Pacific Dunlop Ltd v Swinbank
[1998] VSC 154
•9 December 1998
SUPREME COURT OF VICTORIA
COMMERCIAL LIST
Not Restricted
No. 2025 of 1997
F. 4759
PACIFIC DUNLOP LIMITED Plaintiff v CHRISTOPHER MARK SWINBANK Defendant JUDGE: Mandie J WHERE HELD: Melbourne DATE OF HEARING: 25-26 August 1998 DATE OF JUDGMENT: 9 December 1998 MODE OF CITATION: Pacific Dunlop Ltd v. Swinbank MEDIA NEUTRAL CITATION: [1998] VSC 154
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INSURANCE - product liability insurance - construction of policy - whether “series of Occurrences” includes occurrences happening after expiry of period of insurance - nature of a “series”.
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APPEARANCES: Counsel Solicitors For the Plaintiff Mr. J. Middleton QC Freehill Hollingdale & Page with Mr. T. Walker For the Defendant Mr. J. Karkar QC Lander & Rogers with Mr. K. Howden For Zurich Australian Mr. G. Clarke Phillips Fox Insurance Ltd
HIS HONOUR:
In this proceeding the plaintiff, Pacific Dunlop Limited (“Pacific Dunlop”) claims a declaration that upon the true construction of two Lloyd’s policies of insurance , and in the events which have happened, it is entitled to indemnity in respect of its legal liability for certain personal injury claims.
The defendant, Christopher Mark Swinbank is a member of and is sued as representing a relevant Lloyd’s syndicate (“the defendant insurer”). By order made on 19 June 1998 the issues raised by the amended statement of claim and the amended defence, save for certain specified issues, were set down for trial to be determined on the basis of an agreed statement of facts and such other relevant and admissible evidence as might be adduced at trial. At trial a number of documents were admitted into evidence in addition to the agreed statement of facts.
By a policy of insurance (the “Primary policy”) issued to Pacific Dunlop by Zurich Australian Insurance Limited (“Zurich”) for the period 30 September 1992 to the period 30 September 1993 (“the Period of Insurance”), Zurich agreed to indemnify the Insured, namely Pacific Dunlop and certain subsidiary and associated companies (“the Pacific Dunlop Group”), for all amounts which the Insured should become legally liable to pay by way of compensation or damages in connection with the Business (as defined) by reason of liability imposed upon the Insured by law or assumed under contract or agreement as more fully described in each section of the Primary policy.
By a policy of insurance issued to Pacific Dunlop (“the first Lloyd’s policy”), the defendant insurer agreed to indemnify the Pacific Dunlop Group against such sums as it became liable to pay in respect of personal injury as defined (“personal injury”) caused, inter alia, by an occurrence happening during the Period of Insurance and arising out of or in connection with any of its products up to a proportion of the defined limit in excess of the level of cover under the Primary policy in respect of any one occurrence and up to the said limit in the aggregate for all occurrences.
By a further policy of insurance to Pacific Dunlop (“the second Lloyd’s policy”), the defendant insurer agreed to indemnify the Pacific Dunlop Group against such sums as it became liable to pay in respect of personal injury caused, inter alia, by an occurrence happening during the Period of Insurance and arising out of or in connection with any of its products up to a proportion of the defined limit in excess of the underlying policies in respect of any one occurrence and up to the said limit in the aggregate for all occurrences .
Between 1988 and about 1996 Pacific Dunlop had a number of subsidiary companies, including TPLC Inc of Denver, Colorado (formerly called TPL Cordis Inc., now called Accufix Research Institute Inc ) which were engaged in the business of manufacturing and distributing implantable medical devices, including coronary pacemaker leads.
Between October 1988 and October 1994, TPLC Inc manufactured and distributed the Accufix atrial “J” pacing leads (model numbers: 329-701, 330-801 and 033-812) (“the leads”). Approximately 40,500 of the leads were implanted in cardiac patients around the world (approximately 25,651 of which were implanted in cardiac patients in North America).
Each of the leads has the following common design features and components:
(a)
a J shaped stiffener wire (“the J wire”) of alloy composition that is detached from the lead, save for a weld where it is joined to the proximal end of the lead anode band and extends 88mm towards the pacemaker;
(b)
the J wire is located between the outer polyurethane insulation sleeve and the conductor coil;
(c)
the conductor coils transmit electronic signals from the pulse generator component of the pacemaker to the distal end of the lead;
(d)
the distal end is attached to the heart by a retractable screw mechanism located at the distal tip of the lead, to facilitate implantation and fixation of the lead;
(e)
the screw mechanism located at the distal tip of the lead is activated by a unique screwdriver tip inserted into the length of the lead;
(f)
the purpose of the J wire is to produce a J shape at the distal end of the lead, so that the distal tip of the lead can be affixed in the atrial appendage or the high atrial wall of the heart after insertion through the veins.
The J wire was a component common to all three models of the leads manufactured and distributed between October 1988 and October 1994.
The J wire was originally manufactured from Elgiloy, a cobalt-based alloy. In early 1990 the composition of the J wire changed to MP35N, another cobalt-based alloy.
Each of the said alloys used to manufacture the J wires comprised in the leads were subjected to the same forming procedures to produce a J wire as follows:
(a) each wire was cold drawn and rolled into a flat wire with specified final dimensions by an external manufacturer; (b) the J wires were formed into the ‘J’ shape and checked by Micro Med Machining, Inc. against a template drawing to ensure conformity to the specified shape; (c) the formed J wires were then transported to TPLC Inc’s manufacturing facility in Miami Lakes, Florida for use in the manufacture of the leads; (d) each of the leads manufactured and distributed between October 1988 and October 1994 included a J wire manufactured by the processes set out above.
The leads were distributed in countries other than Canada and the United States of America by various members of the Pacific Dunlop Group (and others).
Prior to the inception of the Lloyd’s policies, the following events occurred in the United States of America:
(i) A lead was explanted from Mr Norbert Tracy at some time prior to 20 July, 1989. On 20 July 1989, the lead was returned to TPLC Inc. It was found that the J section of the lead was distorted with the J wire broken and that the J wire had been broken as a result of the explantation procedure. No claim was made by Tracy against any member of the Pacific Dunlop Group in respect of which indemnity is sought pursuant to either the Primary policy or the Lloyd’s policies.
(ii) A lead was explanted from Mr Merle Hill on 14 February 1991. On 20 February, 1991 the lead was returned to TPLC Inc and it was found that the conductor coil and the J wire of the lead had fractured as a result of fatigue. No claim was made by Hill against any member of the Pacific Dunlop Group in respect of which indemnity is sought pursuant to either the Primary policy or the Lloyd’s policies.
On 31 October 1994 and on 3 November 1994 TPLC Inc announced the voluntary recall of all unimplanted leads. The recall was initiated following reports that the J wire could fracture and consequently protrude through the polyurethane insulation sleeve and thus cause physical injury to the patient.
There was admitted into evidence, by consent, a report of Accident Reconstruction Analysis Inc. dated 30 May 1996 entitled “Report on Ongoing Failure Analysis of Accufix Pacing Leads” and signed by Dr. Charles R. Manning Jr. and Thomas Wenzel (“the Manning report”). The purpose of this analysis was to determine the cause of failure of the J wire. Eighty explanted leads were examined, 58 of which had fractured J wires and 19 of which had non-fractured J wires. Of the 58 fractured J wires, 35 had one fracture, 18 had two fractures and 5 had three fractures. All examinable fracture surfaces showed marks indicating that “fatigue” was the mode of fracture and six of the wires showed evidence of “overload” failure. The Manning report opines that “the distribution of fractures throughout the curvature [of the J wires] is highly suggestive that loading of wire and resultant stresses are patient specific.” The 19 unfractured wires showed no fatigue cracks but the marking and condition of them was otherwise comparable to the condition of the fractured wires.
