, CVS Caremark

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Corporation will, or are obligated to contribute, to the

Settlement Proceeds, nor will they execute this Agreement. 

Ps. 4/12/16 App. 554 (emphasis added). CVS Revco’s dismissal is thus “subject to” both the

NWA and the assignment of rights in Section X.A. of the Settlement Agreement, which

provides:

Retrac and CVS Revco, D.S. Inc. agree they will, subject to the

Non-Waiver Agreement with Federal, assign to the E-Ferol

Class, by and through its Class Representatives: i) all of their

rights, if any, to seek indemnity coverage from Federal . . . for

the claims asserted against them in the Class Action; and ii) all

of their rights, if any, to seek attorney’s fees and costs if

prevailing in coverage action against Federal[.]

Id. The NWA, which CVS Caremark signed as “successor to Revco D.S., Inc.,” similarly 

provides that the “CVS Class Defendants,” defined to include Retrac and CVS Revco:

hereby assign to the E-Ferol Class, by and through its Class

Representatives: i) all of their rights, if any, under the Federal

Policy to seek indemnity coverage, limited to the Escrow

Payment, for the claims asserted against them in the Class

Action; and ii) all of their rights, if any, under the Federal Policy

or applicable law to seek attorney’s fees and costs if prevailing

in the Consolidated Declaratory Judgment Actions.

Ps. 3/14/16 App. 93. 

Considering the Settlement Agreement in its entirety and with a view toward

discerning the intent of the parties as expressed in the agreement, it is clear that the dismissal

of CVS Revco was subject to the assignment to the E-Ferol class of CVS Revco’s right to

seek indemnity under the Federal Policy. See Ps. 4/12/16 App. 554. In addition,“Retrac,”

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which the Settlement Agreement defines to include Revco,11 the Named Insured under the

Federal Policy, also clearly assigned to the E-Ferol class its right to seek indemnity coverage

from Federal. Id. Once these rights were assigned to the E-Ferol Class, CVS Revco could

be dismissed from the class action, and the class plaintiffs would retain the right to pursue

any indemnity coverage to which either CVS Revco or its predecessor, Revco, was entitled

under the Federal Policy. 

The NWA supports this same conclusion. Not only does the NWA, which CVS

Caremark and Retrac both signed, recite the same assignment of rights by Retrac and CVS

Revco, but it expressly refers in ¶ 9 to “the claim tendered by CVS Revco D.S., Inc. or

Retrac for coverage under the Federal Policy for claims asserted against them in the Class

Action as of the date of [the NWA].” Ps. 3/14/16 App. 94. If the parties had intended the

Settlement Agreement’s dismissal of CVS Revco to preclude the class plaintiffs from

pursuing indemnity under the Federal Policy based on their claim against CVS Revco, there

would have been no reason to include the language in ¶ 9 of the NWA referring to “the claim

tendered by CVS Revco D.S., Inc.” Id.

Federal contends that, under the Settlement Agreement, the “Class Plaintiffs agreed

to dismiss their claims against CVS Revco D.S., Inc. and Revco D.S., Inc. and release them

without any liability.” D. 4/12/16 Br. 31. Federal’s reading of the Settlement Agreement is

11See Ps. 4/12/16 App. 541 (“‘Retrac’ means Retrac, Inc. and its Related Parties

including, without limitation, Carter-Glogau Laboratories, Inc. and its Related Parties and

its former parent, Revco D.S., Inc.”).

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 Case 7:03-cv-00102-D Document 834 Filed 12/02/16 Page 15 of 44 PageID 23629
mistaken. The Settlement Agreement clearly distinguishes between Revco and CVS Revco,

stating that 

CVS Revco D.S., Inc., because it is the successor corporation

to Revco D.S., has no liability with respect to any claims filed in

the Klein Action; therefore they will dismiss CVS Revco, D.S

Inc. from this suit with prejudice upon the Effective Date of this

Agreement, subject to the [NWA] entered into with Federal and

Section X.A. and Section X.B. below.

Ps. 4/12/16 App. 554 (emphasis added). This language does not address the liability of

Revco, the Named Insured under the Federal Policy. 

Nor is the court persuaded by Federal’s argument that, because “CVS, which Class

Plaintiffs have dismissed and released, has no . . . responsibility to pay any portion of the

Class settlement or any other amounts to Class Plaintiffs,” “CVS has nothing for which to

seek insurance coverage and Class Plaintiffs cannot use the Separation of Insureds provision

to avoid their burden to establish that Carter-Glogau is entitled to coverage under the Federal

Policy.” Ds. 4/12/16 Br. 32. This contention fails because none of the defendants in the

original class action had any responsibility to pay any portion of the Class Settlement. The

Settlement Agreement clearly provides that the $110 million settlement is to be funded

entirely by the parties’ insurance companies. See Ps. 4/12/16 App. 547. Accordingly,

language in the Settlement Agreement that provides that neither CVS Revco nor its

predecessors will be obligated to contribute to the Settlement Proceeds merely memorializes

the unremarkable fact that the insurers, not their insureds (including CVS Revco, Revco,

Retrac, and the other related entities) will fund the settlement. 

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Finally, when the court considers the overall intent of the NWA and Settlement

Agreement, it is persuaded that none of the parties signing these agreements contemplated

that the NWA or Settlement Agreement would operate as a relinquishment of any right to

pursue the indemnity claims of Revco and Carter-Glogau in the Consolidated Declaratory

Judgment Actions. As the court explained in its opinion approving the class action

settlement:

Two insurers of defendant Retrac, Inc.

(“Retrac”)—Federal Insurance Company (“Federal”) and

Westchester Fire Insurance Company (“Westchester”)—whose

coverages together represent approximately $17.5 million of the

proceeds of the proposed settlement, have not agreed to the

Settlement Agreement. They also dispute that they have a duty

to indemnify Retrac for the class plaintiffs’ claims. Resolution

of these coverage questions remains outstanding. The court

dismissed an attempt by the class plaintiffs to sue Federal and

Westchester directly for the purpose of establishing that they

have a duty to indemnify Retrac for claims brought by the class

. . . .

