District court's finding that under the actual-injury trigger rule the insured's high-level, excess, occurrence-based insurance policies were triggered at or about the time of silicone gel breast implantation is not clearly erroneous.
Allocating losses among insurers pro rata by time on the risk in a case involving continuous injuries that can be traced back to a discrete and identifiable event is not appropriate, and here the implantation of silicone gel breast implants was a discrete and identifiable event; therefore, the district court erred in allocating losses among insurers pro rata by time on the risk.
Insured may not recover attorney fees and costs from high-level, excess, occurrence-based insurers based on the insurers' breach of the implied covenant of good faith and fair dealing.
Affirmed in part and reversed in part.
Heard, considered, and decided by the court en banc.
The opinion of the court was delivered by: Anderson, Paul H., Justice.
Took no part: Page, Gilbert, and Hanson, JJ.
Casey, Frederick J., Acting J.*fn1
This appeal stems from a declaratory judgment action brought by several of 3M's high-level, excess-layer, occurrence-based policy insurers. These insurers sought to clarify their coverage obligations in 3M's ongoing silicone gel breast implant mass tort litigation. The insurance policies at issue were in place from 1977 to 1985 and covered claims arising from injuries occurring during that time period. The implant claims for which 3M sought reimbursement were brought in the early 1990s, but were based largely on implantations that occurred during the policy periods, which implants allegedly caused various systemic autoimmune diseases. The Ramsey County District Court determined that the actual-injury trigger, for purposes of determining coverage liability, began at or around the time of implantation when silicone first leaked and came in contact with body tissue stimulating the immune system. The court found that the injury continued after implantation. The court then determined that 3M's losses should be allocated pro rata by time on the risk for the period from implantation through December 31, 1985, the end of the time period during which the policies were in place. The court also concluded that the insurers had breached their implied covenant of good faith and fair dealing and that 3M was entitled to reasonable attorney fees and costs as a result.
The court of appeals affirmed the district court's determinations that the alleged systemic autoimmune diseases constituted a continuing injury and that allocation was appropriate. The court, however, extended the end of the allocation period to the earlier date of the underlying plaintiff's claim or death. The court also reversed the award of attorney fees and costs, concluding that such a remedy is unavailable for this claim. Both sides to this dispute petitioned for and were granted review on the following issues: when and how policy coverage was triggered; whether allocation is appropriate and, if so, when the allocation period should end; whether the insurers are entitled to a judgment reduction; and whether attorney fees and costs are appropriate in this case. We affirm in part and reverse in part.
Between 1977 and 1985, 3M purchased significant amounts of occurrence-based insurance for product liability exposure. 3M purchased primary policies and ascending layers of excess coverage. The petitioner-insurers each provided high-level excess policy coverage, which means that their payment obligations arise only after judgments or settlements have exhausted the substantial primary and lower-level excess policies. Under these occurrence-based policies, coverage is determined by when the alleged bodily injury or property damage took place: all sums related to any such injury or damage that occurred during the policy period are covered by the policy, even if the claim is not asserted until after the end of the policy period.
In 1985, many manufacturers were forced to buy excess coverage in a new form—claims-made policies—which coverage is triggered by the date of the claim instead of the date the injury or damage occurred. These claims-made policies became the new form of excess coverage because product liability insurers no longer offered significant occurrence-based coverage. The claims-made policies were adopted primarily so that insurers could avoid the uncertainty often involved in occurrence-based policies under which insurers may not know the source or totality of their risks at the end of the policy period because claims can be made after expiration of the policy. Under a claims-made policy, insurers do not cover claims submitted after the end of the policy period, even if the injury underlying the claim arose during the policy period. The claims-made policies include a retroactive date that defines the earliest date the injury can have occurred in order for the policy to cover the resulting claim. The most significant difference between occurrence-based and claims-made policies is that occurrence-based policies can be triggered after the expiration of the policy period, while claims-made policies cannot. At the expiration of a claims-made policy, coverage available under the policy disappears.
3M's switch from occurrence-based to claims-made policies was designed to provide seamless coverage: the claims-made policies had retroactive dates that provided coverage immediately upon the expiration of the occurrence-based policies. Here, the district court found that there was no time during the relevant period that 3M was self-insured, uninsured, or, based on its claim history, underinsured. It found that 3M "sought to transfer its product liability risks to the maximum extent reasonably possible."