The Manning report states that “it is believed that the fractures are being driven by the amount of stress on the lead and not the condition of the material” and that the “stress levels experienced by the “J” stiffener wire in service appear to be specific to each patient.” The report goes to say that the “reason for the varying stress levels in each patient is not specifically known but it is believed that the shape of the lead in the “J” area and the displacement of the lead during the beating of the heart are two (2) primary causes for the variation.”
The Manning report relevantly concludes:
“6) The wire failures appear to be driven by the stress level of the wire and not by any variations in the material or material processing. The loading or stressing of the wire appears to be patient specific. 7) It appears that due to patient specific implant geometry and lead displacement, some wires are subjected to stresses sufficient to result in fatigue failure.”
I refer further below to the contents and nature of the Manning report.
Numerous claims have been made against members of the Pacific Dunlop Group for liability in respect of personal injuries alleged to have been caused by the actual fracture of the J wire or the susceptibility of the J wire to fracture (“the personal injury claims”).
Although the agreed statement of facts is not always clear as to this, I have assumed for present purposes that all of the companies mentioned against whom claims have been made are members of the Pacific Dunlop Group.
The personal injury claims fall into one or other of the following agreed and defined categories:
(1) Personal injury suffered during the Period of Insurance as a result of
fracture of a J wire.(2) Personal injury suffered after the expiry of the Period of Insurance as a
result of fracture of a J wire.(3)
Personal injury suffered after expiry of the Period of Insurance as a result of the removal by surgery of an unfractured J wire (“the explant claims”).
(4) Personal injury suffered after expiry of the Period of Insurance as a
result of fear of failure of a J wire (“ the distress claims”).
The following is the agreed instance under Category (1) of a person who during the Period of Insurance suffered personal injury as a result of fracture of a J wire (a fracture claimant):
Mrs Anne Smithers was implanted with a lead on 20 January 1992 at the Monash Medical Centre in Melbourne. On 20 November 1992 Mrs Smithers suffered circulatory collapse and pericardial tamponade following a fracture and protrusion of the J wire from the outer polyurethane sleeve and perforation of the right atrium. All the medical evidence indicated that there must have been a sudden disruption of the atrial lead resulting in protrusion of the J wire causing dislodgment of the lead and perforation of the right atrium, thereby resulting in pericardial tamponade. On 25 November 1992 X-ray results showed fracture of the J wire in the lead. On 27 November 1992 the lead was removed by surgery.
By proceeding No.8079 of 1995 in the County Court of Victoria, Mrs Smithers sued members of the Pacific Dunlop Group for damages in respect of personal injuries suffered as a result of the fracture of the J wire. The proceeding commenced by Mrs Smithers was compromised.
The following is the agreed instance under Category (2) of a person who after the expiry of the Period of Insurance suffered personal injury as a result of fracture of a J wire (a fracture claimant):
Frau Appolonia Ridder was implanted with a lead on 16 November 1993 at Essen, Germany. In early February 1995, Frau Ridder underwent fluoroscopic screening. On 13 February 1995, the lead was removed by surgery at Essen, Germany. It was revealed prior to surgery performed on 13 February 1995, that the J wire had fractured but had not protruded through the outer polyurethane sleeve of the lead.
On 12 April 1996, Frau Ridder commenced a legal proceeding in the Essen Regional Court against a member of the Pacific Dunlop Group seeking compensation for personal injuries resulting from fracture of the J wire. The claim was compromised in September 1996.
It is assumed, as I understand it, that under Category (2) the fracture occurred after the expiry of the Period of Insurance. In the above instance, the implantation occurred after that time and it is also possible that the lead was manufactured after that time.
The following is the agreed instance under Category (3) of a person who after expiry of the Period of Insurance suffered personal injury as a result of the removal by surgery of an unfractured J wire (an explant claimant):
William Keith Patterson was implanted with a lead on 5 January 1994 at Ashford Hospital in Adelaide. X-ray results conducted on or about 7 January 1995 showed no fracture of the J wire of the lead. A fluoroscopy test conducted on or about 1 April 1995 revealed no fracture of the J wire. On 31 May 1995, Mr Patterson underwent elective surgical explantation of the lead. When the lead was removed by surgery it was found to be intact, without any fracture of the J wire.
On 10 July 1996, Mr Patterson claimed to be entitled to damages from a member of the Pacific Dunlop Group in respect of injuries suffered as a result of removal of the lead. No legal proceeding was commenced by Mr Patterson. Mr Patterson’s claim was compromised.
Again, in this instance, the lead was explanted after expiry of the Period of Insurance and may have been manufactured after that time.
The following is the agreed instance under Category (4) of a person who after expiry of the Period of Insurance suffered personal injury as a result of fear of failure of a J wire ( a distress claimant):
Mr Lohmueller was implanted with a lead on 2 September, 1989 at Dortmund, Germany. Recent medical tests reveal that the J wire is not fractured.
On 19 April 1995, Mr Lohmueller claimed to be entitled to compensation in respect of mental injury suffered as a result of fear of failure of the J wire. On 23 July 1996, Mr Lohmueller issued proceedings against a member of the Pacific Dunlop Group in the local court at Dortmund claiming declaratory relief and damages in respect of this fear of failure.
On or about 21 December 1992, Pacific Dunlop referred the claim by Anne Smithers (see paragraph 22 above) to Zurich and subsequently sought indemnity under the Primary policy against any liability in respect of the personal injury claims, including the Smithers claim.
On the terms outlined in its letter dated 15 September 1995, Zurich accepted liability under the Primary policy to indemnify the Pacific Dunlop Group against the personal injury claims pursuant to the terms of the Primary policy. Zurich assumed the conduct of the defence and/or the settlement of the personal injury claims.
Zurich’s letter admitting liability contained additional comments including the following:
“(a) You will note that our acceptance is ‘on the basis of information supplied’. Your solicitors by letter of 27th February, 1995 stated that the first incident involving any injury to a patient of which you were aware occurred in October, 1992. In the circumstances, the ‘Occurrence’ for the policy purposes is deemed to have occurred at that date and the claim will thus attach to the 1992-1993 year. This grant of indemnity is made specifically on the bases of information supplied. Underwriters reserve their rights fully in the event that other relevant material or information becomes available. (b) Further, there will be deemed to one occurrence as all who suffer personal injury do so from one common cause. Policy liability is therefore limited to the 1992/93 year only irrespective of when the individual patient notifies his claim.”
Each of the Lloyd’s policies provides that:
- it is subject to, inter alia, the same conditions, definitions and terms as the Primary policy (except with regard to, inter alia, the premium and limits of liability) (Condition 1); - in the event of, inter alia, exhaustion of any aggregate underlying limit,
the policy would apply in place of the Primary policy (Condition 4).
The level of cover under the Primary policy being on the point of exhaustion, Pacific Dunlop sought pursuant to the Lloyd’s policies that the defendant insurer accept liability to indemnify the Pacific Dunlop Group in respect of the personal injury claims to the extent necessary.
By letter dated 5 February 1997, the defendant insurer declined to accept liability to indemnify the Pacific Dunlop Group and contended, inter alia, that the personal injury claims (other than the Smithers claim) did not fall within the definition of “series of Occurrences” as provided for by clause 5 of the Definitions section of the Primary policy.
