Law Bulletin Information Network Lf4613 TBUPBSP; IND88 Attorney No, 08079 IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ILLINOIS NATIONAL INSURANCE ) COMPANY, in its own right and as subrogee) of Panduit Corp; and AMERICAN HOME) ASSURANCE COMPANY, in its ownright —) ” and as subrogee of Panduit Corp., } ARLEN SR oaGoN 16 TIME 00:00 Plaintfis ) Geclaratory Jdsat . } No. ) ARCH INSURANCE COMPANY, ) ) Defendant, ) \ 3 ZI A (‘Illinois National”), in its own right and as subrogee of Panduit con ui, aad AMERICAN HOME ASSURANCE COMPANY (“American Home”), in its dwn rightyand as subrogee of Panduit, by and through their attomeys, PURCELL & WARDROPE, CHTD., and for their Complaint for Declaratory Judgment and Other Relief against Defendant, ARCH INSURANCE COMPANY (“Arch”), state as follows: General Allegations 1, This action arises out of Arch’s breach of its contractual and other legal obligations to Panduit, Illinois National, and American Home in connection with the injury lawsuit Ronald Bayer v. Panduit Corp. et al., cause number 07 L 9877 in the Circuit Court of Cook County, Illinois (“the Bayer Lawsuit"), In the Bayer Lawsuit, Arch—in breach of its acknowledged legal and contractual duties to Panduit, its additional insured under the ‘commercial general liability (CGL) policy that Arch issued to Bayer’s employer, Area Erectors, Ine. (“Area”)—paid its $2 million policy limits to Bayer on behalf of Area, whom Arch had noduty to defend or indemnify under Arch’s CGL policy because that policy clearly and unambiguously excluded coverage for Area’s liability as Bayer’s employer, Arch’s improper payment on Area’s behalf not only led Arch to refuse to pay any further defense costs or any indemoity on behalf of its insured Panduit, but also cut off Panduit’s contribution rights against ‘Area, prevented Panduit from arguing Area's negligence at trial, and ultimately exposed Panduit to a judgment of $64,000,000, Panduit and the excess carriers who contributed to a post- judgment settlement on Panduit’s bebalf, Illinois National and American Home, now seek to recover the amounts that Arch’s breach of its duties forced them to pay. Parties 2. At all times relevant hereto, Plaintiff Illinois National was an insurance company domiciled in Ilinois and with its principal place of business in Ilinois, and was licensed and authorized to underwrite and issue insurance policies in the State of Ilinois. 3. Atel times relevant hereto, Plaintiff American Home was an insurance company domiciled in New York and with its principal place of business in New York, and was licensed ‘and authorized to underwrite and issue insurance policies in the State of Iinois. 4. At all times relevant hereto, Plaintiffs’ subrogor Panduit was a Delaware corporation with its principal place of business in Tinley Park, Ilinois. 5. Upon information and belief, at all times relevant hereto, Defendant Arch was an insurance company domiciled in Missouri and with its principal place of business in New Jersey, and was licensed and authorized to underwrite and issue insurance policies in the State of Illinois. Insurance Policies Held by Area and Panduit 6. Arch issued policy number 41PKG2106200 to Area for a policy period from September 30, 2006, to September 30, 2007 (“the Arch CGL Policy”). The Arch CGL Policyprovides CGL coverage with limits of $2,000,000 per occurrence. A copy of the Arch CGL Policy is attached hereto as Exhibit 1. 7. The Arch CGL Policy contains Workers’ Compensation and Employer's Liability exclusions in its Commercial General Liability Coverage Form, Section I~ Coverages, Coverage A Bodily Injury and Property Damage Liability, which preclude coverage under the Arch CGL Policy for Bayer’s employer, Area, in the Bayer Lawsuit. 8. Arch also provided Area with workers’ compensation insurance coverage and employer's liability insurance coverage under a separate employer's liability policy for a policy petiod from September 30, 2006, to September 30, 2007 (“the Arch Employer's Liability Policy”) with policy limits of $1 million for employer's liability claims. (See Ex. 2, Ili National Polioy, at Schedule of Underlying Insurance.) 