TKK United States, Inc. v. Safety Nat'l Cas. Corp.

• Decision Date: 21 August 2013
• Docket Number: Nos. 12–1988,12–2091.,s. 12–1988
• Citation: 727 F.3d 782
• Parties: TKK USA, INC., formerly known as The Thermos Company, Plaintiff–Appellee, Cross–Appellant, v. SAFETY NATIONAL CASUALTY CORP., Defendant–Appellant, Cross–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

727 F.3d 782

TKK USA, INC., formerly known as The Thermos Company, Plaintiff–Appellee, Cross–Appellant,

v.SAFETY NATIONAL CASUALTY CORP., Defendant–Appellant, Cross–Appellee.

Nos. 12–1988, 12–2091.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 13, 2013.

Decided Aug. 21, 2013.

Richard D. Milone, Jr. (submitted), Attorney, Kelley Drye & Warren LLP, Washington, DC, Stephen A. Wood, Attorney, Kelley Drye & Warren LLP, Chicago, IL, for Plaintiff–Appellee, Cross–Appellant.

Michael L. Resis (submitted), Attorney, SmithAmundsen, LLC, Chicago, IL, for Defendant–Appellant, Cross–Appellee.

Before BAUER, SYKES, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

Defendant-appellant Safety National Casualty Corporation (“Safety National”) sold an excess liability insurance coverage policy to plaintiff-appellee TKK USA, Inc., which was formerly known as The Thermos Company. The policy covered excess losses resulting from liability imposed on TKK “by the Workers' Compensation or Employers' Liability Laws” of Illinois. The central issue in these appeals is whether the policy covers TKK's costs to defend and settle a lawsuit brought under Illinois common law by the widow of a former TKK employee. The lawsuit alleged that TKK's negligence caused the employee to become ill with and eventually die from mesothelioma. The common law negligence claim was subject to a rock-solid affirmative defense. The Illinois Workers' Occupational Diseases Act bars common law claims by or on behalf of an employee against a covered employer “on account of damage, disability or death caused or contributed to by any disease contracted or sustained in the course of the employment.” 820 Ill. Comp. Stat. 310/11.

After Safety National denied TKK's claim for coverage of losses above the policy floor, TKK filed this suit. The district court granted summary judgment in favor of TKK for its costs in defending and settling the widow's suit. TKK USA Inc. v. Safety Nat'l Cas. Corp., No. 10 C 8146, 2011 WL 2600585 (N.D.Ill. June 29, 2011); TKK USA Inc. v. Safety Nat'l Cas. Corp., No. 10 C 8146, 2011 WL 7138875 (N.D.Ill. Dec. 2, 2011). The district court found that the policy's reference to “Employers' Liability Laws” included the widow's common law claim against the employer for negligence even if the claim ultimately could not prevail because of the statutory bar. The policy applies to claims under “Employers' Liability Laws” even if the claims are “wholly groundless, false, or fraudulent.” The district court denied, however, TKK's claim for attorney fees and costs in the coverage lawsuit itself, with the exception of a modest fee award for what the district court considered a vexatious motion to reconsider the merits of its decision. Both sides have appealed.

We affirm the district court's decisions in all respects. The key policy term—“Employers' Liability Laws”—is broad enough to include claims brought under the common law, even “groundless” claims for which the employer appears to have a solid affirmative defense. We also find no error in the district court's treatment of the fee claims.

I. Undisputed Facts and Procedural Background

The district court had jurisdiction under 28 U.S.C. § 1332(a) because the parties have different citizenship. We have jurisdiction under 28 U.S.C. § 1291. We apply Illinois substantive law, the law of the forum, since the parties do not dispute the choice of law. Santa's Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 345–46 (7th Cir.2010). We review de novo the district court's grant of summary judgment. There are no disputed issues of material fact, and the interpretation of an insurance policy is well-suited to resolution as a matter of law on summary judgment. Id.;Crum and Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 189 Ill.Dec. 756, 620 N.E.2d 1073,1077 (1993).

A. The Insurance Policy

TKK purchased from Safety National an excess liability insurance coverage policy for injury and illness claims by employees. The policy coverage “applies only to Loss sustained by the EMPLOYER because of liability imposed upon the EMPLOYER by the Workers' Compensation or Employers' Liability Laws” of Illinois, and Safety National “agrees to indemnify” TKK for “Loss.” App. 19. “Loss” is defined broadly and in pertinent part as follows:

“Loss”—shall mean actual payments legally made by the EMPLOYER to Employees and their dependents in satisfaction of: (a) statutory benefits, (b) settlements of suits and claims, and (c) awards and judgments. “Loss” shall also include Claim Expenses, paid by the EMPLOYER, as defined in Paragraph (2) of this section.”

