Comm'l Underwriters Insurance v. Aires Environment Services

• Decision Date: 30 July 2001
• Docket Number: No. 00-3031,00-3031
• Citation: 259 F.3d 792
• Parties: (7th Cir. 2001) Commercial Underwriters Insurance Company, Plaintiff-Appellant, v. Aires Environmental Services, Ltd., n/k/a Aires Consulting Group, Inc., Defendant-Appellee
• Court: U.S. Court of Appeals — Seventh Circuit

Page 792

259 F.3d 792 (7th Cir. 2001)

Commercial Underwriters Insurance Company, Plaintiff-Appellant, v. Aires Environmental Services, Ltd., n/k/a Aires Consulting Group, Inc., Defendant-Appellee.

No. 00-3031

In the United States Court of Appeals For the Seventh Circuit

Argued January 22, 2001

Decided July 30, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 2129--Ronald A. Guzman, Judge.

Before Bauer, Kanne, and Evans, Circuit Judges.

Kanne, Circuit Judge.

Defendant- appellee, Aires Environmental Services, Ltd., provides environmental, health, and safety consulting services to companies in the manufacturing industry. On November 17, 1997, Aires notified its general liability carrier, plaintiff- appellant Commercial Underwriters Insurance Company (CUIC), that it had been named as a defendant in a lawsuit involving an industrial accident. After investigating the claim, CUIC denied coverage, alleging that Aires had breached the insurance contract by failing to give CUIC timely notice of the occurrence that gave rise to the claim. CUIC filed a diversity suit in federal district court seeking a declaratory judgment that it had neither a duty to defend nor a duty to indemnify Aires in the underlying lawsuit. On cross-motions for summary judgment, the district court found that Aires' delay in notifying CUIC of the occurrence was reasonable and granted Aires' motion for summary judgment on the issue of CUIC's duty to defend. Because we agree with the district court that Aires' notice to CUIC was timely under the circumstances, we affirm the judgment of the district court.

I. History

On November 9, 1995, a serious accident at Reynolds Metals Company in McCook, Illinois claimed the lives of three workers and resulted in three other workers being seriously injured. The accident occurred when, in the course of excavating a pit in the area of the Reynolds facility known as cast house station number three, a compressed air pump line was mistakenly connected to an unlabeled source of compressed argon rather than a source of atmospheric air. Because argon is heavier than oxygen, the introduction of argon into the excavation pit displaced the breathable oxygen such that the workers in and near the pit began to suffocate and collapse.

One of the people called on to assist in the rescue attempt at cast house station number three was Aires employee Joseph DeLucia. Approximately one year before the accident, Aires entered into an agreement to provide environmental and safety consulting services to Reynolds. Aires agreed to assign DeLucia, an industrial hygienist, to work regularly at Reynolds' McCook plant under the direction and supervision of Reynolds safety director, J.B. Haney. Under the terms of the agreement, DeLucia's schedule, as well as his assignments, were controlled solely by Reynolds; Aires did not provide any supervision or direction to DeLucia while he was assigned to Reynolds' plant. DeLucia provided weekly reports of his activities and findings to Haney and forwarded them to Aires for billing purposes. His duties at Reynolds included safety inspections, safety training, air testing, and pipe labeling. Although DeLucia had conducted asbestos and air testing in the cast house prior to the accident, neither he nor any Aires employee had performed any other work at cast house station number three prior to the accident.

Several hours after he was called upon to help rescue workers, DeLucia informed Aires management of the accident at Reynolds. Initially, Reynolds asked Aires' senior industrial hygienist, Dennis Cesarotti, to come to the plant to help investigate the accident, but Reynolds later decided that it would conduct the investigation internally. The Occupational Safety and Health Agency (OSHA) also conducted an investigation of the accident and issued several citations to Reynolds for failing to properly label compressed gas lines. Although Aires was not allowed to participate directly in the accident investigation, Aires was privy to the investigation results because Reynolds enlisted Cesarotti's help in developing confined space training and safety programs aimed at preventing similar accidents.

On December 8, 1995, the first of several accident-related lawsuits was filed against Reynolds. Because DeLucia was to be deposed in this litigation, Aires contacted its attorney to inquire whether DeLucia needed representation at his deposition. Aires' attorney advised that DeLucia did not need representation because Aires was not a party to the lawsuit. Nearly two years later, in November 1997, however, Aires became a party to several lawsuits when the underlying plaintiffs amended their complaints to add Aires as a defendant. The suits alleged that Aires was liable for the accident injuries because it failed to fulfill its obligation to ensure proper labeling of gas lines.

