Stryker Corporation, notorious for its defective hip implants, must also pay a $7.6 million product liability settlement for its artificial knee joint called the Duracon Unicompartmental Knee (or “Uni-Knee”) according to the Sixth US Circuit Court of Appeals.
The ruling ended 15 years of litigation in which Stryker tried to get its excess liability insurance carrier, TIG Insurance Company, to pay for the settlement of 70 product-liability claims dating back to 2000. Stryker v. National Union Fire Insurance Company of Pittsburgh, PA and TIG Insurance Company, Nos. 15-1657/1664 (decided Nov. 18, 2016).
Stryker currently faces 1,772 product liability cases consolidated into MDL 2441 before US District Judge Donovan W. Frank concerning its Rejuvenate and ABG II Hip Implant Products.
Also, a second wave of plaintiffs for hip implant cases is emerging for injuries related to the LVIT v40 Femoral Head component recall. Stryker issued an urgent medical device recall on August 29, 2016 related to the Stryker LFIT Anatomic CoCr V40 Femoral Head commonly used with the Stryker Accolade Hip replacement system as well as other models and brands of hip replacement products.
Defective knee replacements
There are 719,000 total knee replacements and 332,000 hip replacements performed annually in the U.S. (data from the Centers for Disease Control and Prevention (CDC). This number will grow exponentially with a more active and aging population.)
- More than 7 million people in the U.S. have had a knee or hip replacement surgery
- Hip and knee devices account for more than 85% of the joint reconstruction and replacement market
- Joint registries demonstrate up to a 50% reduction in revision rates after registry initiation and identification of best practices
In the late 1990s, Stryker purchased a subsidiary of Pfizer, Inc. that made and sold the Duracon Unicompartmental Knee, which turned out to be defective. They were sterilized using gamma rays, which caused ultra-high molecular-weight polyethylene in the artificial knees to degrade and, if implanted past their five-year shelf life, potentially fail. Due to an inventory oversight, a number of expired Uni-Knees were sold to hospitals and implanted in patients.
Two policies, effective during the year 2000, were relevant: a “commercial umbrella” policy, issued by XL, and an “excess liability” policy, issued by TIG. The umbrella policy covered any “batch” of losses that Stryker became “legally obligated to pay by reason of liability imposed by law or assumed by the [i]nsured . . . because of [b]odily [i]njury.” That policy was limited to $15 million, after a $2 million self-insured retention.
The TIG excess liability policy kicked in after the umbrella policy was fully “exhausted,” and extended to Stryker’s “ultimate net loss . . . in excess of all underlying insurance” up to $25 million.
XL covered Stryker’s losses, but did so in non-chronological order: XL paid out the larger Pfizer judgment first, exhausted the limits of its coverage, and left Stryker’s individual product-liability claims on the table.
No written consent
Stryker sued TIG in the Western District of Michigan in 2013, seeking to recover the remaining $7.6 million paid to settle its direct product-liability claims. TIG disputed its coverage obligation, raising a defense that was “unique to [its] policy.” Stryker, 681 F.3d at 825 & n.4. In TIG’s view, the direct Uni-Knee claims did not constitute “ultimate net loss” because Stryker failed to obtain “written consent” at the time the settlements were made.
Stryker claimed that the policy, as applied to the idiosyncratic facts of this case, was latently ambiguous: because XL satisfied the Pfizer judgment first (and exhausted its policy), Stryker was forced to present its direct settlements to TIG years after they were made. Relying on the testimony of TIG’s former claims adjusters and underwriters, Stryker argued that the excess-liability policy did not actually require “consent to the Uni-Knee settlements when they were made.”
The Sixth Circuit disagreed, saying “Because Stryker did not satisfy the consent requirement, its direct settlements cannot constitute ultimate net loss, and there is no coverage under the policy.”