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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

ILLINOIS UNION INSURANCE COMPANY v. INTUITIVE SUGICAL, INC.

ATTENTION: It is possible that this information may no longer be current and therefore may be inaccurate. The index contains both open and closed cases and is not a complete list of cases in which an ACE Insurance Group company is involved. This information is provided to give interested persons an idea of the issues disputed in the indexed cases. For a full understanding of a case, one should read the rest of the court file, including the response. For the most up-to-date and complete information on a case, visit www.pacer.gov or contact the clerk of the relevant court.

Case Number: 
5:13-cv-04863 Search Pacer
ACE Group party(s): 
Court Type: 
Federal
US District Court: 
Northern District of California
Date Filed: 
Oct 21 2013

"FIRST CLAIM FOR RELIEF
(Rescission of Insurance Policy)

6. This is an action pursuant to California Insurance Code § 650 to rescind Life Sciences
Products-Completed Operations Liability Policy No. SPL G24369298 001 (the "Policy") issued by
Plaintiff to Defendant. The Policy provides coverage for products liability claims first made against
Defendant during the policy period, March 1, 2013 to March 1, 2014. The Policy provides
$15,000,000 per occurrence and aggregate limits, including defense costs, over a $5,000,000 per
occurrence and aggregate self-insured retention, including defense costs, which must be satisfied by
Defendant before any coverage is provided by the Policy. Defendant can satisfy the self-insured
retention by payment of defense costs as well as payment of settlements and judgments.

7. Defendant is a medical equipment manufacturer. Its only product line is da Vinci
robotic surgical systems, which are used in a number of surgical procedures, including
hysterectomies and prostatectomies. The system uses robotic arms with a variety of surgical tools
such as retractors and cutting devices which are controlled remotely by a surgeon to perform
microsurgery which is less invasive than open surgery and typically results in shorter healing
periods. As of December 31, 2012, Intuitive had installed 2,585 da Vinci systems worldwide,
including 1,878 in the United States. Defendant estimates that over 450,000 procedures were
performed using da Vinci systems in 2012.

8. At all relevant times in connection with the application process for the Policy,
Defendant was represented by an insurance broker, Woodruff-Sawyer & Co. ("Broker"), located in
San Francisco, California. Pursuant to California Insurance Code section 33, Broker represented
Defendant, and not Plaintiff, in the application process. Plaintiff had no direct communications,
either oral or written, with Defendant during the application process.
9. On January 22, 2013, Broker emailed to Plaintiff a submission for Intuitive's products
liability coverage renewal on March 1, 2013. At the time, Defendant's primary products liability
insurance was provided by Ironshore Insurance ("Ironshore"). Broker informed Plaintiff that
Defendant was looking for both primary and excess insurance options for $ 15,000,000 per
occurrence and aggregate up to $50,000,000, and that the expiring Ironshore primary products
liability insurance provided $15,000,000 per occurrence and aggregate limits over a $3,000,000 per
occurrence, $5,000,000 aggregate self-insured retention. The Broker's submission attached an
application for renewal coverage on an Ironshore form, and Excel spreadsheets showing three Field
Actions (notice provide to users of da Vinci systems of corrective action that needs to be taken) in
2011 and MDR's (reports of complications or potential complications in surgeries using the da Vinci
system) during 2012. The submission stated that loss runs would follow.

10. On January 30, 2013, Plaintiff sent an email to the Broker stating that Plaintiff was
interested in the risk and requesting loss runs. Later that day, Broker provided Plaintiff with insurer
loss runs for annual policy periods starting on March 1, 2000, through the Ironshore policies for
policy periods from March 1, 2011 through March 1, 2013. The loss run for the Ironshore policy
showed 9 claims during the first policy period, March 1, 2011 to March 1, 2012, and 22 claims for
the second policy period commencing on March 1, 2012. The Ironshore policies provided coverage
for claims first made against Defendant during each policy period, irrespective of when the surgical
procedure giving rise to the claim took place. Broker subsequently provided Plaintiff with three
additional claims to be added to the Ironshore loss run for the last policy period commencing March
1, 2012, bringing the total reported claims to 25 during the second Ironshore policy period.

11. Unbeknownst to Plaintiff, commencing no later than November, 2012, Defendant
through their counsel entered into tolling agreements with several claimants' attorneys which
provided that applicable statutes of limitations were tolled as to claimants who had contacted
claimants' attorneys based on alleged complications from use of da Vinci systems to perform
surgeries. Each claimant was added to the tolling agreements in lists provided by claimants'
attorneys to Defendant's counsel. The tolling agreements contemplated exchanges of medical
information and mediation before any litigation was filed.

