Liberty Mut. Ins. Co. v. American Home Assur. Co.
| Decision Date | 22 December 2004 |
| Docket Number | No. 02 C 4314.,02 C 4314. |
| Parties | LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff, v. AMERICAN HOME ASSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Terry D. Weissman, Timothy P. Mahoney, Neal, Gerber & Eisenberg, LLP, Chicago, IL, Counsel for Plaintiff.
Matthew J. Fink, Richard H. Nicolaides, Jr., Bates & Carey LLP, Chicago, IL, Counsel for Defendant.
In a matter of first impression, this Court is tasked with determining whether Illinois law imposes a duty to settle upon one lower-tiered excess insurer to another higher-tiered excess insurer. In 2002, following a collision between a freight train and an automobile, a jury awarded three plaintiffs over $54 million against the Illinois Central Railroad Company ("Illinois Central") and Chicago, Central & Pacific Railroad Company ("Chicago Central"). Liberty Mutual Insurance Company ("Liberty Mutual") and American Home Assurance Company ("American Home") were both excess insurers to these railroads. After the verdict, the higher-tiered excess carrier, Liberty Mutual, sued the lower-tiered excess carrier, American Home, claiming that American Home breached its duty to Liberty Mutual to settle the case and should therefore pay all amounts that Liberty Mutual may be obligated to pay with regard to the verdict. This Court is now presented with cross-motions for summary judgment on the issues of duty, breach, and causation. The Court holds, as a matter of law, that American Home did not owe a duty to Liberty Mutual to settle the case. Therefore, this Court grants American Home's motion for summary judgment and denies Liberty Mutual's motion for summary judgment.
On January 9, 2001, a train operated by Chicago Central collided with a Ford Explorer at a grade crossing in Bloomington, Illinois. The Explorer was driven by Lilia Apulello, age 38. Lilia's parents, Fidel Velarde and Francisca Velarde, both age 72, were passengers. Illinois Central operated and controlled the railroad tracks where the accident occurred. J.S. 11. A newspaper account dated January 10, 2001, regarding the accident reported that the grade crossing accident occurred when safety gates failed to lower, and further reported that "a railroad spokesman said that the train was supposed to stop at the crossing because the rail line was aware that there were problems with the warning gates." J.S. 12. The newspaper account also reported that the impact of the collision tossed the vehicle 150 yards, and that the Velardes were in critical condition. The report also quoted a railroad spokesman as stating: "This is a problem we were aware of." Id.
All three crash victims survived. However, as a result of the accident, Lilia Apulello, Fidel Velarde, and Francisca Velarde all suffered severe brain injuries which resulted in cognitive and behavioral impairments, depression, and Post-Traumatic Stress Disorder. J.S. 14-16. On January 11, 2001, both the Velardes and Lilia Apulello filed separate lawsuits (the "Underlying Action") in the Circuit Court of Cook County against Illinois Central and Chicago Central for the injuries they sustained in the accident. The lawsuits were later consolidated for discovery and trial. Raphael Apulello, Lilia's husband, later joined as a plaintiff when he filed a claim for loss of consortium. J.S. 13. The trial was originally set for November 14, 2001 but was later moved to January 24, 2002.
Illinois Central and Chicago Central are both wholly-owned subsidiaries of the Canadian National Railway Company ("Canadian National"). J.S. 3. At the time of the accident, Canadian National had a multi-tiered risk management program in place. Canadian National's first layer of protection against claims was an uninsured $5 million (U.S.) self-insured retention ("SIR"). The second tier of coverage was a $20 million (Canadian)2 layer of insurance provided by American Home (the "American Home Policy"). The third tier was a $75 million (Canadian) layer of excess insurance provided by several insurance companies, including a policy by Liberty Mutual (the "Liberty Mutual Policy") for $37.5 million (Canadian). J.S. 4.
The American Home Policy is entitled "Claims Made Excess Liability Policy." Compl. Exh. B. The policy includes the following important clauses: Condition D of the American Home Policy provides as follows:
REPORTING OF CLAIMS
The Insured shall as soon as practicable give notice, in writing, to the entity designated in Item 4 [American Home] of the Declarations of any occurrence, claim, or suit which the Insured reasonably expects to deplete the Underlying Amount as stated in Endorsement No. 2 by more than 50%.
