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Atlantic Mutual Insurance Co. v. American Academy Of Orthopaedic Surgeons

July 14, 2000

ATLANTIC MUTUAL INSURANCE COMPANY AND CENTENNIAL INSURANCE COMPANY, PLAINTIFFS-APPELLEES,
v.
AMERICAN ACADEMY OF ORTHOPAEDIC SURGEONS AND SCOLIOSIS RESEARCH SOCIETY, DEFENDANTS-APPELLANTS.



The opinion of the court was delivered by: Justice Quinn

Appeal from the Circuit Court of Cook County

Honorable Ronald C. Riley, Judge Presiding.

Plaintiffs, Atlantic Mutual Insurance Company (Atlantic Mutual) and Centennial Insurance Company (Centennial), filed a complaint for declaratory judgment seeking a determination of whether they owed defendants, the American Academy of Orthopaedic Surgeons (AAOS) and the Scoliosis Research Society (SRS) (collectively, defendants), a duty to defend or indemnify them for civil conspiracy and concert of action claims brought against them in underlying mass product liability litigation. Defendants filed a motion to dismiss plaintiffs' complaint for failure to name necessary parties which the trial court denied. The trial court also denied defendants' motion to compel discovery of various documents and witnesses. Subsequently, plaintiffs filed a motion for summary judgment and argued that they had no duty to defend or indemnify defendants in the underlying suit. The trial court granted summary judgment in favor of plaintiffs and ruled that the causes of action contained in the underlying suit were not covered under the insurance policies issued to AAOS and SRS; therefore, plaintiffs had no duty to defend or indemnify AAOS and SRS. On appeal, defendants contend that: (1) Atlantic Mutual and Centennial have a duty to defend AAOS and SRS where the underlying complaint does not allege that AAOS and SRS "expected or intended" to injure the underlying plaintiffs; (2) the trial court erred in denying defendants' motion to dismiss for failure to join necessary parties; and (3) the trial court abused its discretion in ruling on plaintiffs' motion for summary judgment without allowing defendants to complete written discovery and depose witnesses. For the reasons that follow, we affirm.

The underlying litigation involves numerous cases brought against AAOS, SRS and others as a result of complications from the implantation of pedicle screw fixation devices. The complaints have been consolidated into a multidistrict litigation action entitled, In re: Orthopaedic Bone Screw Products Liability Litigation, which is currently pending in the United States District Court for the Eastern District of Pennsylvania. *fn1

Pedicle screw fixation devices are designed to be used in spinal fusion surgery. These devices are used to fuse two or more vertebrae together in order to correct various spinal conditions. According to the underlying complaint, pedicle screw fixation devices are classified by the Federal Drug Administration (FDA) as Class III devices, which means that they "present a potential unreasonable risk of illness or injury" and therefore must receive premarket approval from the FDA before they may be commercially sold or distributed. In order to generate the required scientific evidence to allow approval, the FDA granted pedicle screw manufacturers permission to conduct numerous clinical trials from 1986 through 1993. According to the underlying complaint, these clinical trials failed to provide sufficient evidence to support a successful application for premarket approval. The underlying complaint alleges that despite, the lack of premarket approval for these devices, pedicle screw manufacturers promoted, marketed, distributed, and sold devices that were intended for use as pedicle screw fixation devices. The complaint further alleges that hundreds of thousands of individuals were surgically implanted with these devices despite a lack of adequate evidence that these devices were safe and effective when used in this manner.

AAOS is a professional organization comprised of orthopaedic surgeons, some of whom specialize in spine surgery. SRS is a professional organization comprised of spine surgeons who are admitted to membership by invitation only. AAOS and SRS are named defendants in approximately 500 of these pedicle screw fixation device cases. Civil conspiracy and concert of action claims were specifically brought against AAOS and SRS.

The civil conspiracy claim alleges that from the middle of 1988 through early 1989 pedicle screw manufacturers and various medical societies, including AAOS and SRS, "reached an agreement, understanding, and a meeting of the minds" to pursue an "intercompany/association conspiracy" which was described as follows:

"The purpose of the intercompany/association conspiracy, to which each member of the conspiracy agreed, was to promote, market, distribute, and sell medical devices intended for use as pedicle screw fixation devices, to do so through deceptive and misleading means and thereby to:

a) cause pedicle screw fixation devices to be introduced, delivered and/or received in interstate commerce as Class III devices without premarket approval ***;

b) promote such devices as pedicle screw fixation devices and represent to spine surgeons that such devices were safe and effective when used as pedicle screw fixation devices, even though such devices were 'investigational devices' *** and pedicle screw fixation surgery was an 'investigational use' under FDA regulations; and

c) engage in deception."