12. The existence of the tolling agreements and the number of claimants added to the
tolling agreements were not disclosed to Plaintiff during the application process. The existence of
the tolling agreements was first publicly disclosed by Defendant in its 10-Q Quarterly Report filed
with the Securities and Exchange Commission ("SEC") on or about April 19, 2013. Defendant did
not disclose the existence of the tolling agreements or the increasing number of claimants added to
the tolling agreement in its 10-K Annual Report filed with the SEC on or about February 4, 2013,
which only noted that Defendant "was aware of increasing efforts by plaintiffs attorneys to solicit
da Vinci patients for product liability lawsuits against the Company. The Company cannot yet
estimate the impact of these solicitations."

13. After March 1,2013, many new claimants have been added to the tolling agreements,
and mediations and settlements have taken place with some of those post-March 1 claimants.
Plaintiff is informed and believes, and based thereon alleges, that Defendant asserts that Plaintiffs
Policy covers all claimants added to the tolling agreement after March 1, 2013, after the applicable
self-insured retention has been satisfied.

14. Plaintiff did not know of the existence of the tolling agreements prior to the issuance
of the Policy, and had no means of learning of the existence of the tolling agreements and the
increasing numbers of claimants being added to the tolling agreements because that information was
known only to Defendant, Defendant's counsel, and the claimants' attorneys who were providing
lists of claimants to be added to the tolling agreements directly to Defendant's counsel. Plaintiff is
informed and believes, and based thereon alleges, that Defendant's national defense counsel and
claimants' attorneys who were parties to the tolling agreements did not publicly disclose the
existence of the tolling agreements prior to the disclosure by Defendant in its 10-Q Quarterly Report
in April, 2013. Defendant is informed and believes, and based thereon alleges, that the total number
of claimants added to tolling agreements has not been publicly disclosed by anyone through the
present time.

15. The loss runs submitted by Broker to Plaintiff, including payments for those losses,
were analyzed by an actuary as part of Plaintiff s underwriting process. Plaintiff used the actuarial
analysis to determine both the appropriate attachment point of Plaintiff s coverage (i.e., the amount
of the applicable per occurrence and self-insured retention) and the appropriate premium to be
charged. In particular, during the application process Broker requested quotes from Plaintiff based
on a higher self-insured retentions than the expiring Ironshore policy, and the quote that was
eventually accepted by Defendant increased the per occurrence self-insured retention from
$3,000,000 to $5,000,000 while maintaining a $5,000,000 aggregate self-insured retention.

16. The existence of the tolling agreements and the increasing number of claimants added
to the tolling agreements were facts that would have been material to Plaintiffs underwriting process
that led to the binding of coverage and issuance of the Policy. The increasing number of claimants
being added to tolling agreements that would likely continue into the new policy period commencing
March 1, 2013, was a material change in the risk, because Plaintiff was relying on the small numbers
of claims with minimal expenses shown on loss runs provided by the Broker, while the number of
actual claimants was much larger and was increasing rapidly. In addition, any defense costs (and
settlements) incurred with respect to tolling agreement claimants prior to the issuance of the Policy
would have been material to the actuarial analysis.

17. Had Plaintiff been informed of the tolling agreements and increasing number of
claimants during the application process, Plaintiff would not have proceeded with the application
process and would have withdrawn any quote for the Policy provided to Broker, and the Policy
would never have been issued to Defendant. Even if Plaintiff had been willing to consider providing
products liability insurance to Defendant, the insurance would not have had the same attachment
point or premium.

18. Part VI Conditions, Subsection K of the Policy states:

K. Representations

By accepting this Policy, "you" [Defendant] agree that:

The statements in the Declarations, Application and "submission
materials" for this Policy are accurate and complete;

Those statements are based upon representations "you" made to the
"us"; and

This Policy has been issued in reliance upon "your" representations.

19. California Insurance Code §§ 330-335 provide:

§330. Concealment defined

Neglect to communicate that which a party knows, and ought to
communicate, is concealment.

§331. Effect of concealment

Concealment, whether intentional or unintentional, entitles the injured
party to rescind insurance.

§ 332. Required disclosure

Each party to a contract of insurance shall communicate to the other,
in good faith, all facts within his knowledge which are or which he
believes to be material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining.

§ 333. Required inquiry

Neither party to a contract of insurance is bound to communicate
information of the matters following, except in answer to the inquiries
of the other:

1. those which the other knows.
2. Those which, in the exercise of ordinary care, the other ought
to know, and of which the party has no reason to suppose him
ignorant.
3. Those of which the other waives communication.
4. Those which prove or tend to prove the existence of a risk
excluded by a warranty, and which are not otherwise material.
5. Those which relate to a risk excepted from insurance, and
which are not otherwise material.

§ 334. Materiality

Materiality is to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the party to whom
the communication is due, in forming his estimate of the disadvantages
of the proposed contract, or in making his inquiries.

§335. Presumed knowledge

Each party to a contract of insurance is bound to know

(a) All the general causes which are open to his inquiry equally with
that of the other, and which may affect either the political or material
perils contemplated.

