SECOND DIVISION FILED: December 26, 2007
No. 1-06-3363
IMC GLOBAL, n/k/a MOSAIC GLOBAL ) APPEAL FROM THE HOLDINGS, INC., ) CIRCUIT COURT OF ) COOK COUNTY Plaintiff/Counter-Defendant/ ) Appellant, ) ) v. ) ) CONTINENTAL INSURANCE COMPANY, ) ) Defendant/Third-Party Plaintiff, ) ) v. ) ) EMPLOYERS MUTUAL LIABILITY INSURANCE ) 02 CH 10271 COMPANY OF WISCONSIN, n/k/a EMPLOYERS ) INSURANCE COMPANY OF WAUSAU, ) ) Third-Party Defendant/Counter- ) Plaintiff/Appellee, ) ) and ) ) HARTFORD ACCIDENT & INDEMNITY COMPANY, ) HOME INDEMNITY COMPANY, INTERNATIONAL ) INSURANCE COMPANY, LIBERTY MUTUAL ) INSURANCE COMPANY, MARYLAND CASUALTY ) COMPANY, NATIONAL UNION INSURANCE ) COMPANY OF PITTSBURGH, PA., ) THE HONORABLE ) PETER FLYNN, Third-Party Defendants. ) JUDGE PRESIDING.
PRESIDING JUSTICE HOFFMAN delivered the opinion of the court:
Mosaic Global Holdings, Inc. (Mosaic), appeals from a
declaratory judgment entered in favor of Employers Insurance
Company of Wausau (Wausau), finding that Wausau had no duty to
defend or indemnify Mosaic in underlying federal actions involving
claims for personal injury and property damage resulting from
exposure to hazardous chemicals at a fertilizer plant formerly 1-06-3363
operated by Mosaic's predecessor-in-interest. For the reasons
which follow, we affirm.
The essential facts giving rise to this appeal are not in
dispute. Mosaic's predecessor-in-interest, International Minerals
& Chemical Corporation, operated a fertilizer production plant in
Spartanburg, South Carolina from 1910 until 1986. In the late
1960s, Wausau's predecessor-in-interest, Employers Mutual Insurance
Company of Wisconsin, issued two comprehensive general liability policies to International Minerals & Chemical Corporation. The
first policy provided coverage from December 1967 until December
1968 (hereinafter the "1967 Policy"), while the second policy
provided coverage from December 1968 through December 1969
(hereinafter the "1968 Policy").
As originally written, both policies contained the following
notice provision:
"9. Notice to Company. Written notice of
occurrences which may be the basis of claim shall be given by or on behalf of the insured
to the company or any of its authorized agents
as soon as practicable. Such notice shall
contain particulars sufficient to identify the
insured and also reasonably obtainable
information respecting the time, place and
circumstances of the occurrence, the names and
addresses of the injured and of available
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witnesses. If claim is made or suit is
brought against the insured, the insured shall
immediately forward to the company every
demand, notice, summons or other process
received by him or his representative."
After the policies were issued, the parties amended the notice
provisions. With regard to the 1967 Policy, the relevant
amendatory endorsement reads as follows: "It is hereby understood and agreed that
condition number 9 of this policy, to which
this endorsement is made to form a part, is
amended to read as follows:
When an accident occurs, written notice
shall be given by or on behalf of the insured
as soon as practicable after the accident is
known to the insurance division of the insured's office, Skokie. Such notice shall
insured and also reasonable [sic.] obtainable
circumstances of the accident, the names and
witnesses."
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The amendatory endorsement to the 1968 Policy provides:
"It is hereby understood and agreed that
When an accident occurs, written notice shall be given by or
on behalf of the insured to the company or any of its authorized
agents as soon as practicable after the accident is known to the insurance division of the insured's office, Skokie. Such notice
shall contain particulars sufficient to identify the insured and
also reasonable [sic.] obtainable information respecting the time,
place and circumstances of the accident, the named [sic.] and
addresses of the injured and of available witnesses. If a claim is
made or suit is brought against the insured, the insured shall
immediately forward to the company every demand, notice, summons or
other process received by him or his representative."
On April 17, 1999, representatives from Mosaic met with residents of the Spartanburg community to discuss issues regarding
the former fertilizer plant. At the meeting, Grover Hankins, a law
professor at Texas Southern University, demanded that Mosaic pay
$25 million to relocate the community and $150 million as
compensation to the community for past "injustices." Mosaic did
not notify Wausau of Professor Hankins' $175 million demand.
In a letter dated May 13, 1999, Russell Heald informed Mosaic
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that Professor Hankins and the law firm of Hilliard & Heald
represented most of the residents who lived around the abandoned
fertilizer plant in Spartanburg. Attached to the letter was a list
of approximately 650 residents of the community purportedly
represented by Professor Hankins and Hillard & Heald. During a
phone conversation on February 9, 2000, Bob Hilliard of Hilliard &
Heald informed Mosaic's outside counsel that his clients intended
to file suit against Mosaic within the next 60 to 90 days. Nothing in the record indicates that Mosaic provided Wausau with notice of
either the May 13, 1999, letter or the February 9, 2000, phone
conversation.
On August 31, 2000, approximately 1,200 current and former
residents of Spartanburg brought suit against Mosaic in the United
States District Court for the District of South Carolina, alleging
personal injury and property damage resulting from exposure to
hazardous chemicals released during Mosaic's operation of the
fertilizer plant. On October 2, 2000, Mosaic hired the law firm of Hunton & Williams to defend it in the federal lawsuit.
At the bench trial held in the instant declaratory judgment
action, Richard Cox, the director of risk management at Mosaic,
testified that he was responsible for notifying insurance carriers
of claims against Mosaic when the federal lawsuit was filed. In
November of 2000, Cox received a copy of the August 31, 2000,
lawsuit. Mosaic's legal department supplied him with a "stack of
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papers" containing the letters that Mosaic had previously sent to
approximately 70 primary and excess liability insurers in 1996 to
notify them of "an occurrence resulting in response costs to remedy
unexpected contamination by hazardous substances" at the
Spartanburg plant. On November 20, 2000, Cox sent notice of the
August 31, 2000, lawsuit to various insurers using the addresses on
the 1996 notification letters.
Included among the documents Cox received from the legal department was a 1996 letter referencing the two polices at issue
in this case. The letter, however, was addressed to "Employers
Mutual" in Des Monies, Iowa, rather than to Wausau. Accordingly,
Cox did not provide Wausau with notice of the federal lawsuit on
November 20, 2000, but mistakenly sent a notice letter concerning
the two polices to Employers Mutual Casual Company in Des Moines,
Iowa. On July 10, 2001, Cox sent a second letter to Employers
Mutual in Des Moines, Iowa regarding the two polices.
The materials that Cox received also contained notice letters sent to Wausau in 1996 concerning excess coverage policies issued
by Wausau. Cox, however, admitted that he missed those documents
when he prepared the November 20, 2000, notification letters.
On January 9, 2001, the individual parties and claims in the
August 31, 2000, federal lawsuit were severed. On April 5, 2001,
907 of the 1,200 original plaintiffs filed separate, albeit
similar, lawsuits in the federal district court.
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On October 12, 2001, the law firm of Foley & Lardner, which
Mosaic had retained as its insurance counsel, served Wausau with
copies of the 907 complaints in the underlying federal actions and
tendered the defense of the litigation to Wausau. By a letter
dated January 7, 2002, Wausau denied coverage for those lawsuits
where the claimants (1) alleged injury as a result of their
exposure during their employment at the fertilizer plant or (2)
alleged they were not exposed to the contaminants until after the polices had expired. In that same letter, Wausau agreed to defend
Mosaic in the remainder of the lawsuits under a reservation of
rights.
In a letter to Wausau dated January 11, 2002, Foley & Lardner
noted that Mosaic's legal fees and expenses in defending the
underlying suits exceeded $2 million and requested that Wausau
"begin paying its share of these defense costs." The letter
further stated that, "[w]hile we believe that each insurer with a
duty to defend is responsible for these fees, in the interest of moving forward, we would like to hear from you to arrange initial
payments of an appropriate share." By a letter dated January 21,
2002, Wausau reiterated its coverage position and noted that pre-
tender defense costs would not be paid.
