Before the Court are defendant RLI's motion for partial summary judgment, defendant Travelers' motion for partial summary judgment, defendants Granite State's and Lexington's motion for partial summary judgment, defendants Sentry's and Dairyland's motion for partial summary judgment, defendant Scottsdale's motion for partial summary judgment, and the oppositions and replies thereto. These parties seek a determination as to the scope and meaning of the $ 1 million aggregate limit of liability and the $ 1 million "per occurrence" limit of liability contained in each of the contracts at issue between plaintiff and defendant Travelers.
Upon consideration of the entire record, the Court finds that the $ 1 million aggregate limit of liability is inapplicable to the HIV-contaminated blood claims. The Court also finds that because each act of distribution of contaminated blood constitutes a "single occurrence," the $ 1 million per occurrence limit of liability has not been exhausted. Although "findings of fact and conclusions of law are unnecessary on decisions of motions under Rule 12 or 56," the Court nonetheless sets forth its analysis, in part because the case survives the rulings herein. See Fed. R. Civ. P. 52(a).
Plaintiff American Red Cross seeks declaratory relief as to the obligations of its insurance carriers during the period of July 1, 1982, to July 1, 1985, in connection with HIV-contaminated blood claims filed against plaintiff. During that period, defendant Travelers, the primary insurer, had issued three consecutive one-year, primary-level comprehensive general liability policies to plaintiff. During this same period, defendant RLI had provided plaintiff with its next layer of insurance -- three consecutive "umbrella" policies. In addition, for each of the years at issue, plaintiff had three layers of insurance above defendant RLI, provided by six to seven additional insurance carriers.
Prior to the fall of 1991, defendant Travelers had defended and indemnified plaintiff in HIV-contaminated blood cases under all three of the primary policies. In 1990, defendant Travelers informed plaintiff that because it was contractually obligated to provide only $ 1 million of coverage, its liability limits under the 1984-85 policy period had been exhausted and it intended to transfer the duty to defend to defendant RLI. Defendant Travelers claimed that the HIV-contaminated blood claims fell within either the "completed operations" or the "products hazard" provisions contained in the applicable policies, and thus that the claims were subject to an aggregate liability limit of $ 1 million. Alternatively, defendant Travelers contended that all of the claims combined constituted a "single occurrence," and therefore fell within the $ 1 million "per occurrence" liability limit contained in the policies at issue. Defendant Travelers informed plaintiff that because these limits had been exhausted for the 1984-85 policy year, it would continue to fund the defense and indemnification of claims falling within that policy only as "an accommodation" to plaintiff. On August 7, 1991, defendant Travelers formally advised plaintiff that, effective September 2, 1991, it would no longer defend claims for the 1984-85 policy period. Thereafter, on August 23, 1991, plaintiff filed this declaratory action.
On April 30, 1992, defendant RLI moved for partial summary judgment, seeking a declaration that defendant Travelers' duty to defend did not terminate upon payment of $ 1 million in settlement costs on plaintiff's behalf under the 1984-85 contract, and that defendant Travelers has a continuing duty to defend plaintiff pending the outcome of the declaratory judgment litigation. On June 10, 1991, defendant Travelers filed a motion for partial summary judgment asserting that because its liability limits have been exhausted, it no longer has a duty to defend claims arising under the 1984-85 policy period.
On July 19, 1992, defendants Granite State, Lexington, Sentry, Dairyland, and Scottsdale moved for partial summary judgment, asserting that neither the aggregate nor the per occurrence liability limits have been exhausted, and that defendant Travelers has a continuing duty to defend the HIV-contaminated blood claims for the 1984-85 policy year.
Thus all parties agree that, as a threshold matter, this Court must determine whether the aggregate limits of liability are applicable to the HIV-contaminated blood claims, and whether all of these claims together constitute a single occurrence.
A court should grant summary judgment if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56. The issues before this Court concern the proper construction of certain provisions in the insurance contracts entered into between plaintiff and defendant Travelers. The construction and effect of such contracts is a matter of law to be determined by the Court. Owens-Illinois, Inc. v. Aetna Casualty and Surety Co., 597 F. Supp. 1515, 1519 (D.D.C. 1984) (citing 2 Couch on Insurance 2d § 15.3, at 116 (1984)).
