Court Opinion

ID: 6993189
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:28:34.381051+00
Date Added: 2024-06-11T16:09:40.657386
License: Public Domain

JACOBS, Circuit Judge,
dissenting:
I respectfully dissent (A) from part II. C of the per curiam opinion, which requires coverage for the third-generation claims, and (B) from part II.D, which requires that Excess Insurers pay the policyholder in respect of claims already paid and satisfied by the underlying primary coverages.
A.
The district court granted summary judgment in favor of Squibb on coverage for claims presented by the grandchildren of women who ingested DES (“third-generation” claimants). The majority affirms on the ground that the third-generation claims stem from injuries caused by or arising out of a second-generation injury. See Maj. Op. at 170. I do not subscribe to that view.
Under American Home Products, the only applicable trigger of coverage is injury-in-fact during the policy period. See American Home Prods. Corp. v. Liberty Mutual Ins. Co., 748 F.2d 760, 764-65 (2d Cir.1984). The third-generation claimants did not exist during the relevant policy periods — even in útero — and having no body, could suffer no bodily injury, or become unavoidably predisposed to injury, during those periods. The consequential damages clauses do not alter or affect the American Home Products injury-in-faet analysis.
The majority cites with seeming approval the observation in Uniroyal, Inc. v. Home Ins. Co., 707 F.Supp. 1368, 1376 (E.D.N.Y.1988), that coverage may be augmented when a contract “is by its own terms denominated a ‘comprehensive general liability policy.’ ” But that denomination does not expand the policy’s protections; for example, policyholders should not expect their umbrella policies to keep them dry in the rain. I therefore begin with the relevant policy language, which reads: “Underwriters hereby agree ... to indemnify the Assured for all sums which the Assured shall be obligated to pay by reason of the liability ... for damages, direct or consequential and expenses, all as more fully defined by the term ‘ultimate net loss’ on account of ... Personal Injuries ... caused by or arising out of each occurrence happening anywhere in the world.” Ultimate net loss is defined as: “[T]he total sum which the Assured ... become[s] obligated to pay by reason of personal injury, property damage, or advertising liability claims, either through adjudication or compromise ....”; personal injury is defined as: “[Bjodily injury, mental injury, mental anguish, shock, sickness, disease, disability....”
The policy wording thus affords coverage for loss on account of personal injury, caused by an occurrence, and payable as damages, direct or consequential. Under this wording, read in light of American Home Products, a covered personal injury must occur in fact during the policy period even though it may be caused by an occurrence that happened during that period or before it, and even though it entails payment of damages suffered during or after the policy period (or even, theoretically, before it).
The causal consideration that bears on coverage is whether the personal injury was caused by an occurrence. This point is not in dispute, as the third-generation claims are caused by the same occurrence as the first and second-generation claims: the ingestion of DES. Notwithstanding that common cause, however, the damages that are insured by the policy (direct or consequential) must be on account of the personal injury that occurs in fact during the policy period. Thus the claims of the first and second-generation claimants themselves, as well as any hypothetical personal injury claims for loss of consortium (by their spouses) or for loss of parental guidance (by their children) are on *181account of bodily injury in fact suffered in the policy period. By contrast, the damages suffered by the third-generation claims are in respect of and on account of those third-generation claimants’ own personal injury. Their injury is caused by the same occurrence, but their injury did not in fact occur during the policy period. Nor are their damages “on account of’ an injury that did.
Consequential damages attributable to sequelae, or progressive or latent injuries, are covered (subject to any allocation or other insurance), but it is very difficult to see how the initial (coverage-triggering) bodily injury can be sustained prior to conception, and impossible to square such a coverage ruling with the settled requirement under New York law that injury-in-fact must occur during a policy period to trigger coverage. In short, the consequential damage clause does not affect the threshold issue of when an injury in fact occurred. See Stonewall, 73 F.3d 1178, 1203 (2d Cir.1995)(holding that insurers havé an “obligation to indemnify for subsequent damages attributable to an injury occurring during the relevant policy period.”)
