U.S. Gypsum Co. v. Admiral Ins. Co.

Page 1226

643 N.E.2d 1226

268 Ill.App.3d 598, 205 Ill.Dec. 619

UNITED STATES GYPSUM COMPANY, Plaintiff-Appellant Cross-Appellee, v. ADMIRAL INSURANCE COMPANY, American Excess Insurance Company, American Motorists Insurance Company, American Re-Insurance Company, Continental Casualty Company Fireman's Fund Insurance Company, First State Insurance Company, Interstate Fire & Casualty Company, Liberty Mutual Insurance Company, National Surety Corporation, National American Insurance Company of California, as successor to Struyvesant Insurance Company, and Keith Robertson Rayment for Himself and for Certain Underwriters at Lloyd's, London and for certain British Insurance Companies Non-Lloyd's Underwriting Agencies, Defendants-Appellees Cross-Appellants.

No. 1-91-0523.

Appellate Court of Illinois First District, Fifth Division.

Nov. 4, 1994.

Rehearing Denied Jan. 9, 1995.

Stephen C. Neal, P.C., Stephanie A. Scharf, Kirkland & Ellis; Marion B. Adler, Hedlund & Hanley; and Arthur G. Leisten, Stanley L. Ferguson, and Christopher J. McElroy, U.S. Gypsum Co., Chicago, for appellant.

John R. Brandenburg, John R. Brandenburg & Assoc. Ltd.; David C. McLauchlan, Hugh C. Griffin, Mark A. Kreger, Robert P. Arnold, Lord, Bissell & Brook; Michael Dockterman, Dawn Canty, Wildman, Harrold, Allen & Dixon; D. Kendall Griffith, Nancy G. Lischer, Robert E. Nord, Vito M. Masciopinto, Hinshaw & Culbertson; Terrence E. Kiwala, Rooks, Pitts & Poust; Katherine E. Rakowsky, Grippo & Elden; Thomas F. Poelking, Thomas J. Andrews, Johnson & Bell Ltd., Chicago; William J. Cassidy, L. Anthony Sutin, Hogan & Hartson, Washington, DC; Donald V. Jernberg, Elaynne B. Cothran, Oppenheimer, Wolff & Donnelly; Tressler, Soderstrom, Maloney & Priess; Bates, Meckler, Bulger & Tilson, Chicago; Wilson M. Brown, III, Lawrence Nathanson, Drinker, Biddle & Reath; Philadelphia, PA; and Jerry S. Sallee, and Gregory A. Harrison, Dinsmore & Shohl, Cincinnati, OH, for appellees.

Roland W. Burris, Atty. Gen. and Rosalyn B. Kaplan, Chicago, amici.

Justice GORDON delivered the opinion of the court:

Plaintiff United States Gypsum Company ("Gypsum"), as insured, filed a declaratory judgment action against defendants seeking insurance coverage under certain policies issued between the 1930s and 1984 for actions filed against it involving liability relating to Gypsum's manufacture of asbestos containing building materials (ACBMs). In the underlying actions alleging property damage that are the subject of this appeal, the property owners alleged that ACBMs manufactured by Gypsum caused damage to their buildings and other properties.

The circuit court entered partial summary judgment in favor of Gypsum finding that all the primary insurers owed Gypsum a duty to defend the underlying actions. The trial court also determined that a number of excess carriers, Admiral, American Re-Insurance, Interstate and Continental (CNA), First State, and Fireman's Fund, did not owe Gypsum a duty to defend and subsequently entered an order of partial summary judgment in their favor on that issue. In another order granting partial summary judgment entered on January 8, 1990, the trial court ruled that Gypsum would be required to exhaust all available primary insurance coverage before seeking coverage under excess insurance policies.

