Stryker Corp. v. XL Insurance
57 F. Supp. 3d 823
W.D. Mich.2014Background
- Stryker purchased Howmedica (maker of the Duracon Uni-Knee) in 1998 and thereafter faced product-liability claims for Uni-Knees. XL was primary insurer (with $2M SIR + $15M limits); TIG was excess insurer attaching above $17M.
- XL initially declined coverage for many direct settlements Stryker made (2001–2003); Stryker paid about $7.6M in direct settlements out of its own funds. XL later was found liable and exhausted its limits by paying a Pfizer judgment.
- Stryker sued XL and TIG seeking indemnification/reimbursement; XL was held liable for the direct settlements. This action concerns whether TIG (excess carrier) must reimburse Stryker for those direct settlements.
- TIG refused payment, asserting (1) the policy’s definition of “Ultimate Net Loss” requires TIG’s written consent to settlements and Stryker did not obtain consent, and (2) Stryker failed to give prompt notice of the Pfizer indemnity claim/pleadings.
- The parties stipulate settlements were reasonable and negotiated in good faith; factual dispute centers on contract interpretation (consent clause ambiguity), waiver/estoppel/futility of seeking consent, and notice/pleading defenses.
Issues
| Issue | Plaintiff's Argument (Stryker) | Defendant's Argument (TIG) | Held |
|---|---|---|---|
| Whether TIG’s written-consent requirement bars coverage for Stryker’s direct settlements entered while they were within XL’s layer | Consent applies only to settlements that implicate TIG’s layer; TIG had no interest in below-layer settlements; consent was not required before Stryker settled | Policy definition of “Ultimate Net Loss” requires TIG’s written consent to any settlement; no consent was obtained so no coverage | Court: Ambiguity exists; construed against insurer — TIG’s consent not required for below-layer settlements presented to TIG later; TIG cannot avoid liability on consent ground |
| Whether TIG waived/estopped or unreasonably withheld consent (or consent would have been futile) | TIG’s practices and adjuster testimony show it did not expect to consent to below-layer settlements; requesting consent would have been futile; TIG later refused without good faith basis | TIG insists consent is a policy condition and its later refusal stands | Court: TIG effectively waived/estopped; obtaining consent would likely have been futile given underlying denial by XL and TIG’s practices; TIG had no good-faith basis to withhold consent |
| Whether Stryker’s alleged failure to give prompt notice of Pfizer indemnity claim and pleadings defeats coverage | Any alleged late notice is immaterial because Stryker seeks reimbursement only for its direct settlements (not Pfizer judgment); TIG was notified of Pfizer suit and had opportunities to involve itself | Stryker failed to provide prompt notice of Pfizer demand/pleadings, depriving TIG of opportunity to associate in defense | Court: TIG’s late-notice defense was untimely pleaded, prejudicially late, and lacks merit; TIG has not shown prejudice required to deny coverage under Michigan law |
| Whether TIG adequately pleaded failure of a condition precedent under Rule 9(c) | Stryker alleged compliance with conditions precedent and timely notice; TIG should have denied with particularity if it intended to rely on lack of notice | TIG argues Stryker failed to plead compliance so Rule 9(c) inapplicable | Court: TIG failed to plead denial of condition precedent with particularity under Rule 9(c); its asserted notice defense is therefore untimely and insufficient |
Key Cases Cited
- Wilkie v. Auto-Owners Ins. Co., 469 Mich. 41 (Mich. 2003) (ambiguous insurance terms construed against insurer)
- Klapp v. United Ins. Grp. Agency, Inc., 468 Mich. 459 (Mich. 2003) (contract interpretation seeks parties’ intent; practical construction is evidence)
- Citizens Ins. Co. v. Pro-Seal Serv. Grp., Inc., 477 Mich. 75 (Mich. 2007) (policy language must be enforced as written; principles of contract construction)
- Koski v. Allstate Ins. Co., 456 Mich. 439 (Mich. 1998) (insurer asserting late notice must show actual prejudice when policy requires prompt notice)
- Tooling, Mfg. & Technologies Ass’n v. Hartford Fire Ins. Co., 693 F.3d 665 (6th Cir. 2012) (insured bears burden to show claim falls within policy; two-step coverage/exclusion analysis)
- Stryker Corp. v. XL Ins. Am., 735 F.3d 349 (6th Cir. 2013) (prior appellate discussion of related coverage disputes)