Under our reasoning on the first and second-generation claims, those claimants suffer personal injury on account of their own injuries. Depending on tort law in a given jurisdiction, consequential damages on account of those injuries may reflect third-generation injury to the extent that the inability of second-generation claimants to bear normal children is part of their own harm, and that harm may be compensable- by consequential damages that would be on account of the injury that second-generation claimant suffered in the policy period, and therefore covered. But the third-generation claimant suffers and claims damages on account of his or her own injury, and not on account of injury suffered by anyone else. Thus (as the majority points out) a covered claim can be asserted by someone who did not incur the injury-in-fact in the policy period, such as claims for loss of consortium, parental guidance, and so on. But such losses are on account of the bodily injury that occurred, in fact, in the policy period.
When the later victim is the child of the earlier victim, it is easy to succumb to the fallacy of casting the later injury in terms of consequential damages, as the majority has done. That is because an injured parent can theoretically collect as consequential damages for the parent’s impaired capacity to bear normal children, or even for the psychological and financial harm of bearing a child with birth defects. But there is a real distinction between (i) consequential damages and (ii) a new injury. That distinction can be illustrated by an example that involves no inter-generational link. If in one period of a hospital’s liability policy a patient is injured in fact by the hospital’s negligence in allowing the patient to contract a chronic and communicable disease, it cannot be expected that the same policy period is implicated if years later the discharged patient coughs on a co-worker who contracts the disease and sues the hospital. Putting aside the remoteness of causation in tort (which is no more remote than in the third-generation DES claims), I think it is quite clear that the co-worker’s injury was not suffered in fact in the original policy period, and that the injury (though a consequence of the hospital’s negligence) cannot be deemed consequential damages on account of the patient’s injury.
The majority opinion guesses that New York law will construe the consequential damages clause to provide that when there is injury in fact in a policy period, liability insurance covers subsequent physical injuries to other persons in other times, and that the Court of Appeals will be satisfied to impose no limit on that otherwise limitless chain except such limitation as is afforded by the reach of tort law itself. See Maj. Op. at 171-72. I doubt, however, that the scope of tort law is a useful limita*182tion on the contractual meaning of the insurance policies. For one thing, New York does not recognize claims arising from pre-conception torts. See Enright v. Eli Lilly & Co., 77 N.Y.2d 377, 568 N.Y.S.2d 550, 570 N.E.2d 198, 201 (N.Y.1991). Therefore the majority’s own analysis would not support the coverage decision it makes under New York law. It is true (i) that this argument may not bear on claims paid prior to New York’s adoption of the bar on recovery for pre-conception torts; and (ii) that the insurance contracts at issue, though construed under New York law, pay loss on claims asserted under the law of many jurisdictions. These provisos only confirm, however, that the shape of New York tort law (or the tort law of any other jurisdiction) is not a useful limiting principle for the scope of products liability insurance under New York law. Second, tort law tends to expand in order to use up any insurance coverages that are arguably available, so that (under the majority opinion) insurance coverage expands to cover widening principles of tort law while tort law itself expands by feeding off insurance coverage.
Finally, the majority opinion has unpredictable ramifications for wrongful birth claims and claims based on genetic mutation. I concur entirely with my colleagues’ view that the age and procedural history of the present case militate against certification; but the Court of Appeals presumably will be able to visit these questions before the majority opinion influences the shape of tort law and insurance coverage in New York.
B.
The Excess Insurers argue that the judgment improperly affords a recovery to Squibb for more than 100% of its loss in 191 claims, and allows Squibb to recover more than 100% of its defense costs on 1,999 claims, leading to a total “double recovery” of at least $12.38 million. I conclude that a double recovery occurred, and that it was error to allow it.
At trial, the jury determined when coverage was triggered for various DES-related injuries, finding that injury-in-fact occurred upon exposure and several years thereafter. The district court then undertook the heavy labor of deciding, as a matter of law, “the issue of how the amounts for which Squibb has been held liable, or has paid in settlements on the underlying claims, [were] to be allocated among Squibb’s insurers.” E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co. (JSM), 1997 WL 251548, at *1 (S.D.N.Y. May 13, 1997). That task is particularly difficult in a case (like this one) in which any given personal injury claim “implicate[s] multiple policies in effect during the multi-year period of the injury process.” Stonewall, 73 F.3d at 1201 (2d Cir.1995). Unlike many such cases, however, the district court did not have to allocate Squibb’s loss among the issuers of Squibb’s primary insurance policies, because the parties agree that settlement payments by the primary insurers ' exhausted that underlying -insurance. The district court’s task was limited therefore to allocating Squibb’s remaining loss among the Excess Insurers.
