Opinion
No. X08 CV 02 0191697
June 17, 2003
MEMORANDUM OF DECISION RE MOTION TO DISMISS (193.00)
I. Background
In its second amended complaint the plaintiff Steadfast Insurance Company (Steadfast) seeks declaratory relief and money damages from its insured, The Purdue Frederick Company and associated entities (collectively, Purdue) and declaratory relief against two other insurance companies, American International Specialty Lines Insurance Company (AISLIC) and Gulf Underwriters Insurance Company (Gulf) which wrote policies insuring Purdue over and above the Steadfast policy.
This lawsuit and others have arisen out of the filing of numerous civil actions and the making of numerous claims by individuals seeking to hold Purdue liable to them as a result of their ingestion of Purdue's pharmaceutical product, OxyContin, allegedly leading to injuries, and in some cases, death. These actions may include one or more class actions. Additionally, one state has filed suit seeking damages, penalties and injunctive relief based on several theories arising out of Purdue's manufacture, distribution and marketing of OxyContin. Lastly, another pharmaceutical company, Abbott Laboratories, is seeking contractual indemnification from Purdue for any costs and liabilities arising from suits against it for distributing and selling OxyContin.
These suits and other claims involving OxyContin were tendered to Steadfast, and Steadfast has subsequently notified Purdue that the Steadfast liability insurance coverage of $2 million has been exhausted. Steadfast initially commenced this declaratory judgment and breach of contract action against Purdue. In November 2002, Steadfast sought to amend its complaint and cite in "first layer excess liability insurers" AISLIC and Gulf as defendants. This motion was granted and the second amended complaint's first court directed to Purdue, AISLIC and Gulf seeks a declaration that prior Steadfast payments to Purdue have exhausted the insurance coverage owed by Steadfast and that any Steadfast obligation CT Page 8185-b with respect to the OxyContin cases has ceased, and finally, that Steadfast has no farther obligation to defend or indemnify Purdue in connection with them.
II. The Motion to Dismiss
AISLIC has moved to dismiss Steadfast's declaratory action against it, pursuant to Practice Book § 10-30, the ground that the court lacks subject matter jurisdiction over the claim against it. The court heard oral argument on May 22, 2003.
A motion to dismiss raises the issue of whether the court has jurisdiction to hear and decide a particular matter. In ruling on a motion to dismiss, the court ordinarily takes as true those facts alleged in the complaint and any reasonable inferences therefrom and construes them in a manner most favorable to the maker of the pleading in question. Lawrence Brunoli, Inc. v. Branford, 247 Conn. 407 (1999). When affidavits are submitted in connection with the motion, the court may draw undisputed facts from them and not necessarily assume the truth of the pleading's allegations. Barde v. Board of Trustees, 207 Conn. 59, 62 (1988); see also Shay v. Rossi, 253 Conn. 134, 140 (2000), and Practice Book § 10-31. The plaintiff bears the burden of proving subject matter jurisdiction Fink v. Golenbock, 238 Conn. 183, 199, n. 13 (1996).
The basis of AISLIC's motion is that Steadfast has no standing to assert a declaratory judgment action against AISLIC, and that there is no actual controversy between AISLIC and Steadfast or other parties on the issue of whether the Steadfast policy is exhausted, and therefore, the claim is not justiciable.
III. Standing
AISLIC contends, correctly, that there is no contractual relationship between it and Steadfast. It further posits that Steadfast has no actual interest in how a declaration that its policy is either exhausted or not affects AISLIC and its policy. Without this adversity, AISLIC argues, there is not the requisite standing to sustain subject matter jurisdiction.
It is well recognized that a party's standing to bring a claim is a pre-requisite to a court having jurisdiction over the subject matter of the case. Ganim v. Smith Wesson Corp., 258 Conn. 313, 346 (2001). Under our common law a party has standing when it has a colorable claim of injury suffered or likely to be suffered. Declaratory judgment actions are a creature of statute and rule. See General Statutes § 52-29; CT Page 8185-c Practice Book §§ 17-54 through 17-56. The Connecticut Supreme Court has pointed out that the standing requirements for a declaratory judgment action are set out in Practice Book § 17-55. Connecticut Business Industry Assn. v. Commission on Hospitals and Health Care, 218 Conn. 335, 346-47 (1991) (referring to the predecessor Practice Book Section 390). Section 17-55 provides the following requirements for a declaratory judgment action:
A declaratory judgment action may be maintained if all of the following conditions have been met:
(1) The party seeking the declaratory judgment has an interest, legal or equitable, by reason of danger of loss or of uncertainty as to the party's rights or other jural relations;
(2) There is an actual bona fide and substantial question or issue in dispute or substantial uncertainty of legal relations which requires settlement between the parties; . . .
