WE O'NEIL CONST. v. National Union Fire Ins.

Decision Date26 October 1989
Docket NumberNo. 89 C 909.,89 C 909.
Citation721 F. Supp. 984
PartiesW.E. O'NEIL CONSTRUCTION CO., Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Defendant.
CourtU.S. District Court — Northern District of Illinois

COPYRIGHT MATERIAL OMITTED

Ira Gould, Michael A. Reiter, David A. Balmuth, Holleb & Coff, Chicago, Ill., for plaintiff.

John F. Brennan, Mary F. Stafford, Clausen Miller Gorman Caffrey & Witous, James O. Nolan, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

ROVNER, District Judge.

I. INTRODUCTION

This is a dispute between W.E. O'Neil Construction Company ("O'Neil") and National Union Fire Insurance Company of Pittsburgh ("National Union") concerning the scope of coverage of an insurance policy issued by National Union to O'Neil. Jurisdiction is based on diversity of citizenship. Pending is National Union's motion to dismiss the complaint. For the reasons described below, the motion is denied.

II. FACTS

Because this is a motion to dismiss, the Court accepts as true the facts alleged in O'Neil's complaint. See Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

A. The Loss

On June 18, 1985, O'Neil entered into a construction contract with Underwood Towers Limited Partnership ("the Owner") to build a project consisting of two apartment towers, various townhomes, and a four-level concrete parking garage which was to be attached to the apartment towers. O'Neil contracted with several subcontractors to build the garage.

The garage was constructed between May 1986 and December 1986. At the end of 1986, the concrete floors and walls of the garage began to crack. Sometime prior to March 31, 1987, the garage began to be used for parking. At this time, however, the cracking worsened. The cracks increased in length and width, and water began to leak through the cracks. On March 24, 1987, the Owner requested that the cracks be grouted and caulked in order to stem the growth of the cracking. The grouting and caulking began before March 31 and continued thereafter. However, the cracking continued to worsen through mid-1987.

In the fall of 1987, the Owner and O'Neil each commissioned experts to determine the cause of the cracking. In the spring of 1988, both experts issued reports which concluded that the primary cause of the cracking was the improper placement by G & H Steel, one of O'Neil's subcontractors, of the steel mesh imbedded in the concrete levels. The purpose of that mesh was to help ensure the structural integrity of the garage and to protect the garage against the effects of weather. In the spring of 1988, the Owner made a claim against O'Neil, asserting that the garage was damaged by the cracking and was unusable above the first floor. The Owner claimed that O'Neil, among others, was liable to the Owner for its losses, which it estimated would exceed five million dollars. O'Neil denied any liability for the Owner's loss. On April 27, 1988, the Owner made its first written claim against O'Neil.

B. The Insurance Dispute

For the period from March 31, 1986 to March 31, 1987, O'Neil was insured under a comprehensive general liability insurance policy issued by National Union. The policy was a standard form policy, and it included as well a standard Broad Form Comprehensive General Liability Endorsement ("Broad Form Endorsement"), which removed certain exclusions and replaced them with less restrictive exclusions. The policy had a one million dollar limit of liability. O'Neil paid National Union a premium of $675,540 for the policy. Upon expiration of the policy on March 31, 1987, O'Neil became insured by Liberty Mutual Insurance Company ("Liberty Mutual"). The Liberty Mutual policy was similar to the National Union policy, and it contained an identical Broad Form Endorsement. The Liberty Mutual policy expired on March 31, 1988.

O'Neil gave National Union written notice of the Owner's claim against it on May 23, 1988. On July 1, 1988, O'Neil provided additional notice to National Union, tendered its defense of the Owner's claim to National Union, and demanded indemnification pursuant to the policy.

During the summer and fall of 1988, various meetings took place between O'Neil, subcontractors, the garage architect, the garage engineer, various insurance carriers and other parties to discuss the cracking of the garage and to attempt to settle the Owner's claim. Although National Union never responded in writing to O'Neil's tender of coverage, National Union participated in all of these meetings as O'Neil's insurer. At all but one of these meetings, National Union was represented by J. Donald Tierney. Tierney investigated the Owner's claim on behalf of National Union and was familiar with the facts of the loss and the contentions of the parties.