Id. “Claim Expenses” are central to this case, and the policy defines the term in pertinent part as:

interest upon awards and judgments and the reasonable costs of investigation, adjustment, defense, and appeal ... of claims, suits or other proceedings brought against the EMPLOYER under the Workers' Compensation or Employers' Liability Laws [of Illinois] ... for bodily injury or occupational disease ... even though such claims, suits, proceedings or demands are wholly groundless, false, or fraudulent....

Id. The policy does not include a definition for the other term that is critical to this case: “Workers' Compensation or Employers' Liability Laws.”

The policy is an excess liability policy. TKK retained primary responsibility for defending, settling, or paying claims up to $275,000 per occurrence, at which point the excess coverage began. Safety National did not undertake any duty to defend TKK in any covered claims, though it had the right to intervene in the defense if it chose to do so to protect its interests. Instead, Safety National agreed to pay covered losses, including claim expenses and thus costs of defense, as they were incurred in excess of the $275,000 floor.

B. The Underlying Lawsuit

In August 2009, Juanita Perkins filed suit in Illinois state court on behalf of her late husband, Blannie Perkins, who died of mesothelioma. The complaint named several defendants, including TKK, and alleged in part that Mr. Perkins contracted mesothelioma as a result of workplace exposure to asbestos while employed by TKK. The complaint sought damages from TKK on several theories, including negligence.¹ As required by the policy, TKK gave Safety National timely notice of the lawsuit. Safety National told TKK that the policy did not cover the Perkins lawsuit. TKK defended the lawsuit on its own, ultimately incurring more than $400,000 in legal fees before it settled with Mrs. Perkins for $15,000.

C. Illinois Law on Occupational Diseases

Under Illinois law, employees who contract workplace diseases or suffer workplace injuries may recover damages from their employer exclusively via the Illinois Workers' Occupational Diseases Act (“ODA”), 820 Ill. Comp. Stat. 310/1 et seq., and the Illinois Workers' Compensation Act (“WCA”), 820 Ill. Comp. Stat. 305/1 et seq., respectively. The ODA provides that the “compensation herein provided for shall be the full, complete and only measure of the liability of the employer ... [and] this Act shall be exclusive and in place of any and all other civil liability whatsoever, at common law or otherwise....” 820 Ill. Comp. Stat. 310/11. The bar to common law claims does not apply if the disease was not caused accidentally, did not arise out of employment, was not incurred during the course of employment, or is not compensable under the ODA. Hartline v. Celotex Corp., 272 Ill.App.3d 952, 209 Ill.Dec. 404, 651 N.E.2d 582, 584 (1995). The ODA thus provides a complete defense for common law negligence claims by an employee or his surviving dependents against a covered employer based on a disease caused in the course of employment. The implication is as simple as it seems: the Perkins negligence claim was groundless. TKK had available a solid affirmative defense because the ODA barred the Perkins claim. That does not mean, however, that the defense did not have to be asserted.

II. Legal AnalysisA. The Scope of Policy Coverage and the Perkins Lawsuit

Safety National argues that because the ODA provides the only form of recovery for the claims in the Perkins lawsuit and the lawsuit did not request relief under the ODA, the costs of defending and settling the lawsuit do not qualify as, in the terms of the policy, a “Loss sustained by the EMPLOYER because of liability imposed upon the EMPLOYER by the Workers' Compensation or Employers' Liability Laws” of Illinois. TKK responds that the Perkins lawsuit was a claim made on behalf of an employee against his employer asserting liability and requesting damages for a disease contracted in the workplace, and that its defense and settlement costs therefore qualify as a “Loss sustained by the EMPLOYER because of liability imposed upon the EMPLOYER by the Workers' Compensation or Employers' Liability Laws.” The fact that TKK had available an affirmative defense under the ODA does not affect coverage, TKK argues, because the policy provides coverage for “claims, suits, proceedings or demands [that] are wholly groundless, false, or fraudulent.”

The pivotal question, then, is whether a common law claim for negligence falls within the meaning of “Employers' Liability Laws” even if the claim is subject to a solid defense under the ODA. The text of the policy shows that the answer does not depend on the ultimate merits of the claim. Coverage is available, after all, for claims that are “wholly groundless, false, or fraudulent.” The policy contains no definition of “Employers' Liability Laws,” and we know the policy language was intended to be flexible, applying in any state in the United States. We see nothing in the text of the policy providing that “Employers' Liability Laws” is limited to statutes, to the exclusion of the common law.

When interpreting an insurance contract under Illinois law, we give the terms their plain and ordinary meanings. Ace Am. Ins. Co. v. RC2 Corp., ...