In May of 2002, attorneys at Foley & Lardner met with Harold
Moore, the Wausau employee assigned to Mosaic's insurance claims.
On Wausau's behalf, Moore offered to pay 4% of the reasonable
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defense costs. Moore testified that, at the meeting, one of Foley
& Lardner's attorneys informed him that there were no pre-tender
defense costs because Mosaic had provided notice to Wausau prior to
October 12, 2001.
In July of 2002, after an agreement as to Wausau's
"appropriate" share of the defense costs could not be reached,
Wausau agreed to pay, under a reservation of rights, 100% of
Mosaic's reasonable defense costs incurred after Wausau was tendered the defense of the underlying federal actions. On July
22, 2002, Mosaic provided Wausau with the billing invoices paid to
date in defense of the underlying actions.
By letters dated July 15, 2002, and August 13, 2002, Mosaic
reminded Wausau of its agreement to pay 100% of the defense costs
and further stated that Wausau had first received notice on
November 20, 2000. Attached to the August 13, 2002, letter were
copies of the November 20, 2000, and July 21, 2001, letters Cox
sent to Employers Mutual in Des Moines, Iowa concerning the two polices at issue in this case.
In an e-mail sent on August 21, 2002, Moore informed Mosaic
that it appeared that the November 2000 and July 2001 notification
letters were sent to Employers Mutual of Iowa, not Wausau. Moore
further stated that he had initiated an investigation into whether
an affiliation between the two companies existed.
According to his testimony, Moore conducted a line-by-line
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review of the billing invoices submitted on July 22, 2002. After
he reviewed two months of invoices, Wausau paid $223,101.79 to
Mosaic on August 30, 2002, as reimbursement for the two months of
defense costs.
Sometime in late August or early September of 2002, Moore was
informed that there was no relationship between Employers Mutual of
Iowa and Wausau. In a letter authored by Moore and dated September
9, 2002, Wausau denied coverage based upon Mosaic's failure to provide timely notice of the underlying federal actions.
On September 13, 2002, Wausau filed a counterclaim against
Mosaic in the instant action brought by another insurance company.
In its counterclaim, Wausau sought, inter alia, a declaration that
it had no obligation to defend or indemnify Mosaic in the
underlying actions.
On October 4, 2005, Mosaic filed a motion for partial summary
judgment, arguing, inter alia, that summary judgment should be
granted on Wausau's late notice of suit defense with respect to the 1967 Policy because the amendment to the policy had eliminated the
notice of lawsuit requirement in the policy. The circuit court
agreed and granted Mosaic's motion.
On November 1, 2005, Mosaic filed another motion for summary
judgment, arguing, inter alia, that Wausau was estopped from
asserting policy defense because it failed to either defend Mosaic
in the underlying actions or timely seek a declaratory judgment on
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its duty to defend. The circuit court denied this motion.
Mosaic and Wausau then proceeded to a bench trial on Wausau's
late notice of lawsuit defense under the 1968 Policy. Near the end
of the trial, Wausau moved for reconsideration of the circuit
court's decision with regard to the notice of lawsuit provision in
the 1967 Policy. Shortly before closing arguments were held, the
court granted Wausau's motion to reconsider and vacated the partial
summary judgment. Although the circuit court reaffirmed its earlier ruling that the amendment unambiguously removed the notice
of lawsuit requirement from the 1967 Policy, the court concluded
that the removal of the notice requirement was clearly a mistake.
In making this ruling, the circuit court stated:
"What does one do in a situation of that
sort? In my view, notwithstanding the
objective theory of contract, it would be
absolutely ridiculous to hold parties to a
result that neither of them demonstrably intended based on an unfortunate wording. The
cause of action for reformation is one method
of addressing situations of that kind. But I
prefer to get at it more simply than that.
