Why it matters
The Illinois Appellate Court recently held that an insurer had a duty to defend its insured against numerous vaguely pleaded toxic tort complaints. The central issue was whether facts extrinsic to the underlying complaint, known to both the insurer and insured – that the insured did not even manufacture the products at issue – can abrogate the duty to defend. The court held that undisputed extrinsic facts not pled in the underlying complaint do not relieve an insurer of its duty to defend unless and until proven in the underlying action. The court reasoned that “from all indications, the insured should not have been named as a defendant in the underlying cases. But it was insured against being wrongly sued. Therefore, the insurers are responsible for defending the insured from the allegations against it, however groundless.”
Illinois Tool Works manufactures and distributes tools, equipment, finishing systems, and consumables. Illinois Tool entered the distribution of welding products through a series of company acquisitions beginning in 1993.
Thousands of toxic tort lawsuits named Illinois Tool as a defendant (among dozens of others), alleging injury as a result of exposure to asbestos, benzene, manganese, and other harmful materials. Illinois Tool was named in different capacities in the lawsuits, ranging from a successor-in-interest to the welding companies it later acquired to individual liability or both.
To defend against the lawsuits, Illinois Tool turned to various insurers that provided coverage between 1971 and 1987, including Travelers Casualty & Surety Company. The insurers refused to defend the lawsuits because the last policy they issued expired in 1987 and Illinois Tool did not enter the welding product market until 1993, and there were no allegations made that the insured caused injuries during the periods covered by their policies.
Dismissing this argument, the court emphasized that the validity of the underlying claims was not an issue. “Our inquiry must focus on whether the facts pled by the underlying plaintiffs, if true, would potentially bring the claims within coverage,” the court explained. “When we analyze the underlying complaints under that standard, it is clear that the insurers have a duty to defend.”
Based on their allegations, the court divided the underlying complaints into four categories: direct liability with exposure dates during a policy period; direct liability with unstated injury or exposure dates; pure successor-in-interest liability claims; and a combination of direct liability and successor-in-interest claims.
In the first category, direct liability with exposure dates during a policy period, “the insurers clearly have a duty to defend . . . even if the allegations are, in fact, groundless,” the court wrote. “The unequivocal claim made in these complaints is that Illinois Tool, itself, made or distributed harmful materials during the policy periods that caused the underlying plaintiffs’ injuries.”
To accept the insurers’ position would equate the duty to defend with the duty to indemnify, the court held. While the court acknowledged that in “the majority of the underlying complaints in this category the plaintiffs use ‘group pleading’ or ‘shotgun pleading’ to implicate Illinois Tool . . . the insurer bears the burden of the underlying plaintiffs’ broad drafting.”
“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 putative groundless allegations,” the court stated. “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.”
Similar reasoning applied to the second category of complaints, direct liability claims with an unstated exposure or injury date. Despite the uncertainty in the time frame, “vague, ambiguous allegations against an insured should be resolved in favor of finding a duty to defend,” the court ruled. “The bare allegations of the underlying complaints leave open the possibility that the plaintiffs’ exposure or injury occurred during the policy periods. Accordingly, the underlying allegations do not foreclose coverage.”
The third category of claims, pure successor-in-interest claims, presented a different situation. In these cases, the underlying plaintiffs pled the insurers out of any duty to defend by making clear that their claims were only directed at predecessor companies or activities beginning in 1993, the court ruled. “Illinois Tool did not bargain for a defense for claims made against it by way of any after-acquired companies or for conduct occurring after 1997,” the court reasoned.
In the final group of complaints, the court addressed combined successor-in-interest and direct liability claims. “[U]nder 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,” the court held. Because the insurers had a duty to defend for the direct liability claims present in the last group of complaints, they must also provide a defense based on successor liability as well, the court held.
“From all indications, Illinois Tool should not be named as a defendant in the underlying cases,” the court wrote. “But it was insured against being wrongly sued. The insurers here are responsible for defending Illinois Tool from the allegations against it, however groundless.”
To read the opinion in Illinois Tool Works Inc. v. Travelers Casualty and Surety Company, click here.