The underlying complaint further alleges that AAOS and SRS, along with other professional associations, participated in the conspiracy because "they recognized that they could capitalize on the manufacturers' interest in promoting pedicle screw fixation devices through the associations by obtaining significant financial compensation and remuneration from manufacturers for doing so." The underlying complaint then alleges the following:

"The participating manufacturers and sellers of pedicle screw fixation devices would provide the participating professional associations and others with grants, contributions, fees, and other remuneration to sponsor or conduct seminars, workshops, conferences and symposia which were directed to spine surgeons and which promoted pedicle screw fixation surgery.

***[U]nder the scheme adopted and implemented pursuant to the intercompany/association conspiracy, these seminars, workshops, conferences and symposia were really sales events where those who participated in the intercompany/association conspiracy attempted to create or expand a market for the sale of pedicle screw fixation devices and to obtain from the participants sales of the devices for use in pedicle screw fixation surgery."

The complaint alleges that, by engaging in such deceptive conduct, defendants acted in reckless disregard of the risk that the acts in furtherance of the conspiracy would result in the distribution of medical devices that were untested and unproven for their intended use and exposed numerous plaintiffs in the underlying complaints to substantial and serious risks of painful and disabling injuries.

Regarding causation and injury, the complaint alleges that the purpose of the intercompany/association conspiracy was "to cause *** pedicle screw fixation devices to be placed into commerce and to be used in patients" and that "as a direct, proximate and reasonably foreseeable result, *** plaintiff has suffered and will continue to suffer physical harm."

The concert of action claim realleges the allegations in the conspiracy claim and further alleges that the participants in the intercompany/association conspiracy knew that the conduct of the pedicle screw manufacturers "constituted a breach of such duties and nonetheless provided substantial assistance or encouragement for such conduct" and that "the participants in the intercompany/association conspiracy committed tortious acts in concert with [the pedicle screw manufacturers] and pursuant to a common design."

According to the complaint, AAOS received approximately $815,562 in workshop, exhibit, registration and other fees and conducted approximately 13 symposia on pedicle screw fixation. SRS received approximately $440,000 from manufacturers and distributors of pedicle screw fixation devices through donations and payment for seminars and conducted at least nine national symposia on pedicle screw fixation.

Plaintiffs Atlantic Mutual and Centennial issued comprehensive general liability (CGL) insurance policies to defendants from August 23, 1984, to August 25, 1991. It is undisputed that SRS was not an insured under the Centennial policy in effect from August 25, 1984, to August 25, 1985. It is further undisputed that none of the Centennial or Atlantic Mutual policies provide coverage for claims asserted against AAOS or SRS where the pedicle screw device was implanted after August 25, 1991. AAOS and SRS did not dispute the entry of summary judgment in the trial court on these two issues and they do not appeal this aspect of the trial court's order. Federal Insurance Company, also named as a defendant in the declaratory judgment action as an interested party, issued general liability policies to AAOS and SRS during the relevant time period. On April 21, 1997, Atlantic Mutual and Centennial filed a complaint for declaratory judgment and alleged, inter alia, that the complaints pending against AAOS and SRS failed to allege an "occurrence" as defined in the insurance policies of Atlantic Mutual and Centennial and that the Atlantic Mutual policy contains a bodily injury exclusion which precludes coverage.

On June 20, 1997, AAOS and SRS filed a motion to dismiss plaintiffs' complaint for declaratory judgment. Defendants' motion to dismiss is not a part of the record. Defendants' memorandum in support of their motion to dismiss, which is contained in the record, argued that plaintiffs failed to name all insurance carriers providing coverage for the products liability litigation and that these "absent insurers" were necessary and indispensable parties pursuant to section 2-405(a) of the Code of Civil Procedure. 735 ILCS 5/2-405(a) (West 1996). Therefore, defendants requested that these absent insurers be joined as defendants or, in the alternative, that plaintiffs' complaint for declaratory judgment be dismissed.

In response, plaintiffs argued that these "absent insurers" did not satisfy the definition of necessary parties because the coverage that they provided was not the same type of coverage as that provided by plaintiffs. These absent insurers did not provide defendants with CGL policies. Rather, according to plaintiffs, these absent insurers provided "Media/Special Perils" policies and "Non-Profit/Professional Liability" insurance policies, which are of a highly specialized nature and therefore different in kind from CGL policies. Following a hearing, the trial court denied defendants' motion to dismiss plaintiffs' complaint for failure to name necessary and indispensable parties.

Plaintiffs filed a motion for summary judgment and argued that summary judgment was proper because the underlying civil conspiracy and concert of action claims did not constitute "occurrences" and/or were excluded from coverage by the intentional act exclusion provision in the policy. Plaintiffs further asserted that the injuries were expected as a matter of law.

Defendants then filed a motion to compel the production of reinsurance documents and argued that these documents could potentially reveal information plaintiffs disclosed to their reinsurers regarding plaintiffs' assessment of their coverage under the policies. ...


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