Westfield Insurance Company v. Indemnity Insurance Company of North America et al
Filing
111
OPINION: Westfield Insurance Company's Motion for Summary Judgment (Case No. 14-3040 d/e 100 , Case No. 16-3298 d/e 90 ) and Star Insurance Company's Motion for Summary Judgment (Case No. 14-3040 d/e 104 , Case No. 16-3298 d/e 94 ) are GRANTED in part; and Indemnity Insurance Company of North America's Motion for Summary Judgment (Case No. 14-3040 d/e 102 , Case No. 16-3298 d/e 92 ) is DENIED. The Court enters partial summary judgment in favor of Westfield Insurance Company and Star Insurance Company and against Indemnity Insurance Company of North America. The Court declares that Indemnity Insurance Company of North America is obligated to pay a pro rata share of the defense cost of the Underlying Action with Westfie ld Insurance Company and Star Insurance Company. The Court orders Indemnity Insurance Company of North America to reimburse Westfield Insurance Company and Star Insurance Company for a pro rata share of the defense costs paid to date by Westfield In surance Company and Star Insurance Company, plus prejudgment interest at the statutory rate of 5 percent pursuant to 815 ILCS 205/2, as discussed above. The Court directs the parties to meet, confer, and submit to the Court by November 30, 2019, an a greed calculation of the fees and costs paid by Westfield and Star to defend the Underlying Action, the pro rata share owed by Indemnity to Westfield and Star, and the appropriate amount of prejudgment interest. If the parties cannot agree, each sha ll submit its calculation with supporting evidence by November 30, 2019. The Court will then resolve any disputes in the calculations and enter the final judgment. Defendant/Counter-Plaintiff Star Insurance Company's original and corrected Mot ion to Strike Certain IINA Reply Brief Arguments on Grounds of Improper Sandbagging or, in the Alternative, for Leave to File a Sur-Reply to Those Arguments (Case No. 14-3040 d/e 118 , Case No. 16-3298 d/e 107 and 108 ) are DENIED as moot. SEE WRITTEN OPINION. Entered by Judge Sue E. Myerscough on 10/25/2019. (SKN, ilcd)
E-FILED
Monday, 28 October, 2019 03:01:20 PM
Clerk, U.S. District Court, ILCD
IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
WESTFIELD INSURANCE
COMPANY,
Plaintiff,
v.
INDEMNITY INSURANCE
COMPANY OF
NORTH AMERICA, et al.,
Defendants.
INDEMNITY INSURANCE
COMPANY OF
NORTH AMERICA,
Plaintiff,
v.
HOLLIS SHAFER et al.,
Defendants.
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No. 16-cv-3298
No. 14-cv-3040
OPINION
SUE E. MYERSCOUGH, U.S. DISTRICT JUDGE:
This matter comes before the Court on Westfield Insurance
Company’s (Westfield) Motion for Summary Judgment (Case No. 143040 d/e 100, Case No. 16-3298 d/e 90) (Westfield Motion),
Page 1 of 65
Indemnity Insurance Company of North America’s (Indemnity or
IINA) Motion for Summary Judgment (Case No. 14-3040 d/e 92,
Case No. 16-3298 d/e 102) (Indemnity Motion), and Star Insurance
Company’s (Star) Motion for Summary Judgment (Case No. 14-3040
d/e 94, Case No. 16-3298 d/e 104) (Star Motion) (collectively the
Motions). These two cases, Case No. 14-3040 (2014 Declaratory
Action) and Case No. 16-3298 (2016 Declaratory Action) have been
consolidated through discovery and resolution of dispositive
motions. Opinion entered March 7, 2017 (Case No. 16-3298 d/e
39), at 7-8. This Court enters this Opinion to be filed in both cases.
Indemnity, Westfield, and Star (collectively the Insurance
Companies) at various points in time provided commercial general
liability insurance to Sandstone North, LLC (North) and Sandstone
South, LLC (South) (collectively Sandstone). North and South
merged into a single entity in 2010. Sandstone operated hog
confined area feeding operations (Hog Facilities or CAFOs) in Scott
County, Illinois. Brian Bradshaw, Eric Bradshaw, and Hollis Shafer
had ownership interests in Sandstone.
On June 1, 2010, the neighbors of the Sandstone Hog
Facilities brought a nuisance action against Sandstone in Scott
Page 2 of 65
County, Illinois, Circuit Court. Alvin Marsh, et al. v. Brian R.
Bradshaw, et al., Scott County, Illinois Case No. 2010-L-3
(Underlying Action). Westfield and Star each agreed to pay the
defense costs in the Underlying Action under a reservation of rights.
Indemnity initially agreed to defend Sandstone in the Underlying
Action under a reservation of rights, and Indemnity also filed a
declaratory judgment action challenging whether Indemnity had a
duty to defend Sandstone. Sandstone withdrew its tender of the
defense to Indemnity in November 2010, and Indemnity voluntarily
dismissed the declaratory judgment action. Sandstone re-tendered
the defense to Indemnity in December 2013. Indemnity filed the
2014 Declaratory Action in response. In 2016, Sandstone prevailed
at trial in the Underlying Action, and the matter is on appeal.
Westfield then filed the 2016 Declaratory Action in this Court.
Westfield and Star ask the Court to declare that Indemnity must
reimburse them for part or all of the defense costs. Indemnity asks
the Court to declare that Indemnity is not obligated to pay any
defense costs for the Underlying Action.
For the reasons set forth below, the Westfield and Star
Motions are GRANTED in part, and the Indemnity Motion is
Page 3 of 65
DENIED. The Court finds that Sandstone withdrew the tender of
the defense to Indemnity in November 2010, and thereby relieved
Indemnity of a duty to defend the Underlying Action at that time.
The Court further finds that Sandstone’s December 2013 re-tender
was effective because it was reasonable under the circumstances.
Indemnity must pay Westfield and Star a pro rata share of the
defense costs incurred for the Underlying Action. Westfield and
Star are also entitled to prejudgment interest from the date of the
re-tender, December 17, 2013. However, Indemnity is not required
to reimburse Westfield and Star for all defense costs of the
Underlying Action.
Star has also filed an original and corrected Motion to Strike
Certain [Indemnity] Reply Brief Arguments on Grounds of Improper
Sandbagging or, in the Alternative, for Leave to File a Sur-Reply to
Those Arguments (Case No. 14-3040 d/e 118, Case No. 16-3298
d/e 107 and 108) (collectively Motion to Strike). In reaching this
decision, the Court did not consider the arguments Star seeks to
strike. As such, the Motion to Strike is DENIED as moot.
Page 4 of 65
STATEMENT OF FACTS
Sandstone began operating its Hog Facilities in 2007. At
various times, Sandstone bought insurance policies from Westfield
and Indemnity. Sandstone also was a named additional insured in
policies issued by Star. All of the insurance policies issued by the
Insurance Companies (collectively the Policies) had one-year terms.
Sandstone, however, cancelled some of the Policies before the oneyear terms expired.
On April 24, 2007, Westfield issued two insurance policies to
Sandstone, one to North and one to South (07-08 Westfield
Policies). On April 24, 2008, Westfield issued a second set of
insurance policies to Sandstone, one to North and one to South (0809 Westfield Policies) (collectively the Westfield Policies). Sandstone
cancelled the 08-09 Westfield Policies on November 12, 2008.
Indemnity Motion, Exhibits C-1, C-2, C-3, and C-4, Westfield
Policies.
On November 12, 2008, Indemnity issued its first set of
policies to Sandstone, one for North and one for South (08-09
Indemnity Policies). On November 12, 2009, Indemnity issued a
second set of policies to Sandstone (09-10 Indemnity Policies). On
Page 5 of 65
February 10, 2010, Sandstone canceled the 09-10 Indemnity Policy
issued to South when South merged into North. On November 12,
2010, Indemnity issued a single policy to the now-merged
Sandstone (10-11 Indemnity Policy). Thereafter, Indemnity issued
policies to Sandstone on November 12, 2011 (11-12 Indemnity
Policy), and November 12, 2012 (12-13 Indemnity Policy)
(collectively the Indemnity Policies). 2016 Declaratory Action
Complaint, Exhibits 1 through 8, Indemnity Policies.
One of the owners of Sandstone, Brian Bradshaw, also owned
a business called Red Oak Hills, LLC (Red Oak Hills). Star issued
insurance policies to Red Oak Hills. On March 30, 2008, Star and
Sandstone amended a Star policy issued to Red Oak Hills (08 Star
Policy). The amendment added the Sandstone Hog Facilities as
insured locations under the Livestock Care, Custody, and Control
Coverage in the 08 Star Policy. Indemnity Motion, Exhibits D-1,
Policy Changes Endorsement No. 2. The Livestock Care, Custody,
and Control Coverage covered losses for injuries to covered animals.
Id.
On December 21, 2008, Star issued another policy to Red Oak
Hills (08-09 Star Policy). Star Motion, Exhibit H, 08-09 Star Policy.
Page 6 of 65
On August 2, 2009, Sandstone was named an additional insured
generally on the Star 08-09 Policy. 08-09 Star Policy, Policy Change
Endorsement No. 3. Star issued a third policy on December 21,
2009 (09-10 Star Policy), which also listed Sandstone as an
additional insured (collectively the Star Policies). Star Motion,
Exhibit I, 09-10 Star Policy.
The Indemnity Policies covered bodily injury and property
damage from an occurrence:
COVERAGE A BODILY INJURY AND PROPERTY
DAMAGE LIABILITY
1.
Insuring Agreement
(a)
We 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. We will have the right and duty
to defend the insured against any “suit” seeking
those damages. . . .
....
(b)
This insurance applies to “bodily injury” and
“property damage” only if:
(1) The “bodily injury” or “property damage” is
caused by an “occurrence” . . . .
(2) The "bodily injury" or "property damage" occurs
during the policy period; . . . .