A substantial majority of defendants’ relevant insurers,

representing $90 million of the proposed settlement, have agreed

to the Settlement Agreement. The unresolved nature of

Federal’s and Westchester’s liabilities, along with [Mission

Insurance Company’s (“Mission’s”)] insolvency, mean that the

total settlement amount is not certain, although it would in any

case be between $90 million and $110 million. If the Settlement

Agreement is approved, defendants will assign to the class their

respective rights of indemnification against Federal,

Westchester, and Mission.

Klein III, 705 F.Supp.2d at 642 (emphasis added).

Accordingly, the court concludes that, under the express terms of the NWA and

Settlement Agreement, CVS Revco assigned to the class plaintiffs its right to seek indemnity

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from Federal as a condition of its being dismissed from the class action. Neither the

dismissal of CVS Revco from the lawsuit nor the statement in the Settlement Agreement that

CVS Revco has “no liability with respect to any claims filed in the Klein Action” affects the

class plaintiffs’ right to seek indemnity from Federal based on their negligence claim against

Revco (now CVS Revco). Ps. 4/12/16 App. 554.

3

The class plaintiffs have established, and Federal does not dispute, that the Transit

Policy has a severability of interest clause; that, as a result of this clause, the allegedly

intentional conduct of Carter-Glogau cannot be imputed to Revco; that Revco must be treated

as being separately insured from Carter-Glogau; and that Revco’s conduct in connection with

the manufacturing and marketing of E-Ferol was negligent and proximately resulted in the

injuries claimed by the E-Ferol class.12 Accordingly, the class plaintiffs have established

beyond peradventure and as a matter of law that the Federal Policy covers the negligent

12Although the class plaintiffs cite extensive evidence that they contend establishes

that Revco’s negligent supervision of Carter-Glogau (its wholly owned subsidiary) was a

proximate and/or producing cause of injury and death to E-Ferol recipients, the class

plaintiffs are not required to prove Revco’s liability to recover the $15 million held in escrow

under the NWA. See Ps. 3/14/16 App. 93 (providing that the E-Ferol class is not required

“in order to obtain the funds held in escrow pursuant to this paragraph, to establish liability

or damages in an adversarial trial or to obtain a judgment or for the Defendants to pay a

judgment as a condition of proving ‘coverage’ or prevailing on ‘coverage’ issues in order to

obtain the funds held in escrow pursuant to the terms of [the NWA].”). Accordingly, to

recover the $15 million held in escrow, the class plaintiffs are only required to establish that

the Federal Policy covers the conduct of Revco and that there are no genuine issues of

material fact regarding policy exclusions or defenses to coverage that would prevent Revco

from recovering under the Federal Policy.

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conduct of Revco.

IV

Although the court concludes that the class plaintiffs have met their burden of

establishing coverage under the Federal Policy, they are not entitled to summary judgment

on their claim to the $15 million held in escrow under the terms of the NWA unless they also

establish that they are entitled to summary judgment as to Federal’s affirmative defenses. 

The class plaintiffs move for summary judgment on each remaining affirmative defense.13

The court will address each in turn, beginning with Federal’s second defense (Federal’s first

defense is addressed to ¶¶ 1-72 of the class plaintiffs’ fifth amended original complaint; it

is not an affirmative defense).

A

Federal asserts judicial estoppel and waiver as its second affirmative defense. The

class plaintiffs point to the absence of evidence that would create a genuine issue of material

fact on these defenses, and they maintain that Federal “failed to disclose the factual basis for

this pleading in discovery.” Ps. 3/14/16 Br. 28. Federal responds that the class plaintiffs

have continually asserted that Carter-Glogau acted intentionally, or, at the very least,

expected injury, and that they should be judicially estopped from asserting that the injuries

13In Klein v. Federal Insurance Co., 2014 WL 4476556 (N.D. Tex. Sept. 11, 2014)

(Fitzwater, C.J.), the court granted the class plaintiffs’ motion to strike several of Federal’s

affirmative defenses, but it granted Federal leave to replead. In Federal’s second amended

answer and affirmative defenses to the class plaintiffs’ fifth amended original complaint,

Federal pleads ten affirmative defenses. The parties have stipulated that Federal is waiving

its third and fourth affirmative defenses. 

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were not expected or intended.

The court need not address the affirmative defense of judicial estoppel because this

defense relates solely to Carter-Glogau’s intent or expectation regarding the class plaintiffs’

injuries. 

Regarding waiver, Federal pleads “the doctrine of waiver based on Class Plaintiffs’

waiver of all claims other than those retained pursuant to the terms of the [NWA].” 2d Am.

Ans. ¶ 73. The court has addressed the question of waiver above and has concluded that,

because CVS Revco assigned its rights under the Federal Policy to the class plaintiffs

pursuant to the Settlement Agreement and NWA, the class plaintiffs have not waived their

claim for indemnity under the Federal Policy based on the negligent conduct of Revco. 

Accordingly, the class plaintiffs are entitled to summary judgment on this affirmative

defense to the extent they seek to recover the $15 million held in escrow pursuant to the

NWA based on the negligent conduct of Revco. 

B

Federal’s fifth and seventh affirmative defenses relate to whether the class plaintiffs’

injuries were expected or intended. The class plaintiffs move for summary judgment

contending, inter alia, that “Federal has neither pled nor can it prove that Revco even knew

of the manufacture of E-Ferol prior to its recall,” Ps. 3/14/16 Br. 33, and that the class

plaintiffs are entitled to summary judgment on these defenses as to Revco and are entitled

to judgment as a matter of law as the assignees of Revco under the NWA. In response,

Federal argues extensively that Carter-Glogau intended or expected the class plaintiffs’

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injuries, but it does not dispute that Revco did not expect or intend the class plaintiffs’

injuries.

