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January 20, 1989

HUDSON INSURANCE COMPANY, a corporation, Plaintiff,
GELMAN SCIENCES, INC., a corporation, Defendant

Brian Barnett Duff, United States District Judge.

The opinion of the court was delivered by: DUFF


 Hudson Insurance Company is a Delaware corporation that has its principal place of business in New York. From August 1, 1984 to August 1, 1985, Hudson provided Gelman Sciences, Inc., a Michigan-based corporation, with excess umbrella liability coverage in the amount of $ 4 million. This policy sat atop various other policies issued by other companies to Gelman, including a primary comprehensive general liability policy issued by Fireman's Fund Insurance Company, a primary products and completed operations liability policy issued by Central National Insurance Company, and a $ 20 million excess umbrella liability policy issued by Mission National Insurance Company. Gelman obtained the Hudson policy through a Michigan agent who in turn contacted an Illinois-based wholesale insurance broker. The insurance policy was stamped countersigned and initialed on behalf of Hudson in Illinois, then delivered to the insurance broker in Chicago.

 The Mission policy was in excess of Gelman's primary insurance coverage, including that provided by Fireman's Fund and Central National. After Hudson issued its policy to Gelman, however, Mission became insolvent. A California court subsequently liquidated Mission in 1987, and thus Mission is unable to provide Gelman with its promised excess umbrella liability coverage. This is unfortunate for Gelman, as it presently faces four lawsuits which Gelman anticipates will exhaust its primary coverage under the Fireman's Fund and Central National policies. Gelman thus has demanded on several occasions that Hudson "drop down" from its position as Gelman's second excess umbrella liability carrier and assume Mission's obligations. Gelman also has asked Hudson to defend Gelman in the four suits. Hudson has refused all of these requests.

 Tired of Gelman's demands, Hudson has sought a declaratory judgment in two counts before this court. Gelman has counterclaimed. Hudson has moved for summary judgment on Count 1 of its Amended Complaint and on Count 2 of Gelman's counterclaim. Both counts focus solely on Hudson's duties to drop down and to defend.

 The parties agree that, for purposes of this motion, Illinois law governs this dispute. See Hudson Insurance Company v. Gelman Sciences, Inc., No. 88 C 4369 (Minute Order August 17, 1988) (canvassing why Illinois law will apply to issues of interpretation of the Hudson insurance contract). Both sides agree further that the Hudson insurance contract governs, or is at least the starting point for determining, Hudson's duties to defend Gelman or to drop down in place of Mission. With respect to Hudson's duty to defend Gelman, the Hudson insurance contract states as follows:

Anything in the Underlying Insurance to the contrary notwithstanding, Hudson shall not be obligated to assume charge of the settlement or defense of any claim or suit brought or proceeding instituted against the Insured. Hudson, at its option but not being required to, shall have the right and be given the opportunity to associate with the Insured in the defense or control of any claim, suit or proceeding which appears reasonably likely to involve Hudson, in which event the Insured and Hudson shall cooperate in all things in the defense or control of such claim, suit or proceeding. In the event costs are incurred by Hudson with respect to such claim, suit or proceeding, Hudson shall pay its incurred costs plus expenses incurred by the Insured with Hudson's approval.

 Gelman does not challenge Hudson's contention that this clause allows Hudson to enter into defense of claims against Gelman, but does not obligate Hudson to do so. Gelman also has not offered any reasons why this court should not respect Hudson's choice not to defend Gelman in any of the cases now pending against Gelman. This court thus will not disturb Hudson's decision.

 Gelman saves its arguments for Hudson's other alleged duty, that to drop down when excess umbrella liability insurers below it become insolvent. Hudson claims that it has no such duty under the contract, according to the following provision:

Hudson shall be liable for the Limit of Liability stated in Item 3 of the Declarations which is in excess of the Total Underlying Insurance Limit of Liability stated in Item 4 of the Declarations, provided that Hudson's liability shall be limited to the amount stated in Item 3 as applicable to "each occurrence," "each person" or "each claim," and further limited to the amount stated in Item 3 as "aggregate" with respect to each annual period while this policy is in force.
Liability of Hudson under this policy shall not attach unless and until the Insured or the Insured's Underlying Insurance has paid or has been held liable to pay the Total Underlying Insurance Limit of Liability, as stated in Item 4 of the Declarations.

 The contract reveals that Item 3 is $ 4 million. Under Item 4 the contract reads: "TOTAL UNDERLYING LIMIT OF LIABILITY: $ 20,000,000 EACH OCCURRENCE AND ANNUAL AGGREGATE WHERE APPLICABLE EXCESS OF UNDERLYING INSURANCE AND/OR SELF-INSURED RETENTION." Item 5 sets forth a schedule of underlying insurance, which references the schedule of underlying insurance contained in the ...

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