Page 7 of 65
E.g., 2016 Action Complaint, Exhibit 1, 08-09 Indemnity Policy
issued to South (Example Indemnity Policy), Commercial General
Liability Coverage Form, § I ¶¶1(a) and (b).
The Indemnity Policies contained exclusions for injuries that
were expected or intended by the insured and for injuries from
pollutants:
2.
Exclusions
This insurance does not apply to:
a.
Expected Or Intended Injury
"Bodily injury" or "property damage" expected or
intended from the standpoint of the insured. . . .
....
f. Pollution
(1)
"Bodily injury” or "property damage” arising out of
the actual, alleged or threatened discharge,
dispersal, seepage, migration, release or escape of
"pollutants":
(a)
At or from any premises, site or location which
is or was at any time owned or occupied by, or
rented or loaned to, any insured. . . .
(b)
At or from any premises, site or location which
is or was at any time used by or for any
insured or others for the handling, storage,
disposal, processing or treatment of waste;
Page 8 of 65
(c)
Which are or were at any time transported,
handled, stored, treated, disposed of, or
processed as waste by or for:
(i) Any insured; . . . .
Example Indemnity Policy, Commercial General Liability
Coverage Form, § I ¶¶ 2(a), (b), and (f).
The Indemnity Policies defined “bodily injury,” “property
damage,” “occurrence,” and “pollutants” as follows:
SECTION V – DEFINITIONS
....
3.
“Bodily injury” means bodily injury, sickness or
disease sustained by a person, including death resulting
from any of these at any time.
....
13.
“Occurrence” means an accident, including
continuous or repeated exposure to substantially the
same harmful conditions.
....
15.
“Pollutants” mean any solid, liquid, gaseous or
thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled,
reconditioned or reclaimed.
....
17.
“Property damage” means:
Page 9 of 65
a.
Physical injury to tangible property, including
all resulting loss of use of that property. . . .
b.
Loss of use of tangible property that is
not physically injured. . . .
Example Indemnity Policy, Commercial General Liability Coverage
Form, § V ¶¶ 3, 13, 15, 17.
The Indemnity Policies required Sandstone to notify Indemnity
of an occurrence, claim, or suit as soon as practicable:
SECTION IV – COMMERCIAL GENERAL LIABILITY
CONDITIONS
....
2.
Duties in the Event of an Occurrence, Offense,
Claim Or Suit
a.
You must see to it that we are notified as soon
as practicable of an “occurrence” or an offense
which may result in a claim. . . .
b.
If a claim is made or “suit” is brought against
any insured, you must:
....
(2)
Notify us as soon as practicable.
You must see to it that we receive notice of the
claim or “suit” as soon as practicable.
Page 10 of 65
Example Indemnity Policy, Commercial General Liability Coverage
Form, § IV ¶¶ 2(a) and (b). The comparable provisions of the
Westfield and Star Policies were substantially similar.
The Indemnity Policies also contained an “Other Insurance”
provision regarding the existence of other insurance coverage:
4. Other Insurance
If other valid and collectible insurance is available to
the insured for a loss we cover under Coverages A or B
of this Coverage Part, our obligations are limited as
follows:
a.
Primary Insurance
This insurance is primary except when
Paragraph b. below applies. If this insurance is
primary, our obligations are not affected
unless any of the other insurance is also
primary. Then, we will share with all that other
insurance by the method of described in
Paragraph c. below.
b.
Excess Insurance
(1) This insurance is excess over:
....
(b) Any other primary insurance available
to you covering liability for damages
arising out of the premises or operations,
or the products and completed
operations, for which you have been
added as an additional insured by
attachment of an endorsement.
Page 11 of 65
(2) When this insurance is excess, we will have
no duty under Coverages A or B to defend the
insured against any “suit” if any other insurer
has a duty to defend the insured against that
“suit.” If no other insurer defends, we will
undertake to do so, but we will be entitled to
the insurer’s rights against all of those other
insurers.
....
c.
Method Of Sharing
If all of the other insurance permits contribution by
equal shares, we will follow this method also. Under
this approach each insurer contributes equal
amounts until it has paid its applicable limit of
insurance or none of the loss remains, whichever
comes first.
....
Example Indemnity Policy, Commercial General Liability
Coverage Form, § IV ¶¶ 4(a), (b), and (c).
The Star Policies Other Insurance provision stated, in part:
4. Other Insurance
If other valid and collectible insurance is available to
the insured for a loss we cover under Coverages A or B
of this Coverage Part, our obligations are limited as
follows:
a. Primary Insurance
Page 12 of 65
This insurance is primary except when b. below
applies. If this insurance is primary, our obligations
are not affected unless any of the other insurance is
also primary. Then, we will share with all that other
insurance by the method described in c. below.
b. Excess Insurance
This insurance is excess over:
....
(2) Any other primary insurance available to you
covering liability for damages arising out of the
premises or operations, or the products and
completed operations, for which you have been
added as an additional insured by attachment of
an endorsement.
When this insurance is excess, we will have no duty
under Coverages A or B to defend the insured against
any "suit" if any other insurer has a duty to defend the
insured against that "suit". If no other insurer defends,
we will undertake to do so, but we will be entitled to
the insured's rights against all those other insurers. . .
.
Westfield Motion, Exhibit 9, 08-09 Star Policy, Commercial General
Liability Coverage Form, §IV ¶¶ 4(a) and (b).
The Star Policies also defined the coverage provided to an
additional insured, such as Sandstone. The terms “you” and “your”
in the Star Policies referred to Red Oak Hills:
Section II – Who Is an Additional Insured is amended to
include as an additional insured [Sandstone], but only
Page 13 of 65
with respect to liability for ‘bodily injury’, ‘property
damage’ or ‘personal and advertising injury’ caused, in
whole or in part, by your acts or omissions or the acts or
omissions of those acting on your behalf;
A.
In the performance of your ongoing operations; or
B.
In connection with your premises owned by or
rented by you.
Westfield Motion, Exhibit 9, 08-09 Star Policy, Additional Insured—
Designated Person or Organization Endorsement.
On June 1, 2010, Sandstone’s neighbors in Scott County
(Neighbor Plaintiffs) filed the Underlying Action. The Neighbor
Plaintiffs in the Underlying Action alleged that the Sandstone Hog
Facilities caused continuous harm beginning in 2007. The Second
Amended Complaint in the Underlying Action (Underlying Action
Complaint) alleged that Sandstone negligently mismanaged the Hog
Facilities by improperly handling manure and other hog waste
products and by improperly disposing of dead hog carcasses. The
Underlying Action Complaint alleged that the Sandstone Hog
Facilities emitted foul and offensive odors and toxic gases and
fumes that harmed the Neighbor Plaintiffs. The Underlying Action
Complaint alleged that Sandstone also negligently subjected the
Neighbor Plaintiffs and their properties to runoff of swine effluent,
Page 14 of 65
chemicals, antibiotics, and other hazardous substances that came
onto the neighboring properties. The Underlying Action Complaint
alleged that Sandstone created additional hazards, including
increased airborne dust by its overuse of the nearby roads. The
Underlying Action Complaint alleged that Sandstone thereby
interfered with the Neighbor Plaintiffs’ businesses and their
enjoyment of their homes and properties. Some Neighbor Plaintiffs
alleged that Sandstone’s activities caused them to abandon their
homes. The Underlying Action Complaint sought damages for each
Neighbor Plaintiff for the nuisance caused by Sandstone. See
generally, 2016 Action Complaint, Exhibit B, Underlying Action
Complaint.
Brian Bradshaw testified in his deposition in this case that the
Neighbor Plaintiffs’ attorneys in the Underlying Action had recently
represented plaintiffs in a similar nuisance action in Missouri. He
testified that the jury in the Missouri action awarded
$12,000,000.00 to those plaintiffs. Star Motion, Exhibit B,
Deposition of Brian Bradshaw (Bradshaw Deposition), at 94.
On August 6, 2010, Sandstone, Bradshaw, and Hollis Shafer
sent General Liability Notice of Occurrence/Claim forms (singularly
Page 15 of 65
“Notice of Claim” or collectively “Notices of Claim”) to the Insurance
Companies. Indemnity Motion, Exhibit F, Notices of Claim. The
Notices of Claim notified the Insurance Companies of the
Underlying Action. Sandstone attached copies of the original
Complaint in the Underlying Action to the Notices of Claim. The
Notice of Claim to Indemnity referenced the Indemnity 08-09
Policies, but not the 09-10 Indemnity Policy then in effect.1
Westfield and Star agreed to defend Sandstone in the Underlying
Action under reservations of rights. Star Motion, Exhibits J and K,
Star and Westfield Reservations of Rights Letters.
On August 31, 2010, Indemnity wrote a letter to Sandstone,
Bradshaw, and Shafer in response to the Notice of Claim.
Indemnity discussed the allegations in the Underlying Action and
the terms of the Indemnity 08-09 Policies. Indemnity’s
“Conclusion” portion of the letter stated, in part:
CONCLUSION
It is the position of . . . Indemnity Insurance
Company of North America, based upon the allegations
against each of you in the Complaint, that the policy
referenced herein may provide no coverage because of the
By this time, only one of the 09-10 Indemnity Policies was in effect. North and South had
merged with North as the surviving Sandstone entity, and Sandstone had cancelled the 09-10
Indemnity Policy issued to South.
1
Page 16 of 65
applicability of the pollution exclusion to the claims set
forth in the Complaint of the underlying plaintiffs.
For the reasons set forth herein, IINA will
participate in the defense of each of you subject to this
reservation of rights in conjunction with any of your
other insurers. . . .
....
We advise you that IINA intends to file a Complaint
for Declaratory Judgment to have a court determine that
IINA owes each of you no duty or obligation under the
aforesaid policy of insurance for the claims of the
underlying plaintiffs. We further advise each of you that
in the event that we file such an action and in the event
that IINA is successful with the Court declaring that
there is no duty to defend under the policy, then IINA
intends to seek reimbursement from you for the defense
costs and expenses incurred on your behalf subject to
this reservation of rights. . . .
