1 FOURTH DIVISION January 3, 2011 No. 1-09- 3296 FEDERAL INSURA

NCE COMPANY, ) Appe al fro m the ) Ci

rcu i t Cou rt of Pl ai n ti f f -A pp el l an t, ) Co o k C o un t y. ) v. ) No. 07 CH 16976 ) LEXINGTON INSURANCE COMPA NY, ) Ho no r ab le

) James R . E pst ein, Defe ndan t-Appell ee. ) Judge Presidin g.
JUS TI CE O'BR IE N de livered t he judg ment o f the co ur t , w ith o pinion. Pr esiding J ust ice Ga llagher and J ust ice Lavin co ncur re d in t he judg ment a nd o pinion. OPINI ON Thi s appeal

aris es f rom an i nsuran ce coverage lawsui

t in wh ic h pl ai ntif f, Fe deral Insurance Co mpany (Fe der al), so ught t o r eco ver fro m defenda nt , Le xingt on I nsur ance Co mpany (Lex i ngton ), settlem en t pay men ts m ade b y Fed eral on b ehalf of i ts i ns ured i n a pers onal i nj ury
ac ti on. Th e c i

rcu i t cou rt h el d that the i

ns ure d' s f ai l ure to com pl y wi th th e " Noti ceof Ci rcum stan ce" provision pre cl

uded cove rage u nde r the L exi ngton pol i cy and gran ted sum mary judg ment in favo r o f Lexingt on. On ap pea l, Fed er al co nt ends t he circ uit co ur t er re d in gr ant ing summary judg ment t o L exingt on be cau se su ffi cient not ice wa s pr ovid ed a s o ut lined in the insu r an ce po licy. We affir m. W e adop t th e f

acts as ou tli n ed i n th e j udgm

en t of th e c i rc ui t cou rt. In O ct obe r 1 998 , Jo se Ba ra jas wa s ser iou sly i

njure d by a de t ona t or manufact ur ed by t he Ens i gn- Bickf

ord Com pan y (Ens i gn)and sol

d by Am erican East Ex plosi ve s, In c. (A merican East). Am erica n East, doing b

usi ness then as Ev

enson Ex plosi ves, i s a sub sidia

ry of ETI Canada, Inc.No 1-09-3296

2

(ETI ). A t the ti me of the ac ci de nt, A meri ca n E as t an d Ensi gn were i ns ure d by Na ti ona l Un i on Fi re I ns ura nc e C om pa ny (Na ti ona l Un i on) . De f en da nt Lex i ng ton wasthe i

r ex ce ss ca rri er f rom November 29, 1997, t hrough No vem ber 29, 1998 , and plai

ntif f, Federal, provided excess coverage f

rom Novem

ber 29, 1998, through Novemb er 29, 1999. On Apr il 18, 2 000 , B ar ajas and his spo use fil ed s uit aga inst Amer ican E ast , E nsign, and ot hers, f or his i nj uries . National

Uni on agreed to defend A

me rican East and Ensi

gn, and F ederal agreed to pr ovide

excess coverage. Lexi

ngton refused to partici

pate, cont endi

ng the Baraj as claim was no t co ver ed u nder its p olicy. O nce t he Ba ra jas litigat ion se t t led, Fede ra l fi led t he i nstant l awsui t seek i ng to rec over i

ts porti on of

the s ettle men t from Lex i ngton . The par t ies filed cro ss- mot ions fo r su mmary judgment on F ede ra l's four -c ou nt co mplaint fo rde cla r at o ry re lief, ind emn ifica t io n, br ea ch o f co nt r ac t da mag es , an d c o nt r ibu t io n. T he cir cu it court gran

ted Lexi ngton sum mary j udgm en t on the f our-coun t comp l ai nt an d den i ed sum mary jud gme nt t o Fe de r al. Fe de r al file d t his t imely a pp ea l. At iss ue is t he no t ice o f c ir cu mst an ce in L ex ing t o n's po licy: "W h en ev er th e In su re d h as i n f orm ati on re l ati n g to a Ci rc um sta n ce wh i ch i s l i ke l y to in volv e this Policy and gi ves n ot ic e of such

