MEMORANDUM OPINION AND ORDER
CASTILLO, District Judge.
Knoll Pharmaceutical Company ("Knoll") filed this diversity lawsuit, seeking a declaration that Automobile Insurance Company of Hartford ("Automobile"), National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union") and Royal Insurance Company of America ("Royal") (collectively "Defendant Insurers") owed a duty to defend Knoll in the underlying case, In re Synthroid Marketing Litigation, 110 F.Supp.2d 676 (N.D.Ill.2000). Currently before this Court are Knoll's and Defendant Insurers' motions for judgment on the pleadings. Knoll's motion is partially granted, (R. 23-1), and all of Defendant Insurers' motions for judgment on the pleadings are denied (R. 27-1, 33-1, 34-1).
Defendant Insurers issued the policies in question to Boots Pharmaceuticals, Inc., a wholly-owned subsidiary of Boots (USA). In 1995, BASF acquired Boots (USA) and, in connection with that acquisition, Boots Pharmaceuticals changed its name to Knoll Pharmaceutical Co. Knoll claims relief under these policies as successor-in-interest to Boots. Defendant Insurers deny that the policies have transferred to Knoll.
Boots manufactured, marketed and sold a prescription drug known as Synthroid. Synthroid, a synthetic form of a thyroid hormone (levothyroxine sodium), is used to treat certain thyroid diseases and cancer. Levothyroxine sodium (LT4) medications are narrow therapeutic index drugs: slight over— or under-dosing can cause serious medical problems. Beginning in 1986, various companies have claimed their LT4 medications are Synthroid's bioequivalents— drugs capable of being freely inter-changed without altering their therapeutic effects. When bioequivalents exist, doctors may prescribe these other brand names or generic versions to their patients at lower prices.
I. The Underlying Synthroid Marketing Actions
Certain consumers and third-party payors filed more than seventy lawsuits, most as class actions, against Knoll and other defendants regarding the sale and marketing of Synthroid. These actions were transferred to the United States District Court for the Northern District of Illinois, as part of a Multi-District Litigation ("MDL") proceeding called In re Synthroid Marketing Litigation. See 110 F.Supp.2d 676. In the Master Consumer Class Action Complaint ("MCCAC"), the underlying plaintiffs were consumers who purchased Synthroid beginning January 1, 1990. In the Master Third-Party Payor Class Action Complaint ("TPPCAC"), the underlying plaintiffs were payors of health and medical services and supplies, including government agencies, who allegedly paid excessive costs for Synthroid medication on behalf of their insureds. These complaints contain allegations that the insured "concealed or suppressed information about cheaper bioequivalent drugs, falsely represented that there were no equivalents, and charged individual consumers and their insurers more than they would have been able to if the correct information had been known, in violation of federal antitrust and racketeering laws and state fraud statutes." Id. at 679.
According to the MCCAC, by fraudulently concealing information proving that bioequivalents to Synthroid exist and by misrepresenting that Synthroid is superior to other LT4 drugs, Knoll, Boots and BASF "have successfully controlled the levothyroxine market, persuaded physicians to specify Synthroid in their levothyroxine prescriptions, and thus required the millions of persons afflicted with hypothyroidism and other thyroid diseases to purchase Synthroid instead of the less expensive, bioequivalent brand name and generic levothyroxine drugs." (R. 1-1, Compl. Ex. 9, MCCAC ¶ 1.) According to Knoll, the Food and Drug Administration ("FDA") has not determined that all LT4 products are bioequivalent. (Id., Compl. ¶ 7.)
Knoll's complaint highlights the allegations in the underlying litigation reflecting Boots' advertisements. These advertisements claimed that "[t]here is no substitute for Synthroid," that there was "[n]o proven bioequivalent product," and that "[n]o adequate and well-controlled studies have demonstrated bioequivalence among levothyroxine sodium products." (Id., Compl. ¶ 20.) Knoll also focuses on allegations claiming that Boots published certain letters and articles disparaging a scientist, Dr. Betty Dong, whose University of California at San Francisco study suggested the existence of bioequivalents for Synthroid. (Id., Compl. ¶ 22.) In their answers and briefs, Defendant Insurers emphasize the allegations against Boots for antitrust activities, consumer fraud, unfair competition, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Moreover, the underlying allegations do not claim Boots slandered, libeled or disparaged any of the consumers' or third party payors' goods or reputations.
