Adams v. Employers Insurance Company of Wausau

2016 IL App (3d) 150418, 49 N.E.3d 924

• Court: Appellate Court of Illinois
• Decided: February 18, 2016
• Docket: 3-15-0418
• Status: Unpublished

Opinion

2016 IL App (3d) 150418

Opinion filed February 18, 2016 _____________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2016

MARCIA ADAMS, RICH CLAY, DONALD ) Appeal from the Circuit Court STEWART, BOB WHEELIS, ROMEO ) of the 10th Judicial Circuit, FULZ, CHARLES VanHESSEN, HARLIE ) Peoria County, Illinois. WARREN, DORVIN BEVER, THOMAS ) HEDRICK, RONALD THACKER, ) PATRICK O’NEAL, WILLIAM EOFF, ) LAWRENCE BELCHER, DONOVAN ) LATHROP, DOUG MARTIN, RUSSELL ) WOLLAND, DAVID COLLINS, ) LAWRENCE ROSS, MERVIN BOYER, ) MARIA KREILEIN, ROBERT McDONALD, ) RALPH WOEPKE, WILLIAM OSWALD, ) JOHN CHANDLER SMITH, MARY ) ZERKLE, KENNETH GARRARD, ) STEPHEN L. AHLRICH, ROGER WARREN ) MARTIN, CLARANCE ALTON AMBROSE, ) MICHAEL ENOCH CARVER, JOHN W. ) MOREY SR., J.T. SMITHERS, ALMA ) SLIVINSKI, MAURICE MILFORD LOGAN, ) RICHARD HENRY VEATH, CLYDE ) ALLEN AHLFIELD, WILLIAM MOORE, ) JAMES FOWLER, GILBERT GILLIS, ) ELROY ARNOLD CHRISTIANSEN, ) RICHARD DORMAN BLOSS, CHARLES ) LEO JOPLIN, LARRY DON McVEY, ) Appeal No. 3-15-0418 JOSEPH HENRY WILKINSON, PATRICK ) Circuit No. 14-MR-607 LEE STAFFORD, HASKEL SHOOK, JOHN ) HANLIN, BOBBY WALLACE, DAVID ) CREWS, CARL DUNCAN, CAROL ) KITCHENS, EUGENE MANN, AND KELLY ) FRYMIRE, ) ) Plaintiffs-Appellants, ) ) v. ) ) EMPLOYERS INSURANCE COMPANY OF ) WAUSAU, TIG INSURANCE COMPANY, ) TRAVELERS CASUALTY AND SURETY ) COMPANY f/k/a AETNA CASUALTY AND ) SURETY COMPANY, ) ) Defendants-Appellees, ) ) (Sprinkmann Insulation, Inc., Arthur Kremers ) and Rhonda Kremers, ) ) The Honorable Defendants). ) James A. Mack, ) Judge, presiding. _____________________________________________________________________________

JUSTICE McDADE delivered the judgment of the court, with opinion. Justices Holdridge and Wright concurred in the judgment and opinion.

_____________________________________________________________________________

OPINION

¶1 The plaintiffs, numerous individuals who were diagnosed with mesothelioma and lung

cancer, filed a complaint for declaratory judgment against numerous defendants, including

Employers Insurance Company of Wausaw, Travelers Casualty and Surety Company, and TIG

Insurance Company (collectively, Defendant Insurers). The Defendant Insurers filed motions to

dismiss. The circuit court granted the dismissal, finding that the action was barred by section

12.80 of the Business Corporation Act of 1983 (Act) (805 ILCS 5/12.80 (West 2012)) and the

prohibition on direct actions against insurers. On appeal, the plaintiffs argue that the circuit

court erred when it dismissed the complaint. We affirm.

¶2 FACTS

¶3 Sprinkmann Sons Corporation of Illinois (Old Sprinkmann) was an insulation contractor

that used asbestos products. Arthur B. Kremers and Rhonda Kremers owned the company and

2 were its only two shareholders. After the Kremerses decided to retire, Old Sprinkmann’s vice

president bought certain assets of Old Sprinkmann and formed a new corporation, Sprinkmann

Insulation, Inc. (New Sprinkmann). New Sprinkmann neither purchased any of Old

Sprinkmann’s liabilities nor acquired Old Sprinkmann’s liability insurance policies. Old

Sprinkmann was dissolved on February 7, 2003.

