10-0310-cv
Bausch & Lomb Inc. v. Lexington Ins. Co.


                                 UNITED STATES COURT OF APPEALS
                                     FOR THE SECOND CIRCUIT

                                           SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY
PARTY NOT REPRESENTED BY COUNSEL.

      At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New
York, on the 11th day of March, two thousand eleven.

PRESENT: REENA RAGGI,
                 DEBRA ANN LIVINGSTON,
                 DENNY CHIN,
                                          Circuit Judges,
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BAUSCH & LOMB INCORPORATED,
                                                  Plaintiff-Appellant,

                               v.                                             No. 10-0310-cv

LEXINGTON INSURANCE COMPANY,
                                                  Defendant-Appellee.
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APPEARING FOR APPELLANT:                          GEORGE T. CONWAY III, Wachtell, Lipton,
                                                  Rosen & Katz (John F. Savarese, Ben M.
                                                  Germana, Adam P. Schleifer, Wachtell, Lipton,
                                                  Rosen & Katz; Seth B. Schafler, Proskauer Rose
                                                  LLP, on the brief), New York, New York.

APPEARING FOR APPELLEE:                           LAWRENCE KLEIN (Andrew T. Houghton,
                                                  Christopher J. Celentano, on the brief), Sedgwick,
                                                  Detert, Moran & Arnold LLP, New York,
                                                  New York.
       Appeal from the United States District Court for the Western District of New York

(Michael A. Telesca, Judge).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment of the district court entered on December 29, 2009, is

AFFIRMED in part and VACATED in part, and the case is REMANDED to the district court

for further proceedings consistent with this order.

       Plaintiff Bausch & Lomb Incorporated (“B&L”) appeals from an award of summary

judgment entered in favor of defendant Lexington Insurance Company (“Lexington”), on

B&L’s claims for a declaration that Lexington was obligated to defend and indemnify it

pursuant to three umbrella insurance policies in numerous actions brought by consumers of

B&L’s ReNu MoistureLoc saline solution.1 We review a summary judgment ruling de novo,

construing the evidence in the light most favorable to the non-moving party and drawing all

reasonable inferences in its favor. See Fabozzi v. Lexington Ins. Co., 601 F.3d 88, 90 (2d

Cir. 2010); Havey v. Homebound Mortg., Inc., 547 F.3d 158, 163 (2d Cir. 2008). In

applying these principles to this appeal, we assume the parties’ familiarity with the facts and

the record of prior proceedings, which we reference only as necessary to explain our

decision.




       1
         Although similar complaints involving two different B&L saline solutions were
filed, B&L does not here contend that those suits should be grouped with the MoistureLoc
claims for coverage purposes. As a result, we do not consider those claims.

                                              2
1.        Duty to Indemnify

          B&L submits that the district court erred in concluding, as a matter of law, that the

policies did not group consumer exposures to MoistureLoc into one occurrence. We are not

persuaded.

          Under New York law, contracting parties may define “occurrence” in a manner that

groups “certain types of similar claims.” Appalachian Ins. Co. v. Gen. Elec. Co., 8 N.Y.3d

162, 173 & n.3, 831 N.Y.S.2d 742, 748 & n.3 (2007); see also International Flavors &

Fragrances, Inc. v. Royal Ins. Co. of Am., 46 A.D.3d 224, 229, 844 N.Y.S.2d 257, 261 (1st

Dep’t 2007). But, if the “specific aggregation-of-claims provision” does not “precisely

identify[] the operative incident or occasion giving rise to liability,” New York courts apply

the “unfortunate events test.” ExxonMobil Corp. v. Certain Underwriters at Lloyd’s,

London, 50 A.D.3d 434, 435, 855 N.Y.S.2d 484, 485 (1st Dep’t 2008) (internal quotation

marks omitted); see also Mt. McKinley Inc. Co. v. Corning Inc., 28 Misc.3d 893, 903, 903

N.Y.S.2d 709, 717 (Sup. Ct. N.Y. Cnty. 2010) (requiring specific grouping provision “before

applying a test other than the unfortunate-event test”). The grouping provision at issue

states:

                 Occurrence means . . . an accident, including continuous or
                 repeated exposure to substantially the same general harmful
                 conditions. All such exposure to substantially the same general
                 harmful conditions will be deemed to arise out of one
                 Occurrence.




