Affirmed in part and reversed in part Toussaint, Chief Judge Ramsey County District Court File No. C3001644
Considered and decided by Toussaint, Chief Judge, Harten, Judge, and
1. When the underlying litigation leading to an insured's liability is settled, leaving facts crucial to a coverage determination unresolved, the district court in the coverage action must make findings as to these unresolved coverage issues, which will not be reversed unless clearly erroneous.
2. When damages covered by occurrence insurance take place over more than one policy period, the court will presume the damages are continuous and will allocate them pro rata by time on the risk from initial injury through the time the underlying plaintiffs filed their lawsuit or died.
3. An appellate court will not address moot issues.
4. Insurance policies are interpreted as a matter of law.
5. The issue of when a party has notice of a claim, for the purpose of determining the commencement date for prejudgment interest, is a question of fact.
6. A party that waives coverage for expected-and-intended injuries under a liability policy may not later seek payment for claims for such injuries.
7. Attorney fees and costs incurred in a declaratory-judgment action to determine insurance coverage are not recoverable under Minnesota law absent statutory authorization or breach of a contractual duty to defend.
8. Punitive damages for breach of contract are not recoverable under Minnesota law except in exceptional cases where the breach constitutes or is accompanied by an independent tort.
9. A party whose rights are governed by a valid contract may not obtain equitable relief.
10. A party claiming misrepresentation as a defense to an insurance-coverage claim need not establish that the risk of loss associated with the claim for which coverage is sought is greater than that associated with insuring other risks within the same policy.
The opinion of the court was delivered by: Toussaint, Chief Judge
In this dispute, the parties seek resolution of insurance coverage and other issues. 3M had been sued by women who claimed that their silicone-gel breast implants, manufactured by 3M, caused them injury. 3M settled the suits and then turned to its liability insurers for coverage. After extensive proceedings, the district court resolved the claims. 3M and the insurers brought separate appeals from the district court's posttrial orders and final partial judgment, and this court consolidated the appeals.
3M contends that (a) the policies in effect at the time of the implantations provided full coverage to the policy limits; (b) all of the excess policies provided coverage for defense costs; (c) the district court erred in denying its motion to amend its counterclaim to add a claim for punitive damages; and (d) the district court abused its discretion in denying 3M additional equitable relief.
The insurers jointly argue that (a) the policies were triggered shortly before the underlying plaintiffs exhibited overt symptoms of their diseases rather than at the time of implantations; (b) the damages were continuous and should be allocated through the time the underlying plaintiffs filed their lawsuits or died; (c) the judgment-reduction undertaking ought to be enforced; (d) where 3M waived coverage for implant ruptures as excludable expected-and-intended damages, supplemental payments to plaintiffs with both disease and ruptured implants should not be covered; (e) the district court erred in awarding 3M its coverage-action fees and costs; and (f) the district court abused its discretion in instructing the jury on risk of loss and waiver in connection with the insurers' misrepresentation claim.
Finally, individual insurers argue that as to their particular policies:
(a) defense costs were excluded from their excess policies; (b) defense costs were in addition to policy limits; (c) the $5,000 deductible in the relevant underlying layer applied to each implant claim and applied to the excess layers; (d) claims against 3M's subsidiary that manufactured the implants were not covered because 3M did not give the notice necessary to make the subsidiary a named insured; and (e) the prejudgment interest awarded 3M should be calculated from the date the insurers were presented with a claim for reimbursement.
Because (a) the policies were triggered by injuries occurring both around the time of the implantations and afterwards; (b) damages were continuous, requiring allocation pro rata by time on the risk; (c) the allocation period should end at the time the underlying plaintiffs filed their lawsuits or died; (d) in light of the allocation ruling, this court need not reach the judgment-reduction issue; (e) the district court properly interpreted the defense-cost provisions of the excess policies; (f) the $5,000 deductible applies per claim but does not apply to the excess policies; (g) 3M complied with the named insured provisions; (h) the prejudgment interest should be calculated from the earlier of the dates on which the individual insurers' policies were reached by 3M's payment of covered costs or its obligation to pay such costs; (i) 3M waived coverage for excludable expected-and-intended damages for implant ruptures and may not recover for supplemental payments it made for mixed disease and rupture claims; (j) attorney fees are not recoverable absent statutory authorization or breach of a contractual duty to defend; (k) the district court did not err in denying 3M's motion to add a punitive-damages claim; (l) the district court did not abuse its discretion in denying 3M's request for additional equitable relief; and (m)áthe district court's instruction on risk of loss and waiver was harmless error, we affirm in part and reverse in part.