The gist of AISLIC's standing argument is that Steadfast, the primary insurer, having no rights or obligations with respect to AISLIC the excess insurer, has no jural relationship with AISLIC which can be affected by this declaratory judgment action, and there is no legal relation between them which "requires settlement." The answer to this contention is that while there is arguably no direct relationship between Steadfast and AISLIC, each of them do have certain rights and obligations, and a determination of Steadfast's rights and obligations with respect to Purdue will most certainly affect the rights and obligations of AISLIC not only to Purdue, but to Steadfast as well.
The interests of Steadfast and AISLIC are adverse. If Steadfast prevails on its claim that its policy insuring Purdue has been exhausted, the next level of insurance available to Purdue for the potential OxyContin liabilities is provided, in part, by AISLIC. On the other hand, if Steadfast's primary policy is not exhausted AISLIC is benefitted, at least for a period of time, while Steadfast continues to be liable. There is sufficient information in the record to estimate that defense costs alone related to the OxyContin cases, are in the tens of millions of dollars. This is real money, and whether Steadfast or AISLIC and Gulf may be responsible for these expenses creates real adversity.
Another example as to how the rights and obligations of Steadfast and AISLIC may be adverse is illustrated in Siligato v. Welch, 607 F. Sup. 743 (D. Conn. 1986), which points out when a primary insurer defaults on an obligation to an insured, the excess insurer may CT Page 8185-d be obliged to assume the defense of the insured with a concomitant right to be indemnified by the primary insurer.
The court concludes that Steadfast has the requisite standing. Practice Book § 17-55(1) requires that Steadfast, the party seeking the declaratory judgment, have an interest because of possible loss or uncertainty concerning its rights or other jural relations. Steadfast clearly has an interest in the determination of whether its policy has been exhausted. Section 17-55 (2) requires that there be a bona fide dispute or substantial uncertainty requiring "settlement between the parties." Contrary to AISLIC's contention, this court does not read the section to require that there be a direct relationship between all the parties, or even that there be a dispute between all the parties. The word "between" is not so placed in the section to require that. Rather, what is required is that the relations that are disputed or uncertain necessitate that the settlement affect all parties. The resolution of Steadfast's action will do just that. In Bania v. New Hartford, 138 Conn. 172 (1951), the Connecticut Supreme Court construed the language . . . now found in § 17-55 (2) to mean "no more than that there must appear a sufficient need for the determination of the matter, and that need must be determined in the light of the particular circumstances involved in each case." Id., 175. This standard is also met.
While the court's conclusion is directed by the facts and the Practice Book language, it is consistent with the purposes and goals of the declaratory judgment procedure in Connecticut. The Connecticut Supreme Court has recognized that this state's declaratory judgment statute and Practice Book rules have been consistently construed in a liberal fashion "in the belief they serve a sound social purpose." Connecticut Savings Bank v. First National Bank Trust Co., 133 Conn. 403, 409 (1947). Any number of cases have recognized the declaratory judgment process to be a practical and efficacious means to resolve disputes over insurance coverage. See e.g. St. Paul Fire Marine Ins. Co. v. Shernow, 22 Coma. App. 377, aff'd., 222 Conn. 823 (1992); Carrier Corporation v. Travelers Indemnity Co., Superior Court, judicial district of Hartford-New Britain at Hartford, CV 88 0352383 (June 18, 1991, Licari, J.), 4 Conn.L.Rptr. 191. As the Connecticut Supreme Court has stated, the trial court has "wide discretion" to entertain declaratory judgment actions. Pamela B. v. Ment, 244 Conn. 296, 308 (1998) [quoting from England v. Coventry, 183 Conn. 362 (1981)].
This is a case in which declaratory relief is highly appropriate. The stakes are substantial and the uncertainty rampant. CT Page 8185-e
One great purpose is to enable parties to have their differences authoritatively settled in advance of any claimed invasion of rights, that they may guide their actions accordingly and often may be able to keep them within lawful bounds, and so avoid the expense, bitterness of feeling and disturbance of the orderly pursuits of life which are so often the incidents of law suits.