                                                3
2005 Commercial Umbrella Liability Policy at 21; 2006 Commercial Umbrella Liability

Policy at 22.2

       B&L contends that the second sentence of this definition specifically groups consumer

injuries arising from the same general harmful condition of exposure to MoistureLoc. We

disagree. Nothing in that grouping provision “precisely identif[ies]” the operative incident

as exposure to a particular product. See ExxonMobil Corp. v. Certain Underwriters at

Lloyd’s, London, 50 A.D.3d at 435, 855 N.Y.S.2d at 485 (noting that parties intending to

“aggregate all claims resulting from the manufacture” of product may “rewrite the definition

of ‘occurrence’”); see also Appalachian Ins. Co. v. Gen. Elec. Co., 8 N.Y.3d at 173, 831

N.Y.S.2d at 748 (noting that parties may define occurrence to adopt “sole-proximate-cause”

or other model). Indeed, New York courts appear to interpret such a grouping provision as

at most combining exposures emanating from the same location at a substantially similar

time. See Ramirez v. Allstate Ins. Co., 26 A.D.3d 266, 266, 811 N.Y.S.2d 19, 20 (1st Dep’t

2006) (interpreting similar provision as grouping infants’ “exposure to the same lead hazard

in the same apartment”); Mt. McKinley Ins. Co. v. Corning Inc., 28 Misc.3d at 907-09, 903

N.Y.S.2d at 720-22 (noting cases interpreting similar provision as grouping incidents arising

at same place and roughly same time); cf. Metropolitan Life Ins. Co. v. Aetna Cas. & Sur.

Co., 255 Conn. 295, 308-09, 765 A.2d 891, 898 (2001) (interpreting similar provision as

       2
       The 2004 policy provision states that “[o]ccurrence means . . . an accident, including
continuous or repeated exposure to conditions . . . . All such exposure to substantially the
same general conditions shall be considered as arising out of one Occurrence.” 2004
Commercial Umbrella Policy Form at 5. The parties do not suggest that the difference in
language is material to the instant issues.

                                             4
grouping claims arising from exposures at “the same place at approximately the same

time”).3 Following this standard, the MoistureLoc incidents do not constitute exposures to

the same general conditions because they involve differing times, locations, and

circumstances. As a result, the grouping provision does not apply, and we must use the

unfortunate events test. See ExxonMobil Corp. v. Certain Underwriters at Lloyd’s, London,

