An insurance coverage dispute has arisen in connection with litigation involving a robotic surgery medical device maker. A declaratory judgment action seeking rescission of product liability insurance policies issued to the manufacturer was filed in the U.S. District Court for the Northern District of California. If successful, the insurer may avoid obligations under its primary and excess insurance policies providing $15 million per occurrence and $50 million aggregate.
The declaratory judgment action stems from allegations that the manufacturer entered into tolling agreements with several potential plaintiffs but failed to notify the insurer. The tolling agreements prevented, or at least delayed, the filing of product liability complaints. Tolling agreements, which can be useful tools when combating potential mass torts, provide additional time for a plaintiff to file suit and delay the applicable statute of limitations period. In this case, the insurer contends that the manufacturer entered into the tolling agreements months before it purchased coverage and further claims that it failed to advise the insurer of their existence.
The liability and insurance issues the manufacturer faces are germane to any company facing potential and/or pending claims involving one of its products. The strategy that a company chooses when faced with mounting liability exposure can have vast ramifications from coverage issues to shareholder lawsuits. Developing a strategy and processes for tracking, evaluating and consistently reporting exposure (to regulators and/or insurance carriers) may help contain the problem. Failing to do so certainly can exacerbate it. The true factual circumstances surrounding the rescission action are not known, but the fact of the lawsuit should be a heads up regarding potential issues in this context.