On November 17, 1997, Aires notified its professional liability carrier, Steadfast Insurance Company, as well as its general liability carrier, CUIC, of the pending lawsuit. Steadfast agreed to defend Aires under a reservation of rights and retained a law firm to defend Aires. CUIC, on the other hand, did not respond to the notification until April 17, 1998, at which point it requested more information about the claim and indicated that it was reserving its rights. On June 5, 1998, CUIC tentatively agreed to split defense costs with Steadfast pending investigation of the claim. After conducting the investigation, however, CUIC determined that the two-year delay between the accident and Aires' notification constituted a breach of a provision of the insurance policy that required Aires to give notice "as soon as practicable" of any occurrence that might give rise to a claim. Consequently, CUIC advised Aires that it was denying the claim, withdrawing from its interim participation in the defense, and filing for a declaratory judgment against Aires.

On March 31, 1999, CUIC filed a complaint in district court seeking a declaratory judgment that it had neither a duty to defend nor a duty to indemnify Aires in any action arising out of the accident at Reynolds. CUIC and Aires filed cross-motions for summary judgment. The district court found that Aires' delay in notifying CUIC of the occurrence was reasonable in light of the surrounding facts and circumstances and denied CUIC's motion for summary judgment. The district court granted Aires' cross-motion for summary judgment on the issue of CUIC's duty to defend, but, because the underlying lawsuits were still pending at that time, the district court did not reach the issue of CUIC's duty to indemnify Aires. The court found that the indemnification issue was not ripe for review and that a determination of CUIC's duties in that regard could potentially prejudice the parties in the underlying action.

On appeal, CUIC argues that Aires should have and did anticipate that it would be sued in connection with the Reynolds accident as soon as December 1995, and therefore it was error for the district court to find that Aires had not breached its duty to provide notice of potential claims "as soon as practicable." Thus, CUIC asks that we reverse the district court's grant of summary judgment to Aires and enter summary judgment in favor of CUIC.

II. Analysis

A. Standard of Review

We review the district court's grant of summary judgment de novo, construing all facts in favor of the non-moving party. See Wolf v. N.W. Ind. Symphony Soc., 250 F.3d 1136, 1141 (7th Cir. 2001). Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Summary judgment is appropriate if, on the record as a whole, a rational trier of fact could not find for the non-moving party. See Wolf, 250 F.3d at 1141.

B. Timeliness of Notice

Aires had a contractual duty to give notice to CUIC "as soon as practicable of any occurrence or an offense that may result in a claim." Notice provisions such as the one at issue in this case are intended to ensure that the insurer will not be prejudiced in its ability to investigate and defend claims against its insureds. See Amer. Country Ins. v. Efficient Constr. Corp., 587 N.E.2d 1073, 1075 (Ill. App. Ct. 1992). Therefore, Illinois law provides that the failure to fulfill a condition precedent that requires timely notice of potential claims relieves the insurer of any duty to defend or indemnify the insured. See Indus. Coatings Group, Inc. v. Amer. Motorists Ins. Co., 658 N.E.2d 1338, 1343 (Ill. App. Ct. 1995).

In general, the duty to notify the insurer of an occurrence arises at the point in time that it would appear "to a reasonably prudent person that a claim potentially covered by the policy may be brought against the insured." Id. (inter nal quotation omitted). Although we may consider lack of prejudice to the insurer as one factor in determining whether notice was timely, an insurer need not prove that it was prejudiced in order to deny coverage. See Twin City Fire Ins. Co. v. Old World Trading Co., 639 N.E.2d 584, 589 (Ill. App. Ct. 1993); Sisters of Divine Providence v. Interstate Fire & Cas. Co., 453 N.E.2d 36, 38-39 (Ill. App. Ct. 1983). Conversely, "[a] lengthy passage of time is not an absolute bar to coverage provided that the insured has a justifiable excuse for the delay." Sonoco Bldgs., Inc. v. Am. Home Assurance Co., 877 F.2d 1350, 1356 (7th Cir. 1989) (internal quotation omitted); see, e.g., Atlanta Int'l Ins. Co. v. Checker Taxi Co., 574 N.E.2d 22, 26 (Ill. App. Ct. 1991) (holding that a two-year delay between the accident and notice to the excess insurance...