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January 6, 1983

SANDOZ, INC., Plaintiff,
EMPLOYER'S LIABILITY ASSURANCE CORP., (presently known as Employer's Commercial Union Insurance Co.), EMPLOYER'S COMMERCIAL INSURANCE CO., and HARTFORD ACCIDENT & INDEMNITY CO., Defendants

The opinion of the court was delivered by: SAROKIN

 Despite the advances in science and technology, certain products thought to be safe have proved to be dangerous, and in some instances, deadly. The effects may not be known until years and even generations later. Many such products were placed in the stream of commerce in the honest belief that they were safe. Their sale frequently, but not always, followed careful research and development.

 As a result, the concept of strict liability has arisen. It is predicated upon a rational allocation of the risk. As between the producer and the innocent consumer, the producer, even if careful and cautious, has been required to bear the losses sustained. Implicit in its sale of a product in the marketplace is the assurance that it is safe to use. If that assurance proves to be wrong and the consumer has been injured, absent an adequate warning, the manufacturer of the dangerous or defective product is held responsible.

 Industry, in recognition of the obligation imposed upon it, has sought means to protect itself against such claims and invariably has relied upon insurance. With the growth of claims that have taken years to manifest themselves and the size of the class of potential claimants, many insurance companies faced with such claims have run for cover rather than coverage. The small print suddenly has been magnified, and insurance companies can be seen scurrying about the courts of this country in search of ways to avoid honoring their policies. That is not to say that all efforts at avoidance are without merit, but there is a direct relationship between the potential size of the claims and the inventiveness of the carriers in denying coverage.

 The court recognizes the potential financial devastation faced by many insurance companies if required to provide coverage for these long, undetected, festering injuries. However, neither the number of claims nor their total value is a valid consideration in determining the existence of coverage. Indeed, in the case of insurance companies, as compared to those that they insure, this is the very risk which they undertook. It is the foundation and justification for their existence. The presumption should be in support of coverage, rather than its rejection. How the insurance carriers deal with these mass claims is a valid test of the integrity of the insurance industry.


 This action is based on a series of comprehensive general liability (hereinafter "CGL") insurance policies issued to Sandoz by the defendants, Employer's Liability Assurance Corporation, Employer's Commercial Union Insurance Company and Hartford Accident & Indemnity Company, over a period of more than twelve years. Plaintiff, a Delaware corporation with its principal place of business in East Hanover, New Jersey, was known prior to July 1, 1974 as Sandoz-Wander, Inc. Sandoz is engaged in the manufacture and sale of pharmaceutical products, including the prescription drugs Mellaril and Sansert.

 Defendant, Employer's Liability Assurance Corporation, was an insurance company incorporated in the State of Massachusetts whose principal place of business was located in Boston, Massachusetts. After first changing its name to ELAC Insurance Company, Ltd. it later merged with Employer's Commercial Union Insurance Company (hereinafter "Commercial Union"), also a Massachusetts insurance company with its principal place of business in Boston.

 Defendant Hartford Accident & Indemnity Company is an insurance company incorporated in the State of Connecticut whose principal place of business is located in Hartford, Connecticut.

 From January 1, 1963 through March 23, 1975 Sandoz obtained successive policies of insurance providing product liability coverage. These policies were issued by Commercial Union for periods extending from January 1, 1963 through January 1, 1973 and by Hartford for periods extending from January 1, 1973 through March 23, 1975. Thereafter plaintiff had no insurance which would compensate it for the damages sought in this action. Otherwise virtually identical with the Commercial Union policies, the Hartford policies had a $50,000.00 deductible only as to the drug Sansert.

 Each of these policies was of the standard CGL type. The coverage language in these policies was very similar and stated typically:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury . . . to which this insurance applies, caused by an occurrence . . .

 The insuring agreement stated further that "this insurance applies only to bodily injury . . . which occurs during the policy period." "Bodily injury" was defined as "bodily injury, sickness or disease sustained by any person" and "occurrence" was defined as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury . . . neither expected nor intended from the standpoint of the insured."

 A. Daniels' Claim

 On June 23, 1978, Zack L. Daniels and Pearl Daniels, his wife, instituted suit in the United States District Court for the Northern District of Florida against Sandoz and a co-defendant physician Brooks. The complaint alleged that Mr. Daniels had ingested the Sandoz drug Mellaril from sometime in 1965 until late 1975, and as a result thereof, developed tardive dyskinesia, the symptoms of which were brought to defendant Brooks' attention in early 1975. The complaint further alleged that not until Mr. Daniels consulted a physician other than Dr. Brooks in September 1975 was his condition correctly diagnosed.

 Hartford entered a defense for Sandoz in the Daniels matter with a reservation of its rights and notified the insured that it would only contribute to any judgment or settlement a pro-rated portion based on the length of its policy period, as compared to the total duration of the exposure to the drug Mellaril.

 Commercial Union was advised of the coverage problem concerning the Daniels claim against Sandoz, but refused to participate in the defense and denied any obligation to contribute to any judgment or settlement on the basis that no injury had occurred during its policy period.

 While there is no dispute among the parties that outward manifestation of Daniels' disease occurred well before the uninsured period, there is disagreement as to whether manifestation occurred during Commercial Union's policy period or during Hartford's policy period. For purposes of this motion, however, the parties have agreed to limit the issues to the interpretation of the policy language, leaving the determination, if necessary, of the factual question of the exact date of manifestation for another day.

 B. Huggs' Claim

 On March 15, 1976, Joseph Wayne Huggs brought suit in the District Court of Harris County, Texas, against a physician and a pharmacy alleging injury following ingestion of the Sandoz drug Sansert for several years prior to August 1975. It was further alleged that, as a result of ingesting Sansert, Mr. Huggs became seriously ill and in August of 1975 was diagnosed to be suffering from "granuloma of the left lower lobe of lung" and from "fibrous plakue of diaphragm" for which he underwent surgery on August 29, 1975. The Huggs complaint was amended on August 18, 1976 to name Sandoz and another pharmacy as additional defendants. The complaint alleged ingestion of the drug from early 1965 until August of 1975. Neither the pleadings nor the pretrial discovery in the Huggs case establish the appearance of outwardly visible clinical symptoms prior to March 23, 1975, the expiration date of the last Hartford policy.

 Again Hartford entered a defense for Sandoz paying for all fees and disbursements and notified the insured that it would only indemnify Sandoz on a pro-rated basis. Likewise, Commercial Union declined to become involved on the basis that no bodily injury had occurred during its policy period.

 The Huggs lawsuit was settled as against Sandoz for the sum of $10,000.00. As a result of the deductible clause with regard to Sansert in the Hartford policies and the refusal of Commercial Union to become involved in the Huggs matter, the entire settlement amount was paid by Sandoz.

 In both the Daniels and the Huggs litigations counsel for Sandoz was selected by Hartford and no party to the present action disputes the fairness and reasonableness of either the settlement amounts paid to the claimants or the legal fees and disbursements incurred by the defense.

 Plaintiff Sandoz brought this action to recover on the policies issued by Hartford and Commercial Union. In part, plaintiff seeks a declaration of the respective obligations of these insurers to indemnify it for the amounts paid in settling the Daniels and Huggs suits. Sandoz now moves for partial summary judgment, declaring that both insurers are jointly and severally liable to Sandoz to the full extent of its losses. Commercial Union cross-moves for partial summary judgment, for a declaration that only the insurer whose policy is in effect at the time the injury is manifested is liable under ...

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