United States District Court, Northern District of Illinois, E. D
January 29, 1971
SEARS, ROEBUCK AND CO., A NEW YORK CORPORATION, PLAINTIFF,
ZURICH INSURANCE COMPANY, AN INSURANCE CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Robson, Chief Judge.
MEMORANDUM AND ORDER ON PLAINTIFF'S MOTION FOR SUMMARY
The plaintiff moves for summary judgment. For the reasons
set forth below, this court is of the opinion the motion
should be granted.
The plaintiff, Sears, Roebuck and Company ("Sears"), a New
York corporation with its principal place of business at
Chicago, Illinois, brings this action against the defendant,
Zurich Insurance Company ("Zurich"), a Swiss corporation with
its principal place of business at Zurich, Switzerland, for a
declaration of its rights under an insurance policy issued by
the defendant. The controversy arises out of a suit against
Sears filed by John and Elizabeth Malone in the Superior Court
of Suffolk County, Massachusetts, and subsequently removed to
the United States District Court at Boston. The Malone
complaint charged that a television set they purchased from
Sears exploded and burned in their home, causing property
damage in the amount of $45,500. The television set in
question had been manufactured by Warwick Electronics, Inc.
("Warwick"), Zurich's principal insured. The Malone complaint
alleged in six counts that the television set had been
defectively manufactured, and in two counts alleged that the
television set had been improperly serviced by Sears. It is
undisputed that the six counts alleging defective
manufacturing state facts which, if proven, would be covered
by the insurance policy in question. However, the two counts
involving alleged improper servicing are excluded from
coverage by the terms of that policy. Neither Zurich nor
Warwick were parties to the Malone action.
Although tendered the defense of the Malone suit, Zurich
refused to defend on Sears' behalf. Sears then filed this
action, seeking a declaration of rights under the policy of
insurance issued by Zurich to Warwick and extended to Sears by
reason of a vendors' endorsement. Specifically, Sears seeks a
declaration that by virtue of the insurance policy and its
extension to Sears, Zurich was obligated to defend and
indemnify Sears in the Malone action. During the pendency of
the declaratory judgment action in this court, the Malone suit
was tried to a verdict and judgment was entered on Sears'
behalf. The United States Court of Appeals for the First
Circuit dismissed the Malones' subsequent appeal. John D.
Malone, et al. v. Sears, Roebuck and Co., No. 7686, August 25,
1970. While Sears' request for determination of Zurich's
liability arising from any hypothetical judgment in the Malone
suit is now moot, the question of Zurich's liability for
Sears' expenditures incurred in successfully defending that
suit is clearly ripe for decision.
Zurich contends that summary judgment is improper because
there exists an issue of fact as to whether Sears complied
with the notice provision of the insurance policy. The
provision relied upon by Zurich states as follows:
"8. Notice of Accident. 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. Such
notice shall contain particulars sufficient to
identify the insured and also reasonably obtainable
information respecting the time, place and
circumstances of the accident, the names, addresses
of the injured and of available witnesses."
Defendant's Memorandum in Opposition to Motion for
Summary Judgment, p. 1 (Emphasis supplied).
It is undisputed that Sears received notice of the Malone
claim on September 8, 1967. Sears was served with summons in
the Malone suit on October 5, 1967. Zurich received notice of
the Malone claim on November 17, 1967. Zurich contends that
this lapse of approximately two and a half months between
initial assertion of the claim by the Malones and Sears'
notice to Zurich raises a question of fact as to whether Sears
gave notice "as soon as practicable."
Whether the time sequence involved here raises a question of
fact or law as to the sufficiency of the notice given by Sears
is not a material issue within the context of this action.
Zurich did not raise a defense based upon late notice until
this action was filed. Zurich's refusal to defend Sears in the
Malone action was based upon its contention that because the
Malone complaint included allegations of improper servicing,
Zurich was not obligated to defend Sears in that action.*fn1
Zurich contended that it had no duty under the insurance
policy to defend the Malone action because of the improper
servicing claims. Plaintiff's Motion for Summary Judgment,
Zurich's refusal to defend Sears in the Malone action was
based upon legally insufficient grounds. Where a complaint
contains allegations covered by an insurance policy, as well
as allegations excluded from coverage, the insurer has a duty
to defend until such time as the claim or claims are confined
to matters not covered by the policy. Sears, Roebuck and Co.
v. Liberty Mutual Insurance Co., 199 F. Supp. 769 (N. D.Ill.
1961); Sears, Roebuck and Co. v. Travelers Insurance Company,
261 F.2d 774 (7th Cir. 1958). It is clear that six of the
Malone allegations would be covered by the policy in question
had liability been imposed upon Sears. Refusal to assume the
defense of the Malone
action violated Zurich's duty under its own policy.
When an insurer has unjustifiably breached its obligation to
defend, it can no longer raise other exclusionary provisions
of its policy. Sears, Roebuck and Company v. Zurich Insurance
Company, (N.D.Ill., No. 68C 1942, September 18,); McFadyen v.
North River Ins. Co., 62 Ill.App.2d 164,209 N.E.2d 833 (1965);
Sims v. Illinois National Casualty Co. of Springfield,
43 Ill. App.2d 184, 193 N.E.2d 123 (1963); 49 A.L.R.2d 755 et seq.
Zurich may not now rely on an assertion of "late notice" to
justify its wrongful refusal to defend Sears in the Malone
action. The court concludes that, as a matter of law, Sears is
entitled to reimbursement for its expenditures in defending the
It is therefore ordered that summary judgment be, and it is
hereby entered for the plaintiff.
It is further ordered that costs, including attorney's fees,
incurred by Sears in the Malone suit as well as in this action
be, and they are hereby assessed against the defendant.