50 A.D.3d at 435, 855 N.Y.S.2d at 485.4

       3
         B&L’s reliance on In re Prudential Lines Inc., 158 F.3d 65 (2d Cir. 1998) is
misplaced. There, the insurance contract did not contain the grouping provision at issue here.
Id. at 76. We nevertheless acknowledged in a footnote that cases in other states had
interpreted similar “arguably unifying” language as grouping certain occurrences. Id. at 82
n.9. We had no occasion then to determine whether New York courts interpreted the
language as unifying or, if so, which occurrences might be grouped as exposures to
substantially the same general conditions.
        B&L also cites to Champion Int’l Corp. v. Cont’l Cas. Co., 546 F.2d 502 (2d Cir.
1976), in support of its argument. Our role in this case, however, “is to construe and apply
state law as we believe the state’s highest court would.” City of Johnstown v. Bankers
Standard Ins. Co., 877 F.2d 1146, 1153 (2d Cir. 1989). But where the highest state court has
not spoken on the issue, we look to the decisions of lower state courts and “the language of
other jurisdictions on the same issue and other sources the state’s highest court might rely
upon in deciding the question.” DiBella v. Hopkins, 403 F.3d 102, 112 (2d Cir. 2005).
        New York state cases, as well as those from other jurisdictions cited approvingly by
New York courts, have relied upon then-District Judge Newman’s dissent as a persuasive
interpretation of grouping clauses similar to those found in B&L’s insurance agreement. See,
e.g., Mt. McKinley Ins. Co. v. Corning Inc., 28 Misc.3d at 909, 903 N.Y.S.2d at 722;
ExxonMobil Corp. v. Certain Underwriters at Lloyd’s, London, 2007 N.Y. Slip Op 51138,
at *9 (Sup. Ct. N.Y. Cnty. June 5, 2007), aff’d, 50 A.D.3d at 434, 855 N.Y.S.2d at 484; see
also Fina, Inc. v. Travelers Indem. Co., 184 F. Supp. 2d 547, 552 (N.D. Tex. 2002);
Metropolitan Life Ins. Co. v. Aetna Cas. & Sur. Co., 255 Conn. at 309-11, 765 A.2d at 899-
900. Accordingly, we rely on these cases to construe the grouping clause at issue here.
       4
         Nothing in the policies’ other provisions compels a different result. Contrary to
B&L’s contention, a 2006 amendment changing the prescription maintenance retention fee
to per-claimant is not rendered meaningless by Lexington’s interpretation of the grouping
provision. The grouping language is not always equivalent to a per-claimant approach even
if the MoistureLoc claimants are separate. See Appalachian Ins. Co. v. Gen. Elec. Co., 8

                                              5
       Under the unfortunate events test, the incident giving rise to liability is exposure to

the defective product, not the manufacture or sale of the product. See Appalachian Ins. Co.

v. Gen. Elec. Co., 8 N.Y.3d at 173, 831 N.Y.S.2d at 748; International Flavors & Fragrances,

Inc. v. Royal Ins. Co. of Am., 46 A.D.3d at 231, 844 N.Y.S.2d at 262. To determine if

multiple incidents arise from a single occurrence or multiple occurrences, the unfortunate

events test analyzes “whether there is a close temporal and spatial relationship between” or

“the same causal continuum” for the incidents giving rise to the injuries. Appalachian Ins.

Co. v. Gen. Elec. Co., 8 N.Y.3d at 171-72, 831 N.Y.S.2d at 747; see also Hartford Accident

& Indem. Co. v. Wesolowski, 33 N.Y.2d 169, 173-74, 350 N.Y.S.2d 895, 899-900 (1973);

Arthur A. Johnson Corp. v. Indem. Ins. Co. of N. Am., 7 N.Y.2d 222, 228-30, 196 N.Y.S.2d

678, 683-84 (1959). Like the district court, we conclude that the MoistureLoc incidents

share few commonalities, differing in “when and where exposure occurred,” how long or

how often plaintiffs used MoistureLoc, and what intervening agents or factors existed. See

Appalachian Ins. Co. v. Gen. Elec. Co., 8 N.Y.3d at 174, 831 N.Y.S.2d at 749. Accordingly,

B&L was not entitled to indemnification prior to exhausting the aggregate Retained Limits.




N.Y.3d at 174, 831 N.Y.S.2d at 749. Finally, if, as B&L asserts, the primary purpose of
obtaining the policies was to provide coverage for products liability, the parties could have
specified that all exposures to a particular product constitute one occurrence. See
ExxonMobil Corp. v. Certain Underwriters at Lloyd’s, London, 50 A.D.3d at 435, 855
N.Y.S.2d at 485.

                                              6
       2.     Duty to Defend

       B&L contends that even if, as a matter of law, the MoistureLoc exposures are not one

occurrence, Lexington bore a duty to defend because (1) B&L’s interpretation of the

occurrence definition was rational and (2) B&L’s exhaustion of the $4 million aggregate

Retained Limits triggered the duty. We reject the former proposition and believe the policies

are ambiguous with respect to the latter.

              a.     Rational Interpretation

       An insurer’s obligation to provide a defense is separate from and broader than its

indemnification duty, see Allianz Ins. Co. v. Lerner, 416 F.3d 109, 115 (2d Cir. 2005);

Automobile Ins. Co. of Hartford v. Cook, 7 N.Y.3d 131, 137, 818 N.Y.S.2d 176, 179 (2006),

arising when the “claims asserted against the insured may rationally be said to fall within

policy coverage,” Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608, 620 (2d Cir.

