Westchester Fire Ins. Co. v. G. Heileman Brewing Co., Inc.

Decision Date30 March 2001
Docket NumberNo. 1-99-2566.,1-99-2566.
Citation747 N.E.2d 955,254 Ill.Dec. 543,321 Ill. App.3d 622
PartiesWESTCHESTER FIRE INSURANCE CO., Plaintiff-Appellant, v. G. HEILEMAN BREWING COMPANY, INC., Defendant-Appellee.
CourtUnited States Appellate Court of Illinois

Bollinger, Ruberry & Garvey, Jeffrey A. Goldwater, Matthew J. Fink, Daniel V. Marsalli, Chicago, for Appellant.

Bell, Jones, Quinlisk & Palmer, Dwight B. Palmer, Jr., Stanley C. Nardoni, Chicago, for Appellee.

MODIFIED OPINION UPON DENIAL OF REHEARING

Justice GREIMAN delivered the opinion of the court:

Westchester Fire Insurance Co. (Westchester) filed a declaratory judgment action against G. Heileman Brewing Co. (Heileman), seeking a finding that it had no duty to defend an action filed in California by a number of Heileman distributors. The trial court granted Heileman's motion for summary judgment. The court, applying California law, found that Westchester had breached its duty to defend; was obligated to indemnify Heileman for the judgment amount in the underlying action; and was liable for all costs and attorney fees incurred in defending that suit and this declaratory action. Westchester appeals, arguing that (1) Illinois law applies; (2) it had no duty to defend Heileman in the underlying action; (3) it did not breach its duty to defend; (4) it should not be estopped from denying coverage; (5) Heileman is not entitled to attorney fees and costs incurred prior to tendering the underlying action; (6) Westchester is entitled to a credit for sums recovered by Heileman from another insurer; and (7) Heileman is not entitled to attorney fees and costs incurred in defending this declaratory action.

FACTS

On February 26, 1993, Rausser Distributing Co. and other Heileman distributors filed suit against Heileman, Logret Import & Export Co. (Logret), and Dan McKinney Co. (McKinney) in the United States District Court for the Northern District of California. The complaint alleged that the plaintiffs entered into a contract with Heileman which granted them the exclusive right to distribute designated Heileman beer products in a defined geographic area. Count I alleged that defendants violated section 1 of the Sherman Act (15 U.S.C.A. § 1 (West 1992)) by conspiring as early as May 1992 to fix the wholesale price of Heileman beer products. Count II alleged that Heileman violated section 13(d) of the Robinson Patman Act (15 U.S.C.A. § 13(d) (West 1992)) by making "discriminatory payments" to Logret and McKinney for services and facilities they furnished in connection with the processing, handling, and sale of Heileman beer products. Count III alleged breach of contract; Count IV alleged that Heileman violated section 17043 of the California Unfair Practices Act (Cal. Bus. & Prof.Code § 17043 (West 1992)) by selling its beer products below cost to retail stores; Count V alleged intentional interference with the contract; Count VI alleged that Heileman violated section 17045 of the California Unfair Practices Act (Cal. Bus. & Prof.Code § 17045 (West 1992)) by making secret discriminatory payments to Logret and McKinney; and Count VII alleged that Heileman violated section 13(a) of the Robinson Patman Act (15 U.S.C.A. § 13(a) (West 1992)) by extending lower prices to Logret and McKinney than the prices extended to the plaintiffs. Plaintiffs alleged that the complained-of conduct was continuous and ongoing. Plaintiffs further alleged economic damages caused by the loss of retail store customers, profits associated with sales from those stores, and the diminished fair market value of their exclusive distribution rights.

Thereafter, on August 5, 1994, Westchester issued a Commercial Umbrella Policy CUA-100126-0 (initial policy) to Hicks, Muse, Tate & Furst, Inc., Heileman's parent company, for the period of April 1, 1994, to April 1, 1995. The policy named Heileman and over 50 other companies as insureds. The policy was issued in St. Louis, Missouri. Westchester's authorized representative was listed as The London Agency, Inc., of Atlanta, Georgia. On June 6, 1995, Westchester issued a second Commercial Umbrella Policy CUA-101635-0 (renewal policy) to Hicks, Muse for the period of April 1, 1995 to April 1, 1996. The policy named Heileman and over 100 other companies as insureds. The policy was issued in Dallas, Texas. Westchester's authorized representative was listed as Tri-City Brokerage of Illinois, Inc., of Chicago, Illinois. Some of the companies listed as insureds by the policies were Heileman subsidiaries. The policies provided that Westchester is licensed to do business in all states.