On several occasions, National Union acknowledged coverage under the policy. The only issue which National Union raised was whether the cracking occurred during the period covered by the National Union policy as opposed to the Liberty Mutual policy. National Union informed O'Neil that it would contribute to a settlement of the Owner's claim and consistently urged O'Neil to increase its settlement offers to the Owner.

In late November, 1988, with National Union's knowledge and approval, O'Neil agreed to settle the Owner's claim against O'Neil for 1.8 million dollars. Tierney, on behalf of National Union, told O'Neil that this was a good settlement and recommended that O'Neil settle the Owner's claim for this sum. In response to O'Neil's claim that G & H Steel was liable to indemnify O'Neil for losses arising out of the Owner's claim, G & H's Steel's insurer, Liberty Mutual, agreed to contribute $900,000 of the $1.8 million settlement on behalf of G & H Steel. Tierney urged O'Neil to accept this contribution. He also urged O'Neil not to demand additional money from Liberty Mutual to settle the Owner's claim, because he feared that Liberty Mutual would withdraw its $900,000 contribution on behalf of G & H Steel.

On December 2, 1988, O'Neil presented National Union with facts which demonstrated that excessive cracking had taken place before March 31, 1987, and was thus within the scope of the National Union policy. O'Neil requested that National Union pay the $900,000 settlement contribution on behalf of O'Neil. National Union refused to pay the $900,000 settlement contribution. For the first time, National Union claimed that the policy did not cover the claim regardless of when the cracking occurred. O'Neil then funded the $900,000 settlement contribution through its own money.

C. The Lawsuits

O'Neil filed this lawsuit against National Union in federal court on February 3, 1989. In Count I, O'Neil alleges that National Union's conduct constitutes a breach of the insurance contract. In Count II, O'Neil claims that National Union is liable in tort for bad faith denial of insurance coverage. In Count III, O'Neil alleges a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill.Rev.Stat. ch. 121½ ¶¶ 261 et seq. Approximately 39 minutes after this federal lawsuit was filed, National Union filed an action in state court for declaratory relief, raising the same factual and legal issues. Although it is not clear that National Union knew at that time that the federal lawsuit had been filed, it had been advised the previous month that O'Neil planned to file suit unless National Union agreed to pay the sum for which O'Neil contended it was liable.1

National Union argues that the federal case should be dismissed or stayed in light of the parallel state action. Alternatively, National Union contends that each of the three counts of the complaint fail to state a claim.

III. ABSTENTION

National Union contends that the case should be dismissed pursuant to § 2-619(a)(3) of the Illinois Code of Civil Procedure, Ill.Rev.Stat. ch. 110 § 2-619(a)(3), which provides for dismissal of an action in deference to a parallel action in another court. Alternatively, National Union contends that the case should be stayed pursuant to the federal common law abstention doctrine developed in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and subsequent cases.

A. Section 2-619

Section 2-619(a)(3) provides in part:

Defendant may, within the time for pleading, file a motion for dismissal of the action for other appropriate relief upon any of the following grounds:
. . . . .
that there is another action pending between the same parties for the same cause.

Before the Court reaches the issue of whether application of § 2-619(a)(3) would warrant dismissal under the facts of this case, the Court must determine whether § 2-619(a)(3) applies at all to a case pending in federal court.

In Seaboard Finance Co. v. Davis, 276 F.Supp. 507 (N.D.Ill.1967) (Will, J.), a plaintiff filed suit in federal court in Illinois only after previously commencing an action against the same defendants in California state court. The defendants moved to dismiss the Illinois federal case pursuant to § 48(1)(c) of the Illinois Civil Practice Act, the predecessor to § 2-619(a)(3). The court noted that there was no federal doctrine which would allow dismissal under those circumstances, and that although there was a federal doctrine of abatement, that doctrine applied only where the parallel actions were pending in different federal courts, rather than in a state and a federal court. In order to determine whether to apply the state rule, the court reviewed the case law concerning application of state law in federal courts sitting in diversity jurisdiction. After reviewing those cases, the court held that the Illinois statute should apply in federal court, and accordingly dismissed the case.

The decision in Seaboard has been followed in subsequent district court cases, although generally without substantial independent analysis. See, e.g., Byer Museum of Arts v. North...

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