The Wide Net of the Duty to Defend

April 10, 2015

Insurance LawThe judicial principle favoring insureds in policy disputes makes insurance case law endlessly fascinating. It drives injured plaintiffs, insureds, and their attorneys to fish far out at sea in search of liability insurers swimming under the impression that their risk of being caught is now low and their duty to defend against a claim is nearly over. When the principle extends the fishing territory, it can ensnare unsuspecting insurers and upset the predictability on which they depend in order to measure and price risk.

The recent Illinois Appellate Court decision in Illinois Tool Works Inc. v. Travelers Cas. and Sur. Co., 2015 IL App (1st) 132350, 26 N.E.3d 421 (Ill.App. 1 Dist.,2015) takes place far out at sea on liability insurers’ duty to defend. Illinois Tool was an insured on several liability policies in effect from 1971 to 1987. Years after the expiration of the last policy, Illinois Tool decided to enter the market for the distribution of welding products and purchased a welding company, Welding Electric, in 1993. Welding Electric’s business exposed it to liability in toxic tort cases involving materials, such as benzene, manganese, and asbestos. The plaintiffs pursued Illinois Tools as a defendant in these cases.

Illinois Tool wanted a defense. Some lawsuits claimed Illinois Tool’s direct liability for the toxic torts. They alleged exposure to the toxic materials over periods beginning when the policies were in effect and ending after they had expired. They never mentioned Illinois Tool as a successor company. Moreover, although the underlying plaintiffs broadly pleaded their claims to implicate Illinois Tool, the insurers took on the risk of broad drafting. According to the Court, the fact that Illinois Tool was not manufacturing or distributing welding products before 1993 was an extrinsic fact going to Illinois Tool’s liability. But the “Insurers agreed to provide a defense for cases based on groundless allegations and, thus, to bear the cost of disproving groundless allegations on Illinois Tool’s behalf.” 2015 IL App (1st) 132350, ¶ 21, 2015 WL 165941, at *5. Thus, the net ensnared the insurers on these claims.

Other lawsuits did not allege a time period of exposure to the toxic chemicals or manifestation of the injuries, or the allegations were ambiguous in this regard. Since exposure or injury during the policy periods was possible in light of this lack of clarity, the insurers owed a duty to defend. The Court explicitly recognizes the principle favoring insureds when it says, “vague, ambiguous allegations against an insured should be resolved in favor of finding a duty to defend.” 2015 IL App (1st) 132350, ¶ 26, 2015 WL 165941, at *6. The net ensnared the insurers on these claims.

It also caught insurers in other lawsuits based on complaints that were unclear about the time of exposure and injury. These lawsuits made claims against Illinois Tool both as a successor to Welding Electric and on the basis of direct liability. Although the insurers would owe no duty to defend the insured against claims of successor liability, they owed a duty to defend both the covered and uncovered claims.

The insurers avoided the net only for lawsuits alleging Illinois Tool’s liability as Welding Electric’s successor. The insured and insurers never bargained for coverage for risks based on conduct occurring after expiration of the last policy in 1987.

You can find this and other stories of fishing expeditions by using Miller’s Insurance Policies Annotated and the Key Number system. The relevant Key Numbers for this and similar stories, 217k2264, 217k2265, 217k2272, 217k2914, 217k2915, concern the commencement and duration of coverage, persons covered by the policies, and the effect of pleadings and matters beyond the pleadings in determining the duty to defend. The Miller’s annotations go straight to the lines in the current commercial general liability (CGL) and older comprehensive general liability policies concerning the duty to defend, CGGL1-1A1d and GLCGL-1D, and the coverage period, CGGL1-1A1o and GLSP C02.