Accordingly, the court grants the class plaintiffs’ motion for summary judgment on

these affirmative defenses to the extent the class plaintiffs seek to recover the $15 million

held in escrow pursuant to the NWA based on the negligent conduct of Revco. 

C

Federal pleads as it sixth affirmative defense:

The Federal Policy contains limits of liability per occurrence

and in the aggregate and/or in the event of other insurance. In

the event that Federal is found to have any liability to indemnify

Plaintiffs, the amount of coverage is restricted to said limits in

accordance with the terms of the Federal Policy or incorporated

therein by reference and/or are in excess of other insurance.

2d Am. Ans. ¶ 77. The class plaintiffs move for summary judgment on this defense,

contending that there is no evidence that creates a genuine dispute as to any violation of the

limits of liability, aggregate limits, or other insurance, as claimed by Federal. Federal does

not respond to this argument. 

Accordingly, because Federal has failed to create a genuine issue of material fact on

its sixth affirmative defense, the court grants the class plaintiffs’ motion for summary

judgment on this defense. 

D

Federal alleges as its eighth affirmative defense that the class plaintiffs’ claims are

barred to the extent they seek coverage for medical monitoring costs because, under the

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unambiguous and express provisions of the Transit Policy, Federal has no duty to pay

medical monitoring costs for the underlying claims.

1

The class plaintiffs move for summary judgment on this affirmative defense,

contending that individuals in “Category Four”14 of the Settlement Agreement, although

described as a “medical monitoring group,” were injured “at the cellular level” as a result of

the administration of E-Ferol, Ps. 3/14/16 Br. 42, and cite the testimony of Robert Brown,

M.D., who testified at the class certification hearing that all E-Ferol recipients received a

foreign substance that should not have been injected into their bodies, all recipients suffered

injuries depending on the dose of E-Ferol received, and “every single dose of E-Ferol caused

the death of liver and kidney cells, such that each recipient of E-Ferol was damaged at the

cellular level.” id. at 19. The class plaintiffs explain that class members in Category Four

received a set sum of compensation that is not dependant on any future injury, but was

instead intended to compensate them for the negligent invasion of their bodies with E-Ferol

and the resulting damage at the cellular level. Finally, the class plaintiffs maintain that

Federal’s corporate representative admitted (1) that a toxic substance injected into an infant

would be considered bodily injury covered by the Federal Policy, and (2) that a class member

14The Settlement Agreement contains five categories of class members. Category

Four, “Other Claims,” includes: “(a) the claimants identified in Exhibit 4 who allege bodily

injury or seek compensation but who do not otherwise fall within Categories One through

Three, including claimants who seek damages for medical monitoring, and (b) any Class

Member who is reclassified into Category Four pursuant to Section III.B. below.” Ps.

4/12/16 App. 544.

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awarded a set sum of money, not dependent upon any future event, is not medical monitoring

recovery and would be covered by the Federal Policy.

Federal responds by citing the Settlement Agreement, which describes class members

in Category Four as including claimants “who allege bodily injury or seek compensation but

who do not otherwise fall within Categories One through Three, including claimants who

seek damages for medical monitoring.” Ps. 4/12/16 App. 544. Federal contends that the

medical monitoring claims, by definition, seek compensation for expenses incurred in

connection with a possible diagnosis of a potential future injury, sickness, or disease, and that

medical monitoring is not encompassed within the plain meaning of “PERSONAL INJURY,”

as defined by the Transit Policy. Federal relies on two cases—a decision by an Arizona court

of appeals and a decision by the Tenth Circuit—to argue that exposure to a toxic substance

does not constitute a “bodily injury,” as required under the Federal Policy.

In reply, the class plaintiffs contend that, because Federal has failed to refute the

evidence that all E-Ferol recipients were injured at the cellular level, there was no award

made to the class plaintiffs based on any showing of future injury or future medical testing

for any category of class recipient (all were awarded a set monetary settlement), and 

Federal’s representative agreed that these injuries are covered by the Federal Policy, Federal

has failed to carry its burden on this affirmative defense.

2

Under Texas and Ohio law, courts interpret policies of insurance according to the

rules of contract interpretation. See, e.g., Int’l Ins. Co. v. RSR Corp., 426 F.3d 281, 291 (5th

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Cir. 2005) (citing Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex.

1998)); Motorists Ins. Cos. v. BFI Waste Mgmt., 728 N.E.2d 31, 36 (Ohio Ct. App. 1999)

(“The relations between the parties to a contract of insurance being contractual, the rules

governing the construction and interpretation of contracts generally apply in construing a

policy of insurance.); Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994)

(“Interpretation of insurance contracts in Texas is governed by the same rules as

interpretation of other contracts.”). When a “contract is worded so that it can be given a

definite meaning, it is unambiguous and a judge must construe it as a matter of law.” Int’l

Ins. Co., 426 F.3d at 291; see also Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256, 1261

(Ohio 2003) (“When the language of a written contract is clear, a court may look no further

than the writing itself to find the intent of the parties. As a matter of law, a contract is

unambiguous if it can be given a definite legal meaning.” (citations omitted)); Nat’l Union

Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991). 

“In applying these rules, a court’s primary concern is to ascertain the parties’ intent as

expressed in the language of the policy.” Int’l Ins. Co., 426 F.3d at 291; see also Westfield

Ins. Co., 797 N.E.2d at 1261(“When confronted with an issue of contractual interpretation,

the role of a court is to give effect to the intent of the parties to the agreement (citing cases)); 

Forbau, 876 S.W.2d at 133 (“[T]he court’s primary concern is to give effect to the written

expression of the parties’ intent.”). The court must give effect to all of a policy’s provisions

so that none is rendered meaningless. Int’l Ins. Co., 426 F.3d at 291. In addition, courts

“look to the plain and ordinary meaning of the language used in the policy unless another

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meaning is clearly apparent from the contents of the policy.” Cincinnati Ins. Co. v. CPS

Holdings, Inc., 875 N.E.2d 31, 34 (Ohio 2007). 

