Northern Insurance Company of New York, Plaintiff-Appellee-Cross-Appellant v. Allied Mutual Insurance Company, Defendant-Appellant-Cross-Appellee

This is a dispute between two insurance companies over which one must pay the defense costs of a long since dismissed product liability suit. The two insurers present several issues:

1. When liability is transferred by operation of law under a theory of product-line successor liability, do policy benefits arising from insurance on the underlying risk transfer as well? If so, do these benefits include the right to a defense?

2. When two insurers share a common obligation to provide a defense, can one be obligated for defense costs incurred by the other before the first has been tendered the defense?

3. In this dispute, does California or Washington law apply in determining whether the insurers have met their obligation to provide a defense?

I

The Howards sought damages from the makers of California Cooler after their child was born suffering from fetal alcohol syndrome. They claimed that Dawn Howard’s consumption of California Coolers during her pregnancy caused the birth defects. After about two years of pretrial litigation, they voluntarily dismissed the suit.

Brown-Forman Corporation bought California Cooler in July 1985, two years after the birth of the Howards’ injured…