Subject to this reservation of rights we will engage
counsel to defend you, however, for us to do so, you must
waive the conflict that such an attorney may have based
on IINA's reservation of rights. . . . We enclose a Conflict
Waiver Form, and if you sign it and return it to us
promptly we will hire counsel for you.
If you choose not to waive the conflict as we have
described it herein, you are free to engage counsel of your
own selection to defend you in the Scott County, Illinois
action, and we will reimburse you for the reasonable and
necessary cost of such defense. We insist that any
attorney you hire have the experience and expertise to
handle such a case, and that he or she provide us with
proof of the maintenance of professional liability
insurance, and further that you and that attorney agree
Page 17 of 65
to respond to our requests for a status report when
made.
Again, you can waive the conflict as we described
herein, and allow us to engage defense counsel for you
subject to this reservation of rights. This is a decision
which you should make at your very first opportunity.
Indemnity Motion, Exhibit I, Indemnity Reservation of Rights Letter.
On September 15, 2010, Indemnity filed a declaratory
judgment action in this Court. Indemnity Motion, Exhibit J,
Indemnity v. Sandstone South, LLC, et al., Case No. 10-3236
Complaint (Case No. 10-3236 d/e 1) (2010 Declaratory Action),
C.D. Ill. Case No. 10-3236. Indemnity alleged that it had issued the
08-09 Policies to Sandstone. 2010 Declaratory Action, Complaint
(Case No. 10-3236 d/e 1) (2010 Complaint), ¶ 16. Indemnity did
not mention the 09-10 Indemnity Policies. Indemnity alleged that it
had no duty to defend because Sandstone was not entitled to
coverage:
IINA contends that South, Brian, Eric and Hollis are not
entitled to any coverage under the policy because of one
or more or all of the following reasons:
(a)
The Complaint does not seek damages because of
covered "bodily injury" as defined;
(b)
The Complaint does not seek damages because of
covered "property damage" as defined;
Page 18 of 65
(c)
The Complaint does not seek damages because of
covered "personal and advertising injury" to which
the policies apply;
(d)
The Complaint does not involve an "occurrence",
that is, accidental conduct but only intentional and
non-accidental conduct causing alleged damages
and losses;
(e)
That if the Complaint alleges "bodily injury,"
"property damage," or "personal and advertising
injury," then each and all of such claims are
excluded by the pollution exclusion or one or more
other exclusions in the policy.
2010 Complaint, ¶ 24. Indemnity asked for a declaration that
Indemnity had no duty to defend the Underlying Action. Id., at
11-14 Prayer for Relief.
On November 2, 2010, Sandstone’s attorneys sent a letter to
Indemnity’s counsel (November 2, 2010 Letter). The body of the
November 2, 2010 Letter stated, in part:
On behalf of my clients, Brian Bradshaw, Hollis
Shafer, Sandstone North, LLC, and Sandstone South,
LLC ("Clients"), I am responding to correspondence sent
by you regarding the above-mentioned insurance policies
("Policies") purchased through Indemnity Insurance
Company of North America ("IINA").
As you are aware, the Clients have been named as
defendants in Marsh, et al. v. Bradshaw, et al., No. 2010
L 3 (Scott County) ("Underlying Case"). The original
Complaint was filed in the Underlying Case on June 1,
Page 19 of 65
2010, and [Indemnity] was provided prompt and timely
notification of the claims against its insureds. . . . [T]he
Clients received correspondence from IINA, dated August
31, 2010, which offered to engage counsel for the Clients'
defense in the Underlying Case but required them to
waive any conflicts related to the representation before
doing so. The Clients have not . . . waived the conflict
arising from representation by insurer-retained counsel
in the Underlying Litigation. On September 15, 2010,
IINA filed a Complaint for Declaratory Judgment seeking
a declaration that IINA has no duty to defend the Clients,
as well as reimbursement of defense costs incurred on
behalf of the Clients.
By this letter, Sandstone North, LLC; Sandstone
South, LLC; Brian Bradshaw; and Hollis Shafer withdraw
tender of their defense in the Underlying Case to IINA.
Although my Clients release IINA from its obligation to
provide a defense under the Policies, they are not waiving
any rights to indemnification under the Policies in
relation to the Underlying Case.
The withdrawal of the Clients' tender of defense
resolves all matters related to the Complaint for
Declaratory Judgment, and we request that counsel for
IINA in the declaratory judgment proceeding provide us
with a proposed agreed motion for dismissal.
Indemnity Motion, Exhibit L, November 2, 2010 Letter. In light of
the November 2, 2010 Letter, Indemnity moved to dismiss the 2010
Action without prejudice. The Court allowed the motion and
dismissed Indemnity’s 2010 Declaratory Action without prejudice.
2010 Declaratory Action, Order entered November 19, 2010 (Case
No. 10-3236 d/e 24). Thereafter, Westfield and Star agreed to share
Page 20 of 65
the defense costs equally. Westfield Motion, Exhibit J, Declaration
of Suzanne Karapashev, ¶ 5; Indemnity Motion, Exhibit Q, February
21, 2011 Email from Ross Brocksmith, Westfield Insurance Claims
Specialist, to Attorney Neher, counsel for Sandstone.
Three years later, on December 10, 2013, Sandstone’s counsel
sent Indemnity’s counsel another letter (December 10, 2013 Letter).
The body of the December 10, 2013 Letter stated:
[Indemnity] issued [08-09 Indemnity Policies] to
Sandstone South, LLC, for the policy term 11/12/2008 –
11/12/2009. In November 2010, our clients, Sandstone
North, Sandstone South, Brian Bradshaw and Hollis
Shafer, withdrew their tender of defense to IINA under
these policies for the nuisance case, Alvin Marsh, et al. v.
Brian R. Bradshaw, et al., No. 2010-L-3 (Scott County).
On November 19, 2010, the U.S. District Court for the
Central District of Illinois dismissed the Complaint for
Declaratory Judgment filed by IINA against our clients
without prejudice.
On November 13, 2013, the Fourth District
Appellate Court issued its decision in Country Mutual
Insurance Company v. Hilltop View, LLC, et al., No. 4-130124, which rejected the argument that odor claims
involving a hog production facility are "traditional
environmental pollution" and excluded under the terms
of an absolute pollution exclusion. The odor claims in the
Alvin Marsh case are almost identical to the odor claims
addressed by the Fourth District, and underlying
plaintiffs in both cases are represented by the same
counsel. A copy of the Fourth District's decision is
attached.
Page 21 of 65
In light of this decision, we are notifying you and
your client, IINA, that the underlying case is scheduled
for trial on January 6, 2014. I have enclosed a copy of
the most recent Case Management Order. On December
11, 2013, our clients and their insurance carriers will
participate in mediation with the underlying plaintiffs
and the Honorable Patrick J. Hitpas. The mediation
begins at 9:00 a.m. at our office in Springfield, Illinois.
Please let me know if you need more information
regarding the Alvin Marsh case or the mediation.
2014 Declaratory Action, Amended Complaint, Exhibit 11,
December 10, 2013 Letter. Indemnity did not attend the December
11, 2013 mediation in the Underlying Action.
On December 17, 2013, Sandstone’s counsel sent another
letter to counsel for Indemnity (December 17, 2013 Letter). The
body of the December 17, 2013 Letter stated, in part:
As you are aware, our clients, Sandstone North,
LLC, and Hollis Shafer, are insureds under [08-09
Indemnity Policies]. Sandstone North, LLC, and Hollis
Shafer ("Insureds") request that [Indemnity] agree to
participate in the defense of its Insureds in Alvin Marsh,
et al. v. Brian R. Bradshaw, et al., No. 2010-L-3 (Scott
County)("Underlying Suit").
....
For the reasons set forth above, Insureds request
that, within fourteen (14) days of receiving this letter,
[Indemnity] respond and agree, in writing, to participate
in the defense of the Insureds in the Underlying Suit. . . .
Page 22 of 65
We look forward to receiving [Indemnity’s]
commitment to participate in the defense of its Insureds
in the Underlying Suit. Please feel free to contact me if
you have any questions or need additional information.
2016 Declaratory Action, Complaint (d/e 1), Exhibit 15, December
17, 2013 Letter.
On January 30, 2014, Indemnity responded that it did not
have any coverage obligation for the Underlying Action. See 2014
Declaratory Action, Amended Complaint, Exhibit 12, March 22,
2014 Letter from Sandstone’s Counsel to Indemnity’s Counsel
(March 22, 2014 Letter). On February 4, 2014, Indemnity filed the
2014 Declaratory Action. Indemnity sought a declaration that it
had no duty to defend the Underlying Action or to cover any losses
that may arise in the Underlying Action. Indemnity alleged that
Sandstone initially withdrew the tender of defense to Indemnity.
Indemnity alleged that the December 17, 2013 Letter was an
improper notice in violation of the 08-09 Indemnity Policy.
Indemnity alleged that, in any event, the 08-09 Indemnity Policy
was excess coverage and Star was obligated to provide primary
coverage. See 2014 Declaratory Action, Amended Complaint, ¶¶
17-19, 21-25.
Page 23 of 65
On March 19, 2014, the State Court in the Underlying Action
authorized the Underlying Action plaintiffs to seek damages against
Sandstone for injuries that occurred up to and including November
15, 2013. Westfield Motion, Exhibit C, Underlying Action, Order
entered March 19, 2014.