9. Illinois National issued Commercial Umbrella Liability Policy number BE 6565025 to Area for a policy period from September 30, 2006, to September 30, 2007, with limits of $25,000,000 per occurrence and $25,000,000 general aggregate (“the Ilinois National Policy”), in excess of policies including the Arch CGL Policy and the Arch Employer's Liability Policy. A copy of the Illinois National Policy is attached hereto as Exhibit 2. 10. Panduit held a commercial general liability policy from Sentry Insurance (“Sentry”) under policy number 90-15434-02 for a policy period from August I, 2006, to August 1, 2007, with limits of $1 million per occurrence (“the Sentry Policy”), and a commercial ‘umbrella liability policy from American Home under policy number BE 6798728 for a policy period from August 1, 2006, to August 1, 2007, with limits of $25 million per occurrence (“the American Home Policy”). A copy of the American Home Policy is attached hereto as Exhibit 3.Bayer Lawsuit 11, On September 19, 2007, Ronald Bayer filed a Complaint at Law against Panduit in the Bayer Lawsuit. 12. On April 30, 2009, Panduit filed a third-party contribution claim against Area in the Bayer Lawsuit. 13. On March 18, 2010, Bayer filed his Second Amended Complaint at Law against defendants including Panduit in the Bayer Lawsuit. A copy of the Second Amended Complaint at Law is attached hereto as Exhibit 4. 14, The Second Amended Complaint in the Bayer Lawsuit alleged that on June 20, 2007, Bayer fell from a steel beam and was severely injured while working as an ironworker for Area on construction at Panduit’s DeKalb warehouse. (Ex. 4.) 15. Panduit made a targeted tender to the Arch CGL Policy for defense and indemnity in the Bayer Lawsuit. 16. Arch admitted Panduit was an additional insured under the Arch CGL Policy and defended Panduit. 17. Arch, in providing a defense to Panduit, knew that Panduit's strategy to defend itself against the Bayer Lawsuit was to blame Area; that a jury in the Bayer Lawsuit was overwhelmingly likely to find Area had been negligent in supervising Bayer and in controlling ‘the means and methods of Bayer’s work; and that if Area remained a party in the Bayer Lawsuit at the time of trial, a jury would either enter an award in favor of Panduit and against Area on Panduit’s third-party claims in the Bayer Lawsuit, or find that Area's conduct was the sole proximate cause of Bayor’s injuries. 18, Arch knew that in the event of a judgment against Area in the Bayer Lawsuit, Arch would have to pay its policy limit under the Arch Employer's Liability Policy to satisfy thejudgment against Area, and that the judgment would impair Arch's ability to recover its substantial workers’ compensation lien. Moreover, Arch knew that if Panduit was found not Tiable because Area’s conduct was the sole proximate cause of Bayer's injuries, then there would ‘be no judgment against Panduit, and Arch would be unable to recover its substantial workers? compensation lien. 19. ‘The Arch CGL Policy expressly excluded coverage for Area’s liability as Bayer's employer. Accordingly, Arch knew the Arch CGE Policy would not be available to satisfy any judgment against Area in the Bayer Lawsuit. 20. Notwithstanding the employee exclusion noted above, on the eve of trial in the Bayer Lawsuit, Arch enginesred a settlement of the claims against Area by agreeing to pay Bayer the limits of the Arch CGL Policy on bebalf of Arca. 21. On October 1, 2012, without giving prior notice to Panduit, Tinois National, or American Home, the Arch-retained counsel for Atea presented a Motion for Good Faith Finding and Approval of Settlement regarding its settlement with Bayer. A copy of that motion is attached as Exhibit 5. 22. As part of the deal, Arch agreed to pay to Bayer on behalf of Area the $2,000,000 policy limits of she Arch CGL Policy, which insured Panduit and which explicitly excluded coverage for Area as Bayer’s employer. (Ex. 5 at Bx. A] 5; see Ex. 1.) 