Cincinnati Ins. Co. v. Ahma

• Decision Date: 12 November 2008
• Docket Number: No. 1-08-0995.,No. 1-08-0085.,1-08-0085.,1-08-0995.
• Citation: Cincinnati Ins. Co. v. Ahma, 898 N.E.2d 216, 387 Ill.App.3d 85 (Ill. App. 2008)
• Parties: CINCINNATI INSURANCE COMPANY, Plaintiff-Appellant, v. AMERICAN HARDWARE MANUFACTURERS ASSOCIATION, Timothy Farrell, William Farrell, Reed Elsevier, Inc., Freeman Decorating Company, and Freeman Decorating Services, Inc., Defendants (Federal Insurance Company, Defendant-Counterclaimant and Third-Party Plaintiff-Appellee).
• Court: Appellate Court of Illinois

898 N.E.2d 216

CINCINNATI INSURANCE COMPANY, Plaintiff-Appellant, v. AMERICAN HARDWARE MANUFACTURERS ASSOCIATION, Timothy Farrell, William Farrell, Reed Elsevier, Inc., Freeman Decorating Company, and Freeman Decorating Services, Inc., Defendants (Federal Insurance Company, Defendant-Counterclaimant and Third-Party Plaintiff-Appellee).

No. 1-08-0085.

No. 1-08-0995.

Appellate Court of Illinois, First District, Third Division.

November 12, 2008.

Litchfield Cavo, LLP, Chicago, IL (Daniel G. Litchfield, Patrick J. Sullivan, Daniel P. Johnston, of counsel), for Appellant.

Wiley Rein, LLP, Washington, DC (Dale E. Hausman, Gary P. Seligman, of counsel), Meckler Bulger & Tilson, LLP, Chicago, IL (Janet R. Davis, Gary L. Gassman, of counsel), for Appellee.

Justice QUINN delivered the opinion of the court:

Plaintiff, Cincinnati Insurance Company (Cincinnati), sought an order from the circuit court of Cook County declaring that it was not obligated to defend its insureds, American Hardware Manufacturers Association (AHMA) and its executive officers, Timothy Farrell and William P. Farrell (collectively, the executives), in an underlying litigation involving competing national hardware trade shows (the underlying action). By agreement, AHMA and the executives assigned their rights under the Cincinnati policies to defendant-counterclaimant, Federal Insurance Company (Federal). The circuit court denied Cincinnati's motion for summary judgment and granted summary judgment in favor of Federal, from which decision Cincinnati appeals.

On appeal, Cincinnati argues that the circuit court erred by: (1) finding that Federal has standing to pursue Cincinnati for defense fees based on the assignment agreement; and (2) granting Federal's summary judgment motion and denying Cincinnati's motion for summary judgment.

I. BACKGROUND

This action arises from an insurance coverage dispute between Cincinnati and Federal regarding the allocation of the duty to defend and the sharing of costs associated with the defense of counterclaims from the underlying action. Cincinnati is an Illinois corporation with its principal place of business in Ohio. Federal is organized and exists pursuant to the laws of the state of Indiana with its principal place of business in the state of New Jersey. AHMA is a trade association serving the hardware, home improvement, lawn and garden, paint and decorating, and related industries. AHMA is a Delaware not-for-profit corporation with its principal place of business in Illinois.

Cincinnati issued two primary, "occurrence"-based insurance policies to AHMA, which provided coverage to AHMA and the executives for personal and advertising injury liability. Federal issued a "claims made," not-for-profit organization liability insurance policy affording coverage to AHMA and the executives.

In the underlying action in the United States District Court for the Northern District of Illinois, AHMA sought damages and other relief against Reed Elsevier, Inc. (Reed), Freeman Decorating Company and Freeman Decorating Services, Inc. (collectively, Freeman), stemming from a dispute involving competing national hardware trade shows. Reed and Freeman asserted counterclaims against AHMA and the executives asserting, inter alia, defamation per se, libel per se, breach of contract, and statutory violations of the Uniform Deceptive Trade Practices Act (815 510/1 et seq. (West 2006)), the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act)(815 505/1 et seq., (West 2006)) and the Lanham Act 15 U.S.C. § 1051 et seq. (2006) (the counterclaims). Essentially, the counterclaims allege misconduct by AHMA and the executives for publishing and advertising material created by the AHMA in connection with its planned 2004 national hardware exhibition.

