Hanover Insurance Co. v. MRC Polymers, Inc.

2020 IL App (1st) 192337

• Court: Appellate Court of Illinois
• Decided: September 10, 2020
• Docket: 1-19-2337
• Status: Published

Opinion

2020 IL App (1st) 192337 No. 1-19-2337 Fourth Division September 10, 2020 ______________________________________________________________________________

IN THE APPELLATE COURT OF ILLINOIS FIRST DISTRICT ______________________________________________________________________________

) THE HANOVER INSURANCE COMPANY, ) ) Plaintiff-Appellee, ) ) v. ) Appeal from the Circuit Court ) of Cook County. MRC POLYMERS, INC.; MATERIAL RECOVERY ) HOLDINGS, LLC; MRC OPERATIONS, LLC; DEAN ) No. 2017 CH 3929 EBERHARDT; PLASTIC RECLAMATION ) PARTNERS, LLC; PP V (AIV) MRH, LLC; and ) The Honorable PLASTIC RECLAMATION PARTNERS HOLDINGS, ) Michael T. Mullen, LLC, ) Judge Presiding. ) Defendants ) ) (MRC Polymers, Inc., and Dean Eberhardt, ) Defendants-Appellants). ) ) ______________________________________________________________________________

PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion. Justices Lampkin and Burke concurred in the judgment and opinion.

OPINION

¶1 The instant appeal arises as a result of two lawsuits filed against defendants MRC

Polymers, Inc. (MRC Polymers), and Dean Eberhardt alleging fraud in selling certain

technology. Defendants tendered the defense of their lawsuits to plaintiff Hanover Insurance

Company, but plaintiff denied the tender and filed the instant suit for declaratory judgment, No. 1-19-2337

seeking a declaration that it did not owe a duty to defend defendants due to an exclusion in

their insurance policy. After considering cross-motions for summary judgment, the trial court

denied plaintiff’s motion and stayed defendants’ motion pending discovery. However, after

plaintiff filed a motion to reconsider, the trial court granted plaintiff’s motion for summary

judgment and denied defendants’ motion. Defendants appeal, and for the reasons that follow,

we affirm.

¶2 BACKGROUND

¶3 On March 17, 2017, plaintiff filed a complaint for declaratory judgment, seeking a

declaration that it owed no duty to defend or indemnify a number of entities, including MRC

Polymers, Material Recovery Holdings, LLC (MRH), MRC Operations, LLC (MRC

Operations), and Eberhardt, in connection with several lawsuits filed against them. 1 The

complaint was amended once, and it is the amended complaint that is at issue on appeal.

¶4 I. Parties

¶5 As the litigation involves a number of similarly named entities, it is helpful to first discuss

the various entities and their relationships to each other, taking all facts from the allegations of

the amended complaint and its exhibits, as well as from defendants’ counterclaims.

¶6 MRC Polymers is in the recycled plastics business and is engaged in the business of

manufacturing engineering-grade recycled plastic “flake” from postindustrial and

postconsumer waste. The instant litigation concerns a proprietary “Washline Technology,”

used for the processing and manufacturing of recycled plastics for use in consumer goods. The

amended complaint alleges that “MRC [Polymers] and/or its affiliates” developed the

1 MRC Polymers and Eberhardt are the only defendants that are parties to the instant appeal. 2 No. 1-19-2337

technology, which MRC Polymers denies. 2 MRC Polymers’ recycled polyethylene

terephthalate (rPET) business utilized the washline technology.

¶7 In 2012, MRC Polymers formed MRH to hold the intellectual property rights to the

washline technology. MRC Polymers was the sole member of MRH, which, according to MRC

Polymers’ answer, lasted only until December 13, 2012. MRC Polymers alleges that after

December 13, 2012, it had no interest in MRH.

¶8 The amended complaint alleges MRC Polymers also formed MRC Operations at the end

of 2012 for the purpose of holding MRC Polymers’ assets and that MRC Operations was

wholly owned by MRH. In its counterclaim, MRC Polymers alleges that MRC Polymers and

MRC Operations are involved in different products in different markets: MRC Polymers

recycles plastics for use in the automobile industry, such as for automobile bumpers, while

MRC Operations recycled plastics for use in consumer goods, such as plastic bottles. The

amended complaint alleges that, while MRC Polymers transferred the washline technology to

MRH and to MRC Operations, MRC Polymers retained ownership of the washline equipment

and other related tools and equipment used in the recycling process. Eberhardt was the majority

shareholder and an officer and director of both MRC Operations and MRH and was a former

officer and director of MRC Polymers.

¶9 PP V (AIV) MRH, LLC (Pegasus), is a private, alternative-asset management firm that

invests in the waste and recycling industries. The amended complaint alleges that, in 2013,

Pegasus began negotiations with Eberhardt to acquire MRH’s proprietary assets and

intellectual property, including signing facility and equipment leases with and purchasing

2 MRC Polymers claims that the technology was developed by a third party, Green Innovation Technologies, LLC, and was licensed by MRC Polymers. 3 No. 1-19-2337

certain tools and equipment from MRC Polymers. In particular, Pegasus sought to acquire the

washline, which Eberhardt claimed possessed a competitive advantage in the recycled plastics

industry. As part of the transaction, Pegasus, through Plastic Reclamation Partners, LLC

(PRP), and Plastic Reclamation Partners Holdings, LLC (PRP Holdings), entered into various

agreements, including (1) an asset contribution and sale agreement dated December 2, 2013,

between PRP and PRP Holdings and MRH and MRC Operations (sale agreement); (2) an asset

sale agreement dated December 2, 2013, between PRP and MRC Polymers, whereby MRC

Polymers sold certain tools and equipment relating to the production and manufacture of rPET

to PRP and PRP Holdings; (3) a lease agreement dated December 2, 2013, between MRC

Polymers and PRP for the lease of an office and warehouse; and (4) an equipment lease

agreement dated December 2, 2013, between MRC Polymers and PRP for the lease of plastics

recycling equipment at the facility, including the washline equipment.

¶ 10 II. Underlying Litigation 3

¶ 11 On June 2, 2015, PRP Holdings sent MRH and MRC Operations a letter containing a

“Demand for Indemnification Pursuant to the Asset Contribution and Sale Agreement,” in

which it asserted that the washline technology and equipment “was not anywhere close to

capable of achieving the yield, throughput, uptime, labor cost and quality levels described in

the Facility Projections” under the sale agreement. On September 9, 2016, Pegasus, PRP, and

PRP Holdings (collectively, the Pegasus parties) filed a lawsuit in the superior court in the state

of Delaware against MRH, MRC Operations, and Eberhardt, alleging that MRH and Eberhardt,

its president, had fraudulently induced the plaintiffs into acquiring MRH’s assets and

3 We discuss only the broad details of the underlying complaints here. To the extent that we are required to quote or analyze the complaints in detail, we do so in our analysis. 4 No. 1-19-2337

intellectual property by misrepresenting the capabilities of the assets, concealing material

information, and falsifying data. The Pegasus parties further alleged that Eberhardt continued

concealing the truth even after becoming the chief executive officer of PRP and a member of

PRP’s board of managers. The Pegasus parties also alleged that MRH breached its

representations and warranties set forth in the sale agreement. The Pegasus parties alleged

causes of action for (1) fraudulent inducement, (2) intentional misrepresentation,

(3) contractual indemnification against MRH, and (4) breach of contract against MRH.

Eberhardt moved to dismiss the lawsuit for lack of personal jurisdiction, and his motion was

granted on January 26, 2017.

¶ 12 On December 23, 2016, PRP filed a lawsuit in the chancery division of the circuit court of

Cook County (case No. 16 CH 16580) against MRC Polymers, seeking rescission of the facility

lease agreement and the equipment lease agreement based upon fraudulent inducement. PRP

alleged that the leases were part of the larger transaction that was the subject of the sale

agreement and that, as a condition of the transaction, PRP was required to enter into the leases

with MRC Polymers because PRP would process postconsumer recycled plastics at MRC

Polymers’ facility, using the assets and intellectual property acquired from MRH, including

the equipment leased under the equipment lease agreement. PRP further alleged that Eberhardt,

on behalf of MRC Polymers as its chairman of the board, officer, and shareholder, and on

behalf of MRH as its chief executive officer and manager, fraudulently induced PRP Holdings

and PRP to enter into the sale agreement and fraudulently induced PRP to enter into the leases

by misrepresenting the functionality of the equipment and intentionally concealing data

concerning the efficacy of the equipment.

