Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 04 C 6969-Samuel Der-Yeghiayan, Judge.
The opinion of the court was delivered by: Kanne, Circuit Judge
Before BAUER, KANNE, and EVANS, Circuit Judges.*fn1
This insurance-coverage action represents the third case in a series of lawsuits stemming from the marketing of Synthroid, a synthetic thyroid drug. See In re Synthroid Mktg. Litig., 264 F.3d 712 (7th Cir. 2001); Knoll Pharm. Co. v. Auto. Ins. Co., 152 F. Supp. 2d 1026 (N.D. Ill. 2001). The first case-a multi-district litigation-consolidated numerous class actions filed by consumers and health insurers that sought damages for the alleged monopolization, racketeering, fraud, and deceptive business practices of Synthroid's producers. See Synthroid, 264 F.3d at 714. After the multi-district litigation settled, the Synthroid defendants filed the second case; that insurance-coverage suit sought damages from the Synthroid defendants' primary-insurance providers for the insurers' alleged failure to defend them in, and indemnify them for, the settlement of the multi-district litigation. See Knoll Pharm. Co., 152 F. Supp. 2d at 1031. While it was pending on appeal, the second case also settled.
German corporation BASF AG ("BASF") then filed this third suit, seeking to recover damages from its umbrella insurers for their failure to defend and indemnify BASF, and its related corporate entities, in the initial Synthroid litigation. The district court in this case decided that the umbrella-insurance policies required the insurers to defend BASF in the Synthroid litigation, and granted summary judgment to BASF on the insurers' liability for breach of contract. We disagree. The terms of the umbrella policies, as a matter of law, did not obligate the insurers to defend or indemnify BASF. We therefore reverse, and remand to the district court for the entry of summary judgment in favor of the insurers.
Between 1989 and 1995, BASF's predecessor in interest, Boots Pharmaceuticals, Inc. ("Boots"), purchased two layers of liability insurance: primary insurance and umbrella insurance.*fn2 The primary-insurance policies all contained similar provisions, which stated that the insurers would indemnify Boots for lawsuits seeking damages "arising out of" claims for a "personal injury" or an "advertising injury." The primary policies uniformly defined an "advertising injury" as, among other things, an "injury arising out of . . . oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products, or services." Moreover, the primary policies each outlined the insurer's duty to defend: each primary policy required the insurer to pay all costs that Boots incurred in defense of any suit for which the insurer would be obligated to indemnify Boots.
The umbrella-insurance policies provided two additional types of insurance coverage to Boots: excess coverage and gap-filling coverage. All of the umbrella policies contained excess-insurance provisions, which required the umbrella insurers to indemnify Boots for sums Boots became liable for that exceeded the coverage limits of its primary-insurance policies. Some of the umbrella policies also included gap-filling-insurance provisions, which obligated the umbrella insurers to defend Boots for any loss covered by the terms and conditions of the umbrella policy, and "not covered as warranted" by the primary insurers. Other umbrella policies described this gap-filling coverage as the obligation to defend any suit or any claim potentially covered by the umbrella policies to which the primary policies did not apply.
The defendants in this action-Great American Assurance Company ("Great American"), Federal Insurance Company ("Federal"), and Westchester Fire Insurance Company ("Westchester")-hold six of these umbrella-insurance policies.*fn3 Like the primary-insurance policies, the umbrella policies covered only lawsuits that sought damages "arising out of" or "because of" a "personal injury" or an "advertising injury." The umbrella policies all defined personal injury and advertising injury in a manner that was substantively identical to the primary policies' definitions of those terms. Put another way, exclusions aside, the primary policies' and umbrella policies' coverage of personal injury and advertising injury was coextensive, and a suit or claim that did not arise out of, or because of, a personal injury or an advertising injury would not be covered under either the primary or the umbrella policies.