II. Defendant Insurers' Policies
Boots tendered the original underlying complaint to Defendant Insurers for a defense in 1997. All Defendant Insurers refused the tender, denying they had a duty to defend Knoll under the insurance policies in question.
Automobile issued Boots three commercial general liability ("CGL") policies effective from April 1, 1989 to April 1, 1992. Royal issued Boots a CGL policy effective from April 1, 1992 to September 30, 1993. National Union issued Boots two CGL polices effective from September 30, 1993 to December 1, 1995. All of the insurers have issued policies containing identical language.
On October 27, 2000, Knoll filed a three-count complaint in this Court seeking: (1) a declaratory judgment that Defendant Insurers had a duty to defend Knoll in the underlying Synthroid litigation; (2) a finding that each Defendant Insurer's refusal to defend Knoll against the underlying complaint breached its respective insurance policies requiring each defendant to defend and indemnify on behalf of Knoll all liabilities, losses, costs and expenses incurred in the underlying litigation; and (3) attorneys' fees and additional amounts recoverable pursuant to § 155 of the Illinois Insurance Code. Knoll claims that Defendant Insurers' policies' advertising and personal injury provisions activated defense obligations. Presently before the Court are the parties' cross-motions for judgment on the pleadings filed pursuant to Federal Rule of Civil Procedure 12(c). For the following reasons, we partially grant Knoll's motion for judgment on the pleadings. Furthermore, we deny Automobile's, National Union's and Royal's motions for judgment on the pleadings.
A party can move for judgment based on the pleadings alone. N. Ind. Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir.1998). Rule 12(c) provides the standard to be applied on a motion for judgment on the pleadings:
Fed.R.Civ.P. 12(c). In this case, the parties have not presented material outside of the pleadings. Therefore, this motion for judgment on the pleadings is subject to the same standards as a Rule 12(b)(6) motion to dismiss: all well-pleaded facts are taken as true, all inferences are drawn in favor of the nonmovant and all ambiguities are resolved in favor of the nonmovant. Alexander
I. Choice of Law
As a preliminary matter, we must resolve a conflict of laws. W. Am. Ins. Co. v. Moonlight Design, Inc., 95 F.Supp.2d 838, 841 (N.D.Ill.2000). Federal courts sitting in diversity consider conflict of law issues when the parties disagree on which state's law applies, Mass. Bay Ins. Co. v. Vic Koenig Leasing, Inc., 136 F.3d 1116, 1120 (7th Cir.1998), and where state law differences affect the outcome of the case, Centennial Ins. Co. v. Transitall Servs. Inc., 2001 WL 289879, at *2 n. 1 (N.D.Ill. Mar.15, 2001). This includes situations where one party argues that one state's law governs and the other does not address the issue, but relies on another state's law in its briefs. Mass. Bay Ins. Co., 136 F.3d at 1121. We apply the conflict of law rules of the forum state to determine the applicable substantive law. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). As this suit was filed in Illinois, Illinois' choice of law rules will govern. Jupiter Aluminum Corp. v. Home Ins. Co., 225 F.3d 868, 873 (7th Cir.2000).
Knoll and Defendant Insurers disagree as to which state's law governs this suit. Knoll does not address this issue in detail, but relies mostly on Illinois case law in its briefs. Defendant Insurers assert that Louisiana law should apply because Boots was located in Louisiana and the policies were delivered to Boots in Louisiana. Moreover, although the parties agree that Illinois and Louisiana law do not vary significantly on the duty to defend, Defendant Insurers indicate a substantive difference in that Louisiana law does not recognize penalty-based estoppel. Because Knoll's estoppel argument may become relevant in the future, we evaluate the choice of law issue at this time.
In Illinois, an express choice of law clause in an insurance policy would determine which state's law to apply. Lapham-Hickey Steel Corp. v. Prot. Mut. Ins. Co., 166 Ill.2d 520, 211 Ill.Dec. 459, 655 N.E.2d 842, 845 (1995). Lacking that, the following factors are controlling: "location of the subject matter, the place of delivery of the contract, the domicile of the insured or of the insurer, the place of the last act to give rise to a valid contract, the place of performance, or other place bearing a rational relationship to the general contract."