¶4 On September 23, 2011, the plaintiffs filed a complaint for declaratory judgment against

the Defendant Insurers, New Sprinkmann, and the Kremerses. The complaint alleged that the

plaintiffs were former employees of Old Sprinkmann and had been exposed to asbestos during

their employment. The complaint admitted that the plaintiffs’ causes of action for negligence did

not accrue until after the five-year statutory wind-up period (805 ILCS 5/12.80 (West 2010)) for

Old Sprinkmann. Due to this statutory ban, the plaintiffs did not sue Old Sprinkmann, but

instead sought a ruling that New Sprinkmann and the Kremerses could be sued as nominal

defendants “so that liability and damages may be established.” The complaint alleged that the

ownership of Old Sprinkmann’s liability policies was either acquired by New Sprinkmann or

passed to the Kremerses at the time of Old Sprinkmann’s dissolution. The complaint also sought

a ruling that the Defendant Insurers had duties to defend and indemnify, but the plaintiffs were

not seeking a liability judgment against the Defendant Insurers.

¶5 On January 16, 2015, the Defendant Insurers each filed a motion to dismiss the complaint

pursuant to sections 2-615 and 2-619 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615,

2-619 (West 2012)). In their motions, the Defendant Insurers argued, inter alia, that section

12.80 of the Act prohibited the plaintiffs’ suit because Old Sprinkmann could not be sued and

therefore could not be subject to a liability ruling; accordingly, the plaintiffs’ action constituted a

direct action against insurance companies, which was prohibited by Illinois law.

3 ¶6 On April 30, 2015, the circuit court held a hearing on the Defendant Insurers’ motions.

After hearing arguments, the court took the matter under advisement. The court issued a written

order on May 8, 2015, granting the motions to dismiss. In so ruling, the court found that the case

presented an issue of first impression in that the plaintiffs were asking the court “to create an

equitable avenue of recovery for their particular circumstance.” The court noted that the

legislature had looked at this type of issue three times, with the last time being a rejection of the

very type of remedy sought by the plaintiffs in this case. After noting that the legislature was in

a better position to create this type of remedy, the court stated that it would exercise restraint and

leave the creation of a new remedy to the legislature. Accordingly, the court ruled that section

12.80 of the Act barred an action against Old Sprinkmann and that the indemnification issue was

not ripe, as no liability determination had been made.

¶7 The plaintiffs sought and obtained a ruling pursuant to Illinois Supreme Court Rule

304(a) (eff. Feb. 26, 2010) that there was no just reason to delay an appeal, and they

subsequently appealed.

¶8 ANALYSIS

¶9 On appeal, the plaintiffs argue that the circuit court erred when it dismissed the

complaint. In support of their argument, the plaintiffs variously contend: (1) they have vested

rights in Old Sprinkmann’s liability insurance that cannot be extinguished by Old Sprinkmann or

the Defendant Insurers; (2) Old Sprinkmann’s liability coverage passed either to New

Sprinkmann or the Kremerses; (3) the courts have the inherent authority to fashion a remedy in

the interests of justice; (4) absent a remedy, the defendant insurers receive a windfall by retaining

funds intended to pay liability claims; (5) the legislature’s failure to fashion a remedy is not an

impediment to the courts’ ability to do so; (6) the matter is ripe for adjudication of coverage

4 because the Defendant Insurers have denied that they have a duty to defend or indemnify and

because the case attempts to present an avenue to obtain a liability determination; (7) the case

does not constitute a direct action against the Defendant Insurers; and (8) section 12.80 of the

Act does not prohibit this action because the plaintiffs are not suing a dissolved corporation.

¶ 10 A motion to dismiss brought pursuant to section 2-615 of the Code challenges the legal

sufficiency of the complaint by alleging defects on its face. 735 ILCS 5/2-615(a) (West 2012).

A motion to dismiss brought pursuant to section 2-619 of the Code admits the legal sufficiency

of the complaint, but asserts some affirmative matter that defeats the complaint’s allegations.

735 ILCS 5/2-619 (West 2012). Section 2-619.1 allows these otherwise-contradictory motions

to be brought in a single motion. 735 ILCS 5/2-619.1 (West 2012). We review a circuit court’s

decision to dismiss a complaint pursuant to section 2-615 or section 2-619 de novo. King v. First

Capital Financial Services Corp., 215 Ill. 2d 1, 12 (2005).

