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Vol. 11 - Issue 6

December 16, 2022

 

Unique Issue: Duty To Defend Suits Against Insured In An MDL

 

When it comes to the duty to defend, it is unusual to see a case involving a novel legal issue.  The rules concerning the duty to defend are well-settled.  With the exception of some outliers, the duty to defend is broad.  It’s broader than the duty to indemnify.  A defense is owed if there is any potential for coverage.  If there is a duty to defend one claim, there is a duty to defend the entirety of the complaint.  In some states, the duty to defend determination is tied solely to the allegations in the complaint.  In others, extrinsic evidence can be considered.  In general, duty to defend jurisprudence is a product of several long-ago established principles.

This is why I found the Minnesota federal court’s decision in Federal Ins. Co. v. 3M Co., No. 21-2093 (D. Minn. Nov. 23, 2022) so interesting.  The court addressed a novel duty to defend legal issue.

The crux of the matter was coverage for 3M Company, from Federal, for more than 5,000 product liability actions stemming from the design and manufacture of the “Bair Hugger Patient Warming System,” which is designed to maintain a patient’s body temperature during surgery by forcing warm air through a blanket.  These cases were centralized for pretrial proceedings in multidistrict litigation (“MDL”) in the District of Minnesota.

The court addressed several issues, but one that stands out as unusual is an insurer’s responsibility for defense costs associated with actions in an MDL.  The court likewise made the observation of the issue’s novelty, noting that, while it was not treading on completely barren terrain, it was close.

As you would expect, 3M argued that Federal was responsible for paying the full defense cost of the entire MDL.  The company did not need a Post-it Note to remind itself to assert that position.  Federal, for its part, agreed, at least for purposes of the motion, that it was responsible for paying some of the defense costs, but maintained that it should be those costs proportional to the number of cases in the MDL that are covered by its policies.

In setting up the issue, the court noted that the policy language was clear in two regards: Federal has a duty to pay defense costs against a “suit” to which the insurance applies, but has no duty to defend against any “suit” to which insurance does not apply.  The issue, the court noted, turns on whether the MDL is one “suit” or “whether each individual case in the MDL is a ‘suit.’”

To resolve the issue, the court started in the logical place -- the statute creating the multidistrict litigation framework -- and noted that “[t]he plain language of the statute supports a conclusion that the underlying cases in an MDL are separate actions that are merely grouped together for coordinated or consolidated proceedings. They can be treated individually by remanding or terminating an individual case even if the MDL is not terminated. The cases are also treated separately before transfer and after remand.”  In general, after looking at several aspects of the MDL statute, the court’s conclusion was that “the individual cases within an MDL—including the underlying cases in the Bair Hugger MDL—retain their individual character and the MDL is not a single case.”

At its core, 3M’s argument was that an MDL is one giant suit, arguing “that because all the cases in the MDL present common issues they are inextricably intertwined.” As the court described it, “according to 3M, there is no basis for distinguishing between the individual cases for allocating defense costs as they are based on the same legal theories and factual allegations.”

The court sided with Federal, explaining its decision as follows – which was guided by the MDL statute, but, ultimately, tied to the policy language:

“In view of the Policies’ language and how the MDL statute and courts handle MDLs and their constituent cases, the Policies’ defense duty language is reasonably susceptible to only one meaning which does not require Federal to pay the full cost of the MDL. Superficially, this may appear in tension with Minnesota law that extends the duty to defend ‘to every claim that ‘arguably’ falls within the scope of coverage.’ (citation omitted) This tension is resolved by distinguishing between claims and cases.  Absent policy language to the contrary, Minnesota law requires defense of all claims within a case to which a defense duty attaches but it does not require defense of a case in which a defense duty does not attach to any part of any claim even if the case is related to one the insurer has a duty to defend. (citations omitted) The Policies explicitly state the duty does not extend to the non-insured cases. (citation omitted)  Because the Policies and the law treats MDL constituent cases individually, ‘all parts of the cause of action’ in the uninsured cases ‘fall clearly outside the scope of coverage.’ (citation omitted)  If presented with this case, the Court predicts the Minnesota Supreme Court would hold the same. Therefore, Federal is only obligated under the Policies to pay the defense costs associated with the cases within the MDL that include claims that are arguably covered by the Policies.”

Upon concluding that Federal’s defense obligation did not encompass the entire MDL, the court turned to determining the extent of Federal’s obligation.  Its decision was to put it on hold: “Federal proposes having defense counsel allocate the costs each billing period based upon proportion of covered claimants. 3M, opposing any division of costs, did not propose a method. Because 3M has not weighed in on a method of apportioning costs, there may be factual disputes as to which cases include covered claims, and using a ratio may be inequitable in some circumstances, the Court will not resolve what method is appropriate at this time.”

While this issue is not going to come up every day, it is also far from obscure.  According to the website for the Judicial Panel on Multidistrict Litigation, there are 172 MDL dockets as of November 15, 2022.  And given the types of cases that often make their way into an MDL, I suspect that many involve insurers paying for defense.


 

 

 

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