Stryker Corporation v. National Union Fire Insurance , 681 F.3d 819 ( 2012 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 12a0169p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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X
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STRYKER CORPORATION and
Plaintiffs-Appellees/Cross-Appellants --
HOWMEDICA OSTEONICS, CORPORATION,
(11-1116 & 11-1174), -
Nos. 11-1116/1174
,
>
-
-
v.
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NATIONAL UNION FIRE INSURANCE CO. OF
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Defendant, -
PITTSBURGH, PA,
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-
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XL INSURANCE AMERICA, INC.,
Defendant-Appellee (11-1116), -
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-
-
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TIG INSURANCE COMPANY,
Defendant-Appellant (11-1116), -
Defendant-Appellant/Cross-Appellee -
(11-1174). -
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N
Appeals from the United States District Court
for the Western District of Michigan at Grand Rapids.
No. 1:05-cv-51—Robert Holmes Bell, District Judge.
Argued: April 10, 2012
Decided and Filed: June 5, 2012
Before: GUY, COLE, and ROGERS, Circuit Judges.
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COUNSEL
ARGUED: Carlos Del Carpio, MECKLER BULGER TILSON MARICK & PEARSON
LLP, Chicago, Illinois, for Appellant. Jonathan D. Hacker, O’MELVENY & MYERS
LLP, Washington, D.C., David J. Gass, MILLER JOHNSON, Grand Rapids, Michigan,
for Appellees. ON BRIEF: Carlos Del Carpio, MECKLER BULGER TILSON
MARICK & PEARSON LLP, Chicago, Illinois, Carole D. Bos, BOS & GLAZIER,
PLC, for Appellant. Jonathan D. Hacker, O’MELVENY & MYERS LLP, Washington,
1
Nos. 11-1116/1174 Stryker Corp., et al. V. Nat’l Union Fire Ins., et al. Page 2
D.C., Michael W. Betz, David J. Bloss, BLOSS BETZ, Grand Rapids, Michigan, Paul
R. Koepff, CLYDE & CO., New York, New York, David J. Gass, D. Andrew Portinga,
J. Michael Smith, MILLER JOHNSON, Grand Rapids, Michigan for Appellees.
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OPINION
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COLE, Circuit Judge. As part of a large, consolidated coverage action, medical
device manufacturer Stryker Corporation (“Stryker”) filed suit against TIG Insurance
Company (“TIG”), which had issued an excess insurance policy to Stryker. Stryker
asserts that TIG is potentially liable for sums stemming from two separate actions
relating to expired artificial knee joints manufactured by Stryker. TIG argues that prior
rulings render Stryker’s claims moot as to the TIG policy, and that TIG was not bound
by the district court’s rulings in the companion case. The district court held that the
potential liability under the TIG policy negates TIG’s mootness argument. For the
reasons set out below, we AFFIRM in part, REVERSE in part, and REMAND the case
for further proceedings consistent with this opinion and the opinion in the companion
case.
I. BACKGROUND1
A. The TIG Excess Policy
TIG issued an excess policy to Stryker for the 2000 policy year (“the TIG
policy”). The policy provided $25 million in coverage per occurrence and in the
aggregate. Coverage attached above the underlying umbrella policy, issued by
Winterthur International America (now known as XL Insurance America, Inc.) and
containing a limit of liability of $15 million (“the XL policy”). The TIG policy
obligated TIG to cover Stryker’s “ultimate net loss in excess of all underlying insurance
and only after all underlying insurance has been exhausted by the payment of the limits
1
For a complete factual background of the Stryker I and II cases, see Stryker Corp. et al. v. XL
Insurance America, Inc, Case Nos. 09-2332 & 10-2383 (“the companion case”). This opinion discusses
only those facts directly related to the TIG policy.
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of such insurance . . . .” In addition, the TIG policy states “[t]he Definitions, Terms,
Conditions, Limitations, and Exclusions of the ‘first policy of underlying insurance’ .
. . apply to this coverage unless they are inconsistent with the provisions of this policy
. . . .”
B. The Stryker II Litigation
Stryker filed suit against XL in the Western District of Michigan on October 4,
2001, seeking defense and indemnification for claims against Stryker related to expired
Uni-Knees under the XL policy (“Stryker I”). Soon after, Pfizer brought suit against
Stryker in the Southern District of New York, alleging that Stryker was obligated to
indemnify Pfizer against claims brought against Pfizer related to the Uni-Knees,
pursuant to the stock and asset purchase agreement between the companies (“the
Agreement”). That court eventually granted summary judgment in favor of Pfizer,
holding that Stryker was required to indemnify Pfizer under the Agreement. See Pfizer
Inc., v. Stryker Corp., 348 F. Supp. 2d 131, 159 (S.D.N.Y. 2004). When XL denied
coverage for that claim as well, Stryker filed suit against its primary and excess insurers,
seeking coverage relating to Stryker’s obligations to Pfizer pursuant to the asset purchase
agreement between Pfizer and Stryker. In its complaint, Stryker asserted breach of
contract claims against XL for failing to defend and indemnify under the XL policies,
and sought a declaratory judgment that XL was liable under the XL policy to indemnify
Stryker for its losses. Stryker also sought a declaratory judgment against TIG, stating
that
Pfizer’s claim against Stryker for indemnification in the Pfizer v. Stryker
case, when added to other defense and indemnity payments made by
Plaintiffs for the Underlying Claims and Actions, will exhaust the limits
of the [XL policy]. TIG has an obligation to cover any loss in excess of
the primary umbrella policies.
