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Johnson & Johnson v. Aetna Cas. and Sur. Co.

December 11, 1995

JOHNSON & JOHNSON AND ORTHO PHARMACEUTICAL CORPORATION, PLAINTIFFS-APPELLANTS,
v.
AETNA CASUALTY AND SURETY COMPANY, THE NORTH RIVER INSURANCE COMPANY, NORTHBROOK INSURANCE COMPANY AND CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, DEFENDANTS-RESPONDENTS, AND MUTUAL FIRE, MARINE AND INLAND INSURANCE COMPANY AND MISSION INSURANCE COMPANY, DEFENDANTS.



On appeal from the Superior Court, Law Division, Somerset County.

Approved for Publication December 11, 1995.

Before Judges Havey, D'Annunzio & Braithwaite. The opinion of the court was delivered by Havey, P.j.a.d.

The opinion of the court was delivered by: Havey

The opinion of the court was delivered by HAVEY, P.J.A.D.

The question before us is whether excess liability policies issued by defendants to plaintiffs Johnson & Johnson (J&J) and Ortho Pharmaceutical Corporation (Ortho) afford coverage for punitive damage awards suffered by plaintiffs in two failure-to-warn, product liability actions. We conclude that the awards are not covered by the policies, since affording coverage on these facts would run counter to the underlying theory of punitive damages: to punish the wrongdoer and deter aggravated misconduct in the future. Insuring against the awards would therefore frustrate public policy. We accordingly affirm the summary judgment in favor of defendants.

Plaintiffs J&J and its subsidiary Ortho have their principal places of business in New Jersey. In 1976, defendants issued excess liability policies to plaintiffs under which the carriers have no liability to indemnify until the limits of an underlying liability policy are exhausted. In that event, defendants are subject to liability for a proportional share of J&J's "ultimate net loss" not to exceed $14 million. The Aetna policy provides indemnification against "EXCESS NET LOSS arising out of an accident or occurrence during the policy period." "EXCESS NET LOSS" is defined as that which the insured "becomes legally obligated to pay . . . as damages on account of any one accident or occurrence." The Central National policy indemnifies against "damages . . . on account of . . . personal injuries . . . caused by or arising out of each occurrence." The Northbrook and North River policies employ similar language.

During the terms of the policies, punitive damage verdicts were rendered against J&J and Ortho in two separate product liability actions, one in Kansas and one in Missouri. Both are the subjects of reported opinions. See Wooderson v. Ortho Pharmaceutical Corp., 235 Kan. 387, 681 P.2d 1038 (Kan.), cert. denied, 469 U.S. 965, 105 S. Ct. 365, 83 L. Ed. 2d 301 (1984); Racer v. Utterman, 629 S.W.2d 387 (Mo. Ct. App. 1981), appeal dismissed and cert. denied, 459 U.S. 803, 103 S. Ct. 26, 74 L. Ed. 2d 42 (1982). In Wooderson, supra, 681 P.2d at 1042-43, the plaintiff had taken an oral contraceptive manufactured by Ortho and developed renal failure, hemolytic uremic syndrome and hypertension. She claimed that Ortho failed to warn the medical profession of dangerous side effects of its product of which it had or should have had knowledge based on existing research and scientific literature. Id. at 1056-57. A special verdict interrogatory concerning punitive damages instructed the jury as follows:

If you find that plaintiff is entitled to recover, and you also find that the conduct of [Ortho] was wanton, then in addition to the actual damages to which you find plaintiff entitled, you may award plaintiff an additional amount as punitive damages in such sum as you believe will serve to punish defendant, [Ortho] and to deter others from like conduct.

[Emphasis added.]

The jury awarded plaintiff $2 million in compensatory damages and $2.75 million in punitive damages. The Kansas Supreme Court affirmed, finding that there was substantial evidence supporting the punitive damage award. Id. at 1064-65.

The plaintiff in Racer, supra, 629 S.W.2d at 391, was undergoing a dilation and curettage operation in which a disposable drape manufactured by J&J was being used. The drape caught fire during the surgical procedure and she was seriously burned. Ibid. The plaintiff claimed, and the court found, that the highly flammable surgical drape was an "unavoidably unsafe" product, and therefore unreasonably dangerous in the absence of appropriate warnings. Id. at 393-94; see Restatement (Second) of Torts § 402A (1963 & 1964). A jury question pertaining to punitive damages against J&J stated as follows:

If you find the issues in favor of Plaintiff . . . and against Defendant [J&J] and if you believe that the conduct of Defendant [J&J] as submitted . . . showed complete indifference to or conscious disregard for the safety of others, you may assess punitive damages in addition to any damages assessed . . . .

The amount of punitive damages assessed against Defendant [J&J] may be such sum as you believe will serve to punish Defendant [J&J] and to ...


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