Fed. Ins. Co. v. 3M Co.

642 F.Supp.3d 882

FEDERAL INSURANCE COMPANY, Plaintiff, v. 3M COMPANY, Defendant.

Civil No. 21-2093 (JRT/DTS)

United States District Court, D. Minnesota

Signed November 23, 2022

Catherine Geisler, Todd S. Schenk, and Zachary R. Greening, TRESSLER LLP, 233 South Wacker Driver, Sixty-First Floor, Chicago, IL 60606; Charles E. Spevacek, MEAGHER & GEER, PLLP, 33 South Sixth Street, Suite 4400, Minneapolis, MN 55402, for plaintiff.

Jared Zola, BLANK ROME LLP, 1271 Avenue of the Americas, New York, NY 10020; James R. Murray and Omid Safa-Esfahani, BLANK ROME LLP, 1825 Eye Street Northwest, Washington, DC 20006; Andrew J. Pieper and Bradley R. Prowant, STOEL RIVES LLP, 33 South Sixth Street, Suite 4200, Minneapolis, MN 55402, for defendant.

MEMORANDUM OPINION AND ORDER ADDRESSING CROSS MOTIONS FOR PARTIAL SUMMARY JUDGMENT

JOHN R. TUNHEIM, United States District Judge

Federal Insurance Company ("Federal") and 3M Company seek declarations of coverage under insurance policies for injuries allegedly caused by a 3M product. 3M Company is a defendant in more than 5,000 product liability cases arising from the design and manufacture of the Bair Hugger Patient Warming System. These cases have been centralized for pretrial proceedings in multidistrict litigation ("MDL") in the District of Minnesota. Federal issued product liability insurance policies covering some but not all of the cases against 3M. The insurance policies have deductibles that 3M must meet before Federal is obligated to pay on the polices and have clauses requiring Federal to defend 3M against suits arising under the policies. Federal brought this action against 3M seeking a declaratory judgment that (1) 3M must pay a deductible for each injury; (2) the defense costs of the MDL should be apportioned based upon the proportion of cases that Federal's policies cover; and (3) Federal need only pay the necessary and reasonable post-notice costs of the MDL defense. 3M answered and counterclaimed (1) seeking a declaratory judgment that it need only pay one deductible per policy period; (2) seeking a declaratory judgment that Federal is liable for the full cost of the MDL defense; and (3) for breach of contract alleging Federal has failed to defend 3M as required by the policy contracts.

The parties filed cross motions for partial summary judgment on their first two claims to resolve (1) how many deductibles 3M is responsible for and (2) whether Federal is responsible for the full litigation costs of defending against the MDL or whether the costs should be allocated based upon the cases with claims covered by the policies as opposed to those not covered by the policies.

On the deductible issue, 3M is only responsible for one deductible per policy period, because the policies' deductible's occurrence or event language applies to the design and manufacture of the devices. Thus, the Court will deny Federal's Motion and grant 3M's Motion as to the deductible dispute. On the litigation defense costs issue, because MDLs are not a single, monolithic case, but rather the individual cases within an MDL remain distinct, Federal need only pay the defense costs associated with cases covered by the policies it issued, not the full cost of the MDL defense. Thus, the Court will grant in part Federal's Motion and deny 3M's Motion as to the defense cost dispute. The Court only grants in part Federal's Motion because the Court will not adopt the remedy Federal proposes, instead leaving it to be resolved at a later stage.

BACKGROUND

I. FACTUAL BACKGROUND

Arizant Healthcare, Inc. ("Arizant") was the designer, developer, manufacturer, and seller of the Bair Hugger Patient Warming System ("Bair Hugger"). (Rule 26(f) Report at 5, Jan. 11, 2022, Docket No. 24.)¹ The Bair Hugger is designed to maintain a patient's body temperature during surgery by forcing warm air through a blanket. (Federal's Compl. ¶ 7, Sept. 22, 2021, Docket No. 1.)

Federal issued Arizant a series of annual general liability insurance policies, bearing policy number 7498-46-55 MIN, effective from April 1, 2003, through October 13, 2010 (collectively, "Federal Insurance Policies" or "Policies"). (Rule 26(f) Report at 5.)

On or about October 13, 2010, 3M acquired Arizant. (Id.) As a result, 3M is the successor in interest to Arizant's rights as an insured under the Federal Insurance Policies.² (Id.) The Policies were originally effective through April 1, 2011, but 3M cancelled the final policy effective October 13, 2010. (Id.)

Thousands of product liability claims have been filed against 3M seeking damages for bodily injuries allegedly caused by defects in the design, development, manufacturing, and sale of the Bair Hugger product. (Id.) These cases were transferred into multi-district litigation in the District of Minnesota named In re: Bair Hugger Forced Air Warming Devices Product Liability Litigation, MDL 15-2666 (D. Minn.) ("Bair Hugger MDL" or the "MDL"). (Id.)

