Nokia, Incorporated v. Zurich American Insurance Company

Citations: 202 S.W.3d 384; 2006 Tex. App. LEXIS 7377; 2006 WL 2391098Docket: 05-04-01729-CV

Court: Court of Appeals of Texas; August 21, 2006; Texas; State Appellate Court

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Nokia, Inc. appealed a summary judgment from the trial court that favored Zurich American Insurance Company, Federal Insurance Company, and National Union Fire Insurance Company regarding their duty to defend Nokia in class action lawsuits. These lawsuits claimed that Nokia’s cell phones emitted harmful radiation that could cause biological injuries when used without a headset. Nokia had tendered its defense to its insurers under commercial general liability (CGL) and excess umbrella policies. Zurich sought a declaratory judgment stating it had no obligation to defend or indemnify Nokia, while Nokia counterclaimed for breach of contract and violations of the insurance code.

The trial court granted summary judgment for the insurers and denied Nokia's motion, ruling that the insurers had no duty to defend or indemnify Nokia. The court subsequently severed the claims for appeal. The appellate court reviewed the summary judgment de novo, noting that all parties must prove their entitlement to judgment. It reiterated that if the trial court does not specify grounds for its ruling, the appellant must demonstrate that the grounds asserted for summary judgment are inadequate. The appellate court affirmed part of the trial court's decision, reversed and rendered part, and also reversed and remanded certain aspects of the case for further proceedings.

The insurer's duty to defend is triggered when a third party files a lawsuit against the insured, and the allegations—if taken as true—could potentially fall within the policy's coverage. This obligation is evaluated based on the "eight corners" rule, which considers only the allegations in the underlying pleadings and the language of the insurance policy, interpreting them liberally in favor of the insured. The truth or falsity of the allegations is not taken into account, nor are external facts or imagined scenarios. A liability policy mandates the insurer to defend against any claim that could be covered, regardless of the claim's merits. If the allegations do not clearly fall within or outside the policy's coverage, the insurer is generally required to defend any potentially covered claim. The duty to defend extends to the entire lawsuit if any claim is covered.

In the case of Nokia, the determination of the insurer's duty to defend begins with the insurance policy language, which specifies coverage for bodily injury caused by an occurrence. Nokia argues that the allegations of "biological injury" due to its cell phones, which claim subclinical damage to cellular structures, warrant a defense under the policy. Nokia cites a precedent that supports coverage for subclinical harm. Conversely, the insurers argue that these allegations do not constitute "bodily injury" as defined in their policies, asserting that they do not pertain to physical impairment of the body.

In *Samsung Electronics America, Inc. v. Federal Insurance Co.*, the court evaluated the term "bodily injury" in insurance policies and determined that it does not necessitate a diagnosis or manifestation requirement. The court found that allegations of biological injury to human cells were ambiguous regarding their inclusion under policy provisions. It referenced several cases from other jurisdictions that recognized injuries at the cellular level as "bodily injury," including decisions involving asbestos exposure and lead contamination. Key rulings indicated that bodily injury occurs at the point of exposure, even if the disease manifests later. The court reasoned that excluding cellular injury from "bodily injury" would require inserting non-existent terms into the policy, ultimately concluding that allegations of biological injury to human cells could constitute a valid claim for "bodily injury" under the relevant commercial general liability (CGL) policies.

The analysis in *Samsung* was deemed applicable to the current case due to the similarity in policy definitions. The next step involves assessing whether the underlying complaints indeed allege "bodily injury" and seek damages related to such injury. Nokia asserts that the underlying plaintiffs claimed present injury to their bodily cells due to radiation exposure and sought damages for both existing injury and prevention of further harm.

Insurers argue that plaintiffs only claim a risk of injury without asserting actual bodily injury, and that the expense of the headset constitutes purely economic damages, unrelated to any bodily injury. The analysis from a prior case, Samsung, is deemed relevant here. In Samsung, it was determined that the complaints involved did allege "bodily injury," specifically referencing "biological injury" due to exposure to radiation from cell phones when used without headsets. The defendants were aware or should have been aware that their cell phones emit radio frequency radiation (RFR) capable of causing adverse cellular effects, including damage to calcium ion distribution, melatonin production, neurological function, DNA integrity, and the permeability of the blood-brain barrier. Each use of the phone without a headset resulted in RFR exposure, leading to these biological effects.

The complaints contained claims that plaintiffs faced increased risks of biological injury from RFR exposure while using their phones without headsets. The conclusion drawn is that these allegations sufficiently support a claim for "bodily injury" coverage under the relevant insurance policies. Furthermore, the analysis of whether plaintiffs sought "damages because of bodily injury" echoes findings in Samsung, which indicated that the definition of "damages" did not specifically include or exclude the cost of a headset. The term "because of" was interpreted as requiring damages to be linked to bodily injury. Given the complaints alleged harmful radiation exposure causing cellular dysfunction, the costs for headsets were deemed to be sought "on account of" this exposure. Thus, it is concluded that the Pinney complaints sought "damages because of bodily injury" under the relevant insurance policies. In contrast, the Dahlgren lawsuit mentioned in Samsung was found not to seek such damages, as it explicitly disclaimed personal injury claims, focusing instead on economic relief.

The Dahlgren complaint does not allege "bodily injury" or seek "damages because of bodily injury" under the relevant insurance policies, as determined by the analysis in Samsung. In contrast, the Naquin class action includes allegations that cell phones expose users to harmful radiofrequency radiation (RFR) without adequate protection through headsets, leading to potential health risks such as nerve and cellular damage. The Naquin plaintiffs claim that this exposure results in physical effects and risks of long-term health issues, arguing that the manufacturers' failure to include headsets as standard features further endangers users. 

The complaints from Naquin, along with those from Pinney, Farina, Gilliam, and Gimpelson, are interpreted as seeking a headset to mitigate bodily injury risks, thereby triggering the insurers' duty to defend Nokia in these lawsuits. Conversely, the Dahlgren complaint does not establish a claim for "damages because of bodily injury," so the insurers are not obligated to defend based on that complaint. 

The insurers contend that even if the class actions involved "bodily injury," they are not required to defend Nokia due to "business risk" exclusions related to property damage to the product and damages for product recall. However, the underlying actions do not allege property damage to the cell phones or "impaired property," and the case law cited by insurers pertains exclusively to property damage claims, not bodily injury claims. Consequently, these exclusions do not negate coverage for damages resulting from bodily injury.

The trial court's ruling is affirmed regarding Zurich, Federal, and National Union's lack of duty to defend or indemnify Nokia in the Dahlgren lawsuit, resulting in summary judgment in favor of these insurers. Conversely, the court determined that these insurers have a duty to defend Nokia in the Pinney, Farina, Gilliam, Gimpelson, and Naquin lawsuits. The ruling regarding the duty to indemnify was deemed premature, leading to a reversal of the summary judgment favoring Zurich, Federal, and National Union on that issue. The case is remanded for further proceedings concerning the duty to indemnify related to the Pinney, Farina, Gilliam, Gimpelson, and Naquin lawsuits. Additional notes clarify that several complaints in this appeal were also part of a related case, Samsung Electronics America, and provide context about the nature of the claims involved in both cases.