Opinion
601345/04.
Decided on July 12, 2005.
Plaintiffs The Purdue Frederick Company, Purdue Pharma L.P., Purdue Pharma, Inc., Purdue Pharmaceuticals L.P., The P.F. Laboratories, Inc., The Purdue Pharma Company, Pharmaceutical Research Associates, Inc., and Purdue Pharma Ltd. (together, Purdue) bring this action against Steadfast Insurance Company (Steadfast), Gulf Underwriters Insurance Company (Gulf), and National Union Fire Insurance Company (National) for a judgment declaring that the defendant insurance companies are obligated to defend and indemnify Purdue with respect to over 60 actions (the underlying actions) brought in state and federal courts, alleging violations of federal and state antitrust laws, state consumer protection statutes, unfair and deceptive trade practices, and unjust enrichment against Purdue (the underlying actions). Steadfast moves for summary judgment on the first and second causes of action in Purdue's second amended complaints, requesting, respectively, a defense and indemnification for the underlying actions, and on counts I and II of Steadfast's counterclaim against Purdue, seeking declarations that it has no duty to defend or indemnify Purdue under the policies of insurance which Steadfast issued to Purdue. National and Gulf each cross-move for summary judgment. Purdue cross-moves in three separate cross motions for judgments declaring that Steadfast, National, and Gulf are each are obligated to provide an immediate defense for Purdue in the underlying actions. The basis of defendants' motions and cross motions is their belief that they are not obligated to defend or indemnify Purdue under the terms of the applicable policies, because the plaintiffs in the underlying actions have not brought any claim covered thereunder.
Throughout the present motions, Purdue chooses to refer to Steadfast as "Zurich," apparently referring to a group of companies affiliated with Steadfast. However, Steadfast has been named as the defendant in this action, and appears to be the party with which Purdue contracted.
The complaints in 64 actions are attached to the affidavit of Richard Dudek, Steadfast's representative.
I. The Policies
Steadfast is Purdue's primary insurer, under two Commercial General Liability policies. Coverage for the period October 1, 2000 to October 1, 2001 is represented by a Casualty Coverage Binder. Dudek Aff., Ex. C. Each of Steadfast's policies provides coverage for "`personal injury' caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you." Id. "Personal injury" is defined to include, as relevant, "injury, other than `bodily injury,' arising out of . . . (b) Malicious Prosecution." Id.
Gulf issued Purdue a "single layer excess insurance policy" (Gulf Memorandum of Law, at 3), "subject to the same terms, conditions, agreements, exclusions and definitions as the Underlying Insurance except as otherwise provided in the [Gulf Policy]." 3Id., referring to Kriegel Aff., Ex. A, § I (A). It is undisputed that, under this policy, Gulf is obligated to provide coverage excess to Steadfast's coverage, for loss arising out of, inter alia, the tort of malicious prosecution.
The policy itself is designated as a "Commercial Umbrella Policy." Kriegel Aff., Ex. A.
National issued umbrella policies to Purdue providing general liability coverage in excess of Steadfast's primary policies. As with the Gulf policies, National agreed to provide the same coverage afforded Purdue in the Steadfast policies.
II. The Underlying Actions
The underlying actions have their inception in a federal action entitled Purdue Pharma L.P. v. Endo Pharmaceuticals Inc., 04-1189 ( Endo), in which Purdue claimed that Endo Pharmaceuticals Inc. (Endo) infringed on Purdue's patents for the pain reliever OxyContin by attempting to obtain approval from the FDA to market a generic version of the drug. On January 5, 2004, the District Court held that Endo had infringed on Purdue's patents, but that the patents were unenforceable as a result of Purdue's inequitable conduct in obtaining the patents. 2004 WL 26523 (SD NY 2004). This decision has recently been affirmed by the federal appeals court. ___ F3d ___, 2005 WL 1330933, (Fed Cir, June 7, 2005).
The underlying actions were brought after the lower court's decision had been issued in Endo. The individual and class actions were brought by individual plaintiffs and "end-payors," such as insurance companies, who claim that Purdue, by its fraudulent actions in obtaining the patents, and in bringing baseless actions such as Endo, had stalled the release of a generic version of OxyContin, causing these plaintiffs to pay more for the drug than they would have had a generic version been available. As set forth above, these plaintiffs have brought claims against Purdue alleging, among other things, violations of federal and state antitrust laws, state consumer protection statutes, unfair and deceptive trade practices, and unjust enrichment. Integral to the underlying actions is the claim that Purdue's patent infringement action against Endo was a "sham" litigation. See e.g., Dudek Aff. Ex. 1, ¶ 63.