5 No. 1-19-2337

¶ 13 After the claims against Eberhardt were dismissed in the Delaware lawsuit, on February 3,

2017, the Pegasus parties filed suit against Eberhardt in the law division of the circuit court of

Cook County (case No. 17 L 001263), seeking damages arising out of Eberhardt’s fraudulent

inducement. The Pegasus parties set forth two causes of action against Eberhardt in his capacity

as president of MRH: (1) fraudulent inducement and (2) fraudulent misrepresentation. On

August 7, 2017, the Pegasus parties filed an amended complaint to add MRH and MRC

Operations and the same claims against them as were filed in the Delaware suit. On November

13, 2017, the Pegasus parties filed a second amended complaint, adding MRC Polymers as a

defendant. MRC Polymers was added to the existing counts based on alter ego liability, and a

new count, in the alternative, alleged that MRC Polymers aided and abetted MRH, MRC

Operations, and Eberhardt in the fraudulent inducement and fraudulent misrepresentations. 4

¶ 14 III. Coverage Dispute

¶ 15 MRC Polymers is the named insured on a private company management liability insurance

policy issued by plaintiff and tendered the defense of both lawsuits to plaintiff under the

directors and officers and entity liability portion of its policy. In response, plaintiff filed the

instant declaratory judgment action, seeking a declaration that it did not owe a duty to defend

or indemnify defendants with respect to the underlying litigation. Defendants each filed

counterclaims, seeking a declaration that they were entitled to coverage under plaintiff’s

policy. As relevant to the instant appeal, plaintiff claimed that defendants were excluded from

coverage due to a “Products and Services Liability Exclusion” in the policy.

4 According to defendants’ motion for summary judgment, the two lawsuits were later consolidated. 6 No. 1-19-2337

¶ 16 The policy at issue was effective from November 15, 2016, through November 15, 2017,

although MRC Polymers had similar policies during the 2014-15 and 2015-16 policy periods.

Section IV of the policy concerned exclusions, including a “Products and Services Liability

Exclusion,” which provided:

“This insurance does not apply to Loss for any Claim based upon, arising out of or

in any way related to any actual or alleged Claim for a Wrongful Act by reason of or in

connection with the efficacy, performance, health or safety standards and/or proprietary

licensing rights for any services, products or technologies offered, promised, delivered,

produced, processed, packaged, sold, marketed, distributed, advertised and/or

developed by the Insured Entity.” 5

The policy further defined a “Wrongful Act” as follows:

“Wrongful Act means any actual or alleged act, error, omission, misstatement,

misleading statement, neglect, breach of duty committed or attempted, or allegedly

committed or attempted by [either an Insured Individual or an Insured Entity,

depending on the type of coverage sought].”

¶ 17 On May 18, 2018, plaintiff filed a motion for summary judgment, claiming, inter alia, that

the products and services liability exclusion barred coverage for the lawsuits because “both

lawsuits are based upon, arising out of, and related to [the Pegasus parties’] allegations that

MRC [Polymers] and Eberhardt misrepresented the efficacy and performance of technologies

and equipment that MRC [Polymers] and Eberhardt offered, promised, delivered, sold, and

developed,” specifically, the washline technology and equipment.

5 When quoting from the insurance policy, all italicized words are defined terms within the policy. 7 No. 1-19-2337

¶ 18 On July 6, 2018, defendants filed a response to plaintiff’s motion for summary judgment

and a cross-motion for summary judgment, claiming that the products and services liability

exclusion was inapplicable because MRC Polymers did not own or develop the “product” at

issue, namely, the intellectual property associated with the washline. Defendants claimed that

MRC Polymers had no role in the underlying business transaction other than as “administrative

lessor of certain buildings and equipment” and that Eberhardt represented MRC Polymers in

connection with those leases but otherwise took no action on MRC Polymers’ behalf.