Bombero v. Planning Zoning Commission, 40 Conn. App. 75, 79 (1996) [quoting from Sigal v. Wise, 114 Conn. 297 (1932), emphasis added by Appellate Court]. This case is an efficient vehicle to resolve the pending questions arising from Purdue's insurance coverage. Both Purdue and Gulf have answered the second amended complaint and filed cross claims, counterclaims and special defenses. Purdue has served a cross claim against AISLIC pleading that if the Steadfast policy is declared exhausted, AISLIC is obligated to pay Purdue the OxyContin defense costs from the date of exhaustion. There is no question that Purdue has standing to assert this claim. In addition, Purdue has essentially made all the same claims against AISLIC in its own declaratory judgment action (X08 CV02 0190510), an action which this court stayed earlier this year since the parties agreed the issues were essentially duplicative of the issues in this case which was at a more advanced stage.
Judicial economy and general practicality strongly suggest that AISLIC remain a defendant in this case. If AISLIC is dismissed, Purdue could pursue its declaratory relief claim against it in any event, either through the existing cross claim, in a third-party claim or by petitioning this court to lift the stay in its own action. If AISLIC is dismissed from this case it would not be bound by the court's determination concerning the issue of the exhaustion of Steadfast's policy raised in Steadfast's first count. Practice Book § 17-56(d). This latter scenario might possibly lead to another lawsuit by or against AISLIC seeking to resolve the exhaustion issue in this or another jurisdiction, raising the possibility of conflicting decisions. That less than attractive circumstance would cause significant, but hard to justify, expenditures of legal and judicial time and money. As one Superior Court has described this outcome, it is "illegal, inefficient and unfair." Carrier Corporation v. Travelers Indemnity Company, supra.
According to the existing case-management order the issue of exhaustion will be presented by Steadfast's motion for partial summary judgment which will be fully briefed and argued by November of this year.
IV. Justiciability
The second prong of AISLIC's motion to dismiss contends that the dispute between it and Steadfast is not justiciable. Justiciability means capable of being resolved by legal principles in a court of law. The Connecticut Supreme Court has stated that: CT Page 8185-f
Justiciability requires (1) that there be an actual controversy between or among the parties to the dispute . . . (2) that the interests of the parties be adverse . . . (3) that the matter in controversy be capable of being adjudicated by judicial power . . . and (4) that the determination of the controversy will result in practical relief to the complainant . . .
Seymour v. Region One Board of Education, 261 Conn. 475, 481 (2002) [quoting State v. Nardini, 187 Conn. 109 (1982)].
AISLIC contends that there is no actual controversy, the parties interests are not adverse and that the determination of the controversy will not afford practical relief; in other words, in its view three of the four elements of justiciability are missing in this case.
In an earlier portion of this memorandum the court dealt with the issue of adversity between the parties. In support of its argument that there is no real and actual controversy between it and either Steadfast or Purdue, AISLIC makes two points. First, there is a dispute as to the terms and conditions of the Steadfast policy, and there has been no determination that the policy has been exhausted, and second, there has been no showing that the policy is likely to be exhausted because no settlements or judgments against Purdue in the OxyContin cases have been reached or entered. Until these hurdles are overcome, AISLIC argues, its excess policy is not an issue and there is no controversy.
However, there has been a demand made by Purdue for coverage under the AISLIC policy. On July 12, 2002, Purdue requested AISLIC to pay defense counsel bills in the OxyContin cases because Steadfast was not paying them. AISLIC refused to do so, stating in a responding letter that:
such costs are not AISLIC's obligation in the absence of among other things, the proper exhaustion of the underlying [Steadfast] insurance.
Ex. 8 to Purdue Memorandum in Opposition. The AISLIC letter, dated August 15, 2002 stated its contention that the Steadfast policy could not be exhausted until two million dollars had been paid in settlements and judgments and therefore, all costs of defense counsel were payable by Steadfast until that amount of settlements or judgments was reached. This correspondence documents the existing controversy between AISLIC (and Purdue) on one side and Steadfast on the other as to the exhaustion issue as well as the dispute between Purdue and AISLIC over the obligation of AISLIC to pay defense costs.