Under District of Columbia law, the Court must interpret an insurance contract objectively, based on the language of the policy and the expectations that the insured reasonably could have formed on the basis of that language. See Keene Corp. v. Insurance Co. of North America, 215 U.S. App. D.C. 156, 667 F.2d 1034, 1041 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007, 71 L. Ed. 2d 875, 102 S. Ct. 1644, 102 S. Ct. 1645, reh'g denied, 456 U.S. 951, 72 L. Ed. 2d 476, 102 S. Ct. 2023, 102 S. Ct. 2024 (1982); Owens-Illinois, 597 F. Supp. at 1522.
In determining the "objectively reasonable" reading of the policy, the Court must give effect to the policy's dominant purpose of indemnity. Keene, 667 F.2d at 1041; Owens-Illinois, 597 F. Supp. at 1522.
If the policy language is unambiguous, the Court must apply the plain meaning of the language used and should not consider extrinsic evidence as to how to interpret the policy. See, e.g., Continental Casualty Co. v. Cole, 258 U.S. App. D.C. 50, 809 F.2d 891, 896 (D.C. Cir. 1987); Chiriboga v. International Bank for Reconstruction & Dev., 616 F. Supp. 963, 969 (D.D.C. 1985). If the policy is ambiguous, however, the Court may consider evidence of usages and customs affecting the agreement to determine the parties' intent. See Harbor Ins. Co. v. Omni Constr., Inc., 286 U.S. App. D.C. 166, 912 F.2d 1520 (D.C. Cir. 1990).
Moreover, any ambiguity in the insurance contract must be construed in favor of the insured. Id. at 1522 (citing Keene, 667 F.2d at 1041).
The parties dispute the applicability of three contractual provisions -- the "products hazard," the "completed operations hazard," and the "per occurrence" limits -- to the HIV-contaminated blood claims. The court addresses each of these provisions.
Under the policies at issue, defendant Travelers' coverage obligations are exhausted once it has paid on behalf of plaintiff in excess of the $ 1 million aggregate limit for claims falling within the "products hazard" provision. The policies define "products hazard" as
bodily injury and property damage arising out of the named insured's products or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs away from premises owned by or rented to the named insured and after physical possession of such products has been relinquished to others.
Travelers' 1984-85 Policy, Definitions (emphasis in original).
The term "named insured's products" is defined separately as "goods or products manufactured, sold, handled or distributed by the named insured." Id. (emphasis in original).
At the time defendant Travelers and plaintiff entered into the contracts at issue, District of Columbia law defined blood as a "service" rather than a "product," and precluded the application of strict liability for transfusion-related bodily injury. See Fisher v. Sibley Memorial Hosp., 403 A.2d 1130, 1134 (D.C. 1979) ("Characterizing blood plasma as a product governed by strict tort liability is as unnatural as forcing a blood transfusion into the commercial sales mode."). The District of Columbia continues to preclude strict liability for injuries arising from blood transfusions. See Kozup v. Georgetown Univ., 663 F. Supp. 1048, 1058-60 (D.D.C. 1987), aff'd in relevant part and vacated in part on other grounds, 851 F.2d 437 (D.C. Cir. 1988).
There does not appear to be any reason to define blood differently with regard to tort claims than with regard to the liability insurance covering those same claims. Thus the Court finds persuasive the cases holding that "products hazard" coverage should be interpreted consistent with products liability law. See, e.g., Green Constr. Co. v. National Union Fire Ins. Co., 771 F. Supp. 1000, 1004 (W.D. Mo. 1991); Buckeye Union Ins. Co. v. Liberty Solvents & Chemicals Co., 17 Ohio App. 3d 127, 477 N.E.2d 1227, 1236 (1984); Friestad v. Travelers Indem. Co., 260 Pa. Super. 178, 393 A.2d 1212 (1978). See also Roger C. Henderson, Insurance Protection for Products Liability and Completed Operations -- What Every Lawyer Should Know, 50 Neb. L. Rev. 415, 416-32 (1971). Accordingly, the Court finds that blood is not a "product" within the clear and unambiguous terms of the products hazard provision, and thus that the aggregate limit of liability derived from this provision is inapplicable to the HIV-contaminated blood claims.
Completed Operations Hazard
A $ 1 million aggregate liability limit also exists for claims falling within the "completed operations hazard." The "completed operations hazard" is defined in defendant Travelers' policies as
bodily injury and property damage arising out of operations or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to the named insured. "Operations" include materials, parts or equipment furnished in connection therewith. Operations shall be deemed completed at the earliest of the following times: