COURT DECISIONS

Rough Notes, Nov 2005

On appeal, the Appellate Court of Illinois, First District, Fourth Division, concentrated on the issue of whether Barrco ever sought coverage under Empire's policy such that Empire had a duty to defend and indemnify Barrco. In reaching its decision, the court emphasized the language of the July 20, 2000, letter from Barrco to Empire. The text read: "Barrco Industries, Inc. to date does not want to tender the third party actions for contribution from Ozark Steel Fabricators, Inc. and Joseph J. Duffy Co. for defense and indemnification to Empire. The above mentioned claim has been forward [ed] to Legion and they [sic] are aware of the third party complaints. Please be aware that we were only trying to put Empire Fire and Marine Insurance Company on notice of a potential claim. This is as a result of the reservation of rights letter from Legion and the 'Alternate Employer' endorsement. Barrco Industries wants to make sure that we are completely and appropriately indemnified and covered for defense costs for the loss. If there is a question or problem in regards to coverage, we would like to know about it before an award or judgement is reached. Thank you for your attention to the file and pursuit of the enclosed document. We will inform you of any changes from Legion Insurance Company in regards to defense and indemnification for this particular case. Also, you will be informed if Barrco Industries need[s] to tender the defense if Legion denies coverage."

The court found that, with this letter, Barrco expressly deactivated its previous tender to Empire. The letter gave Empire clear direction not to defend, and stated that Barrco would inform Empire in the future if Barrco needed to tender its defense to Empire. The result was that Barrco targeted Legion to exclusively defend it in the contribution suits, and Empire had no duty to defend or indemnify Barrco. Thus, Legion was not entitled to contribution from Empire.

The decision of the lower court in favor of Empire was affirmed.

Legion Insurance Company vs. Empire Fire and Marine Insurance Company-No. 1-03-2833-Appellate Court of Illinois, First District, Fourth Division-December 23, 2004-822 North Eastern Reporter 2d 1.

Insurers debate "super escape clause"

Youngblood Plumbing and Heating Company performed work at Woburn Nursing Center. Due to Youngblood's negligence, there was an explosion and fire at the nursing center, resulting in bodily injury. Youngblood had a $1 million "Contractor's Business Owners Insurance Policy" with Worcester Insurance Company, the primary insurer. He also had a commercial umbrella policy with United States Fire Insurance Company with excess liability limits in the amount of $5 million. Six claims were filed as a result of the explosion and fire. When tendering a defense to the six claims, Worcester informed U.S. Fire thatthe claims were likely to exceed the $1 million primary insurance policy limit.

Worcester negotiated full settlements on five of the claims totaling $150,500. The sixth claimant was St. Paul Fire and Marine Insurance Company. St. Paul had paid Woburn $2.9 million on the nursing center's property damage claim. It then claimed subrogation from Worcester. On July 17, 1994, after negotiating a settlement with St. Paul, Worcester received a partial and limited release in exchange for a total payment of $849,500, exhausting the $1 million limit under the Worcester policy.