Apparently, by characterizing Purdue's patent infringement actions as "sham litigations," the plaintiffs in the underlying actions intend to invoke the "sham litigation" exception to the so-called " Noerr-Pennington doctrine." This exception allows a litigant to bring an antitrust suit against a competitor if the competitor has engaged in "sham litigation," despite the First Amendment guarantees described in Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., ( 365 US 127 [1961]), which ordinarily bar such actions. See In re Terazosin Hydrochloride Antitrust Litigation, 335 F Supp 2d 1336 (SD Florida 2004); Twin City Bakery Workers and Welfare Fund v. Astra Aktiebolag, 207 F Supp 2d 221 (SD NY 2002).
III. The Present Motions
Defendants do not dispute the fact that they would be required to defend Purdue in the underlying actions if the actions alleged malicious prosecution. However, defendants maintain that the underlying actions manifestly do not allege malicious prosecution, so that the obligation to defend and indemnify Purdue under the various policies does not arise.
Purdue contends that the underlying actions contain sufficient allegations to bring them within the policy coverage for malicious prosecution in the various policies, based on the allegations which the underlying plaintiffs have made concerning Purdue's pursuit of allegedly "sham" litigations, such as Endo.
Purdue refers to the underlying actions as the "Malicious Prosecution Cases," while defendants refer to the underlying actions as the "Antitrust Lawsuits."
IV. Discussion
A. Choice of Law
The parties dispute whether New York or Connecticut law applies to the present contract dispute, because each party purportedly has significant connections with each of these two states. Steadfast argues that either Connecticut law, and, particularly, the holding in the case entitled QSP, Inc. v. Aetna Casualty Surety Co. ( 256 Conn 343) applies, or that New York law applies, in the absence of any conflict between the relevant laws of each state. Steadfast offers a choice of law analysis, and concludes that, if the laws of Connecticut diverge from that of New York, Connecticut law is applicable under New York choice of law principles. Steadfast alternatively alleges that Purdue, in an unrelated action brought in Connecticut, admitted that Connecticut law applies to the interpretation of the policies and so, cannot here argue for the application of New York law.
Gulf appears to side with Steadfast on the issue, as does National, although National suggests that, absent any discovery, any choice of law analysis would be premature. Plaintiff, on the other hand, denies that it ever admitted that Connecticut law applies to the policies, and argues, using a New York choice of law analysis, that the law of New York prevails.
"The first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved." Matter of Allstate insurance Company v. Stolarz, 81 NY2d 219, 223 (1993). "Where no conflict exists between the laws of the jurisdictions involved, there is no reason to engage in a choice of law analysis." Elson v. Defren, 283 AD2d 109, 114 (1st Dept 2001). This court, having reviewed the issues raised in the present motions, and the relevant law, determines that, as further discussed below, there is no discernable difference in the laws of the two states, negating the need to make a choice of law analysis. Therefore, New York law is applicable in the case at bar, although consideration of the persuasive aspects of cases decided in other jurisdictions, such as QSP, is not precluded by this finding.
B. Insurer's Duty to Defend
Insurance policies are interpreted according to accepted principles of contract interpretation. Matter of Estates of Covert ( 97 NY2d 68, 75 (2001).
"[C]ontracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties have used, and if they are clear and unambiguous the terms are to be taken and understood in their plain, ordinary and proper sense."
Id. at 76, quoting Hartol Products Corporation v. Prudential Insurance Company of America, 290 NY 44, 47 (1943) (internal quotation marks and citation omitted). However, where provisions of an insurance policy are ambiguous, "those ambiguities must be construed against the insurer since policies of insurance, drawn as they ordinarily are by the insurer, are to liberally construed in favor of the insured." Atlantic Cement Company, Inc. v. Fidelity Casualty Company of New York, 91 AD2d 412, 418 (1st Dept 1983), affd 63 NY2d 798 (1984); see also Breed v. Insurance Company of North America, 46 NY2d 351, 353 (1978) (recognizing "general rule that ambiguities in an insurance policy are to be construed against the insurer"); State of New York v. Home Indemnity Company, 66 NY2d 669 (1985) (same).
