No Judicial Estoppel, But Also No Coverage
August 04, 2010
The 7th U.S. Circuit Court of Appeals recently held that an insured was not barred by judicial estoppel from advancing an argument for purposes of establishing coverage in a coverage action which was not fully consistent with its position in the underlying action, but that the insured nevertheless was not entitled to coverage because the underlying allegations, although referencing the prospect of bodily injury, sought recovery only for economic harm. Medmarc Casualty Insurance Co. v. Avent America, Inc., 2010 WL 2780190 (7th Cir. July 15, 2010).
The insurers, which included Medmarc Casualty, Pennsylvania General and State Farm, were represented by William Savino and Pia Elena Riverso of Rivkin & Radler, Uniondale, N.Y., and Michael C. Borders of Dykema, Gossett PLLC, Chicago. Kenneth H. Frenchman represented the insured, Avent.
Avent was the manufacturer of certain baby products which contained Bisphenol-A (BPA). Purchasers of the products brought class actions against Avent alleging that Avent was aware of the health risks associated with BPA, that it failed to inform them of those risks, that the plaintiffs would not have purchased the products had they known of the risks, and that upon learning of the safety problems the plaintiffs stopped using the products and did not receive the full benefit of their purchase.
The underlying class actions were consolidated, and Avent moved to dismiss them on the ground, among others, that they did not state a cause of action in that the complaints contained no allegations of physical harm or emotional distress. The underlying plaintiffs basically agreed, but argued they were entitled to recover for their economic losses. The trial court ended up dismissing all but the unjust enrichment counts of the underlying complaints.
Avent tendered defense of the lawsuits to the insurers involved in the instant coverage litigation. The policies provided CGL coverage for various time periods between 1997 and 2007, and were similar in scope. They each covered sums that Avent became legally obligated to pay "because of 'bodily injury' or 'property damage' included within the 'products-completed operations hazard' to which this insurance applies."
The three insurers eventually sought a declaration that they had no duty to defend. On cross summary judgment motions, the district court agreed with the insurers, and Avent brought this appeal.
In an opinion by Judge Joel M. Flaum, the 7th Circuit affirmed. He initially addressed whether Avent's arguments in the underlying lawsuits that the underlying plaintiffs made no claims of physical or emotional harm should judicially estop Avent from arguing in favor of coverage, based on alleged "bodily injury." He noted that the judicial estoppel doctrine prevents a party who prevails on one ground in a prior proceeding from denying that ground in a subsequent one.
While recognizing that Avent was "threading the judicial estoppel needle," Flaum said the court needed to be careful when applying the doctrine in the duty to defend context. Where an insurer refuses to defend, said Flaum, the insured still must put forth a zealous defense and may have to attack the opponent's case in ways that seem to remove it from the scope of the insurance contract.
With these considerations in mind, Flaum found that Avent's coverage position was not "in direct tension" with its underlying position, and it would not be judicially estopped under the circumstances here, although the doctrine might still be appropriate to apply in other duty to defend situations.
With respect to the merits of the duty to defend issue, Avent argued that the underlying complaints sought damages because of bodily injury based on their allegations that BPA potentially causes a wide variety of adverse health problems and that Avent supposedly violated a standard of care by manufacturing products that could cause the injuries.
The problem with the argument, according to Flaum, was that even if the underlying plaintiffs proved every factual allegation in their complaints, they could not collect for bodily injury because the complaints did not allege that any bodily injury actually occurred. Nor did the complaints allege that the underlying plaintiffs had an increased risk of bodily injury for which they should be compensated.
Avent contended that the bodily injury claims themselves were left out of the underlying complaints because, without such claims, the plaintiffs could more easily obtain class certification. It argued that the duty to defend should not be at the mercy of the drafting whims of the plaintiffs' attorneys.
Flaum responded to this point by noting that the omissions in the complaints were not mere whims but rather the result of a conscious decision to limit the claims solely to economic damages that resulted from the plaintiffs purchasing a product from which they could not receive a full benefit. The attorneys thus had decided upon the strategy to pursue only limited claims.
Avent relied on Ace Am. Ins. Co. v. RC2 Corp., 568 F. Supp. 2d 946 (N.D. Ill. 2008), in support of its position, contending that the claims of exposure to lead paint on toys in that case, in which the insurers were found to have a duty to defend, were similar to the underlying claims here. Flaum, however, distinguished RC2 Corp. on the ground that the underlying complaint in that case specifically alleged that the plaintiffs "suffered an increased risk of serious health problems," which was absent here because the underlying plaintiffs alleged that they ceased using Avent's products.
Avent also argued that the language "because of bodily injury" in the applicable policies here was broader than "for bodily injury" which is the kind of language that appears in some CGL policies, and that the district court failed to take this difference into account. Flaum agreed that a distinction exists, noting that the former phrase might cover such things as accommodations for a person's injuries, such as the need for a wheel chair, while the latter phrase might be limited to damages for the physical injuries themselves.
Even so, said Flaum, the theory of relief as set forth in the underlying complaints here was not that a bodily injury occurred and the damages sought flowed from that bodily injury, but rather that the plaintiffs would not have purchased the products had they known about the BPA, and that they were injured economically.
Flaum drew on the court's recent decision in Health Care Industry Liability Insurance Program v. Momence Meadows Nursing Center, 566 F.3d 689 (7th Cir. 2009), to help illustrate his point. That case involved qui tam allegations going to the mistreatment of nursing home patients that led to the nursing home submitting false claims to Medicare and Medicaid. Although alleged mistreatment was involved in the case, the damages sought were not "because of bodily injury," and there was no duty to defend.
Flaum acknowledged that the underlying plaintiffs might amend the complaints to include factual allegations of bodily injury, and if so, Avent could re-tender the defense and the insurers would be obligated to defend. The mere possibility that the complaints might be amended, however, does not bring the allegations within coverage.
The court therefore affirmed summary judgment for the insurers.