As the district court held in an earlier stage of this litigation: “For an excess insurer to be liable to Squibb, the requirements of the insurance policy issued to Squibb by that carrier must be satisfied.” E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 860 F.Supp. 124, 126 (S.D.N.Y.1994). The relevant requirements are: 1) that covered injury in fact occur during the period covered by the excess policy; and 2) that the insured’s underlying insurances — to which each excess policy is “excess” — be exhausted. See id. It is undisputed on appeal that these two “separate and independent” requirements (id.) were satisfied, i.e., the policies underlying the excess policies here at issue were exhausted by settlement, and the jury found that each type of injury occurred over multiple policy periods. *183These requirements also affect the allocation of loss among the excess policies because not every loss is allocated to every policy period, and because the underlying coverages are therefore exhausted at different times. At issue is the district court’s determination as to when exhaustion occurred and the district court’s subsequent allocation of loss based upon those rulings as to exhaustion.
Since the parties agree that the exhaustion of primary coverage occurred via settlement, the mechanical way to fix the date on which the underlying coverages were exhausted is to add up the settlement amounts properly paid by the underlying policies in respect of each policy period. Years before trial, the district court appeared to have adopted this method. See id. (“[E]xhaustion may occur by payment or settlement, provided the settlement is noncollusive and at arm’s length.”); E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 853 F.Supp. 98, 99 (S.D.N.Y.1994) (“[T]he excess carrier is liable when the underlying policy limits of the primary carrier or carriers covering the period of time involved is exhausted, whether by payment or by arm’s length settlement with the insured.”).
However, the district court rejected that method of ascertaining the exhaustion status of the underlying policies that were issued by one of Squibb’s primary insurers, Kemper/Amico. Squibb’s settlement with Kemper/Amico specified which sums were paid in respect of which claims, but the district court did not adopt that matching of dollars to claims, and ruled instead that settlement amounts (as distinct from claims paid by Kemper/Amico) should not be assigned to the underlying policies except to the extent that “the law applicable to those policies, including the triggers of coverage which have been established in this case, would obligate those insurers to pay.” Squibb, 1997 WL 251548, at *1, *3. This re-allocation was based on the district court’s view that “the settlement agreements are not contracts of insurance” and “[do] not reflect the insurer’s legal obligation under its contract.” Id.
The district court therefore ascertained the point of exhaustion not on the basis of which claims remained to be indemnified after payments were made by the underlying policies, but on “the assumption that the trigger of coverage established in the trial of this case applied to each of the insurers who provided coverage during the relevant years.” Id. Employing the allocation scheme of Stonewall, 73 F.3d at 1201, the district court then pro rated Squibb’s loss among the primary policies triggered for given claims until the limits of those primary policies were reached, and then pro rated the remainder of Squibb’s loss among the Excess Insurers. In so doing, the district court assumed that the exhaustion points of the excess policies were the dollar limits of the primary policies, not the greater amounts actually paid to Squibb in satisfaction of additional claims and in settlement of the primary insurers’ obligations under those policies.
The district court’s pro rata allocation would have been a sound way to allocate Squibb’s loss among the Excess Insurers if the settlements did not exceed the limits of the primary policies. This Court has recently held that allocation among multiple triggered policies is appropriate under New York law because it is consistent with policy concerns (similar to policy issues raised in this appeal) and serves the cause of efficiency. See Olin Corp. v. Insurance Co. of N. Am., 221 F.3d 307 (2d Cir.2000). We have also upheld proration that allocated loss to the insured during periods when it chose to be uninsured. See Stonewall, 73 F.3d at 1203.
The district court’s pro rata allocation here, however, ignored the fact that the policies of one of the major primary insurers underlying excess policies at issue here were exhausted by a pre-trial insurance settlement that exceeded the limits of *184those underlying policies.1 The district court’s allocation required the Excess Insurers to pay certain losses and costs even though Squibb had already been reimbursed for those losses and costs. The district court- thereby permitted Squibb to recover twice on the same loss.
I do not think that an insured may recover more than 100% for any individual claim covered by its indemnity liability policies, even if that claim falls within multiple policy periods.