¶ 11 Of paramount importance to this case is section 12.80 of the Act, which provides:

“The dissolution of a corporation either (1) by filing

articles of dissolution in accordance with Section 12.20 of this Act,

(2) by the issuance of a certificate of dissolution in accordance

with Section 12.40 of this Act, (3) by a judgment of dissolution by

a circuit court of this State, or (4) by expiration of its period of

duration, shall not take away nor impair any civil remedy available

to or against such corporation, its directors, or shareholders, for

any right or claim existing, or any liability incurred, prior to such

dissolution if action or other proceeding thereon is commenced

within five years after the date of such dissolution. Any such

5 action or proceeding by or against the corporation may be

prosecuted or defended by the corporation in its corporate name.”

805 ILCS 5/12.80 (West 2012).

Section 12.80 of the Act reflects the purposes of allowing otherwise-prohibited actions to be

brought by and against the dissolved corporation, yet also providing a definite point at which the

corporation’s liability ceases, rather than existing in perpetuity. Blankenship v. Demmler

Manufacturing Co., 89 Ill. App. 3d 569, 574 (1980); Pielet v. Pielet, 407 Ill. App. 3d 474, 495

(2010), rev’d, 2012 IL 112064. Thus, even if the plaintiffs had some “vested” rights in the

liability policies, as they claim, those rights were effectively divested—not by Old Sprinkmann,

New Sprinkmann, or the Kremerses—but by the legislature’s enactment of what is in essence a

statute of repose that times out the assertion of those rights. See 805 ILCS 5/12.80 (West 2010).

¶ 12 In this case, it is significant that the plaintiffs have acknowledged that their causes of

action did not accrue until after the expiration of Old Sprinkmann’s five-year wind-up period and

they concede that they cannot sue Old Sprinkmann to obtain a liability judgment against it. The

plaintiffs deny, however, that this prohibition is fatal to their cause of action. We disagree,

because without a determination of the liability of Old Sprinkman, the plaintiffs’ action could

only be construed either as an action against the Kremerses or as a direct action against the

Defendant Insureds, all of whom the plaintiffs seek to have declared “nominal defendants.”

¶ 13 We reject the plaintiffs’ contention that Old Sprinkmann’s liability policies either

transferred to New Sprinkmann via the latter’s purchase of the former’s assets, or they “passed to

the Kremers [sic], as the shareholders of Old Sprinkmann by operation of law” such that the

coverage could be reached by the plaintiffs in their action. First, the asset purchase agreement

between Old Sprinkmann and New Sprinkmann was included in documents filed with the circuit

6 court, and that agreement included no provision for the acquisition of Old Sprinkmann’s

liabilities or liability policies.

¶ 14 Second, the plaintiffs’ claims that the liability policies passed to the Kremerses by

operation of law are unpersuasive and unavailing. The plain language of section 12.80 indicates

that the prohibition on actions by and against dissolved corporations after the five-year wind-up

period applies to the corporation’s shareholders as well. Id.; see also Koepke v. First National

Bank of De Kalb, 5 Ill. App. 3d 799, 800 (1972) (construing an earlier version of what later

became section 12.80 of the Act, which allowed for a two-year wind-up period for dissolved

corporations). Thus, even ignoring potential issues with the piercing of the corporate veil (see,

e.g., Buckley v. Abuzir, 2014 IL App (1st) 130469, ¶¶ 12-13 (discussing the purpose of

corporations and the doctrine of piercing the corporate veil)) and even if the liability policies

passed to the Kremerses as shareholders, the plaintiffs are statutorily prohibited from bringing an

action against the Kremerses to reach those assets.

¶ 15 In Illinois, public policy prevents direct actions against insurance companies. Zegar v.

Sears Roebuck & Co., 211 Ill. App. 3d 1025, 1027 (1991). “The commonly cited reason behind

the policy is to prevent the jury in the personal injury action from becoming aware that the

defendant tort-feasor is insured and thereby possibly awarding a larger verdict under the ‘deep

pockets’ theory.” Id. at 1028. However, the prohibition against direct actions does not apply if

“the issue of coverage is effectively severed from any issue of the insured’s liability and the

assessment of damages.” State Farm Fire & Casualty Co. v. Perez, 387 Ill. App. 3d 549, 552

(2008).