¶ 19 Attached to defendants’ cross-motion for summary judgment was the declaration of Paul

Binks, president and chief executive officer of MRC Polymers at the time period at issue, who

averred that, in 2009, MRC Polymers applied for and received a grant from the Illinois

Department of Commerce and Economic Opportunity, which allowed MRC Polymers to

construct a facility and install equipment to operate washline technology, whose purpose was

to wash rPET flake. Binks averred that MRC Polymers did not own and had never owned the

washline technology. Instead, Binks averred that a third party, Green Innovation Technologies,

LLC (Green), developed the technology and that MRC Polymers and Green entered into a

contract by which Green licensed the technology to MRC Polymers.

¶ 20 Binks averred that from January 2012 until December 2012, MRC Polymers had a separate

division of its recycling business that it named Recycling Solutions, which operated the

washline technology and equipment from MRC Polymers’ facility and paid royalties to Green

for the use of the technology. Eberhardt was the president of Recycling Solutions and reported

directly to the MRC Polymers board of directors. In December 2012, MRC Polymers spun off

Recycling Solutions and formed MRH. MRH then formed MRC Operations. MRC Polymers

sold some of its assets relating to Recycling Solutions to MRH in an asset purchase agreement,

8 No. 1-19-2337

including any intellectual property rights related to Green’s washline technology that MRC

Polymers may have gained through operating the technology. Binks averred that “MRC

Polymers was never privy to any of Green’s developments or discussions of the Washline

Technology during the period in which the Washline Technology was operated by Recycling

Solutions.” However, MRC Polymers did not sell the facility or the washline equipment as part

of the sale. Instead, MRC Polymers entered into agreements with MRH in which MRC

Polymers leased the equipment and the facility to MRH. Binks averred that, “[a]fter the spin-

off, MRC Polymers had no further involvement with the Washline Technology.”

¶ 21 In response to defendants’ cross-motion for summary judgment, plaintiff argued, inter alia,

that defendants’ extrinsic evidence was “irrelevant” and, to the extent that the court considered

it, plaintiff requested further discovery pursuant to Illinois Supreme Court Rule 191(b) (eff.

Jan. 4, 2013).

¶ 22 On December 10, 2018, the trial court entered an order denying plaintiff’s motion for

summary judgment and staying defendants’ cross-motion for summary judgment pending

further discovery.

¶ 23 On January 25, 2019, plaintiff filed a motion to reconsider, arguing that the trial court had

erred in its application of the law and that the allegations against MRC Polymers were more

than sufficient to trigger the products and services liability exclusion. On June 18, 2019, the

trial court granted plaintiff’s motion to reconsider and granted summary judgment in favor of

plaintiff and against defendants.

¶ 24 Defendants filed a motion to vacate the trial court’s June 18, 2019, order or, in the

alternative, to stay the case under the doctrine set forth by the supreme court in Maryland

9 No. 1-19-2337

Casualty Co. v. Peppers, 64 Ill. 2d 187 (1976). On October 17, 2019, the trial court denied

defendants’ motion. This appeal follows.

¶ 25 ANALYSIS

¶ 26 On appeal, defendants contend that the trial court erred in granting summary judgment in

favor of plaintiff. A trial court is permitted to grant summary judgment only “if the pleadings,

depositions, and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to a judgment as a

matter of law.” 735 ILCS 5/2-1005(c) (West 2018). The trial court must view these documents

and exhibits in the light most favorable to the nonmoving party. Home Insurance Co. v.

Cincinnati Insurance Co., 213 Ill. 2d 307, 315 (2004). We review a trial court’s decision to

grant a motion for summary judgment de novo. Outboard Marine Corp. v. Liberty Mutual

Insurance Co., 154 Ill. 2d 90, 102 (1992). De novo consideration means we perform the same

analysis that a trial judge would perform. XL Specialty Insurance Co. v. Performance Aircraft

Leasing, Inc., 2019 IL App (1st) 181031, ¶ 62. “ ‘The construction of an insurance policy and

a determination of the rights and obligations thereunder are questions of law for the court which

are appropriate subjects for disposition by way of summary judgment.’ ” Steadfast Insurance

Co. v. Caremark Rx, Inc., 359 Ill. App. 3d 749, 755 (2005) (quoting Crum & Forster Managers

Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391 (1993)).