The Primary policy contains an “Operative Clause” (cl.1) under which Zurich agreed to indemnify the Insured for all amounts which it became legally liable to pay by way of compensation or damages “as more fully described in each Section.”
The Primary Policy contains 4 Sections:
Section A - General Liability
Section B - Product Liability
Section C- Employers Liability
Section D - Products Recall ExpenseSection A - General Liability provides for indemnity in accordance with the Operative Clause against sums which the Insured shall become legally liable to pay arising out of personal injury, property damage or advertising injury “caused by an Occurrence” happening during the Period of Insurance (or within a specified retroactive period - 30 June 1977 to 20 June 1990 - in respect of which a claim is made during the Period of Insurance and which Occurrence was not known to the Insured’s officer responsible for insurance prior to the inception date of the policy - see clause 1(b) read together with Item 10 of the Schedule).
Section B - Product liability provides for indemnity in accordance with the Operative Clause against sums which the Insured shall become legally liable to pay in respect of personal injury or property damage “caused by an Occurrence” happening during the Period of Insurance (or within the said retroactive period on the same basis as Section A) arising out of or in connection with any Products. There is an exclusion in respect of liability arising out of or in connection with any Products of certain companies (including TPL Cordis Inc) which arises in, or for which a claim is brought in a court of, the USA or Canada.
It is unnecessary to refer to Section C.
Section D - Products Recall Expense provides for indemnity in accordance with the Operative Clause for Products Recall Expense “caused by an Occurrence in respect of which a claim is first made during the Period of Insurance”. “Occurrence” is specially defined for Section D.
Thus it can be seen that the Period of Insurance is important under each of Sections A, B and D. In the case of Sections A and B the personal injury (or other damage) must be caused by an Occurrence happening during the Period of Insurance (leaving aside the specified retroactive period). In the case of Section D, the claim must be first made during the Period of Insurance.
The Primary policy contains a “Definitions” section which is applicable to all Sections of the policy and which contains the following relevant definitions :
“1. PERSONAL INJURY The Term “Personal Injury” shall mean : -
(a) bodily injury, death, sickness, disease, disability, shock, fright, mental anguish and mental injury...”
“4. PRODUCT(S) The Term ‘Product(s)’ whenever used herein shall be deemed to include:
(a) any tangible property ... which has been designed, ... sold, supplied, ... distributed, ... by or on behalf of the Insured...”
“5. OCCURRENCE The term ‘Occurrence’ shall mean an event including continued or repeated exposure to substantially the same conditions which results in such Personal Injury, Property Damage or Advertising Injury neither expected nor intended by the Insured.
...
An Occurrence or series of Occurrences arising directly from a common
cause or condition shall be deemed to be one Occurrence regardless of the
number of persons or organisations who sustain Personal Injury, Property
Damage or Advertising Injury. All such Occurrences shall be deemed to
have occurred on the day of the first of such Occurrences.”[It will be convenient to refer to this last paragraph of the definition of “Occurrence” as “the aggregation clause” and the last sentence of that paragraph as “the date deeming provision”.]
“10. PERIOD OF INSURANCE The term ‘Period of Insurance’ shall mean the period specified in Item 5 of the Schedule or any subsequent period for which the Insured shall agree to pay and the Insurer shall agree to accept a renewal premium.”
Clause 1 of the “Conditions” section provides that the Insured shall give written notice to the Insurer as soon as reasonably practicable of any Occurrence or other circumstance that may give rise to a Claim under the policy.
The Schedule to the Primary policy contains the following relevant Items:
“Item 5
Period of Insurance:
From 4.00 pm, Australian Eastern Standard Time on 30 September 1992 to 4.00 pm, Australian Eastern Standard Time on 30 September 1993
or any subsequent period for which the Insured shall agree to pay and the Insurer shall agree to accept a renewal premium.
Item 6
The Business:
Principally, but not limited to Property Owner and manufacturer, marketer, distributor, importer and exporter of diversified industrial, commercial domestic and medical products.
Item 7 Premium: As agreed Item 8 Limits of Liability: Section A: A$3,500,000 any one Occurrence Section B: A$3,500,000 any one Occurrence
and in the aggregate for all Occurrences...... Section D: A$2,000,000 any one Occurrence and in the aggregate for all Occurrences in any one Period of Insurance.
It is understood and agreed that this Policy reinsures the first A$1,500,000 any one Occurrence and in the aggregate for the Period of Insurance in respect of Sections A and B combined of this Policy (but excluding excess automobile liability claims which may be covered by reason of sub-clauses (ii) and (iv) of Exclusion 2(b), Section A of this Policy) to Pacific Dunlop Insurances Pty Ltd (hereinafter referred to as the ‘Captive’) pursuant to a Reinsurance Agreement entered into between the Captive and Zurich Australian Insurance Limited. As a consequence thereof, should the first A$1,500,000 be exhausted through the payment of claims or otherwise, then this policy’s Limits of Liability in respect of Sections A and B shall be limited to A$2,000,000 any one Occurrence under Section A and A$2,000,000 any one Occurrence and in the aggregate for all Occurrences under Section B.
Item 9
Deductibles:
Section A:
the first $25,000 of any amount otherwise payable in
[see General Exclusion (e)] respect of each and every
Occurrence...
Section B: the first and $25,000 of any amount otherwise payable in respect of each and every Occurrence. Section C: Nil Section D: the first $250,000 of any amount otherwise payable in respect of each and every claim. Or such other amounts as may be specifically agreed in writing with the Insurer.”
The first Lloyd’s policy, as applicable to the Product Liability Section of the Primary policy, contains a limit of liability of $A8M “any one Occurrence, and in the aggregate for all Occurrences in excess of the Insured’s Underlying Policies.” The policy contains the following provisions:
“ LIMITS OF LIABILITY
The Insurers total liability to pay compensation or damages shall not
exceed the Limits of Liability shown in the Policy Schedule and shall
only be payable in excess of the Primary Insurer’s Policy Limits and
after the Primary and Underlying Excess Insurers where applicable
have been held liable to pay the full amount of their Policy Liability.CONDITIONS 1.
This Policy is subject to the same warranties, conditions, definitions, terms and exclusions as the Primary Policy (except as regards to the premium, the obligation to investigate and defend, limits of liability and except as otherwise stated herein). This Policy shall not automatically follow settlements in discharge of Primary and Underlying Excess Insurers Liability.
2.
Liability to pay under this Policy shall not attach unless and until the Primary and Underlying Excess Insures shall have admitted liability for the Primary and Underlying Excess Limits or unless and until the Assured has by final judgement been held liable to pay an amount which exceeds such Primary and Underlying Excess Limits and then only after Primary and Underlying Excess Insurers have paid or have been liable to pay the full amount of the Primary and Underlying Excess Amounts.”
The second Lloyd’s policy contains similar provisions which depend upon the exhaustion of both the Primary policy and the first Lloyd’s policy and, as applicable to Products Liability, contains a limit of liability of $A10M “any one Occurrence, and in the aggregate for all Occurrences in excess of” the underlying policies.