“Whether an insurance contract is ambiguous is a question of law for the court to

decide by looking at the contract as a whole in light of the circumstances present when the

contract was entered.” Int’l Ins. Co., 426 F.3d at 291 (citing Kelley-Coppedge, 980 S.W.2d

at 464); Westfield Ins. Co., 797 N.E.2d at 1261. If an insurance contract “is susceptible to

more than one reasonable interpretation, [the court] will resolve any ambiguity in favor of

coverage.” Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 23 (Tex. 2008)

(footnotes omitted); see also Westfield Ins. Co., 797 N.E.2d at 1262 (“In the insurance

context, the insurer customarily drafts the contract. Thus, an ambiguity in an insurance

contract is ordinarily interpreted against the insurer and in favor of the insured.” (citations

omitted)).

3

The Federal Policy defines “Personal Injury” as “bodily injury, sickness, disease,

disability or shock, including death at any time resulting therefrom, mental anguish, mental

injury.” D. 3/15/16 App. 309. The class plaintiffs maintain that the term “bodily injury”

includes injury at the cellular level, and cite evidence that every single class member,

including the members in Category Four, was injured “at the cellular level,” as a result of

having received E-Ferol. In response, Federal does not dispute the class plaintiffs’ evidence

that Category Four class members were injured “at the cellular level”; instead, it contends

that this type of injury, without any physical manifestation of disease, does not constitute

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“bodily injury,” as that term is used in the Federal Policy.

The term “bodily injury” is not defined by the Federal or Transit Policy. Because the

term is not ambiguous on its face, the court interprets it according to its ordinary meaning. 

See, e.g. Cincinnati Ins. Co., 875 N.E.2d at 34. According to Black’s Law Dictionary,

“bodily injury” means “physical damage to a person’s body.” Black’s Law Dictionary (10th

ed. 2014). Federal does not dispute the class plaintiffs’ evidence that every recipient of EFerol sustained damages to his or her kidney and liver cells. And cells are undisputably part

of a person’s body. 

Courts interpreting policy provisions similar to those in the Federal Policy have

concluded, in various contexts, that the term “bodily injury” in a policy of insurance includes

injury at the cellular level. See, e.g., Voicestream Wireless Corp. v. Fed. Ins. Co., 112 Fed.

Appx. 553, 555-56 (9th Cir. 2004) (unpublished mem. opinion) (noting that “logic dictates

that it is sufficient to allege injury to human cells. . . . The policy provisions do not explicitly

exclude coverage for allegations of injury to human cells, and to construe cellular harm as

insufficient would be to, in effect, read an additional exclusion into the policy”); N. Ins. Co.

of N.Y. v. Balt. Bus. Commc’ns., Inc., 68 Fed. Appx. 414, 419 (4th Cir. 2003) (holding that,

“in alleging that persons using cell phones without headsets suffer from the radiation emitted

by such phones, the Complaint alleges a ‘bodily injury,’ ” and noting that “Maryland courts

have uniformly held that bodily injuries include those that occur at the minute, cellular

level”); Guar. Nat’l Ins. Co. v. Azrock Indus., Inc., 211 F.3d 239, 245, 250 (5th Cir. 2000)

(concluding that “the subclinical tissue damage that results on inhalation of a toxic substance

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such as asbestos” triggered duty to defend and remanding for determination of whether

pleadings alleged that exposure caused bodily injury, “even if the particular asbestos-related

disease was not diagnosed until sometime after the policy expired.”); overruled on other

grounds as recognized by OneBeacon Ins. Co. v. Don’s Bldg. Supply Inc., 553 F.3d 901, 903

(5th Cir. 2008) (per curiam); Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034, 1047 (D.C.

Cir. 1981) (“bodily injury” means “any part of the single injurious process that

asbestos-related diseases entail”); Ins. Co. of N. Am. v. Forty-Eight Insulations, Inc., 657

F.2d 814, 816 (6th Cir. 1981) (holding that insurance coverage was triggered at exposure

because “bodily injury” in form of tissue damage occurred at or shortly after inhalation of

asbestos fibers); Chantel Assocs. v. Mount Vernon Fire Ins. Co., 656 A.2d 779, 785-86 (Md.

Ct. App. 1995) (holding that exposure to lead resulting in “direct and indirect damage to

cells, tissues, and organs” was sufficient to allege “bodily injury”); J.H. France Refractories

Co. v. Allstate Ins. Co., 626 A.2d 502, 506 (Penn. 1993) (agreeing with conclusion “that the

medical evidence of discrete cellular injuries occurring upon exposure to asbestos justifies

the conclusion that exposure to asbestos causes immediate ‘bodily injury’ in the terms of the

insurance policies, triggering the insurers’ duty to indemnify.”); Zurich Am. Ins. Co. v.

Nokia, Inc., 268 S.W.3d 487, 493 (Tex. 2008) (holding that coverage for “bodily injury”

extended to alleged biological injury to human cells caused by radio frequency radiation from

cellular telephones); but cf. Eagle-Picher Indus. v. Liberty Mut. Ins. Co., 682 F.2d 12, 19 (1st

Cir. 1982) (holding that injury must manifest to trigger coverage); Transamerica Ins. Co. v.

Doe, 840 P.2d 288, 291 (Ariz. Ct. App. 1992) (concluding that plaintiffs exposed to HIV-

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infected blood who failed to offer “competent evidence of any physical impairment or harm

caused by this exposure” did not sustain “bodily injury” under insurance policy). 

