Duty To Defend And Allocation

Illinois Appellate Court 1) Upholds Broad Duty To Defend When No Dates Of Exposure Alleged And “Group Pleading” Used, And 2) Applies “All Sums” Allocation To Defense Expenses.

An Illinois appellate court, applying Illinois law, upheld a trial court ruling that insurers had a duty to defend Illinois Tool Works Inc. and ITW Finishing LCC (collectively “Illinois Tool”) for thousands of toxic tort cases. The court refused to look to extrinsic evidence and found that there was a duty to defend even though Illinois Tool was unlikely to actually be found liable in the underlying suits because the complaints contained allegations that would potentially bring the claims within coverage. The court concluded by stating that Illinois Tool was “insured against being wrongly sued. The Insurers here are responsible for defending Illinois Tool from the allegations against it, however groundless.”

The underlying suits were brought by individuals who were allegedly injured by exposure to harmful materials while welding. Illinois Tool had been successful in getting claims against it dismissed or obtaining summary judgment on the basis that it was not in the welding business before 1993. The coverage dispute before the appellate court concerned 10 policies issued to Illinois Tool for certain periods between 1971 and 1987. Each policy covers Illinois Tool for claims resulting from bodily injury and contains a provision that requires the insurers to defend Illinois Tool. The parties did not dispute that the underlying welding cases would be the type covered by the policies.  However, the insurers argued that they were not liable for a defense because the last policy they issued expired in 1987 and Illinois Tool did not enter the welding product market until 1993.

The court applied well-settled Illinois law regarding the broad duty to defend. Under Illinois law, “[w]hen the underlying complaint alleges facts within or potentially within the policy’s coverage, the insurer’s duty to defend arises even if the allegations are groundless, false, or fraudulent.” The court found that its “inquiry must focus on whether the facts pled by the underlying plaintiffs, if true, would potentially bring the claims within coverage.”

The court held that the Insurers had a duty to defend in all cases where the bare underlying allegations, if proved, would make Illinois Tool individually liable. This included cases that did not provide dates of exposure, as well as cases which alleged both direct and successor liability, even though there was no duty to defend cases which alleged solely successor liability. The court stated that “when an insurer has a duty to defend against one claim in a suit, it has a duty to defend against all claims, even if some of the claims standing alone would be beyond the scope of the policy.” In making its determination, the court acknowledged the fact that the majority of the underlying complaints used group pleading to implicate Illinois Tool, and stated that “the insurer bears the burden of the underlying plaintiffs’ broad drafting.”

Additionally, the Insurers argued for a pro-rata allocation of the duty to defend. The appellate court disagreed with such allocation and concluded that under Illinois law, “when the policies are ‘all sums’ policies as they are here, any insurer that has a duty to defend is jointly and severally liable for the defense costs.” Illinois Tool Works Inc. v. Travelers Cas. and Sur. Co., No. 04CH21325 (Ill. App. Ct. Jan. 13, 2015).

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