¶ 27 “Summary judgment is a drastic measure and should only be granted if the movant’s right

to judgment is clear and free from doubt.” Outboard Marine Corp., 154 Ill. 2d at 102. However,

“[m]ere speculation, conjecture, or guess is insufficient to withstand summary judgment.”

Sorce v. Naperville Jeep Eagle, Inc., 309 Ill. App. 3d 313, 328 (1999). The party moving for

summary judgment bears the initial burden of proof. Nedzvekas v. Fung, 374 Ill. App. 3d 618,

10 No. 1-19-2337

624 (2007). The movant may meet his burden of proof either by affirmatively showing that

some element of the case must be resolved in his favor or by establishing “ ‘that there is an

absence of evidence to support the nonmoving party’s case.’ ” Nedzvekas, 374 Ill. App. 3d at

624 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). “ ‘The purpose of summary

judgment is not to try an issue of fact but *** to determine whether a triable issue of fact

exists.’ ” Schrager v. North Community Bank, 328 Ill. App. 3d 696, 708 (2002) (quoting Luu

v. Kim, 323 Ill. App. 3d 946, 952 (2001)). We may affirm on any basis appearing in the record,

whether or not the trial court relied on that basis or its reasoning was correct. Ray Dancer, Inc.

v. DMC Corp., 230 Ill. App. 3d 40, 50 (1992).

¶ 28 In the case at bar, defendants claim that the trial court erred in finding that plaintiff had no

duty to defend them in the underlying litigation. Defendants claim that the trial court ignored

allegations in the underlying complaint that would not fall within the exclusion and further

claim that the trial court should have considered their extrinsic evidence that the exclusion did

not apply.

¶ 29 In Illinois, the duties to defend and to indemnify are not coextensive, with the obligation

to defend being broader than the obligation to pay. International Minerals & Chemical Corp.

v. Liberty Mutual Insurance Co., 168 Ill. App. 3d 361, 366 (1988). In determining whether an

insurer has a duty to defend its insured, a court looks to the allegations in the underlying

complaint and compares them to the relevant provisions of the insurance policy. Outboard

Marine Corp., 154 Ill. 2d at 107-08. This principle has been referred to as the “ ‘eight corners

rule.’ ” Country Mutual Insurance Co. v. Dahms, 2016 IL App (1st) 141392, ¶ 37; see also

Farmers Automobile Insurance Ass’n v. Country Mutual Insurance Co., 309 Ill. App. 3d 694,

698 (2000). “If the facts alleged in the underlying complaint fall within, or potentially within,

11 No. 1-19-2337

the policy’s coverage, the insurer’s duty to defend arises.” Outboard Marine Corp., 154 Ill. 2d

at 108. However, if it is clear from the face of the complaint that the allegations fail to state

facts that bring the case within, or potentially within, the policy’s coverage, an insurer may

properly refuse to defend. State Farm Fire & Casualty Co. v. Hatherley, 250 Ill. App. 3d 333,

336 (1993) (citing United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d

64, 73 (1991)).

¶ 30 “[W]here an exclusionary clause is relied upon to deny coverage, its applicability must be

clear and free from doubt because any doubts as to coverage will be resolved in favor of the

insured.” International Minerals & Chemical Corp., 168 Ill. App. 3d at 367; see also Pekin

Insurance Co. v. Wilson, 237 Ill. 2d 446, 456 (2010) (“ ‘provisions that limit or exclude

coverage will be interpreted liberally in favor of the insured and against the insurer’ ” (quoting

American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 479 (1997))). “ ‘Absent absolute

clarity on the face of the complaint that a particular policy exclusion applies, there exists a

potential for coverage and an insurer cannot justifiably refuse to defend.’ ” Lorenzo v. Capitol

Indemnity Corp., 401 Ill. App. 3d 616, 620 (2010) (quoting Novak v. Insurance Administration

Unlimited, Inc., 91 Ill. App. 3d 148, 151 (1980)). “[W]here the language of an insurance policy

is clear and unambiguous, it will be applied as written.” Hatherley, 250 Ill. App. 3d at 337.