Federal has presented no persuasive argument why injury to human cells should not

constitute “bodily injury” under the Federal and Transit Policies. Nor does Federal point to

any language in the Transit or Federal Policy that explicitly excludes coverage for allegations

of injury to human cells. As Ninth Circuit explained in Voicestream Wireless Corp., where

“[t]he policy provisions do not explicitly exclude coverage for allegations of injury to human

cells, . . . to construe cellular harm as insufficient would be to, in effect, read an additional

exclusion into the policy.” Voicestream Wireless Corp., 112 Fed. Appx at 556. The class

plaintiffs have adduced evidence, which Federal does not dispute, that “every single dose of

E-Ferol caused the death of liver and kidney cells, such that each recipient of E-Ferol was

damaged at the cellular level.” Ps. 3/14/16 Br. 19. The court concludes that the cellular

damage that each E-Ferol recipient experienced constituted “bodily injury” under the Federal

Policy, much like the subclinical injuries alleged by plaintiffs who have been exposed to

asbestos. See Guar. Nat’l Ins. Co., 211 F.3d at 245. Accordingly, because Federal has not

adduced any evidence that class members in Category Four did not experience damage at the

cellular level, the court grants the class plaintiffs’ motion for summary judgment as to

Federal’s eighth affirmative defense. 

E

Federal alleges as its ninth affirmative defense that the class plaintiffs’ claims are

barred to the extent they seek coverage for products failing to meet warranties or

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representations.

The class plaintiffs move for summary judgment on this defense, contending, inter

alia, that they have made no such claim, but instead base their claims on theories of

negligence and product liability. Federal responds that, “[c]ontrary to Class Plaintiffs’

assertions, their claims against Retrac (Carter-Glogau) included breach of expressed

warranties and breach of implied warranties,” D. 4/12/16 Br. 35; that it is undisputed that EFerol failed to live up to the representations included in its packaging and that personal injury

resulted from that failure; and that because the Federal Policy does not cover personal injury

resulting from the failure of E-Ferol to meet the level of performance, quality, fitness, or

durability warranted or represented by the insured, the claims against Federal should be

dismissed.

The Transit Policy excludes coverage for personal injury arising from “the failure of

the INSURED’S products . . . to meet the level of performance, quality, fitness or durability

warranted or represented by the INSURED.” Ps. 3/14/16 App. 70. Even assuming the

second amended complaint—the operative complaint at the time the parties executed the

Settlement Agreement and NWA—alleged warranty claims that would be excluded from

coverage under the Federal Policy, there is no allegation that Revco made any warranty or

representation regarding E-Ferol. Because, based on the negligent conduct of Revco alone,

the class plaintiffs are entitled to recover the $15 million held in escrow pursuant to the

NWA, any allegations that Carter-Glogau made warranties or representations that resulted

in injury to the class plaintiffs are immaterial. Accordingly, to the extent the class plaintiffs

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seek to recover the $15 million held in escrow pursuant to the NWA based on the negligent

conduct of Revco, the court grants their motion for summary judgment on Federal’s ninth

affirmative defense. 

F

Federal’s tenth affirmative defense alleges that plaintiffs’ claims are barred because,

when Carter-Glogau sold its assets and working capital to C-Acquisition, Co. Inc. (“CAcquisition”) on December 18, 1986, “Retrac transferred and no longer has the right to claim

coverage under the Federal Policy.” 2d Am. Ans. ¶ 94. The class plaintiffs move for

summary judgment on this defense, contending, inter alia, that the only assets transferred in

the December 1986 Asset Purchase Agreement (“Asset Purchase Agreement”) are those

belonging to Carter-Glogau, and that Carter-Glogau never owned the Federal Policy, which

was purchased and owned by the Named Insured, Revco.

Federal argues in response, that under the plain language of the Asset Purchase

Agreement, Carter-Glogau sold all of its rights under the Federal Policy. But Federal does

not dispute that Revco owned the Federal Policy. See D. 4/12/16 Br. 39. Thus even if

Carter-Glogau transferred to C-Acquisition whatever rights it had in the Federal Policy, there

is no evidence—nor does Federal argue—that Revco transferred its rights under the Federal

Policy when C-Acquisition acquired Carter-Glogau’s assets and working capital. 

Accordingly, to the extent the class plaintiffs seek to recover the $15 million held in escrow

based on the negligent conduct of Revco, the court grants their motion for summary

judgment on Federal’s tenth affirmative defense.

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G

In sum, the court grants the class plaintiffs’ motion for summary judgment on all of

Federal’s affirmative defenses. Because the class plaintiffs have established beyond

peradventure that the Federal Policy covers their negligence claims against Revco, as the

named insured, and because the court concludes that, insofar as the class plaintiffs seek

indemnity based on their claims against Revco, the class plaintiffs are entitled to summary

judgment on each of Federal’s affirmative defenses, the court concludes that the class

plaintiffs are entitled to recover the $15 million held in escrow pursuant to the terms of the

NWA, plus any accrued interest.15

V

The class plaintiffs move for summary judgment on their claim for attorney’s fees,

contending that such fees are recoverable under the Texas Recovery of Attorney’s Fees Act,

Tex. Civ. Prac. & Rem. Code Ann. §§ 38.001, et seq., because they are the prevailing party

in a contract dispute regarding both the Federal Policy and the NWA.16 Federal maintains

15Because the court concludes that the class plaintiffs have established beyond

peradventure that their claims against Revco are covered under the Federal Policy, the court

need not address Federal’s motion for summary judgment on the question of coverage. 

Similarly, because the court concludes that Federal has failed to create a genuine issue of

material fact on any of its affirmative defenses, the court need not address Federal’s motion

for summary judgment on its affirmative defenses.

16Tex. Civ. Prac. & Rem. Code Ann. § 38.001 provides that “[a] person may recover

reasonable attorney’s fees from an individual or corporation, in addition to the amount of a

valid claim and costs, if the claim is for . . . an oral or written contract.” The Supreme Court

of Texas has awarded attorney’s fees under § 38.001 on a suit for breach of an insurance

policy. See Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 667 (Tex. 1987).

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that Ohio, not Texas, law applies to this contract dispute and that Ohio law does not provide

for the recovery of attorney’s fees for breach of contract, including claims under an insurance

contract.

A

To determine whether the class plaintiffs are entitled to an award of attorney’s fees,

the court must first decide whether Texas or Ohio law governs. 

