John Crane, Inc. v. Admiral Ins. Co.

991 N.E.2d 474

372 Ill.Dec. 167

JOHN CRANE, INC., Plaintiff–Appellant and Cross–Appellee,

v.ADMIRAL INSURANCE COMPANY, American Motorists Insurance Company, First State Insurance Company, Hartford Accident and Indemnity, Lumbermens Mutual Casualty Company, and Twin City Fire Insurance Company, Certain Underwriters at Lloyds of London, and Certain London Market Insurance Companies, Including Excess Insurance Company, Ltd., General Reinsurance Corporation, River Thames Insurance Company, World Auxiliary Insurance Corporation, and John Does 1 Through 400, Defendants (Allianz Underwriters Insurance Company, Allstate Insurance Company, AIU Insurance Company, American Re–Insurance Company, Granite State Insurance Company, Lexington Insurance Company, National Surety Corporation, National Union Fire Insurance Company of Pittsburgh, PA, Insurance Company of North America, and TIG Insurance Company, Defendants–Appellees; Columbia Casualty Company, Continental Casualty Company, and The Continental Insurance Company, Defendants–Appellees and Cross–Appellants).

No. 1–09–3240.

Appellate Court of Illinois, First District, Second Division.

June 4, 2013.

Kevin M. Forde, Ltd. (Kevin M. Forde and Joanne R. Driscoll, of counsel), Nisen & Elliott LLC, both of Chicago (Michael J. Daley and Claire E. Gorman, of counsel), and Farella Braun & Martell, LLP, of San Francisco, California (John L. Cooper, Dennis M. Cusack, and Erica Villanueva, of counsel), for appellant.

Troutman Sanders LLP (Rebecca L. Ross, Clinton E. Cameron, David F. Cutter, and Stephanie L. Haas, of counsel), Bates Carey Nicolaides, LLP (Catherine M. Crisham, Kristi S. Nolley, Ellen J. Zabinski, and Agelo L. Reppas, of counsel), SmithAmundsen LLC (Timothy J. Fagan and Michael L. Resis, of counsel), Clausen Miller P.C. (Mary F. Stafford, Colleen A. Beverly, and Melinda S. Kollross, of counsel), Cozen & O'Connor (John D. LaBarbera, of counsel), and Hughes Socol Piers Resnick & Dym, Ltd., all of Chicago (Robert R. Anderson III, John Hughes, and Daniel A. Waitzman, of counsel), for appellees.

OPINION

Presiding Justice HARRIS delivered the judgment of the court, with opinion.

[372 Ill.Dec. 170]¶ 1 Plaintiff John Crane, Inc. (Crane), appeals the circuit court's judgment on its first amended complaint against defendants Columbia Casualty Company, Continental Casualty Company, Continental Insurance Company (collectively referred to as CNA), TIG Insurance Company (TIG), Allianz Underwriters Insurance Company, Munich Reinsurance America, Inc., f/k/a American Re–Insurance Company, National Surety Corporation (collectively referred to as Allianz), Allstate Insurance Company, and AIU Insurance Company, Granite State Insurance Company, Lexington Insurance Company, and National Union Fire Insurance Company of Pittsburgh, PA (collectively referred to as AIG-related Companies), seeking a declaration of rights.¹ On appeal, Crane contends the trial court erred in (1) finding that the parties could not use the agreement concerning coverage (ACC) to determine that Kemper's primary policies had been exhausted by November 2004; (2) determining that a pro rata allocation of payments by excess and umbrella insurers applies, rather than an “all sums” allocation; and (3) finding that Zurich Insurance Co. v. Raymark Industries, Inc., 118 Ill.2d 23, 112 Ill.Dec. 684, 514 N.E.2d 150 (1987), requires Crane to prove all three trigger dates to prove exhaustion of its primary policies. CNA defendants also filed a cross-appeal in which it alleges that the trial court erred in (1) determining that mere exposure to asbestos constitutes bodily injury under Zurich; and (2) failing to adopt an equitable continuous trigger.

¶ 2 In an opinion filed on March 5, 2013, this court affirmed the trial court in part, reversed in part and remanded with directions. The CNA and Allianz defendants filed petitions for rehearing, which this court granted. Crane filed a response and the CNA and Allianz defendants filed their replies. Upon consideration of the petitions for rehearing, we issue the following opinion and affirm in part, reverse in part and remand with directions.

