Court Declares Complete Victory For Insurers In Exhaustion Trial
John Crane Inc. v. Admiral Ins. Co. et al., Case No. 04 CH 08266, Circuit Court of Cook County, Illinois, Chancery Division.
On March 10, 2009, following a twenty day bench trial, Judge Dorothy Kirie Kinnaird, the presiding judge of the Chancery Division of the Circuit Court of Cook County, Illinois, issued a 72-page ruling declaring a complete victory for numerous umbrella and excess insurers with respect to the exhaustion of an insured’s primary coverage. The court found that the insurers’ challenges to the evidence presented by the insured (who had settled with its primary carrier and thus had the burden of proving exhaustion) were valid and, as a result, the insured was unable to establish that any of its primary coverage had exhausted based on the evidence it had presented at trial. The court entered a declaratory judgment that the primary policies were not exhausted and that the umbrella insurers had no current coverage obligations to the insured.
The court’s March 10 order marked the culmination of five years of hard-fought coverage litigation. The insured, John Crane Inc., manufactured asbestos-containing gasket and packing products and has been named as a defendant in hundreds of thousands of asbestos claims across the country. Crane had applicable primary coverage from Kemper-related companies that spanned from the 1940s to 2001. Kemper defended and indemnified Crane for its asbestos claims for many years, until 2004 when Crane filed a declaratory judgment action against its umbrella and excess carriers in Illinois state court. Crane asserted that the primary policies were nearing exhaustion and sought a declaration of exhaustion, as well as numerous other declarations regarding the rights and obligations of its umbrella and excess insurers.
Over the history of the litigation and after extensive discovery, the court issued many rulings on summary judgment motions. The insurers prevailed in most of those motions, securing rulings that: (1) the underlying asbestos claims constitute a single “occurrence” for purposes of determining the applicable limits of Crane’s insurance policies; (2) certain of Crane’s multi-year insurance policies have single per occurrence limits; (3) pro rata allocation applies to Crane’s umbrella and excess insurance policies; (4) Crane could not render the primary policies’ original limits of liability unavailable for purposes of exhaustion by retroactively agreeing with the primary insurer to amend the policy terms in an effort to shift responsibility to the excess and umbrella carriers; (5) the umbrella and excess policies do not owe a duty to defend; and (6) the umbrella policies indemnify defense costs only for covered claims while the excess policies do not cover defense costs at all. In addition, the court conducted a trial on trigger issues, holding that that the "triple trigger" from the Illinois Supreme Court's Zurich v. Raymark decision applied.
Finally, the court determined it was unable to resolve the exhaustion question by summary judgment. At the court’s urging, the parties began an effort to mediate that issue in the spring of 2008. However, a few weeks before the mediation session, the insurers learned that Crane had filed five additional lawsuits related to insurance coverage for asbestos claims in West Virginia, Texas, Ohio, Virginia and California. The insurers moved for an anti-suit temporary restraining order, which the court entered and which the Illinois Appellate Court affirmed. The insurers then moved for a preliminary injunction and, after an evidentiary hearing, the court granted that relief, an issue which is currently on appeal. The court also scheduled the exhaustion trial, which began in July and continued through parts of the rest of 2008, concluding in early January 2009.
During the exhaustion trial, Crane attempted to prove exhaustion primarily with the testimony of an insurance allocation expert. The expert was on the stand for more than fifteen days, providing an explanation for the trigger periods to which he had allocated the various paid underlying claims. The insurers objected to the expert’s testimony, claiming that his process was defective and that the materials on which he based his allocation were unreliable. They also cross-examined the expert with respect to many of the claims, highlighting the expert’s failure to follow his articulated protocol and other errors in his work. Ultimately, the court upheld the insurers’ challenge to Crane’s use of the expert to prove exhaustion. The court held that the insurers had successfully demonstrated that the expert’s allocation was so fraught with error so as to have no probative value with respect to the exhaustion of the primary insurance. Because Crane rested its entire case on the testimony of its expert, the court was forced to find that Crane had failed to demonstrate exhaustion of any primary coverage (except for two early policies that the court could determine were exhausted based upon a stipulation the parties entered into with respect to one of the underlying claims).
Rebecca Ross, Clint Cameron, David Cutter, and Stephanie Haas of Troutman Sanders LLP represent certain of the insurers involved in this case.