Calamari, C-a-l-a-m-a-r-i, and Perillo,
P-e-r-i-l-l-o, on contracts, third edition,
section 9-27 at page 387 addresses situations
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of unilateral mistake. The beginning of that
section reads as follows: 'Until recently the
common generalization has been that avoidance
is not available for unilateral mistake except
where the other party knows or has reason to
know the mistake.' I pause to observe that
this is a situation in which based on the
testimony of Mr. Cox, I find that [Mosaic] knew or had reason to know of the mistake in
framing the endorsement as is demonstrated by
the fact that [Mosaic's] own personnel
apparently did not read the endorsement as
meaning what [Mosaic's] alert counsel have
subsequently pointed out that in fact it says.
Calamari and Perillo go on in the same
section on page 387 to say if the mistake - I
quote, 'If the mistake is large enough that it should be obvious, then the mistake is
classified as palpable and relief is easily
given.' In this case the mistake in the
endorsement was to eliminate from a primary
liability policy an element of a primary
liability policy, which nobody has even
testified to the point, has ever seen missing
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from such a policy before and one the
elimination of which makes a hash of the
policy. In my view, that qualifies as a
palpable error on any standard. Timely notice
of suit is indeed, as Mr. Cox testified, basic
to a liability policy.
***
I conclude that the granting of partial summary judgment on that point was erroneous,
and Wausau's motion to reconsider on that
point is granted. I will, therefore, for
purposes of future proceedings assume that
policy number one means the same thing with
regard to notice of suit, notice of claim or
suit, as policy number two."
At the conclusion of the bench trial, the circuit court
entered an order on February 22, 2006, finding that, under both the 1967 Policy and the 1968 Policy, Mosaic was required to provide
Wausau with timely notice of a claim or suit. The court, however,
determined that Mosaic's delay in providing notice (1) was
inadvertent, (2) was not inexcusable under the circumstances, and
(3) did not prejudice Wausau; and, therefore, the delay did not
relieve Wausau from its obligations under the policy. The court
further found that Mosaic breached its duty of cooperation by
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delaying the transmission of the defense billing invoices in the
underlying federal actions to Wausau and reduced Wausau's
responsibility for those bills by 10%. Finally, the court
concluded that Wausau was liable to Mosaic under both policies in
an amount to be determined in the future.
Thereafter, Wausau filed a motion to reconsider that portion
of the circuit court's February 22, 2006, order that rejected its
late-notice defense. Mosaic also filed a motion to reconsider the pre-trial order rejecting its estoppel defense.
On October 13, 2006, the circuit court denied Mosaic's motion
for reconsideration and reaffirmed its conclusion that Wausau was
not estopped from denying coverage. On that same date, the court
granted Wausau's motion for reconsideration and concluded that
Mosaic's notice to Wausau was unreasonably and inexcusably late.
As a consequence, the circuit court found that Wausau owed no
coverage to Mosaic under the policies. The October 13, 2006, order
also contained the requisite findings under Supreme Court Rule 304(a) (210 Ill. 2d R. 304(a)) that there was no just reason to
delay enforcement or appeal. This appeal followed.
When, as in this case, a challenge is made to a ruling
following a bench trial, the circuit court's judgment will not be
disturbed on appeal unless it is against the manifest weight of the
evidence. Brody v. Finch University of Health Science/The Chicago
Medical School, 298 Ill. App. 3d 146, 153, 698 N.E.2d 257 (1998).
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A judgment is against the manifest weight of the evidence only
where the opposite conclusion is clearly evident or where the
factual findings upon which it is based are unreasonable,
arbitrary, or not based on the evidence. Brody, 298 Ill. App. 3d
at 153.
On appeal, Mosaic argues that the circuit court erred when it
concluded that the absence of the notice of claim or suit
requirement in the 1967 Policy was a mistake and sua sponte reformed the policy to include such a provision. We agree.
Contrary to the circuit court's assertions that it was not
reforming the policy, it cited to a section of a treatise
discussing rescission, (see J. Calamari & J. Perillo, Contracts,
§9-27, at 386-88 (3rd ed. 1987)), and then appeared to have
reformed the 1967 Policy by including a notice of claim or suit
requirement in the policy. See Schaffner v. 514 W. Grant Place
Condominium Ass'n, 324 Ill. App. 3d 1033, 1044, 756 N.E.2d 854
(2001) (reformation allows a contract to be amended to reflect the true agreement between the parties). Wausua, however, never sought
reformation in its complaint, nor did it seek to amend its
pleadings to conform with the proofs on this issue.
