Hartford Fire Ins. Co. v. Thermos L.L.C.

146 F.Supp.3d 1005

Hartford Fire Insurance Company, Plaintiff,

v.Thermos L.L.C., Jenny Milman, and Ellen Thomas, Defendants.

Thermos L.L.C., Third-Party Plaintiff,

v.The Travelers Indemnity Company of America and National Fire Insurance Company of Hartford, Third-Party Defendants.

No. 14 C 6080

United States District Court, N.D. Illinois, Eastern Division.

Signed November 18, 2015

Filed November 19, 2015

Michael John Duffy, Ashley L. Conaghan, Tressler LLP, Chicago, IL, for Plaintiff.

Seth David Lamden, Eric Y. Choi, Neal, Gerber & Eisenberg, Chicago, IL, for Defendants/Third-Party Plaintiff.

Jamie Lynn Hull, Jean Mary Golden, Margaret Ann Shipitalo, Cassiday Schade LLP, Katherine Streicher Arnold, Theodore Joseph May, Colliau Carluccio Keener Morrow Peterson & Parsons, Chicago, IL, for Third-Party Defendants.

OPINION AND ORDER

SARA L. ELLIS, United States District Judge

In this coverage action, Thermos L.L.C. (“Thermos”) seeks to recover defense and indemnity costs from three of its insurers—Hartford Fire Insurance Company (“Hartford”), the Travelers Indemnity Company of America (“Travelers”), and National Fire Insurance Company of Hartford (“National Fire”) (collectively, the “insurers”)—arising from a putative consumer class action lawsuit—Milman v. Thermos LLC , No. 13 C 7750 (N.D.Ill.) (the “Milman lawsuit”)—brought against Thermos in this district.¹ The parties have filed cross-motions for judgment on the pleadings or summary judgment [61, 64, 66, 69, 71, 73] regarding the duty to defend, Thermos' claim that the insurers are estopped from denying coverage for the Milman settlement, and Thermos' request for section 155 damages. The Court finds that the Milman complaint alleged claims that were potentially covered by the insurers' policies but, based on the insurers' representations that additional defenses must be considered, defers final decision as to whether the insurers had a duty to defend and whether the duty to defend was breached by each insurer. Similarly, the Court defers consideration of Thermos' estoppel argument until the duty to defend issue is resolved. But because the Court's present analysis of the duty to defend issue already demonstrates a bona fide coverage dispute and Thermos makes no argument to the contrary, the Court grants judgment to the insurers on Thermos' request for section 155 damages.

BACKGROUND

I. The Milman Lawsuit

On August 16, 2013, Milman filed suit against Thermos in the United States District Court for the District of New Jersey. That case was voluntarily dismissed without prejudice on September 26, 2013. On October 29, 2013, the Milman lawsuit was filed in this court as a putative class action. The allegations in the Milman complaint are almost identical to those in the dismissed New Jersey action.

The plaintiffs in the Milman lawsuit alleged that Thermos manufactured two types of allegedly “leak-proof” bottles intended for use by young children. Doc. 12-1 ¶ 1. Although Thermos advertised the bottles as “leak-proof,” inducing the plaintiffs and putative class members to buy the bottles, the bottles had a “tendency to leak” and thus Thermos' “development, marketing and sale of the Bottles violate[d] consumer protection laws, breache[d] [Thermos'] express warranties to Plaintiffs and the Class, and constitute[d] unjust enrichment.” Id. The plaintiffs claimed that Thermos' bottles “leak from both the straw and the gap between the lid and the straw” and “because the ‘push button lid’ is easily triggered, the Bottles often pop open, exposing the leaking straw and straw area.” Id. ¶ 6. They further alleged that the leaks were “inherent in the design of the Bottles.” Id. Because Thermos advertised its bottles as leak-proof, the plaintiffs contended that Thermos was able to price the bottles at a premium over other similar non-leak-proof children's bottles. But instead of being leak-proof, the plaintiffs allegedly found that “when the Bottles are inverted or shaken, liquid escapes from both: (i) the straw, and (ii) the gap between the straw and part of the lid surrounding the straw.” Id. ¶ 35. The push-button lid also allegedly came open while in a diaper bag, for example, exposing the straw and leaking liquid. Reviews reproduced from Amazon.com reported “sticky juice everywhere,” immediate leaks, and “puddles of milk.” Id. ¶ 38. Milman specifically alleged noticing that, when placed in a diaper bag, the bottle “soak[ed] the other items in the diaper bag with liquid.” Id. ¶ 45. Both Milman and Thomas alleged that if the bottles had not been advertised as leak-proof, they would not have purchased the bottles or at least would not have paid as much for them.