23. The Release and Settlement Agreement between Area and Bayer in the Bayer Lawsuit specifically acknowledged, with respect to payment of the Arch CGL Policy's policy limits, that Panduit was an additional insured under the Arch CGL Polioy. (Bx, 5 at Bx. A 75.)24, The Release and Settlement Agreement between Area and Bayer in the Bayer Lawsuit also stated that payment of the Arch CGL Policy's policy limits was not a settlement with Panduit and that Panduit was not a party to the Release and Settlement Agreement. (Id.) 25. Over Panduit’s objections, the underlying trial court granted Area’s Motion for Good Faith Finding and dismissed the third-party claims against Area. 26. Panduit was an additional insured under the Arch CGL Policy and Arch had been defending Panduit in the Bayer Lawsuit. However, following its wrongful payment of the $2 million policy limits of the Arch CGL Policy on behelf of Area, Arch took the position that the ‘Arch CGL Policy was exhausted and that Arch had no further duty to defend or to indemnify Panduit in the Bayer Lawsuit. As such, Arch withdrew its defense and ebandoned Panduit on the eve of trial, 27, In addition to abandoning its duty to defend Panduit on the eve of trial, Arch also knowingly cut off Panduit's ability to argue at trial that Area's negligence had caused, contributed to, or been the sole proximate cause of the injuries alleged in the Bayer Lawsuit, Arch’s wrongfil conduct ultimately left Panduit as the only defendant at the time of trial in the Bayer Lawsuit, which Arch knew would ultimately enhance Arch’s ability to recover its substantial workers’ compensation lien. 28. On November 14, 2012, the jury in the trial of the Bayer Lawsuit returned a verdict against Panduit in the amount of $80,000,000, less a 20% reduction for Bayer’s own comparative negligence, resulting in a judgment of $64,000,000 against Panduit. 29. Bayer and Panduit subsequently entered into a settlement arising out of the judgment entered against Panduit in the Bayer Lawsuit30. The Bayer~Panduit settlement in the Bayer Lawsuit was funded by payments under the Sentry Policy, the Illinois National Policy, and the American Home Policy. 31. Arch did not pay any amounts on Panduit’s behalf toward settlement of the Bayer Lawsuit. 32, Plaintiffs hereby re-allege Paragraphs 1-31 aforesaid as Paragraph 32 of Count I as if fully stated herein. 33. The Arch CGL Policy states that Arch will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” to which the Arch CGL Policy applies, and that Arch will have the duty to defend the insured against any “suit” seeking those damages. (Ex. 1.) 34, ‘Through the Arch CGL Policy’s endorsement Additional Insured ~ Automatic Status When Required in Construction Agreement with You, Panduit is an insured under the Arch CGL Policy with respect to the claims of the Bayer Lawsuit, (Ex. 1.) 35, Arch admitted it had a duty to defend Panduit, and Arch also had a duty to indemnify Panduit under the Arch CGL Policy with respect to the claims of the Bayer Lawsuit. 36. The Arch CGE Policy applies separately to each insured against whom a claimn is made ora “suit” is brought. (Ex. 1.) 37. The Arch CGE, Policy oxcludes coverage for each insured with respect to “bodily injury” to an “employee” of that insured arising out of and in the course of employment by that insured, or performing duties related to the conduct of that insured’s business, including that insureds lability to share damages with or repay someone else who must pay damages because of the injury. (Ex. 1.)38, The allegations of the Bayer Lawsuit were based on “bodily injury” that Bayer, as an employee of Area, sustained within the course and scope of his work for Area. 39. The claims against Area in the Bayer Lawsuit were excluded from coverage under the Arch CGL Policy. 40. —_Arch’s settlement payments on behalf of Area under the Arch CGL Policy were not covered under the Arch CGL Policy. 41. Arch had no duty to defend or indemnify Area in the Bayer Lawsuit under the Arch CGL Policy. 42. Because Arch wrongfully exhausted the Arch CGL Policy by payment on behalf of Area, Arch’s duty to defend and indemnify Panduit in the Bayer Lawsuit was not terminated. 43. By withdrawing from the defense of Panduit and refusing to indemnify Panduit, ‘Arch breached its duty to defend and indemnify Panduit in the Bayer Lawsuit. 