The issues in controversy and the theories upon which recovery
is sought are fixed in the complaint. Kincaid v. Ames Department
Stores, 283 Ill. App. 3d 555, 568, 670 N.E.2d 1103 (1996).
Accordingly, the circuit court lacks jurisdiction to adjudicate an
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issue not presented through proper pleadings. William J. Templeman
Co. v. Liberty Mutual Insurance Co., 316 Ill. App. 3d 379, 388, 735
N.E.2d 669 (2000). Because Wausau never raised the issue of
reformation in its complaint or sought to conform its pleadings to
the proofs asserting reformation, we disagree with the basis upon
which the circuit court concluded that the 1967 Policy required
Mosaic to provide Wausau with notice of a claim or suit. However,
as this court may affirm the judgment of the circuit court on any basis in the record (Liberty Mutual Insurance Co. v. American Home
Assurance Co., 368 Ill. App. 3d 948, 955, 858 N.E.2d 530 (2006)),
our analysis continues.
Wausau argues that the circuit court misconstrued the
amendatory endorsement to the 1967 Policy. It contends that the
endorsement only modified the occurrence notice portion of the 1967
Policy and did not affect the requirement that notice be given to
the insurer if a claim or suit is brought against the insured.
Wausau further contends that the absence of a notice of claim or suit provision would be absurd, as a key component of the policy
would be eliminated. Mosaic disagrees, maintaining that, because
the sentence requiring notice of a claim or suit is not included in
the endorsement, this condition was eliminated from the 1967
Policy.
When construing the language of an insurance policy, our
primary function is to give effect to the intention of the parties
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as expressed by the words of the policy. Central Illinois Light
Co. v. Home Insurance Co., 213 Ill. 2d 141, 153, 821 N.E.2d 206
(2004). An insurance policy is construed as a whole, giving effect
to every provision. Central Illinois Light Co., 213 Ill. 2d at
153. Where the language of the policy is clear and unambiguous, it
must be given its plain, ordinary, and popular meaning. Rich v.
Principal Life Insurance Co., 226 Ill. 2d 359, 371, 875 N.E.2d 1082
(2007). If the words used in the policy are susceptible to more than one reasonable interpretation, the ambiguity must be resolved
in favor of coverage. Rich, 226 Ill. 2d at 371.
As originally written, condition number 9 of the 1967 Policy
required that:
"Written notice of occurrences which may be
the basis of claim shall be given by or on
behalf of the insured to the company or any of
its authorized agents as soon as practicable.
Such notice shall contain particulars sufficient to identify the insured and also
reasonably obtainable information respecting
the time, place and circumstances of the
occurrence, the names and addresses of the
injured and of available witnesses. If claim
is made or suit is brought against the
insured, the insured shall immediately forward
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to the company every demand, notice, summons
or other process received by him or his
representative."
The parties then entered into an amendatory endorsement, which
provided:
this endorsement is made to form a part, is amended to read as follows:
known to the insurance division of the
insured's office, Skokie. Such notice shall
insured and also reasonable [sic.] obtainable information respecting the time, place and
Generally, when the parties declare that a provision to a
contract shall be "amended to read as follows," the new provision
is substituted for the old one, and all portions omitted from the
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new provision are deleted. See Goodall v. Illinois, 123 Ill. 389,
