Time of “Occurrence” Inferred from Complaint   

The Illinois Appellate Court’s First District, in an opinion written by Justice Cobbs with Justices McBride and Howse concurring, upheld a lower court judgement on the pleadings in a declaratory judgement action filed by Liberty Mutual Fire Insurance Company and Liberty Insurance Corporation (“Liberty”) against its insured, Ferrara Candy Co. The Appellate Court held that Liberty had no duty to defend Ferrara Candy, and that Ferrara Candy must repay costs incurred while Liberty defended an underlying suit under a reservation of rights. The Appellate Court found that even if the time of occurrence is not specified in a complaint, a presumption in favor of duty to defend may be rebutted.

The underlying action against Ferrara Candy arose from a dispute with a rival candy company, Promotions in Motion Inc. (“PIM”). Ferrara Candy was formed as the result of a merger between Ferrara Pan and Farley’s & Sather Candy Company, which was publicly announced in June 2012 and effective on January 1, 2013. Prior to the merger, Ferrara Pan had provided contract manufacturing services to PIM. Ferrara Candy continued to provide these services after the merger. PIM later sued Ferrara Candy for misappropriation of trade secrets, trade dress infringement, and unfair competition.

Liberty insured Ferrara Pan under two successive primary commercial general liability policies, one for the policy term of April 3, 2011 to May 10, 2012 and one for the policy term of May 10, 2012 to May 10, 2013.  Liberty also insured Ferrara Pan under two successive umbrella liability policies for the same terms. Concurrent with the announcement of the merger in June 2012, Ferrara Pan cancelled its insurance policies with Liberty, effective June 18, 2012. When PIM filed suit in 2015, Ferrara Candy, as a successor in interest to the Ferrara Pan policies, notified Liberty and Liberty defended under a reservation of rights. However, after discovery closed and after PIM filed a second amended complaint, Liberty withdrew defense and sued Ferrara Candy seeking a declaratory judgement that it had no duty to defend or indemnify and seeking repayment of all defense costs in the underlying suit.

Liberty argued that the alleged actions in the underlying suit occurred after Ferrara Pan had cancelled the policy in June 2012, and therefore, there was no possibility of coverage. Ferrara in turn argued that the PIM complaint did not specify a time at which the alleged infringement occurred and based on the ruling in Illinois Tool Works Inc. v. Travelers Casualty & Surety Co., 2015 IL App (1st) 132350, “ambiguous or unstated time period must be resolved in favor of a duty to defend.”

However, the Appellate Court found Illinois Tool Works to be distinguishable.  In the case at hand, while the time of the underlying occurrences was not specified, the rest of the complaint made it clear that PIM was raising allegations against Ferrara Candy, not Ferrara Pan. Reading the complaint in its entirety, the Appellate Court found that it “does not leave open the possibility that the claimed violations or injuries stemmed from the conduct of Ferrara Pan, the entity that existed during the time the policies were in effect.”

The Appellate Court also agreed with Liberty that it could recoup defense costs in the underlying action because the policies contained a Defense Cost endorsement, which provided the right to reimbursement for defense cost, and because Liberty had conducted its entire defense under a reservation of rights.  Liberty Mutual Fire Ins. Co. v. Ferrara Candy Co., 2019 IL App. (1st) 181385-U (Dec. 11, 2019).