APPEAL from the Circuit Court of Cook County; the Hon. ARTHUR
L. DUNNE, Judge, presiding.
MR. JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:
Rehearing denied August 9, 1977.
Plaintiff, American Home Assurance Company, brought this declaratory judgment action to obtain a declaration of the rights and liabilities of itself and its reinsurers as set out in certain contracts of insurance and certificates of reinsurance. The trial court dismissed the suit on the grounds that plaintiff was unable to join a necessary party and that Illinois is a forum non conveniens for this litigation. Incorporated in the order of dismissal was a statement by the court that the insurance policies at issue arose in Illinois. Plaintiff appeals from the order of dismissal. Defendants Northwest Industries, Inc., and its subsidiaries Velsicol Chemical Corporation and Michigan Chemical Corporation have taken a cross-appeal from the portion of the order which states that the insurance contracts arose in Illinois. The facts are as follows.
Defendant Michigan Chemical is a manufacturer of various chemicals and chemical compounds. Among its products is the compound magnesium oxide, a dairy feed mineral supplement. It also produces polybrominated biphenyl (hereinafter PBB), a highly toxic flame retardant.
Throughout the period from October 1971 until July 1974, Michigan Chemical supplied substantial quantities of magnesium oxide from its production facility in St. Louis, Michigan, to Farm Bureau Service, Inc. (hereinafter FBS), a Michigan corporation doing business only in Michigan. FBS used the magnesium oxide in feed formulated for distribution to Michigan dairy farmers and for resale to various other farm cooperatives. These products were used primarily at the FBS plant in Michigan.
On a certain occasion or occasions (the exact time is disputed) Michigan Chemical allegedly supplied FBS with PBB instead of magnesium oxide. The PBB was then mixed into the FBS animal feed which FBS used and marketed to a substantial number of Michigan farmers. The consumption of contaminated feed by livestock resulted in substantial losses to FBS, farmers and numerous other persons. In certain cases the feed caused the death of livestock or necessitated their slaughter. Traces of PBB also have been found in some persons and in grocery store products in Michigan.
There are presently pending in Michigan courts> more than 75 law suits against both FBS and Michigan Chemical, and many other cases have been concluded. FBS filed two suits against Michigan Chemical seeking recovery for injuries it suffered and indemnification for claims arising as a result of the feed contamination. In January 1976, FBS and Michigan Chemical entered an agreement whereby they agreed to share farmer losses up to $60 million. Pursuant to the agreement, the FBS actions were dismissed, although Michigan Chemical asserts that the suits will be reinstituted by FBS when the $60 million "cap" is reached.
Five companies provided Michigan Chemical with liability insurance coverage totaling $28 million. The policies provided coverage for property damage and bodily injury. Travelers Indemnity Company (hereinafter Travelers) provided primary coverage for Michigan Chemical, Velsicol and Northwest under a policy effective October 1969 until cancelled. Under this policy these companies were insured for $1 million in liability coverage for damages resulting from any one "occurrence," as defined in the policy, up to an aggregate liability of $1 million for each annual period during which the policy remained in effect.
Lloyd's, London, insured Michigan Chemical, Northwest and Velsicol under various policies effective from February 1, 1970, to February 1, 1973, and February 1, 1973, to October 1, 1975. The extent of the coverage by Lloyd's was $2 million in excess of the $1 million provided by Travelers. The limit of liability was $2 million for any one "occurrence," as defined in its policies, up to an aggregate liability of $2 million per annual period the policies were in force.
American Home provided insurance coverage for Michigan Chemical, Northwest and Velsicol under a policy in effect from November 1, 1971, until November 7, 1974. The amount of coverage was $15 million in excess of the $3 million coverage provided by the Travelers and Lloyd's policies. In the policy issued by American Home was the provision that "the insurance afforded by this policy shall follow all the terms and conditions of" the policies issued by Lloyd's. Therefore, Lloyd's definition of the term "occurrence," the principal issue in the present suit, controls the extent of coverage which American Home must provide defendants Michigan Chemical, Northwest and Velsicol.
Aetna Casualty & Surety Company (hereinafter Aetna) and the Insurance Company of North America (hereinafter I.N.A.) also provided Michigan Chemical, Northwest and Velsicol with excess coverage. Under these policies the coverage totaled $10 million in excess of the $18 million provided by Travelers, Lloyd's and American Home. Michigan Chemical contends that the Aetna and I.N.A. policies track the policies of American Home and Lloyd's so far as the coverage issues are concerned and that they adopt Lloyd's definition of the term "occurrence."
Subsequent to the issuance of the policies to Michigan Chemical, Northwest and Velsicol, American Home obtained reinsurance from the following companies: North American Reinsurance Company for $2 million, Midland Insurance Company for $5 million, and Gerling-Global Reinsurance Corporation for $5 million. This reinsurance covers the risks plaintiff assumed in its policies issued to Michigan Chemical, Northwest and Velsicol. This reinsurance covered the last $12 million of the $15 million in primary coverage afforded by American Home. Each certificate provided that the reinsurer's liability would follow that of American Home.
Following the evidence of the effect of the contaminated feed on livestock, American Home, Travelers and Lloyd's commenced making payments in settlement of the damage claims asserted against Michigan Chemical, Northwest and Velsicol. Travelers and Lloyd's have paid out $1 million and $2 million respectively and contend that this is the extent of their liability under their policies.
To date, American Home has paid out $15 million in settlement claims against Michigan Chemical, Northwest and Velsicol. It has received full payment from its reinsurers, who have ...