1

Federal contends that because this action was originally filed as a declaratory

judgment action in the Northern District of Ohio, this court must apply Ohio choice-of-law

rules to determine which state’s law governs this dispute. It maintains that Ohio follows the

Restatement (Second) of Conflict of Laws, which utilizes a multi-factored “most significant

relationship” test to determine the applicable law. Federal posits that, to the extent Ohio and

Texas law conflict, application of the Restatement factors demonstrates that Ohio substantive

law applies, and, in any event, the class plaintiffs are collaterally estopped from arguing that

Texas law applies because the court in Revco D.S., Inc. v. Government Employees Insurance

Co., 791 F. Supp. 1254 (N.D. Ohio 1991) (“GEICO”), aff’d, 968 F.2d 1216 (6th Cir. 1992), 

already determined that Ohio law applied to the interpretation of the policies issued to Revco

and implicated by the E-Ferol litigation.

The class plaintiffs respond that Texas substantive law should apply to the underlying

coverage dispute. They contend that GEICO is distinguishable because the court in that case

did not apply the Restatement factors; the dispute in that case “did not involve, as it does

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here, determining whether the Federal liability insurance policy applies to wrongful death

and personal injury and damages resulting from the use of E-Ferol,” Ps. 4/12/16 Br. 8; and

“the ‘essence’ of the E-Ferol class action is the recovery of damages for personal injury and

death due to negligence and product liability, issues that [were] not before the GEICO court,”

id. at 9. The class plaintiffs then argue that the Restatement factors point to the application

of Texas law: the remaining dispute concerns whether Federal’s excess insurance coverage

applies to a tort action brought, without objection as to venue, in the state of Texas; Federal’s

original pleading raised defenses to coverage, several of which were based solely on the class

action settlement itself and the presentation of the case before the federal district court in

Texas; Texas law applies to the compensatory damages in the underlying case and Texas law

regarding personal injury, death, and other damage considerations was used in determining

damages in the class action settlement; Texas has a strong statutory interest in regulating

insurance contracts that are payable to a citizen or inhabitant of the state of Texas arising

from any insurance company that does business in Texas; Texas has statutory and regulatory

interests in seeing that its inhabitants are properly compensated for injuries due to negligence

and defective products; Texas has “a significant interest in the application of the federal

district court’s decision in apportioning damages in a complex nationwide class action so that

damages may be certain, predictable, uniform, and consistent with the court’s rulings that

have applied to other insurers of these same claims, as well as to class members,” id. at 11;

Federal’s position on “allocation” and “limits of liability” of damages affects the entire class

settlement, which was approved by this court; and Federal’s claims of exclusion require

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interpretation of the NWA, which must be decided under Texas law. Finally, the class

plaintiffs contend that the law applicable to the interpretation of the definition of

“OCCURRENCE” is the same under Texas and Ohio law, and, accordingly, because the laws

of the states do not conflict, no choice-of-law analysis is necessary, and the court should

apply forum law.

In reply, Federal contends that, because this is an insurance coverage dispute (not a

tort action), the court should focus on the factors listed in Restatement (Second) of Conflict

of Laws § 188, including the place of formulation, negotiation, and performance of the

contract; the location of the subject matter of the contract; and the domicile, place of

incorporation, and business of the parties, and that these Restatement factors weigh in favor

of applying Ohio law. Federal also challenges the class plaintiffs’ assertion that this court

applied Texas substantive law to the underlying E-Ferol claims; contends that the

considerations in this case (including the parties’ positions) are the same as in GEICO, and

that the class plaintiffs, who are standing in the shoes of Carter-Glogau (a party in the

GEICO case), are estopped from arguing that Texas law applies; and argues that although

it disputes whether it must provide insurance coverage for Carter-Glogau’s obligations under

the Settlement Agreement, it does not challenge the court’s approval of the Settlement

Agreement itself. Finally, Federal contends that a choice-of-law analysis is necessary

because Texas and Ohio law conflict on the standard to be used for inferred intent, whether

the Federal Policy’s exclusion for breach of representations and warranties bars recovery,

whether there is coverage for medical monitoring costs, and whether the class plaintiffs are

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entitled to recover attorney’s fees.

2

“Under any choice-of-law analysis, the Court must first determine whether apparently

conflicting laws actually conflict. If no conflict exists, the Court need not conduct a choiceof-law analysis.” Janvey v. Alguire, 2013 WL 2451738, at *1 (N.D. Tex. Jan. 22, 2013)

(Godbey, J.) (citing cases). Here, it is clear that the laws of Texas and Ohio conflict with

regard to the availability of attorney’s fees to the prevailing party in a breach of contract

action. 

In a contract dispute, absent the existence of a choice-of-law provision in the contract,

courts in Texas and Ohio both “consider the facts of the case under the ‘most significant

relationship’ test set forth in section 188 of the Restatement (Second) of Conflicts of Laws.” 

Minn. Mining & Mfg. Co. v. Nishika Ltd., 953 S.W.2d 733, 735-36 (Tex. 1997); see also

Humbert v. United Ohio Ins. Co., 798 N.E.2d 25, 27 (Ohio Ct. App. 2003) (“Absent an

effective choice of law by the parties, pursuant to Section 188 of the Restatement, the parties’

rights and duties under the contract are determined by the law of the state that has ‘the most

significant relationship to the transaction and the parties.’” (quoting Ohayon v. Safeco Ins.

Co. of Ill., 747 N.E.2d 206, 209 (Ohio 2001))).17

17Because Texas and Ohio both follow the Restatement in deciding which state’s law

applies to a contract dispute, the court need not resolve the question whether it must apply 

Texas’s choice-of-law rules (the state where the court sits) or Ohio’s choice-of-law rules (the

state where Federal’s declaratory judgment action was initially filed). See Van Dusen v.

Barrack, 376 U.S. 612, 639 (1964) (“We conclude, therefore, that in cases such as the

present, where the defendants seek transfer, the transferee district court must be obligated to

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In the absence of an effective choice of law by the parties . . . ,

the contacts to be taken into account in applying the principles

of § 6 to determine the law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil[e], residence, nationality, place of incorporation

and place of business of the parties. These contacts are to be

evaluated according to their relative importance with respect to

the particular issue.

