Insurer escapes Stryker lawsuit over Duracon Uni-Knees

Stryker (NYSE:SYK) won’t be recouping from 1 insurer the more than $7.6 million it paid out to settle product liability lawsuits filed over its Duracon Uni-Knee implants, a federal judge ruled last month.

Stryker acquired the Duracon Uni-Knee with its $1.9 billion buyout of Howmedica from Pfizer (NYSE:PFE) in 1998. Stryker ended up paying out $7.62 million to settle the liability suits after problems with the implant surfaced, suing XL Insurance America and TIG Insurance Co. to cover its losses.

Stryker won the 1st lawsuit after the court ruled that XLIA "breached its duty to defend and indemnify plaintiffs in connection with the Uni-Knee claims," according to court documents. A $27.1 million judgment was awarded to Pfizer and Stryker in September 2010and was upheld on appeal, according to the documents.

In the meantime Pfizer had sued Stryker, seeking reimbursement for its nut in settling cases brought after the acquisition. A court in that case awarded the pharmaceuticals giant a $17.7 million decision in April 2005, court records show.

But XLIA struck a deal with Pfizer that allegedly left Stryker out in the cold, according to the documents, agreeing to pay Pfizer $26 million.

"[XLIA] settled with Pfizer in order to attempt to exhaust its policy limits and limit its liability for penalty interest," Stryker alleged, according to the documents. "[XLIA] was looking out for its own interests, not Stryker’s, when it settled with Pfizer. Instead of satisfying the Pfizer v. Stryker judgment, XLIA could have paid the judgment in Stryker I, which represented plaintiffs’ settlements and defense costs in the Uni-Knee Claims. [XLIA] did not do this because it believed that those payments would not exhaust its policy limits or terminate its liability for penalty interest."

The settlement with Pfizer exhausted XLIA’s claim limit for the Duracon Uni-Knee claims, the court ruled in June 2013.

"Although this court ruled that [XLIA] had exhausted its policy limits, no insurer has reimbursed plaintiffs for the amounts that plaintiffs paid to settle the Uni-Knee claims," according to the documents "If [XLIA’s] policy limits are exhausted, then the amounts that plaintiffs paid to settle the Uni-Knee claims fall within TIG’s policy layer," according to the documents. "TIG refuses to reimburse plaintiffs for the settlements that plaintiffs paid, claiming that it has no liability for those settlements because it did not consent to them in writing."

Stryker asked the court to approve a supplemental complaint against XLIA containing 2 new claims against the insurance company for bad faith and promissory estoppel, but a magistrate judge for the U.S. district Court for Western Michigan shot down that bid. Judge Robert Holmes Bell later upheld that ruling and then dismissed XLIA from the case, but denied the insurer’s bid for sanctions against Stryker, according to the documents.

"This court is not persuaded that Stryker’s motion to supplement merits the imposition of sanctions. Although Stryker’s motion was denied, it was not wholly lacking in legal or factual support, nor was it objectively unreasonable," Bell wrote.

Stryker is still pursuing its lawsuit against TIG, according to the documents, seeking to compel discovery in the case.

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