A unanimous panel of the Illinois Appellate Court recently held that three insurers have a duty to defend any case in which the bare underlying allegations - if proved - would render their insured liable, regardless of extrinsic facts. This sweeping ruling confirms that the duty to defend is a form of "litigation insurance," protecting the insured against the costs of being wrongly sued, however groundless the claims against it may be. The case is Illinois Tool Works Inc. and ITW Finishing LLC v. Travelers Casualty and Surety Company, et al.
Illinois Tool Works Inc. ("ITW") was named as a defendant in thousands of toxic tort suits alleging exposure to harmful materials, such as asbestos and benzene, from welding products manufactured and/or distributed by ITW. Faced with astronomical defense costs, ITW turned to three insurers to provide a defense.
But the insurers refused to defend ITW, focusing on one key fact: ITW had not entered the welding products market until 1993, six years after the last insurance policy had expired.
ITW nevertheless demanded a defense - and the Court agreed.
The Court held that the insurers were required to defend ITW against any suit containing claims of direct liability against ITW. These suits included claims with exposure dates during the policy periods, claims with unstated exposure dates, and suits with both direct liability and successor-in-interest claims. (ITW had entered the market through acquisitions starting in 1993 and conceded that the insurers had no duty to defend pure successor-in-interest claims. Such claims made it clear that ITW faced liability only after its acquisitions.)
The claims with exposure dates during the policies "clearly" required the insurers to defend. Any other result would collapse the broad duty to defend into the narrower duty to indemnify. While extrinsic facts would ultimately defeat coverage, the insurers bore the cost of disproving the groundless allegations on ITW's behalf. Similarly, the insurers were required to defend against claims without exposure dates because the vague allegations had to be liberally construed in favor of the duty to defend. The lack of any date left open the possibility of exposure during the policy period. The insurers were also required to defend against suits with both direct and successor liability claims. Because the insurers clearly had a duty to defend against the direct liability claims, they were required to defend against all claims in those suits, even those beyond the scope of the policies.
The Court also rejected the insurers' requests for a pro rata allocation of defense costs. The insurers had argued that the costs should be allocated because ITW self-insured after 1987. But once a policy is triggered, an insurer is obligated to pay all defense costs without proration. And under the insurers' "all sums" policies, each insurer was jointly and severally liable for the defense costs.
This resounding victory for ITW will require the insurers to repay the millions of dollars that ITW has incurred in defense costs - plus interest - and assume a defense of the underlying litigation that remains ongoing. Moreover, insurers are reminded that the duty to defend requires only that the bare allegations leave open the possibility of a covered injury. Extrinsic knowledge cannot allow insurers to avoid their obligations.