On March 22, 2014, Sandstone’s counsel sent the March 22,
2014 Letter to Indemnity’s counsel. The body of the March 22,
2014 Letter stated:
By e-mail dated December 10, 2013, I forwarded
[Indemnity’s counsel] a copy of the Second Amended
Complaint in the above-captioned matter. By letter dated
December 17, 2013, our firm advised [Indemnity] that the
trial date in the above matter had been moved to March
24, 2014, and requested that IINA agree, in writing, to
participate in the defense of its Insureds (Sandstone
North, LLC, and Hollis Shafer) in the underlying suit
under [remaining Indemnity Policies]. My December 17,
2013 correspondence did not specify a policy term. IINA
responded on January 30, 2014, and stated that there is
no coverage under the above-referenced policies for the
policy term of November 12, 2008, through November 12,
2009. IINA filed a Complaint for Declaratory Judgment
against the Insureds on February 4, 2014.
On January 10, 2014, I sent the attached e-mail to
[Indemnity’s counsel] which forwarded the Motion to
Supplement Pleadings filed by the underlying plaintiffs,
and explained that Judge Cherry had granted plaintiffs'
motion to supplement their complaint to extend the
damages provision to November 15, 2013. As you are
aware, we have continued to keep [Indemnity’s counsel]
Page 24 of 65
apprised of developments and rulings in the underlying
case. The case proceeds to trial on March 24, 2014.
In view of the Court's order extending the damages
period, we are tendering the defense of Sandstone North,
LLC, and Hollis Shafer under [Indemnity Policies] issued
by IINA to Sandstone North, LLC, and Hollis Shafer for
the 2009-2010, 2010-2011, 2011-2012, 2012-2013, and
2013-2014 policy periods. By this letter, we request that
IINA agree, in writing, to participate in the defense of its
Insureds in the underlying suit.
We look forward to receiving IINA's commitment to
participate in the defense of its Insureds in the
underlying suit. Please feel free to contact me . . . if you
have any questions or need additional information.
2014 Declaratory Action, Amended Complaint, Exhibit 12, March
22, 2014 Letter.
On April 22, 2014, Indemnity moved to amend its Complaint
to include all the Indemnity Policies. Motion for Leave to File
Amended Complaint for Declaratory Judgment (Case No. 14-3040
d/e 33). The motion was allowed, and the Amended Complaint
(Case No. 14-3040 d/e 34) was filed on April 24, 2014.
The Underlying Action went to trial on May 9, 2016.
According to Bradshaw, the counsel for the Underlying Action
plaintiffs stated in his closing argument that the jury should award
his clients $7,500,000.00 in damages. Star Motion, Exhibit B,
Page 25 of 65
Deposition of Brian Bradshaw, at 93-94. On May 24, 2016, the
jury rendered a verdict in favor of Sandstone and against the
Neighbor Plaintiffs. Westfield Motion, Exhibit D, Underlying Action,
Jury Trial Docket Order.
On November 3, 2016, Westfield filed the 2016 Declaratory
Action. Westfield sought a declaratory judgment that Indemnity
had a duty to defend the Underlying Action, and that Indemnity was
obligated to reimburse Westfield all of the defense costs it paid, or
in the alternative, was obligated to pay a pro rata share of defense
costs. See 2016 Declaratory Action, Complaint (Case No. 16-3298
d/e 1).
On February 6, 2018, Star filed a counterclaim against
Indemnity. 2016 Declaratory Action, Star Insurance Company’s
Counterclaim for Declaratory Judgment and Monetary Relief (Case
No. 16-3298 d/e 77) (Star Counterclaim). Star asked for a
declaration that Indemnity must reimburse Star for the costs paid
to defend Sandstone, or in the alternative, Indemnity must pay its
pro rata share of the defense costs. Id.
On April 22, 2019, the State Court in the Underlying Action
denied the Neighbor Plaintiffs’ Motion for Judgment
Page 26 of 65
Notwithstanding the Verdict, or in the Alternative, for a New Trial.
Star Motion, Exhibit N, Underlying Action, Order entered April 22,
2019. On May 15, 2019, the Neighbor Plaintiffs filed a Notice of
Appeal. Westfield Motion, Exhibit F, Notice of Appeal (certificate of
service dated May 15, 2019).
According to Westfield, it has paid at total of $1,290,443.44 in
defense costs as of the date of the Westfield Motion. Westfield
Motion, Statement of Undisputed Fact ¶ 54. According to Star, it
has paid a total of $1,380,965.44 in Sandstone’s defense costs in
the Underlying Action as of the date of the Star Motion. Star
Motion, Statement of Undisputed Fact ¶ 48. According to
Indemnity, Westfield has paid $516,348.10 in defense costs prior to
December 17, 2013, and $793,781.08 after December 17, 2013, for
a total of $1,310,129.18 in defense costs, and Star had paid similar
amounts in defense costs. Indemnity Motion, Statements of
Undisputed Fact ¶¶ 45-47.
Westfield has submitted invoices and declarations from
Sandstone’s attorneys Edward W. Dwyer of the firm of Hodge Dwyer
& Dwyer and Stephen R. Kauffmann of the firm of Hepler Broom
attesting to the reasonableness of the fees. Westfield Motion,
Page 27 of 65
Exhibit K, Hodge Dwyer & Dwyer Invoices; Exhibit L, Hepler Broom
Invoices; Exhibit M, Westfield Payment Ledgers; Exhibit N, Invoices
for Expert Witnesses and Consultants; Exhibit O, Dwyer
Declaration; and Exhibit P, Kaufmann Declaration. Star has also
submitted invoices, affidavits, and declarations as to the amount of
fees paid and the reasonableness of the fees. Star included an
affidavit from Mark Zimmerman of the law firm of Clausen Miller,
P.C., in addition to the fee information from the Hodge Dwyer &
Dwyer and Hepler Broom law firms. Star Motion, Exhibit P,
Affidavit of Nicholas J, Meinheit; Exhibit Q, Affidavit of Kara R.
Hayes; Exhibits R and S, Affidavit of Edward W. Dwyer to
authenticate billings, and accompanying invoices; Exhibit T,
Affidavit of Stephen R. Kaufmann; and Exhibit T, Affidavit of
Edward W. Dwyer regarding the reasonableness of the fees; Exhibit
V, Affidavit of Mark W. Zimmerman. Indemnity has not provided
any evidence controverting these attorneys’ declarations.
As of the filing of the Motions, the Underlying Case remains
pending on appeal.
Page 28 of 65
ANALYSIS
The Insurance Companies have filed cross-motions for
summary judgment. At summary judgment, the movant must
present evidence that demonstrates the absence of a genuine issue
of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24
(1986). The Court must consider the evidence presented in the light
most favorable to the non-moving parties. Any doubt as to the
existence of a genuine issue for trial must be resolved against the
movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Once a movant has met its burden, the non-moving parties must
present evidence to show that issues of fact remain with respect to
an issue essential to the movant’s case, and on which the movant
will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477
U.S. at 322; Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986).
When read in this light, Sandstone sent the November 2, 2010
Letter to exercise its right under Illinois law to relieve one insurer of
the obligation to defend a claim and have the other insurers provide
the defense. The undisputed facts further show that Sandstone retendered the defense December 17, 2013 Letter in light of the
Page 29 of 65
Hilltop View decision. The undisputed facts show that the re-tender
was reasonable under the circumstances. Because the re-tender
was reasonable, Indemnity is obligated to provide a defense to
Sandstone along with Westfield and Star.
The Indemnity Policies stated that Indemnity would defend
Sandstone in suits alleging covered claims. Under Illinois law,
insurance policies are contracts and are interpreted like other
contracts. Westfield Ins. Co. v. Vandenburg, 796 F.3d 773, 777 (7th
Cir. 2015). The Court must ascertain the intention of the parties
from the text of the policy:
Accordingly, our primary objective is to ascertain and
give effect to the intention of the parties, as expressed in
the policy language. If the policy language is
unambiguous, the policy will be applied as written,
unless it contravenes public policy.
Whether an ambiguity exists turns on whether the policy
language is subject to more than one reasonable
interpretation. Although “creative possibilities” may be
suggested, only reasonable interpretations will be
considered. Thus, we will not strain to find an ambiguity
where none exists. Although policy terms that limit an
insurer's liability will be liberally construed in favor of
coverage, this rule of construction only comes into play
when the policy is ambiguous.
Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill.2d 11, 17, 823
N.E.2d 561, 564 (Ill. 2005) (internal citations omitted).
Page 30 of 65
An insurer’s contractual duty to defend is broader than its
duty to indemnify. An insurer must defend if the allegations in the
lawsuit filed against the insured, if true, could possibly constitute a
loss covered by the insurance policy. To determine whether the
insurer had a duty to defend, the Court compares the allegations in
the underlying complaint with the coverage provided in the
insurance policy. “If any of facts alleged in the underlying
complaint fall within, or potentially within, the policy’s coverage, the
insurer’s duty to defend arises.” Outboard Marine Corp. v. Liberty
Mut. Ins. Co., 154 Ill.2d 90, 108, 607 N.E.2d 1204, 1212 (Ill. 1992).
In this case, the Underlying Action Complaint alleged, among
other things, that negligent mismanagement of the Sandstone Hog
Facilities caused the emission of offensive odors that injured the
Plaintiff Neighbors. The allegation that improper management of
operations caused the offensive odors could constitute an
occurrence and the offensive odors could subject the neighbors to
bodily injury. See e.g., County Mut. Ins. Co. v. Bible Pork, Inc.,
2015 IL App (5th) 140211 ¶¶ 31-33, 42 N.E.3d 958, 958 (Ill. App. 5th
Dist. 2015).
