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Medmarc Casualty Insurance Co. v. Avent America

July 15, 2010

MEDMARC CASUALTY INSURANCE COMPANY , PLAINTIFF/COUNTERCLAIM DEFENDANT-APPELLEE,
v.
AVENT AMERICA, INC., DEFENDANT/COUNTERCLAIM PLAINTIFF-APPELLANT.
PHILIPS ELECTRONIC NORTH AMERICA CORPORATION (AS SUCCESSOR-IN-INTEREST TO AVENT AMERICA, INC.), THIRD-PARTY PLAINTIFF-APPELLANT,
v.
STATE FARM FIRE AND CASUALTY COMPANY, AND PENNSYLVANIA GENERAL INSURANCE COMPANY, THIRD-PARTY DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 C 5832-Harry D. Leinenweber, Judge.

The opinion of the court was delivered by: Flaum, Circuit Judge.

ARGUED APRIL 2, 2010

Before FLAUM, WOOD, and HAMILTON, Circuit Judges.

Avent America, Incorporated ("Avent") appeals the district court's declaratory*fn1 judgment that Medmarc Casualty, Pennsylvania General and State Farm insurance companies ("the insurance companies") do not have a duty to defend Avent in a series of lawsuits involving the presence of Bisphenol-A ("BPA") in certain products Avent sold. The plaintiffs in the underlying lawsuits are parents who bought these Avent products containing BPA and then refused to use the products once they learned of the dangers of BPA. The case at hand hinges on whether the underlying lawsuits state claims for damages "because of bodily injury," and are therefore covered by the insurance policies, or not. Avent argues that the underlying suits' claims that the plaintiffs will not use the products out of fear of bodily injury sufficiently state claims for damages "because of bodily injury." The insurance companies argue that the underlying suits are not covered by the policies because the claims are limited to economic dam-ages due to the purchase of unusable products and these damages are not "because of bodily injury." State Farm asserts an additional argument that it does not owe a duty to defend because the term of its coverage ended well before any of these claims could have arisen. The district court agreed with the insurance companies. For the reasons set forth below and based on the insurance companies' admission at oral argument that they would have to re-examine and alter their position should the underlying complaints be amended to include allegations of actual bodily injury, we affirm the district court's grant of declaratory relief to the insurance companies.

I. Background

A. Underlying Lawsuits

This duty to defend case centers around a series of class action suits filed against Avent for using BPA in their products without informing the consumers of the health risks associated with the potential leaching of BPA. The classes in the underlying suits consist of parents who purchased Avent's products for their children. While the fifteen complaints vary in their specific allegations, they all sketch out the same general claim: Avent manufactured products that contained BPA; Avent was aware of a large body of research that showed that BPA, even at low levels, is harmful to humans and is particularly harmful to children; despite this knowledge, Avent marketed their products as superior in safety to other products for infants and toddlers; parents would not have purchased Avent's products if they knew that using products with BPA could be harmful to their children; upon learning of the safety problems associated with products that contain BPA, the plaintiff-parents stopped using the products and therefore did not receive the full benefit of their purchase.

These class actions were consolidated for pre-trial purposes into In re: Bisphenol-A (BPA) Polycarbonate Plastic Products Liability Litigation, MDL No. 1967, in the Western District of Missouri. After the consolidation, many of the underlying plaintiffs from the consolidated class action suits filed a new class action complaint against Avent in the Western District of Missouri. This new action, Broadway v. Avent America, Inc., No. 08 CV 997 (W.D. Mo.) (the "Broadway Action") is the current operative complaint, but the other class action complaints remain relevant insofar as they might be used to send the matters back to the transferor courts. The complaint in the Broadway Action (the "Broadway Complaint") is representative of all of the underlying complaints for the purpose of our discussion of whether the factual allegations state a claim that triggers the insurance companies' duty to defend. Therefore, we discuss only the Broadway Complaint in detail in this section.

The Broadway Complaint summarizes the suit in the following manner:

This action arises out of Defendants' misrepresentations and/or omissions and failures to warn of and/or otherwise disclose that their Baby Products are manufactured using a dangerous chemical recognized to be toxic in several respects for years and which poses serious risks to an individuals' health as the fact that it leaches into food and beverages in the course of normal, everyday use.

