On January 31, 2025, the United States District Court for the Northern District of Illinois issued a ruling finding that BatesCarey’s client, Medmarc Casualty Ins. Co., did not have a duty to defend or indemnity its policyholder, GD Group USA Company, after GD Group supplied its customer mold-contaminated medical gowns, which were then packaged with third-party surgical supplies that were recalled and destroyed by the third-party vendor. GD Group v. Medmarc Casualty Ins. Co., Case No. 23 C 176 (N.D. Ill. Jan. 31, 2025).

GD Group sold surgical gowns to Alcon, which Alcon then sold as part of custom packages that contained various pieces of ophthalmology surgical equipment to be used by doctors. Alcon discovered that some of the gowns had mold on them. Alcon recalled many custom packs and destroyed them. Alcon then sued GD for Alcon’s economic losses. GD made a $12 million insurance claim to Medmarc, arguing that coverage was triggered based on third-party property damage. Medmarc denied the claim.

In granting summary judgment for Medmarc, the court ruled that:

1. Because the items of equipment in the custom packs were not alleged to have suffered any tangible alternation, there was no “property damage” alleged to those third-party components.

2. The extrinsic evidence submitted by the policyholder and the claimant, arguing that a grave concern of mold cross-contamination existed relative to the third-party components, did not change the fact that, in the complaint tendered to Medmarc, no such contamination was actually alleged to have taken place. Similarly, the court found that the potential for such third-party contamination to be established is not enough to trigger a duty to defend when such harm is not actually alleged.

3. The destruction of the third-party pieces of equipment did not constitute “loss of use” pursuant to the policy’s impaired property provision. Under Illinois law, “loss of use” only exists when a policyholder’s product has been inextricably incorporated into third-party property, such that the policyholder’s product cannot be removed or replaced. Here, the moldy gowns were capable of being removed from the custom packs, so even the fact that some packs had been recalled and destroyed did not trigger coverage under the impaired property provision.

Medmarc is represented by Adam H. Fleischer and Josh A. Boggioni.