In 1977, 3M Company acquired McGhan Medical Corporation, which manufactured silicone-gel breast implants. Seven years later, in 1984, 3M sold the business. It has not manufactured or sold breast implants since then, although some products 3M had manufactured were sold by the purchaser of the business in 1985 and perhaps later.
Beginning in 1992, plaintiffs began bringing claims against 3M, alleging that the implants caused various diseases. It is undisputed that many women who received the implants between 1977 and 1985 later became ill with some sort of autoimmune or other systemic disease. They suffered from a wide variety of symptoms, including joint pain and stiffness, muscle weakness, numbness, fatigue, irritable-bowel symptoms, flu-like symptoms, burning, itching, sleep disturbance, and memory loss. Although 3M asserted there was no reliable evidence of medical causation, several plaintiffs obtained large verdicts. 3M, which settled many individual cases and participated in a global settlement, asserts that its defense and settlement costs exceed $1 billion.
From 1977 to 1985, 3M purchased occurrence insurance with coverage of approximately $1.48 billion. Under the occurrence policies, claims can be made after the policy period but coverage is triggered only if bodily injury or property damage occurred during the policy period.
In 1977, Travelers Insurance Co. provided 3M's primary occurrence policy. From 1978 through 1985, Lakeside Insurance Limited, a "captive" insurance company owned by 3M, provided 3M's primary occurrence insurance policy. 3M also had layers of excess policies over the primary layer each year. Typically, several different insurers issued policies within the same excess layer, with each providing a percentage or "quota share" of the coverage limit in that layer. These excess occurrence policies were triggered only after the underlying primary policy and lower-level policies in a particular year had been exhausted. They generally adopt the same provisions, or "follow form," of the relevant primary layer, absent specific exclusions to the contrary. Generally, the excess occurrence policies issued to 3M from 1977 to 1985 do not contain a duty to defend, but they contain differing provisions as to the duty to pay defense costs.
After 1985, due to a change in the worldwide insurance market, occurrence insurance was no longer widely available, and 3M purchased claims-made insurance. Unlike occurrence policies, the insured may make a claim on a claims-made policy only during the policy period. Coverage is further limited on a claims-made policy by the use of a retroactive date, which defines the period during which injury must take place in order to be covered. 3M's claims-made policies contained retroactive dates of November 27, 1985, May 1, 1986, and January 1, 1986, and were intended to dovetail with the occurrence policies.
In 1992, 3M retained coverage counsel and designated its principal insurance broker as its litigation consultant to help map a strategy for maximizing insurance coverage. In April 1992, 3M reported the implant occurrence to its claims-made insurers. Sixteen months later, in July 1993, 3M notified its occurrence insurers.
In September 1994, three excess insurers initiated this action against 3M and other excess insurers, seeking a declaratory judgment on coverage defenses and trigger, scope, and allocation issues related to the implant cases. The defendant insurers soon became aligned with the plaintiff insurers. 3M counterclaimed for declaratory relief on the same issues and asserted a variety of claims against the insurers, including breach of contract and breach of the implied covenant of good faith and fair dealing.
In October 1995, 3M and the insurers moved for summary judgment on the issue of when actual injury occurred. 3M asserted that injuries began around the time of implantation, while the insurers asserted they began when the underlying plaintiffs first experienced overt symptoms, usually some years after the implant. The district court denied the motions, ruling that the issues of when the injury took place and whether it took place in more than one policy period were questions of fact triable to the court.