¶ 3 JURISDICTION

¶ 4 The circuit court entered an order on November 13, 2009, resolving all claims pled in Crane's first amended complaint, and all but one of defendants' counterclaims. The order stated that there was “no just reason for delaying either enforcement or appeal.” Crane filed a notice of appeal on November 25, 2009. Accordingly, this court has jurisdiction pursuant to Illinois Supreme Court Rules 304(a) governing appeals that do not dispose of an entire proceeding. Ill. S.Ct. R. 304(a) (eff. Feb. 26, 2010).²

¶ 5 BACKGROUND

¶ 6 The trial court in this matter presided over intensive discovery, heard more than 25 summary judgment motions, and conducted two trials during a period of almost five years. It issued six detailed memorandum opinions and orders, and the record contains over 200 volumes. We have set forth only those facts necessary to resolve the issues on appeal and cross-appeal.

¶ 7 Crane manufactures sealing systems and prior to 1986, it manufactured gaskets containing asbestos. From January 1, 1944, through August 1, 2001, Crane purchased primary insurance coverage from Kemper, which is not a party to this appeal. These policies contained a duty to defend and provided that defense costs would be paid in addition to the policy limits. The parties to this appeal stipulated that the limits of Kemper's primary policies totaled $41,075,000.

¶ 8 Crane also purchased umbrella insurance coverage above the primary coverage. CNA issued umbrella policies to Crane from 1961 to 1967, and from 1978 to 1981. Allianz issued an umbrella policy for the period between November 30, 1981, to November 30, 1982, and TIG issued an excess policy above Allianz's umbrella policy for that same period. Kemper also issued three umbrella policies to Crane above its primary insurance from 1967 to 1977.

¶ 9 Since 1979, Crane has been named as a defendant in over 250,000 asbestos-related bodily injury claims throughout the United States. Kemper began defending Crane in these suits and agreed to adopt a no-settlement policy based on Crane's position that their products were not the likely source of the victims' asbestos-related disease. In 2001, facing financial difficulty, Kemper attempted to renegotiate the no-settlement policy with Crane. On January 7, 2002, the parties entered into the ACC. The purpose of the ACC was to resolve “the questions and issues addressed herein relating to the existence and handling of coverage for John Crane for Asbestos–Related Claims.” The ACC addressed retroactive amendments to Kemper's primary policies issued from January 1, 1987 to August 1, 2001 (post–1986 policies). Crane did not have umbrella or excess insurance coverage by defendant insurers for this period. The ACC provided that although the original policies issued by Kemper allowed only for indemnity payments to erode the policy limits, the retroactive amendments provided that the post–1986 policy limits would be eroded by payments of both damages and defense expenses. As the trial court stated in its October 16, 2007, order, “the Post–1986 Policies' limits changed from $2 million per year plus unlimited defense to $2 million per year including defense.” The ACC further provided that Kemper issue a new $70 million supplemental excess policy (SEP) to Crane and that Kemper agreed to continue with the no-settlement strategy.

[372 Ill.Dec. 172]¶ 10 On January 7, 2002, the parties also entered into the Caruolo agreement, which involved a case originating in New York. The dispute centered on the payment of $5.83 million in prejudgment interest in the case. The agreement provided that the payment could be allocated against Kemper's pre–1987 policy limits in exchange for $5 million being added to the limits of the post–1986 Kemper policies.

¶ 11 Crane filed a claim for declaratory judgment in May 2004. On October 22, 2004, it filed its first amended complaint containing three counts. Count I sought a declaration that Crane's primary insurance coverage was exhausted. Counts II and III sought a declaration of the obligations of the umbrella and excess insurance carriers as to the underlying asbestos claims. CNA filed a counterclaim for declaratory judgment, seeking a determination of the appropriate triggers for coverage, that CNA is entitled to a pro rata allocation of payments, and that Crane's primary coverage limit had not been exhausted.

¶ 12 In February 2005, citing Zurich Insurance Co. v. Raymark Industries, Inc., 118 Ill.2d 23, 112 Ill.Dec. 684, 514 N.E.2d 150 (1987), Crane filed a motion for partial summary judgment arguing that an “all sums” allocation of payments is appropriate whereby each umbrella policy triggered by a claim must pay up to its policy limits. CNA filed a response claiming an affirmative defense. Allianz filed a cross-motion arguing, in part, that the “all sums” allocation was contrary to the terms of its umbrella policy and was not equitable as applied to umbrella insurers. On April 12, 2006, the trial court issued an order determining that a pro rata allocation applied to the excess and umbrella carriers, pointing out that Zurich involved only primary insurers. The court denied Crane's motion for partial summary judgment on count I of its first amended complaint seeking an “all sums” allocation. The court granted Allianz's cross-motion for partial summary judgment on the issue of pro rata allocation and CNA's affirmative defense in seeking a pro rata allocation.

¶ 13 The trial court also found that, regarding the ACC, Crane and Kemper could retroactively amend their post–1986 policies without consulting nonprimary insurers because none of those insurers issued policies to Crane after 1986. In the trial court, Kemper and Crane argued that under the terms of the ACC, Kemper's primary insurance was exhausted in November 2004. The...