¶ 31 In the case at bar, we are asked to consider the applicability of the products and services

liability exclusion, which provided:

“This insurance does not apply to Loss for any Claim based upon, arising out of or in

any way related to any actual or alleged Claim for a Wrongful Act by reason of or in

connection with the efficacy, performance, health or safety standards and/or proprietary

licensing rights for any services, products or technologies offered, promised, delivered,

12 No. 1-19-2337

produced, processed, packaged, sold, marketed, distributed, advertised and/or

developed by the Insured Entity.”

Defendants concede that there are allegations in the underlying complaints that would trigger

this exclusion. However, they claim that there are also allegations that would not fall within

the exclusion and, therefore, they are entitled to coverage. We do not find this argument

persuasive.

¶ 32 Defendants point to two types of allegations that they claim take the underlying complaints

out from under the exclusion. First, they claim that there are allegations that a different entity,

not MRC Polymers, developed the washline technology. For instance, they point to allegations

referring to the washline technology as being “developed by MRH” or developed by MRC

Polymers “or its affiliates.” Defendants also claim that these allegations are supported by the

sale agreement and its schedules, which they argue gives those allegations “greater force than

the merely conclusory assertions of ownership in the text of the complaint.” According to

defendants, if another entity developed the technology, the exclusion does not apply.

¶ 33 Additionally, defendants claim that the underlying complaints include causes of action

against MRC Polymers that are based on vicarious liability. Specifically, defendants point to a

claim based on alter ego liability and a claim, made in the alternative, for aiding and abetting.

Defendants argue that, by definition, if MRC Polymers incurs a loss because of an act

committed by someone else, then the claim falls outside of the exclusion. Consequently,

defendants claim that the presence of these counts shows that there were claims that could fall

within the policy’s coverage and would not fall within the exclusion.

¶ 34 Defendants correctly note that, if any part of the underlying complaint sets forth alleged

facts that are within the scope of coverage, the duty to defend arises. Our supreme court has

13 No. 1-19-2337

made clear that, “if several theories of recovery are alleged in the underlying complaint against

the insured, the insurer’s duty to defend arises even if only one of several theories is within the

potential coverage of the policy.” General Agents Insurance Co. of America, Inc. v. Midwest

Sporting Goods Co., 215 Ill. 2d 146, 155 (2005) (citing Wilkin Insulation Co., 144 Ill. 2d at

73). However, we cannot agree with defendants’ position that such is the case here.

¶ 35 Defendants read the exclusion as applying only in the instance where defendants “offered,

promised, delivered, produced, packaged, sold, marketed, distributed, advertised and/or

developed” the washline technology to the Pegasus parties. Consequently, as noted, they point

to allegations in the underlying complaints that they claim show that another party offered or

developed 6 the technology, suggesting that if another party did so, they could not be found to

have done so. However, as an initial matter, there is nothing to suggest that only one party may

be found to have offered or developed the technology. Certainly, in a commercial transaction,

there may be many different actors who take part in different aspects of the transaction.

¶ 36 More importantly, however, defendants’ argument presupposes that the exclusion applies

only where the insured has offered the product directly to the end user. This reading appears

nowhere in the language of the exclusion. Instead, the exclusion applies to losses from any

claim “based upon, arising out of or in any way related to any actual or alleged Claim for a

Wrongful Act by reason of or in connection with the efficacy, performance, health or safety

standards and/or proprietary licensing rights for any services, products or technologies offered,

promised, delivered, produced, processed, packaged, sold, marketed, distributed, advertised

