Insurer Denied Summary Judgment Due to Ambiguity Created by Conflict Between Binder and Renewal Certificate

A Northern District of Illinois bankruptcy court, applying Illinois law, denied an insurer’s motion for summary judgment which sought a determination that an insurance binder was terminated and superseded by the policy renewal certificate and does not provide a separate limit of liability independent from the policy.   Due to conflicting language, the court found that the insurance binder and renewal certificate were ambiguous and held that these were issues to be determined at trial.

Debtor Oakfabco, Inc. (“Oakfabco”), a manufacturing company that made boilers, filed for Chapter 11.  Oakfabco has been subject to numerous asbestos claims.  Oakfabco filed a motion for the court to approve a settlement agreement between itself and New England Reinsurance Company (“New England”) to settle Oakfabco’s claims against available insurance issued by New England.  Oakfabco was insured by New England under policy number 688013.  The policy’s declaration page identified the policy period as March 1, 1983 to March 1, 1984. New England paid $10 million in connection with the asbestos claims, which it contends exhausted the policy limits.  Nevertheless, New England agreed to pay Oakfabco an additional $3 million to fully resolve its coverage obligations.

The Asbestos Claimants’ Committee (“ACC”) appointed by the United States Trustee objected to the proposed settlement, arguing that New England had issued more than $10 million in limits.  Specifically, New England issued a renewal certificate which extended the policy period for an additional year, March 1, 1984 – March 1, 1985.  In addition, a general agent for New England issued an insurance binder which, in addition to identifying the policy period as March 1, 1984 – March 1, 1985 for policy number 688013, included a two-month “stub policy” from March 2, 1985 – May 1, 1985.  Consequently, ACC argued that New England may have issued up to $30 million in coverage.

New England moved for partial summary judgment seeking a determination that the insurance binder was terminated and superseded by the renewal certificate and that the insurance binder did not provide any separate limit of liability independent from the policy.  ACC argued that the binder created a two-month “stub policy” because the renewal certificate to the policy failed to state whether it terminated or superseded the binder and no other policy or certificate was delivered to impair the stub policy.  The bankruptcy court found that while the binder specified that it will be “terminated and superseded upon delivery of formal policy (ies)/certificate(s) issued to replace it,” the renewal certificated did not provide any language to establish it was issued to replace the insurance terms described in the binder.  The bankruptcy court was not persuaded by New England’s arguments that the binder was terminated and superseded when the renewal certificate was issued because those arguments ignored the inconsistencies between the two documents.   Thus, the bankruptcy court held: “And since the terms described in the Renewal Certificate differ from those set forth in the Binder, the availability of additional coverage by reference to the Binder cannot be refuted at this stage.”  Based on the ambiguities and the existence of competing reasonable interpretations, the bankruptcy court denied New England’s motion for summary judgment and held that issues pertaining to the interpretation and interplay between the insurance binder and renewal certificate must be decided by trial or settlement.  In Re Oakfabco, Inc., No. 15 B 27062 (Bankr. N.D. Ill. June 8, 2017).