2001) (internal brackets omitted) (quoting Seaboard Sur. Co. v. Gillete Co., 64 N.Y.2d 304,

310, 486 N.Y.S.2d 873, 876 (1984)). Nevertheless, we are not persuaded that B&L’s

arguably rational interpretation of the grouping language compels a duty to defend. The

breadth of the defense duty “arises out of” the need to “provide a defense against even

wholly frivolous” claims if “the allegations fall within the policy’s coverage.” Commercial

Union Ins. Co. v. Int’l Flavors & Fragrances, Inc., 822 F.2d 267, 273 (2d Cir. 1987); see

Automobile Ins. Co. of Hartford v. Cook, 7 N.Y.3d at 137, 818 N.Y.S.2d at 179 (noting that

defense duty arises when complaint’s allegations “suggest a reasonable possibility of

coverage” (internal quotation marks and ellipsis omitted)). Lexington does not here contest


                                               7
that the MoistureLoc allegations, no matter how frivolous, are covered claims under the

policies. Rather, the controversy is whether B&L has satisfied a condition precedent to all

of Lexington’s duties under the policies: exhaustion of the Retained Limits. Under New

York law, an insurer has no duty to defend if conditions precedent are not met. See

Commercial Union Ins. Co. v. Int’l Flavors & Fragrances, Inc., 822 F.2d at 272-73 (no

separate defense duty obtained when insured failed to provide required notification of

occurrence); American Home Assurance Co. v. Int’l Ins. Co., 90 N.Y.2d 433, 440-43, 661

N.Y.S.2d 584, 586-88 (1997) (failure to provide notice to excess insurer relieved insurer of

coverage); Sport Rock Int’l, Inc. v. Am. Cas. Co., 65 A.D.3d 12, 21-22, 878 N.Y.S.2d 339,

347 (1st Dep’t 2009) (excess insurer’s defense duty arose only when primary insurance

exhausted).5 Thus, Lexington has no duty to defend MoistureLoc claims for which B&L did

not satisfy the Retained Limits.




       5
          BP Air Conditioning Corp. v. One Beacon Insurance Group, 8 N.Y.3d 708, 840
N.Y.S.2d 302 (2007), and Allianz Insurance Co. v. Lerner, 416 F.3d 109, on which B&L
relies, are not to the contrary. In BP Air Conditioning, the New York Court of Appeals
concluded that “the standard for determining whether an additional named insured is entitled
to a defense is the same” as for a named insured when the plaintiff alleged that the additional
insured’s injurious actions arose out of its operations for the insured, as required by the
policy. BP Air Conditioning Corp. v. One Beacon Ins. Grp., 8 N.Y.3d at 715, 840 N.Y.S.2d
at 306. Allianz Insurance analyzed whether an insurer bore a duty to defend plaintiff’s
contract claim when the policy insured against suits “as the result of a covered auto
accident.” Allianz Ins. Co. v. Lerner, 416 F.3d at 116-17 (emphasis omitted). Thus, the
issue in both cases was whether the plaintiffs’ allegations fell within the policy’s coverage,
not whether a condition precedent had been satisfied. In contrast, there is no question here
as to whether the underlying allegations fall with the scope of coverage.