The majority affirms for substantially the reasons given in the district court’s opinion, which justified the allocation as follows: 1) “it is far from clear that, at the end of the day, Squibb will recover more than it pays out.... [I]t is doubtful that the ultimate total liability of Squibb will be determined for years and no one can today predict whether Squibb will have paid more or less than the insurance proceeds that it recovers;” and 2) “even if there were to be a windfall, the question is whether that windfall should go to Squibb or the non-settling insurers.... Considerations of public policy suggest that, if there is to be a windfall, it should go to Squibb and not the non-settling insurers.” Squibb, 1997 WL 251548, at *2.
These rationales cannot be squared with New York insurance law. As discussed in American Home Products Corp. v. Liberty Mutual Insurance Co., 748 F.2d 760, 764-65 (2d Cir.1984), New York law mandates that coverage be determined on a claim-by-claim basis, according to an injury-in-fact analysis. And it is undisputed that the policies at issue, in accord with traditional principles of indemnity, limit the maximum indemnity per claim at 100% of the value of the claim. New York law does not allow Squibb to make up for under-recovery on certain claims by compelling insurance payments that exceed a 100% recovery on others. New York law also does not allow Squibb to fund anticipated future claims by super-recoveries on other claims.
Indemnity liability insurance reimburses policyholders for covered losses sustained during a given policy period; it is designed “to plac[e] the insured as nearly as possible [in the position the insured was in] when the risk began, the object being to make the insured whole.” 12 John A. Appleman & Jean Appleman, Insurance Law & Practice § 7001, at 11 (1983 ed.). “[T]he policy cannot be made the subject of profit by the insured, and [the insured] may only recover such loss as [the insured] has actually sustained.” Id. This applies even when more than one insurer is on the risk. See Goodman v. Allstate Ins. Co., 137 Misc.2d 963, 523 N.Y.S.2d 391, 394 (N.Y.Sup.Ct.1987) (“Of course, even though- both policies apply, the insured is entitled to only one satisfaction for the loss actually incurred by reason of his liability for damages plaintiff sustained.”); 8A Ap-pleman § 4907.35, at 354 (“The total amount which the insured can recover from all insurers of the same risk cannot *185exceed the amount of [the insured’s] loss.”). It is “a generally accepted fundamental tenet of insurance law that opportunities for net gain to an insured through the receipt of insurance proceeds exceeding a loss should be regarded as inimical to the public interest.” Robert E. Keeton & Alan I. Widiss, Insurance Law § 3.1(a), at 135 (1988); see also E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 860 F.Supp. 124, 126 (S.D.N.Y.1994) (“Squibb cannot of course recover twice for the same expenses incurred by it.”); Silinsky v. State-Wide Ins. Co., 30 A.D.2d 1, 289 N.Y.S.2d 541, 547 (N.Y.App.Div.1968) (“It is the policy of this court to prevent double recoveries and avoid unjust enrichment by an injured person.”); Kahane v. American Motorists Ins. Co., 65 Misc.2d 1065, 319 N.Y.S.2d 882, 884 (N.Y.Civ.Ct.1971) (“[I]t need hardly be pointed out that the insured may not under any circumstances recover twice for the same loss or recover more than the value of the loss.”). In short, liability indemnity insurance is not a profit center.
Squibb does not deny that the judgment permits more than 100% recovery on numerous individual claims, and its arguments do not justify such a super-payment in this case. For example, Squibb argues that the Excess Insurers are already receiving .a reduction in their liability because the district court, in accordance with Stonewall, pro-rated their liability among the various triggered policies when Squibb was “within its contract rights to designate one policy to pay all of any claim covered by that policy subject of course to exhaustion of the policy limits.” Prudential Lines Inc. v. American Steamship Owners Mut. Protection & Indem. Ass’n, 158 F.3d 65, 83 (2d Cir.1998) (construing marine policies issued by a mutual insurance association of shipowners). Squibb did not appeal the district court’s pro-rata allocation, however. If it had, our recent decision in Olin strongly suggests that the allocation was correct. In any event, the designation of a single excess policy would not have necessarily eliminated the need to determine the exhaustion point of the primary policy underlying each designated excess policy based on the claims paid under that policy.
Squibb assumes the validity of the district court’s pro-rata allocation, and argues that the settlements cannot be used to determine the exhaustion points of the underlying policies because the settlements were not claim-specific. And the Excess Insurers agree that where the settlements with the primary insurers were not claim-specific, the exhaustion of those primary policies should be determined based on the policy limits rather than on the settlement amounts. Accordingly, I would remand this case. However, I would not ask the district court on remand to allocate lump-sum settlements to individual claims; it is enough to rely on policy limits to determine the exhaustion points of those primary policies exhausted by the lump-sum settlements. But for the policies exhausted by claim-specific settlements, I would direct the district court to calculate exhaustion using the settlement amounts, or to cap Squibb’s recovery for each individual claim at 100%.
