Wyeth, a pharmaceutical and health care product manufacturer, purchased 20% of its excess product liability insurance from one insurer in the 1980s. Starting in 1988, a subsidiary of Wyeth, John Wyeth & Brother, Ltd., was named as a defendant in over 11,000 product liability actions in the United Kingdom and Ireland because of its manufacture and prescription of Ativan and other drugs containing benzodiazepine. Although all of the suits were resolved by judgment for Wyeth or a discontinuance, Wyeth paid more than $5 million (the amount of its self insured retention ("SIR")) in settlements and judgments for other product liability suits in each policy year, and accordingly sought full reimbursement of the defense costs incurred for the foreign Ativan suits, in the amount of $1,766,955.
Wyeth’s underlying insurance during the time it was covered by the excess insurer in issue was a $5 million SIR. The SIR was deemed to operate in accordance with the terms and conditions of a primary policy issued by Wyeth's product liability insurer for the period 1976-1977.
The primary policy required the primary insurer to defend Wyeth against lawsuits for bodily injury caused by an “occurrence.” Under the terms of the primary policy, the primary insurer would pay all expenses it incurred defending Wyeth and that such payments were in addition to the limit of liability (the “Supplementary Payment Provision”). Endorsement 22 to the primary policy further provided that primary insurer had the “right but not the duty” to defend Wyeth in certain foreign lawsuits. In the event that the primary insurer opted not to defend Wyeth in foreign suits, the endorsement provided that it would reimburse Wyeth for the reasonable cost of the investigation and defense of such suits.
The excess policy expressly relieved the excess insurer of the duty to defend Wyeth. Accordingly, when Wyeth sought reimbursement for the foreign Ativan suits, the excess insurer took the position that it was not obligated to pay such costs. The excess insurer then brought a declaratory judgment action to confirm that it was not obligated to pay Wyeth the $1,766,955 for the foreign Ativan suits.
The excess insurer argued that because its excess policy completely excluded the duty to defend, Endorsement 22 was not applicable to it. Furthermore, the excess insurer argued, because Endorsement 22 merely limited the general duty to defend, and the excess policy entirely excluded that duty, the endorsement should have no effect on the excess insurer's obligations.
Although the court held that the excess insurer had no duty under the Supplementary Payment Provision, it held that the excess insurer was obligated to reimburse the reasonable cost of investigation and defense of foreign suits under Endorsement 22. The court explained that unless the terms of the excess policy were expressly in conflict, the excess insurer's obligations were defined by the primary policy. The court found that Endorsement 22 was not expressly excluded, nor was it in conflict with the excess policies. The court further held that the duty to defend was distinct from the duty to indemnify for defense costs. Therefore, although the excess policy excluded the duty to defend, the court held that the excess insurer was obligated, under Endorsement 22 of the primary policy, to indemnify Wyeth for the foreign defense costs.