ILNews

COA: Duty to defend not triggered

Jennifer Nelson
January 1, 2008
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Frustrated with the parties involved in the litigation, the Indiana Court of Appeals April 17 reversed a trial court's ruling in a case involving public-access laws, fraud, and an insurer's duty to defend.

In Allianz Insurance Company, et al. v. Guidant Corporation, et al., No. 49A05-0704-CV-216, Chief Judge John Baker wrote the unanimous opinion regarding the "monstrosity of a litigation that has crossed state lines" is a straightforward dispute about when and whether an insurer's duty to defend had been triggered. The judge cited the court's frustration that the parties forced Indiana courts to take part in a race to the finish with Illinois courts.

Allianz began providing insurance to Guidant and its subsidiaries (the policyholders) in 1997. In 1999, the Food and Drug Administration approved the Ancure Device, a Y-shaped graft inserted inside the major aortic blood vessel to support a weakened vessel wall; it was made by a Guidant subsidiary.

When Guidant provided its application for coverage from Sept. 1, 2000, to Sept. 1, 2001, it noted it was unaware of any defects in its products that would give rise to liability claims. Allianz approved the year's insurance coverage, including any entitlement to a defense from its insurers is subject to a self-insured retention (SIR). Once Guidant absorbs the expenses up to the amount of the SIR, the insurer's obligation is then triggered.

Guidant's policy had a SIR of $5 million per occurrence and $8 million in the aggregate. A batch clause included in the policy said when all losses come from one batch - products with the same known defect identified by the same advisory memorandum sent to health professionals warning of such defects - then all losses will be considered one occurrence.

In March 2001, Guidant announced a voluntary recall of the Ancure Device, and the FDA investigated the company's failure to make certain disclosures about the device's performance. In November 2003, Allianz filed a complaint against Guidant in Illinois seeking damages and rescission of the policy for fraud. That same month, Guidant filed a complaint in Indiana against the insurers alleging they breached their duty to defend and that Guidant is entitled to coverage for those losses.

In Indiana, the trial court denied Allianz's motion for partial summary judgment on coverage issues relating to the SIR because Guidant proved the applicable $5 million SIR had been met for the year through the batch clause; Allianz didn't appeal this decision.

The trial court also entered an order striking the John P. Killacky affidavit, which supported the insurer's fraud defense. The court granted Guidant's motion for partial summary judgment against Allianz on its claim for breach of duty to defend. The insurer appealed these two rulings.

Guidant appealed the trial court denial of its motion for judgment on the pleadings on Allianz's fraud defense, which ruled the alleged fraud is best answered by a trier of fact.

Before ruling on the issues on appeal, Chief Judge Baker first addressed the public-access issue of this case. The trial court entered a protective order sealing the case from public view, which would have been allowed had the trial court followed Administrative Rule 9(H)(2) and conducted a public hearing first. Sealing the case was improper and violated Indiana's public-access laws regarding court records, he wrote. And because there is no confidential information in the record, briefs, or issues, the appellate court did not hold back from giving a full description of the facts, arguments, or resolution of the issues.

On the issue of Allianz's fraud defense, Guidant argued because the insurer did not rescind the policy and retained the premiums received, it can't argue the policy is void because of fraud. Allianz incorrectly relied on Indiana and Illinois caselaw to show it has the right to partial rescission by retaining all the premiums and rescinding only part of the policy. Neither Indiana nor Illinois provides the option of partial rescission to a party asserting fraud, and thus, the trial court should have granted Guidant's motion for judgment on the pleadings on Allianz's fraud defense, wrote Chief Judge Baker.

Also, because this defense is no longer a part of the appeal, the court didn't address Allianz's challenge of the trial court order striking the Killacky Affidavit, which supported the fraud defense.