Some of the alleged bodily injuries took place while the Federal Insurance Policies were in effect. (Id.) Other alleged injuries took place either before the Policies were in effect or after the final Policy was cancelled. (Id.; 1^st Aff. of Todd S. Schenk ("1^st Schenk Aff.") ¶ 5, Apr. 15, 2022, Docket No. 40.) In total, the Bair Hugger MDL currently contains about 5,560 claims of which 1,155 (or about 20 percent) allege a bodily injury occurred because of a surgery between April 1, 2003, to October 13, 2010, when the Policies were in effect. (1^st Schenk Aff. ¶¶ 3-6.)

3M tendered the MDL to Federal for coverage under the Policies. (Rule 26(f) Report at 5.) 3M has incurred attorney fees and other litigation costs defending against the MDL, but Federal has not paid any of these costs. (Id. at 6.) This litigation and the MDL are ongoing after the Eighth Circuit reversed a grant of summary judgment for 3M and remanded the case. (Id.)

At issue here is the effect of two different sections of the Policies: (1) the definition of "occurrence" or "event" for the purposes of the Policies' deductibles and (2) the provisions governing Federal's duty to defend 3M.

A. The Policies' Deductible Language

Each policy had a deductible that applied either on a "Per Occurrence" or on an "Each Event" basis.

1. Per Occurrence Deductible

For the 2003-2004, 2004-2005, 2005-2006, 2006-2007, and 2007-2008 Policies, each policy has a deductible endorsement explaining how the deductible is to be applied:

Per Occurrence basis - the deductible amount applies to all damages, defense costs, and other Supplementary Payments because of:

• all bodily injury or property damage as the result of any one occurrence, regardless of the number of persons or organizations who sustain damages because of that occurrence.

(Decl. of Jared Zola ("Zola Decl."), Ex. C at 63, Mar. 25, 2022, Docket No. 33; Zola Decl., Ex. D at 81; Zola Decl., Ex. E. at 90; Zola Decl., Ex. F at 90, Zola Decl., Ex. G at 93 (emphasis in original).)

The "per occurrence" policies define "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Zola Decl., Ex. C at 49; Zola Decl., Ex. D at 52; Zola Decl., Ex. E. at 60; Zola Decl., Ex. F at 60, Zola Decl., Ex. G at 61.)

The first policy—the 2003-2004 Policy—by default applied the deductible on a "Per Claim" basis before the endorsement changed it to the "per occurrence" method. (Zola Decl., Ex. C at 9.) "Claim" is not defined in this policy.

2. Each Event Deductible

Beginning with the 2008-2009 Policy, Federal used a new policy form that provided two different options for how deductibles would be applied: on an "Each Claim" basis or on an "Each Event" basis. In the 2008-2009, 2009-2010, and 2010-2011 Policies, an endorsement described how these options worked:

If the applicable Deductible is indicated to apply on the basis of:

• Each Claim, then the amount of the Deductible applies separately to the sum of amounts described in the provision titled Deductible Obligations, in connection with loss allocable to each separate person and organization that arises out of each separate "event."

• Each "Event," then the amount of the Deductible applies separately to the sum of amounts described in the provision titled Deductible Obligations, in connection with loss that arises out of each separate "event."

(Zola Decl., Ex. H at 90; Zola Decl., Ex. I at 18; Zola Decl., Ex. J at 99.)

These Policies defined "Event" as "an occurrence, offense, wrongful act or other cause of loss as described under the applicable Coverage." (Zola Decl., Ex. H at 93; Zola Decl., Ex. I at 15; Zola Decl., Ex. J at 102.)

The Each Event Policies also defined "Occurrence" with the same definition as the earlier Per Occurrence policies as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Zola Decl., Ex. H at 62; Zola Decl., Ex. I at 56; Zola Decl., Ex. J at 63.)

The 2008-2009, 2009-2010, and 2010-2011 Policies all applied the deductible on an "Each Event" basis, not an "Each Claim" basis. (Zola Decl., Ex. H at 14; Zola Decl., Ex. I at 104; Zola Decl., Ex. J at 15.)

These three Policies also specifically indicated that "[t]here is no aggregate limit applicable to your Deductible Obligations." (Zola Decl., Ex. H at 91; Zola Decl., Ex. I at 17; Zola Decl., Ex. J at 100.)

B. The Policies' Defense Language

In addition to indemnifying 3M for losses incurred under the Policies, Federal accepted a duty to defend 3M in any suit arising under the Policies. The Policies provided that Federal "will have the right and duty to defend the insured against a suit, even if such suit is false, fraudulent or groundless" but that Federal has "no duty to defend any person or organization against any suit seeking damages to which this insurance does not apply." (Zola Decl., Ex. C at 27; Zola Decl., Ex. D at 30; Zola Decl., Ex. E. at 31; Zola Decl., Ex. F at 31, Zola Decl., Ex. G at 32; Zola Decl., Ex. H at 33; Zola Decl., Ex....