Cincinnati sought an order from the circuit court declaring it has no obligation to defend or indemnify AHMA and the executives for the counterclaims. Federal entered into an assignment agreement with AHMA and the executives to transfer to Federal all of their rights under the Cincinnati polices and claims against Cincinnati relating to payment or reimbursement of defense expenses incurred in defense of the counterclaims. The circuit court granted Federal's motion to add Federal as a party to Cincinnati's declaratory judgment action and substitute it for AHMA and the executives to the extent of the interests in the Cincinnati polices assigned to Federal. Federal and Cincinnati filed cross-motions for summary judgment to establish whether Cincinnati had a duty to defend AHMA and the executives on an equal basis with Federal with respect to the counterclaims. The circuit court granted summary judgment in favor of Federal and denied Cincinnati's summary judgment motion.

A. The Insurance Policies

Cincinnati and Federal each issued separate types of insurance policies with differing policy periods, which pertinent provisions provide as follows.

1. The Cincinnati Insurance Policies Issued to AHMA

Cincinnati issued to AHMA policy number CPP 068 29 84 for the effective dates of September 30, 2000 to September 30, 2003. The portion of the policy pertaining to personal and advertising injury liability states:

"1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of `personal injury' or `advertising injury' to which this insurance applies. We will have the right and duty to defend any `suit' seeking those damages. We may at our discretion investigate any `occurrence' or offense and settle any claim or `suit' that may result.

* * *

b. This insurance applies to:

(1) `Personal injury' caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you;

(2) `Advertising injury' caused by an offense committed in the course of advertising your goods, products or services * * *."

The 2000 to 2003 Cincinnati policy also included the following exclusions:

"2. Exclusions

This insurance does not apply to:

a. `Personal injury' or `advertising injury':

(1) Arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity;

(2) Arising out of oral or written publication of material whose first publication took place before the beginning of the policy period;

(3) Arising out of the willful violation of a penal statute or ordinance committed by or with the consent of the insured; or

(4) For which the insured has assumed liability in a contract or agreement. This exclusion does not apply to liability for damages that the insured would have in the absence of a contract or agreement."

The 2000 to 2003 Cincinnati policy also includes a provision entitled, "Other Insurance," which provides as follows:

"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 b. below [triggered coverage of excess insurance] 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.

* * *

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."

The pertinent definitions contained within the 2000 to 2003 Cincinnati policy provide:

"1. `Advertising injury' means injury arising out of one or more of the following offenses:

a. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

* * *

c. Misappropriation of advertising ideas or style of doing business; or

d. Infringement of copyright, title or slogan.

Advertising means an advertisement, publicity article, broadcast or telecast.

* * *

12. `Occurrence' means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

13. `Personal injury' means injury, other than `bodily injury,' arising out of one or more of the following offenses * * *

d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services * * *."

Cincinnati issued a renewal policy to AHMA under policy number CPP 068 29 84/CPA 068 29 84, for the effective dates of September 30, 2003, to September 30, 2006. Coverage for personal and advertising liability provides:

"1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of `personal and advertising injury' to which this insurance applies. We will have the right and the duty to defend the insured against any `suit' seeking those damages. However, we will have no duty to defend the insured against any `suit' seeking damages for `personal and advertising injury' to which this insurance does not apply. We may, at our discretion, investigate any offense and settle any claim or `suit' that may result.

b. This insurance applies to `personal and advertising injury' only if:

(1) The `personal and advertising injury' is caused by an offense arising out of your business; and

(2) The `personal and advertising injury' offense was committed in the `coverage territory' during the policy period * * *."

The 2003 to 2006 Cincinnati policy's exclusions for personal and advertising injury are as follows:

"2. Exclusions

This insurance does not apply to:

a. Knowing Violation of Rights of Another `Personal and advertising injury' caused by or at the direction of the...