National Union Fire Insurance v. Mead Johnson & Company LLC
735 F.3d 539
7th Cir.2013Background
- Mead Johnson purchased a $2M primary CGL policy from National Union and a $25M excess policy from Lexington; insurers sought declaratory judgments denying coverage for two suits.
- PBM sued Mead (2009) for false advertising/product disparagement seeking ~$500M; jury awarded $13.5M. Mead notified insurers only after trial verdict.
- Mead also settled a consumer class-action alleging consumer fraud for about $15M and timely notified National Union about that claim.
- National Union's policy had separate notice rules for "occurrence" and for "claim or suit," plus an endorsement requiring notice to the Director of Risk Management for occurrences; Lexington’s excess policy required notice only when a suit was "reasonably likely" to exceed the primary limit.
- Insurers moved for summary judgment; district court granted them. On appeal, the Seventh Circuit reversed in part (PBM matter) and affirmed in part (class-action matter), and remanded the PBM coverage denial for factual development on insurer prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was Mead’s post-trial notice to insurers untimely and excused? | Mead: endorsement limited notice-for-occurrence to Risk Manager; claim/suit notice not tied to Risk Manager, and Lexington’s excess notice wasn’t triggered until verdict made excess coverage "reasonably likely." | Insurers: notice was inexcusably late; large claim and prior litigation put Mead on notice earlier; endorsement doesn’t shelter hiding a suit. | Court: Mead’s late notice was inexcusable; the Risk Manager endorsement does not extend to claims/suits; Lexington’s "reasonably likely" argument rejects Mead’s delay. |
| May insurers deny coverage for untimely notice without showing prejudice? | Mead: presumption of prejudice is rebuttable; even very late notice can be harmless. | Insurers: post-trial notice irrevocably deprives them of control and should be outcome-determinative. | Court: Under Indiana law the presumption of harm is rebuttable; late notice raises a presumption but insurer must show prejudice; remand for factual development on prejudice re: PBM. |
| Did National Union suffer prejudice from Mead’s late notice in PBM litigation? | Mead: insurer would not have done materially better; same law firm would have been used; insurer not prejudiced. | National Union: claims prejudice from loss of defense control and exposure to multi-million judgment. | Court: On limited record, insurer didn’t show concrete prejudice for the $2M primary—remanded for factual inquiry; Lexington’s potential prejudice remains unresolved. |
| Does the class-action consumer fraud claim "arise out of" product disparagement and trigger coverage? | Mead: "arising out of" should be read broadly; consumer fraud damages flowed from its product disparagement so covered. | National Union: class claim alleges consumer fraud (not product disparagement); coverage for product disparagement doesn’t extend to remote consequences or distinct torts. | Court: Affirmed for insurer—class action is consumer fraud, not a product disparagement claim within the policy; "arising out of" requires proximate connection and cannot be read so broadly. |
Key Cases Cited
- Lockwood Int l, B.V. v. Volm Bag Co., 273 F.3d 741 (7th Cir. 2001) (insurer’s fiduciary duties when controlling defense and settlement)
- PBM Products, LLC v. Mead Johnson & Co., 639 F.3d 111 (4th Cir. 2011) (underlying false-advertising verdict against Mead)
- Miller v. Dilts, 463 N.E.2d 257 (Ind. 1984) (Indiana law: presumption of prejudice from late notice is rebuttable)
- Republic-Franklin Ins. Co. v. Silcox, 92 F.3d 602 (7th Cir. 1996) (discussing insurer prejudice from late notice under Indiana law)
- BASF AG v. Great American Assurance Co., 522 F.3d 813 (7th Cir. 2008) (refusing to stretch coverage by importing distinct torts into covered offenses)
- Del Monte Fresh Produce N.A., Inc. v. Transportation Ins. Co., 500 F.3d 640 (7th Cir. 2007) (claim that fits legal definition of disparagement triggers coverage even if magic words absent)
- Westfield Ins. Co. v. Herbert, 110 F.3d 24 (7th Cir. 1997) (Indiana-law limits on expansive readings of "arising out of")
- Lozier v. Auto Owners Ins. Co., 951 F.2d 251 (9th Cir. 1991) (insurer potential liability for inadequate defense and fiduciary obligations)