Restatement (Second) of Conflict of Laws § 188(2) (1971). The court “must also evaluate

these contacts in the context of certain policy factors listed in section 6 of the Restatement.”

Minn. Mining & Mfg., 953 S.W.2d at 736. These principles include:

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and the relative

interests of those states in the determination of the particular

issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

apply the state law that would have been applied if there had been no change of venue. A

change of venue under § 1404(a) generally should be, with respect to state law, but a change

of courtrooms.”).

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(g) ease in the determination and application of the law to be

applied.

Id. (quoting Restatement (Second) of Conflict of Laws § 6(2) (1971)). “Once these contacts

are established, the question of which . . . law will apply is one of law.” Duncan v. Cessna

Aircraft Co., 665 S.W.2d 414, 421 (Tex. 1984) (citing Gutierrez v. Collins, 583 S.W.2d 312,

319 (Tex. 1979)). 

3

The only contract the class plaintiffs allege Federal has breached is the Federal

Policy.18 Accordingly, the relevant contacts for purposes of the court’s choice-of-law

analysis are those that relate to the Federal Policy. 

Federal maintains, and the class plaintiffs do not dispute, that Ohio is both the place

of contracting and of negotiating the Federal Policy. It is also undisputed that, during the

relevant policy period (1983 and 1984), the place of incorporation and place of business of

Revco, one of the two parties to the Federal Policy, was Ohio.19 The remaining contacts (the

place of performance and the location of the contract’s subject matter) do not weigh in favor

of Ohio or Texas since the place of performance and location of the contract’s subject matter

18The court denies the class plaintiffs’ motion for summary judgment to the extent

they contend they are entitled to attorney’s fees as the prevailing parties in a contract dispute

regarding the NWA. Although the court has relied on language in the NWA in deciding

certain legal issues in this case, there is no allegation in the fifth amended original complaint

that Federal in any way breached the NWA. Rather, the only contract dispute that could

possibly form the basis for an award of attorney’s fees is based on the Federal Policy. 

19Federal—the other party to the Federal Policy—was at the time of contracting a New

Jersey corporation with its principal place of business in New Jersey.

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could have been any state in which Revco and Carter-Glogau did business, and there is no

indication that either the place of performance or the location of the contract’s subject matter

weighs more heavily in favor of either Texas or Ohio law.

The court next considers the § 6 factors. “Policy analysis is difficult in this case

because few of these § 6 factors guide [the court] in a discernable way.” Robax Corp. v.

Prof’l. Parks, Inc., 2008 WL 3244150, at *10 (N.D. Tex. Aug. 8, 2008) (Fitzwater, C.J.)

(brackets and citations omitted). The court concludes, however, that the third and fourth

factors—the relative interests of other interested states in the determination of the particular

issue and the protection of justified expectations—weigh slightly in favor of Ohio law. The

Federal Policy is a policy of insurance negotiated and entered into in the state of Ohio with

a company headquartered there. Ohio certainly has a stronger interest in the interpretation

and resolution of coverage issues with respect to an insurance policy entered into in Ohio

with a company located in Ohio than does Texas. Texas’ connection to the Federal Policy

is through the class plaintiffs in a nationwide class action, whose rights under the policy

arose as the result of an assignment pursuant to the Settlement Agreement. This more

attenuated connection does not outweigh Ohio’s interest in the determination of the issues

raised in this coverage dispute.20 Moreover, while both Federal and Revco might reasonably

20The class plaintiffs also contend that Texas has a strong statutory interest in

regulating insurance contracts that are payable to a citizen or inhabitant of the state of Texas

arising from any insurance company that does business in Texas. But the class plaintiffs

have not shown—nor do they argue in any detail—that Federal does business in Texas. 

Moreover, although the two class representatives are residents of Texas, they represent a

nationwide class. 

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have expected Ohio law to govern the Federal Policy, there is no suggestion anywhere in the

summary judgment record that any party to the Federal Policy would have expected Texas

law to govern questions regarding coverage. None of the other § 6 factors—perhaps with the

exception of the last factor (the ease in the determination and application of the law to be

applied)21—weighs strongly favor of applying Texas law. Considering all of the relevant

Restatement factors, the court concludes that Ohio law applies to the instant coverage

dispute.

4

The class plaintiffs contend that the Restatement factors point to the application of

Texas law because Texas law regarding personal injury and death and other damage

considerations was used to determine damages in the class action settlement; the court has

already applied Texas substantive law to E-Ferol wrongful death claims in this case, and 

[t]he states of New Jersey, Indiana, Rhode Island, and Ohio have

no interest whatsoever in whether an excess liability insurance

policy issued in 1983-84 applies to an on-going thirteen-year

federal court class action filed in Texas in 2003, with a $110

million settlement approved by the district court in 2010, after

numerous pre-trial hearings, and memorandum opinions leading

up to and following approval, and after disbursement of

settlement proceeds from the defendants’ other insurers.

21The class plaintiffs argue that ease in the determination and application of the law

to be applied “is a major consideration in resolving choice of law questions under Section

6 of the Restatement.” Ps. 3/14/16 Br. 9. But they do not demonstrate why this court would

have any difficulty in applying Ohio law to the instant coverage dispute. Nor could they: on

the substantive issues the court addresses above, Ohio and Texas law do not conflict, and

with respect to the question of recovery of attorney’s fees, it is not difficult to apply Ohio law

and conclude that such fees are not recoverable.

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Ps. 3/14/16 Br. 8. The court is unpersuaded by these arguments for two reasons.