In 1992, 3M began to be named in thousands of complaints alleging that 3M's silicone gel breast implants caused various symptoms characteristic of a systemic autoimmune disease. The claims arose from injuries allegedly caused by breast implants manufactured by 3M between 1977 and 1984*fn2 and implanted between 1977 and 1985. 3M notified its claims-made insurers of the breast implant litigation in April 1992. In July 1993, 3M sent notice of the litigation to its occurrence-based policy insurers for the 1977-1985 period. Though 3M defended the claims on the ground that the underlying tort plaintiffs were unable to prove that the implants caused any of the alleged injuries, it eventually settled a class action suit. The petitioner-insurers have stipulated to the reasonableness of the 1995 settlement. While the class action was settled, 3M has continued to defend against and settle claims with the plaintiffs who opted out of the class settlement.
On September 22, 1994, three of 3M's occurrence-based excess policy insurers commenced this declaratory judgment action against 3M and joined most of 3M's claims-made insurers and other occurrence-based excess insurers to clarify coverage issues raised in the breast implant litigation. The joined occurrence-based excess policy insurers aligned themselves with the other three occurrence-based insurers and became the petitioner-insurers. These petitioner-insurers first sought a declaration that they had no duty to defend, but eventually sought a resolution of the trigger and allocation issues and resolution of the exhaustion requirement. 3M counterclaimed on the declaratory issues, brought claims against the petitioner-insurers alleging breach of contract and breach of the implied covenant of good faith and fair dealing, and asserted statutory and tort claims that were dismissed on motion.
Two of the claims-made insurers that the petitioner-insurers joined in the action, XL Capital Ltd. (XL) and A.C.E. Insurance Co, Ltd. (A.C.E.), moved for their dismissal based on an undertaking 3M had agreed to make in its claims-made policies with these insurers. The undertaking asserted that 3M would agree to a reduction in any judgment against petitioner-insurers if the court determined that XL and A.C.E. shared any common liability with petitioner-insurers. The undertaking thereby protected petitioner-insurers from having to pay losses properly allocated to XL and A.C.E. Agreeing that the undertaking rendered the petitioner-insurers' claims against XL and A.C.E. moot, the district court dismissed XL and A.C.E. from the action in June 1995.
The district court bifurcated the parties' claims into declaratory or non-jury issues and jury issues. In 1996, 1997, and 1999, the court conducted a series of hearings on a number of discrete issues. The first of these non-jury issues tried via bench trial was the question of when coverage was "triggered," and, if triggered, how 3M's losses should be allocated among the insurers. Both sides to the dispute moved for summary judgment on the issue of when actual injury occurred, but the court denied the motions and, in June and July 1996, held a medical trigger bench trial. On July 11, 1996, the court granted 3M partial declaratory judgment on this issue, stating the following:
1. Actual-injury occurs at or about the time silicone-gel breast prostheses are implanted in the body, and insurance coverage is "triggered" at that time.
2. Coverage is triggered continuously for all policies in effect at the time of implant, at the time of manifestation of systemic disease symptoms, and at all times in between those events.
The district court was later called upon to clarify its coverage trigger ruling, and it changed the end date of damages from "the time of manifestation of systemic disease symptoms" to "the earlier of the implant recipient's death, or the date on which the recipient files a lawsuit for damages." It also addressed allocation for the first time and stated that it would apply the "pro rata by time on the risk allocation method," which it later defined as follows: "An individual insurer's share of the damages is determined by multiplying the settlement or judgment amount by a fraction that has as its denominator the entire number of years of the claimant's injury, and as its numerator the number of years within the period when the policy was in effect."
In a later order, on July 14, 1997, the district court sua sponte vacated its coverage trigger and allocation order in light of Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724 (Minn. 1997), which case addressed the appropriate allocation method for environmental damage liabilities. The court determined that its earlier ruling that insurance was triggered continuously throughout the period between implantation and suit was inconsistent with the holding in Domtar, because "[w]here * * * a single, discrete occurrence can be identified, the continuous trigger has no applicability." Here, the court stated, the discrete occurrence was the cellular damage caused by the implantation, occurring at or about the time of implant, and "the cellular distortion occurring between implant and encapsulation, constituted the initial, original and precipitating injury." Accordingly, the new finding of the court was that "the implant when inserted into the body is the occurrence that triggers coverage."
