HIV AIDS Resource Guide/HIV-AIDS Resource Guide.iso/STAT/CASES/ARC-TR.ASC

Text File | 1993-01-14 | 23KB | 472 lines

/* This case was reported in 816 F.Supp. 84 (D.D.C. 1986).  This
case construes what parts of a fairly standard business insurance
policy apply to contaminated blood cases. */

AMERICAN RED CROSS, plaintiff,

v.

The TRAVELERS INDEMNITY COMPANY OF RHODE ISLAND, et al.,
Defendants.

United States District Court, District of Columbia.

March 23, 1993.

OPINION



STANLEY S. HARRIS, District Judge.

Before the Court are defendant RLI's motion for partial summary
judgment, defendant Travelers' motion for partial summary
judgment, defendants Granite State's and Lexington's  motion  for
partial summary judgment, defendants Sentry's and Dairy-land's
motion for partial summary judgment, defendant Scottsdale's
motion  for partial summary judgment, and the oppositions and
replies thereto.  These parties seek a determination as to the
scope and meaning of the $1 million aggregate limit of liability
and the $1 million "per occurrence" limit of liability maintained
in each of the contracts at issue between plaintiff and defendant
Travelers. [footnote 1] Upon consideration of the entire record,
the Court finds that the $1 million aggregate limit of liability
is inapplicable to the HIV-contaminated blood claims.  The Court
also finds that because each act of distribution of contaminated
blood constitutes a "single occurrence," the $1 million per
occurrence limit of liability has not been exhausted.  Although
"findings of fact and conclusions of law are unnecessary on
decisions of motions under Rule 12 or 56," the Court nonetheless
sets forth its analysis, in part because the case survives the
rulings herein.  See Fed.R.Civ.P. 52(a).



Background

Plaintiff American Red Cross seeks declaratory relief as to the
obligations of its insurance carriers during the period of July
1, 1982, to July 1, 1985, in connection with HIV-contaminated
blood claims filed against plaintiff.  During that period,
defendant Travelers, the primary insurer, had issued three
consecutive one-year, primary-level comprehensive general
liability policies to plaintiff. During this same period,
defendant RLI had provided plaintiff with its next layer of insur
ance-three consecutive "umbrella" policies. In addition, for each
of the years at issue, plaintiff had three layers of insurance
above defendant RLI provided by six to seven additional insurance
carriers.

Prior to the fall of 1991, defendant Travelers had defended and
indemnified plaintiff in HIV-contaminated  blood  cases  under
all three of the primary policies.  In 1990, defendant Travelers
informed plaintiff that because it was contractually obligated to
provide only $1 million of coverage, its liability limits under
the 1984-85 policy period had been exhausted and it intended to
transfer the duty to defend to defendant RLI.  Defendant
Travelers claimed that the HIV-contaminated blood claims fell
within either the "completed operations" or the "products hazard"
provisions contained in the applicable policies, and thus that
the claims were subject to an aggregate liability limit of $1 mil
lion. Alternatively, defendant Travelers contended that all of
the claims combined constituted a "single occurrence," and
therefore fell within the $1 million "per occurrence" liability
limit contained in the policies at issue.  Defendant Travelers
informed plaintiff that because these limits had been exhausted
for the 1984-85 policy year, it would continue to fund the
defense and indemnification of claims falling within that policy
only as "an accommodation" to plaintiff.  On August 7, 1991,
defendant Travelers formally advised plaintiff that, effective
September 2, 1991, it would no longer defend claims for the 1984-
85 policy period.  Thereafter, on August 23, 1991, plaintiff
filed this declaratory action.

On April 30, 1992, defendant RLI moved for partial summary
judgment, seeking a declaration that defendant Travelers' duty to
defend did not terminate upon payment of $1 million in settlement
costs on plaintiffs behalf under the 1984-85 contract, and that
defendant Travelers has a continuing duty to defend plaintiff
pending the outcome of the declaratory judgment litigation. On
June 10, 1991, defendant Travelers filed a motion for partial
summary judgment asserting that because its liability limits have
been exhausted, it no longer has a duty to defend claims arising
under the 1984-85 policy period.[footnote 2] On July 19, 1992,
defendants Granite State, Lexington, Sentry, Dairyland, and
Scottsdale moved for partial summary judgment, asserting that
neither the aggregate nor the per occurrence liability limits
have been exhausted, and that defendant Travelers has a
continuing duty to defend the HIV-contaminated blood claims for
the 1984-85 policy year. [footnote 3] Thus all parties agree
that, as a threshold matter, this Court must determine whether
the aggregate limits of liability are applicable to the HIV-
contaminated blood claims, and whether all of these claims
together constitute a single occurrence.