This court is mindful of the Connecticut Supreme Court's recent CT Page 8185-g decision in Milford Power Co., LLC v. Alston Power Inc., 263 Conn. 616 (2003), in which the court determined that a declaratory judgment action was not justiciable because it was "not yet ripe for adjudication." Id., 626-27. In that case, the plaintiff Milford and defendant Alston had entered into a substantial contract for the construction by Alston of an electric power generating plant. A collapse on the construction site caused two deaths and engendered an investigation by the federal Occupational Safety and Health Administration (OSHA) which closed the site and halted construction for over a month. Alston gave written notice to Milford that the incident and site closure constituted events of force majeure. However, the notice did not claim that the completion time of the contract or the compensation to Alston needed to be changed. Subsequently, Milford commenced a declaratory judgment action seeking a declaration that the force majeure notice had been untimely and that the incident and OSHA investigation did not constitute an event of force majeure. Milford sought a judicial declaration to allow the parties to ascertain their rights and obligations under the construction contract with respect to the contract price and completion date. Id., 618-21.
The Connecticut Supreme Court held the claim was not ripe for adjudication because Alston had not made any claim of entitlement to more time or more money to perform their contractual obligation.
Without a claim of entitlement by the defendants, there is no dispute and the trial court cannot conclude definitively that its decision will have any effect on the adversaries before it. In other words, because the plaintiff's claims were contingent on the outcome of a dispute that had not yet transpired, and indeed might never transpire, the injury was hypothetical and, therefore, the claim was not justiciable.
Id., 627 (emphasis in original). The court's opinion also noted that the contract had a dispute resolution provision which had been ignored and that provision, if utilized, would have at least quantified any additional time or money requested by Alston. The concurring opinion of Justice Borden noted that the matter was a complex contract dispute and the declaratory judgment action encompassed only one of the many disputes likely to arise, strengthening the conclusion that the case was premature and not ripe for adjudication. Id., 632. The instant case presents a far different situation than that in Milford Power. To begin with, Steadfast has alleged that as of June 24, 2002 the limits of its policy insuring Purdue were exhausted and it had no further obligation to Purdue with respect to the OxyContin cases. In its answer, Purdue has not accepted this contention and has sought a judicial declaration of its own on the subject. However AISLIC in its August 15, 2002 letter, has sharply contested that the policy is exhausted. Second, Purdue has sought CT Page 8185-h coverage payments from AISLIC which has specifically rejected this claim. As a result, there are substantial defense costs being incurred by Purdue and not being reimbursed by any insurance coverage. At present, there is no further contingency or development required to make these disputes ripe for adjudication.
The last point of AISLIC goes to the issue of whether this court can give practical relief. AISLIC contends that it is so unlikely that Steadfast's policy will be exhausted that the case against it is merely an academic exercise.
As an initial batter, the court notes that this last argument presupposes a certain outcome on the merits of the case, i.e., that the court will rule against Steadfast's position that its policy is exhausted. A motion to dismiss on lack of justiciability grounds is not the proper place to make a determination, even a preliminary one, of the substantive merits. See e.g. Seymour v. Region One Board of Education, supra, 261 Conn. at 481 "(in deciding whether a complaint presents a justiciable claim, we make no determination regarding its merits . . . we do not consider . . . whether it would survive a motion to strike . . . or whether it would survive a motion for summary judgment").
Even if one were to accept that AISLIC's argument can be considered at this time, it assumes too much. AISLIC contends that Steadfast must make a showing that there is some likelihood that AISLIC's excess policy will be reached in the OxyContin cases, citing Maryland Casualty Co. v. Wit Grace Co., 88 CV 2613 (JSM) (S.D.N.Y. June 7, 1996), and cases cited therein. AISLIC points out that, to date, Purdue has neither settled nor been subject to any adverse judgments in these cases.
According to Purdue's answer, as of March 2003 there were more than 250 existing OxyContin cases, more than 170 additional claims in which notice has been given and over 4,000 potential claims for which Purdue has agreed to toll the statute of limitations. The existing cases include putative class actions, a suit by the State of West Virginia, and several suits with ad damnum clauses of over $100 million. The suits and claims involve allegations of bodily injury, including addiction and death, over-promotion of the product and failure to warn.
With this array of adverse claims, it does not denigrate Purdue's defenses, nor give credence to the claims against the company, to conclude there is a sufficient likelihood that determining what role, if any, the excess insurance over the $2 million underwritten by Steadfast plays will provide practical relief CT Page 8185-i
V. Conclusion
The court concludes that Steadfast has standing to pursue its declaratory judgment action against AISLIC, and the dispute is justiciable. The motion to dismiss is denied.
TAGGART D. ADAMS SUPERIOR COURT JUDGE