¶ 16 Contrary to the plaintiffs’ claims, their action does in fact commingle the issues of

coverage, liability, and damages. An action to recover under a liability insurance policy is an

7 action to recover damages for the insured’s negligence. See Czapski v. Maher, 385 Ill. App. 3d

861, 867 (2008) (“[w]here the issue is an insurer’s duty to indemnify, the controversy does not

arise until the insured becomes legally obligated to pay damages in the underlying action”);

Lyons v. State Farm Fire & Casualty Co., 349 Ill. App. 3d 404, 415 (2004) (“[a] declaratory

judgment action to determine indemnification is premature if brought before a determination of

the insured’s liability”). Fault of Old Sprinkmann is a necessary issue in the plaintiffs’ action.

Accordingly, we reject the plaintiffs’ argument that its action does not violate the policy

prohibition on direct actions against insurers.

¶ 17 The plaintiffs’ only viable recourse would be for this court to acquiesce to their appeal to

the equitable authority of the courts and to create new law to craft a remedy for them.

¶ 18 “[E]quity must follow the law and *** the legislature may limit the equitable power of

the courts.” First American Title Insurance Co. v. TCF Bank, F.A., 286 Ill. App. 3d 268, 276

(1997) (citing In re Liquidation of Security Casualty Co., 127 Ill. 2d 434, 447 (1989)).

“We do not know of any power existing in a court of equity to

dispense with the plain requirements of a statute; it has been

always disclaimed, and the real or supposed hardship of no case

can justify a court in so doing. When a statute has prescribed a

plain rule, free from doubt and ambiguity, it is as well usurpation

in a court of equity as in a court of law, to adjudge against it; and

for a court of equity to relieve against its provisions, is the same as

to repeal it.” Stone v. Gardner, 20 Ill. 304, 309 (1858).

¶ 19 In support of their appeal to the equitable authority of the courts, the plaintiffs claim that

the legislature’s failure to fashion a remedy is not an impediment to a court’s ability to do so.

8 However, this is not a situation in which the legislature has simply “failed to fashion” an

equitable remedy. The legislature has actually enacted a statute in the nature of a statue of

repose that forecloses a liability determination in favor of the plaintiffs, absent circumstances

that do not exist in this case. See 805 ILCS 5/12.80 (West 2010).

¶ 20 While we acknowledge that there are two instances in which Illinois courts have held that

section 12.80 does not apply, those exceptions do not apply here. The first exception applies

when a shareholder is a direct beneficiary of a contract, i.e., when the shareholder’s action is not

a derivative claim, but a direct claim. Sharif v. International Development Group Co., 399 F.3d

857, 861 (7th Cir. 2005). The second exception applies when a shareholder seeks to recover a

debt for an ascertainable fixed sum; this exception “arises from ‘the rights of former shareholders

to succeed, in their individual capacities, to rights owned by their corporation prior to its

dissolution.’ ” Id. (quoting Canadian Ace Brewing Co. v. Joseph Schlitz Brewing Co., 629 F.2d

1183, 1186 (7th Cir. 1980)). Both exceptions involve certain direct actions brought by

shareholders and are readily distinguishable from the instant case.

¶ 21 Moreover, the plaintiffs essentially ask us to undermine the current statutory scheme in

section 12.80 of the Act and violate the prohibition against direct actions against insurers. We

are neither empowered nor inclined to do so. We acknowledge the tragic nature of the plaintiffs’

injuries and the incalculable impacts on their families and friends, and we encourage the

legislature to revisit 1 the creation of a remedy for individuals situated similarly to the plaintiffs.

However, such a remedy will not be created by this court.

1 We note that in 2014, Senator William R. Haine sponsored a bill that would have amended section 12.80

of the Act. The proposed amended version of section 12.80, inter alia, would have required a dissolved

corporation’s non-transferred liability insurance policies to be placed into a trust for the benefit of any person

9 ¶ 22 CONCLUSION

¶ 23 The judgment of the circuit court of Peoria County is affirmed.

¶ 24 Affirmed.

injured by any covered act or omission of the dissolved corporation committed during its existence. 98th Ill. Gen.

Assem., Senate Bill 3264, 2014 Sess. The Senate passed the bill on April 8, 2014, and it arrived in the House one

day later, where it was sponsored by Representative Arthur Turner. The bill was referred to the Rules Committee,

but on January 13, 2015, Senate Bill 3264 was shelved indefinitely.