Ci rcumstance, in w

riting, sent by registere

d or certified mail during the period of this Policy, to the entity designated in Item 4 of the Declarations , then any

cl ai m, as res pects such Ci

rcumstance, whi

ch i s m ade, in writi ng, agai nst the Insured wi

thin seven ye ars from

the date of the written notif ic ation of s

uch Circum stance, t o said entity, shal l b e deemed to have been f irst made, i

n writin g, against th e In su re d on th e date up on wh i ch th e n oti ce of th e s ai d C i rc um sta n ce wa s f i rs t se n t toNo 1-09-3296

3

said entity, in

writi ng. It is noted that t hi s Insuri ng A greeme nt 4 is an option f

or t he Ins ured and not an obli gation an d does not alter the provisi ons of Condi

tion (D)-REPORTING OF LOSS ES." (Em

phasi s ad ded.) Will is Co rr oo n Co rp or at ion o f Sea t t le (Willis) is t he ent ity des ignat ed in I t em 4. At t he ti me of the Ba raj asac ci de nt, W i l l i s a

l so w asA meri ca n E as t's br oker i n c ha rge of ha nd l i ng al l of Am erica n East's gen

eral a nd auto liabi

li ty cl ai ms and the reporting of

all those af

ter bein g notif ie d. It is undisp ut ed Amer ican E ast did no t pr ovid e Will is with w rit t en no t ifi

cat ion o f the Bar ajas incident . Amer ican E ast 's ad mini st ra t ive and r isk manag er , C ar l Clauss, did t elepho ne Wi ll is 's represen

tative, Stanl ey

Hey drick, on the day

of the i nci dent or t he day

after and n

ot if ie d hi m of the in ci dent. Heydri

ck does not remem

ber requesti

ng wri tt en n ot ic e of the Baraj as
ac cid en t , bu t be lieve s he fo rwa r de d t he Ba r aja s info rmat io n t o Mr
. Jim S o r t e in t he cla ims department, whi

ch then put National

Uni on, the prim

ary i nsurer, on notice. The learned trial

court correct ly

stated t he standard. “ The construction of an in surance po licy and a de t er minatio n of t he r ight s and obligat ions t her eund er ar e qu est ions o f law for t he court wh i ch are a ppropri ate su bj ects f or di sposi tion by way of s um mary j udgm en t.” Crum & Forster Manager

s Corp. v. Resolution Trust Corp. , 156 Il l . 2d 384 , 391 (1 993). Su m mary judgm ent should be granted o nl y wh ere the pleadin

gs, depo sitions, admis sions an d aff idav its, viewed i n the l igh t most favorabl

e to t he n onmova nt, show that no genuin

e i ssue of m

aterial fact
exi sts an d tha t the m ovi ng p arty i s en titl ed to j udgm

en t as a m atter of l aw. The Film &

Tape Works, Inc. v. Junetw

enty Films, Inc. , 368 Il

l . Ap p. 3d 46 2, 468 ( 2006) . Wh i l e su m maryNo 1-09-3296

4

j udg men t may ai d the e xp edi

ti ousdi sp osi

ti on of a l aw sui t, i t i s a dra sti c m ea ns of di sp osi ng of li tigation an

d therefore shoul

d be al lowed onl y w hen the righ t o f the m ovin g party i s clear and f

ree f rom d oubt. Purtill v. H

ess , 11 1 Il

l . 2d 229 , 24 0 (1 986 ). W

he n p arti esf i l e c ros s- moti ons

f or summary judg ment, t hey co nced e t he abs ence of a genu ine issue o f mate rial fact and invit e t he court to deci

de th e que sti ons prese

nted as a matter of l

aw. Steadf

ast Insurance Co. v. Caremark Rx, Inc. , 359 I ll . App. 3d 74 9, 755 ( 2005). Our review i s de novo
. Steadfast Insurance Co. , 359 Ill . App. 3d at 755. A p r o pe ran alys is o f t he su fficie nc y o f no t ice is w he t he rt he no t ice giv en o bje ct ive ly
co mp lied wit h t he po t en t ial c laimno t ice pr o vis io n o f apo licy. Continental Casualty Co. v. Coregis Insurance Co. , 316 Il l . Ap p. 3d 10 52, 106 3 (200 0). On ap pea l, Fed er al co nt ends t he no t ice wa s su ffi cient beca use : ( 1) t her e wa s o ra l not ice by telephone the next day that was intended as notice; and (2) notice by f ax to AIG Claim