On August 29, 2008, the district court issued an opinion and order, holding that
XL was liable for Stryker’s liabilities stemming from the Pfizer judgment. The district
court also granted a declaratory judgment with regard to TIG, stating “[a]s the Court has
determined that Plaintiffs are entitled to summary judgment with respect to [XL] and the
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2000 TIG Excess Policy follows the form of the 2000 [XL] Policy, it necessarily follows
that Plaintiffs are entitled to summary judgment against TIG.” TIG filed a motion for
reconsideration, arguing that it could not be subject to issue preclusion related to any
findings in the Stryker I ruling because it was not a party to that litigation. The district
court denied the motion, holding that it had already rejected TIG’s arguments on
preclusion, but issued an amended judgment to clarify certain portions of the original
opinion. Stryker Corp. v. National Union Fire Ins. Co of Pittsburgh, PA et al., No. 1:05-
cv-051-RHB, 2009 WL 56292, at *12 (W.D. Mich. Jan. 8, 2009) (“the Stryker II
Coverage Opinion”).
XL subsequently settled the Pfizer claims directly with Pfizer, and sought a
ruling from the district court that this settlement satisfied its obligations under Stryker
II. The district court granted XL’s motion. Stryker sought pre-judgment interest from
XL relating to the settlement, which was denied, and the district court entered a final
judgment. TIG then moved to amend the final judgment to remove the declaratory
judgment ruling against it, arguing that the district court’s ruling that XL was responsible
for both the Stryker I judgment and the Pfizer settlement made it impossible to subject
TIG to liability, and thus mooted the declaratory judgment ruling. The district court
denied this motion and issued an Addendum to the Final Judgment that clarified that all
previous orders were still in effect.
TIG appealed the district court’s rulings on issue preclusion, as well the district
court’s ruling that the case was not moot as to TIG. Stryker cross-appealed on the denial
of pre-judgment interest stemming from the Pfizer settlement.
II. ANALYSIS
A. General Insurance Principles and Standard of Review
Michigan law, which governs the substantive issues in the case, treats insurance
contracts in the same manner as other contracts. Rory v. Cont’l Ins. Co., 703 N.W.2d 23,
26 (Mich. 2005). Therefore, a court should “give contractual language that is clear and
unambiguous full effect according to its plain meaning unless it violates the law or is in
Nos. 11-1116/1174 Stryker Corp., et al. V. Nat’l Union Fire Ins., et al. Page 5
contravention of public policy.” Westfield Ins. Co. v. Ken’s Service, No. 300941, 2012
WL 752038 (Mich. Ct. App. Mar. 8, 2012). “Under Michigan law, exclusion clauses
and ambiguous provisions in insurance policies are strictly construed against the
insurer.” Northland Ins. Co. v. Stewart Title Guar. Co., 327 F.3d 448, 455 (6th Cir.
2003).
A declaratory judgment may be issued by the district court to “declare the rights
and other legal relations of any interested party seeking such declaration.” Severe
Records, LLC v. Rich, 658 F.3d 571, 580 (6th Cir. 2011) (quoting 28 U.S.C. § 2201).
We review de novo the district court’s grant of summary judgment to Stryker on its
declaratory judgment cause of action. Allstate Ins. Co. v. Thrifty Rent-A-Car Sys., Inc.,
249 F.3d 450, 453 (6th Cir. 2001). “Summary judgment is proper if the materials in the
record ‘show [ ] that there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.’” Lefevers v. GAF Fiberglass Corp., 667 F.3d
721, 723 (6th Cir. 2012) (quoting Fed. R. Civ. P. 56(a)).
B. Mootness
TIG argues that Stryker’s case against it is moot in light of the district court’s
rulings on the XL policy. An appeal is moot “if events have taken place during the
pendency of the appeal that make it impossible for the court to grant any effectual relief
whatever.” Coal. for Gov’t Procurement v. Fed. Prison Indus., Inc., 365 F.3d 435, 458
(6th Cir. 2004) (internal quotation marks and citations omitted). In two separate
opinions, the district court held that XL was liable for the entire amount of Stryker’s
obligations to Pfizer, as well as the entire amount of Stryker’s liability and costs
associated with tort claims brought directly against Stryker. Those two categories, TIG
argues, represent all of the claims at issue in Stryker I & II, leaving no basis for a court
to grant relief to Stryker as to TIG.