The insurance policies in question here do not have express choice of law
First, the location of the subject matter of these policies cannot be limited to Boots' physical locations. The policies provide a defense for Boots wherever its advertising or other oral or written statements result in litigation against it. No Defendant Insurer has asserted that Boots' advertising was limited to Louisiana.
Second, Royal is domiciled in Illinois. Though the other companies are citizens of various states, all are licensed to do business in Illinois.
II. Motions for Judgment on the Pleadings
As discussed below, Knoll's motion for judgment on the pleadings is partially granted and Defendant Insurers' motions are denied because the contract language is ambiguous, the allegations in the underlying complaint fit at least one of the torts covered by Defendant Insurers' policies and the injury arose out of Boots' advertising or business activities. We also find that the issue regarding the transfer of the insurance policies from Boots to Knoll requires further briefing before we can adjudicate those matters.
A. Ambiguous Policy Language
First, we must evaluate the language of the policies in question. In order to determine an insurer's duty to defend, the court compares the allegations in the underlying complaint with the coverage provisions in the policy. Cincinnati Cos. v. W. Am. Ins. Co., 183 Ill.2d 317, 233 Ill.Dec. 649, 701 N.E.2d 499, 502 (1998); Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 189 Ill.Dec. 756, 620 N.E.2d 1073, 1079 (1993). If the underlying complaint alleges facts that fall within, or even potentially within, the coverage outlined in the relevant policy, the insurer owes a duty to defend. Cincinnati, 233 Ill.Dec. 649, 701 N.E.2d at 502. Moreover, the determinative factor is not the legal label characterizing the underlying allegations, but rather, whether the alleged conduct arguably falls within at least one of the categories of wrongdoing listed in the policy. Winklevoss Consultants, Inc. v. Fed. Ins. Co., 991 F.Supp. 1024, 1030 (N.D.Ill.1998) ("Winklevoss II"). In construing an insurance policy, the court should strive to enforce the agreement intended by the parties. Crum & Forster, 189 Ill.Dec. 756, 620 N.E.2d at 1078. The court must also consider the contract as a whole, giving words their ordinary, plain meaning. Id. Furthermore, the court must construe the underlying complaint liberally and resolve all doubts in favor of the insured. U.S. Fire Ins. Co. v. Aetna Life & Cas., 291 Ill.App.3d 991, 225 Ill.Dec. 965, 684 N.E.2d 956, 961 (1997).
The policies at issue provide coverage for advertising and personal injuries "arising out of" certain offenses including "[o]ral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services." (R. 1-1, Compl. Exs. 3-5, Def. Insurers' Policies.) Knoll's primary argument is that such language does not restrict coverage to slander, libel or disparagement of the underlying plaintiff. Therefore, the policies are ambiguous as to who must be directly injured by the offenses covered in the policies. Such ambiguous contract language must be construed in Knoll's favor and against Defendant Insurers. Defendant Insurers, on the other hand, claim the language is clear. Defendant Insurers assert that the words "slander," "libel" and "disparagement" entail an element of reputational injury to the plaintiff or plaintiff's goods, meaning that these offenses must directly injure the underlying plaintiff to trigger a duty to defend. We agree with Knoll that the policies are ambiguous.
Both Defendant Insurers' and Knoll's interpretations of the policy language are reasonable. It is clear that the policies would cover the defense of an underlying plaintiff directly libeled, slandered or disparaged by the insured during the course of the insured's advertising or business activities. But, applying the Illinois courts' definition of "arising out of," it is equally clear that the coverage extends to any injuries that have their origin in the offenses enumerated in Boots' insurance policies. Construing the underlying complaint liberally, the injuries to the underlying plaintiffs may have their origin in slander, libel or disparagement by Boots and would fall within the language of the policies.
Furthermore, giving the term "arising out of" full meaning and effect, the identity of the person or organization directly slandered, libeled or disparaged must not be restricted to the class of underlying plaintiffs.