Discussion

[1]  A court should grant summary judgment if there is no genuine
issue as to any material fact and the moving party is entitled to
judgment as a matter of law.  Fed.R.Civ.P. 56.  The issues before
this Court concern the proper construction of certain provisions
in the insurance contracts entered into between plaintiff and
defendant Traveler's.  The construction and effect of such
contracts is a matter of law to be determined by the Court.
Owens-Illinois, Inc. v. Aetna Casualty and Surety Co., 597
F.Supp. 1515, 1519 (D.D.C.1984) (citing 2 Conch on Insurance 2d
15.3, at 116 (1984)).

[2]  Under District of Columbia law, the Court must interpret an
insurance contract objectively, based on the language of the
policy and the expectations that the insured reasonably could
have formed on the basis of that language.  See Keene Corp. v.
Insurance Co. of North America, 667 F.2d 1034, 1041
(D.C.Cir.1981), cert. denied, 455 U.S. 1007, 102 S.Ct. 1644, 71
L.Ed.2d 875 reh'g denied, 456 U.S. 951, 102 S.Ct. 2024, 72
L.Ed.2d 476 (1982);  Owens-Illinois,  597 F.Supp. at 1522.
[footnote 4] In determining the "objectively reasonable" reading
of the policy, the Court must give effect to the policy's
dominant purpose of indemnity.  Keene, 667 F.2d at 1041;  Owens-
Illinois,  597 F.Supp. at 1522.

[3-5]  If the policy language is unambiguous, the Court must
apply the plain meaning of the language used and should not
consider extrinsic evidence as to how to interpret the policy.
See, e.g., Continental Casualty Co. v. Cole. 809 F.2d 891, 896
(D.C.Cir. 1987); Chiriboga v. International Bank for
Reconstruction & Dev., 616 F.Supp. 963, 969 (D.D.C. 1985).  If
the policy is ambiguous, however, the Court may consider evidence
of usages and customs affecting the agreement to determine the
parties' intent.  See Harbor Ins. Co. v. Omni Constr., Inc., 912
F.2d 1520 (D.C.Cir.1990). [footnote 5] Moreover, any ambiguity in
the insurance contract must be construed in favor of the insured.
Id. at 1522 (citing Keene, 667 F.2d at 1041).

The parties dispute the applicability of three contractual
provisions-the "products hazard," the "completed operations
hazard," and the "per occurrence" limits-to the HIV -contaminated
blood claims.  The Court addresses each of these provisions.



Products Hazard

[6]  Under the policies at issue, defendant Travelers' coverage
obligations are exhausted once it has paid on behalf of plaintiff
in excess of the $1 million aggregate limit for claims falling
within the "products hazard" provision. The policies define
"products hazard" as bodily injury and property damage arising
out of the named insured's products or reliance upon a
representation or warranty made at any time with respect thereto,
but only if the bodily injury or property damage occurs away from
premises owned by or rented to the named insured and after
physical possession of such products has been relinquished to
others.

/* It is interesting that the policy seems to insure for products
liability at the same time that the Red Cross argues that it
should not be sued for products liability. Of course the
standards are different for construing an insurance policy and
determining liability in a law suit. */



Travelers' 1984-85 Policy, Definitions (emphasis in original).
[footnote 6]  The term "named insured's products" is defined
separately as "goods or products manufactured, sold, handled or
distributed by the named insured. " Id. (emphasis in original).

[7]  At the time defendant Travelers and plaintiff entered into
the contracts at issue, District of Columbia law defined blood as
a "service" rather than a "product," and precluded the
application of strict liability for transfusion-related bodily
injury. See Fisher v. Sibley Memorial Hosp., 403 A.2d 1130, 1134
(D.C.App.1979) ("Characterizing blood as a product governed by
strict tort liability is as unnatural as forcing a blood
transfusion  into  the  commercial  sales mode."). The District
of Columbia continues to preclude strict liability for injuries
arising from blood transfusions.  See Kozup  v. Georgetown Univ.,
663 F.Supp. 1048, 1058-60 (D.D.C.1987), aff'd in relevant part
and vacated in part on other grounds, 851 F.2d 437
(D.C.Cir.1988).

