October 20, 2010
A recent decision from the Seventh Circuit Court of Appeals strikes a cautionary note for plaintiffs who want the assurance that any damages they recover will be covered by insurance. In Medmarc Cas. Ins. Co. v. Avent Am., Inc., 612 F.3d 607 (7th Cir. 2010), liability insurance carriers brought an action against the insured, a manufacturer of baby bottles, for a declaration under Illinois law that the insurers had no duty to defend and indemnify the manufacturer in multidistrict class actions brought by parents seeking damages for the presence of Bisphenol‑A ("BPA") in certain products. A large body of research has shown that BPA can be harmful to humans, especially children. Significantly, the plaintiff-parents did not allege that they had used the products and that their children had suffered physical harm or could suffer physical harm in the future. Rather, the parents asserted that they had purchased the offending products and had then disposed of them when they learned of the presence of BPA. The trial court allowed the plaintiffs to go forward on their economic injuries claim. The relevant insurance policies, however, covered "bodily injury," not economic damages.
Before addressing whether the complaints alleged bodily injury sufficient to give rise to a duty to defend, the court addressed the insurers' argument that the manufacturer was judicially estopped from arguing that the complaints stated claims for bodily injury, since it had argued otherwise in its motions to dismiss and the court had agreed with it. The court acknowledged the merit of the manufacturer's argument that its position in the motion to dismiss was distinguishable from its stance in the declaratory judgment action. In the motion to dismiss, the manufacturer had argued that the complaints did not state claims for damages "for bodily injury." However, the language of the insurance policies was broader because it covered damages "because of bodily injury." The court recognized that an insured who is forced to defend itself when the insurer refuses to defend may be forced to take positions that appear to take it out of the coverage of the insurance contract. Because the manufacturer's position in the motion to dismiss was not in direct tension with its position in the declaratory judgment action, the court found that estoppel was inappropriate.
Nonetheless, the court ultimately found that there was no duty to defend and indemnify, because even if the plaintiffs proved every factual allegation in the complaints, they could not collect for bodily injury. The court concluded that the omissions of allegations of physical injury were not mere whims but were part of the plaintiffs' strategy. Even considering the broader duty to defend created by the phrase "because of bodily injury," as opposed to the more restrictive phrase "for bodily injury," the court determined that the complaints still fell short of factual allegations that would require coverage. It rejected an argument, triggered by two unpublished decisions in other jurisdictions, that a duty to defend exists if the complaint can be amended at some point in the future to bring the claims within the insurance coverage.