                                              8
              b.     Aggregate Retained Limit

       After reviewing the parties’ requested supplemental briefs, we conclude that B&L did

not forfeit its argument that exhaustion of the $4 million aggregate Retained Limits triggers

Lexington’s duty to defend irrespective of the per occurrence maintenance retention

payments. Lexington, the party moving to dismiss, explicitly argued to the district court that

it never had a duty to defend even after B&L exhausted the aggregate Retained Limits

because each occurrence required a maintenance retention paid only through judgments or

settlements. Although a footnote in B&L’s response requested that the district court

alternatively award it defense costs “with respect to claims settled in excess of the

retentions,” B&L Summ. J. Br. at 36 n.35, Bausch & Lomb Inc. v. Lexington Ins. Co., 679

F. Supp. 2d 345 (W.D.N.Y. 2009) (No. 08-CV-6260T) (emphasis added), it consistently

urged that Lexington’s interpretation read the duty to defend out of the contract, requesting

a declaration that Lexington owed it a duty to defend “upon exhaustion of the underlying

retained limits,” id. at 2, 17-19, 39 (emphasis added). Tellingly, Lexington never contended

on appeal that B&L forfeited its argument, presumably because Lexington itself raised these

issues below. As a result, the matter was sufficiently presented to the district court.

       B&L contends that the policies unambiguously required Lexington to defend after

exhaustion of the aggregate Retained Limits regardless of the maintenance retentions because

the retentions, which apply only “following erosion of [the] aggregate,” are not listed

Retained Limits that must be satisfied before the duty to defend arises. 2004 Retained Limit

Amendatory Endorsement at 2, 4; 2005 Retained Limit Amendatory Endorsement at 2, 5;

2006 Retained Limit Amendatory Endorsement at 2, 5. Although B&L’s interpretation is


                                              9
reasonable, we conclude that the policies are ambiguous because they “suggest more than

one meaning when viewed objectively by a reasonably intelligent person who has examined

the context of the entire integrated agreement.” See Bank of N.Y. v. First Millennium, Inc.,

607 F.3d 905, 914 (2d Cir. 2010) (internal quotation marks omitted).

       Under the policies’ defense provisions, the duty to defend arises when “the applicable

limits listed in the Schedule of Retained Limits have been exhausted.” 2004 Retained Limit

Amendatory Endorsement at 2; 2005 Retained Limit Amendatory Endorsement at 2; 2006

Retained Limit Amendatory Endorsement at 2. Thus, whether Lexington’s duty to defend

arises upon exhaustion of the aggregate Retained Limits turns on whether the maintenance

retentions are “limits listed in the Schedule of Retained Limits” under the policies.

       On the one hand, the maintenance retentions are not called “Retained Limits.” They

are given a special name – “maintenance retention” – which suggests that they are not a

“Retained Limit,” and thus not a limit listed in the Schedule of Retained Limits within the

meaning of the defense provisions. The fact that the “Retained Limits” are “[s]ubject to” the

maintenance retentions further suggests that a “Retained Limit” and a “maintenance

retention” are distinct. 2004 Retained Limit Amendatory Endorsement at 4; 2005 Retained

Limit Amendatory Endorsement at 5; 2006 Retained Limit Amendatory Endorsement at 5.

       On the other hand, the maintenance retention appears under the heading “Schedule

of Retained Limits,” 2004 Retained Limit Amendatory Endorsement at 4; 2005 Retained

Limit Amendatory Endorsement at 5; 2006 Retained Limit Amendatory Endorsement at 5,




                                             10
suggesting that it is an applicable limit that must be exhausted before Lexington’s duty to

defend arises. Moreover, one could reasonably argue that Lexington would not have agreed

to defend suits for which it indisputably had no indemnification obligation.

       We note that the record contains no evidence of the parties’ intent with respect to the

purpose of the limits and retentions, and that the summary judgment motion was decided

below before the completion of discovery. As a result, we conclude that remand is

appropriate for discovery on this issue. See Chapman v. N.Y. State Div. for Youth, 546 F.3d

230, 237 (2d Cir. 2008) (noting that remand appropriate for “trial court to consider and weigh

extrinsic evidence to determine what the parties intended” when contract ambiguous (internal

quotation marks omitted)).

       We have considered B&L’s remaining arguments on appeal and conclude that they

are without merit. For the foregoing reasons, the December 29, 2009 judgment of the district

court is AFFIRMED in part and VACATED in part, and the case is REMANDED to the

district court for further proceedings consistent with this order.

                                    FOR THE COURT:
                                    CATHERINE O’HAGAN WOLFE, Clerk of Court




                                              11