Page 31 of 65
The Pollution Exclusion would not apply to exclude the injury
from the offensive odors from coverage. The Illinois Supreme Court
determined that pollution exclusions in commercial general liability
policies such as the Indemnity Policies only apply to “traditional
environmental pollution.” American States Ins. Co. v. Koloms, 177
Ill.3d 473, 494, 687 N.E.2d 72, 82 (Ill. 1997). Further, the Illinois
Fourth District Appellate Court determined that offensive odors
from a Hog Facility are not a traditional type of pollution, and so,
injuries from such odors are not excluded from coverage. Country
Mutual Ins. Co. v. Hilltop View, LLC, 2013 IL App (4th) 130124 ¶¶
28-42, 998 N.E.2d 950, 957-59 (Ill. App. 4th Dist. 2013). This
Court has carefully considered the Koloms and the Hilltop View
decisions and concludes that the Illinois Supreme Court would
agree with the Hilltop View decision that odors, in and of
themselves, are not traditional types of pollution. The Underlying
Action Complaint alleged injuries due to odors. The Underlying
Action Complaint, therefore, alleged bodily injuries that could have
been covered by the Indemnity Policies and are not excluded by the
Pollution Exclusion.
Page 32 of 65
The Other Insurance provision of the Indemnity Policies did
not bar the possibility of covered losses under the allegations of the
Underlying Action Complaint. The Underlying Action Complaint
alleged that Sandstone’s wrongful conduct began in 2007 and
continued thereafter. The 08-09 Indemnity Policies were the only
commercial general liability policies in effect from November 12,
2008 until August 2, 2009 when Sandstone was made an additional
insured in the Star Policies. As such, Indemnity provided exclusive
commercial general liability coverage for losses during that period.
The allegations in the Underlying Action Complaint, if true, could
have established losses from November 12, 2008 until August 2,
2009, for which Indemnity was the only insurer. The possibility of
such covered losses gave Indemnity a duty to defend if Sandstone
complied with the notice provisions in the Indemnity Policies.
Indemnity argues that the Indemnity Policies’ Other Insurance
provisions made the Indemnity Policies excess insurance because
Sandstone was an added insured since March 30, 2008 on Star
Policies. As excess coverage, Indemnity argues that it did not have
a duty to defend the Underlying Action and did not have a duty to
cover losses until the primary coverage under the Star Policies was
Page 33 of 65
exhausted. Indemnity is incorrect. The Indemnity Policies’ Other
Insurance provisions only made Indemnity’s coverage excess if
other insurance provided primary coverage for the loss and also
named Sandstone as an additional insured. The March 30, 2008
change to the 08 Star Policy added the Sandstone Hog Facilities as
insured locations on March 30, 2008 under the Livestock Care,
Custody, and Control Coverage. That coverage only covered injuries
to covered animals damaged on the covered premises. The
Livestock Care, Custody, and Control Coverage did not provide
Sandstone with coverage for the neighbors’ nuisance claims in the
Underlying Action, and so, did not trigger the Other Insurance
provisions of the Indemnity Policies. The August 2, 2009 change to
the Star policies added Sandstone as an additional insured for all
purposes. Indemnity had exclusive primary coverage from
November 12, 2008 to August 2, 2009.
In addition, Underlying Action Complaint alleged claims that
could have imposed primary coverage obligations on Indemnity after
August 2, 2009. The Indemnity Policies’ Other Insurance
provisions only made Indemnity’s coverage excess if other insurance
provided coverage for the loss and named Sandstone as an
Page 34 of 65
additional insured. The Star Policies only provided coverage for a
loss that was due to the actions of Red Oak Hills or someone acting
on its behalf. The allegations in the Underlying Action Complaint, if
true, could have established losses from actions committed by
Sandstone only, and not by Red Oaks Hills or those acting on its
behalf. If so, the Star Policies would have provided no coverage to
Sandstone as an additional insured. In that event, the Indemnity
Policies’ Other Insurance provisions would not have applied and the
Indemnity Policies would have had primary coverage. Because the
Underlying Action Complaint alleged all these possibilities of
covered losses, Indemnity had a duty to defend Sandstone if
Sandstone complied with the notice provisions in the Indemnity
Policies.
Indemnity argues in reply that Star forfeited any argument
that Indemnity could have had primary coverage for alleged losses
in the Underlying Action because Star alleged in its Counterclaim
that it paid for defense costs because it was contractually obligated
to do so. Indemnity Insurance Company of North America’s
Combined Reply in Support of Its Motion for Summary Judgment
(Case No. 16-3298 d/e 104, Case No. 14-3040 d/e 115), at 5-8
Page 35 of 65
(citing Star Counterclaim ¶¶ 45-46). Arguments raised for the first
time in reply are forfeited. E.g., Narducci v. Moore, 572 F.3d 313,
324 (7th Cir. 2009). Indemnity, therefore, has forfeited this
argument. Regardless, Indemnity is incorrect. The duty to defend
is broader than the duty to cover losses. As discussed above, the
allegations in the Underlying Action Complaint, if proven, could
have possibly established primary coverage under either the Star
Policies, the Indemnity Policies, or both. Because of these
possibilities, Star and Indemnity Policies both had a duty to defend,
depending on whether Sandstone complied with the notice
provisions of the Indemnity and Star Policies. Star’s allegation that
it had a contractual duty to defend did not preclude the possibility
that Indemnity also had a duty to defend.
In this case, Sandstone gave proper notice on August 6, 2010
by sending the Notices of Claim, but then withdrew the tender of
the defense of the Underlying Action from Indemnity by sending the
November 2, 2010 Letter. Sandstone’s withdrawal of tender of the
defense “deactivated” or relieved Indemnity of any obligation to
defend Sandstone in the Underlying Action. When, as here,
multiple insurance companies have a duty to defend an insured in
Page 36 of 65
a single action, Illinois law provides that the insured can decide
which insurer or insurers should provide the defense. Kajima
Const. Services, Inc. v. St. Paul Fire & Marine Ins. Co., 227 Ill.2d
102, 107-08, 879 N.E.2d 305, 309-10 (Ill. 2007); John Burns
Const. Co. v. Indiana Ins. Co., 189 Ill.2d 570, 575-77, 727 N.E.2d
211, 215-16 (Ill. 2000); Cincinnati Companies v. West American
Ins. Co., 183 Ill.2d 317, 326, 701 N.E.2d 499, 503-04 (Ill. 1998). If
an insured decides to relieve an insurer of its obligation to
participate in the defense, then the relieved insurer does not have to
pay for the defense of the action. In addition, the other insurers
cannot seek reimbursement from the insurer relieved of the duty to
defend. John Burns Const., 189 Ill.2d at 575, 727 N.E.2d at 215.
This principle of Illinois insurance law is referred to as the “targeted
tender” doctrine. See Kajima, 227 Ill.2d at 107, 879 N.E.2d at 309.
Westfield and Star argue that the targeted tender doctrine
does not apply in this case because the various Policies did not
cover the same time periods. The Illinois Supreme Court cases that
addressed the targeted tender doctrine all involved multiple
insurance policies that concurrently covered the same time period.
The alleged injury in those cases occurred within the effective time
Page 37 of 65
period of the multiple policies. See e.g., Kajima, 227 Ill.2d at 10405, 879 N.E.2d at 307-08 (multiple policies covered an injury to a
worker at a construction site). The Underlying Action alleged
Sandstone mismanaged its Hog Facilities for years and caused
continuing injuries from 2007 to 2013. The Insurance Companies’
Policies covered different periods within that six-year period. The
Westfield Policies, in particular, were the only general commercial
liability policies in effect from April 24, 2007 to November 12, 2008.
Westfield and Star argue that the targeted tender doctrine does not
apply in this circumstance.
The Illinois Appellate Courts have split on whether the
targeted tender doctrine applies to situations in which the
insurance policies in question did not provide temporally
overlapping coverage. In Richard Marker Associates v. Pekin Ins.
Co., 318 Ill.App.3d 1137, 743 N.E.2d 1078 (Ill. App. 3d Dist. 2001),
the Defendant Pekin Insurance’s policy covered the plaintiff from
August 25, 1991 to August 25, 1992, and Statewide Insurance
covered the plaintiff after August 25, 1992. The alleged injury was
potentially covered by both policies. Both insurers refused to
defend. The plaintiff ultimately relieved Statewide of the obligation
Page 38 of 65
to defend and sued Pekin to pay for the defense. The Appellate
Court for the Third District held that the targeted tender doctrine
applied and ordered Pekin to pay the defense costs. Id., 318
Ill.App.3d at 1142-44, 743 N.E.2 at 1082-83.
In Illinois School District Agency v. St. Charles Unit School
District, 2012 IL App (1st) 100088 ¶¶ 36-43, 971 N.E.2d 1099,
1108-12 (1st Dist. 2012), the Illinois First District Appellate Court
held that the targeted tender doctrine did not apply when insurance
policies did not concurrently cover the same time period. The
Illinois Supreme Court has not resolved this conflict.
In this diversity case, this Court must decide how the Illinois
Supreme Court would decide this issue. See Allstate Ins. Co. v.
Menards, Inc., 285 F.3d 630, 635 (7th Cir. 2002). The Illinois
Supreme Court recognized the targeted tender doctrine when the
Court determined that an insurer’s duty to defend is triggered when
it receives actual notice of the alleged facts that give rise to the
claim, even if the insured has not given any notice of the claim.
Cincinnati Companies, 183 Ill.2d at 326-27, 701 N.E.2d at 503-04.
This actual notice rule ensures that an insured who has paid
premiums is not left with no means to defend against a claim. The
Page 39 of 65
actual notice trigger for the duty to defend puts the onus on the
insurer to contact the insured and inquire whether the insured
wants the insurer to defend. Cincinnati Companies, 183 Ill.2d at
328-29, 701 N.E.2d at 504-05.
The Illinois Supreme Court recognized in Cincinnati
Companies that sometimes an insurer may have a duty to defend
but the insured does not want a particular insurer to provide a
defense. See Id. An insured may have many reasons for wanting a
particular insurer involved in a case. For example, a general
contractor may want a subcontractor’s insurance to defend a claim
that arose because of the subcontractor’s actions, and the general
contractor may not want its insurer involved. See e.g., Burns
Const. Co., 189 Ill.2d at 571-72, 727 N.E.2d at 213-14 (General
contractor directed subcontractor’s insurance to pay for claim
arising from subcontractor’s alleged defective workmanship).