TIG’s argument is grounded entirely in the district court’s rulings on the
exhaustion of the XL policy. For the reasons set out fully in the companion case, the XL
policy can be exhausted by the payment of the Pfizer settlement. See Slip Op. at pgs.
11–12. To the extent that the policy is exhausted, TIG may be liable for amounts in
Nos. 11-1116/1174 Stryker Corp., et al. V. Nat’l Union Fire Ins., et al. Page 6
excess of the limits of the XL policy. Thus, the case is not moot based on the district
court’s rulings on the exhaustion of the XL policy.2
TIG also argues that the case is moot because Stryker II concerns only costs
associated with Pfizer, and XL has entirely satisfied the Pfizer claim when it settled with
Pfizer. As a result, according to TIG, there are no remaining claims in Stryker II that
could generate liability for TIG. TIG misreads the district court’s opinion, as well as the
underlying complaint in Stryker II. TIG is correct that Stryker II, as to XL, relates only
to the Pfizer claim. But as to TIG, Stryker’s complaint encompasses any claim which
would be in excess of the XL policy, not simply the Pfizer claim. Because the
complaint, and the corresponding relief granted by the district court, contemplates
imposing liability on TIG related to the Stryker I claims, this appeal is not moot as to
TIG.
C. Preclusion
TIG also argues that it may not be precluded from arguing on remand that it is
not bound by the coverage rulings in Stryker I (and, by extension, our rulings in the
companion case). Preclusion consists of two conceptually distinct doctrines: claim
preclusion and issue preclusion. Taylor v. Sturgell, 553 U.S. 880, 892 (2008).3 “Under
the doctrine of claim preclusion, a final judgment forecloses ‘successive litigation of the
very same claim, whether or not relitigation of the claim raises the same issues as the
earlier suit.’” Id. (quoting New Hampshire v. Maine, 532 U.S. 742, 748 (2001)). “Issue
preclusion, in contrast, bars ‘successive litigation of an issue of fact or law actually
litigated and resolved in a valid court determination essential to the prior judgment,’
even if the issue recurs in the context of a different claim.” Id. (quoting New Hampshire,
532 U.S. at 748-49).
2
We need not reach TIG’s argument that the district court’s Addendum to the Final Judgment was
an inconsistent ruling and/or an advisory opinion. As we are remanding to the district court for
reconsideration the exhaustion of the XL policy, we are necessarily vacating the portion of the district
court’s rulings that TIG argues is inconsistent with the declaratory judgment, as well the portion of
declaratory judgment that TIG argues is advisory.
3
Contrary to TIG’s contention, “[t]he preclusive effect of a federal-court judgment is determined
by federal common law.” Sturgell, 553 U.S. at 891.
Nos. 11-1116/1174 Stryker Corp., et al. V. Nat’l Union Fire Ins., et al. Page 7
As a threshold matter, Stryker argues that TIG’s preclusion arguments are
waived. According to Stryker, TIG shifted gears in its motion for reconsideration of the
Stryker II Coverage Opinion and argued for the first time that it was not bound by the
Stryker I Coverage Opinion. Relying on Scottsdale Insurance Co. v. Flowers, 513 F.3d
546, 553 (6th Cir. 2008), Stryker argues that an issue raised for the first time in a motion
for reconsideration is not preserved for appeal. In the motion for reconsideration,
however, the district court held that it had rejected TIG’s estoppel arguments in its
original ruling on declaratory judgment. Thus, TIG did bring preclusion arguments in
the court below, and the issue is preserved for review.
Preclusion bars some, but not all, of TIG’s coverage arguments. TIG was never
a party in Stryker I, nor did TIG ever attempt to intervene in the Stryker I action.
However, TIG did attempt to file a separate declaratory judgment action against Stryker
for the purpose of asserting that it had no liability for the Stryker I judgment. See TIG
Ins. Co. v. Stryker Corp. et al., Case No. 1:09-cv-156-RHB, 2009 WL 3255550 (W.D.
Mich. Oct. 7, 2009) (“Stryker III”). The district court dismissed the case, and TIG never
appealed the dismissal. Therefore, claims raised by TIG in the Stryker III action are
subject to claim preclusion and TIG is barred from relitigating them. For example, TIG
notes in its brief that it would seek to litigate the allocation of losses between the
1999 and 2000 policy periods. But TIG itself raised that issue in Stryker III, received
an adjudication on the merits from the district court, and then never appealed the district
court’s ruling. Id. at * 4. Thus, TIG may not raise these issues again on remand.