[8]  There does not appear to be any reason to define blood
differently with regard to tort claims than with regard to the
liability insurance covering those same claims. Thus the Court
finds persuasive the cases holding that "products hazard"
coverage should be interpreted consistent with products liability
law. See, e.g., Green Constr. Co. v. National Union Fire Ins.
Co., 771 F.Supp. 1000, 1004 (W.D.Mo.1991); Buckeye Union Ins. Co.
v. Liberty Solvents & Chemicals Co., 17 Ohio App.3d 127, 17 OBR
225, 477 N.E.2d 1227, 1236 (1984); Friestad v. Travelers
Indemnity Co., 260 Pa.Super. 178, 393 A.2d 1212 (1978). See also
Roger C. Henderson, Insurance Protection for Products Liability
and Completed  Operations-What  Every  Lawyer Should Know, 50
Neb.L.Rev. 415, 416-32 (1971).  Accordingly, the Court finds that
blood is not a "product" within the clear and unambiguous terms
of the products hazard provision, and thus that the aggregate
limit of liability derived from this provision is inapplicable
to  the  HIV-contaminated  blood claims.



Completed Operations Hazard

[9]  A $1 million aggregate liability limit also exists for
claims falling within the "completed operations hazard."  The
"completed operations hazard" is defined in defendant Travelers'
policies as bodily injury and property damage arising out of
operations or reliance upon a representation or warranty made at
any time with respect thereto, but only if the bodily injury or
property damage occurs after such operations have been completed
or abandoned and occurs away from premises owned by or rented to
the named insured. "Operations" include materials, parts or
equipment furnished in connection therewith.  Operations shall be
deemed completed at the earliest of the following times:

(1)  when all operations to be performed by or on behalf of the
named insured under the contract have been completed,

(2)  when all operations to be performed by or on behalf of the
named insured at the site of the operations have been completed,
or

(3)  when the portion of the work out of which the injury or
damage arises has been put to its intended use by any person or
organization other than another contractor or subcontractor
engaged in performing operations for a principal as a part of the
same project.

Operations which may require further service or maintenance work,
or correction, repair or replacement because of any defect or
deficiency, but which are otherwise complete, shall be deemed
completed.

Travelers' 1984-85 Policy, Definitions (emphasis in original).

[10-13]  The Court finds this provision inapplicable to
professional service contracts such as the contracts between
plaintiff and the hospitals to which it provides blood. The plain
language of this provision indicates that it is intended to apply
to construction and maintenance work, such as work performed on
the premises of others by contractors and subcontractors. See,
e.g., Pacific Indem. Co. v. Linn, 766 F.2d 754, 764 (3d Cir.1985)
(citing Friestad v. Travelers Indem. Co., 260 Pa.Super. 178, 393
A.2d 1212 (1978)) ("clause intended to cover businesses that
perform contracts at premises other than their own"); CPS Chem.
Co. v. Continental Ins. Co., 199 N.J.Super. 558, 489 A.2d 1265,
1270 (Law Div.1984),  rev'd  on  other grounds,  203 N.J.Super.
15, 495 A.2d 886 (App.Div.1985) (stating that "[c]ommentators are
in complete agreement that this exclusion refers to accidents
caused by defective workmanship which arise after completion of
work by the insured  on construction  or service  contracts");
Southwest Wheel, Inc. v. Hartford Accident & Indem. Co., 1988 WL
82424, *4 1988 Ohio App. LEXIS 3217, *10 (Aug. 3, 1988)
(provision applies only to accidents due to defective workmanship
occurring after completion of work by the insured on a
construction or service contract); General Ins. Co.  v. Crawford,
635 S.W.2d 98, 102-03 (Tenn.1982) (provision not applicable to
retail liquor store's sale of alcohol to a minor later involved
in  a  traffic  accident);  Prosser Comm'n Co. v. Guaranty Nat'l
Ins. Co., 40 Wash.App. 819, 41 Wash.App. 425, 700 P.2d 1188, 1192
(Wash.App.1985) ("an average businessman would reasonably assume
[the completed  operations  hazard]  relates  to workmanship on
manufactured products"). Accordingly, the Court finds that the
HIV contaminated blood claims do not fall within the scope of the
unambiguous terms of the completed operations hazard, and thus
that the $1 million aggregate limit is inapplicable to such
claims. [footnote 7]



Per Occurrence Limits

[14]  Defendant Travelers' policies contain a $1 million "per
occurrence" limit.  The policies define "occurrence" as "an
accident, including continuous or repeated exposure to
conditions, which results in bodily injury or property damage
neither expected nor intended from the standpoint of the
insured."

