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Firm that bought maker of faulty artificial knees liable for $2M retention: Court


Stryker Corp. must pay the $2 million self-insured retention under its insurance policy with XL Insurance America Inc. in connection with claims arising from the implanting of expired artificial knees, an appeals court ruled Thursday.

The complex case centers on artificial knee joints known as “Uni-Knees” developed by Howmedica Inc., an Irish subsidiary of Pfizer Inc. Kalamazoo, Michigan-based Stryker acquired Howmedica from Pfizer at the end of 1998 and under terms of the deal agreed to indemnify Pfizer for costs associated with claims brought against Pfizer related to Howmedica products such as Uni-Knees.

In the mid-1990s, according to court documents, it was discovered that the procedure used to sterilize medical devices after manufacture caused material in key Uni-Knee components to deteriorate, potentially leading to the device's failure.

In 2009, Stamford, Connecticut-based XL Capital Ltd. entered into a $26 million settlement to settle Stryker's liability to Pfizer and subsequently sought summary judgment arguing that, as the Pfizer settlement exhausted the limits of the Stryker policy, it no longer was liable for sums outlined by the court in a 2008 damages option.

In a 2012 ruling, the 6th U.S. Circuit Court of Appeals in Cincinnati, among other actions, reversed a finding by the U.S. District Court in Grand Rapids, Michigan, that the policy's aggregate limit does not apply to earlier Stryker judgments, and directed the District Court to determine what portion of the total liability beyond a $15 million policy limit represents consequential damages under Michigan law.

In its latest ruling, a three-judge appellate panel upheld the District Court's ruling that Stryker is obligated to pay the $2 million self-insured retention under the policy in question, among other issues dealt with in the ruling.

The lower court ruling “restored the provisions of the XL policy, with Stryker being responsible for the $2 million SIR and XL liable for the $15 million limit,” said a unanimous three-judge panel in Stryker Corp. et al. v. XL Insurance America Inc.