394, 15 N.E. 171 (1888). This rule, however, is not absolute and
will not be applied when it is contrary to the intention of the
parties. See Gerdts v. Gerdts, 196 Minn. 599, 601-02, 265 N.W. 811
(1936); State ex rel. Board of Regents of Normal Schools v. Donald,
163 Wis. 145, 148, 157 N.W. 782 (1916).
Based on the facts of this case, it is clear that the purpose
of the endorsement to the 1967 Policy was to amend only Mosaic's duty to provide notice of an occurrence by allowing this duty to be
triggered when Mosaic's insurance division became aware of an
accident; nothing in the endorsement amended that portion of
condition number 9 requiring notice of a claim or suit. Under the
provisions of the 1967 Policy, Wausau is required to "defend any
suit against the insured alleging *** injury, sickness, disease or
destruction [within the scope of the policy] and seeking damages on
account thereof, even if such suit is groundless, false or
fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems
expedient." Without timely notice of a pending claim or lawsuit,
Wausau could not fulfill its obligations under the policy to defend
its insured or exercise its rights to investigate, negotiate, or
settle a claim or suit. The very purpose of a notice of claim or
suit provision is to afford the insurer the opportunity to conduct
a timely and thorough investigation of the insured’s claim, as well
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as, the opportunity to locate and participate in the defense of the
insured. Northbrook Property & Casualty Co. v. Applied Systems,
Inc., 313 Ill. App. 3d 457, 464-65, 729 N.E.2d 915 (2000).
Furthermore, both Cox and Moore testified that they had never
observed a comprehensive general liability insurance policy that
did not contain a provision requiring notice of a claim or suit.
As a consequence, we do not believe that the parties intended the
amendatory endorsement to wholly supplant condition number 9 in the 1967 Policy and eliminate the notice of claim or suit requirement.
Whenever possible, the main body of the policy must be
construed in conjunction with the endorsements in order to
determine the meaning and effect of the insurance contract.
Protective Insurance Co. v. Coleman, 144 Ill. App. 3d 682, 695, 494
N.E.2d 1241 (1986). Only where an endorsement irreconcilably
conflicts with a provision in the body of the policy, will the
terms of the endorsement control. Vole v. Atlanta International
Insurance Co., 172 Ill. App. 3d 480, 483, 526 N.E.2d 653 (1988). Because there is no provision in the amendatory endorsement
concerning notice of claim or suit, there is no conflict, and the
provision in the body of the 1967 Policy requiring such notice was
not eliminated. Consequently, we affirm the circuit court’s
finding that Mosaic was required to provide Wausau with notice of
a claim or suit under both policies at issue.
Next, Mosaic argues that the circuit court erred in accepting
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Wausau’s late notice-defense. Mosaic contends that its delay in
notifying Wausau of the underlying federal actions was reasonable
under the circumstances of this case. We disagree.
According to the policies at issue in this case, when a claim
or suit is brought against Mosaic, it must "immediately forward to
the company every demand, notice, summons or other process received
by him or his representative." Under Illinois law, a provision
calling for an insured to provide notice "immediately" requires notification within a reasonable time. Zurich Insurance Co. v.
Walsh Construction Co. of Illinois, 352 Ill. App. 3d 504, 512, 816
N.E.2d 801 (2004). Whether reasonable notice was given by the
insured depends on the facts and circumstances of the particular
case. Northbrook Property & Casualty Insurance Co., 313 Ill. App.
3d at 465. In determining whether reasonable notice was provided,
courts consider several factors, including the language of the
policy, the sophistication of the insured, the insured's awareness
that a suit was pending, and the insured's diligence in ascertaining whether policy coverage was available. Northern
Insurance Co. of New York v. City of Chicago, 325 Ill. App. 3d
1086, 1092, 759 N.E.2d 144 (2001). Prejudice to the insurer is an
additional factor to be considered when determining whether an
insured has fulfilled a policy condition requiring reasonable
notice. Country Mutual Insurance Co. v. Livorsi Marine, 222 Ill.
2d 303, 317, 856 N.E.2d 338 (2006). However, an insured’s failure
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to provide reasonable notice relieves the insurer of its
obligations to provide coverage regardless of whether the insurer
was prejudiced. Country Mutual Insurance Co., 222 Ill. 2d at 317.
Mosaic had a duty to notify Wausau when the initial federal
lawsuit was filed on August 31, 2000, and again when the subsequent
907 individual lawsuits were filed on April 5, 2001. Although
somewhat unclear, it appears from the record that Wausau first
became aware of the initial lawsuit and the subsequent 907 individual lawsuits when notified by Mosaic on October 12, 2001.
This would constitute a delay of 13 months for the initial suit and
6 months for the subsequent 907 lawsuits.
