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Allstate Insurance Co v. American Home Products Corp

March 31, 2009

ALLSTATE INSURANCE COMPANY, AN ILLINOIS CORPORATION, AS SUCCESSOR IN INTEREST TO NORTHBROOK EXCESS & SURPLUS INSURANCE COMPANY, FORMERLY KNOWN AS NORTHBROOK INSURANCE COMPANY, PURSUANT TO MERGER EFFECTIVE JANUARY 1, 1985, PLAINTIFF,
v.
AMERICAN HOME PRODUCTS CORPORATION, A DELAWARE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Pitman, United States Magistrate Judge

OPINION AND ORDER

I. Introduction

This action arises out of a contract dispute between Allstate Insurance Company ("Allstate") and American Home Products Corporation, now known as Wyeth ("Wyeth"). Both parties move for summary judgment on the issue of whether Allstate is obligated under its excess insurance policies to pay the costs of defending products liability lawsuits brought against Wyeth. All parties have consented to my exercising plenary jurisdiction in the case pursuant to 28 U.S.C. § 636(c).

For the reasons set forth below, Allstate's motion for summary judgment is denied and Wyeth's cross-motion for summary judgment is granted in part and denied in part.

II. Facts

A. The Insurance Policies

1. The Excess Policies

From 1980 to 1984, Wyeth purchased 20% of its first layer of excess products liability insurance from Allstate (Defendant's Statement Pursuant to Local Rule 56.1 in Support of Its Motion for Summary Judgment, dated Mar. 5, 2004 ("Def.'s 56.1") ¶ 2; Responding Statement by Plaintiff Pursuant to Local Rule 56.1 in Opposition to Defendant's Motion for Summary Judgment, dated Apr. 23, 2004 ("Pl.'s Opp. 56.1") ¶ 2; Plaintiff's Rule 56.1 Statement of Uncontested Facts, dated Mar. 5, 2004 ("Pl.'s 56.1") ¶ 23; Wyeth's Responding Statement to Plaintiff's Rule 56.1 Statement of Uncontested Facts, dated Apr. 23, 2004 ("Def.'s Opp. 56.1") ¶ 23).*fn1 The material terms and conditions of the excess insurance agreements for the periods from 1980 to 1981 and 1981 to 1984 were set forth in two written insurance policies (the "Excess Policies") (Stipulation as to Certain Policies, dated Mar. 5, 2004 ("Stip."), annexed in turn as Exhibit ("Ex.") 6 to the Declaration of Christopher J. Bannon, Esq., in Support of Plaintiff's Motion for Summary Judgment, dated Mar. 5, 2004 ("Bannon Decl.")). The Excess Policies provided that Allstate would insure Wyeth against liability to third parties by increasing the insurance limit of underlying insurance policies to stated amounts (Northbrook Excess and Surplus Insurance Company, Excess Liability Coverage Policy Number 63-006-825, countersigned June 24, 1980 ("1980 Policy") at NB 00000114, Excess Liability Coverage Policy Number 63-008-121, countersigned July 13, 1981 ("1981 Policy"), at WYETH 000753, annexed as Exs. A & B, respectively, to Stip. annexed as Ex. 6 to Bannon Decl.). Subject to certain exceptions, the scope of the coverage Allstate provided to Wyeth was the same as that provided in the underlying policy, and the increased amount of coverage was available to Wyeth only after the limits of that underlying policy were exhausted*fn2 (1980 Policy at NB 00000114, 1981 Policy at WYETH 000753, annexed as Exs. A & B, respectively, to Stip., annexed in turn as Ex. 6 to Bannon Decl.).

Under a heading entitled "Maintenance of Underlying Insurance," the Excess Policies required Wyeth to maintain each applicable underlying policy "in full effect" as a condition for Allstate's payment of any claims under the Excess Policies (1980 Policy at NB 00000114, 1981 Policy at WYETH 000753, annexed as Exs. A & B, respectively, to Stip. annexed as Ex. 6 to Bannon Decl.). The Excess Policies also provided:

This policy is subject to the same warranties, terms and conditions (except as regards the premium, the obligation to investigate and defend, the amount and limits of liability and the renewal agreement, if any, and except as otherwise provided herein) as are contained in or as may be added to the Underlying Policy prior to the happening of an occurrence for which claim is made . . . (1980 Policy at NB 00000114, 1981 Policy at WYETH 000753, annexed as Exs. A & B, respectively, to Stip. annexed as Ex. 6 to Bannon Decl. (emphasis added)).

The Excess Policies stated that Wyeth's "Underlying Policy" for the purposes of "Products and Completed Operations Liability" coverage, was a self-insured retention*fn3 of five million dollars (1980 Policy at NB 00000123, 1981 Policy at WYETH 000758, annexed as Exs. A & B, respectively, to Stip. annexed as Ex. 6 to Bannon Decl.; Pl.'s 56.1 ¶ 13; Def.'s Opp. 56.1 ¶ 13).*fn4

The parties both agree that Wyeth's self-insured retention, in turn, "was deemed to operate in accordance with the terms and conditions of" a policy issued by the Midland Insurance Company to Wyeth for primary coverage for the period from November 1, 1976 to November 1, 1977 (the "Midland Policy") (Def.'s 56.1 ¶ 11; Pl.'s Opp. 56.1 ¶ 11).

2. The Midland Policy

The Midland Policy expressly required Midland to defend Wyeth against lawsuits seeking damages for bodily injury caused by an "occurrence:"

Midland Insurance Company (. . . herein called the company) . . . agrees with the named insured as follows:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements. (Midland Insurance Company, General Liability-Automobile Policy No. GL 195558, countersigned Feb. 1, 1977 ("Midland Policy"), at NBK 0000374, annexed as Ex. C to Stip., annexed in turn as Ex. 6 to Bannon Decl.).*fn5

In addition, the Midland Policy included two statements that explicitly addressed Midland's payment of the expenses of defending Wyeth. First, the Midland Policy provided, under the heading "Supplementary Payments," that Midland would pay all expenses that it incurred while defending Wyeth, and that these payments would be incurred "in addition to the applicable limit of liability," i.e., in addition to Midland's coverage of Wyeth for liability for damages due to bodily injury and property damage under the policy (Midland Policy, annexed as Ex. C to Stip., annexed in turn as Ex. 6 to Bannon Decl. ("The company will pay, in addition to the applicable limit of liability: all expenses incurred by the company, all costs taxed against the insured in any suit defended by the company and all interest on the entire amount of any judgment therein which accrues [during a specified time period].")). Second, Endorsement 22 to the Midland Policy granted Midland the "right but not the duty" to defend Wyeth in certain foreign lawsuits, and that, should Midland elect not to defend Wyeth in such lawsuits, Midland would reimburse Wyeth for the reasonable costs of investigating and defending such suits so long as Midland was given the opportunity to supervise such investigation and defense:

If claim is made or suit is brought elsewhere than within the United States of America, its territories or possessions, or Canada, the Company shall have the right but not the duty to ...


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