Services, Inc . (AIG /CS) was s

uf f i cien t wri tten n otice as L exi ngton , National

Uni on an d AIG/CS are a

l l part of the Am

erica n Internati onal

Group, I nc. (AIG) corporat e group. W e d i sa gr ee . M r. C l au ss testi f i ed at h i s dep osi ti on i n perti n en t pa rt: "Q . A t th e ti me E TI prov

i de d n oti ce of or n oti f i ed W i l l i s of th e B araj as

ac ci den t, did yo u und er st and t hat t her e wa s a p os sibil ity t hat Mr. Bar ajas's injur ies wo uld r esu lt in a clai m agai nst ETI or o ne of i

ts subsidi aries? A . No. Q. A n d w h y do y ou s ay th at? A. Be cau se w e so ld pr od uct t o a cus t omer t hat did t heir o wn blast ing. T heNo 1-09-3296

5

product was loaded in

the hole by Material Service's em

ploy ees. Theref

ore, t he onl

y way that ETI should have been in volv ed i n the l iti gation or in

the cl ai m woul d be if i t was dee med t hat t he pr od uct was defec t ive and t hat was one of t he r esu lts o f why the acc ident occurred. Q. Okay. A

day after the acci

dent occurred, was it known wh ether the product was deem ed defe ctive ? A . No. Q. So is it fair t o s ay tha t Will is was no t ifi

ed o f the Bar ajas ac cident in case t he product in

volv ed i n the Baraj as acci

dent was deem

ed defe ctive ? A . That w asal

wa y s th e p ruden t thi ng to do. * * * Q. W h en n oti ce wa s prov i de d to W i l l i s of th e B araj as

ac ci den t, di d y ou i n ten d to pu t al l ca rri er s on n oti ce of th e i n ci den t?
*** A. T hat wo uld have been Willis's d ecisio n. Q. Was it your unde rst anding t hat Will is wo uld p ut t he ca rr iers o n not ice o f the Ba ra j as i n ci den t?
*** A. I feel t hat t hey did t he r ight t hing, w hich was not ify [N at ional Unio n] [ which] had a m i l l i on dol l ars' worth of cove rage s i nc e I di dn' t exp ect i t to be a cl

ai m ." Fur t her , Willis's claims re pr ese nt at ive, Jim So rt e, t est ifi ed in his de po sitio n in per t inentNo 1-09-3296

6

pa rt: "Q . [D ]id y

ou i n y our c ap ac i

ty wi th W i l l i s i n 1 998 /19 99, i

n th ose yea rs , di d y ou have the authority to unila terall y de ci de to put an ETI excess in surer on notice of an in cident or claim

without first discussi

ng i t with Mr. Clauss?
*** A . No. Q. Woul d i

t be f ai r to say that b ef ore an y one a t Wi l l i s wi th res pect to the ETI
ac co un t co uld pu t an ex ce ss insu r er o n no t ice o f an inc ide nt , o cc ur r en ce o rcla im, W illis f i rs t ne eded

the approv al an d a uthori ty of Mr . Cl au ss to do s o?
*** A. Yes. Q. Did Mr. Cl

auss on October 13 of 1998 or at any ti me ever ask y

ou t o put Le xing t o n o n no t ice o f t he Ba r aja s c as e u nd er t he Le xing t o n c laims
- mad e e xc es s p o licy in eff ect between Novem

ber of 1997 an

d Novem ber of 1998? A. I d on' t bel i ev e so, n o." Thi s testim

ony rev eal s that Mr. Clauss

did n ot in struct Wil li s to put Lexi

ngton on notice of the Barajas claim; rather, he left it to Wil lis to fi gure o ut which carrier to not if y. Mr. Clauss furt her st at ed he believed Willis did t he "r ight t hing" in not ify ing Nat ional Unio n (a nd no t t he
ex ces s ca rri er Le xi ngton ) be caus e Mr. C l aus s di

d not ex pect a c l ai

m to be m ade. On t his rec or d, t her e simply is no evidenc e t hat American E ast not ifi ed Willis, eithe r by tel eph one or i n w ri tin g, tha t it shoul d put Le xi ngton on n otice of the Ba raj as a cci den t.No 1-09-3296