In June and July 1996, the court held a "medical trigger" trial to determine when injury occurred for purposes of triggering the occurrence policies. The court found that the injury took place on or about the time of implantation. It adopted a "continuous-trigger theory" and held that the policies would be triggered continuously from date of implant to date of claim or death and that 3M's losses would be allocated "pro rata by time on the risk" over the period of injury. This ruling meant that the policies that were "on the risk" or in effect over the relevant period of time would each pay a pro rata share of 3M's losses.
In July 1997, the district court sua sponte reversed its continuous-trigger ruling based on its interpretation of Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724 (Minn. 1997), a then-recent case that addressed allocation issues. The insurers moved to reconsider, providing the court with the transcript from the medical-trigger trial and citing to the underlying evidence. In November 1997, the court reinstated its prior trigger and allocation decisions, finding the record demonstrated continuing injuries.
On January 6, 1998, the predecessor district court judge was appointed to the court of appeals and a successor judge was appointed to preside. 3M then moved to clarify the trigger and allocation rulings. The court ultimately revised the ruling to provide that allocation ended on December 31, 1985, the last date that any occurrence policies were in effect, rather than the date the underlying plaintiffs filed their lawsuits or died.
Early in the case, 3M had stated that it was not seeking coverage for expected-and-intended damages relating to mechanical failures of the implant, specifically, rupture of the implant. In 1997, the parties addressed whether 3M was entitled to reimbursement for supplemental payments to global-settlement claimants whose implants had ruptured and who suffered disease. The court held that 3M had disavowed such claims when it "voluntarily narrowed the issue * * * to exclude mechanical claims." 3M later asked the court to reconsider the ruling. The court interpreted the prior order as not resolving this specific reimbursement issue and held that 3M had not disclaimed coverage for specific payments for rupture made to women who also asserted disease claims.
A four-month jury trial on 3M's breach-of-contract claims and certain insurer coverage defenses, including misrepresentation, began in October 1999. The first phase addressed coverage defenses, which the jury ultimately rejected. The second phase addressed 3M's breach claims. At the end of the trial, the court granted the insurers' directed-verdict motions, finding, among other things, that although 3M had established a prima facie case for breach, it had not presented a viable damages theory to support a breach claim. The court then discharged the jury over 3M's objection.
The insurers then asked the court to enforce 3M's judgment-reduction undertaking. Early in the litigation, ACE and XL, two of the claims-made insurers who provided coverage to 3M after 1985, moved to dismiss, citing policy provisions requiring 3M, in relevant part, to obtain their dismissal from any action filed by another insurer by filing a judgment-reduction undertaking. 3M filed that undertaking, and the trial court dismissed ACE and XL on that basis. The court denied the insurers' request to enforce the judgment-reduction undertaking, finding that the claims-made insurers were not liable for any implantations performed before the policies' retroactive dates.
In April 2000, 3M resurrected its breach claims by filing a post-verdict motion for "further declaratory relief." 3M requested an award of its coverage-action fees and costs based on the same implied-covenant claim that the court had just resolved against it. It also requested further equitable relief.
In an order issued in September 2000, the court made general findings about the insurers' conduct as a group, particularly before the coverage action commenced in 1994, and concluded that the insurers had repudiated their contracts and breached the implied covenant of good faith and fair dealing. The court awarded 3M attorney fees and costs as an equitable remedy for the insurers' breach of the implied covenant. The court apportioned 3M's fees and costs among all the insurers in the program, including insurers that had settled or become insolvent. But the court declined to grant 3M any substantive monetary or equitable relief. The court had also previously declined to allow 3M to amend its pleadings to seek punitive damages.
At issue at different stages of the proceedings was whether, under the occurrence policies, the insurers were liable to 3M for defense costs incurred in the underlying actions. Various insurers sought rulings that their policies excluded coverage of defense costs or that their coverage of defense costs should be included within policy limits, rather than in addition to limits. Most of these motions were ultimately denied.
In May 2001, the court entered its order for partial final judgment, which included monetary judgments against most of the remaining insurers. The $169,340,679 in judgments against the insurers remaining in the case break down as follows: indemnity, $123,030,541; defense costs, $22,456,112; and prejudgment interest, $23,854,026. These appeals followed.
I. Did the district court err in ruling that coverage was triggered shortly after implantation, based on a finding injury first occurred at that time?