Pacific Dunlop’s primary submission
Mr Middleton QC, who appeared with Mr Walker of counsel for Pacific Dunlop, submitted that the evidence showed that there was a “series of Occurrences arising directly from a common cause or condition” within the meaning of the aggregation clause, that the series of Occurrences was therefore deemed to be one Occurrence (regardless of the number of persons who had sustained personal injury ) and that the said single Occurrence was deemed to have occurred on the day of the first Occurrence in the series. He contended in substance that the common cause or condition was the serious potentiality or susceptibility of the J wire to fracture or an inherent defect in the J wire. [I will refer to both of these concepts for convenience by the shorthand expression “the defective condition of the J wire.”] That common cause or condition had given rise to a series of Occurrences. The first Occurrence in the series was the fracture and protrusion of the J wire on or about 20 November 1992, the subject of the Smithers claim. The other Occurrences in the series were the subsequent fractures of J wires whether they occurred within the Period of Insurance or after its expiry. It was further contended that the series of Occurrences not only included all subsequent fractures but also each subsequent disclosure to a claimant of the defective condition of the J wire (whether happening during or after the Period of Insurance) which caused or resulted in personal injury in the form of either or both of the fear of failure of the J wire and explant surgery to remove it.
Mr Middleton submitted that all these Occurrences constituted the one series because it was sufficient that they were all events happening in temporal succession and stemming from the defective condition of the J wire which was the common cause or condition.
Zurich’s position
Mr Clarke appeared as counsel for Zurich. Zurich has an outstanding proceeding in this Court against the same defendant (No. 5912 of 1997) in relation to a policy of reinsurance. That proceeding involves some of the same issues. Zurich was given leave to intervene in this proceeding as if it were a party to the proceeding on the terms that it would be bound by the decision of the Court as to the proper construction of the Primary policy (subject to any appeal).
Zurich generally supported Pacific Dunlop’s position and I will refer to its submissions further below.
The defendant insurer’s primary submissions
Mr Karkar QC, who appeared with Mr Howden of counsel for the defendant insurer, submitted that Pacific Dunlop was not entitled to indemnity under the Primary policy except, prima facie, in relation to the Smithers claim. The Smithers claim related to an Occurrence (the fracture of a J wire) which happened within the Period of Insurance and resulted in personal injury. Mr Karkar submitted that the definition of “Occurrence” did not extend the cover provided by the Primary policy beyond the Period of Insurance. He submitted that the policy did not apply to any of the personal injury claims in respect of which the Occurrence happened after the Period of Insurance - namely Categories (2), (3) and (4).
Mr Karkar contended in the alternative that the evidence did not show a common cause or condition from which a series of Occurrences had arisen. The defective condition of the J wire was not a common cause or condition because it was not proved and there was no evidence as to the cause of failure of the J wire. Alternatively, he submitted that there were three distinct series of Occurrences in relation to fracture claimants, explant claimants and distress claimants respectively. The first fracture Occurrence was in the USA (Tracy in 1989 or Hill in 1991) and that a deemed fracture Occurrence comprising the whole series of fractures therefore occurred before the Period of Insurance commenced and the policy did not apply. The explant Occurrences and distress Occurrences (separate series) all occurred after the Period of Insurance. A considerable number of further alternative arguments were advanced to which I will refer in due course.
Proper construction of the Primary policy
It was accepted by all parties that under the Lloyd’s policies the outcome of the proceeding, insofar as it depended on contractual interpretation, turned entirely upon the terms of the Primary policy.
There need be little debate about the meaning of “Occurrence” as defined in the Definitions section of the policy. It is defined to mean an “event” which is “something which happens at a particular time, at a particular place, in a particular way” (see Axa Reinsurance (UK) PLC v Field [1996] 1 WLR 1026, 1035 per Lord Mustill). The definition is however extended to include “continued or repeated exposure to substantially the same conditions.” I do not think, contrary to what was submitted at one stage by Mr Clarke, that “Occurrence” includes or necessarily includes the suffering of the personal injury (or other damage). Of course, for an occurrence to be a relevant Occurrence under the policy it must “cause” the personal injury or “result in” the personal injury but the Occurrence and the happening of the resulting injury may well be separate events.
The central issue of construction in the proceeding involves the meaning or operation of the aggregation clause. The purposes of the aggregation clause seem clear enough. It provides a benefit for the insured by limiting the potential application of the Deductibles provisions. Thus, if one Occurrence injures a number of persons it is deemed to be one Occurrence and only one deductible amount is applicable to the total of the claims; likewise, if a series of Occurrences injure a number of persons. The aggregation clause also provides a benefit to the insurer by its interaction with the Limits of Liability provisions. For example, under Section A of the Primary policy, there is a limit of $A3.5M “any one Occurrence”. By deeming one Occurrence or a series of Occurrences to be one Occurrence, in certain circumstances, regardless of the number of persons injured, one limit of $A3.5M is applicable rather than a series of separate limits for each Occurrence or resulting claim in the series. This same protection of the insurer is, I think, provided by the aggregation clause in relation to Section B of the Primary policy. Item 8 of the Schedule gives additional protection in this regard by providing for a limit of $A3.5M “any one Occurrence and in the aggregate for all Occurrences”. As I understand it, the limit of $A3.5M would therefore apply to a single Occurrence and to each deemed single Occurrence but also to the aggregate of all Occurrences (whether actual single Occurrences or deemed single Occurrences). The same analysis applies to Section D of the policy under Item 8 of the Schedule.
Of course, for a series of Occurrences to be deemed one Occurrence the series must arise “directly from a common cause or condition.” “Cause” is not a constricted notion. It can be a continuing state of affairs or the absence of something happening (see Axa Reinsurance, supra, per Lord Mustill). The word “condition” adds force to this interpretation and may be of particular relevance, inter alia, in relation to products liability.
As to what is meant by a “series” of Occurrences, counsel referred to what was said by Stephen J in The Distillers Company Bio-Chemicals (Australia) Pty Limited v Ajax Insurance Company Limited (1974) 130 CLR 1 (“Distillers”) in a passage of general importance and relevance which I will set out at some length.
In Distillers a public risks insurance policy issued to a distributor of drugs provided that the total liability of the insurer “for all compensation payable to any claimant or number of claimants in respect of or arising out of any one occurrence or in respect of or arising out of all occurrences of a series consequent on or attributable to one source or original cause” should not during any one period of insurance exceed a certain sum. Stephen J had this to say concerning the quoted provision (at pp. 18-23):
“In the case of policies which provide indemnity over a period it has long been the practice of insurers to impose an upper limit upon their liability in the case of each event which may occur, during the period of cover, giving rise to a liability to indemnify. Much litigation has ensued where one mishap has resulted in injury to many, the question being whether, as the insurer contends, the one limit of liability to indemnify applies to the mishap as a whole and, thus, to all claims flowing from it, or rather to each individual claim, as the insured would have it. This is just such a dispute but here the limitation clause is expressed in terms more detailed than in most reported cases.
The debate has, as a rule, concerned the meaning of the particular noun, usually ‘accident’ or ‘occurrence’, employed to describe that to which the limit is to apply, and whether it refers to the mishap itself or to the injury or death of each person involved in it; whether, in other words, it looks at the matter from the viewpoint of the insured or of the injured victim.
In South Staffordshire Tramways Co. v. Sickness and Accident Assurance Association [1891] 1 Q.B. 402 a limit of ‘£250 in respect of any one accident’ in a policy indemnifying against liability for ‘accidents caused by vehicles’ was held to apply to each of the claims of some forty injured passengers in one of the insured's trams which overturned; it was not the overturning of the tram but the injury to each passenger to which the words ‘one accident’ applied; as Bowen L.J. said at p. 407, ‘one accident’ meant one accident to the person.
