Federal Insurance Company v. 3M Company

Background

Federal Insurance Company issued annual general-liability policies to Arizant Healthcare, Inc. covering periods from April 1, 2003, through October 13, 2010. 3M acquired Arizant in 2010 and became its successor in interest under the policies. The Bair Hugger Patient Warming System was designed to maintain a patient’s body temperature during surgery by forcing warm air through a blanket.

Thousands of product-liability claims alleged bodily injuries caused by defects in the Bair Hugger’s design, development, manufacture, or sale. The claims were transferred to the District of Minnesota for coordinated pretrial proceedings in the Bair Hugger multidistrict litigation, or MDL. The opinion states that the MDL contained about 5,560 claims, of which about 1,155 alleged injuries occurring while Federal’s policies were in effect.

3M tendered the MDL to Federal for coverage and incurred attorney fees and other defense costs. Federal had not paid those costs. The parties disputed the number of deductibles that applied and whether Federal had to pay the full cost of defending the MDL or only the costs associated with cases covered by its policies.

Deductibles

The earlier policies applied deductibles on a “per occurrence” basis. Later policies applied them on an “each event” basis. Federal argued that each individual injury allegedly caused by the Bair Hugger was a separate occurrence or event, which would require more than 1,000 deductibles. 3M argued that the relevant occurrence or event was the design and manufacture of the Bair Hugger, resulting in one deductible per policy period.

Applying Minnesota contract law, the court held that the policies’ terms referred to 3M’s design and manufacture of the Bair Hugger rather than each individual injury or surgery. The court relied substantially on its earlier decision in a prior related proceeding involving products-liability insurance and asbestos-containing products, which treated manufacturing as a single occurrence. It concluded that the policies were not ambiguous and that 3M satisfied its deductible obligation by paying one deductible per policy.

The order declared that at most one deductible applied to the Bair Hugger MDL for each policy period and that no more than eight deductibles could be applied against 3M. The order granted in part and denied in part 3M’s motion for partial summary judgment; 3M’s motion was denied in all other respects.

Duty to defend

The policies required Federal to defend 3M against a covered “suit,” but stated that Federal had no duty to defend a suit seeking damages to which the insurance did not apply. Federal argued that it had to pay defense costs only in proportion to the cases in the MDL that involved claims covered by its policies. 3M argued that Federal had to pay the entire cost of defending the MDL.

The court held that an MDL is not one single lawsuit. Instead, the individual civil actions remain separate even though they are grouped for coordinated or consolidated pretrial proceedings. The court also noted that damages are sought in the individual underlying cases, not in the MDL as a separate proceeding.

The court therefore ruled that Federal’s duty to defend extended only to individual underlying cases that included claims arguably covered by the policies. Federal did not have to pay the defense costs for other cases in the MDL. The court did not decide how the costs should be allocated because there could be factual disputes about which cases contained covered claims and because Federal’s proposed proportional method might be inequitable in some circumstances.

The order granted in part and denied in part Federal’s motion for partial summary judgment. Federal’s motion was denied in all other respects. The court likewise granted in part and denied in part 3M’s motion, leaving 3M’s other claims and issues unaffected by these motions.

Disposition

The court granted in part and denied in part both parties’ motions for partial summary judgment. It declared that no more than eight deductibles applied under the policies and that Federal owed a duty to defend only the individual MDL cases containing claims arguably covered by the policies. It left the method of allocating defense costs for a later stage. Judge John R. Tunheim signed the order on November 23, 2022.