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Suter v. General Accident Insurance Co. of America

March 28, 2006

KAREN L. SUTER, THE COMMISSIONER OF BANKING AND INSURANCE OF THE STATE OF NEW JERSEY, IN HER CAPACITY AS LIQUIDATOR OF INTEGRITY INSURANCE COMPANY, PLAINTIFF,
v.
GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Bassler, Senior District Judge

FOR PUBLICATION

MEMORANDUM OPINION

Plaintiff files this post-trial motion to exclude testimony of Defendant's expert, Dr. Jacob Haft, and Defendant files a similar motion to exclude testimony of Plaintiff's experts, Dr. Ian C. Gilchrist and Mr. John J. Bado*fn1 . For the reasons set forth below, Defendant's motion is DENIED with respect to Dr. Gilchrist and DENIED in part and GRANTED in part with respect to Mr. Bado. Plaintiff's motion is DENIED.

I. Background

As the facts of the matter before the Court are highly complex, and as they are laid out in their entirety in this Court's Opinion denying the parties' cross motions for summary judgment, a complete recitation is unnecessary at this time. See Suter v. General Accident Ins. Co. of America, No. 01-2686 (D.N.J. Sept. 30, 2004). For the purposes of this Opinion, a brief summary of the relevant facts and the parties' claims will suffice.

In 1979, the pharmaceutical company Pfizer acquired a medical manufacturer called Shiley. In that same year, the Food and Drug Administration ("FDA") approved a mechanical heart valve developed by Shiley. The valve was designed to replace a patient's own heart valve, in cases where the natural valve was diseased or deformed. The Shiley valve was sold on the American market until 1986, and was implanted in approximately 86,000 patients worldwide, including around 40,000 in the United States. Id. at 4.

Unfortunately for Shiley and Pfizer, and most unfortunately for many valve recipients, pieces of the valve (the "struts" that held in place the disc that opened and closed to regulate blood flow) would occasionally fracture. Fracture of both "legs"*fn2 holding the strut in place would lead to catastrophic injury, and in some cases, death. Id. at 5, 10. Thousands of Shiley valve recipients brought claims against Pfizer. The claims generally fell into one of three categories: fracture claims, based on valves that had actually failed, resulting in severe injury or death; anxiety claims, brought by recipients whose valves were still functioning, but who had suffered anxiety upon learning of the alleged defects; and re-operation claims, which were brought by the recipients who qualified (under predetermined medical criteria) to undergo a valve-removal operation. Id. at 10-11. Pfizer's liability resulting from the valve-related claims was in the range of hundreds of millions of dollars. Id. at 12.

The plaintiff appearing before the Court in this action is the Liquidator of the Integrity Insurance estate ("Integrity" or "Estate"). Prior to its insolvency, Integrity had insured Pfizer; Defendant General Accident had been Integrity's reinsurer. A reinsurance contract enables the reinsured (the original insuring entity) to transfer some part of its risk to another entity, the reinsurer. See id. at 3 (citing to N. River Ins. Co. v. Ace American Reinsurance Co., 361 F.3d 134, 137 (2d. Cir. 2004)). Plaintiff alleges that General Accident has failed to pay reinsurance due to Integrity, and General Accident contends that reinsurance payments are not due, as Integrity failed to determine in good faith whether the valve-related claims actually triggered coverage obligations under the reinsurance policy.

Whether Pfizer's claims were covered under its policies with Integrity (and thus should be reinsured by General Accident) turns in large part on the date in which the injury is determined to have occurred. The Integrity policies were "excess" policies, which were designed to cover only those liabilities that ran in excess of Pfizer's policies with its primary insurer, Transit Casualty Company ("Transit"). Suter, No. 01-2686, at 7. Under the Transit policies, and thus under the Integrity excess "follow form" policies, no coverage was triggered unless the injury or damage took place during the coverage period.*fn3 Id. Thus, the relevant question is, at what point can injury to the valve recipients be said to have occurred?

Plaintiff contends that bodily injury took place at the time the valve was implanted. Defendant, on the other hand, argues that there is no bodily injury until the struts actually fracture, and that Plaintiff's conclusion to the contrary was not made reasonably and in good faith. Defendant thus claims it is under no obligation to indemnify Integrity. Not surprisingly, each side has an expert whose testimony supports its conclusion. These post-trial motions, then, represent each side's effort to exclude certain testimony of the other party's experts.