In the recent case of Forney v. Dominion Insurance Co. Ltd. [1969] 1 W.L.R. 928, at p. 934 Donaldson J. attributes to this interpretation given by the Court of Appeal to ‘accident’ what he describes as the subsequent use in policies of the word ‘occurrence’ rather than ‘accident’ when an insurer seeks to limit liability in respect of any one mishap, regardless of the number of persons injured thereby. In Allen v. London Guarantee and Accident Co. Ltd. (1912) 28 T.L.R. 254, the limitation of liability referred to claims ‘in respect of or arising out of any one accident or occurrence’ and Phillimore J., following the South Staffordshire Case [1891] 1 Q.B. 402, held that where two were injured in the one incident for which the insured was responsible there were two ‘accidents’; however there was, he said, only one ‘occurrence’; thus the limitation of liability applied to the total of the two separate claims by those who were injured as a result of that one occurrence. The many decisions of United States courts on the subject are annotated in vol. 55 of the American Law Reports, 2nd ed. (1957), p. 1300.
In the present case the relevant limitation of liability clause, contained in the proviso to the indorsement, refers to ‘occurrence’ and not to ‘accident’, the latter being more likely to operate favourably to the interests of an insured. Moreover the maximum amount is not expressed to be applicable merely to ‘any one occurrence’; instead still further protection is afforded to the insurer, first by the reference to several claimants in respect of the one occurrence and secondly because claims in respect of two or more occurrences are nevertheless made subject to the one maximum amount of $100,000 so long as they form a series and are consequent on, or attributable to, one source or original cause.
The proviso must, of course, be read in its context in the indorsement; the compensation payable to claimants of which it speaks must refer to sums for which the insured becomes legally liable arising out of death, illness or bodily injury to any person and which is occasioned as set out in the opening words of the indorsement. So the limit of liability which the proviso creates is one applicable to sums of that nature which become payable to one or more claimants in respect of or arising out of either one occurrence or all occurrences of a series if those occurrences be consequent on or attributable to the one source or original cause.
Quite apart from authority I would not regard the word ‘occurrence’ in this context as apt to refer to the death of a victim or to his illness or injury but rather to the mishap causing such death, illness or injury and this is borne out by the contemplation of the proviso that there may be a number of distinct claimants although only one occurrence. In Forney's Case Donaldson J. regarded the policy's contemplation that a number of claims might arise out of one occurrence as indicating that ‘occurrence’ there meant the mishap, not its consequences [1969] 1 W.L.R., at p. 934. So do I...
I accordingly conclude that the occurrence or occurrences spoken of in the proviso refer to mishaps in which victims suffer death, injury or illness and not to that which they suffer...
Whether or not an occurrence is the mishap or its consequences, as manifested in the victim's injuries, it seems clear that in the present case there was no one occurrence in respect of which or arising out of which compensation may become payable to all these infant claimants. Only if the links in the chain of causes be traced as far back as the act on the part of the insured in distributing ‘Distaval’ can one event common to each claimant be found and the proviso should not, I think, be construed as including such a remote cause within the meaning of ‘occurrence’.
Accordingly the insurer must seek to rely upon that part of the proviso which extends its operation to several occurrences, which, if they form a series having one source or original cause, will still serve the insurer's purpose in confining the extent of its liability to the one sum of $100,000.
The facts of the present claims are, as yet, largely conjectural; it was this that gave rise to the need, felt by Helsham J., to proceed upon the basis of certain assumptions. Even those assumptions fall short of supplying the necessary factual basis in the very special facts of this case. If this were a vehicle indemnity policy the occurrence would be the collision as a result of which the third party victim suffered his injuries. I find elusive the equivalent of a collision in the present case. Is it the ingestion of the drug by the pregnant woman, the accumulation within her body of harmful constituents of the drug, the taking effect of these constituents upon the foetus, the subsequent malformed development of the foetus within the womb, the birth of the malformed infant or some combination of two or more of these events? Merely to state these possible factors as I have may be to reveal a lack of understanding of the operation of the drug and its effects; that would not be surprising in view of the absence of evidence on the topic. These difficulties are, of course, not unexpected when, before the facts are known, it is sought to determine how a written instrument may operate in relation to those as yet undetermined facts. The difficulties can, I think, in this instance, be avoided, if not overcome. Whatever may prove ultimately to be the relevant ‘occurrences’ in these cases they will, I think, because of the nature of the assumptions made by Helsham J., be found all to be attributable to the one ‘source or original cause’. Whether that be a quite remote one, such as the distribution of a drug containing a dangerous ingredient, or some more proximate one (and this will, of course, depend upon the prior identification of what is the relevant occurrence), it will, I think, necessarily prove to be the same cause in the case of each injured infant. No other outcome appears possible, given the assumptions which are to be made. Thus whatever the ‘occurrences’ may prove to be, the proviso will apply if they be occurrences ‘of a series’.
The meaning of ‘series’ in the proviso is, I think, that of a number of events of a sufficiently similar kind following one another in temporal succession. By the express words of the proviso, relevant occurrences must have ‘one source or original cause’ and must, by the operation of par. (b) of the proviso, occur within a relatively short time span. Since any number of distinct events will, unless by coincidence they occur simultaneously, necessarily occur in a temporal sequence, the only remaining attribute of the concept of a ‘series’ to be satisfied is that the events should be, in a sufficient degree, similar in nature.
The characteristic of the similarity of events which may form a series I take from those dictionary meanings of series which refer to the concept of being ‘of one kind’ or of having some ‘characteristic in common’—Shorter Oxford English Dictionary; in Attorney-General v. Cohen [1937] 1 K.B. 478, at pp. 483, 491, it was said of the term ‘series of transactions’ in revenue legislation that mere contiguity of time or place was not enough, some ‘integral relationship’ between the transactions must exist; and see Reg. v. Kray [1970] 1 Q.B. 125 and Reg. v. Ludlow [1971] A.C. 29.
In the present case it seems that although the precise nature and extent of the injuries of the various infants may differ, the precedent events were in each case the same; all involved the ingestion by a pregnant woman of ‘Distaval’, of which the insured was the wholesale marketer in Australia, with, it is to be assumed, consequent harmful effects upon the foetus, produced in each case in the same way by its content of ‘thalidomide’, resulting in deformity on birth of the infant. The assumptions required to be made themselves produce, to my mind, the necessary similarity called for in any ‘series’ of events.
In at least one reported decision upon the construction of an insurance policy the question of the existence of a ‘series’ of events has arisen directly for decision. In Richardson Construction Co. v. London and Lancashire Guarantee and Accident Co. [1939] 2 D.L.R. 738 a liability indemnity policy contained a limit of $1,000 ‘for any one accident or series of accidents arising out of one cause’. Pile-driving operations extending over three months had caused damage to four dwellings each in different ownership and the owners of each recovered, either by judgment or by settlement out of court, substantial sums against the insured. The insured contended that the limit was to be applied to each claim against it, each being a distinct accident, and not to the total of those claims. In the Ontario Supreme Court, Mackay J. considered a number of English decisions, including the South Staffordshire Case [1891] 1 Q.B. 402 and Allen's Case (1912) 28 T.L.R. 254, and, finding that there had occurred four separate and distinct accidents occurring at different times and all from the one cause, vibrations, concluded that they constituted a ‘series of accidents’ so that the limit of $1,000 was applicable to the total.