In interpreting the scope of the obligations undertaken by an insurer vis-a-vis its insured, it is thoroughly established that an insurer's duty to defend is "`broader than the duty to indemnify'" (Town of Massena v. Healthcare Underwriters Mutual Insurance Company, 98 NY2d 435, 443), quoting Fitzpatrick v. American Honda Motor Co., 78 NY2d 61, 65, and that "`an insurer's duty to defend its insured arises whenever the allegations in a complaint state a cause of action that gives rise to the reasonable possibility of a recovery under the policy'." Town of Massena v. Healthcare Underwriters Mutual Insurance Company, 98 NY2d at 443. The court is to look at the allegations of the complaint, and, if they are "even potentially within the language of the insurance policy" ( id.), coverage is triggered, and the insurer must provide a defense to its insured, regardless of the merits of the complaint, even if "`debatable theories are alleged in the pleading.'" Id. at 444, quoting International Paper Co. v. Continental Casualty Company, 35 NY2d 322, 325 (1974).
The defining dispute in the present action is whether or not the claims brought in the underlying actions "arise out of" malicious prosecution, the only applicable tort enumerated in defendants' policies, so as to require defendants to defend Purdue. The main thrust of the defendants' argument is that the underlying actions simply do not "arise out of" malicious prosecution, because none of the underlying actions allege, or even purport to allege, facts to support a malicious prosecution cause of action under New York law.
Defendants urge this court to focus on the holding of the Connecticut Supreme Court in QSP, a factually comparable action. The QSP case involved whether QSP, Inc's (QSP) insurers were obligated to defend and indemnify QSP in various antitrust actions (the antitrust actions) which were brought against QSP, based on QSP's allegedly illegal actions in monopolizing the school and youth group magazine fund-raising market, by defaming its competitors, threatening and instituting bad-faith litigation against its competitors, and generally "eliminat[ing] or weaken[ing] competition in the school fund raising market by conducting anticompetitive, predatory and exclusionary acts (internal quotation marks omitted)." QSP at 347. The QSP Court determined that QSP's insurers, required by their policies to defend claims against QSP for, inter alia, malicious prosecution and defamation, did not have a duty to defend in the antitrust actions because these actions did not, and could not, allege causes of action for defamation or malicious prosecution. As such, the QSP Court determined that the antitrust actions did not "arise out of" the enumerated torts of defamation and malicious prosecution, and that the insurers owed no duty to indemnify, or provide a defense for, QSP.
QSP is a wholly owned subsidiary of Reader's Digest.
The Court in QSP found no ambiguity in the language of the policies. The Court analyzed the facts alleged by the plaintiffs in the antitrust actions, and determined that the plaintiffs could not allege any of the policies' enumerated torts, because the antitrust plaintiffs themselves had not been the direct object of any covered acts committed by QSP, and that the only injuries which the antitrust plaintiffs could claim were purely consequential to the commission of the covered wrongs. For example, the Court found that the antitrust plaintiffs could not allege that they had been defamed by QSP, because no defamatory language had ever been stated against them, and that they could not allege malicious prosecution, because they were never the target of the alleged vexatious litigation. According to the QSP Court, "we conclude that, because the [antitrust] plaintiffs did not allege that they had suffered personal injury due to the vexatious litigation or malicious prosecution [pursued by QSP], personal injury coverage was not triggered." Id. at 362. Thus, the QSP court made a distinction between injury to the antitrust plaintiffs allegedly "arising out of" the antitrust claims which they brought against QSP (and which QSP characterized as torts), and injury allegedly "arising out of" wrongs committed by QSP against other parties not involved in the antitrust litigations. Purdue contends that the Court's interpretation of "arising out of" in QSP is far too narrow, and in conflict with New York law, because, according to Purdue, New York law allows for a broader interpretation of the phrase. Purdue then argues that, if QSP's interpretation is indeed narrower than New York's, a choice of law analysis is essential, and will result in the broader analysis allegedly afforded by New York law. Therefore, this court's first consideration is whether the interpretation of "arising out of" in QSP is a narrower one than that employed in New York. This court determines that it is not.
New York's interpretation of "arising out of" in general liability insurance contracts is indeed broad. See Aetna Casualty Surety Co. v. Liberty Mutual Insurance Company, 91 AD2d 317 (4th Dept 1983). In Aetna, an action involving the use of a motor vehicle, the Court held that "[t]he words `arising out of' have `broader significance than the words caused by, and are ordinarily understood to mean originating from, incident to, or having connection with the use of the vehicle.'" Id. at 320-321; see also Insurance Company of North America v. Liberty Mutual Insurance Company, 1994 WL 150818 (SD NY 1994). New York's Court of Appeals has determined that "the phrases `based on' and `arising out of' . . . are unambiguous and legally indistinguishable." Mount Vernon Fire Insurance Company v. Creative Housing Ltd., 88 NY2d 347, 351 (1996).
