Insurers Free From Duty to Defend if Dispute Involved in Mediation

By Don R. Sampen, published, Chicago Daily Law Bulletin October 8, 2019

The 1st District Appellate Court recently held that an insurer had no duty to defend an insured in connection with a mediation that, while possibly related to a lawsuit in which the insured was a party, involved claims that were different from those in the lawsuit.

ITW, the insured in Illinois Tool Works v. Ace Specialty Insurance Co., 2019 IL App (1st) 181945 (Aug. 23, 2019), was represented by Neal, Gerber & Eisenberg LLP, Hinkhouse Williams Walsh LLP, Skarzynski Marick & Black LLP and Cohn Baughman & Serlin represented the defendant insurers, which included Ace Specialty Insurance Co., New Hampshire Insurance Co. and Zurich American Insurance Co.

ITW acquired Diagraph Corp. and related entities in 2001. Diagraph conducted manufacturing operations at a site in south central Illinois known as the Crab Orchard Site, which cover some 44,000 acres.

The U.S. Environmental Protection Agency designated that site an environmental Superfund site and began remediation operations on portions of the site in 1991. In 2004, ITW received a letter from another manufacturer at the site. The manufacturer advised that it had agreed to pay the cleanup costs in a particular land unit within the site, known as AUS-OU. The letter further stated that ITW was a potentially responsible party by virtue of its acquisition of Diagraph.

The letter then invited ITW to share in the remediation costs and explained that, if ITW declined to do so, the other manufacturer would bring suit against ITW. ITW agreed to participate and entered into mediation with the U.S. EPA regarding the costs to be allocated to ITW. The company then submitted its defense bills to its insurers, which declined to provide reimbursement.

The insurers, all defendants in the instant lawsuit, had issued a series of general liability insurance policies to Diagraph during the period of its manufacturing operations. The policies all contained language obligating the insurers to defend Diagraph — and now its successor, ITW — any against “suit.”

In 2011, the government filed suit on a separate land unit within the Crab Orchard Site, known as Site 36. ITW was brought into that litigation as a third-party defendant. The insurers agreed to fund ITW’s litigation in the litigation, which eventually concluded pursuant to a consent decree.

In 2014, ITW brought the instant action claiming that the insurers had the obligation to defend the claims involving both AUS-OU and Site 36. In 2017, the trial court granted summary judgment in favor of the insurers regarding the AUS-OU mediation, finding that the mediation was not a “suit.” It further found no evidence of a link between the Site 36 lawsuit and the AUS-OU mediation.

Pursuant to Illinois Supreme Court 304(a), ITW filed this appeal.

Analysis

In an opinion by Justice Joy V. Cunningham, the 1st District affirmed. She observed that the term “suit” in an insurance policy is unambiguous and requires the commencement of some action in a court of law before an insurer’s duty to defend is triggered. She further noted that the insurance policies distinguished between “claims” and “suits” and under Lapham Hickey Steel Corp. v. Protection Mutual Insurance Co., 166 Ill.2d 520 (1995), that distinction had to be respected.

In this case, according to Cunningham, the policies imposed a duty to defend only when there was a “suit,” and the AUS-OU mediation was neither a “suit” nor a continuation of the Site 36 lawsuit. Moreover, to hold that the insurers had a duty to defend merely because the AUS-OU mediation involved claims related to the Site 36 lawsuit would lead, in her words, to an “absurd result.”

She emphasized that the insurers had no duty to defend against a hypothetical lawsuit that had not yet occurred. And the reason ITW agreed to participate in the AUS-OU mediation in the first place was to resolve the AUS-OU claims without a lawsuit.

Accordingly, the court affirmed the summary judgment in favor of the insurers.

Key point

A liability insurance policy imposing the duty upon an insurer to defend against a “suit” does not require that the insurer defend in connection with a mediation that does not arise from a lawsuit filed in court.