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Insurance companies must pay the damages won by third-generation claimants in the long-running litigation over the anti-miscarriage drug DES, the 2nd U.S. Circuit Court of Appeals has ruled. A divided court upheld a decision by U.S. District Judge John S. Martin of the U.S. District Court for the Southern District of New York, who found insurers must cover DES-maker E.R. Squibb & Sons for the damage done to the grandchildren of women who ingested the drug during pregnancy. The 2nd Circuit ruling prompted a strong dissent from Judge Dennis G. Jacobs, who said U.S. Supreme Court precedent mandates injury-in-fact during the relevant policy period as “the only applicable trigger of coverage.” Jacobs said third-generation claimants “did not exist during the relevant policy period — even in utero — and having no body, could suffer no bodily injury … . “ Judge Martin had granted summary judgment for Squibb on the issue. By a per curiam opinion in E.R. Squibb & Sons Inc. v. Lloyd’s & Companies, 97-9468, the 2nd Circuit agreed. The decision dealt with the consequence of injuries suffered by the second DES generation: an abnormality of the cervix that impairs the ability to carry a child to term, leading to premature deliveries that cause birth defects in the next generation. The 2nd Circuit said the insurers’ “protestations” that there were no injuries-in-fact to the grandchildren of DES users “are simply beside the point.” The appeal was brought by excess insurers, those remaining after Squibb’s disputes with primary insurers had been settled. In a 1996 trial, a jury found that the injuries occurred over several years, which triggered multiple policy periods for which the insurance companies must indemnify Squibb. A second trial on related liability issues, and a third trial on damages and other relief, were held with Judge Martin as the trier of fact. On the appeal, the excess insurers argued that “in addition to affecting persons other than those suffering injury-in-fact during the relevant period, the third-generation injuries are, of necessity, quite remote in time from the triggering injuries-in-fact.” The court said in response: “Their point in both respects, we take it, is essentially that there is something unfair, and perhaps unmanageable, about requiring coverage for claims that are, in some sense, far removed from the events triggering coverage.” The 2nd Circuit added, “This objection has some surface appeal. But that appeal diminishes rapidly when one realizes that the underlying tort law governing consequential claims itself provides limits on insurers’ liability.” The court said that the excess insurers’ argument “has the strong disadvantage that it tends to create unintended exposure to potential tortfeasors,” adding that “there is no indication in the policy, however, that Squibb meant to bear the risks at issue.” To do so, the court said, “would impute to Squibb the intent to self-insure with respect to one class of risks — that reproductive injuries would have intergenerational effects — in the absence of any basis in the policy for such distinctions among the types of injury. “ The majority’s decision included several other rulings upholding decisions by Judge Martin in the massive insurance case. It affirmed Martin’s preclusion of evidence disputing that “injury-in-fact can also include … the inevitable predisposition to illness or disability as a result of cell mutations caused by DES.” DES ELIMINATED FROM BODY? On the appeal, the insurers argued that Martin should have allowed their experts to testify that DES, Diethylstibestrol, is eliminated from the body of the mother and fetus within days, that the drug only has an effect in utero, and that, therefore, the later development of cancers in the second generation at the onset of puberty or sexual activity could not be considered injuries-in-fact under the policy. But the 2nd Circuit agreed with Martin. “We conclude that injury-in-fact can also include, in appropriate circumstances, the inevitable predisposition to illness or disability as a result of cell mutation caused by DES,” the court said. “This is not a case or a risk or predisposition that is heightened or discounted by other contingencies, choices or influences.” In another ruling from which Judge Jacobs dissented, the court also affirmed Martin’s methods of allocating damages in the case. The court also agreed that the lower court had jurisdiction over Lloyd’s of London, an issue that had been remanded to Martin by the 2nd Circuit in 1998 and decided by him in 1999. Jacobs joined in all other aspects of the 2nd Circuit opinion. Judges Guido Calabresi and Chester J. Straub were in the majority on the appeals panel. E.R. Squibb was represented by Louis Solomon, Hal S. Shaftel, and Caroline S. Press, of Solomon, Zauderer, Ellenhorn, Frischer & Sharp. It was also represented by Robert S. Rifkind, of Cravath, Swain & Moore. G. Marshall Moriarty of Ropes & Gray was lead counsel for the London defendants. Charles A. Booth, of Ford Marrin Esposito Witmeyer & Gleser, was lead counsel for Continental Casualty Co. Richard H. Gimer, of Semmes, Bowen & Semmes, was lead counsel for Commercial Union Insurance Co. Anthony R. Gambardella, of Rivkin, Radler & Kremer, was lead counsel for Northbrook Excess and Surplus Insurance Co.

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