See Travelers' 1984-85 Policy, Definitions (emphasis in
original). The contracts further provide that for the purposes of
determining the limit of the company's liability, all bodily
injury and property damage arising out of continuous or repeated
exposure to substantially the same general conditions shall be
considered as arising out of one occurrence.

Id.  Defendant Travelers contends that all of the HIV-
contaminated blood claims together constitute a single
occurrence.

The parties agree that the Court should examine the underlying
circumstances that resulted in the claims, rather than the effect
of each claimant's injury, to define a single occurrence. See
Owens-Illinois, 597 F.Supp. at 1525 (citing Michigan Chem. Corp.
v. American Home Assurance Co., 374, 37980 (6th Cir.1984)).
"Using this analysis, the Court asks if there was but one
proximate,  uninterrupted  and  continuing cause which resulted
in all of the injuries and damages." Appalachian Ins. Co. v.
Liberty Mut. Ins. Co., 676 F.2d 56, 61 (3d Cir.1982).

[15]  Defendant Travelers argues that the underlying cause of the
HIV-contaminated blood claims was plaintiffs general, negligent
practice in handling HIV-contaminated blood. The facts do not
support the suggestion that plaintiff engaged in a single,
negligent practice that could be considered "one cause." Rather,
plaintiff made many decisions with regard to its handling of the
blood-whether to screen the donor, whether to test the blood, and
whether to provide warnings to the recipient hospital.  Each of
these decisions  independently  may  have  affected whether
bodily injury, would result from a transfusion.  Moreover,
negligence with regard to screening, testing, or notification
could not result in injury until a particular unit of
contaminated blood was provided to an entity which would
administer the transfusion. Thus, the Court declines to resort to
the level of generality urged by defendant Travelers in applying
the cause test.  See Norfolk & W. Ry. Co. v. Accident & Casualty
Ins. Co. of Winterthur, 796 F.Supp. 929 (W.D.Va.1992)  (rejecting
argument  that plaintiffs negligence with respect to excessive
noise in the workplace was the proximate cause of all of the
hearing loss claims). Instead, the Court finds that the proximate
cause of the injuries was the distribution itself of HIV-
contaminated blood.  See, e.g., Michigan Chem. Com., 728 F.2d at
383 (each misshipment of flame retardant separate occurrence);
Maurice Pincoffi Co. v. St. Paul Fire and Marine Ins. Co., 447
F.2d 204. 206 (5th Cir.1971) (each sale of contaminated birdseed
separate occurrence);  Mason  v. Home Ins. Co., 177 Ill.App.3d
454, 126 Ill. Dec. 841, 532 N.E.2d 526 (1988) (each sale of
botulism-tainted food separate occurrence). [footnote 8]
Accordingly, each act of distribution of contaminated blood
constitutes an "occurrence" for purposes of applying the $1
million per occurrence limit.



Conclusion

Neither the "products hazard" nor the "completed  operations
hazard" aggregate limit of $1 million is applicable to the HIV-
contaminated blood claims.  Moreover, because each act of
distribution of contaminated blood constitutes a single
occurrence, the per occurrence limit of liability has not been
exhausted by the payment of $1 million in defense costs in a
single policy year by defendant Travelers.   Therefore,
defendant Travelers has not demonstrated exhaustion of the policy
limits. Defendant Travelers has a continuing duty to defend
plaintiff, retroactive from September 2, 1991, until it can
demonstrate that plaintiffs underlying claims fall outside the
scope of coverage of the insurance policies.  See Independent
Petrochemical Corp. v. Aetna Casualty and Surety Co., 654 F.Supp.
1334, 134~6 (D.D.C. 1986).  An appropriate Order accompanies this
Opinion.



ORDER

For the reasons state in the Court's accompanying Opinion, it
hereby is



ORDERED, that defendant Travelers' motion for partial summary
judgment is denied. It hereby further is



ORDERED, that the motions of defendants RLI, Granite State,
Lexington, Sentry, Dairyland, and Scottsdale for partial summary
judgment are granted.



SO ORDERED.



