Insurance policies for Stryker in effect in 2000 included a commercial umbrella policy, issued by XL Insurance America, Inc., and an excess liability policy, issued by TIG Insurance Company.

The umbrella policy covered any “batch” of losses that Stryker became “legally obligated to pay by reason of liability imposed by law or assumed by the [i]nsured … because of [b]odily [i]njury.” That policy was limited to $15 million, after a $2 million self-insured retention.

The excess liability policy followed form, provided for coverage after the umbrella policy was fully “exhausted,” and extended to Stryker's “ultimate net loss … in excess of all underlying insurance” up to $25 million.

Stryker sought defense and indemnification from the two insurers. In October 2001, XL denied coverage, contending that the Uni-Knee claims were “known or suspected” prior to the inception of the policy, while TIG hoped that its excess layer would not be implicated.

Stryker, in turn, filed multiple lawsuits against XL and TIG in the U.S. District Court for the Western District of Michigan. During the pendency of the coverage litigation, Stryker unilaterally settled all of its individual product liability claims for $7.6 million and separately was adjudicated liable in the U.S. District Court for the Southern District of New York for $17.7 million of Pfizer's losses.

Stryker's case against XL was resolved over a decade later. In July 2012, the Sixth Circuit held that XL was obliged to “provide[ ] coverage for the claims made against Stryker in connection with [the defective] Uni-Knees.”

As a result, XL decided to cover Stryker's losses. It did so, however, in non-chronological order: XL paid out the larger Pfizer judgment first, exhausted the limits of its coverage, and left Stryker's individual product liability claims on the table.

In October 2013, in the Michigan district court, Stryker filed a supplemental complaint against TIG, seeking to recover the remaining $7.6 million paid to settle its direct product liability claims. TIG disputed its coverage obligation, raising a defense that was “unique to [its] policy.”

In TIG's view, the direct Uni-Knee claims did not constitute “ultimate net loss” because Stryker had failed to obtain “written consent” at the time the settlements were made.

For its part, Stryker contended that the policy, as applied to the facts of its case, was latently ambiguous: because XL had satisfied the Pfizer judgment first (and had exhausted its policy), Stryker had been forced to present its direct settlements to TIG years after they had been made. Stryker argued that the excess liability policy did not actually require “consent to the Uni-Knee settlements when they were made.”

The district court granted summary judgment to Stryker, concluding that the policy contained a latent ambiguity. “On the one hand,” the district court said, “the policy, as interpreted and applied by TIG's own employees, [did] not require TIG's consent to settlements entered into below the TIG layer.” The district court added that, “on the other hand,” the policy's plain language did “require consent if those settlements [were] [ultimately] offered to TIG for payment.” Thus, in the district court's view, the term “claims” in the definition of ultimate net loss was “susceptible to more than one interpretation.”

Having found the term ambiguous, the district court then construed the contract against TIG based on various policy rationales. All in all, the district court found that Stryker's claims were covered under the policy, TIG had no defenses to enforcement, and Stryker was entitled to $8.6 million in damages and interest.

The dispute reached the Sixth Circuit.

The TIG Policy

Section III.B of the TIG policy defined:

ultimate net loss

as:

the amount of the principal sum, award or verdict actually paid or payable in cash in the settlement or satisfaction of claims for which the insured is liable, either by adjudication or compromise with the written consent of [TIG], after making proper deduction for all recoveries and salvages.

(Emphasis supplied.)

The Sixth Circuit's Decision

The circuit court, applying Michigan law, reversed the district court and ordered that judgment be entered in favor of TIG.

In its decision, the Sixth Circuit ruled that the phrase in the TIG policy, “with the written consent of [TIG]” required TIG's “written consent” for any and all settlements and that “[n]othing within the four corners of the contract” suggested “some otherwise hidden meaning.”

The circuit court found that the TIG policy was not “latently ambiguous” and that it provided only for payment of settlements that had been entered into with TIG's written consent and did “not exclude the consent requirement for settlements within the underlying policy limits.” Accordingly, it concluded:

Because Stryker did not satisfy the consent requirement, its direct settlements [could] not constitute ultimate net loss, and there [was] no coverage under the policy.

The case is Stryker Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, Nos. 15-1657/1664 (6th Cir. Nov. 18, 2016). Attorneys involved include: ARGUED: Jeffrey C. Gerish, PLUNKETT COONEY, Bloomfield Hills, Michigan, for Appellant/Cross-Appellee. D. Andrew Portinga, MILLER JOHNSON, Grand Rapids, Michigan, for Appellees/Cross-Appellants. ON BRIEF: Jeffrey C. Gerish, Mary Massaron, PLUNKETT COONEY, Bloomfield Hills, Michigan, Carlos del Carpio, Mary E. Fechtig, CARROLL MCNULTY & KULL LLC, Chicago, Illinois, for Appellant/Cross-Appellee. D. Andrew Portinga, David J. Gass, J. Michael Smith, MILLER JOHNSON, Grand Rapids, Michigan, for Appellees/Cross-Appellants. Laura A. Foggan, WILEY REIN LLP, Washington, D.C., for Amicus Curiae.