We agree with the circuit court that Mosaic's 13- and 6-month
delay in notifying Wausau was unreasonable. Similar periods have
been held to be unreasonable as a matter of law. See Equity General
Insurance Co. v. Patis, 119 Ill. App. 3d 232, 237-38, 456 N.E.2d 348
(1983) (five months); Illinois Valley Minerals Corp. v. Royal-Globe
Insurance Co., 70 Ill. App. 3d 296, 301, 388 N.E.2d 253 (1979) (six months). The only reason offered by Mosaic for its delay in
providing notice was that Cox, its director of risk management,
inadvertently sent notification to the wrong insurer. Contrary to
Mosaic's assertion, an insured's own negligence will not excuse a
lengthy delay in providing notice. American Country Insurance Co.
v. Bruhn, 289 Ill. App. 3d 241, 248, 682 N.E.2d 366 (1997).
Consequently, mistakenly notifying the wrong insurance company is
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not a sufficient excuse for failing to provide the correct insurer
with timely notice. See Ross v. Mayflower Drug Stores, Inc., 338
Pa. 211, 214, 12 A.2d 569, 570 (Pa. 1940); Reina v. United States
Casualty Co., 228 A.D. 108, 110, 239 N.Y.S. 196, 198 (N.Y. 1930).1
Based on the record before us, we conclude the circuit court's
finding that Mosaic's delay in notifying Wausau was unreasonable and
inexcusable is not against the manifest weight of the evidence.
Alternatively, Mosaic argues that, even if its notice was untimely, the circuit court erred in finding that Wausau was not
estopped from raising a late-notice defense. Again, we disagree.
Under the estoppel doctrine, an insurer which takes the
position that a complaint alleging actions that potentially fall
within the coverage offered is not covered under a policy that
1 Mosaic cites to Universal Underwriters Insurance Co. v. Patriot Ambulette, Inc., 149 A.D.2d 500, 539 N.Y.S.2d 981 (N.Y. 1989) (Patriot Ambulette) for the proposition that sending notice to the wrong insurer is a legitimate excuse for an insured's delay in providing notice. In Patriot Ambulette, the Appellate Division of the Supreme Court of New York found that a five-month delay in providing notice was not unreasonably late where the insured's broker originally sent notice to the wrong insurance company and the uncontradicted evidence showed that the correct insurer had actual notice of the underlying claim and had dispatched an investigator three months after the accident. Patriot Ambulette, 149 A.D.2d at 500-01, 539 N.Y.S.2d at 981-982. Subsequent New York decisions, however, have limited Patriot Ambulette to the specific facts of the case and have concluded that a lengthy delay was not excused where the incorrect insurance company was mistakenly notified. See Gershow Recycling Corp. v. Transcontinental Insurance Co., 22 A.D.3d 460, 462, 801 N.Y.S.2d 832, 833-34 (N.Y. 2005); M.Z. Discount Clothing Corp. v. Meyninger, 23 F. Supp. 2d 270, 272 (E.D.N.Y. 1998) (applying New York law).
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includes a duty to defend may not simply refuse to defend the
insured. Employers Insurance of Wausau v. Ehlco Liquidating Trust,
186 Ill. 2d 127, 150, 708 N.E.2d 1122 (1999) (Ehlco). Rather, the
insurer must either (1) defend the underlying suit under a
reservation of rights or (2) seek a declaratory judgment that no
coverage exists. Ehlco, 186 Ill. 2d at 150. An insurer that fails
to take either of these steps and is subsequently found to have
wrongfully denied coverage will be estopped from raising defenses to coverage, including a late-notice defense. Ehlco 186 Ill. 2d at
150-51.
Mosaic contends that Wausau did not defend it under a
reservation of rights or timely file a declaratory judgment action
seeking a ruling of no coverage. With regard to its argument
regarding Wausau's defense under a reservation of rights, Mosaic
asserts that Wausau did not actually provide a defense in the
underlying federal actions. It maintains that Wausau's offer to
participate in the defense at a rate of 4% and subsequent payment of only $223,101.79 did not satisfy its duty to defend. See Ehlco
186 Ill. 2d at 157 (finding that an insurer did not provide a
defense by merely offering to pay 9% of the defense costs incurred).