There is, based on the aforementioned cases, little doubt that New York law allows for a broad definition of "arising out of" in liability insurance policies. However, a reading of QSP, reveals that Connecticut follows suit. The QSP Court made a specific analysis of the term "arise out of." It observed that the term was "very broad" ( QSP, 256 Conn at 372), and that the phrase provided the "causal connection between the injury and the offense" in the policies. Id. According to the QSP Court
[i]t is generally understood that for liability for an accident or an injury to be said to `arise out of' [an occurrence or offense] it is sufficient to show only that the accident or injury was connected with, had its origins in, grew out of, flowed from, or was incident to [that occurrence of offense], in order to meet the requirement that there be a causal relationship between the accident or injury and [that occurrence or offense] [internal quotation marks omitted].
Id. at 374. The QSP Court continued that the word "arise" means to "originate from a special source," and that the phrase "`arising out of is usually interpreted as indicat[ing] a causal connection [citation omitted].'" Id.
The discussion above demonstrates that Connecticut law recognizes at least as broad a definition of the term "arising out of" as does New York law; both require that there be a causal "connection," which is very broadly defined. See Aetna Casualty Surety Co. v. Liberty Mutual Insurance Company, 91 AD2d at 321. And since the definition of "arising out of" is the only legal question which might have given rise to a choice of law question, the application of the phrase by the QSP Court does not give rise to any divergence in the law of the two states.
Further, there does not appear to be any New York case on point as to the application of "arising out of" to the present situation with which the Connecticut Court has disagreed, and no party argues that there is such precedent. Therefore, this court is free to address the issue of whether the defendants' policies require defendant insurers to defend Purdue in the underlying actions, without the digression of a choice of law analysis.
The QSP Court determined that "in order for covered common-law torts to trigger coverage, those torts and their resultant injuries must have been alleged by the proper plaintiffs," who are described as "those individuals who can prove direct injury as a result of defamation, disparagement and the like." QSP, 256 Conn at 377. According to QSP, the antitrust plaintiffs could not argue that they suffered from a covered tort when their damages arose out of the monopoly claimed by QSP's competitors, rather than direct injury to themselves. The Court found that connection "far too tenuous." Id. at 378. Therefore, if this court agrees with QSP, Purdue is not entitled to coverage under defendants' policies.
It is clear that the injuries which the underlying plaintiffs claim to have sustained cannot stem from claims for malicious prosecution, claims which the underlying actions do not even purport to bring. "`To succeed on a claim for malicious prosecution, a plaintiff must show the initiation of an action or proceeding that terminated in favor of the plaintiff, lack of probable cause for the prior action or proceeding, malice and special injury.' [citations omitted]" Fink v. Shawangunk Conservancy, Inc., 15 AD3d 754, 754 (3rd Dept 2005); see also Williams v. Barber, 3 AD3d 695, (3rd Dept 2004). "[O]nly a party to the proceeding complained of is entitled to maintain an action for malicious prosecution." Jackson v. Kessner, 206 AD2d 123, 126 (1st Dept 1994).
It is plain from the face of the complaints in the underlying actions that the underlying plaintiffs are not bringing, and cannot bring, actions for malicious prosecution based on Endo, or any other of the other patent infringement cases, because none of the plaintiffs in the underlying actions was a party to the patent infringement actions, or subject to the vexatious litigation allegedly aimed at Endo. Therefore, if the policy language requiring defendants to defend and indemnify Purdue for any claims "arising out of" malicious prosecution refers only to the allegations made within complaints in the underlying actions, the policies do not afford Purdue a defense or indemnification.
The interpretation of the term "arising out of" in general liability policies does not always corresponded to that of QSP. In Knoll Pharmaceutical Co. v. Automobile Insurance Co. of Hartford ( 152 F Supp 2d 1026 [ND Illinois, 2001)] ( Knoll), a pharmaceutical company was sued by a class of plaintiffs claiming that Knoll "`orchestrated marketing plan of suppression and misrepresentations'[citation omitted]" of its products, arising from the alleged disparagement of one Dr. Dong, a scientist who had suggested the existence of bioequivelants for a drug developed by Knoll. A group of consumers and third-party payors who had purchased Knoll's drug, or who had provided the drug to consumers, alleged that Knoll had, among other things, falsely represented that there were no bioequivelants to the drug, and had concealed and suppressed any information to the contrary.