A bench trial was subsequently held to determine whether the defendant carriers had a duty to indemnify Gypsum in eight of the underlying cases that had been settled or tried to verdict. The trial court determined that these eight underlying claims involved "property damage" as defined in the policies and that none of the exclusions contained in the policies were applicable to bar coverage. The court applied a "discovery trigger," determining that the date the ACBMs were discovered in the structures of the underlying plaintiffs was the critical event that invoked coverage. Consequently, the duty to indemnify only fell upon those policies in effect at the time of such discovery. In addition, the trial court determined "[f]or purposes of interpreting the deductible limits of certain primary policies, the number of occurrences is determined by reference to the event for which U.S. Gypsum actually incurs liability. This Court hereby marks liability in all underlying cases by the claimant's first discovery of U.S. Gypsum's asbestos-containing products in its building. Each first discovery, therefore, constituted a separate occurrence for purposes of deductibles and limits."

Gypsum filed this appeal. It challenges the trial court's use of a discovery trigger and the trial court's interpretation of the "per occurrence" provisions pertaining to the calculation of deductibles. Gypsum also appeals a portion of the partial summary judgment order of January 8, 1990, entered in favor of excess insurers, alleging that the trial court erred in ruling that it had to exhaust all available primary coverage prior to seeking coverage under excess insurance policies.

Defendants filed a cross-appeal from the trial court's finding that a duty to indemnify existed. They argue that the trial court erred in failing to require Gypsum to prove through "actual facts" that there was "property damage" within the meaning of the policies in each of the underlying cases. Defendants also contend that the trial court erred in concluding that none of the policy exclusions or other limitations contained therein applied to preclude coverage.

FACTS

A. Introduction

In December 1983, United States Gypsum Company (Gypsum) filed this declaratory judgment action against their primary insurers and excess carries who had issued general liability insurance policies spanning the period from the 1930s through 1984. This action sought a declaration that defendants were obligated to defend and indemnify Gypsum in over 200 claims for property damage resulting from the installation of various ACBMs manufactured by Gypsum, primarily acoustical finishing plasters. The underlying actions sought to recover from Gypsum both the cost of removing the ACBMS from the structures and the cost of repairing the damage which the material caused. Gypsum's declaratory action also encompassed certain underlying actions which sought damage for bodily injury as the result of exposure to asbestos. As noted below, the portion of Gypsum's declaratory action arising from these underlying bodily injury claims was severed for purposes of trial and is not involved in this appeal.

B. Language of the Policies

The specific coverage language for property damage claims may vary from policy to policy, however, the basic coverage provisions and exclusions are substantially the same and can be categorized into two groups. Generally, those primary policies which were issued to Gypsum prior to 1961 and the excess policies issued before 1959 were "accident policies." The relevant coverage provision in these policies generally provides that the insurer agrees to:

"pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident."

The remaining primary policies issued after 1961 and excess policies issued after 1959 are generally "occurrence policies." The relevant basic coverage provision of the primary policies of this period provides that the insurer agrees to:

"pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages * * * because of * * * property damage to which this policy applies, caused by an occurrence."

Generally, these occurrence policies contained a provision stating either that the "policy applies only to occurrences which take place during the policy period" or promising to provide coverage for "property damage * * * caused by an occurrence which takes place during the policy period."

An example of one of the basic provisions of an excess policy for this period is contained in the policy issued by defendant American Motorists Insurance Co. (AMICO) which provides:

"The company agrees to indemnify the insured for all sums which the insured shall become obligated to pay as damage, direct or consequential, and expenses, all as hereinafter defined as included within the term ultimate net loss, by reason of liability * * * imposed upon the insured by law * * * because of * * * property damage * * * caused by or arising out of an occurrence which takes place during the policy period anywhere in the world."

Although "occurrence" and "property damage" are not defined uniformly throughout all of the policies, the various definitions provided in the policies reflect substantial similarity. "Occurrence" as used in the later primary and excess policies is generally defined as "[a]n accident, including a continuous or repeated exposure to conditions, which results, during the policy period, * * * in property damage * * * neither expected nor intended from the standpoint of the insured." ¹

Each policy also contains a provision insuring against physical injury to tangible property. In policies issued prior to 1972, "property damage" was generally defined as "injury to or destruction of tangible property, including the loss of use thereof." ² In policies issued after 1972, property damage was defined as "(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom; or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period." ³

Most policies also contained "work product" or "own product" exclusions. Some of these exclusions provided that the insurance did not extend coverage "to injury to or destruction of * * * any goods or products manufactured, sold, handled or distributed by the name insured, or work completed by or...