Because the primary thrust of each side's motion is to bar testimony tending to show that injury occurred or did not occur at a given moment in time, before the Court reaches a discussion of the motions, it first addresses Plaintiff's contention that the In re Silicone Implant Insurance Coverage Litigation opinion, 667 N.W.2d 405 (Minn. 2003), compels the conclusion that injury must be assumed as of the date of implant. Plaintiff's Brief in Opposition to Defendant's Motion to Preclude (hereinafter Pl. Opp. Br.) at 8. If the Court finds this opinion as persuasive as Plaintiff does, the question of whether to admit the related expert testimony becomes moot.

II. The In re Silicone Litigation

In In re Silicone, the Supreme Court of Minnesota sought to clarify the coverage obligations of several high-level excess insurance carriers with regard to the insured, 3M, the manufacturer of silicone gel breast implants that had been the subject of ongoing mass tort litigation. Id. at 409. While 3M had defended against the mass tort claims on the grounds that claimants were unable to prove a causal connection between the alleged injury (symptoms characteristic of systemic autoimmune disease) and the implants, 3M nonetheless settled the class action suit. Id. at 410. The insurers then brought a declaratory judgment action, in which they sought to determine, inter alia, the date at which coverage was triggered by the occurrence of actual injury, i.e., whether injury occurred during the coverage period. Id. at 411.

At a bench trial, the district court concluded that, although there was no medically or scientifically accepted causal relationship between the implants and the alleged injury, it was willing to assume for the purposes of the insurance litigation that an injury in fact occurred. Id. at 413. It furthermore found that, although many plaintiffs did not begin to experience symptoms until after the expiration of insurance coverage, the injury actually occurred at the time of implant, as "[l]eaked silicone is in contact with body tissues from the time of implant until the formation of a protective capsule, a period of several weeks." Id. at 414. Since the silicone comes into contact with cells during that period, the district court found that it was "more likely than not ... the period at which cellular abnormality is produced. ... Such cellular damage is determinable, constitutes the underlying bodily harm without which there would be no manifestation in the form of disease symptoms, and satisfies the 'actual injury' legal standard for trigger." Id.

The insurers argued that these alleged cellular injuries were fictional, and thus unable to trigger coverage under the policies. Id. at 416. The Supreme Court of Minnesota affirmed the district court's conclusion, however, stating that, since the underlying settlement was premised on the notion that the implants caused the injuries, it was fair for the district court to assume that injuries had, in fact, occurred, even in the absence of medical evidence proving causation. Id. Since the finding that cellular injuries occurred was based on the assumption that some injury had occurred, the insurers were essentially estopped from arguing that the cellular injuries were fictional. Id. And, "as the insurers concede, they cannot at this post-settlement stage of the proceedings deny coverage for the losses 3M incurred in its settlement on the theory that the silicone did not injure the plaintiffs." Id.

As the settlement underlying the present action (Bowling v. Pfizer Corp., see Pl. Opp. Br. at 5) was premised in part on the notion that the valves caused injury prior to the moment of fracture (the "anxiety" claims, as discussed supra Part I), Plaintiff argues that In re Silicone compels the Court to presume injury prior to fracture in this case as well. Pl. Opp. Br. at 9; see also Plaintiff's Brief in Support of Its Motion to Preclude (hereinafter Pl. Br.) at 17 ("Because a settlement has already been reached on this underlying issue [Defense expert]

Dr. Haft cannot, at this post-settlement stage of the proceedings, opine that patients who have been implanted with defective ... valves are not injured until after they suffer catastrophic valve failure. Rather, as set forth in the In re Silicone case, injury must be assumed...").

Leaving aside the fact that the Minnesota state court's decision does not bind this Court, Plaintiff's contention is untenable on the grounds that it ignores the distinction between In re Silicone and the present case. The settlement in In re Silicone was premised on there having been an injury upon implant - the leaking of silicone into the recipient's body, and its reaction with cells, which would lead to further complications. 667 N.W.2d at 416. In the Bowling settlement, the "anxiety" claims were premised not on the notion that a bodily injury had occurred at implant, but rather that an emotional injury had occurred: valve recipients were forced to live in fear that their valves were suddenly and without warning going to fracture. Pl. Opp. Br. at 6. Since no bodily injury was presumed by the settlement, no bodily injury need be assumed here, and expert testimony assisting the Court in its determination of the time of injury is relevant. The Court therefore proceeds to the questions raised by the parties' renewed motions to exclude.

III. Defendant's Motion

A. The Testimony Of Dr. Gilchrist

Plaintiff's expert, Dr. Ian C. Gilchrist, has had experience with the Shiley valve since ...


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