Mosaic's argument, however, is not well taken.
Generally, where an insurer agrees to defend under a
reservation of rights, it will not be barred from pursuing policy
defenses in a subsequently filed declaratory judgment action. See
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Hartford Fire Insurance Co. v. Whitehall Convalescent & Nursing
Home, Inc., 321 Ill. App. 3d 879, 888, 748 N.E.2d 674 (2001).
However, if the insurer fails to act reasonably in providing a
defense, it may still be estopped from raising defenses to coverage.
See Central Mutual Insurance Co. v. Kammerling, 212 Ill. App. 3d
744, 749-50, 571 N.E.2d 806 (1991). We believe that an insurer may
discharge its contractual obligations to defend by reimbursing the
insured for the reasonable cost of hiring independent counsel. See Stevenson v. State Farm Fire & Casualty Co., 257 Ill. App. 3d 179,
186, 628 N.E.2d 810 (1993) (where a conflict of interest arises
between an insurer and its insured, the insurer fulfills its
obligation to defend by reimbursing the insured for the cost of
independent counsel).
On January 7, 2002, three months after first receiving notice
of the underlying federal actions on October 12, 2001, Wausau agreed
to defend Mosaic under a reservation of rights. In a letter dated
January 11, 2002, Mosaic requested that Wausau begin paying its "appropriate share" of the defense costs incurred. At a subsequent
meeting held in May of 2002, Wausau offered to pay 4% of the defense
costs.
In July of 2002, after an agreement as to Wausau's "appropriate
share" of the defense costs could not be reached, Wausau agreed to
pay 100% of Mosaic's "reasonable" defense costs, again under a
reservation of rights. Wausau was first provided with the defense
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billing invoices on July 22, 2002. According to his testimony,
Moore conducted a line-by-line review of the billing invoices and,
by August 30, 2002, had reviewed two months of invoices. On that
date, Wausau paid Mosaic $223,101.79, as reimbursement for the two
months of defense costs. Based on these facts, the circuit court
concluded that Wausau honored its duty to defend. In light of the
record before us, we cannot find that the court's decision in this
regard is against the manifest weight of the evidence. Shortly after paying the $223,101.79, for two months of defense
costs, Moore determined that, contrary to Mosaic's representations,
Wausau had not received notice of the underlying actions prior to
October 12, 2001. On September 9, 2002, Wausau denied coverage
based on Mosaic's failure to provide timely notice. Four days
later, on September 13, 2002, Wausau filed a declaratory judgment
action, thereby suspending its obligations to defend Mosaic. See
Certain Underwriters at Lloyd's v. Professional Underwriters Agency,
Inc., 364 Ill. App. 3d 975, 983-84, 848 N.E.2d 597 (2006). Based on the record, we find that a trier of fact could
rationally conclude that Wausau acted reasonably in defending Mosaic
under a reservation of rights. At Mosaic's request that Wausau pay
its appropriate share of the defense costs, Wausau originally
offered to pay 4%. Shortly thereafter, when an agreement could not
be reached as to Wausau's "appropriate share" of the defense costs,
Wausau agreed to pay 100% of Mosaic's reasonable defense costs and,
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within five weeks of receiving the billing invoices, reviewed two
months of invoices and paid Mosaic $223,101.79, as reimbursement for
two months' worth of costs. Within the next 14 days, Wausau learned
that it had not received notice of the underlying actions prior to
October 12, 2001, denied coverage, and brought a declaratory
judgment action. Having found that a rational trier of fact could
have concluded that Wausau reasonably provided Mosaic with a defense
subject to a reservation of rights, it follows that the circuit court's decision finding that Wausau was not estopped from asserting
a late-notice defense is not against the manifest weight of the
evidence.
For the foregoing reasons, we affirm the circuit court's
October 13, 2006, order, finding that Wausau owed no coverage to
Mosaic under both the 1967 Policy and the 1968 Policy. In light of
our conclusion, we need not address Wausau's alternative arguments
for affirmance.
Affirmed.
SOUTH and KARNEZIS, JJ., concur.
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