Home was required to reimburse Aetna on a pro rata basis for expenses in addition to damages, the latter of which only was capped by the loss limitations of both the Aetna and Home policies.
Home concedes that it undertook to reimburse Aetna for claims expenses but did so subject to the limit of liability expressed in the Home reinsurance policies. Home maintains that the reinsurance contracts should be interpreted in light of the course of performance, and highlights the fact that Aetna billed reinsurers for expenses subject to limits prior to the Robins settlement. Home argues that any ambiguity concerning coverage for defense costs resulted from a mutual drafting mistake, and accordingly seeks reformation of the contracts.
Home also contends, that although the Aetna policies might reasonably be interpreted to provide for the payment of expenses in addition to Aetna's limit of liability, the Home policies by their express terms limited Home's liability for any payments, whether for damages to claimants or for expenses incurred in defending against such claims, to the dollar limits typed on the declarations pages of its policies. In this respect, Home repeats arguments that it offered, unsuccessfully, during the summary judgment phase of this litigation, summarized infra.
Home further insists that the "follow the fortunes" (or "follow the settlements") doctrine invoked by Aetna has no application in facultative reinsurance as opposed to treaty reinsurance.
In the alternative, Home argues that even if a duty to follow loss settlements exists in facultative reinsurance, it does so only where explicit clauses exist obligating the reinsurer to follow loss settlements, and not as a matter of industry practice. Home additionally contends that it is relieved of the obligation to follow the Robins settlement because it was neither reasonable nor made in good faith. Finally, Home argues that Aetna failed to prove its damages or its entitlement to prejudgment interest.
FINDINGS OF FACT
From March 1968 through March 1978, Aetna was the products liability insurance carrier for Robins. As noted, Aetna spread much of the risk among numerous reinsurers, while keeping a retention of its own approximating $ 15 million. Home participated as one of Aetna's reinsurers with respect to excess policies in the policy years 1970, 1972, 1973, 1974 and 1976.
In each of the years when Home participated as a reinsurer of Aetna, a reinsurance intermediary acting on Aetna's behalf issued to Home and all other reinsurers a Certificate of Reinsurance.
Although some participating reinsurers used the certificates as their contract of reinsurance with Aetna, Home chose to use its own form excess insurance contract as the governing expression of its contract of reinsurance with Aetna, and accordingly manuscripted "R/I", meaning reinsurance, along with certain other information on the declarations page of the form excess policy. The parties have stipulated that the Home form excess insurance policies superseded the certificates that had been issued by insurance intermediaries; thus, the certificates may not be relied upon to determine the intent of the parties as to any material fact in dispute. Rather, the court must refer to the language of the Aetna excess policies and the Home reinsurance contracts to determine the degree to which those policies offer coextensive coverage: for if the Home policies indemnify anything Aetna insures, the terms of the Aetna excess policies will be dispositive of Home's liability to Aetna, i.e., unless the Home policies specify an exclusion.
The Dalkon Shield
In 1970, Robins acquired the exclusive right to manufacture and sell the Dalkon Shield. Robins introduced the Dalkon Shield into the market in early 1971, and ultimately sold some 2,200,000 IUD's before withdrawing the product in 1974. Soon after the initial sales of the Dalkon Shield, numerous complaints of physical injuries related to the use of the product were reported, including uterine perforations and infections, unwanted pregnancies, spontaneous abortion, fetal injuries and the need for emergency hysterectomies. From 1973 to 1985, some 9,238 claims were asserted against Robins, resulting in payments of approximately $ 530,000,000. With several thousand cases still pending in various courts, and in the face of a rapidly deteriorating financial situation, Robins was ultimately forced in August 1985 to file for protection under Chapter 11 of the Bankruptcy Code in the United States District Court for the Eastern District of Virginia. By the time the reorganization proceedings were concluded, approximately 400,000 claims were asserted against Robins.
The Coverage Litigation
Even before the bankruptcy, however, the sheer number of claims had mounted for a long time, implicating the Aetna excess policies and the reinsurers, including Home. Disputes developed between Aetna and Robins concerning the scope of coverage under the Aetna policies including, inter alia, the question of whether a claim was covered at the time of exposure to the IUD as opposed to manifestation of injury, whether Aetna was required to indemnify Robins for punitive damages, and the conduct of litigation on behalf of Robins. In 1977, Aetna and Robins entered into an Interim Agreement, which provided in relevant part:
IT IS THEREFORE NOW UNDERSTOOD AND AGREED BY AND BETWEEN AETNA AND ROBINS:
(1) That Aetna will continue to defend the aforesaid Dalkon Shield cases and all similar cases filed in the future which come within the coverage of the Policies as they may be modified by this Agreement (hereinafter referred to as "said cases"). The terms "Policies", as used in this agreement, means all contracts or policies of liability or indemnity insurance ever issued, both as of the date of this agreement and in the future, by Aetna and insuring Robins.