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Home Insurance Co. v. National Union Fire Insurance of Pittsburgh2/20/2003
This case is part of Cargill, Inc.'s ongoing efforts to recover its expenses in defending itself and three of its subsidiaries in a patent infringement suit. We are asked to determine the nature and extent of three insurers' duties to reimburse Cargill for its defense costs. The patent infringement suit will be reviewed briefly, followed by Cargill's insurance coverage at the time of the suit, and then the legal issues in the instant case will be presented.
Life Point Systems, Inc. (Life Point) owned proprietary rights to three patents in a spread spectrum radio frequency device. Beginning in late 1988, Life Point attempted to negotiate licensing agreements with Cargill and several of its subsidiary companies: Waycrosse, Inc.; Willknight, Inc.; and Silent Knight Security Systems, Inc. (we will refer to the four collectively as Cargill). In the course of negotiations, Cargill received various documents and information regarding the device after executing a confidentiality agreement. However, the negotiations ended without an agreement.
In May of 1993, Life Point sued Cargill (the Life Point action) alleging that the Cargill subsidiaries improperly used the Life Point Device in brochures and advertising, in soliciting business, and took advantage of confidential information disclosed during negotiations. The Life Point complaint alleged patent infringement, tortious interference of contract, divulgence of trade secrets, unfair competition, and false advertising. All counts included an allegation that the conduct complained of was ongoing and would continue unless enjoined by the court. In addition to injunctive relief, the Life Point complaint sought compensatory and treble damages totaling $460 million.
Cargill retained attorneys to defend the various Cargill entities under a joint defense arrangement. The joint defense was successful; the claims against Cargill in the Life Point action were dismissed. The defense costs totaled approximately $3 million.
During the period in question, Cargill or its subsidiaries were insured under general liability policies and umbrella policies from three different insurers: the Home Insurance Company (Home), Travelers Indemnity Company of Connecticut (Travelers), and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (National Union).
A. Home Insurance Company
Upon being served with the complaint in the Life Point action, Cargill immediately notified its primary insurer, Home, by sending it copies of the Life Point complaint. Home accepted this tender of defense subject to a reservation of rights. Pursuant to that reservation of rights, Home commenced a declaratory action against Cargill seeking a declaration that it had no duty to defend or indemnify Cargill for the claims asserted in the Life Point action. That declaratory judgment action eventually was moved to federal court in Minnesota where a federal judge decided that Home indeed had to defend the suit. Home Ins. Co. v. Waycrosse, Inc., 990 F. Supp. 720, 730-31 (D. Minn. 1996), aff'd, 131 F.3d 143 (8th Cir. 1997). Neither Travelers nor National Union was involved in the suit and the federal court did not determine whether they shared any responsibility for the defense of the Life Point action.
Home continued to dispute its responsibility, and eventually Cargill and its subsidiaries brought suit to enforce the declaratory judgment in U.S. District Court in 1999. Four years after Home was first adjudged responsible, it entered into a loan receipt agreement with Cargill in May of 2000. In the loan receipt agreement, Home pledged to "loan" $2,450,000 to Cargill, as reimbursement for defense costs, while reserving i
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