On January 3, 2014, Thermos moved to dismiss the complaint. On April 23, 2014, the court dismissed the plaintiffs' claim for injunctive relief but otherwise let the complaint proceed. The parties then participated in a successful settlement conference on August 14, 2014, with the plaintiffs filing for preliminary approval of the class action settlement on December 17, 2014. The court granted preliminary approval on December 23, 2014, with final approval following on May 27, 2015. For settlement purposes, the court certified the following class:

All persons who purchased a Foogo® stainless steel vacuum-insulated straw bottle or a Foogo® plastic straw bottle in the United States at any time between January 1, 2007 and December 23, 2014 excluding (a) any such person who purchased for resale and not for personal or household use, (b) any officers, directors or employees, or immediate family members of the officers, directors or employees, of Thermos, and (c) the presiding judges and their immediate families.

Doc. 70-5 at 3. Class members received either monetary compensation or replacement Thermos products.

II. The Insurance Policies

Thermos had commercial general liability coverage with three different insurers, Hartford, Travelers, and National Fire, over the relevant time period. Hartford issued liability policies to Thermos for the policy periods August 31, 2006 to August 31, 2007 and August 31, 2007 to August 31, 2008 (the “Hartford Policies”). See Doc. 68-11; Doc. 68-12. Travelers issued Thermos four commercial general liability policies between August 31, 2008 and August 31, 2012 (the “Travelers Policies”). See Doc. 18-4; Doc. 18-5; Doc. 18-6; Doc. 18-7. Finally, National Fire issued a commercial general liability policy to Thermos for the period covering August 31, 2012 to August 31, 2013 (the “National Fire Policy”). See Doc. 18-8. The relevant language of the insurance policies is the same, and so the Court will combine its recitation of these pertinent policy provisions here while providing appropriate citations to each policy.

All insurance policies provide that the insurers “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” Doc. 68-11 at 69; Doc. 68-12 at 62; Doc. 18-4 at 19; Doc. 18-5 at 17; Doc. 18-6 at 15; Doc. 18-7 at 15; Doc. 18-8 at 8. The policies also provide that the insurers are required to defend Thermos in suits seeking such damages. Doc. 68-11 at 69; Doc. 68-12 at 62; Doc. 18-4 at 19; Doc. 18-5 at 17; Doc. 18-6 at 15; Doc. 18-7 at 15; Doc. 18-8 at 8. “Property damage” is defined as:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

Doc. 68-11 at 86; Doc. 68-12 at 79; Doc. 18-4 at 51; Doc. 18-5 at 51; Doc. 18-6 at 50; Doc. 18-7 at 56; Doc. 18-8 at 20. But the insurance only applies if the “ ‘property damage’ is caused by an ‘occurrence.’ ” Doc. 68-11 at 69; Doc. 68-12 at 62; Doc. 18-4 at 19; Doc. 18-5 at 17; Doc. 18-6 at 15; Doc. 18-7 at 15; Doc. 18-8 at 8. An “occurrence” is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Doc. 68-11 at 85; Doc. 68-12 at 78; Doc. 18-4 at 32; Doc. 18-5 at 30; Doc. 18-6 at 28; Doc. 18-7 at 28; Doc. 18-8 at 20.

The insurance policies contain several exclusions to which the insurance does not apply, including:

a. Expected Or Intended Injury

“Bodily injury” or “property damage” expected or intended from the standpoint of the insured. This exclusion does not apply to “bodily injury” or “property damage” resulting from the use of reasonable force to protect persons or property.

....

j. Damage to Property

“Property damage” to:...

(6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it....

Paragraph[ ] (6) of this exclusion do[es] not apply to liability assumed under a sidetrack agreement.

Paragraph (6) of this exclusion does not apply to “property damage” included in the “products-completed operations hazard”.

k. Damage To Your Product “Property damage” to “your product” arising out of it or any part of it.

l. Damage To Your Work

“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.

This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

m. Damage To Impaired Property Or Property Not Physically Injured

“Property damage” to “impaired property” or property that has not been physically injured, arising out of:

(1) A defect, deficiency, inadequacy or dangerous condition in “your product” or “your work”; or

(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.

This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to “your product” or “your work” after it has been

...