Moreover, insureds may want to defend without an insurer’s
involvement because the insured does not want to pay increased
premiums that may result. Ultimately, the Illinois Supreme Court
approved the targeted tender doctrine to protect the insured by
Page 40 of 65
giving the insured the flexibility to pick and choose which insurer
must defend when multiple insurers have a duty to defend:
In Cincinnati Cos. v. West American Insurance Co., 183
Ill.2d 317, 233 Ill.Dec. 649, 701 N.E.2d 499 (1998), this
court considered what is necessary to trigger an insurer's
duty to defend, and held that the duty arises with actual
notice of a claim against an insured, regardless of the
insured's level of sophistication. In reaching that result,
the court acknowledged the line of authority that granted
an insured the right to elect which of its insurers will
defend a particular case. The court stated:
“Where an insured makes such a designation, the
duty to defend falls solely on the selected insurer.
That insurer may not in turn seek equitable
contribution from the other insurers who were not
designated by the insured. [Citation.] This rule is
intended to protect the insured's right to knowingly
forgo an insurer's involvement.
[Citation.]” Cincinnati Cos., 183 Ill.2d at 324, 233
Ill.Dec. 649, 701 N.E.2d 499.
The court thus concluded that “an insured may
knowingly forgo the insurer's assistance by instructing
the insurer not to involve itself in the litigation. The
insurer would then be relieved of its obligation to the
insured with regard to that claim.” Cincinnati Cos., 183
Ill.2d at 326, 233 Ill.Dec. 649, 701 N.E.2d 499.
John Burns Const. Co., 189 Ill. 2d at 574–75, 727 N.E.2d at 215.
The Court concludes that the Illinois Supreme Court would
apply the protections of the targeted tender doctrine to Sandstone
in this case. The Illinois Supreme Court decisions focus on
Page 41 of 65
protecting the insured’s right to decide which insurer should defend
a claim. The Court concludes that the Illinois Supreme Court
would protect Sandstone as much as any other insured, and so,
would allow Sandstone to decide which insurer would defend the
Underlying Action.
The Illinois School decision, in which the Appellate Court held
that the targeted tender doctrine only applied if the insurance
policies concurrently covered the same period, relied on the Illinois
Supreme Court’s Kajima decision. The Kajima decision addressed
the impact of the targeted tender doctrine on the duty of multiple
insurers to indemnify an insured for a single covered loss when
some insurers agreed to provide primary coverage (primary
insurers) and some agreed to provide excess coverage (excess
insurers). The Kajima Court held that primary insurers which
defended the case paid first to their limits; primary insurers that
the insured instructed not to provide a defense under the targeted
tender doctrine paid second up to their limits; and excess insurers
paid last after all primary coverage was exhausted. Kajima, 227
Ill.2d at 117, 879 N.E.2d at 314. The Illinois Supreme Court in
Kajima referred to insurers that provided “concurrent primary
Page 42 of 65
coverage” because the insurers had a concurrent contractual duty
to provide primary coverage for a single loss. The Appellate Court
in Illinois School concluded that the reference to concurrent
primary coverage in Kajima limited the targeted tender doctrine to
cases in which the policies concurrently covered the same time
period. Illinois School, 2012 IL App (1st) ¶¶ 39-43, 971 N.E.2d at
1109-12.
This Court concludes that the Kajima decision reference to
“concurrent primary coverage” did not limit the targeted tender
doctrine to policies that covered the same time period. The Kajima
decision resolved the coverage issue of the order of payment
between primary insurers and excess insurers under the targeted
tender doctrine. The Illinois Supreme Court referred to “concurrent
primary coverage” because the targeted tender doctrine would only
affect coverage issues when multiple insurers have concurrent
obligations to cover the same loss. The Kajima decision did not
address the duty to defend.
Many insurers may have concurrent duties to defend a single
suit even if the potential loss that may be covered by each policy is
different. As discussed above, the Illinois Supreme Court has
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stated that the targeted tender doctrine protects the right of the
insured to decide which insurer should provide that defense. Burns
Const. Co., 189 Ill. 2d at 574–75, 727 N.E.2d at 215. The Illinois
Supreme Court in Kajima agreed with the Cincinnati Companies
and Burns Const. Co. decisions. See Kajima, 227 Ill.2d at 107, 879
N.E.2d at 309 (The targeted tender doctrine “allows an insured
covered by multiple insurance policies to select or target which
insurer will defend and indemnify it with regard to a specific
claim.”). In this case, the Insurance Companies had a concurrent
duty to defend Sandstone in a single suit, the Underlying Action.
As a result, the Court concludes that the Illinois Supreme Court
would hold that the targeted tender doctrine applied, and
Sandstone could elect to relieve Indemnity from providing a defense.
The Appellate Court in Illinois School also recognized that few
other States apply the targeted tender doctrine and some courts
have criticized the doctrine. See Illinois School, 2012 IL App (1st)
100088 ¶ 37, 971 N.E.2d at 1109. The targeted tender doctrine is a
distinct minority rule. Only Washington and Montana appear to
have recognized a “selective tender” rule that is similar to the
Illinois rule. See Mutual of Enumclaw Ins. Co. v. USF Ins. Co., 164
Page 44 of 65
Wash.2d 411, 191 P.3d 866, 873 (Wash. 2008); Casualty Indem.
Exchange Ins. Co. v. Liberty Nat Fire Ins. Co., 902 F.Supp. 1235,
1237, 1238 & n. 3 (D. Mont. 1995). This Court did not find any
other State that recognized a similar doctrine. Even so, this Court
must follow Illinois law as it is established by the Illinois Supreme
Court regardless of whether Illinois follows a majority or minority
rule among the several States. See Allstate Ins. Co., 285 F.3d at
635. The Illinois Supreme Court adopted the targeted tender rule to
ensure that the insured had the right to choose which insurer
would pay for a defense. Burns Const. Co., 189 Ill. 2d at 574–75,
727 N.E.2d at 215. The Court concludes the Illinois Supreme Court
would apply that rule here. The Insurance Companies had a duty
to defend on actual notice of Sandstone’s claims, but Sandstone
retained the right to relieve an insurer from its duty to defend for
whatever reason. The Court agrees with the Richard Marker
Associates decision and declines to follow the Illinois School
decision. Sandstone relieved Indemnity of its duty to defend the
Underlying Action in the November 2, 2010 Letter. Indemnity had
no further obligation to defend the Underlying Action at that point.
Page 45 of 65
Westfield and Star argue that Sandstone only withdrew the
tender of the defense under the 08-09 Indemnity Policy but did not
withdraw Indemnity’s obligation to defend under the remaining
Indemnity Policies. The Court disagrees. The November 2, 2010
Letter stated, “By this letter, Sandstone North, LLC; Sandstone
South, LLC; Brian Bradshaw; and Hollis Shafer withdraw tender of
their defense in the Underlying Case to IINA.” Sandstone withdrew
the defense of the Underlying Action from Indemnity. The language
of the November 2, 2010 Letter is clear. After receipt of the
November 2, 2010 Letter, Indemnity could not have interjected itself
into Sandstone’s defense. The Court finds that Illinois protected
Sandstone’s right to decide whether an insurer should participate
in a defense. John Burns Const., 189 Ill.2d at 575, 727 N.E.2d at
215. The undisputed facts establish that, on November 2, 2010,
Sandstone relieved Indemnity of its duty to defend the Underlying
Action.
On December 17, 2013, Sandstone re-tendered the defense of
the Underlying Action to Indemnity. Indemnity argues that once an
insured relieves an insurer from the duty to defend, the insurer is
Page 46 of 65
completely and permanently released from the duty to defend.
Indemnity cites no authority for that proposition.
Star, however, argues that the Burns Const. Co. case
approved a re-tender. In Burns Const. Co., the insured Burns
Const. Co. (Burns) had coverage under policies issued by Defendant
Indiana Insurance Co. (Indiana) and Royal Insurance Company
(Royal). Burns initially told Indiana and Royal that Burns wanted
Indiana only to provide a defense to the underlying action and did
not want Royal to be involved. A month later, Indiana refused to
provide a defense. Burns then went back to Royal and re-tendered
it the defense. Burns Const. Co., 727 N.E.2d at 213-14. Royal
accepted the defense. The Illinois Supreme Court did not address
whether Burns had the right to re-tender the defense or whether
Royal had to agree to defend at that time. The validity of the retender was not at issue in that case.
The Court has not found an Illinois case addressing whether
an insured may re-tender a defense after withdrawing a defense,
and the parties have not cited a case on the question. The Court
also has not found a case in other jurisdictions that addresses the
validity of a re-tender after an insured has relieved an insurer from
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providing a defense. The cases found from other States that
recognize a similar selective tender doctrine, Washington and
Montana, only addressed the effect of an insured deciding not to
tender a defense to a particular insurer. See Mutual of Enumclaw
Ins. Co., 164 Wash.2d at 421, 191 P.3d at 873; Casualty Indem.
Exchange Ins. Co., 902 F.Supp. at 1239 n. 4. The cases did not
address situations in which an insured withdraws a tender and
then re-tenders. The question of whether the insured can re-tender
a defense after relieving an insured of the duty to defend appears to
be one of first impression.
This Court must determine how the Illinois Supreme Court
would decide the question of whether the insured can re-tender a
defense after relieving an insured of the duty to defend.2 As
discussed above, the Illinois Supreme Court has emphasized
protecting the insured’s rights. Ambiguities in insurance contracts
are read in favor of the insured. An insurer’s duty to defend in
Illinois is triggered if the insurer has actual notice of the claim even
before an insured gives any notice. The insured in Illinois retains
This Court also may not certify the question to the Illinois Supreme Court. Only the Court of
Appeals may certify a question to the Illinois Supreme Court. Ill. Sup. Ct. Rule 20; 7th Cir. R.