44, Upon information and belief, Arch disagrees with Plaintifs' position, 45, ‘Theze is an actual and justiciable controversy between the parties, which may be determined by a judgment order of this Court. Pursuant to the terms of 735 ILCS 5/2-701, this Court has the power to declare and adjudicate the rights and liabilities of the parties hereto under the terms and provisions of the policy of insurance referred to herein and to adjudicate the final rights of all parties and give such other and further relief as may be necessary to enforee same. WHEREFORE, Plaintiffs ILLINOIS NATIONAL INSURANCE COMPANY and AMERICAN HOME ASSURANCE COMPANY respectfully request that this Court enter an order: a. finding and declaring that Arch breached its duty to defend and indemnify Panduit in the Bayer Lawsuit;b. finding and declating that Arch is liable to Plaintiffs for amounts they paid in the Bayer Lawsuit as a result of Arch’s breach of its duties to Panduit, plus prejudgment interest; and c. granting such other and further relief as this Court deems just. COUNT IL Equitable Subrogation 46, Plaintiffs hereby re-allege Paragraphs 1-45 aforesaid as Paragraph 46 of Count II as if fully stated herein. 47. The Arch CGL Policy provides coverage to Panduit for the Bayer Lawsuit. 48. The Arch CGL Policy provides coverage for Panduit that is primary to, and non- contributory with, any other insurance available to Panduit. (Ex. 1.) 49. The Mlinois National Policy and American Home Policy are both commercial ‘umbrella policies that apply to Panduit’s defense and indemnity only after exhaustion of all primary insurance, including the Arch CGL Policy. (Ex. 2, Ex. 3.) 50. With respect to Illinois National and American Home, Arch is primarily liable for the settlement on Panduit’s behalf in the Bayer Lawsuit. 51. With respect to Arch, Illinois National and American Home are secondarily Kable for the settlement on Panduit's behalf in the Bayer Lawsult. 52, Asa result of Arch’s feilure and refusal to defend and indemnify Panduit after Arch wrongfully paid the Arch CGL Policy’s limits on behalf of Area, Ilinois National and ‘American Home were forced to pay indemaity on behalf of Panduit to resolve the Bayer Lawsuit when Arch owed the primary obligation to indemnify Panduit. 53, Illinois National's and American Home’s payments on behalf of Panduit in the Bayer Lawsuit discharged Arch’s liability to Panduit.54, By virtue of their payment of Arch’s primary obligation to their mutual insured, Illinois National and American Home are equitably subrogated to Panduit’s rights against Arch. WHEREFORE, Plaintiffs ILLINOIS NATIONAL INSURANCE COMPANY and AMERICAN HOME ASSURANCE COMPANY respectfully request that this Court enter an order: a. finding and declaring that Arch breached its duty to defend and indemnify Panduit in the Bayer Lawsuit; b. finding and declaring that Illinois National and American Home are equitably subrogated to Panduit’s rights based on Arch’s breach of its duty to defend and indemnify Panduit for amounts Wlinois National and American Home paid to indemnify Panduit in the Bayer Lawsuit; ©. awarding Ilinofs National and American Home damages against Arch for amounts that Illinois National and American Home paid to indemnify Panduit in the Bayer Lawsuit when Arch had the primary obligation to make such payments, including interest on the sums that Arch was obligated to pay; and 4. granting such other and further relief as this Court deems just. COUNT Contractual Subrogation ¢ Alternative to Count 55. Plaintiffs hereby reallege Paragraphs 1-54 aforesaid as Paragraph 55 of Count III as f fully stated herein. 56. The Arch CGL Policy provides coverage to Panduit for the Bayer Lawsuit, 57, Panduit exercised its right under Ilinois law to make a targeted tender to Arch for defense and indemnity up to the limits of the Arch CGL Policy in the Bayer Lawsuit. 58. ‘The agreements under which Area performed work for Panduit stated that Area's ies would be excess policies would provide primary coverage for Panduit and that Panduit’s of, and non-contributory with, Area’s insurance coverage for Panduit. 