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Harbor Ins. Co. v. Arthur Andersen & Co.

OPINION FILED NOVEMBER 7, 1986.

HARBOR INSURANCE COMPANY, PLAINTIFF-APPELLANT,

v.

ARTHUR ANDERSEN & COMPANY ET AL., DEFENDANTS-APPELLEES (ARTHUR ANDERSEN & COMPANY ET AL., THIRD-PARTY PLAINTIFFS AND COUNTERDEFENDANTS-APPELLEES; AMERICAN HOME ASSURANCE COMPANY ET AL., THIRD-PARTY DEFENDANTS; LIBERTY MUTUAL INSURANCE COMPANY, THIRD-PARTY DEFENDANTS-APPELLANTS; NORTH STAR REINSURANCE CORPORATION ET AL., COUNTERPLAINTIFFS-APPELLANTS).



Appeal from the Circuit Court of Cook County; the Hon. Arthur L. Dunne, Judge, presiding.

JUSTICE LORENZ DELIVERED THE OPINION OF THE COURT:

Appellants Harbor Insurance Company, North Star Reinsurance Corporation, United States Fire Insurance Company, and Liberty Mutual Insurance Company appeal from a summary judgment order of the circuit court of Cook County finding that a claim by appellees Arthur Andersen & Company, Arthur Andersen & Company (Switzerland), and Arthur Andersen & Company, S.A. (hereinafter referred to as Andersen) was covered by the appellants' 1971 excess-liability-coverage policies, rather than by certain 1975 policies. In this cause we have also consolidated a subsequent appeal by Harbor from the circuit court's judgment order determining the amount of Harbor's obligation to Andersen.

All the appellants contend that the circuit court erred in finding that as a matter of law: (1) the 1971 policies covered Andersen's loss; (2) certain provisions contained in the policies of Harbor and North Star bound them to follow the determination of the primary carrier, Underwriters at Lloyd's, that the 1971 policies covered Andersen's loss. Appellate Liberty also asserts that its 1971 policy does not cover Andersen's loss because Andersen did not comply with the notice requirement of Liberty's policy, which differed from those of the other appellants.

We affirm the trial court's determination of coverage as to Harbor, North Star, and United States Fire, but remand for further proceedings as to Liberty.

Andersen, an accounting firm, was insured for professional liability by Lloyd's under two policies providing primary coverage for claims made during two different periods: 1971-72 and 1974-75. The appellants and certain other insurance companies not involved in this appeal each issued to Andersen excess-insurance policies providing varying amounts of coverage in excess of the Lloyd's 1971 and/or 1975 primary policies. Incorporated into the appellants' policies was the provision in the Lloyd's primary-coverage policies that, in addition to coverage for claims made during the policy period, coverage would be provided for claims made after the policy period under the following conditions:

"If during the currency hereof:

(i) the assured firm shall receive written notice from any third party that it is the intention of such third party to hold the assured firm responsible for the results of any specified alleged negligent act, error or omission, whether of acts, facts, law or otherwise, or breach of contract or libel or slander; or

(ii) the assured firm shall become aware of any occurrence which may subsequently give rise to a claim being made against them in respect of any alleged negligent act, error or omission, whether of acts, facts, law or otherwise, or breach of contract or libel or slander;

(iii) and shall in either case during the currency hereof give written notice to the Underwriters of the receipt of such written notice under (i) above or of such occurrence under (ii) above then any claim which may subsequently be made against the assured firm arising out of such alleged negligent act, error or omission, whether of acts, facts, law or otherwise, or breach of contract or libel or slander shall for the purpose of this policy be treated as a claim made during the currency hereof."

With the possible exception of Liberty's policy, all the appellants' policies also incorporated the Lloyd's policy requirement that notice be given to the New York law firm of Mendes & Mount. The Liberty policy differed from the primary policy in that it stated:

"Notice of claims required by the primary policy shall be given to [Liberty] at its Home Office, 175 Berkeley Street, Boston, Massachusetts U.S.A."

During the 1971 policy year Andersen, King Resources Company (KRC) (for which Andersen had performed auditing and accounting services), and certain directors and officers of KRC were sued by certain shareholders and debentureholders of Dietrich Corporation. Andersen notified Mendes & Mount of the Dietrich complaint, enclosing a copy of that complaint, in a letter dated September 30, 1971.

In 1975 a related group of corporations, referred to collectively as Fund of Funds, sued Andersen. Mendes & Mount was notified of this complaint in a letter from Andersen dated February 6, 1975. That same year Lloyd's determined that this was a claim under Andersen's 1971 policy. Fund of Funds, Ltd., (FOF) obtained a judgment against Andersen following a trial in Federal court. (Fund of Funds, Ltd. v. Arthur Andersen & Co. (S.D.N Y 1982), 545 F. Supp. 1314.) In 1983, during the pendency of the appeal, the parties reached a settlement agreement. Pursuant to the prior determination by Lloyd's that this was a claim under the Lloyd's 1971 policy, 35 of the 36 insurance companies with 1971 excess-liability coverage policies made payments to Andersen under the terms of those 1971 policies. However at least three of the companies which paid, appellants North Star, United States Fire, and Liberty, reserved the right to secure a determination of the appropriate date of claim. Appellant Harbor only paid based on the terms of its 1975 policy.

Harbor also filed this declaratory judgment action asserting that its 1975 policy was applicable rather than its 1971 policy. Andersen then filed a third-party complaint against all the 1971 and 1975 insurers, seeking a declaration that the 1971 policies were applicable, or if the court disagreed, that the 1975 insurers were liable for the loss. Appellants North Star, United States Fire, and Liberty all contended in the circuit court that their 1975 policies applied. United States Fire and North Star filed a ...


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