Insured Fails to Establish Primary Coverage to Trigger Excess

July 15, 2020 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin, July 14, 2020

The 1st District Appellate Court recently upheld trial court rulings against an insured regarding the failure to exhaust primary coverage for purposes of triggering excess.

The insured in John Crane Inc. v. Allianz Underwriters Insurance Co., 2020 IL App (1st) 180223 (June 12), was represented by Scharf Banks Marmor LLC of Chicago and Anderson Kill P.C. in New York. Cohn Baughman & Martin represented the defendant excess insurers.

Crane, the manufacturer of gaskets and other products containing asbestos and sold largely to the U.S. Navy, was the subject of more than 325,000 lawsuits claiming bodily injury from asbestos exposure. For the relevant years in question, Crane had primary and certain umbrella coverage from insurers referred to by their trade name, Kemper, and excess coverage from the defendants here.

In 2004, Crane brought this suit seeking a declaration that its primary coverage had been exhausted and a determination of the obligations of the defendant excess carriers. After filing suit it entered into a settlement agreement with Kemper whereby Crane itself assumed the obligations of Kemper with respect to the policies issued by Kemper.

Following an initial trial regarding exhaustion, an appeal was taken in which the 1st District articulated the standards to be applied and remanded for a second trial. Prior to the second trial, the trial court addressed the applicability of limits under one of the Kemper umbrella policies, in the context of the defendants’ motion for partial summary judgment directed to that policy.

The umbrella policy, which had a policy period of a little over three years, was subject to an occurrence limit and aggregate limit of $20 million. An endorsement, however, provided that the insurer’s “liability shall apply separately to each such consecutive period,” referring to each consecutive year of the policy.

As part of its argument to establish exhaustion, Crane took the position that the quoted language meant that only the aggregate limit renewed each year but that the occurrence limit did not. The trial court disagreed, finding that both the occurrence and aggregate limits renewed on an annual basis.

Subsequently a 23-day bench trial took place addressing exhaustion of the Kemper primary coverage. During that time Crane attempted to establish that payments made on 141 asbestos claims had exhausted Kemper’s primary policies. Specifically, Crane presented testimony through an expert that $41 million available in primary coverage exhausted upon payments made for 76 of the 141 claims.

The expert also admitted, however, that if any coverage for the 76 claims had been misallocated, he would have to redo his allocation and exhaustion analysis. The trial court found that the expert had, in fact, misallocated coverage under his own method of allocation, and determined that Crane therefore had failed to prove exhaustion. The trial court also denied Crane’s motion for a new trial. Crane took this appeal.


In an opinion by Justice Sheldon A. Harris, the 1st District affirmed. He initially addressed the effect of the endorsement annualizing the limits in the Kemper umbrella policy. He observed that the language made no distinction between the occurrence and aggregate limits, and that the renewal of the limits therefore applied to both sets of limits.

In response to an argument by Justice Mary L. Mikva in a partial dissent that the endorsement language should only apply to the aggregate limit, Harris remarked that, to the extent her interpretation created an ambiguity, the policy should be construed against the insurer that drafted the policy. And even though in this case Crane had stepped into the shoes of Kemper and was arguing for lower effective limits in support of its exhaustion position, the endorsement should be construed in favor of greater coverage and, thus, to apply to both the occurrence and aggregate limits.

With respect to the expert’s exhaustion testimony, Harris agreed with the trial court’s finding of several deficiencies. One was the expert’s misinterpretation of the trigger date for at least two underlying claimants. That problem, combined with the expert’s own testimony that if any claim was misallocated he could no longer demonstrate exhaustion, invalidated his analysis.

A second deficiency was that the expert only reviewed documents for eight of the 141 claims at issue in concluding that exhaustion occurred following payment on the 76th claim. Harris said the expert may have been entitled to use a statistically significant sampling of documents in drawing a conclusion — and thus did not necessarily have to review some tw million documents relating to the exhaustion issue. However, Harris found that the expert did not use a satisfactory statistical model.

A third deficiency was that if a claimant served in the Navy, the expert used the claimant’s general Navy ID to determine the extent of asbestos exposure. This approach was not acceptable because, according to Harris, Crane was not the Navy’s exclusive distributor of asbestos-containing products and no foundation existed for the determination that everyone who was in the Navy became sick from working with Crane’s asbestos products.

Based on these and other deficiencies, Harris said the trial court did not err in rejecting the expert’s analysis and in finding that Crane failed to establish exhaustion. In addition, Crane was not entitled to a new trial because it had not been deprived of the opportunity to analyze the claims on which it based its exhaustion position.

The court therefore affirmed the judgment of the trial court in favor of the excess insurers.

Mikva dissented in part based on the interpretation of the Kemper umbrella policy, contending that the occurrence limit did not renew on an annual basis.

Key points

An insured that fails to establish a basis for excess coverage through expert testimony and is not otherwise deprived of a fair opportunity to present its case for primary-layer exhaustion, is not entitled to a new trial on coverage.

Ambiguities in policy language are typically construed in favor of coverage, even if the insured is advocating a lower level of coverage for purposes of demonstrating exhaustion.

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