52.
2
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the right to choose which insurer should pay for a defense. The
Illinois cases emphasize the right of an insured that had paid
premiums to receive a defense and to control that defense. In light
of these principles, the Court concludes that the Illinois Supreme
Court would decide that an insured should be able to change its
position and re-tender a defense to an insurer if the re-tender is
reasonable under the circumstances.
The Burns Const. Co. case gives a good example of why Illinois
would recognize an insured’s right to change positions and retender. Burns told Indiana to defend and relieved Royal of the duty
to defend. According to Indemnity, Royal was completely and
permanently relieved of any obligation to defend Burns. A month
later, Indiana refused to defend. According to Indemnity, Burns
would be left with no defense. Burns’ only recourse would be to pay
for the defense out-of-pocket and sue Indiana for reimbursement.
The Court is convinced that the Illinois Supreme Court would have
rejected such an outcome. The Illinois Supreme Court would not
have left Burns without a defense, particularly since Burns
promptly re-tendered the defense to Royal only a month after
withdrawing the defense. The Court is convinced that the Illinois
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Supreme Court would allow an insured to re-tender a defense to an
insurer at least under some circumstances.
The question then becomes when is a re-tender appropriate.
The Court concludes that the reasonableness of the re-tender
should generally be governed by Illinois law regarding the notice
requirements under an insurance contract. The situation of an
insurer relieved of the duty to defend is comparable to an insurer
that does not have actual notice of a claim and receives a notice of
claim from an insured. In both of these situations the insurer
would have no basis to know that they should investigate the claim
or participate in its defense.3 Because the insurer which receives a
re-tender is in a similar situation to an insurer with no actual
notice which receives a notice of a claim, Illinois law on the validity
of the notice should provide guidance in determining the
reasonableness of a re-tender.
Illinois law generally requires an insured to give an insurer
notice of a claim within a reasonable amount of time under the
The comparability of the two situations is limited to the duty to defend. The Kajima case
establishes that a primary insurer relieved of the duty to defend would still have an obligation
to pay a covered loss after the other primary insurers exhausted their coverage limits. Kajima,
227 Ill.2d at 117, 879 N.E.2 at 314. The insurer with no notice may, under appropriate
circumstances, have no duty to indemnify as well as no duty to defend. See State Auto
Property and Casualty Ins. Co. v. Brumit Services, Inc., 877 F.3d 355, 357 (7th Cir. 2017).
3
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circumstances. West American Ins. Co. v. Yorkville Nat. Bank, 238
Ill.2d 177, 185, 939 N.E.2d 288, 293 (Ill. 2010). Illinois Courts look
to five factors to determine whether the insured gave notice within a
reasonable time, “(1) the specific language of the policy's notice
provision; (2) the insured's sophistication in commerce
and insurance matters; (3) the insured's awareness of an event that
may trigger insurance coverage; (4) the insured's diligence in
ascertaining whether policy coverage is available; and (5) prejudice
to the insurer.” Id. The reasonableness of the timing of the notice
is an issue of fact. Id. The issue may be decided at summary
judgment, however, if the facts are undisputed. See State Auto
Property and Casualty Ins. Co. v. Brumit Services, Inc., 877 F.3d
355, 357 (7th Cir. 2017) (“Our job is to apply Illinois law to the
undisputed facts of the case.”).
The specific language of the policy's notice provision does not
aid in the reasonableness analysis in this case because the
Indemnity Policies did not provide a specific time frame for
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providing notice. West American Ins. Co. v. Yorkville Nat. Bank,
238 Ill.2d at 186, 939 N.E.2d at 293.4
Sandstone's sophistication in commerce and insurance
matters and its awareness of an event that may trigger insurance
coverage tend slightly to show that the re-tender was reasonable
under the circumstances. Sandstone’s principle owner Bradshaw
was an experienced businessman and competent counsel
represented Sandstone, attorneys Edward W. Dwyer and Stephen R.
Kaufmann. Sandstone was well-aware of the contractual notice
requirement. Sandstone sent the Notices of Claim on August 6,
2010 to comply with this requirement. Sandstone knew the Notice
of Claim would trigger Indemnity’s duty to defend.
Sandstone also responded reasonably in light of Indemnity’s
August 31, 2010 Letter and 2010 Declaratory Action. Indemnity
asserted that it had no duty to cover losses from the Underlying
Action under the Pollution Exclusion in the Indemnity Policies.
The effect of pollution exclusion provisions in commercial general
liability policies on coverage of nuisance suits involving Hog
The specific language of the policy may rarely assist in determining whether a re-tender was
reasonable under the circumstances because the notice provisions of insurance policies do not
currently address re-tender.
4
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Facilities was unclear in 2010. Sandstone may have had a good
legal argument that Indemnity had a duty to defend, but the
outcome of the 2010 Declaratory Action was not certain. Sandstone
made a strategic decision to withdraw the tender to Indemnity to
avoid the cost of litigating the 2010 Declaratory Action.
Sandstone’s actions were reasonable in light of the uncertainty in
the law and Indemnity’s resistance to providing a defense.
The fourth factor, the insured's diligence in ascertaining
whether policy coverage is available, weighs in favor of finding that
Sandstone’s re-tender was reasonable under the circumstances.
The Hilltop View case changed the relevant circumstances. The
Hilltop View decision held that the pollution exclusion would not
exclude coverage for injuries from noxious or offensive odors from
Hog Facilities. The Hilltop View decision established that, contrary
to Indemnity’s stated position, coverage could be available under
the Indemnity Policies. Sandstone acted quickly on that changed
circumstance. Sandstone sent the December 10, 2013 Letter and
the December 17, 2013 Letter just a few weeks after the Hilltop
View decision. Sandstone’s prompt action also showed diligence
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and weighs in favor of finding the re-tender was reasonable under
the circumstances.
The fifth factor of prejudice to the insurer from the delay is not
significant in this case because the undisputed evidence fails to
show no material prejudice to Indemnity. Sandstone provided
prompt notice initially on August 6, 2010. Indemnity incorrectly
disputed its duty to defend Sandstone in the August 31, 2010
Letter and the 2010 Declaratory Action. Once the Hilltop View
Court clearly established that the Indemnity was wrong about the
applicability of the Pollution Exclusion to the Underlying Action,
Sandstone promptly re-tendered the defense. Indemnity had a duty
to defend Sandstone from receipt of the August 6, 2010 Notice. Any
prejudice or injury to Indemnity arose from its erroneous assertion
of the Pollution Exclusion, not from any dilatory actions by
Sandstone.
The Court also sees no material prejudice to Indemnity by the
re-tender on December 17, 2013. Delayed notices may prejudice an
insurer by denying the insurer the opportunity to investigate claims
and prepare defenses to limit losses. See Fairmont Park, Inc. v.
Travelers Indemnity Company, 982 F.Supp.2d 864, 870 (S.D. Ill.
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2013) (and cases cited therein); American Nat. Fire Ins. Co. v.
National Union Fire Ins. of Pittsburgh, PA, 343 Ill.App.3d 93, 105,
796 N.E.2d 1133, 1143 (Ill. App. 1st Dist. 2003). In this case,
Indemnity did not suffer any prejudice from losing a chance to
investigate or participate in the defense because Sandstone
prevailed at trial. Sandstone’s attorneys provided full and complete
defense to the Underlying Action. Indemnity could not have
obtained a better result even if it participated throughout the
litigation.5
Indemnity also suffered no prejudice being unable to control
the cost of Sandstone’s defense prior to the December 17, 2013 retender. Westfield and Star paid approximately $2,600,000.00 to
defend the Underlying Action. Westfield and Star have presented
evidence that the fees were reasonable. The fact that Westfield and
Star paid the fees supports the inference that the fees were
reasonable. See Cintas Corp. v. Perry 517 F.3d 459, 469 (7th Cir.
5 The Underlying Action remains on appeal, but Indemnity correctly points out that the appeal
only “creates a speculative and theoretical risk of reversal on appeal.” Indemnity Motion, at 23.
Such speculation is not sufficient to raise an issue of fact at summary judgment. See e.g.,
Springer v. Durflinger, 518 F.3d 479, 484 (7th Cir. 2008) (“[S]peculation many not be used to
manufacture a genuine issue of fact” at summary judgment.) (quoting Amadio v. Ford, Motor
Co., 238 F3d 919, 927 (7th Cir. 2001)).
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2008) (“[T]he best evidence of whether attorney’s fees are reasonable
is whether a party has paid them.”). In addition, the Neighbor
Plaintiffs asked for $7,500,000.00 at trial. Plaintiffs in a similar
case in Missouri secured a $12,000,000.00 verdict. Indemnity
presents no evidence disputing the reasonableness of the defense
costs. Given the risks involved and the evidence presented
regarding the fees, the approximately $2,600,000 in defense costs
was reasonable. See Medcom Holding Co. v. Baxter Travenol Labs.,
Inc., 200 F.3d 518, 521 (7th Cir. 1999) (District Courts should
undertake “an overview of MHC’s aggregate costs to ensure that
they were reasonable in relation to the stakes of the case.”).
Indemnity, therefore, would have paid a similar amount if it had
participated in the defense from the beginning.
Weighing all these factors in light of the undisputed facts, the
Court finds that Sandstone’s December 17, 2013 re-tender was
reasonable under the circumstances. In 2010, Indemnity
erroneously asserted both in the August 31, 2010 Letter and the
2010 Declaratory Action that the Pollution Exclusion in the
Indemnity Policies relieved it of any obligation to defend the
Underlying Action. Sandstone made a strategic decision to
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withdraw the tender to Indemnity of the defense of the Underlying
Action to avoid litigating the 2010 Declaratory Action. On
December 17, 2013, Sandstone promptly re-tendered the defense to
Indemnity after the Hilltop View decision clearly established that
the Pollution Exclusion did not relieve Indemnity of its obligation to
defend the Underlying Action. The three-year delay did not
prejudice Indemnity because Sandstone prevailed at trial and
because the defense costs Sandstone incurred were reasonable.
