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Chubb unit seeks to rescind product liability policy

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A medical robotics firm continues to defend itself against efforts by a Chubb Ltd. unit to rescind its $15 million products liability policy because of an alleged failure to notify the insurer of pending litigation before obtaining the coverage, while an excess insurer has reached a settlement in the case.

Chubb unit Illinois Union Insurance Co. contends in a suit originally filed in 2013 that it would not have issued its $15 million products liability policy to Sunnyvale, California-based Intuitive Surgical Inc. had it known the extent of possible litigation against the firm.

But another insurer that had participated in the litigation, New York-based Navigators Specialty Insurance Co., which had an excess policy that provided $10 million in claims made coverage over Illinois Union's primary policy, reached a confidential settlement with Intuitive, according to court papers filed last week in U.S. District Court in San Francisco. The case is Illinois Union Insurance Co. v. Intuitive Surgical Inc.

In the most recent development, the District Court on Friday denied a partial summary judgment motion by Illinois Union to dismiss the case.

According to the court papers, Intuitive Surgical' s one product line, the da Vinci Surgical System, has been in use since the early 2000s and had performed more than to 400,000 surgical procedures by 2012.

The surgeon using the minimally invasive robotic system sits at a console away from the patient and manipulates robotic arms with a variety of micro-surgical attachments. Intuitive says the system causes less trauma and requires shorter hospital stays than traditional surgery.

Illinois Union issued to Intuitive a products liability insurance policy in force from March 2013 through March 2014. The policy provided for $15,000-per-occurrence coverage and aggregate limits, including defense costs, over a $5 million-per-occurrence and aggregate self-insured retention.

Illinois Union contends that though Intuitive disclosed 24 open claims when it applied for the insurance, it did not mention 734 “tolling agreements” with claimants. A tolling agreement waives a right to claim that litigation should be dismissed because a statute of limitations had run out.

“It is axiomatic that you cannot buy insurance for a burning house,” say court papers submitted by Illinois Union. “Yet, that is exactly what Intuitive attempted to do here. The court should not allow it.

“The undisputed facts show that Illinois Union is entitled as matter of law to rescind the products liability policy it issued to Intuitive based on concealment of material facts in the application process for the policy.”

In its ruling Friday, Judge Jon S. Tigar said he was denying Illinois Union’s motion for partial summary judgment because there was a “material dispute” regarding concealment of the tolling agreements and whether Illinois Union knew about them before the policy was issued. Alternatively, said Judge Tigar, summary judgment is inappropriate because of underwriters’ “contradictory deposition testimony” in the case.