Four months later, after receiving motions and memoranda from the parties, the district court again reversed itself and reinstated its earlier "continuous trigger" rulings. It did so because it concluded that its earlier "sua sponte" decision "was incorrect as a matter of fact and law," because the injury at issue is not one injury with continuous leakage, but a consistently recurring injury that takes place each time silicone comes in contact with new cells, creating a new bioreaction. The court went on to state, "It is impossible to tell when any particular injury occurs"; therefore, it deemed allocation to be appropriate.
In January 1998, the judge originally assigned to this case was appointed to another court and was replaced by a colleague from the same judicial district. 3M then moved to have the second judge clarify the allocation rulings, and the judge granted the motion. The second judge vacated the earlier orders as they related to allocation, and invited arguments as to the appropriateness of allocation after 1985. The second judge did not revisit the issue of whether allocation was appropriate in this case, but asserted that he did not believe the law required allocation. Nevertheless, the second judge declined to revisit this issue because the first judge already decided allocation was appropriate and because the second judge could "not say that [the first judge's] conclusion was palpably wrong." Accordingly, the second judge limited his inquiry to determining the appropriate allocation period and established the end date as December 31, 1985, the last day of the last year during which 3M could have purchased occurrence-based insurance. The court decided that allocating losses beyond 1985 for silicone implanted between 1977 and 1985 improperly shifted to 3M losses it had paid its occurrence-based insurers to cover, and would therefore be inequitable.
The district court next conducted a four-month jury trial on 3M's breach of contract claims and the petitioner-insurers' defenses. The first phase of the trial addressed the petitioner-insurers' coverage defenses, which the jury ultimately rejected. The second phase addressed 3M's breach claims. In January 2000, the jury returned its special verdict, which provided the following: 3M's notice to its occurrence-based insurers on July 28, 1993 was not unreasonably late; from July 28, 1993 through June 2, 1994, 3M did not fail to materially and substantially cooperate with the occurrence-based insurers; 3M made no misrepresentations with the intent to deceive and defraud the occurrence-based insurers; and any petitioner-insurers asserting a misrepresentation defense waived any prior misrepresentation defenses by continuing to insure 3M. 3M presented its case on the breach claims, and the court granted the petitioner-insurers a directed verdict on 3M's breach of contract, anticipatory breach, and breach of the implied covenants of good faith and fair dealing claims because 3M "failed to create a jury question for legally recognized consequential contract damages."
In its special verdict, the jury rejected all of the petitioner-insurers' defenses to liability, and the petitioner-insurers then moved to reduce the judgment against them by enforcing the undertaking 3M had made with the previously dismissed claims-made insurers XL and A.C.E. The district court determined that because XL and A.C.E. are not liable for damages arising from implants made before their coverage obligations began, these insurers have no common liability with the petitioner-insurers and allocating some of the judgment to them is inappropriate.
In September 2000, the district court awarded attorney fees and costs to 3M. The court apportioned liability for those costs among all the insurers that had been involved in the litigation, and appointed a referee to determine a reasonable amount. The court awarded attorney fees to 3M based on its findings that the petitioner-insurers breached the covenant of good faith and fair dealing. In a later order, after it was asked to address how the fees should be apportioned among insurers, the court determined that the petitioner-insurers acted individually and could not, therefore, be held jointly and severally liable as 3M requested. The court ordered apportionment of 3M's fees and costs among most of the insurers, including insolvent carriers and those carriers with whom 3M had already settled, and allocated the liability in proportion to policy limits.
Partial final judgment was entered in May 2001 and it included judgments totaling $169,340,679 against most of the remaining petitioner-insurers. The judgment was broken down as follows: $123,030,541 in indemnity costs; $22,456,112 in defense costs; and $23,854,026 in prejudgment interest. This amount did not include the reasonable attorney fees and costs awarded by the district court.
Several petitioner-insurers filed motions to amend the findings or grant judgment notwithstanding the verdict, all of which were denied. 3M also moved for amended findings, or alternatively a new trial on a number of grounds, and its motion was denied.*fn3 3M and the petitioner-insurers each appealed various orders of the district court. The court of appeals made the following rulings relevant to the issues before us: (1) it affirmed the ruling that the insurance policies are triggered by injuries occurring around the time of implantation; (2) it affirmed the ruling that 3M's losses be allocated "pro rata by time on the risk"; (3) it reversed the ruling that the allocation period ended on December 31, 1985 and determined instead that the allocation period should not end until the point at which the claim is filed or the plaintiff dies; and (4) it reversed the award of attorney fees and costs, stating that such ...