Knoll sought coverage from its insurers under liability policies which covered Knoll for, among other things, "personal injury" "arising out of" offenses which included the publication of material that "slanders or libels a person or organization." Id. at 1031).
The court in Knoll, using Illinois law, and unlike that in QSP, found that the term "arising out of" was ambiguous, and so, would be held against Knoll's insurers. The court went on to find that "it is [only] the facts alleged in the underlying complaint not the legal theory — that is controlling." Id. at 1038. As such, the duty to defend was not precluded merely because the underlying actions did not claim recovery for the actions allegedly taken by the insured from which the underlying actions "arose." As a result, the Knoll court concluded that "the allegations that [Knoll] advertised its product as superior to all other similar products and published statements harming the reputation of Dr. Dong bring these actions within the categories of wrongdoing that the policies cover." Id. Therefore, the Knoll court ruled that the antitrust plaintiffs' allegations of economic injury arose from the slander, libel, and disparagement that Knoll had allegedly aimed at third parties, and so, "arose out of" of those covered offenses. In so finding, the court found that there was a "causal connection" between the injuries that underlying plaintiffs claimed to have sustained, and Knoll's allegedly wrongful activities. Id.
This court finds that Knoll takes the definition of "arising out of" too far. The antitrust plaintiffs, in their own actions, do not raise any claim for injuries arising out of any covered offense enumerated in the policy, regardless of the fact that the injuries that they allege require reference to allegations made in unrelated actions. Therefore, this court finds, as did the court in QSP, that "arising out of" requires scrutiny of the "injuries sustained" by these plaintiffs, "rather than the underlying offenses that [Purdue] claims caused those injuries." QSP, 256 Conn at 381. The underlying plaintiffs' injuries do not "originat[e] from," are not "incident to," and have no "connection" with the torts which Purdue claims caused those injuries. See Aetna Casualty Surety Co. v. Liberty Mutual Insurance Company, 91 AD2d at 320-321. An insurer will be relieved of the duty to defend, despite the broad obligation to defend imposed by the law, where, "as a matter of law," there is no possible factual or legal basis upon which the insurer might eventually be held obligated to indemnify the insured under any provision of the insurance policy. " Travelers Indemnity Company v. Town of Highland, 90 AD2d 891, 891 (3rd Dept 1982). Defendants will never be required to indemnify Purdue for malicious prosecution, a tort not raised in the underlying actions. Therefore, the duty to defend cannot be expanded to cover the underlying actions.
This court also notes that National and Gulf would not be required to defend in any event, as their policies are excess to Steadfast's primary insurance. See General Motors Acceptance Corporation v. Nationwide Insurance Company, 4 NY3d 451, 456 (the primary insurer has a duty to defend "without any entitlement to contribution from an excess insurer [citation omitted]").
Accordingly, it is
ORDERED that the motion brought by Steadfast Insurance Company for summary judgment and a declaration that it has no duty to defend or indemnify Purdue Frederick Company, Purdue Pharma L.P., Purdue Pharma, Inc., Purdue Pharmaceuticals L.P., The P.F. Laboratories, Inc., The Purdue Pharma Company, Pharmaceutical Research Associates, Inc., and Purdue Pharma Ltd. (Purdue) under the policies of insurance which Steadfast issued to Purdue is granted; and it is further
ADJUDGED and DECLARED that Steadfast is not obligated to defend or indemnify Purdue in the underlying actions; and it is further
ORDERED that the cross motion brought by defendant Gulf Underwriters Insurance Company for a declaration that it has no duty to defend or indemnify Purdue in the underlying actions, under the policies of insurance Gulf Underwriters Insurance Company issued to Purdue is granted; and it is further
ADJUDGED and DECLARED that Gulf Underwriters Insurance Company is not obligated to defend or indemnify Purdue in the underlying actions; and it is further
ORDERED that the cross motion brought by defendant National Union Fire Insurance Company of Pittsburgh, Pa. for a declaration that it has no duty to defend or indemnify Purdue in the underlying actions, under the policies of insurance which National Union Fire Insurance Company of Pittsburgh, Pa. issued to Purdue is granted; and it is further
ADJUDGED and DECLARED that National Union Fire Insurance Company of Pittsburgh, Pa. is not obligated to defend or indemnify Purdue in the underlying actions; and it is further
ORDERED that Purdue's three cross motions, for summary judgment on its first cause of action seeking a defense from defendants, are denied.