B. Connection Between the Insured's Advertising or Business Activities, Injury to the Underlying Plaintiff and the Offenses Covered by the Policies
Knoll also argues that the alleged injuries to the underlying plaintiffs arise out of slander, libel or disparagement by Boots, thereby triggering a duty to defend. Specifically, Knoll emphasizes several allegations in the underlying litigation regarding the advertising of Synthroid: (1) "Defendants advertised that Synthroid is more effective than or superior to the other drugs available to treat hypothyroidism," (R. 1-1, Compl. Ex. 9, MCCAC ¶ 79); (2) BASF, Knoll and Boots used "marketing and advertising designed to convince the public of Synthroid's greater effectiveness than other drugs available to treat hypothyroidism," (id. at ¶ 113); (3) "[b]y wrongly claiming that Synthroid is not bioequivalent to competing products, Defendants have disparaged the goods, services, and/or business of the makers of these other drugs," (id. at ¶ 127); and (4) "[a]s a direct and proximate result of Defendants' conduct, plaintiffs and members of the Class have been suffering and continue to suffer damages," (id. at ¶ 132). Knoll also highlights the allegation claiming that Dr. Mayor, Boots' Director of Medical Services, published an article in which he "claimed that the [Dong] study could not come to any conclusions about bioequivalency because the [Dong] study contained too many errors." (Id. at ¶ 67.) Finally, the TPPCAC alleges the following: "As a direct and proximate result of Defendants' orchestrated marketing plan of suppression and misrepresentations, Plaintiffs and the class members have been made to pay excessive costs for Synthroid." (Id., Compl. Ex. 10, TPPCAC ¶ 6.)
Defendant Insurers counter these assertions, stating that there can be no allegations of the offenses enumerated in Defendant Insurers' policies because Boots did not libel, slander or disparage the underlying plaintiffs. Defendant Insurers attempt to discredit the suggestion that the underlying injury could have arisen from slander, libel or disparagement by demonstrating how Knoll pieced together various portions of the underlying complaint in order to characterize the allegations as containing these offenses. Moreover, Defendant Insurers posit that the allegations do not reflect any claims for libel, slander or disparagement. Rather, they say that the underlying plaintiffs sued alleging antitrust activities, RICO violations, consumer fraud and unfair competition.
To determine whether an insurer owed a duty to defend based on coverage in a policy containing language similar to the policies in question here, this Court proposed a three-part test. Winklevoss II, 991 F.Supp. at 1031. Adapting that test to the instant policies yields the following: (1) the insured must have engaged in advertising or business activity; (2) the underlying complaint must contain allegations that fit one of the enumerated offenses; and (3) the underlying injury must have arisen out of an offense that the insured committed while engaging in advertising or business activity.
First, the term advertising has been defined as the widespread distribution of promotional material to the public. Int'l Ins. Co. v. Florists' Mut. Ins. Co., 201 Ill.App.3d 428, 147 Ill.Dec. 7, 559 N.E.2d 7, 10 (1990). Allegations from the underlying complaint stating that Boots contributed to the suppression of scientific information through marketing and advertising designed to convince the public of Synthroid's superior effectiveness show that Boots engaged in the requisite advertising activities. (R. 1-1, Compl. Ex. 9, MCCAC ¶ 113.) The MCCAC also alleges
Second, the underlying allegations fit at least one of the enumerated offenses because Illinois courts would open the class of underlying plaintiffs to those indirectly injured by the offenses listed in the policies. No Illinois court has addressed the issue of whether a duty to defend may be invoked when the insured did not directly slander, libel or disparage the underlying plaintiffs or the analogous issue of whether a non-competitor bringing suit for an unfair competition injury may invoke such a duty. Other courts, however, have held that only competitors' allegations of unfair competition invoke a duty to defend. See, e.g., Pine Top Ins. Co. v. Pub. Util. Dist. No. 1, 676 F.Supp. 212, 216 (E.D.Wash.1987); Bank of the W. v. Super. Ct. of Contra Costa County, 2 Cal.4th 1254, 10 Cal.Rptr.2d 538, 833 P.2d 545, 551 (1992); Seaboard Sur. Co. v. Ralph Williams' N.W. Chrysler Plymouth, Inc., 81 Wn.2d 740, 504 P.2d 1139, 1141 (1973). But, these courts reached their decisions because they found that unfair competition referred only to the common law tort, where the plaintiff must be a competitor. Id. Conversely, under Illinois law, a similar offense was not restricted to the common law tort. See Winklevoss III, 11 F.Supp.2d at 1000 (finding coverage for "disparagement" not restricted to its common law definition). The Illinois legislature confirmed this reading in the Illinois Uniform Deceptive Trade Practices Act ("the Act"). The Act has been characterized as a codification of the common law tort of unfair competition, Mars, Inc. v. Curtiss Candy Co., 8 Ill.App.3d 338, 290 N.E.2d 701, 704 (1972), and states that "[i]n order to prevail in an action under this Act, a plaintiff need not prove competition between the parties or actual confusion or misunderstanding." 815 ILCS 510/2-12 (2000).
