Bethany Krajelis Jan. 15, 2015, 7:00am

The former insurers of a manufacturing company named in thousands of toxic tort lawsuits must provide a defense against the allegations even if they turn out to be false or groundless, an Illinois appeals panel held this week.

In a 17-page opinion filed Tuesday, the First District Appellate Court affirmed Cook County Circuit Judge Kathleen G. Kennedy’s ruling in favor of Illinois Tool Works Inc. and ITW Finishing LLC in a decade-old insurance dispute with Travelers Casualty and Surety Co., Century Indemnity Co., and Travelers Indemnity Co. of Connecticut.

“The duty to defend has been referred to as litigation insurance because it protects the insured from the expense of defending suits brought against it.” Justice John B. Simon wrote for the panel, referring to the plaintiffs collectively as Illinois Tool.

“From all indications, Illinois Tool should not be named as a defendant in the underlying cases. But it was insured against being wrongly sued. The Insurers here are responsible for defending Illinois Tool from the allegations against it, however groundless.”

The dispute stems from a slew of toxic tort lawsuits brought against Illinois Tool, a manufacturer and distributor of tools, equipment, finishing systems and consumables that expanded its product line to include welding products when it acquired Miller Electric in 1993.

The plaintiffs in the underlying cases allege injuries from exposure to asbestos, benzene, manganese and other allegedly harmful materials. These suits name dozens of defendants, including Illinois Tool, which is named individually, as a successor-in-interest to the welding companies it later acquired, or as both.

Simon, who was joined on the panel by Justices P. Scott Neville and Daniel J. Pierce, notes in the ruling that “Illinois Tool has been successful in getting the claims against it dismissed or obtaining summary judgment on the basis that it was not in the welding consumable business before 1993."

At the crux of the insurance dispute are 10 policies issued to Illinois Tool between 1971 and 1987, all of which the panel said have different language, provide coverage for claims resulting from bodily injury and include a provision requiring insurers to defend suits over bodily injury even if allegations are false or groundless.

While the insurers don’t dispute whether the injuries alleged in the underlying welding-related suits would be covered by their policies, they argued they couldn’t be held liable because the last policy issued to Illinois Tool expired in 1987, years before the company entered into the market of welding products.

Illinois Tool brought a complaint in 2004 in Cook County Circuit Court, seeking a declaration that its former insurers are responsible for defending it against the suits. The insurers filed counterclaims and both sought summary judgment on the duty to defend issue.

In a 41-page order handed down in 2013, Kennedy, the trial judge, determined the insurers had a duty to defend and should bear the entire cost.  She then entered an order, saying there was no reason to delay enforcement or appeal of her summary judgment order.

On appeal, the insurers argued they have no obligation to defend because the plaintiffs in the underlying suits do not claim Illinois Tool caused their injury during the time covered by their policies.

“That assertion is incorrect,” Simon wrote. “While it is clear from the record, and the parties do not dispute, that Illinois Tool is unlikely to actually be found liable in the underlying suits, that question is not before us."

"Our inquiry must focus on whether the facts pled by the underlying plaintiffs, if true, would potentially bring the claims within coverage. We must even consider false and groundless allegations."

When the justices analyzed the underlying suits that way, they said "it is clear that the Insurers have a duty to defend.”

Throughout the trial court proceedings, and to some extent in the appellate briefs, Simon said both parties relied on representative examples of the underlying suits instead of looking at the thousands of complaints that named Illinois Tool.

While the parties split up these suits based on the date of alleged exposure, the panel divided them into groups based on whether they included allegations of: 1) direct liability with exposure dates during the insurers’ policy periods; 2) direct liability without a stated exposure or injury date; 3) successor-in-interest liability claims; and 4) a combination of direct and successor-in-interest liability claims.

The panel determined the insurers have a duty to defend Illinois Tool against allegations that fall in three of the four groups it created, with the successor-in-interest liability claims being the only one they don't have a responsibility to cover.

In its analysis, the panel offered examples of the underlying toxic tort cases in each of the four groups it created.

For instance, when looking at the first group of suits alleging direct liability claims with exposure dates during a policy period, Simon points to a 2005 case brought in Madison County Circuit Court, Steinberg v. BP Amoco Chemical Co., No.05L857.

The plaintiff in that case claimed he was exposed to benzene from Illinois Tool products between 1963 and 1972, during which time he worked as a machinist and mechanical worker, and from 1973 to 2002, when he was a millwright and machinist. The rest of this suit lumps the defendants and claims together as a group before alleging his leukemia was caused by benzene exposure.

While the Madison County case and others cited in this category only represent a few of a much larger group, the panel explained that they allege the plaintiffs’ injuries were the direct result of exposure to Illinois Tool’s products during the policies’ periods, which means “the insurers clearly have a duty to defend" them.

“Irrespective of whether or not Illinois Tool will ultimately be found liable in these underlying cases, the Insurers agreed to bear the burden of defending against the putatively groundless allegations,” Simon wrote. “Only with knowledge of an extrinsic fact does it become apparent that, contrary to the express allegations in the underlying complaints, Illinois Tool was not in the business of manufacturing or distributing welding products before 1993.”

He added, “That extrinsic fact is akin to an ‘affirmative matter’ in Illinois practice, a dispositive fact that must be proved to obtain a finding of no liability.”

In its analysis of the second category of underlying suits, the justices cite two cases from Ohio that name Illinois Tool as a defendant and allege direct liability, but do not include an exposure or injury date.

“No Illinois cases directly address the question presented by this category of cases, but we are guided by a well-settled principle followed by Illinois courts: that vague, ambiguous allegations against an insured should be resolved in favor of finding a duty to defend,” Simon wrote for the panel, later noting that the lack of an injury or exposure date “does not foreclosure coverage.”

The third group of underlying suits the First District analyzed focused on allegations Illinois Tool is liable because it is responsible as a successor-in-interest for the companies it acquired.

As an example, the appeals panel points to a suit brought in Cook County, Stark v. Air Products & Chemicals, Inc., No. 03 L 15593, against Illinois Tool individually, along with several other defendants in a shotgun-type of pleading. The justices, however, note that the plaintiff in this case seeks to hold Illinois Tool liable as a successor-in-interest to a company it acquired in 1993.

Illinois Tool, however, “did not seek a defense for cases alleging solely successor liability" and because the plaintiffs in the underlying suits clearly direct their claims at predecessor companies, the panel said the insurers are not responsible for providing a defense against these types of allegations.

In the fourth category of underlying suits, the justices determined the insurers have a duty to defend Illinois Tool against suits that make allegations of both direct and successor-in-interest liability.

While they don’t have a duty to defend Illinois Tool from successor-in-interest liability claims, Simon wrote for the panel that “under Illinois law, 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.”

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