In 1987, Boots began to manufacture, market, and sell Synthroid, a synthetic thyroid medication used to treat various thyroid diseases. In an attempt to prove that Synthroid was superior to competing synthetic thyroid hormones on the market, in the late 1980s Boots commissioned a study by Dr. Betty Dong of the University of California-San Francisco ("UCSF"). Boots hoped the study would prove that Synthroid and its competitors (among them, cheaper generic hormones) were not "bioequivalents"-drugs that have the same effect on a patient in terms of potency and absorption rate when equal doses are administered. See Synthroid, 264 F.3d at 714. However, in 1990, Dr. Dong discovered that Synthroid and its competitors were, in fact, bioequivalents, and that all of the compared synthetic hormones, including the cheaper generics, were as effective as Synthroid at treating thyroid diseases.
When provided with these results, Boots immediately sought to discredit Dr. Dong and her findings. Boots's scientists sent letters to Dr. Dong that questioned her methods and conclusions, and Boots asked UCSF to terminate the study. UCSF did not comply and in 1994, Dr. Dong provided her final report to Boots, which stated that Synthroid and its competitors were bioequivalents. Even after Boots learned of Dr. Dong's results, Boots continued to publicly maintain that Synthroid had no known bioequivalents, and Boots continued to advertise and market the drug as such. In early 1995, Boots exercised its rights under its contract with Dr. Dong to block the publication of her study.
In 1996, the Wall Street Journal learned of Dr. Dong's study and Boots's response, and it published an exposé on Boots and Synthroid. The article revealed to the public that there were cheaper alternatives to Synthroid, and that Boots had prevented the publication of Dr. Dong's study, which had confirmed that the cheaper alternatives were equally effective. Dr. Dong's study was eventually published in 1997. See Synthroid, 264 F.3d at 714. On the heels of the Wall Street Journal article and the publication of Dr. Dong's study, over 70 lawsuits (mostly class actions) were filed against BASF and its employees. These suits, filed by consumers and health insurers, alleged a potpourri of antitrust, racketeering, fraud, misrepresentation, deceptive-business-practices, and unjust-enrichment claims all based on the fact that Boots had deceived consumers into purchasing Synthroid, which occupied 70% of the $600 million market for thyroid drugs at the time. In 1997, the lawsuits were consolidated into a multi-district litigation in the Northern District of Illinois, under 28 U.S.C. § 1407. See In re Synthroid Mktg. Litig., 188 F.R.D. 295 (N.D. Ill. 1999) (certifying Synthroid consumer class); 188 F.R.D. 287 (N.D. Ill. 1999) (certifying Synthroid third-party payor class).
The gravamen of the consolidated complaints was that Boots, BASF, and their employees had wrongfully asserted monopoly control over the market for thyroid medication, which resulted in consumers and health insurers paying higher prices for Synthroid rather than purchasing lower-cost, equally effective alternatives. Both complaints claimed that the defendants had exercised monopoly control by suppressing Dr. Dong's study and criticizing her methodology and results, by concealing known facts about Synthroid, and by marketing Synthroid as a uniquely superior drug despite knowledge to the contrary. Both complaints sought economic damages for the class members (consumers and health insurers) who overpaid for Synthroid. Neither complaint sought damages on behalf of Dr. Dong or on behalf of the competing thyroid manufacturers, and neither complaint alleged defamation, libel, disparagement, or slander.
In April 1997, BASF tendered the Synthroid complaints to its primary insurers. The primary insurers each separately refused to defend BASF, claiming that they had no obligation to do so under the primary-insurance policies' definitions of personal injury and advertising injury. In late June 1997, BASF notified its umbrella insurers about the Synthroid litigation, shortly before beginning formal settlement negotiations with the class-action plaintiffs. On August 1, 1997, before any of the umbrella insurers had responded with coverage determinations, BASF entered into a settlement agreement with the Synthroid plaintiffs. In 2000, the Synthroid court approved a settlement that required BASF to pay approximately $88 million to the consumers and $46 million to the third-party payors in exchange for a release of all claims. See In re Synthroid Mktg. Litig., 110 F. Supp. 2d 676, 679-86 (N.D. Ill. 2000), aff'd in part, rev'd in part, 264 ...