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Home Insurance Co. v. Certain Underwriters at Lloyd's

March 19, 1984


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. Reversed and remanded.

Author: Eschbach

Before: CUMMINGS, Chief Judge, ESCHBACH, Circuit Judge, and WYATT, Senior District Judge.*fn*

ESCHBACH, Circuit Judge: This case involves a dispute over which insurance company or companies are responsible for paying the $290,000 that it cost to settle a personal injury suit. We hold that the plaintiff and defendants must share the cost. Accordingly, we reverse the judgment of the district court and remanded the case for further proceedings.


On September 17, 1971, an explosion occurred at a Powerine Oil Company plant in California. The source of the explosion was a system known as a "Lomax Hydrocracking Unit," which was designed by Universal Oil Products ("UOP") and constructed by Powerine under UOP's direction. James R. Pendergraft, an employee of Powerine, was seriously injured in the explosion. On March 3, 1972, he filed in California an action naming UOP as one of the defendants. Pendergraft alleged that UOP "negligently and carelessly designed, assembled, controlled, manufactured, constructed, repaired, tested, and maintained" the Lomax Hydrocracking Unit.*fn1

UOP, through its insurance broker, gave notice of the suit to two of its insurers -- Royal Indemnity Company ("Royal") and The Home Insurance Company ("Home"). Royal had issued to UOP a "Comprehensive General Liability" policy limited to $100,000 per person per occurrence. Home had sold to UOP an "Excess Liability Policy," which limited Home's liability to $5,000,000 per occurrence. Pursuant to the terms of its policy, Royal assumed the primary responsibility for UOP's defense.

Pendergraft's case finally went to trial in late 1975. Recognizing the extent of UOP's possible liability, Royal and Home decided to seek a settlement. To this end, Home sought the participation of another group of UOP's insurers, collectively referred to as the "British Insurers." The British Insurers had issued to UOP "Architects and Engineer Professional Indemnity" policies. These policies, which were written in three layers, contained a $100,000 deductible provision and a limit of $500,000 per claim.*fn2 Moreover, the British Insurers provided coverage "Limited to Design of Petroleum Refining Processes Only."

The British Insurers, denying any responsibility to indemnify, refused Home's demand to participate in the settlement. Nevertheless, the Pendergraft case against UOP was settled for $390,000, with Royal paying $100,000 and Home paying the balance. Home subsequently brought this diversity action, governed by Illinois law, against the British Insurers. Home sought $290,000, the amount paid by Home to settle the Pendergraft suit, plus prejudgment interest. In a series of three orders, the district court agreed with Home and entered a final judgment against the British Insurers in the amount of $385,410. The British Insurers appeal.


Few areas in the field of insurance law give courts and parties more difficulty than that of duplicating or overlapping insurance. See 8A Appleman, Insurance Law and Practice § 4906 (1981). In asserting extreme and unsupported positions, the parties only add to the problem. To rationalize the case, we will begin by considering the British Insurers' arguments that they bear little or no responsibility for the $290,000 paid by Home to settle the Pendergraft suit.


An equitable action for contribution lies when one insurer pays a debt shared by other insurers. See Royal Globe Insurance Co. v. Aetna Insurance Co., 82 Ill. App. 3d 1003, 1005, 403 N.E.2d 680, 682 (1980). There can be no possibility of contribution where only one policy covers the particular loss sustained or liability incurred. See Vance Trucking Co. v. Canal Insurance Co., 395 F.2d 391, 396 (4th Cir. 1968); 16 Couch on Insurance § 62.152 (2d ed. 1983). The British Insurers, in their appellate brief, contend that they need not contribute because all the theories that Pentergraft pursued "fell exclusively within the coverage of Royal's and Home's Comprehensive General Liability policies."

The British Insurers first asserted this position late in the litigation. In its order of August 27, 1980, the district court stated that it was legally undisputed that the policies issued by the British Insurers embraced the Pendergraft claim. Only later did the British Insurers contend that their policies did not cover the type of claim made by Pendergraft. The district court rejected this contention and termed it an "afterthought." At oral argument in this court, the British Insurers modified their position again. They admitted that to the extent Pendergraft's claim was based on negligent design, there was exposure under their policies. They maintained, however, that Home must prove what portion of the $290,000 was paid to settle the allegation of design negligence.

It is plain that the British Insurers are asking the impossible. Home paid $290,000 to settle the case; there is no way to divide this figure into constituents representing Pendergraft's "design" theory, "manufacturing" theory, "construction" theory, and the like. Indeed, the case is in the same posture as if a general verdict had been returned in favor of Pendergraft. Thus there are only two possibilities: either Home must bear the entire $290,000 or Home and the British Insurers will be treated as coinsurers of the same risk and the $290,000 will be apportioned according to the policies' other-insurance provisions. Guided by principles of equity and the particular facts of this case, see Royal Globe Insurance Co. v. Aetna ...

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