Moreover, the allegations in the underlying litigation correspond to the covered offenses.
As Defendant Insurers indicate, the underlying allegations do not claim recovery for slander, libel or disparagement. However, this does not preclude the existence of a duty to defend as it is the facts alleged in the underlying complaint— not the legal theory—that is controlling. Cincinnati, 233 Ill.Dec. 649, 701 N.E.2d at 502 (stating that, if the complaint alleges facts even potentially within the coverage of the policy, the duty to defend has been established). Because only a portion of the liberally construed allegations need fall within the covered provisions in order to invoke a duty to defend, International Insurance Co. v. Rollprint Packaging Products, Inc., 312 Ill.App.3d 998, 245 Ill.Dec. 598, 728 N.E.2d 680, 692 (2000), the allegations that Boots advertised its product as superior to all other similar products and published statements harming the reputation of Dr. Dong bring these actions within the categories of wrongdoing that the policies cover.
Third, the underlying injury arose out of an offense the insured committed while engaging in advertising or business activities. The causal connection between the insured's activities and the alleged injury is the salient factor in determining a duty to defend. See Winklevoss III, 11 F.Supp.2d at 999 (stating that the majority rule requires that advertising activity cause the injury in order to trigger a duty to defend). Where there is no causal connection between the insured's advertising or other covered business activities and the injury to the underlying plaintiff, there is no duty to defend. See, e.g., W. States Ins. Co. v. Wis. Wholesale Tire, Inc., 184 F.3d 699, 703 (7th Cir.1999) (finding no duty to defend where the complaint did not seek recovery for damages arising out of insured's advertising activity); Diamond State Ins. Co. v. Chester-Jensen Co., 243 Ill.App.3d 471, 183 Ill.Dec. 435, 611 N.E.2d 1083, 1088 (1993) (finding no bodily injury coverage where employees' injuries were not a necessary causal link in the injury to the underlying plaintiffs).
Based on Knoll's complaint, there is a sufficient causal connection between the insured's activities and the alleged injury to the underlying plaintiffs.
In sum, Knoll has established that Boots advertised during the policy periods, that the allegations correspond to the covered offenses and that the underlying injury arose out of the covered offenses. Therefore, we find that Defendant Insurers owed a duty to defend.
C. Transfer of the Policies from Boots to Knoll
We find that further briefing is needed before we can adjudicate whether the insurance policies transferred from Boots to Knoll. As this request will elicit matters outside the pleadings, we will treat this motion as one for summary judgment. N. Ind. Gun & Outdoor Shows, Inc., 163 F.3d at 453 (stating that when matters outside of the pleadings are not excluded from its consideration, the court should convert the Rule 12(c) motion into a Rule 56 motion for summary judgment). Specifically, we wish to know from Defendant Insurers the remaining questions of material fact that preclude judgment in favor of Knoll and, in particular, if any such questions may require an evidentiary hearing.
Briefly, Knoll asserts that the insurance policies have transferred from Boots to Knoll as a matter of law. Defendant Insurers deny that the policies transferred to Knoll because of policy language stating that a transfer of rights under the policy requires written consent. (R. 1-1, Compl. Exs. 3-5, Def. Insurers' Policies.)
Determining if the insurance policies have transferred from Boots to Knoll is a novel issue under Illinois law. However, the following cases suggest that at a minimum, we will need to evaluate the details of the corporate merger and acquisition between Boots, Knoll and BASF. In Illinois, a corporation which merges with another corporation assumes the obligations and liabilities of the latter corporation. Myers v. Putzmeister, Inc., 232 Ill.App.3d 419, 173 Ill.Dec. 130, 596 N.E.2d 754, 755 (1992). A successor corporation which buys the assets of another corporation, however, is not liable for the debts of the seller unless dictated by an express agreement.
For these reasons, we partially grant Knoll's motion for judgment on the pleadings. (R. 23-1). We deny Automobile's, (R. 34-1), National Union's, (R. 33-1), and Royal's, (R. 27-1), motions for judgment on the pleadings. Defendant Insurers' briefs on the transferability issue are due on or before July 27, 2001. Knoll's response is due on or before August 10, 2001.
This insurance applies to: