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09/24/87 Marathon Plastics, Inc., v. Ional Insurance Company

September 24, 1987





514 N.E.2d 479, 161 Ill. App. 3d 452, 112 Ill. Dec. 816

Appeal from the Circuit Court of Sangamon County; the Hon. Richard J. Cadigan, Judge presiding. 1987.IL.1426


JUSTICE LUND delivered the opinion of the court. SPITZ, P.J., and GREEN, J., concur.


On June 23, 1986, a bench trial was conducted in the circuit court of Sangamon County on a complaint filed by Marathon Plastics Company (Marathon) seeking, pursuant to a liability insurance policy, to recover from International Insurance Company (International) monies paid to third-party claimants. On September 30, 1986, the court entered a judgment in favor of Marathon determining coverage under the policy existed and in the amount of $22,183.71. International appeals asserting that various policy defenses require a reversal. We affirm

Marathon is a manufacturer of polyvinylchloride pipe which is sold to rural water districts through Contractor Utility Sales Company (Contractor). Ronald Lance is the sole owner of Marathon, and, during all relevant times, was the president and majority stockholder in Contractor. In 1983, Marathon sold pipe to Albrecht Well Drilling (Albrecht) to be used to construct the Hickory-Kerton Water District. These water systems are underground systems. In July 1983, the water system was tested by Albrecht, and it was determined the system leaked. To correct the leaks, Albrecht needed people to walk the lines looking for signs of leaks. Once these were located, Albrecht was required to dig up the pipe joint, cut on both sides of it, insert a new piece of PVC pipe, and rebury the line. It was determined the leaks were caused by defective seals which Marathon incorporated into the pipe.

On September 22, 1983, Albrecht made a written demand on Contractor for the damages, which were comprised of labor and material used to repair the leaks. On October 22, 1983, a final demand letter from Albrecht was received asking for $37,391.

On December 31, 1983, a check was drawn on the account of Contractor by Lance in the amount of $22,183.71 to settle the claim with Albrecht. The release included Marathon and Contractor.

On January 30, 1984, International issued to Marathon a reservation of rights letter which set forth six policy exclusions and/or defenses which could be asserted in the denial of coverage for the claims asserted by Marathon.

On May 4, 1984, International filed an action in the Sangamon County circuit court seeking a declaration that the insurance policy underlying this action did not cover the third-party claims, including that of Albrecht. The complaint alleged a single-policy exclusion as the basis of this declaration. On July 26, 1984, the court dismissed the complaint finding that a declaratory judgment would not terminate the controversy between the parties. International filed a motion to reconsider the court's ruling which was denied on September 10, 1984. International did not appeal. Marathon filed the current action upon the expiration of the time for appeal.

Marathon filed a 13-count complaint for monies paid to third parties for which Marathon was entitled indemnification by International. The parties, by stipulation, only submitted one count, that involving Albrecht, to trial to determine the issue of coverage common to all counts.

The trial commenced on June 23, 1986. The evidence shows that on November 1, 1983, a meeting was held between Lance, Bill Ridley, Marathon's insurance agent, and Betty Dunham, a claims representative from International. Ridley and Lance testified Dunham indicated coverage existed, and Lance should negotiate a better settlement if possible. About two weeks later, Lance notified Dunham of the final amount of $22,183.71 and testified Dunham told him the check would be coming in two weeks. Ridley contacted Dunham several times concerning the check and testified Dunham told him one time that the check was in the mail. In December 1983, Lance and Ridley had a meeting with Dunham in Decatur concerning the settlement draft. Lance testified Dunham told him that the various claims Marathon was making would be handled in the different parts of the country and that the Albrecht claim was now being handled in Peoria, rather than Decatur. Dunham denies telling Lance or Ridley that coverage existed or that a check was being issued.

On December 31, 1983, Marathon and Contractor settled with Albrecht for the amount of $22,183.71 and received a release. This amount was for the cost of equipment and labor to dig up the defective pipe and to repair the leaks. This did not cover any cost for replacement pipe.

Frank Rutter, an underwriter for US Insurance Group, testified the underwriter's duty is to select risks submitted by independent agents and to rate and price the risk for the company. The original policy was issued for the period of November 1, 1982, to November 1, 1983. The policy was renewed in 1983. This renewed policy was cancelled due to excessive losses under products. Rutter testified the policy is a form that is standard to the insurance industry and is meant to create uniformity throughout the industry.

Charles Ruppel is a member of the board of directors of several insurance companies. He gained his experience in the insurance, manufacturing, and sale of PVC pipe as chief financial officer of Robintech, Inc., a PVC manufacturing company. In 1974, 1975, and 1976, he negotiated insurance policies and settlements for Robintech. He testified the insurance policy in this case was substantially similar to the policies he used to negotiate. The insurance companies issuing these policies paid for finding leaks, digging up the pipe, and the actual labor costs to replace the pipe. Lance also testified that when he was distributing PVC pipe for Robintech another insurance company paid claims similar to the current one.

Marathon argued it should prevail because International was barred from asserting its defenses by the doctrines of res judicata and waiver based on the previous court action, and even if these did not apply, it was entitled to recovery under the insurance policy. The court held the question of coverage was not barred by the doctrine of res judicata but that International waived the policy defenses which were not asserted in the prior declaratory judgment action. The court further held on the merits that the policy in question covered and afforded indemnity to Marathon for the third-party claims of Albrecht and similar claims. This appeal followed.

International asserts, first, that Marathon's claim should be defeated because Marathon violated the so-called "no action" clause and the "assistance and cooperation" clause of the policy. The no-action clause provides that "no action shall lie against the company . . . until the amount of the insured's obligation to pay shall have become finally determined either by judgment against the insured after actual trial or by written ...

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