Indemnity would have incurred a similar amount to defend the
Underlying Action and Indemnity could not have secured a better
result than a defense verdict and no damages. The December 17,
2013 re-tender, therefore, was reasonable under the circumstances.
Indemnity must pay a pro rata share of the defense costs for
the Underlying Action under the Illinois doctrine of equitable
contribution. To establish a claim for equitable contribution
Westfield and Star must show (1) all facts necessary to show that
Sandstone is entitled to recover defense costs from Indemnity; (2)
the reasonableness of the amounts that Westfield and Star paid to
cover Sandstone’s defense costs; and (3) an identity between the
Westfield and Star policies and the Indemnity Policies as to parties
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and insurable interests and risks. See Schal Bovis, Inc. v. Casualty
Ins. Co., 315 Ill.App.3d 353, 362, 732 N.E.2d 1179, 1186 (Ill. App.
1st Dist. 2000); Acuity Ins. Co. v. 950 W. Huron Condo. Ass'n, 2019
IL App (1st) 180743, ¶ 47, 2019 WL 1416820 at *7 (Ill. App. 1st Dist.
2019).
All these elements have been established. Indemnity had a
duty to defend Sandstone in the Underlying Action, the fees and
costs incurred by Sandstone in its defense were reasonable, and all
the Insurance Companies all insured Sandstone for the same risks
of bodily harm and property damages from occurrences alleged in
the Underlying Action pursuant to substantially similar commercial
general liability coverage. Westfield and Star are entitled to recover
a pro rata share of the defense costs from Indemnity.
Westfield and Star argue that Indemnity is obligated to pay all
the defense costs for the Underlying Action because Indemnity
waived its right to assert any contract defense to its duty to defend.
Generally, an insurer that has notice of a claim or suit against an
insured has four options: (1) provide a defense; (2) provide a defense
under a reservation of rights; (3) file a declaratory judgment action
to ask the court to declare its obligations; or (4) do nothing and
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thereby refuse to defend. If the insurer elected the last option, then
it waived all policy defenses to coverage. See Title Industry
Assurance Co., R.R.G. V. First American Title Insurance Company,
853 F.3d 876, 883 (7th Cir. 2017). Westfield and Star argue that
Indemnity chose the fourth option for the 09-10 Indemnity Policies.
Westfield and Star note that the 2010 Action only alleged that
Indemnity issued the 08-09 Indemnity Policies but did not mention
the 09-10 Indemnity Policies in effect at the time. They argue that
Sandstone’s November 2, 2010 Letter only referenced the 08-09
Indemnity Policies, and so, only relieved Indemnity of the obligation
to defend under 08-09 Indemnity Policies and not the 09-10
Indemnity Policies. They argue that Indemnity waited over three
years, until April 22, 2014, to move to amend the 2014 Action to
bring a declaratory judgment action with respect to the 09-10
Indemnity Policies (as well as the 10-11 Indemnity Policy, the 11-12
Indemnity Policy, and the 12-13 Indemnity Policy). They argue that
this amendment came too late. They argue that Indemnity thereby
waived any contract defenses to its duty to defend Sandstone in the
Underlying Action, including its defense based on Sandstone’s
compliance with the notice provisions of the Indemnity Policies.
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The Court disagrees. Indemnity promptly notified Sandstone
in the August 31, 2010 Letter that it would provide a defense under
a reservation of rights and would file a declaratory judgment action.
Indemnity did not choose the fourth option of doing nothing.
Once Indemnity filed the 2010 Declaratory Action, Sandstone
exercised its right as an insured to choose which insurer would
defend it. True, Sandstone only referenced the 08-09 Policies in the
November 2, 2010 Letter, but Sandstone clearly stated in the
November 2, 2010 Letter that it elected not to have Indemnity
participate in its defense, “By this letter, Sandstone North, LLC;
Sandstone South, LLC; Brian Bradshaw; and Hollis Shafer
withdraw tender of their defense in the Underlying Case to IINA.”
Indemnity Motion, Exhibit L, November 2, 2010 Letter. Sandstone
told Indemnity not to provide a defense. Sandstone had the right to
make that choice as the insured. See Kajima, 879 N.E.2d at 30910. Indemnity could not attempt to defend Sandstone in the
Underlying Action. When Sandstone re-tendered the defense three
years later, Indemnity promptly filed the 2014 Declaratory Action.
When Sandstone sent the March 22, 2013 Letter tendering the
defense under all the Indemnity Policies, Indemnity promptly
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amended the 2014 Declaratory Action to include all the Indemnity
Policies. Indemnity did not waive its defenses. Westfield and Star’s
arguments to the contrary are not persuasive.
Westfield and Star also argue that the Cincinnati Companies
decision holds that a duty to defend arises on actual notice of a
claim not on tender of the defense. They argue that Indemnity’s
arguments about tender and re-tender do not matter because
Indemnity’s duty to defend was triggered by actual notice, not
tender. Westfield and Star again argue that Indemnity did nothing
with respect to the Indemnity Policies other than the 08-09
Indemnity Policies. Westfield and Star again argue that Indemnity
thereby waived its defense of failure to comply with the policy notice
provisions for the 09-10 Indemnity Policies and all subsequent
Indemnity Policies.
These arguments are unpersuasive. The Cincinnati
Companies decision holds that an insurer with notice of a claim
must defend unless the insured tells the insurer not to defend.
Cincinnati Companies, 701 N.E.2d at 505. Sandstone told
Indemnity not to defend in the November 2, 2010 Letter. After that
date, Indemnity had no obligation to defend. As explained above,
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Sandstone’s re-tender of the defense of the Underlying Action in the
December 17, 2013 Letter was reasonable under the circumstances.
Indemnity did not waive its defenses. Indemnity is obligated to pay
a pro rata share of the defense costs with Westfield and Star, but
Indemnity is not obligated to pay all of the defense costs.
Westfield and Star are also entitled to prejudgment interest
since the December 17, 2013 re-tender. Illinois authorizes
prejudgment interest at 5 percent per annum on any money due
pursuant to a written contract. 815 ILCS 205/2. Prejudgment
interest may be awarded under § 205/2 for sums due on insurance
policies, including fees. This Court has discretion to decide whether
to award prejudgment interest. Santa’s Best Craft, LLC v. St. Paul
Fire and Marine Ins. Co., 611 F.3d 339, 355 (7th Cir. 2010). Section
205/2 applies to actions by one insurer against another insurer for
reimbursement of defense costs owed under insurance policies.
Statewide Ins. Co. v. Houston General Ins. Co., 397 Ill.App.3d 410,
425, 920 N.E.2d 611, 623-24 (Ill App. 1st Dist. 2009). Prejudgment
interest will generally be awarded on sums due under a written
contract if the amount due is liquidated or easily ascertainable.
New Hampshire Ins. Co. v. Hanover Ins. Co., 296 Ill.App.3d 701,
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709, 696 N.E.2d 22, 28 (Ill. App. 1st Dist. 1998). In this case, the
sums are easily ascertainable from the submission by Westfield and
Star. Indemnity became obligated to pay its pro rata share of the
fees and expenses on December 17, 2013. The Court therefore will
allow prejudgment interest accruing from December 17, 2013 on all
fees and costs paid by Westfield and Star prior to that date, and
prejudgment interest accruing from the dates Westfield and Star
paid additional defense costs and fees thereafter.
The Court does not address whether Indemnity has a duty to
indemnify Sandstone for covered losses. The issue is not before the
Court at this time because Sandstone prevailed at trial in the
Underlying Action. The only matter now at issue is Indemnity’s
duty to defend.
CONCLUSION
THEREFORE, Westfield Insurance Company’s Motion for
Summary Judgment (Case No. 14-3040 d/e 100, Case No. 163298 d/e 90) and Star Insurance Company’s Motion for
Summary Judgment (Case No. 14-3040 d/e 104, Case No. 163298 d/e 94) are GRANTED in part; and Indemnity Insurance
Company of North America’s Motion for Summary Judgment
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(Case No. 14-3040 d/e 102, Case No. 16-3298 d/e 92) is
DENIED. The Court enters partial summary judgment in favor
of Westfield Insurance Company and Star Insurance Company
and against Indemnity Insurance Company of North America.
The Court declares that Indemnity Insurance Company of
North America is obligated to pay a pro rata share of the
defense cost of the Underlying Action with Westfield Insurance
Company and Star Insurance Company. The Court orders
Indemnity Insurance Company of North America to reimburse
Westfield Insurance Company and Star Insurance Company for
a pro rata share of the defense costs paid to date by Westfield
Insurance Company and Star Insurance Company, plus
prejudgment interest at the statutory rate of 5 percent
pursuant to 815 ILCS 205/2, as discussed above.
The Court directs the parties to meet, confer, and submit
to the Court by November 30, 2019, an agreed calculation of
the fees and costs paid by Westfield and Star to defend the
Underlying Action, the pro rata share owed by Indemnity to
Westfield and Star, and the appropriate amount of prejudgment
interest. If the parties cannot agree, each shall submit its
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calculation with supporting evidence by November 30, 2019.
The Court will then resolve any disputes in the calculations
and enter the final judgment.
Defendant/Counter-Plaintiff Star Insurance Company’s
original and corrected Motion to Strike Certain IINA Reply Brief
Arguments on Grounds of Improper Sandbagging or, in the
Alternative, for Leave to File a Sur-Reply to Those Arguments
(Case No. 14-3040 d/e 118, Case No. 16-3298 d/e 107 and 108)
are DENIED as moot.
ENTER:
October 25, 2019
s/ Sue E. Myerscough
UNITED STATES DISTRICT JUDGE
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