(b) All the general usages of trade.

20. Defendant was required to provide information to Plaintiff to allow Plaintiff to fairly
evaluate the risk and to determine whether to quote, bind and issue the Policy.

21. As alleged in paragraphs 9 through 15 of this Complaint, in January and February,
2013, during the application and underwriting process leading to the issuance of the Policy,
Defendant knew that Defendant's counsel had been entering into tolling agreements with increasing
numbers of claimants who were not shown on loss runs provided to Plaintiff in connection with the
application process, that the existence of such tolling agreements and the increasing number of
claimants added to the tolling agreements would be a material fact to Plaintiff and its underwriters in
determining whether to quote, bind and issue the Policy, and that Plaintiff and its underwriters had
no reason to know of these tolling agreements because the existence of tolling agreements had not
been publicly disclosed by anyone.

22. Plaintiff issued the Policy in reliance on Defendant's disclosure of all material facts
that were not publicly available and unknown to Plaintiff. The material facts that were not publicly
available and unknown to Plaintiff included the existence of tolling agreements with increasing
numbers of claimants. Plaintiff is informed and believes, and based thereon alleges, that Defendant
expected claimants first added to tolling agreements after March 1, 2013, would be covered by
Plaintiffs Policy after satisfaction of the applicable self-insured retention, and Defendant knew or
should have known that this expectation of coverage made the existence of tolling agreements and
increasing numbers of claimants added to those tolling agreements would be a material fact for
Plaintiff in determining whether to insure the risk.

23. Plaintiff also relied on the representation by Defendant in the Policy that "[t]he
statements in the Declarations, Application and 'submission materials' for this Policy are accurate
and complete." The Application and "submission materials" were not accurate and complete because
they omitted any information on the existence of the tolling agreements and the increasing numbers
of claimants being added to the tolling agreements. In particular, by offering to provide loss runs and
then providing loss runs which did not include any of the claimants added to tolling agreements, the
loss runs were incomplete and misleading.

24. Had Plaintiff known of the tolling agreements and increasing numbers of claimants
being added to the tolling agreements during the application and underwriting process for the Policy,
Plaintiff would not have quoted or agreed to issue the Policy or would have issued the policy on
materially different terms.

25. California Insurance Code § 650 provides:

§ 650. Time for exercising right

Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this part such right may be exercised at any
time previous to the commencement of an action on the contract. The
rescission shall apply to all insureds under the contract, including
additional insureds, unless the contract provides otherwise.

26. Pursuant to California Insurance Code §331, Plaintiff is entitled to rescind the Policy
based on Defendant's concealment of material facts, specifically the existence of tolling agreements
starting in November, 2012, and the increasing number of claimants being added to the tolling
agreements during January and February, 2013.

27. Based on Defendant's concealment of the existence of the tolling agreements and the
increasing number of claimants added to the tolling agreements, Plaintiff is entitled to judicial
rescission of the Policy. In the event rescission of the Policy is granted, Plaintiff will refund the
premium paid to it in connection with the Policy to the Defendant.

SECOND CLAIM FOR RELIEF
(Declaratory Relief)

28. Plaintiff realleges Paragraphs 1 through 27 as though fully set forth.

29. There is an actual controversy between Plaintiff and Defendant with respect to
coverage under the Policy for claims of claimants added to tolling agreements after the inception
date of the Policy and suits filed against Defendant after the inception of the Policy.

30. Plaintiff is informed and believes, and based thereon alleges, that Defendant contends
that there is coverage under the Policy for all claims of claimants added to tolling agreements after
the inception date of the Policy and all suits filed against Defendant after the inception of the Policy after the applicable self-insured retentions have been satisfied

31. Plaintiff contends that the Policy should be rescinded and that no coverage is
provided by the Policy for claims of claimants added to tolling agreements after the inception date of
the Policy and all suits filed against Defendant after the inception of the Policy after the applicable
self-insured retentions have been satisfied.

32. Defendant has not notified Plaintiff that the applicable self-insured retentions in the
Policy have been satisfied as of the date of the filing of this Complaint.

33. Plaintiff is informed and believes, and based thereon alleges, that it is likely that the
applicable self-insured retentions in the Policy will be satisfied by payment of defense costs and
settlements of claims of claimants added to tolling agreements after the inception date of the Policy
and suits filed against Defendant after the inception of the Policy, and that Defendant will demand
that Plaintiff provide coverage for all defense costs, settlements and judgments for claims of
claimants added to tolling agreements after the inception date of the Policy and all suits filed against
Defendant after the inception of the Policy after satisfaction of the self-insured retention up to the
applicable limits of the Policy.

34. Pursuant to 28 U.S.C. § 2201, Plaintiff seeks a declaration that there is no coverage
under the Policy."

The provided text is an excerpt from a document filed in this case. For a full understanding of the case, one should read the complete court file, including the response.

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