For the second time in about a week, the Sixth Circuit recognized that one of its prior precedents should be overruled. To say this is unusual is an understatement. Typically, the Sixth Circuit can only overrule prior precedent if it does so en banc. Neither of the opinions it issued, however, were en banc dispositions. Rather, they invoke the rare exception that a panel decision that is inconsistent with either a later U.S. Supreme Court decision or a state supreme court decision (if the panel decision were a diversity case) can be overruled by the panel without invoking the en banc mechanism.
In Stryker Corporation v. XL Insurance America, the Court waded into the thicket of an insurance coverage dispute concerning claims stemming from the implantation of expired artificial knees. The Court affirmed the district court regarding the insurance carrier’s liability to the insured on the $15 million policy. One of the issues on which it reversed, however, involved the appropriate measure of damages. The district court had found that the $15 million policy limit did not apply to the policy based on its conclusion that XL had breached the duty to defend concerning the claims at issue. Relying on Capitol Reproduction, Inc. v. Hartford Insurance, Co., 800 f2d 617 (6th Cir. 1986), the district court essentially held that any losses resulting from the breach of the duty to defend could be assumed to be consequential losses, which would not count against the limits of liability. Although the Sixth Circuit recognized that Capitol Reproduction accurately stated Michigan law at the time it was handed down, subsequent Michigan decisions had essentially undermined its rationale and holding. These Michigan decisions had not directly repudiated Capitol Reproduction, but the Sixth Circuit nevertheless held them sufficiently inconsistent to warrant overruling that decision. As a result, the Court reversed the judgment on the measure of damages and remanded so that the district court could consider what portion, if any, of the total liability for the judgment and issues beyond $15 million represents consequential damages as defined under Michigan contract law.