59. The Illinois National Policy and the American Home Policy contain the following provision:Umbrella Prime® ‘Commercial Umbrelfa Liability Polley with CrisisResponse® wee [CONDITIONS +e 0. Transfer of Rights of Recovery 1. If any Insured has rights to recover all or part of any payment we have made under this policy, those rights are transferred to us. The Insured must do nothing after loss to impair these rights and must help us enforce them. 2. Any recoveries will be applied as follows: ‘a. any person or organization, including the Insured, that has paid an amount in excess of the applicable Limits of Insurance of this policy will be reimbursed first; b. we then will be relmbursed up to the amount we have paid; and ©. lastly, any person or organization, including the Insured that has paid an amount over which this policy is excess Is entitled to claim the remainder. tee (Bx. 2, Ex.3,) 60. Panduit has a right to recovery against Arch based on Arch’s breach of its duties to defend and to indemnify Panduit in the Bayer Lawsuit. 61. Under the terms of the Illinois National Policy and the American Home Policy, Illinois National and American Home are contractually subrogated to Panduit’s rights against Arch, WHEREFORE, Plaintiffs ILLINOIS NATIONAL INSURANCE COMPANY and AMERICAN HOME ASSURANCE COMPANY respectfully request that this Court enter an order: 2. finding and declaring that Arch breached its duty to defend and indemnify Panduit in the Bayer Lawsuit; b. finding and declaring that Illinois National and American Home are contractually subrogated to Panduit’s rights based on Arch’s breach of its duty to indemnify ulPanduit for amounts Iltinois National and American Home paid to indemnify Panduit in the Bayer Lawsuit; ©. awarding Illinois National and American Home damages against Arch for amounts that [inois National and American Home paid to indemnify Panduit in the Bayer Lawsuit when Arch had the primary obligation to make such payments, including interest on the sums that Arch was obligated to pay; and 4. granting such other and further relief as this Court deems just. COUNT IV Brea fis hereby reallege Paragraphs 1~61 aforesaid as Paragraph 62 of Count IV act 62. Plait as if fully stated herein, 63. Arch had a contractual obligation under the Arch CGL Policy to defend and indemnify Panduit in the Bayer Lawsuit. 64, By virtue of subrogation, Arch’s contractual obligations to Panduit extend to Illinois National and American Home as the excess insurers who indemnified Panduit. 65. Arch’s breach of its duty to defend and indemnify Panduit in the Bayer Lawsuit— making a $2,000,000 payment on behalf of Arca, Bayer’s employer, to whom Arch had no duties under the Arch CGL Policy because such a payment was expressly excluded—led to a trial solely against Panduit in which Panduit was barred from arguing that the negligence of Area had caused or substantially contributed to Bayer’s injuries. 66. In defending Panduit, Arch knew or reasonably should have known that barring Panduit from arguing that the negligence of Area caused or contributed to Bayer’s injuries would have a substantial negative effect on Panduit’s defense, 67. — The $64,000,000 judgment against Panduit and ensuing settlement in the Bayer Lawsuit were consequential damages arising from Arch’s breach of its duties to Panduit.68, Plaintifis* fees and costs in bringing this suit based on Arch’s misconduct are consequential damages arising from Arch’s breach of its duties to Panduit. 69, Arch is therefore liable to Plaintiffs for all amounts that Plaintiffs paid as a result of Arch’s breach of the Arch CGL Policy, including but not limited to settlement payments in the Bayer Lawsuit and Plaintiffs’ costs and attomey fees in bringing this litigation based on Arch’s misconduct, WHEREFORE, Plaintiffs ILLINOIS NATIONAL INSURANCE COMPANY end AMERICAN HOME ASSURANCE COMPANY respectfully request that this Court enter an order: a. finding and declaring that Arch breached its duty to defend and indemnify Panduit in the Bayer Lawsuit; b. Awarding Plaintiffs all damages arising from Arch’s breach of its contractual obligations to Panduit, including their settlement payments in the Bayer Lawsuit and their fees and costs in bringing this Htigation, and including interest on the sums that ‘Arch was obligated to pay; and c. granting such other and further relief as this Court deems just. Respectfully submitted, ILLINOIS NATIONAL INSURANCE COMPANY and AMERICAN HOME ASSURANCE COMPANY ZB, One of their attomeys ‘Thomas B. Underwood Michael D. Sanders. Richard J. VanSwol PURCELL & WARDROPE, CHTD. 10 South LaSalle Street Suite 1200 Chicago, Illinois 60603 (312) 427-3900