Court Addresses Duty To Defend Based On Ambiguous Allegations
The 1st District Appellate Court recently held that insurers had a duty to defend a manufacturer for product-related injuries allegedly arising during the insurers’ policy periods even though the insured did not manufacture or distribute the products while the policies were in force.
The insured in Illinois Tool Works Inc. v. Travelers Casualty and Surety Co., 2015 IL App (1st) 132350 (1st Dist., Jan. 13), was represented by Reed, Smith LLP. Dentons represented the insurers.
Multiple underlying toxic tort lawsuits were brought against Illinois Tool Works Inc. and others alleging that the plaintiffs were injured as a result of exposure to asbestos, benzene, manganese and other harmful materials related to welding products sold by the underlying defendants.
ITW first entered the welding product market in 1993 with its acquisition of a subsidiary, and it was not involved in the market before then.
The underlying lawsuits named ITW as a defendant individually, as a successor in interest to the welding companies it later acquired, or both. It had been successful in obtaining dismissal of some of the claims on the ground that it did not enter the welding business till 1993.
This coverage litigation involved 10 policies issued to ITW for various periods between 1971 and 1987. All the policies required the insurers to defend ITW for bodily injury even if the allegations against it were false or groundless. The insurers argued that they could not be liable because the last policy they issued expired well before 1993. The underlying complaints were not always clear as to when the injuries arose.
ITW brought this action seeking a declaration that the insurers owed it a duty to defend the underlying suits. The parties filed cross-motions for summary judgment, and the circuit court found in favor of ITW. The insurers brought this appeal.
In an opinion by Justice John B. Simon, the 1st District affirmed.
At the outset he noted that a duty to defend arises when the underlying complaint alleges facts within or potentially within coverage, even if the allegations are false, and that the allegations are to be liberally construed in favor of coverage. For purpose of analysis, Simon broke the underlying complaints down into four categories.
The first consisted of underlying complaints directly against ITW alleging that the plaintiffs were exposed to a product made or distributed by ITW during some point within a relevant policy’s period.
Simon noted that the duty to defend is broader than the duty to indemnify and that the threshold that an underlying complaint must meet to trigger a duty to defend is minimal.
According to Simon, simply because the insurers know an extrinsic fact that will ultimately defeat coverage does not negate the defense obligation if the complaint, on its face, presents a claim potentially within coverage.
The extrinsic fact that ITW was not in the welding business before 1993 is akin to an “affirmative matter” that must be proved in the underlying case to obtain a finding of no liability.
Since the insurers agreed to provide a defense for even groundless allegations, Simon said, they should have to bear the defense cost of disproving the groundless allegations against ITW. They therefore had the duty to defend this category of cases.
The second category consisted of claims directly against ITW with unstated dates of exposure to injury-causing products. Simon said no Illinois case directly addressed the defense obligation in this context but that, in general, vague or ambiguous allegations should be resolved in favor of a duty to defend.
Here, the ambiguous or unstated time period had to be resolved in favor of a duty to defend because of the possibility that the underlying plaintiffs’ exposure or injury occurred during the policy periods.
The cases in this category, however, raised an allocation issue. After 1987 ITW chose to self-insure. The insurers thus argued that, with no exposure or injury dates alleged in the underlying complaints, it was possible that some of the injuries occurred after all the policy periods and during the period of self-insurance. They contended that it would be unfair for the insurers to bear the full burden of defending.
Simon rejected the argument based on case authority suggesting that once a policy is triggered, the insurer is obligated to pay the total defense costs without prorating them. He ultimately stated that the defense obligation continues for this category of cases until the factual ambiguities in the underlying complaints are resolved in favor of the insurer.
The third category covered complaints alleging that ITW was liable as a successor in interest for the conduct of another company. Simon observed that ITW conceded that it was not entitled to a defense for these cases because it did not bargain for a defense for claims made against it by way of any after-acquired companies or for conduct occurring after 1987. It therefore was not entitled to a defense for these complaints.
The fourth category involved underlying complaints alleging that ITW was both directly liable and also liable as a successor in interest. As to these complaints, Simon relied on case authority for the proposition that when an insurer has a duty to defend against one claim in a suit, it has a duty to defend against all claims. Since he already had found a defense obligation for claims directly against ITW, such a duty therefore existed as to these mixed claims as well.
Accordingly, the court affirmed the summary judgment in favor of ITW.
- A duty to defend may exist where the defendant has a valid affirmative defense to liability, even though such defense also would negate coverage.
- A duty to defend may exist even though ambiguities in the underlying complaint make it uncertain whether coverage exists.
- A duty to defend arising by virtue of ambiguities in the underlying complaint continues only until the ambiguities are resolved in favor of the insurer.