With regard to potential defenses not previously raised by TIG, issue preclusion
does not apply. In order for issue preclusion to apply to those rulings, the party seeking
estoppel must show:
(1) the precise issue raised in the present case must have been raised and
actually litigated in the prior proceeding; (2) determination of the issue
must have been necessary to the outcome of the prior proceeding; (3) the
prior proceeding must have resulted in a final judgment on the merits;
and (4) the party against whom estoppel is sought must have had a full
and fair opportunity to litigate the issue in the prior proceeding.
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Pfeil v. State St. Bank & Trust Co., 671 F.3d 585, 601 (6th Cir. 2012) (internal quotation
marks and citations omitted). The first three prongs of the issue preclusion test clearly
can be met. Because the TIG policy “follows form” to the XL policy, the Stryker I
coverage rulings are directly controlling on the interpretation of the TIG policy, and
therefore the rulings in Stryker I are precisely the same issues that would be litigated
under the TIG policy. The Stryker I coverage rulings were at the heart of the district
court’s determination in Stryker I (as opposed to in the alternative), and resulted
ultimately in a final judgment.
The fourth prong cannot be met, because TIG is not in privity with XL. See
United States v. Vasilakos, 508 F.3d 401, 406 (6th Cir. 2007) (“Judgments are preclusive
only as to parties and their privies.”) (citing Montana v. United States, 440 U.S. 147, 153
(1979)). “Privity is limited to ‘a successor in interest to the party, one who controlled
the earlier action, or one whose interests were adequately represented.’” Id. (quoting
Sanders Confectionery Prods., Inc. v. Heller Fin., Inc., 973 F.2d 474, 481 (6th Cir.
1992)). The district court concluded that privity existed by virtue of the “follow-form”
nature of the TIG policy, as well as TIG’s assertion that coverage under the TIG policy
was tied to coverage under the XL policy. In other words, because the interpretation of
the TIG policy was tied to the interpretation of the XL policy, XL “adequately
represented” TIG’s interests. However, “adequate or ‘virtual’ representation . . . requires
an express or implied legal relationship in which parties to the first suit are accountable
to non-parties who file a subsequent suit raising identical issues.” Becherer v. Merrill
Lynch, Pierce, Fenner,& Smith, Inc., 193 F.3d 415, 423 (6th Cir. 1999) (en banc)
(internal quotation marks and citations omitted) (emphasis in original); see also Sturgell,
553 U.S. at 894-95 (defining adequate representation to include class action scenarios
and “suits brought by trustees, guardians, and other fiduciaries”). At no point did TIG
and XL enter into a relationship in which XL was accountable to TIG for the litigation
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choices it was making in Stryker I. Accordingly, TIG is not in privity with XL, and is
not precluded from raising its own defenses to coverage on remand.4
D. Stryker’s Cross-Appeal
Stryker cross-appealed the district court’s denial of its motion for pre-judgment
interest on XL’s Pfizer settlement. Stryker stated in its brief that it was declining to
pursue this appeal against TIG. Nevertheless, Stryker asserts that any pre-judgment
interest that it is not able to recoup from XL in light of the panel’s rulings in the
companion case should be borne by TIG as an excess insurer. This is incorrect.
Stryker’s argument is premised on the notion that it has a right to pre-judgment interest
as compensation for the delays in paying claims. However, “[t]he purpose of the penalty
interest statute is to penalize insurers for dilatory practices in settling meritorious claims,
not to compensate a plaintiff for delay . . . .” Arco Indus. Corp. v. Am. Motorists Ins.
Co., 594 N.W.2d 74, 76 (Mich. Ct. App. 1998), rev’d on other grounds by Griswold
Props., LLC v. Lexington Ins. Co., 741 N.W.2d 549, 555 (Mich. Ct. App. 2007). Stryker
has not alleged that TIG has engaged in “dilatory practices” with regard to paying
claims. Indeed, Stryker currently argues that TIG has no obligation to Stryker at all.
Therefore, Stryker has a right to pre-judgment interest from XL, and only XL. Thus,
Stryker may not attempt on remand to hold TIG liable for any pre-judgment interest that
has been imposed thus far in this case.
III. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s ruling that the case
is not moot, REVERSE the district court’s ruling that TIG is precluded from raising
coverage defenses on remand, and REMAND the case for further proceedings in light
of this opinion.
4
We note, however, that the TIG policy follows-form to the underlying XL policy, and
incorporates all the same terms and conditions of the XL policy. Though we conclude that TIG is not
precluded from raising coverage defenses on remand, we do not mean to suggest that the district court
should interpret the portion of the TIG policy that incorporates the XL language differently from the
interpretation of the XL policy itself. The TIG policy contains other provisions that do not incorporate
language from the XL policy, and those provisions might generate coverage defenses that are unique to
the TIG policy.