The opinion of the court was delivered by: POLLACK
MILTON POLLACK, Senior United States District Judge
This is a motion by International Flavors and Fragrances (IFF) for a directed verdict, pursuant to Rule 50(a) of the Federal Rules of Civil Procedure, on the motion therefor at the close of the case, on which decision was reserved, for a judgment notwithstanding the verdict (J.N.O.V.) pursuant to Rule 50(b), and alternatively, for a new trial pursuant to Rule 59.
Commercial Union Insurance Co. (CU) issued four comprehensive liability insurance policies to IFF for each of the years 1976 through 1979. The policies obligated CU to defend any suit against IFF which alleged a state of facts covered by the policies, regardless of whether such allegations were groundless, false, or fraudulent. Each policy contained a products hazard insurance clause which provided coverage for bodily injury and property damage arising out of the named insured's fragrance and for damages from justifiable reliance upon representations or warranties made with respect to the sales thereof.
On March 14, 1979, IFF was sued by Plough Inc. in Memphis, Tennessee for $10,000,000 for losses suffered by Plough from use of a fragrance that IFF had sold to Plough to be employed in its suntan lotion, Tropical Blend. In the lawsuit, Plough claimed that an ingredient in IFF's fragrance, 6-Methylcoumarin (6-MC), had caused allergic reactions to some Tropical Blend users and as a result, Plough had incurred great expense in defending and settling claims of injury from the use of Tropical Blend, and was forced to destroy millions of units of its product.
Specifically, Plough alleged that:
[I]n December of 1977, testing sponsored by Plough established that 6-Methyl Coumarin, an ingredient of the [IFF fragrance], caused the reaction complained of by the consumers. Furthermore, it was determined that the 6-Methyl Coumarin in the supplied fragrances existed in concentrations much higher than that originally represented by I.F.F. . . As a result of the aforementioned complaints and the actions of I.F.F. . ., Plough destroyed approximately 2.7 million units of its product during the years 1976, 1977, and 1978.
In addition, Plough alleged "that as a result of the actions of I.F.F. . . ., Plough incurred great expense in defending and settling claims by consumers who alleged injury as a result of using Plough's coconut fragrance suntan products that contained fragrances supplied by I.F.F. . . ."
Moreover, Plough claimed that IFF had breached its warranty of fitness and had falsely represented that its fragrance was safe for the use intended.
The Plough complaint stated:
that in the summer of 1976 Plough had advised IFF that it had received numerous complaints of skin irritations from users of suncare products containing IFF's fragrances;
that Plough had initially asked IFF for a qualitative breakdown of the ingredients in the fragrance and that IFF had refused to comply with the request;
that in 1977, IFF finally complied with the request for a qualitative breakdown of the fragrance so that Plough could determine whether any ingredients were the cause of the allergic reactions;
that Plough engaged in extensive research and in December 1977, testing sponsored by Plough established that the 6-MC ingredient in IFF's fragrance caused the toxic reaction complained of by consumers; and
that the 6-MC in IFF's fragrance existed in concentrations much higher than IFF originally represented to Plough.
The complaint also charged IFF with falsely representing the safety of its product, and intentionally withholding the information that 6-MC was an ingredient in the fragrance. Further, the complaint alleged, that at all relevant times, IFF knew that its fragrance contained an irritating ingredient which when used in suntan products would result in consumer complaints and injury to some potential users of the product.
Upon receiving the complaint in the Plough action filed in Memphis, Tennessee, IFF immediately notified Commercial Union of the action and requested that Commercial Union defend it. Commercial Union immediately retained a Memphis law firm ...