First, the class plaintiffs focus on factors that may be relevant if this were a tort

action. See, e.g. Restatement (Second) of Conflicts of Laws §§ 145 & 146 (in a tort action,

presumption that the law of the place of the injury controls unless another jurisdiction has

more significant relationship, and listing factors to evaluate in deciding choice of law in a tort

action). But the instant coverage dispute is not a tort action; essentially, it is a contract

dispute. See, e.g. Ohayon, 747 N.E.2d at 211 (for purposes of choice of law analysis, “an

action by an insured against his or her insurance carrier for payment of . . . benefits is a cause

of action sounding in contract, rather than tort, even though it is tortious conduct that triggers

applicable contractual provisions.”). Factors such as the substantive law the parties relied

on in calculating damages in connection with the Settlement Agreement or the location of

the district court that approved the Settlement Agreement have little or no bearing on whether

Texas or Ohio law should apply to the insurance dispute between Federal (a New Jersey

corporation) and its insured (an Ohio corporation) regarding a policy of insurance with

nationwide application that was entered into in Ohio. 

Second, by relying on this court’s role in certifying the class action and approving the

Settlement Agreement as a justification for applying Texas substantive law to the instant

insurance coverage dispute, the class plaintiffs are attempting to impermissibly bootstrap the

application of Texas law based on factors wholly unrelated to the contacts relevant to the

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court’s choice-of-law analysis.22 The only contacts with Texas in this case arose as a result

of this litigation. It cannot be the case that, by filing a nationwide class action in Texas,

plaintiffs can thereby become entitled to an award of attorney’s fees under Texas law when

all of the relevant contacts for purposes of the court’s choice-of-law analysis point to the law

of a state (here, Ohio) that does not permit attorney’s fees. In other words, the class

plaintiffs’ reliance on procedural events that occurred in this litigation, and that post-date the

Federal Policy by many years, to argue that Texas substantive law should apply to a contract

with virtually no connection to the state of Texas is misplaced.23

Accordingly, the court concludes as a matter of law that Ohio law governs the class

plaintiffs’ claim for attorney’s fees.

B

The class plaintiffs seek attorney’s fees only under Texas law. They neither seek

attorney’s fees under Ohio law nor dispute Federal’s contention that they are not entitled to

an award of attorney’s fees under Ohio law. See B-T Dissolution, Inc. v. Provident Life &

Accident Ins. Co., 192 Fed Appx. 444, 447 (6th Cir. 2006) (unpublished opinion) (holding

22The class plaintiffs’ argument that “Texas also has a significant interest in the

application of the federal district court’s decision in apportioning damages in a complex

nationwide class action so that damages may be certain, predictable, uniform, and consistent

with the court’s rulings that have applied to other insurers of these same claims, as well as

to class members in the various categories to which each has been assigned by the court

approved [Settlement Agreement]” fails for these same reasons. Ps. 3/14/16 Br. 10. 

23Because the court concludes that Ohio law governs the class plaintiffs’ insurance

coverage claim, the court does not address whether the class plaintiffs are collaterally

estopped, by the decision in GEICO, from arguing that Texas law applies.

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under Ohio law that “insured is not entitled to recover attorney fees when it is successful in

a suit against its insurance company for payments under the terms of the policy, absent a

finding of bad faith in the denial of coverage.”); Avis Rent A Car Sys., LLC v. City of Dayton,

2015 WL 5636897, at *11 (S.D. Ohio Sept. 25, 2015) (“[I]t is clear that Ohio courts have

allowed a prevailing party to recover its attorneys’ fees in breach of contract actions where

the breaching party’s conduct amounted to bad faith.” (emphasis added)); Strategy Grp. for

Media, Inc. v. Lowden, 2013 WL 1343614, at *11 (Ohio Ct. App. Mar. 21, 2013) (“Ohio

follows the American rule which provides in a breach of contract case each party is

responsible for their own attorney fees except as otherwise provided for by statute or contract

or when the opposing party acted in bad faith, vexatiously, wantonly, obdurately, for

malicious reasons, or otherwise engaged in malicious conduct.”).24 Accordingly, the court

concludes as a matter of law that the class plaintiffs are not entitled to an award of attorney’s

fees from Federal. It therefore denies the class plaintiffs’ motion for summary judgment on

the question whether they are entitled to reasonable attorney’s fees, and it grants Federal’s

motion for summary judgment on this same question. 

C

Although the class plaintiffs are not entitled to an award of attorney’s fees from

Federal, their attorneys may be entitled to recover attorney’s fees and expenses from the

24The class plaintiffs do not allege that Federal acted in bad faith, and they waived in

the NWA any claim “for bad faith or extra-contractual liability damages against Federal

arising from Federal’s acts or omissions in connection with E-Ferol claims.” Ps. 3/14/16

App. 94. 

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common fund. In Klein III in approving class counsel’s request for an attorney’s fee award

equaling 30% of the class recovery, the court stated that, “if class counsel succeeds in

obtaining additional insurance recoveries through litigation against Federal, Westchester, or

Mission following the approval of the Settlement Agreement, counsel can apply for an

additional fee award.” Klein III, 705 F.Supp.2d at 681 n.44. Accordingly, if counsel for the

class plaintiffs intend to seek an award of additional attorney’s fees and expenses from the

common fund, they must apply for such an award within 28 days of the date this

memorandum opinion and order is filed.

* * *

The court grants the class plaintiffs’ motion for summary judgment to the extent of

holding that the Federal Policy covers the negligent conduct of Revco in connection with the

manufacture and distribution of E-Ferol, and that the class plaintiffs are entitled to the $15

million held in the court registry, plus accrued interest. The court denies the class plaintiffs’

motion for summary judgment to the extent they seek attorney’s fees from Federal, and it

grants Federal’s motion for summary judgment on the issue of attorney’s fees. The court

otherwise denies Federal’s motion for summary judgment. By Rule 54(b) final judgment

entered today, the court enters judgment in favor of the class plaintiffs, except as to their

claim for attorney’s fees from Federal. The class plaintiffs may apply for an award of

attorney’s fees from the common fund within 28 days of the date this memorandum opinion 

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and order is filed.

SO ORDERED.

December 2, 2016.

_________________________________

SIDNEY A. FITZWATER

UNITED STATES DISTRICT JUDGE

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