If the underwriters are not so notified, such as that the underwriters' position is prejudiced, then no coverage is provided by this Policy for such claim.
Reporting in accordance with this Condition is for information purposes only and does not modify the Insured's rights and duties as stipulated elsewhere in the policy.
Id. Condition E of the American Home Policy provides:
Underwriters shall not be called upon to assume charge of the settlement or defense of any claim made or suit brought or proceeding instituted against the Insured but the Underwriters shall have the right and shall be given the opportunity to associate with the Insured in the defense and control of any claim, suit, or proceeding relative to any Loss either hereunder or within the Underlying Amounts, in which event the Insured and Underwriters shall co-operate in all things in the defense of such claim, suit, or proceeding and the Insured shall make available to Underwriters such information and access to records as Underwriters may require.
Id. Condition H of the American Home Policy provides:
Liability under this Policy with respect to any Loss shall not attach unless and until the Underlying Amounts have been satisfied by actual payment of such Loss. The insured shall make a request to the entity designated in Item 4 of the Declarations [American Home] for indemnification in respect of any Loss for which Underwriters may be liable under this Policy within the twelve months after the Insured shall have paid an amount of the Ultimate Net Sum Payable in excess of the Underlying Amounts. Such amount shall be due and payable within thirty days after it is respectively claimed and proven in conformity with this Policy.
Liberty Mutual's policy with Canadian National is also entitled "Claims Made Excess Liability Policy." Compl. Exh. A. The Liberty Mutual Policy contains the following important provisions: Section II (Defense and Supplementary Payments) provides:
The Insurer will have the right but not the duty to participate in the investigation, settlement or defense of any claim or suit which relates to any claim that the Insurer believes may create liability on its part under the terms of this policy. The Insurer will have a duty to defend such claims or suits when the applicable limit of "underlying insurance" has been exhausted by payment of "loss".
Id. Section VI, Paragraph D, set out the conditions for notice:
The Named Insured must see to it that the Insurer:
1. is notified as soon as possible of any occurrence, claim or suit which may result in a "loss" covered under this policy;
2. receives notice of a claim or suit as soon as possible;
3. is assisted, at its request, to enforce any right against any person or organization which may be liable to an Insured because of injury or damage to which this insurance applies; and
4. receives the Insured's full cooperation in the investigation, settlement or defense of any claim or suit.
The Insured may not make any admission of liability or, except at its own cost, incur any expense or make any payment other than for first aid.
By January 11, 2001 (the day the suits were filed), Canadian National's claim agent had been to the scene of the accident and had conducted an investigation. J.S. 17. Canadian National's in-house counsel responded to the complaint and assumed the defense of Canadian National. Canadian National selected and retained the Chicago law firm of Connelly, Roberts & McGivney, L.L.C. to represent Canadian National's interests in the consolidated lawsuits. Canadian National and Michael Connelly ("Connelly") agreed as to what Connelly's firm's rates would be and Connelly reported directly to Canadian National. J.S. 18.
On January 11, 2001, Charles Webster ("Webster"), General Counsel for Canadian National, sent the underlying complaints to Eckart Russell ("Russell"),3 a Managing Director of Risk Management at Marsh Canada, Ltd. ("Marsh"), Canadian National's "broker of record" with a cover letter that stated: "Put the interested underwriters on notice." J.S. 19. The letter enclosed a copy of the complaint in the Underlying Action, a copy of a motion for a protective order, and the newspaper account of the accident. At the time of his letter, Webster knew that American Home was the carrier providing the first layer of insurance above Canadian National's $5 million but did not know the identities of the insurers above American Home's limits. Id.
On January 12, 2001, Marsh sent written notice to American Home on behalf of Canadian National and its two subsidiaries regarding the accident and the Underlying Action. Marsh also sent American Home a copy of the Velardes' Amended Complaint, the newspaper article regarding the accident, and a copy of Webster's letter requesting Marsh to notify "the interested underwriters." J.S. 23. American Home assigned the claims...
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