Two decisions of the U.S. Court of Appeals for the Fifth Circuit, Anchor Casualty Co. v. McCaleb (1950) 178 F. 2d. 322 and Saint Paul-Mercury Indemnity Co. v. Rutland (1955) 225 F. 2d. 689, esp. at p. 693, while concerned with the construction of a clause in a liability indemnity policy setting a maximum liability for ‘each accident’ without reference to the word ‘series’, do provide instances, in a similar context, of the judicial use of the word ‘series’ and ‘series of events’ in the same sense as I would give to it in the present instance.
In my view the first declaration was correctly made by Helsham J., although
I would regard the occurrence or occurrences to which the proviso refers not as the injuries suffered by the infant claimants but rather as the relevant events precedent to that injury, each of which had the same source or original cause and formed, with the others, a series of occurrences such as is referred to in the proviso.
In conclusion on this aspect I note that E.A. Heppell in a passage of his work Products Liability Insurance (1967), a text principally directed to the British insurance industry, refers to what he describes as the usual form of clause limiting liability in respect of any one accident as containing the phrase ‘any occurrence or series of occurrences arising from one source or original cause’. He attributes to that phrase the effect of limiting to the specified maximum sum the insurer's liability for all compensation payable in respect of injury and damage resulting from one act of negligence by the insured: at p. 33. The passage is of interest as showing that elements of the wording of the present proviso are of current common use in products liability insurance.”
Gibbs J agreed with Stephen J. Menzies J dissented.
I would respectfully adopt what was said by Stephen J as to the interpretation of the word “series” in this context. If anything, the phrase “series of Occurrences” in the policy here lends itself more readily to the interpretation than the phrase “all occurrences of a series” in Distillers. I consider that it is sufficient to constitute a series of occurrences to find a number of events of a sufficiently similar nature following one another in temporal succession. Those occurrences must under this policy also arise directly from a “common cause or condition” for there to be a relevant series for the purposes of the aggregation clause.
The first crucial question is whether upon a proper construction of the policy a series of Occurrences may include Occurrences happening after the expiry of the Period of Insurance. In that regard, the question arises whether the date deeming provision in the aggregation clause evinces an intention to deem all Occurrences in a series to have occurred on the day upon which the first of the series happened even if the Occurrence happened after the expiry of the Period of Insurance.
Mr Middleton submitted, as I have said, that these questions should be answered in the affirmative. He contended that the purpose of the aggregation clause (in addition to those which I have already mentioned) was to “prevent the multiple triggering of polices” and to contain liability for occurrences attributable to a common cause or condition within the limit of liability applicable to the one policy year.
Mr Clarke, for Zurich, pointed out that where the aggregation clause and the date deeming provision applied, the aggregated Occurrences are deemed to have occurred on a particular day notwithstanding that they did not in fact occur on the same day. He said that the purposes of the aggregation clause and the date deeming provision were clear. They related to the limitation of deductibles. He submitted that the date deeming provision was a natural corollary of this because if there was a deemed single Occurrence, when in fact there was more than one Occurrence, the question would obviously arise: when did the deemed single Occurrence happen? The policy would ordinarily be expected to provide an answer to this question, and the policy did provide an answer here. The answer provided by the date deeming provision was an answer given for the purpose of making it clear whether the deemed single Occurrence happened within or outside the Period of Insurance. Without a date deeming provision, there would be no way of telling when the deemed single Occurrence happened.
Mr Clarke submitted that the aggregation clause and the date deeming provision could not sensibly be construed as though the only Occurrences for the purposes of the aggregation clause were Occurrences which happened during the Period of Insurance. The definition of Occurrence did not say this. He submitted that the relevant indemnity provisions covered the situation where defined Occurrences happened during the Period of Insurance. They did not operate to restrict the definition of Occurrence so that the only Occurrences eligible for aggregation must occur in the Period of Insurance. He contended that the indemnity provisions and the definition of aggregated Occurrences worked sensibly together because the date deeming provision supplied the date of the deemed single Occurrence, upon which the indemnity provisions operated. He submitted that effect must be given to the words used, including the date deeming provision, and that no absurdity was involved. On the other hand, the date deeming provision would have no purpose or work to do if all Occurrences in a series had to happen within the Period of Insurance. It would then be totally irrelevant to know the date of the deemed single Occurrence.
Mr Clarke submitted that the aggregation clause (and the date deeming provision) provided certainty both to insured and insurer. It related Occurrences from a common cause to one insurance policy only and thus gave certainty of cover to an insured. If Occurrences happening over an extended period of time beyond expiry of the policy were not aggregated, the consequence might be that the insurer, writing insurance over later years when it was expected that the Occurrences would continue to happen, would seek to exclude the Occurrences from cover completely or quote terms of cover protecting the insurer from the financial consequences of the known or anticipated Occurrences. In those circumstances, an insured would become effectively uninsured as to the future. The operation of the aggregation clause and the date deeming provision as contended for by Zurich, he submitted, overcame those potential problems for an insured.
Finally, on this aspect, Mr Clarke submitted that this construction made commercial sense in the context of product liability insurance where there may be a problem with a product which results in personal injury over a substantial period of time to different people (or, it may be added, in the context of liability insurance generally). He said that if Zurich had wanted certainty as to when it could close its books in relation to a relevant Period of Insurance, a claims made policy wording could have been used.
Mr Karkar submitted that the definition of Occurrences was limited by, and had to be read in the context of, the express terms of the relevant sections of the Primary policy referring to Occurrences happening during the Period of Insurance. He contended that a liability policy potentially covering events occurring, not during the currency of the policy, but years or even decades into the future was unusual, if not bizarre, and that the date deeming provision did not extend the policy period but was intended to emphasise that all Occurrences in a series were to be treated as one Occurrence. He said that it was unusual for extensions to the period of cover to be found in definitional clauses.
Mr Karkar submitted that, to avoid absurdity, the Primary policy , so far as relevant, should be construed as if it provided that:
“The Insured is indemnified by this section in accordance with the Operative Clause against such sums as the Insured shall become legally liable to pay in respect of Personal Injury or Property Damage caused by an Occurrence, or a series of Occurrences arising directly from a common cause or condition all of which shall be deemed to be one Occurrence and to have occurred on the day of the first of such Occurrences, happening:
(a) during the period of Insurance, or
(b) after 30 June 1977 and before 30 June 1990, in respect of which a claim is first made during the Period of Insurance, and which Occurrence, as explained above, was not known to the Insured’s officer responsible for insurance prior to the inception of this Policy arising out of or in connection with any Products.”
Mr Karkar emphasised that the Primary policy (and the Lloyd’s policies) all “expired” on 30 September 1993 and that “[w]hen the relevant cover is placed on a time basis, the stated period of time is fundamental and must be given effect to. It is for that period of risk that the premium payable is assessed.” (Municipal Mutual Insurance Ltd v Sea Insurance Company Limited, 26 March 1998, Court of Appeal, unreported, per Hobhouse LJ, at p.14).
Mr Karkar contended that the construction urged by Pacific Dunlop would mean that the policy might respond into the future in relation to events which all occurred long after the Period of Insurance had expired. That is true but because a “series of Occurrences” involves the concept of “a number of events of a sufficiently similar kind following one another in temporal succession” the degree to which events in the future might be covered by the policy would be controlled to some extent. In addition, all Occurrences in the series must arise “directly from a common cause or condition” and that common cause or condition must, by definition, have to occur or at least commence prior to the first Occurrence in the series.
Mr Karkar accepted that meaning and operation should if possible be given to all parts of the policy including the date deeming provision but I think it is fair to say that he was unable to point to any particularly useful purpose to be served by an express stipulation that “all such Occurrences” are deemed to have occurred on the date of the first Occurrence.