Similarly, Squibb argues that the Excess Insurers failed to shoulder their burden of proving that the settlements are valid and collectible insurance under the primary policies. Squibb provides no authority indicating that this is the Excess Insurers’ burden .to bear. In any event, Squibb’s argument proves too much. If the settlements did not operate to exhaust the underlying policies, Squibb would have been unable to reach the excess policies.
Squibb also argues that it reaps no windfall under the district court’s judgment because: 1) it has been under-compensated on many claims; and 2) Squibb’s damages expert discredited the methodology of the Excess Insurers’ damages expert. As discussed above, this first argument impermissibly aggregates the claims for which Squibb is liable, instead of con*186sidering them claim-by-claim in accordance with New York law. Moreover, any aggregate under-compensation appears to be the result of deductible clauses in the primary policies and of settlement terms to which Squibb agreed, rather than any insufficiency of payment, by the Excess Insurers. With respect to the second argument, the district court made no findings regarding the analysis of either expert, instead excluding such evidence on the ground that it was irrelevant. Squibb’s arguments about the reliability and credibility of the Excess Insurers’ allocation evidence are therefore beside the point.
Finally, apparently in the alternative, Squibb argues that it is entitled to a windfall under New York’s collateral source doctrine, which prohibits tortfeasors from reaping the benefits of settlements that they had no part in producing. However, the Excess Insurers are not tortfeasors, and New York law has refused to equate insurers with tortfeasors. See Silinsky, 289 N.Y.S.2d at 547 (“In our opinion, the insurer and the wrongdoer stand on a very different footing_”). In any event, the Excess Insurers were not in the same position to settle as the primary insurers because, given the nature of excess insurance, the Excess Insurers did not become liable to Squibb until the underlying primary policies were exhausted.
Squibb offers no convincing argument that would permit it to recover indemnity greater than its loss on any given claim.
I emphasize that the pro rata method of distributing coverage over policy periods is not in question or at issue here. But implicit in pro rata distribution is that the coverage is distributed pro rata for the payment of claims. The radical defect in the majority’s position is that it requires the allocation of insurance coverage under indemnity policies for the payment of claims. that have already been paid and satisfied, without reopening the accounts on those cases to reallocate the loss in accordance with coverage obligations. The majority justifies this step on the basis in part that the Excess Insurers should not be “better off’ because other insurers (whose coverage was first reached) settled first. But I am unwilling to violate the essential character of an indemnity contract in order to avoid an irony. The majority and the district court point out that very likely there will be more than enough loss to go around, and that the double recovery on certain claims, paid pursuant to this judgment, will eventually be paid by Squibb in respect of claims that otherwise would not be covered by insurance. See Maj. Op. at 173. But that is exactly my objection to this result: indemnity coverage is payable in respect of outstanding covered claims and losses, not in respect of claims that have been already indemnified or (for other reasons) are not payable under the policy wording.

. Footnote 10 in the majority opinion casts doubt on whether- the amounts paid in settlement exceeded aggregate limits, because it "difficult to imagine why an insurer would pay out any settlement more than its maximum possible liability.” Maj. Op at 172 n. 10. My position does not depend at all on whether the aggregate limits were exceeded or not; the key point for me is that the district judge has ordered the excess insurers to pay indemnity in respect of claims that have already been indemnified in full. Nevertheless, as to Kemper, which is by far the major settling insurer, the record shows (i) that many of its policies were written without aggregate limits, (ii) that the settlement agreement with Squibb simply deemed that every policy had an aggregate limit and assigned an aggregate limit to each policy that lacked one, and (iii) that Kemper agreed in settlement to pay Squibb millions of dollars (in an amount that is under seal) in addition to the deemed aggregates. These settlement terms are not "difficult to imagine,” because in the absence of contractual aggregate limits, an insurer can (depending on the sometimes slippery definition of an "occurrence” and other coverage issues) end up paying at least fractional indemnity, and defense, on a basis that is theoretically infinite — not a happy outcome for an insurance company.