6 We recognize that the exclusion encompasses more than “offer[ing]” or “develop[ing]” the technology. However, as the language of the exclusion is quite lengthy, the parties have selected several terms as a shorthand throughout the litigation, which we do, as well. Any reference to “offer[ing]” or “develop[ing]” the technology should be read to encompass the entire scope of the conduct referred to in the exclusion. 14 No. 1-19-2337

and/or developed by the Insured Entity.” “An insurance policy is a contract between the

company and the policyholder, the benefits of which are determined by the terms of the

contract unless the terms are contrary to public policy.” State Farm Mutual Automobile

Insurance Co. v. Villicana, 181 Ill. 2d 436, 453 (1998). In construing the language of an

insurance policy, a court must ascertain and give effect to the intention of the parties as

expressed in their agreement. Villicana, 181 Ill. 2d at 441. “To that end, terms utilized in the

policy are accorded their plain and ordinary meaning. [Citation.] We will apply those terms as

written unless such application contravenes public policy. [Citation.]” Villicana, 181 Ill. 2d at

441-42.

¶ 37 The language used in the exclusion is extremely broad. It precludes coverage for (1) a loss

(2) “based upon, arising out of or in any way related to” (3) a claim for a wrongful act (4) “by

reason of or in connection with” the efficacy, performance, health or safety standards and/or

proprietary licensing rights for any services, products, or technologies (5) “offered, promised,

delivered, produced, processed, packaged, sold, marketed, distributed, advertised and/or

developed” by the insured entity—here, MRC Polymers. Thus, the language of the exclusion

lends itself to consideration of several questions. First, was there a service, product, or

technology offered or developed by MRC Polymers? If so, is there a claim for a wrongful act

in connection with the performance of that service, product, or technology? Finally, is there a

loss based on that claim? If the answers to all three questions are yes, then the plain language

of the exclusion operates to preclude coverage.

¶ 38 Here, comparing the allegations in the underlying complaints to the language of the

exclusion contained in the insurance policy, it is clear that the exclusion applies to preclude

coverage for the claims against MRC Polymers. See Outboard Marine Corp., 154 Ill. 2d at

15 No. 1-19-2337

107-08 (in determining whether an insurer has a duty to defend its insured, a court looks to the

allegations in the underlying complaint and compares them to the relevant provisions of the

insurance policy). The allegations of the underlying complaints allege that MRC Polymers sold

its rights to the washline technology to MRH and MRC Operations, which, in turn, entered

into the sale agreement at issue in the underlying litigation. The underlying complaints also

allege that the defendants in the underlying litigation engaged in wrongful acts in connection

with the performance of the washline technology. Specifically, the underlying complaints

allege that the underlying defendants fraudulently induced the Pegasus parties to enter into the

sale agreement by “outright lying” about the capability of the technology, concealing material

information about the technology’s effectiveness from a customer with firsthand experience,

and falsifying data that they provided to the Pegasus parties in support of the transaction. The

underlying complaints further allege that the Pegasus parties incurred substantial damages as

a result of the underlying defendants’ conduct, including the $26 million involved in the sale

agreement and an additional $15 million that they invested to cover operating losses and to

purchase additional machinery, and seek recovery for their damages, including the imposition

of punitive damages. Any monetary judgment that MRC Polymers would be required to pay

as a result of the underlying litigation is expressly defined as a “loss” under the insurance

policy. Thus, the claims against MRC Polymers arise out of the claims for wrongful acts in

connection with the efficacy or performance of services, products, or technologies sold by

MRC Polymers. Consequently, they would fall within the exclusion. Importantly, MRC

Polymers does not dispute, and has never disputed, that it sold its rights to the washline

technology to MRH and MRC Operations. As noted, “[w]here a policy provision is clear and

unambiguous, its language must be taken in its ‘plain, ordinary and popular sense.’ ” Wilkin

16 No. 1-19-2337

Insulation Co., 144 Ill. 2d at 74 (quoting Hartford Accident & Indemnity Co. v. Case

Foundation Co., 10 Ill. App. 3d 115, 121 (1973)). In the case at bar, the claims against MRC

Polymers fall within the clear and unambiguous language of the exclusion and, therefore, we

must find that they are not covered under the policy.

¶ 39 We similarly find unpersuasive defendants’ claim that the allegations against MRC

Polymers were all based on Eberhardt’s conduct and that it would be “more reasonable” to

infer that Eberhardt was acting on behalf of MRH and MRC Operations, not MRC Polymers.

