Stryker Corp. v. National Union Fire Insurance Co.
842 F.3d 422
| 6th Cir. | 2016Background
- Stryker sold artificial Uni-Knees that later proved defective due to sterilization degradation, producing many product-liability claims and a separate judgment for Pfizer.
- Stryker had an XL commercial umbrella policy ($15M after $2M retention) and a TIG excess-liability policy (follow form, $25M excess layer) for 2000.
- XL initially denied coverage but was later held liable and paid, exhausting its limits by satisfying the Pfizer judgment first; Stryker had previously settled individual claims for $7.6M without TIG’s written consent.
- TIG’s excess policy defined “ultimate net loss” as amounts paid by adjudication or by compromise “with the written consent of [TIG].” TIG refused coverage for the $7.6M settlements because Stryker had not obtained TIG’s written consent when settling.
- The district court found a latent ambiguity (relying on testimony from TIG employees about industry practice) and entered summary judgment for Stryker; TIG appealed.
- The Sixth Circuit reversed, holding the policy language unambiguous: written consent was required prospectively and Stryker’s retroactive/waiver/good-faith arguments failed.
Issues
| Issue | Plaintiff's Argument (Stryker) | Defendant's Argument (TIG) | Held |
|---|---|---|---|
| Whether the TIG consent-to-settle clause is ambiguous (latent ambiguity) | Testimony from TIG’s former adjusters/underwriters shows TIG did not require consent for settlements made below TIG’s layer, creating a latent ambiguity | Policy language plainly requires TIG’s written consent for compromises; testimony is subjective and cannot create ambiguity | No latent ambiguity; language is clear that written consent is required |
| Whether settlements made without TIG’s prior written consent qualify as “ultimate net loss” | Settlements should count because they originated under XL’s layer and TIG implicitly accepted that practice | Definition requires adjudication or compromise with TIG’s written consent; no consent, no coverage | Settlements do not qualify as ultimate net loss absent TIG’s prior written consent |
| Whether TIG waived the consent requirement or is estopped by XL’s denial of coverage | XL’s denial and practical circumstances made seeking TIG’s consent futile; TIG effectively waived or should be bound | TIG’s policy contains unique consent requirement; XL’s denial does not bind TIG; no evidence TIG waived or refused consent contemporaneously | No waiver or estoppel; Stryker failed to show futility or that TIG manifested intent to refuse consent |
| Whether TIG breached implied covenant of good faith by refusing retroactive consent | TIG unreasonably withheld retroactive consent and cannot veto reasonable settlements arbitrarily | Implied covenant cannot override clear contract terms; consent clause is not unfettered discretion and was not breached | No breach; implied covenant does not override explicit consent requirement and retroactive consent was not owed |
Key Cases Cited
- Stryker Corp. v. XL Ins. Am., 735 F.3d 349 (6th Cir. 2013) (construing XL’s obligations and coverage related to Uni-Knee claims)
- Stryker Corp. v. Nat’l Union Fire Ins. Co., 681 F.3d 819 (6th Cir. 2012) (discussing unique provisions in TIG’s excess policy)
- Rory v. Cont’l Ins. Co., 703 N.W.2d 23 (Mich. 2005) (written contracts unambiguous on their face must be enforced as written)
- Shay v. Aldrich, 790 N.W.2d 629 (Mich. 2010) (parol evidence rule and limits on extrinsic evidence to interpret unambiguous contracts)
- Sault Ste. Marie Tribe of Chippewa Indians v. Granholm, 475 F.3d 805 (6th Cir. 2007) (admitting extrinsic evidence only to show latent ambiguity)
- Scott v. Harris, 550 U.S. 372 (2007) (summary judgment review standard — view facts in light most favorable to nonmoving party)