IL App 1st / Asbestos

John Crane Cannot Prove Exhaustion With Flawed Expert Testimony

The Illinois First District Court of Appeals, in an opinion written by Justice Harris, affirmed several trial court rulings against John Crane, Inc. (“JCI”). JCI appealed various pre-trial judgements and orders of the Cook County Circuit Court.  (See previous Insurance Bytes).  On appeal, JCI argued: (1) the trial court erred in determining JCI’s umbrella policies had a $60M “per occurrence” limit instead of a $20M limit; (2) the trial court’s finding that JCI did not prove exhaustion was against the manifest weight of the evidence; and (3) the trial court erred in not granting JCI a new trial.

Before trial, JCI entered into a settlement agreement with its umbrella insurers in which JCI assumed their obligations under the umbrella policies. This put JCI in the unusual position of arguing for less coverage under the umbrella policies, so that they would be exhausted and JCI could then tap into its excess policies that were not subject to the settlement agreement.

The appellate court reviewed the interpretation of the per occurrence limits de novo. It analyzed three umbrella policies, each spanning three years.  The first, and arguably most significant concerned the first umbrella policy. That policy had an endorsement setting forth three consecutive periods relevant to the policy, the first being fourteen months and the subsequent two being twelve months each. The endorsement also stated that “The limits of the company’s liability shall apply separately to each such consecutive period.” The later three-year umbrella policies had no such language.

JCI argued that the endorsement in the first umbrella policy, applied only to the aggregate limits. This would mean that the per occurrence limit was $20 million for the full three-year period of the first umbrella policy, rather than the $60 million ($20 million for each of the three consecutive periods in the policy) that the trial court found. The appellate court rejected this argument, stating that the language in the endorsement was not limited to the aggregate limit specifically, and therefore applied to all limits. Notably, the opinion even referenced a dissenting opinion on this issue as evidence that reasonable minds could differ in the interpretation of the endorsement language. Thus, the court found that the per occurrence limits available for all of the umbrella policies was $100 million ($60 million for the first umbrella policy that included the endorsement and $20 million for each of the remaining two three-year umbrella policies).

At the exhaustion trial, JCI relied on a respected allocation expert who testified at what point JCI’s policies exhausted. The trial court held that JCI did not prove exhaustion because the expert’s “methodology and allocation [was] not credible and cannot be given weight.” Reviewing the trial court’s finding under the “manifest weight of the evidence” standard, the appellate court affirmed the ruling that the policyholder failed to prove exhaustion of the underlying coverage at issue.

In particular, the opinion relied on the expert’s alleged failure to follow his own established procedure in several claims, coupled with his own statement that, if even one claim were misallocated, he would need to re-do his entire allocation. The appellate court was also influenced by the expert’s failure to examine all of the documents related to the claims he allocated.

The final issue addressed by the appellate court was JCI’s request for a new trial. JCI argued that, because its allocation methodology was rejected by the court, it should be entitled to a new trial in order to complete its analysis of the claims that its expert had not analyzed. The appellate court, reviewing under an abuse of discretion standard, found that JCI had ample opportunity to present its case, in the form of two trials, and rejected JCI’s attempt to get “a third bite at the apple” because its expert had the opportunity to analyze all of the claims, but had opted not to do so. John Crane Inc. v. AIU Insurance Co., 2020 IL App (1st) 180223 (June 12, 2020).

Commentary:  This outcome raises the peculiar question of what John Crane’s next step is given that it is highly likely that it already has incurred additional asbestos defense and indemnity charges that indisputably exhaust the policies even under the allegedly “problematic methodology” used at trial.  Given that the appellate court opinion specifically denies Crane a “third bite at the apple,” it is unclear from the opinion how or when – or even if – it can return to the legal system in order to access its substantial remaining excess coverage.  To those of us simply reading the opinion, it can be interpreted to effectively declare a waiver or estoppel by barring Crane’s rights to return to court to access the excess coverage despite increased post-trial asbestos expenditures.  This seems harsh given the arguable benefit to the excess from the delay caused by the failure to prove exhaustion.  Overall, this appears to be a disproportionate result given that the alleged flaws in the methodology were minor relative to the total amounts needed to prove exhaustion at trial, especially given that the expert was and is otherwise well-respected in the area.