1.   Several of the parties also assert that defendant Travelers
is precluded under the doctrines of waiver and/or estoppel from
contending that its coverage obligations to plaintiff have been
exhausted. Because the Court disposes of the case on other
grounds it need not address these issues.

2.   On August 25, 1992, defendant Travelers informed the Court
that the $1 million liability limits of the 1982-83 contract and
the 1983-84 contract have been exhausted and that it intends to
tender claims falling under those contracts to RLI.

3.   Plaintiff, defendant First State, and defendant Transamerica
Premier also filed pleadings in support of defendant RLI's motion
for partial summary judgment, and in opposition to defendant
Travelers' motion for partial summary judgment.

4.   All of the parties agree that District of Columbia law
governs the interpretation of the insurance policies at issue.

5.   Defendant Travelers' assertion that the law of the District
of Columbia prohibits reference to extrinsic evidence in
interpreting ambiguous insurance contract terms is based upon an
incorrect interpretation of both Keene and Owens-Illinois.

6.   The language of this provision, as well as the completed
operations provision and the per occurrence provision, is
identical in Travelers' 1982-1983, 1983-1984, and 1984-1985
contracts.

7.   This result would not change if the Court held that the
language of the "completed operations provision" was ambiguous as
applied to HIV-contaminated blood claims. A court may consider
extrinsic evidence to determine the objectively reasonable
interpretation of an ambiguous insurance policy provision. See,
e.g.. Harbor Ins. Co. v. Omni Constr., Inc., 912 F.2d 1520
(D.C.Cir. 1990).  Defendant Travelers' undisputed, five-year
course of conduct in construing this provision as inapplicable to
the HIV-contaminated blood claims constitutes compelling evidence
that neither plaintiff nor defendant Travelers intended this
aggregate limit to be applicable to such claims.  See, e.g..
Scottsdale's Memorandum in Opposition to Travelers' Motion for
Partial Summary Judgment. Ex. 5, 8, 6, and 12. Moreover, because
any ambiguity in the insurance contract must be construed in
favor of coverage, it is clear that this limit should not be
applied here.  See Harbor Ins. Co., 912 F.2d at 1522.

8.   The Court finds that cases holding that all injuries
resulting from sales of a uniformly defective product constitute
continuous and repeated exposure to a general condition are
inapposite here. See, e.g., Champion Int'l Corp. v. Continental
Casualty Co., 546 F.2d 502 (2d Cir.1976), cert. denied, 434 U.S.
819, 98 S.Ct. 59, 54 L.Ed.2d 75 (1977) (sale of defective vinyl-
covered paneling to 26 manufacturers one occurrence);  Stonwall
Ins. Co. v. National Gypsum Co., 1992 WL 123144, 1992 U.S.Dist.
LEXIS 7607 (S.D.N.Y. May 26, 1992) (sale of products containing
asbestos  one  occurrence);   Owens-Illinois,  597 F.Supp. 1515
(sale of products containing asbestos one occurrence); Cargill,
Inc. v. Liberty Mut. Ins. Co., 488 F.Supp. 49 (D.Minn.l979).
aff'd, 621 F.2d 275 (8th Cir.1980) (sale of nutrient medium
resulting in multiple batches of defective antibiotics one
occurrence).  Such cases are inapplicable because plaintiff did
not distribute a uniformly defective or hazardous product; only a
portion of the distributed blood was contaminated.  See Dow Chem.
Co. v. Associated Indem. Corp., 727 F.Supp. 1524, 1529-31
(E.D.Mich.1989).  Moreover, the holdings in these cases were
based on a finding that absent a single occurrence construction,
the insured would be deprived of the coverage for which it had
bargained. See, e.g., Stonewall, 1992 WL 123144 at *13, 1992
U.S.Dist. LEXIS at *39 (multiple occurrence result would allow
"insurers to escape the responsibilities which they obligated
themselves  to  shoulder");   Owens-Illinois, 597 F.Supp. at 1527
(because a multiple occurrence interpretation "would effectively
emasculate the coverage" purchased by plaintiff, single
occurrence interpretation maintains the insured's reasonable
expectations).  Such a result-oriented approach is appropriate
here only if the per occurrence language is ambiguous as applied
to the HIV-contaminated blood claims.  If the Court were to find
the language of the per occurrence provision ambiguous as applied
here, because the single occurrence interpretation would
effectively deny coverage to plaintiff, it is the multiple
occurrence interpretation that is consistent with the parties'
reasonable expectations.