Mr Karkar also referred to what he said were anomalies which might arise if Pacific Dunlop’s construction were adopted. He pointed out that Sections A and B of the Primary policy gave some cover during a retroactive period from 30 June 1977 to 20 June 1990 but that the policy provided no cover between 20 June 1990 and the commencement of the Period of Insurance (“the excluded period”). He submitted that if the first in a series of Occurrences happened in the retroactive period then other Occurrences in the series would be covered notwithstanding that they occurred in the excluded period. That may be so, but, if so, it simply follows from the construction of the policy and the so-called excluded period is not, to that extent, “excluded”. Alternatively, Item 10 in the Schedule might have overriding effect: “Retroactive liability will not apply to Occurrences which happen after 30 June 1990.”
Notwithstanding the above comments amd the considerable force of some of the arguments and the rationale advanced on behalf of Pacific Dunlop and Zurich, as summarised and set out above, I am unable to accept their submissions.
Clause 1 of each of sections A and B of the Primary policy expressly provides for indemnity in relation to damage or injury caused by an Occurrence “happening... during the Period of Insurance...” I do not think that this provision has the extended reach contended for by Pacific Dunlop as a result of the aggregation clause. It is true that the Occurrence which must happen in the Period of Insurance is an “Occurrence” as defined in the Definitions section of the policy but when one turns to the definition, the first paragraph containing the definition of “The term ‘Occurrence’” is neutral. It is that paragraph which states what the term “means” and it is that paragraph, I think, which controls the meaning of “Occurrence” in cl. 1 of each of Sections A and B. It is an Occurrence so defined which must happen during the Period of Insurance and thereby trigger the policy. It is only when one turns to the aggregation clause that the phrase “series of Occurrences” introduces ambiguity because a “series” might contain Occurrences happening both during and after the Period of Insurance. However, had it been intended that a “series of Occurrences” should include Occurrences happening after the expiry of the Period of Insurance one would have expected that it would have been expressly so stated in the aggregation clause. Instead, it is contended by Pacific Dunlop that such a meaning and intention is conveyed by, or to be assumed from, the general language used, or that such a meaning is to be inferred or implied. Moreover, it seems that the primary textual basis, if not the sole textual basis, for that contention is the presence of the date deeming provision in the aggregation clause. Something more would be needed, in my view, to justify this interpretation despite the dubious utility of the date deeming provision which seems to flow from the insurer’s interpretation.
I do not consider that the phrase “series of Occurrences” should be taken to include Occurrences happening after expiry of the Period of Insurance but rather should be taken to refer to Occurrences within the meaning of the first paragraph of the definition which have happened within the Period of Insurance. (For simplicity I put on one side the retroactive period.) In other words one first identifies all Occurrences, as defined by the first paragraph of the definition, which have resulted in injury or damage and have happened in the Period of Insurance and otherwise fall within cl. 1. Then, and only then, for the purpose of applying the deductibles provisions and any relevant limits of liability, one looks to see whether those Occurrences form a series. The aggregation clause means upon a proper construction that an Occurrence happening during the Period of Insurance, or a series of Occurrences happening during the Period of Insurance and arising directly from a common cause or condition, shall be deemed to be one Occurrence regardless of the number of persons or organisations who sustain Personal Injury, Property Damage or Advertising Injury and all such Occurrences shall be deemed to have occurred on the day of the first of such Occurrences.
There is a further indication, if only slight, that it was not intended to reach beyond the Period of Insurance. The date deeming provision does not deem “all such Occurrences” to “have happened within the Period of Insurance”, as one would expect if that were the intention, but merely deems them to “have occurred” on the day of the first of “such Occurrences”.
I am comforted in reaching this conclusion by a consideration of some of the consequences of adopting Pacific Dunlop’s arguments. Taking this case as an example, if a genuine series of “fracture occurrences” with a common cause were identified and fractures occurring after expiry of the Period of Insurance were included in the series, cover might be obtained in relation to claims in respect of which the pacemaker lead was not even manufactured, let alone implanted, prior to the expiry of the Period of Insurance. This result is sufficiently odd or unexpected, I think, as to suggest that the interpretation leading to it is, in the absence of clear words, likely to be incorrect.
In case I am wrong, I will consider some of the further submissions made on the assumption that (contrary to my decision) Pacific Dunlop’s submissions are thus far correct.
The submissions concerning the application of the Primary Policy to the facts
The order setting the issues down for trial noted (in “Other Matters”) that the defendant would not be contending in relation to any person that any “occurrence” happened within the meaning of the Lloyd’s policies prior to the implantation of a lead.
Further, the parties were agreed that the nature of and factual basis for the legal liability of Pacific Dunlop to the personal injury claimants was irrelevant to the determination of the questions of construction of the policies (see section 3 of the joint submission on issues for trial dated 18 June 1998).
It was on these bases that the issues were set down for trial.
As I have already mentioned, Pacific Dunlop contends that the common cause or condition from which the series of Occurrences directly arose which series, it is said, was to be found within the agreed categories of personal injury claims, was the defective condition of the J wire.
Mr Middleton submitted that the series of Occurrences which resulted in personal injury comprised one or more of three kinds of events happening to a claimant, namely, the fracture of the J wire, the explantation of the J wire and the disclosure of the condition of the J wire. That series of events directly arose, so it was submitted, from the defective condition of the J wire.
The evidence showing that the defective condition of the J wire was the relevant common cause or condition was said to be contained in the statement of agreed facts and in the Manning report.
The leads all had common design features and components and a J wire manufactured by the same procedures was common to all leads. There was thus a common cause or condition giving rise to the said series of Occurrences.
Alternatively, Pacific Dunlop submitted, and Zurich also submitted, that the Occurrence within the meaning of the definition was the continued exposure to substantially the same conditions constituted by the continued exposure of a patient to an implanted lead. The series of Occurrences consisted of all such exposures. The common cause or condition giving rise to the series of Occurrences was the defective condition of the J wire.
In answer, the defendant insurer submitted that (if there was any series at all) there were three separate series of Occurrences resulting in three kinds of personal injury.
(i) the fracture of the J lead in the case of fracture claims;
(ii) the explant surgery in the case of explant claims;
(iii) the disclosure of the defective condition of the J wire in the case of distress claims.
The Smithers claim was therefore not in the same series as the explant claims or the distress claims. Therefore, the policy did not respond to explant or distress claims.
As to the fracture claims, it was submitted that the first Occurrence, being the fracture of the lead, occurred in the United States in 1989 and/or 1991 - well before the inception of the policy. It was submitted that “Occurrence” in clause 5 of the Definitions section embraced events happening in, or the subject of litigation in, the United States of America, such that a J lead fracture occurring in a patient in the United States, would constitute the first Occurrence for the purposes of the date deeming provision, thereby fixing the date of all following fracture Occurrences in the same series at that date and that nothing in paragraph 2(d) of the Exclusions in Section B detracted from that submission. That being so, it was submitted that the policy deemed the series of fracture Occurrences to have happened prior to the inception of the policy and it did not apply.
Further, it was submitted that on the material in the agreed statement of facts, Pacific Dunlop had failed to prove that any series of Occurrences arose directly from a common cause or condition. Pacific Dunlop had not proved that the common cause for the failure of the J leads was the defective condition of the J wire. There was no evidence, it was submitted, as to what was the cause or common cause for the failure of the leads.
