United States: The Illinois Duty To Defend: Litigation Insurance Against Groundless Suits Even When Extrinsic Facts Known to Both Insurer And Insured Would Otherwise Abrogate Coverage

On January 13, 2015, the Illinois Appellate Court issued its opinion in Illinois Tool Works, Inc. v. Travelers Casualty and Surety Co., 2015 IL App. (1st) 132350 (1st Dist. 2015), wherein the court held the insurer had a duty to defend its insured against numerous vaguely pleaded toxic tort complaints. The central issue in Illinois Tool Works was whether facts extrinsic to the underlying complaint, known to both the insurer and insured, can abrogate the duty to defend. The Illinois Appellate Court held that undisputed extrinsic facts not pleaded in the underlying complaint cannot relieve an insurer of its duty to defend unless and until proven in the underlying action.

Illinois Tool Works is a multinational corporation that decided to self-insure beginning in 1987. The policies at issue in the Illinois Tool Works litigation were issued between 1971 and 1987. After Illinois Tool Works went bare in 1987, the company expanded its product lines to include welding products and certain other lines of business. Personal injury claims alleging injury from toxic exposure followed in jurisdictions throughout the country.

The Illinois Tools Works litigation has taken a decade to unfold. The case was filed as a declaratory judgment action in the Circuit Court of Cook County in 2004 by multiple insurers seeking among other things a ruling that they had no obligation to defend Illinois Tool Works in certain toxic tort matters related to alleged benzene, welding chemical and asbestos exposure. For purposes of litigation, the underling cases were divided into categories by the Illinois Appellate Court: (1) direct liability with exposure alleged during the policy period, (2) direct liability with unstated exposure or injury date, (3) pure successor-in-interest claims, and (4) combined direct liability and successor in interest claims.

The Illinois Appellate Court reaffirmed that "[w]hen determining whether an insurer has a duty to defend an insured, the allegations in the underlying complaint must be liberally construed in favor of coverage. The duty to defend is broader than the duty to indemnify." Id. at ¶9. Illinois courts "must even consider false and groundless allegations" whether the complaint is well pled or not. Id. at ¶10. Following these basic tenants, the Illinois Appellate Court held that "[t]he insurer's knowledge that extrinsic facts not pled in the complaint will ultimately defeat any coverage obligation does not negate its duty to defend in the first place if the complaint, on its face, presents a claim potentially within the insurance policy's coverage." Id. at ¶20. The Illinois Appellate Court reasoned that an "extrinsic fact" not found in the underlying complaint—even if known to both insurer and insured—is "akin to an 'affirmative matter' in Illinois" which must be proven in the underlying action before the insurer's duty to defend is extinguished. Id. at ¶21. In short, "the insurer bears the burden of the underlying plaintiffs' broad drafting" under Illinois law. Id. at ¶21.

Many plaintiffs in toxic tort cases file lawsuits against a broad swath of industrial suppliers in jurisdictions where "group" or "shotgun" pleading is tolerated. This in essence allows the plaintiff to state a claim against numerous defendants based upon vague allegations that provide no detail as to the exact time or nature of the alleged exposure. The Illinois Appellate Court's decision effectively leaves the toxic tort plaintiff's bar firmly in control of pleading, or more accurately failing to plead, the factual allegations of their complaints. This often makes an expedient coverage determination impossible in light of Illinois Tool Works' continued recognition that "any insurer that has a duty to defend is jointly and severally liable for the defense costs." Id. at ¶34. Insurers facing such deficient pleading may want to consider strategies to obtain expedient findings of fact in at least some of the underlying actions, and should consult experienced insurance counsel when faced with such decisions.

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