II. Did the district court err in ruling that damages were continuous from time of implantation and should be allocated pro rata by time on the risk through December 31, 1985, the last date of the occurrence policies?
III. Did the district court err in denying the occurrence insurers' motion to enforce 3M's judgment-reduction undertaking?
IV. Did the district court err in its rulings on coverage of defense costs?
V. Did the district court err in ruling that the $5,000 deductible in the primary Lakeside policy applied as a single deductible each policy year and did not survive the exhaustion of the primary policy?
VI. Did the district court err in rejecting First State Insurance Co.'s claim that its policies did not provide coverage for 3M's subsidiary that manufactured the implants because 3M failed to comply with the notification requirement as to named insureds?
VII. When the district court awarded 3M prejudgment interest, was it clearly erroneous in determining the dates on which 3M gave the insurers sufficient notice of the amount due and in determining that further demands for payment would have been futile?
VIII. Did the district court err in ruling that 3M did not waive coverage for supplemental payments for rupture given to the underlying plaintiffs who also suffered disease?
IX. Absent statutory authorization or breach of a contractual duty to defend, did the district court err in awarding 3M its coverage-action fees and costs on a finding that the excess insurers breached the implied covenant of good faith and fair dealing?
X. Did the district court err in denying 3M's request to amend its counterclaim to add a claim for punitive damages?
Did the district court abuse its discretion in denying 3M additional equitable relief?
Did the district court abuse its discretion in instructing the jury on risk of loss and waiver in connection with the insurers' misrepresentation claim?
In reviewing an appeal from a declaratory judgment, findings of fact will not be reversed unless clearly erroneous, while issues of law will be reviewed de novo. Minn. Ctr. for Envtl. Advocacy v. Big Stone County Bd. of Comm'rs, 638 N.W.2d 198, 202 (Minn. App. 2002), review denied (Minn. Mar. 27, 2002). "Insurance coverage issues are questions of law for the court." State Farm Ins. Cos. v. Seefeld, 481 N.W.2d 62, 64 (Minn. 1992).
The underlying plaintiffs—women who received silicone-gel breast implants between 1977 and 1985 that were manufactured by 3M—sued 3M on the theory that the implants caused various diseases. 3M, which denied that there was any causal connection, nonetheless settled many such lawsuits after several plaintiffs in implant litigation obtained large verdicts.
3M then turned to its liability insurers, whose occurrence policies were in effect between 1977 and 1985. It asserted that for purposes of coverage the injuries occurred around the time the women received their implants. The insurers, however, claimed that injuries occurred shortly before the women experienced overt symptoms of their diseases, which was often years after the implant. Because the implants took place while the occurrence insurers' policies were in effect, but most of the overt symptoms arose after the policies expired, resolution of this issue was determinative of coverage in most cases.*fn1 After a trial on this "trigger" issue, the district court ruled in favor of 3M, holding that injuries first occurred around the time of the implant.
The insurers contend that the court erred as a matter of law in holding that injuries occurred, for purposes of coverage under the occurrence policies, shortly after implantation. They assert that this ruling is inconsistent with the scientific fact—accepted by both the insurers and 3M—that implants do not cause disease. They argue the court should have held that injuries occurred shortly before the underlying plaintiffs experienced overt symptoms.
The occurrence policies provide indemnity for "all sums" that 3M becomes legally obligated to pay as damages as a result of an "occurrence," typically defined as "an accident, event or happening, including injurious exposure to conditions, which results, during the policy period, in bodily injury" that is "neither expected nor intended" by the insured. To establish or trigger coverage, "an insured must demonstrate that damage 'occurred' while the policy was in effect." N. States Power Co. v. Fid. & Cas. Co., 523 N.W.2d 657, 659-60 n.3 (Minn. 1994) (quotation omitted). An occurrence takes place not when the policyholder engages in the wrongful act, "but the time the complaining party was actually damaged." Singsaas v. Diederich, 307 Minn. 153, 156, 238 N.W.2d 878, 880-81 (1976). Consequently, if the damage occurs outside of the policy period, the policy does not provide ...