Alternatively, the defendant insurer submitted that Pacific Dunlop’s contention,
that the common cause or condition which gave rise to the Occurrences (or the various series of Occurrences) was “the susceptibility to fracture of the J wire”, was untenable and unsupported by the evidence. It was tautologous to say that the fracture of the J wire was caused by its susceptibility to fracture, that is, because the J wire might, or could, or was capable of, fracture. The cause of the fracture might have had something to do with the lead’s design, or manufacture, or implantation. None of these matters had been the subject of proof, but, whatever the cause or condition might have been, it was not the susceptibility of the J wire to fracture.
A number of further alternative arguments were advanced by the defendant insurer:
• that if Pacific Dunlop had proved a common cause giving rise to each series of
Occurrences, then the first explant occurred in the United States in 1989 or 1991, and consequently any series of such Occurrences was deemed to have occurred prior to inception of the policies. Accordingly, liability in respect of such Occurrences did not fall within the risks covered by the policy;
•
that there was a single Occurrence, or single series of Occurrences, namely the implantation of the J lead which caused the personal injuries. This Occurrence or series of Occurrences happened before the commencement of the policy. Accordingly, the policy did not respond to the claims;
•
that a series of Occurrences for the purpose of clause 5 of the Definitions was by virtue of clause 2 of the Extensions, which provides that if the Insured comprises more than one party the Insurer will indemnify each party [as] though a separate policy had been issued to each of them provided that the total amount of indemnity to all such parties shall not exceed the Limits of Liability specified in the Schedule, a series of Occurrences referable to a particular insured, and the day on which all Occurrences in a series are deemed to happen for a particular insured is the day of the first Occurrence in that series. Accordingly, if the fracture Occurrence relating to Smithers was regarded as the first in the fracture series, that series was referable to Medical TPLC Pty Ltd or TPLC Pty Ltd (against whom Smithers had claimed) and not to the other insureds. The claims against the other insureds did not fall within the risks covered by the policies.
The defective condition of the J wire
As I have said, the defendant submitted that there was no evidence of the cause of the failure of the leads. As I understood it, Pacific Dunlop accepted that it could not rely upon the contents of the recall notices dated 31 October 1994 and 3 November 1994 to prove the truth of the statements therein contained. I note also the use of the word “reports” in paragraph 11 of the statement of agreed facts and the word “alleged” in paragraph 12 thereof. However, Pacific Dunlop did rely upon the contents of the Manning report, which was in evidence by consent, and is uncontradicted expert opinion evidence.
The Manning report (dated 30 May 1996) describes itself as a “preliminary report” (see page 17) in which “the results and conclusions may be subject to change in the future pending the outcome of further research.” Nevertheless, in the absence of updated or other evidence, it is the only material before the Court. It is clearly a professional and expert document and I am satisfied that it establishes, on the balance of probabilities, that the mode of fracture of the J wire is fatigue. Despite the use of the word “appears”, I am also satisfied that it establishes on the balance of probabilities that the cause of fracture is unrelated to variations in the material or material processing but is related to the stress level of the wire and that stresses sufficient to cause fatigue failure are caused by “patient specific implant geometry and lead displacement”.
Clearly it is inappropriate that a critical medical device such as this should be vulnerable in significant numbers, for whatever reason or reasons, to life-threatening fractures after implantation. Although the precise cause or causes are not known, so far as the evidence shows, this potentiality or susceptibility to fracture is to my mind properly described as a “defect” in the leads or in the J wire in all the circumstances.
Application of Primary policy to the facts
The starting point for establishing whether cover exists under the policy is to take the relevant personal injury in the agreed categories of claims and to ask whether the personal injury was caused by an Occurrence (as defined) happening during the Period of Insurance.
A typical case in Category (1) or (2) involves personal injury to a claimant caused by a J wire protruding through the outer polyurethane sleeve. Such a case was the Smithers claim which resulted in circulatory collapse and pericardial tamponade (excessive accumulation of blood in the membrane sac enclosing the heart). The obvious and readily identifiable causative event is, in that case, the fracture of the J wire which protruded through the polyurethane sleeve.
In the case of an explant claim, I consider that it is correct to characterise the Occurrence as the explant surgery itself although the disclosure of the condition of the J wire is another candidate. I do not think that the occurrence or causative event is the condition of the J wire itself because it is only the knowledge of its condition which directly results in the decision to have the pacemaker removed. In the case of a distress claim, the occurrence is, I think, the disclosure of the defective condition of the J wire.
I do not think that it is appropriate to characterise the relevant Occurrence in any of the three types of personal injury (fracture, explantation and distress) as caused by “continued or repeated exposure to substantially the same conditions.” None of these personal injuries resulted from continued or repeated exposure to a condition or conditions. They were caused by specific classes of event to which I have just referred.
Having identified the relevant Occurrences, it is then appropriate to ask whether there is any relevant “series” of Occurrences within the meaning of the policy.
It could hardly be denied that fracture occurrences would possess sufficient inherent or essential similarity so as to constitute a series of Occurrences. It could hardly be denied that explant occurrences or disclosure occurrences respectively would possess sufficient inherent or essential similarity so as each to constitute a separate series of Occurrences. On the other hand, there is little inherent or essential similarity between fracture, explant and disclosure occurrences. These are different kinds of events - they are different in nature and caused different types of personal injury.
In Distillers , Stephen J noted that although the precise nature and extent of the injuries of the various infants differed, the precedent events were in each case the same: all involved the ingestion by a pregnant woman of “Distaval”, of which the insured was the wholesale marketer in Australia with consequent harmful effects upon the foetus and which was produced in each case in the same way by its content of ‘thalidomide’ and which resulted in deformity on birth of the infant. These aspects , he thought, produced the similarity called for in a ‘series’ of events.
In the present case, there is also some similarity in the precedent events: all involved the implantation of a pacemaker supplied by a member of the Pacific Dunlop Group and all involved the same type of J wire on the lead with a potentiality to fracture.
In my opinion, the three kinds of occurrences do constitute a single series of Occurrences within the policy definition for two broad reasons.
The first reason is that the policy definition itself expressly provides for the link between Occurrences which is to constitute them as one series, namely, that they all arise directly from a common cause or condition. In this case, the common and direct cause and origin of all occurrences is the implantation of the same type of pacemaker with the same type of lead possessing the same defective condition of the J wire in each instance. Alternatively, the said occurrences all arise directly from a common condition, namely the presence in each claimant’s body of the same type of pacemaker with the same type of lead possessing the same defective condition of the J wire.
The second or alternative reason is perhaps another way of saying the same thing. There is sufficient similarity between both kinds of events, so as to constitute them as a series, having regard to the common feature giving rise to them ie. the common “condition” to which I have already referred.
I would therefore have been inclined to conclude that there was deemed to be one Occurrence constituted by the series of Occurrences involved in all of the personal injury claims.
Had it been necessary to decide, I would also have been of the view that the “Tracy events” and the “Hill events”, which occurred in the USA, were not relevant Occurrences for the purposes of the aggregation clause because the only Occurrences which are relevant, for present purposes, are those which cause personal injury in respect of which the Pacific Dunlop Group is legally liable within the meaning of cl.1 of Section B of the Primary policy and Section B does not apply to liability in connection with Products of TPLC Inc which arises in the USA (see cl.2(d) of Section B - TPLC Inc was TPL Cordis Inc). Nor is there evidence of such liability, even in the USA. I do not propose to consider the defendant’s other arguments.
Conclusion
The defendant insurer has succeeded upon his principal submission. However, it was agreed that no formal orders should be made until the parties had had an opportunity to consider these reasons. I will fix a time for a further hearing.
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