Allianz argued summary judgment in favor of Guidant on its duty to defend claim was an error because its duty to defend was suspended when Allianz filed the Illinois action. Chief Judge Baker wrote while it is true the act of filing a declaratory action protects the insurer's right to raise coverage defenses, and it's free to disassociate itself from the case and seek reimbursement for its expenses incurred up to that point in time, the mere act of filing a declaratory action doesn't suspend the duty to defend. If such a rule existed, insurers would file a declaratory action in every case, he wrote.

However, the trial court did err in granting partial summary judgment in favor of Guidant on this issue. Indiana law states that only after a SIR is exhausted does an insurer's duty to defend kick in. The trial court erred in concluding the mere potential for coverage is enough. Guidant argued that the batch clause was satisfied for the year in question and they reached their $5 million SIR. The company had mailed "Dear Doctor" letters in March 2001 and May 2001 informing doctors about issues raised regarding the Ancure Device and various recalls, but the letters sought to ensure the medical community the products were safe, not warning of dangers. As such, the letters don't qualify as advisory memorandum needed to trigger the batch clause, Chief Judge Baker wrote.

The appellate court reversed the grant of partial summary judgment on the duty to defend claims; however, because Allianz did not appeal the order, the court is unable to direct summary judgment in the insurer's favor.

The appeals court reversed the trial court and remanded for further proceedings.
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  1. Indianapolis employers harassment among minorities AFRICAN Americans needs to be discussed the metro Indianapolis area is horrible when it comes to harassing African American employees especially in the local healthcare facilities. Racially profiling in the workplace is an major issue. Please make it better because I'm many civil rights leaders would come here and justify that Indiana is a state the WORKS only applies to Caucasian Americans especially in Hamilton county. Indiana targets African Americans in the workplace so when governor pence is trying to convince people to vote for him this would be awesome publicity for the Presidency Elections.

  2. Wishing Mary Willis only God's best, and superhuman strength, as she attempts to right a ship that too often strays far off course. May she never suffer this personal affect, as some do who attempt to change a broken system: https://www.youtube.com/watch?v=QojajMsd2nE

  3. Indiana's seatbelt law is not punishable as a crime. It is an infraction. Apparently some of our Circuit judges have deemed settled law inapplicable if it fails to fit their litmus test of political correctness. Extrapolating to redefine terms of behavior in a violation of immigration law to the entire body of criminal law leaves a smorgasbord of opportunity for judicial mischief.

  4. I wonder if $10 diversions for failure to wear seat belts are considered moral turpitude in federal immigration law like they are under Indiana law? Anyone know?

  5. What a fine article, thank you! I can testify firsthand and by detailed legal reports (at end of this note) as to the dire consequences of rejecting this truth from the fine article above: "The inclusion and expansion of this right [to jury] in Indiana’s Constitution is a clear reflection of our state’s intention to emphasize the importance of every Hoosier’s right to make their case in front of a jury of their peers." Over $20? Every Hoosier? Well then how about when your very vocation is on the line? How about instead of a jury of peers, one faces a bevy of political appointees, mini-czars, who care less about due process of the law than the real czars did? Instead of trial by jury, trial by ideological ordeal run by Orwellian agents? Well that is built into more than a few administrative law committees of the Ind S.Ct., and it is now being weaponized, as is revealed in articles posted at this ezine, to root out post moderns heresies like refusal to stand and pledge allegiance to all things politically correct. My career was burned at the stake for not so saluting, but I think I was just one of the early logs. Due, at least in part, to the removal of the jury from bar admission and bar discipline cases, many more fires will soon be lit. Perhaps one awaits you, dear heretic? Oh, at that Ind. article 12 plank about a remedy at law for every damage done ... ah, well, the founders evidently meant only for those damages done not by the government itself, rabid statists that they were. (Yes, that was sarcasm.) My written reports available here: Denied petition for cert (this time around): http://tinyurl.com/zdmawmw Denied petition for cert (from the 2009 denial and five year banishment): http://tinyurl.com/zcypybh Related, not written by me: Amicus brief: http://tinyurl.com/hvh7qgp

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