In examining the insurance policy, any doubts as to coverage will be resolved in favor of the

insured. International Minerals & Chemical Corp., 168 Ill. App. 3d at 367. However, this does

not mean that we may ignore the actual allegations of the complaint to determine what is the

“more reasonable” interpretation. Both complaints expressly allege that Eberhardt was acting

on behalf of MRC Polymers. We cannot disregard these allegations simply because defendants

disagree with them.

¶ 40 Finally, defendants argue that the trial court erred in refusing to consider their extrinsic

evidence as to their involvement with the washline technology. “[A] circuit court may, under

certain circumstances, look beyond the underlying complaint in order to determine an insurer’s

duty to defend ***.” Wilson, 237 Ill. 2d at 459.

“ ‘It is certainly true that the duty to defend flows in the first instance from the allegations

in the underlying complaint; this is the concern at the initial stage of the proceedings when

an insurance company encounters the primary decision of whether to defend its insured.

However, if an insurer opts to file a declaratory proceeding, we believe that it may properly

challenge the existence of such a duty by offering evidence to prove that the insured’s

actions fell within the limitations of one of the policy’s exclusions. [Citations.] The only

17 No. 1-19-2337

time such evidence should not be permitted is when it tends to determine an issue crucial

to the determination of the underlying lawsuit [citations] ***.’ ” Wilson, 237 Ill. 2d at 461

(quoting Fidelity & Casualty Co. of New York v. Envirodyne Engineers, Inc., 122 Ill. App.

3d 301, 304-05 (1983)).

Thus, if there is no concern that a crucial issue will be determined, the trial court may consider

evidence that would otherwise be appropriate at that stage of the proceedings. See Wilson, 237

Ill. 2d at 462 (noting that Envirodyne Engineers involved evidence available in summary

judgment proceedings, while Wilson involved evidence available in a grant of judgment on the

pleadings).

¶ 41 In the case at bar, defendants claim that the trial court should have considered the

declaration of Binks, who averred that MRC Polymers did not own and did not develop the

washline technology. The trial court declined to consider this evidence, basing its decision on

the language of the pleadings alone. We agree with the trial court that extrinsic evidence was

not required in the instant case. As noted, the exclusion is applicable because the claims against

MRC Polymers arise from claims for wrongful acts in connection with the efficacy or

performance of services, products, or technologies sold by MRC Polymers. Binks’ declaration

does not contradict or change the fact that MRC Polymers sold its rights to the washline

technology to MRH and MRC Operations, giving rise to the instant action through its

subsequent sale to the Pegasus parties. Consequently, there was no need to consider extrinsic

evidence, and the trial court did not err in declining to consider it.

¶ 42 Moreover, even if it had been considered, Binks’ declaration would not affect the

applicability of the exclusion. Binks averred that MRC Polymers licensed the washline

technology from Green and subsequently sold some of the assets related to Recycling Solutions

18 No. 1-19-2337

to MRH, which included rights to the washline technology. Thus, Binks’ declaration in fact

supports the applicability of the exclusion in the instant case, rather than contradicting it, and

would not have changed the outcome even if it had been considered.

¶ 43 CONCLUSION

¶ 44 For the reasons set forth above, the judgment of the trial court is affirmed. The products

and services liability exclusion bars coverage for the claims against defendants in the

underlying litigation, and the trial court properly found that plaintiff did not have a duty to

defend them.

¶ 45 Affirmed.

19 No. 1-19-2337

No. 1-19-2337

Decision Under Review: Appeal from the Circuit Court of Cook County, No. 2017-CH- 3929; the Hon. Michael T. Mullen, Judge, presiding.

Attorneys Scott C. Solberg, James W. Joseph, and Caroline P. Malone, for of Eimer Stahl LLP, and John M. George Jr., of Katten & Temple Appellant: LLP, both of Chicago, for appellants.

Attorneys David F. Cutter, Ryan M. Henderson, for and Ommid C. Farashahi, of BatesCarey LLP, of Chicago, for Appellee: appellee.