The policies provided:

"I. COVERAGE
We will pay on behalf of the `Insured' those sums in excess of the `Retained Limit' which the `Insured,' by reason of liability imposed by law, or assumed by the "Insured" under contract prior to the `Occurrence,' shall become legally obligated to pay as damages for * * * `Personal Injury' caused by an offense committed during the `Policy Period' * * *.
* * *
II. DEFENSE SETTLEMENT
(1) We shall have the right and duty to defend any `Claim' or `Suit' seeking damages covered under the terms and conditions of this policy when:
(b) Damages are sought for `Bodily Injury', `Property Damage', `Personal Injury', or "Advertising Injury" which are not covered by `Underlying Insurance' or other insurance."

The policies also contained the following definitions:

"G. `Occurrence' means:
(1) An accident, including continuous or repeated exposure to substantially the same general harmful conditions, that results in `Bodily Injury' or `Property Damage' that is not expected or not intended by the `Insured.'
All damages that arise from continuous or repeated exposure to substantially the same general conditions are considered to arise from one `Occurrence.'
(2) An offense that results in `Personal Injury.'
All damages that arise from exposure to the same act, publication or general conditions are considered to arise from one `Occurrence.'
* * *
H. `Personal injury' means injury, other than `Bodily Injury' and `Advertising Injury' arising out of * * * discrimination."

On February 5, 1996, Westchester filed a declaratory judgment action in the United States District Court for the Northern District of Illinois seeking a determination that it had no obligation to defend or indemnify Heileman in the Rausser action. On March 22, 1996, Westchester informed Heileman of the federal declaratory action in a letter concerning settlement in an unrelated matter known as the Calumet action. Attached to the letter was a copy of the federal complaint. On April 3, 1996, Heileman filed for Chapter 11 bankruptcy. On June 26, 1996, Heileman's bankruptcy plan was approved.

On November 15, 1996, Heileman settled the Rausser lawsuit for $2,568,162.75.

On April 25, 1997, Westchester voluntarily dismissed the federal suit. Westchester refiled this declaratory judgment action in the Circuit Court of Cook County on June 4, 1997. Westchester alleged that at the time the policies were entered into, Heileman either knew or should have known that there was a substantial probability that it would suffer or had already suffered a loss. Westchester also alleged that it did not receive notice of the Rausser action from Heileman until a letter dated August 16, 1995. Westchester further alleged that the complained-of conduct did not constitute an occurrence as defined in the policies and, in the alternative, that the occurrence did not occur during the policy periods.

On September 8, 1998, Westchester filed a motion for summary judgment. Westchester argued that under Illinois law, the claim asserted in the Rausser complaint was a "known loss" and therefore uninsurable. Westchester also argued that Heileman's delay in giving notice constituted a breach of the policies and defeated coverage for claims asserted in the Rausser action.

On September 11, 1998, Heileman filed a cross-motion for summary judgment. Heileman responded that under California law the known loss doctrine as formulated by Heileman was not applicable. Heileman further alleged that Westchester's late notice defense also failed under California law. Attached to the motion was the affidavit of Steve Carlson, a former Heileman employee. The affidavit stated that Heileman was a Delaware corporation with its home office in Wisconsin from August 1990 until Heileman went out of business in July 1996; that Heileman opened an executive office in Illinois in April 1992; that Heileman owned numerous subsidiaries, all of which were Delaware corporations with home offices in Wisconsin; that Heileman used a Missouri insurance broker to procure the policies; that Heileman paid its insurance premiums for the policies in Wisconsin; and that the policies were delivered to Heileman in Wisconsin.

In its response to Heileman's cross-motion, Westchester argued that even assuming that it had an obligation to indemnify Heileman for the Rausser settlement, it had no obligation to indemnify Heileman for damages incurred prior to August 5, 1994, or defense costs incurred prior to August 16, 1995.

On November 18, 1998, the trial court entered summary judgment in favor of Heileman and against Westchester. The trial court applied the choice of law test articulated in Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 166 Ill.2d 520, 211 Ill.Dec. 459, 655 N.E.2d 842 (1995), and found that it did not yield a "definite answer." Relying on Society of Mount Carmel v. National Ben Franklin Insurance Co. of Illinois, 268 Ill.App.3d 655, 205 Ill.Dec. 673, 643 N.E.2d 1280 (1994), the trial court gave the location of the insured risk special emphasis. The trial court concluded that the insured risk was located in California because the Rausser action was a California lawsuit brought by California residents alleging misconduct and injuries in California and because the Rausser cause of action arose out of...

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