7

Acco rd ingly, the circu it co ur t was co rr ect in fi nding t hat American E ast failed t o c omp ly with t he
no t ice o f c ir cu mst an ce pr o vis io n o f t he Le xin gt o n p o licy. Fed eral conten ds L exi ngton rece i ve d notice of

the B araj as i

nc i den t through an "Acord General Li abi li ty Notice of Oc currence Cl ai m" (the Acord) Will

is sent by fax to AIG, whi

ch was
rece i ve d by AIG /CS on Octobe r 14, 19 98. F edera

l argue s tha

t Lex i ngton and Nati onal Uni on are both A IG m em be r com pa ni es , an d that A IG/CS ac ce

ptsnoti ce s f rom br okers or pol

i cy hol ders on be ha l f of Lexi ng ton a nd Na ti ona l Un i on. Fe deral

con ten dsthi s c ourt shou

l d f i nd , as a m atter of law, t hat not ice t o AI G, AIG /CS , o r N at ional Unio n co nst itu t ed no t ice t o L exingt on. We di sag ree. Th e Acord ref

eren ced on l y National Uni on, n ot Lexi ngton . The

Ac ord
co nt ain ed a s ec t io n a llo win g id en t ifica t io n o f an "u mbr ella /e xc es s p o licy in fo r ce "; ho we ve r , t his section was

le ft bl ank b y W il li s. As aptl y n ot ed by the ci rcuit court, "Merel

y b ecause Nati onal Union fo rt uit ou sly belonge d t o t he sa me or ganiza t ion as Lexingt on d oe s no t imput e no t ice o f the Bar ajas incident t o L exingt on. Mo re ove r, t her e is no t even a ny evidence sug ges t ing t hat t he sender of the Acord in

tended to not if

y a ny one other t han

National Uni on, the only

in surer i den tif i ed th erei n, of the B araj as i

nc i den t." Federal also argu es: "The Lexingt on P olicy's Ot her Insu ra nce p ro vision co nfli ct s wit h t he Fed er al Po licy's Other Insurance pr ovisi

ons because both po li

cies purport to make thei

r insurance ex

cess
o f all o t he rap plic ab le ins ur an ce . Sin ce t he Ot he rI nsu r an ce pr o visio ns a r e mu t ua lly
re pug nant , t his Co ur t sho uld d isreg ar d t hem, a nd r equ ire bo t h insure r[ s] t o c ont ribut e o n a pro rata basis, whi

ch [i n] thi s case would require L exi ngton to reim

burse F ederal

for one-No 1-09-3296

8

half of the settlemen

t o f the Barajas l

awsuit, plus i

nterest ." Fede ra l's arg ument is unava ili ng. As discu ssed abo ve, Fede ra l is not ent itled t o a ny rei m bu rs em en t f rom Lexi ng ton d ueto the i ns ure d' s f ai l ure to com pl y wi th th e n oti ceof ci rcum stan ce prov i sion of the L exi ngton pol i cy . Fo r the f ore goi n g r ea son s, we af f i rm th e c i rc ui t cou rt. Af fi rmed.No 1-09-3296

9 REPORTE R OF DECISION S - ILLINOI S APPELLATE COURT

(Front Sheet to be A

tt ached to Each case)

_____________________________________________________________________________ FEDERAL INSURA

NCE COMPANY, Pl ai n ti f f -A pp el l an t,
v. LEXINGTON INSURANCE COMPA NY, Defe ndan t-Appell ee.

_____________________________________________________________________________ No. 1-09- 3296 Ap pe llat e C o ur t o f I llino is Fi rs t Di stri ct, F ourth Di vi si on January 3, 2011

_____________________________________________________________________________

JU STI CEO’ BR

IEN de l i v ered th e op i n i on of th e c our t. GA LL AG HER, P.J ., and LA

VIN, J ., conc

ur.

_____________________________________________________________________________ Ap pe al f r o m t he Cir cu it Co ur t o f Co o k C o un t y. Honorable J

am es R. Epstein, Judge Presi din g.

_____________________________________________________________________________ For A PPELL AN T, Tress l er, LL

P, Ch i cago, IL ( T o dd S. Sc he nk , Ambe rC. Co isma n, o f co un se l) For A PPELL EE, Donoh

ue Br own M athe

wson & Sm y th LLC, Ch

i cago, IL (Norm an J. Ba rry , Jr., Ka r en Kies De Gr an d, Ch r ist o ph er J. Ra do s, o f co un se l)