Stryker Corporation v. National Union Fire Insurance, 2012 U.S. App. LEXIS 11255

Background

Stryker sought defense and indemnity from XL for claims related to expired Uni-Knees with a Medical Products Endorsement altering occurrence by batch.
The policy provided $15 million per occurrence and a $15 million aggregate limit over a $2 million SIL; defense costs were in addition to limits.
XL denied coverage citing pre-1/1/2000 knowledge of potential defects under the endorsement.
Stryker sued; Pfizer separately sued Stryker for indemnification; Pfizer settled with XL for $26 million.
The district court held XL covered direct claims, XL also liable for Pfizer-related losses, and later addressed exhaustion, pre-judgment interest, and related issues.
On appeal, the Sixth Circuit affirmed some rulings, reversed others, and remanded for consistent application of Michigan contract law.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does the XL policy provide coverage for Uni-Knees claims under the Medical Products Endorsement?	Stryker argues batch coverage applies to Uni-Knees.	XL contends no batch coverage because defect known prior to 2000.	Yes; the court affirms coverage under the endorsement.
How do Pfizer settlement and related payments exhaust the XL policy limits?	Stryker contends Pfizer settlement should be applied after direct Stryker I claims.	XL argues Pfizer settlement can exhaust policy before direct judgments.	Pfizer settlement can exhaust the policy prior to considering Stryker I judgments.
Should the aggregate $15 million limit apply to Stryker I/II judgments as consequential damages?	Stryker argues limits do not apply to consequential damages from XL breach.	XL contends Capitol Reproduction controls and limits apply.	Reversed; remand to determine what portion beyond $15 million may be consequential damages under Michigan law.
What costs count toward Pfizer-related exposure and how are they treated under the policy limits?	Pfizer defense costs should be treated as consequential damages outside limits; indemnification costs within limits.	Defense costs tied to indemnification may be within limits; other costs may not.	Pfizer defense costs are consequential and outside limits; Pfizer’s indemnification costs may be subject to limits; remand for recalculation.
When does pre-judgment interest stop accruing (end-date for §500.2006): first or final judgment?	Stryker cross-appeal seeks end date at amended/second judgment.	XL argues Ferwerda I/I narrowing; Ferwerda II clarifications.	End-date is the last judgment not entirely set aside; pre-judgment interest terminates at that point.

Key Cases Cited

Frankenmuth Mut. Ins. Co. v. Keeley, 447 N.W.2d 691 (Mich. 1989) (dissent on expectation interest in insurance cases supporting coverage norms)
Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776 (Mich. 2003) (ambiguous insurance terms construed in favor of coverage)
Capitol Reproduction, Inc. v. Hartford Insurance Co., 800 F.2d 617 (6th Cir. 1986) (limits/defense breach treated as consequential losses under some theories)
Griswold Properties, LLC v. Lexington Ins. Co., 741 N.W.2d 549 (Mich. Ct. App. 2007) (reasonableness/dispute rules related to penalty/priority analyses)
Ferwerda I, 797 N.W.2d 168 (Mich. Ct. App. 2010) (temporary rule on reasonable dispute for penalty interest (subsequent developments noted))
Ferwerda II, 784 N.W.2d 44 (Mich. 2010) (Michigan Supreme Court addressing Ferwerda I impact (clarifications))
Scotts Co. v. Cent. Garden & Pet Co., 403 F.3d 781 (6th Cir. 2005) (pre-judgment interest accrual guidance when judgments are modified)
Skalka v. Fernald Envtl. Restoration Mgmt. Corp., 178 F.3d 414 (6th Cir. 1999) (guidance on the definition of judgment for post-judgment interest)