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.
Kalamazoo, Mich.-based 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 2010 and 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 had struck a deal with Pfizer that allegedly left Stryker out in the cold, according to the documents, agreeing to pay Pfizer $26 million. The settlement with Pfizer exhausted XLIA’s claim limit for the Duracon Uni-Knee claims, the court ruled in June 2013.
In August, the court ruled that XLIA is entitled to the $2 million self-insured retention payment included in its contract with Stryker after exhausting the $15 million limit in the device maker’s insurance policy.
Stryker sued TIG for coverage of the direct settlements it paid out of its own pocket. TIG argued that the claim isn’t covered because Stryker didn’t ask for its consent before inking the settlements and didn’t give adequate notice of the dispute with Pfizer. Judge Robert Holmes Bell of the U.S. District Court for Western Michigan disagreed, ruling yesterday that Stryker didn’t need TIG’s approval to settle the lawsuits.
"Before Stryker entered into the settlements, XL, the underlying insurer, had denied coverage. Based on the TIG policy’s coverage language, XL’s denial meant that TIG would also deny coverage. TIG’s employees agreed that the denial of Stryker’s claim by XL essentially operated as a denial by TIG as well because TIG’s policy was a "follow form" policy," Bell wrote. "If XL denied a claim, TIG would not do an independent evaluation about whether the TIG policy provided coverage. The court is reluctant to place the burden on Stryker to seek TIG’s consent for a settlement when coverage had already been denied by the underlying insurer, because to do so would likely have been futile."
Bell also ruled that TIG waited too long – nearly 14 years – to raise the adequate notice defense.
"TIG has articulated no good reason for its failure to discover this defense earlier. TIG had the means for discovering this defense when this suit was filed in 2005. There is great prejudice and no justification for bringing it into the lawsuit at this late date. For this reason alone, the court will deny TIG’s Pfizer notice defense," the judge wrote. "Even assuming the defense is properly before this court, the court finds no merit to it. It is a red herring. Stryker is not seeking coverage for the Pfizer judgment from TIG. The Pfizer judgment has been paid by XL. Stryker is only seeking coverage for the claims it settled. Most of Stryker’s settlements were entered into before the Pfizer action was even filed. Whether Stryker gave timely notice of the Pfizer indemnity claim or provided copies of pleadings filed in the Pfizer suit is tangential at best to the issues in this case."