(Broadway Complaint, ¶ 1.) The complaint defines the purported class of plaintiffs to be "all persons who purchased polycarbonate plastic baby bottles, nipples, training or 'sippy' cups, and other products manufactured, sold and/or distributed by Defendants that contained Bisphenol-A." (Broadway Complaint, ¶ 97.) The complaint dedicates thirteen pages to the health risks caused by exposure to BPA. (Broadway Complaint, ¶ 40-76.) These pages cite to numerous scientific studies that show that BPA exposure causes various problems, including early sexual maturation in females, increased obesity, and increased neuron-behavioral problems such as ADD/HD and autism, in a variety of lab animals. The complaint alleges that the general prevailing consensus from these studies has been that there should be concern about exposure to BPA for humans. However, at no point in those thirteen pages, or anywhere in any of the underlying complaints, do the plaintiffs allege that any of these negative health effects have manifested in their children. Notably, the plaintiffs never allege that they or their children ever used the products or were actually exposed to the BPA. Instead, the plaintiffs allege a uniform injury across all plaintiffs that stems from their purchasing an unusable product. (Broadway Complaint, ¶ 101) ("In every related case, Plaintiffs and Class members suffered uniform damages caused by their purchase of Baby Products produced, manufactured, distributed, and/or sold by Defendants.") The counts alleged against Avent include: Violation of Illinois Consumer Fraud Act, Violation of Connecticut Unfair Trade Practices Act, Violation of State Consumer Protection Laws, Breach of Express Warranty, Breach of Implied Warranty of Merchantability and Fitness for a Particular Purpose, Intentional Misrepresentation, Negligent Misrepresentation, and Unjust Enrichment. Plaintiffs' prayer for relief includes damages in the form of: the amount of monies paid for Defendant's offending Baby Products and/or other consequential or incidental damages; actual damages, statutory damages, punitive or treble damages, and other relief as provided by the statutes cited in the complaint; injunctive relief barring Defendants from continuing their use of BPA in their Baby Products in the manner described in the complaint; and all other relief to which Plaintiffs and members of the Class may be entitled at law or in equity. The prayer for relief also asked for attorneys' fees and class certification.

After the initial pleadings stage in the consolidated actions and in the Broadway Action, Avent filed a motion to dismiss the complaints on the ground that they did not state a legally cognizable injury. Avent argued that because the plaintiffs' prayers for relief "contain no allegations of physical illness, cost of future medical monitoring, fear of future injury, or emotional distress," this was essentially a "no-injury product liability" action and should be dismissed. (Omnibus Introduction to Defendants' Motion to Dismiss, p. 9, In re BPA.) When responding to this motion, plaintiffs conceded that they did not seek damages for any physical harm but rather sought only economic damages. Plaintiffs stated:

Defendants' contention that Plaintiffs' claim must be dismissed because Plaintiffs have failed to plead a legally cognizable injury mischaracterizes Plaintiffs' claims and ignores Plaintiffs' well-pled allegations regarding the economic injuries they sustained as a result of purchasing Defendants' BPA-tainted goods. Defendants correctly note that Plaintiffs do not seek to recover for personal injuries or property damage. However, as Defendants concede, Plaintiffs do seek to recover for their economic losses. Courts routinely recognize a plaintiff's right to recover for economic loss where the plaintiff alleges he has purchased goods that do not perform satisfactorily or are worth less than represented. Plaintiffs have clearly alleged such injuries.

(Plaintiffs' Suggestions in Opposition to Defendants' Joint Motion to Dismiss All Claims of All Named Plaintiffs for Failure to Plead a Legally Cognizable Injury and Lack of Standing Pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6), p. 2, In re BPA.) In response to Avent's motion, the district court dismissed some of the claims and let others go forward. In addressing the argument that this is a "no-injury product liability" case, the district court found that to be a mischaracterization of the complaint. It found that the essence of the claim was "not that someone was injured, but that consumers were not told of BPA's ...


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