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BOARD OF TRUSTEES OF THE UNIV. OF ILLINOIS v. INSU

November 5, 1990

THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS, Plaintiff,
v.
THE INSURANCE CORPORATION OF IRELAND, LTD., a foreign corporation, Defendants


Milton I. Shadur, United States District Judge.


The opinion of the court was delivered by: SHADUR

MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE

 University of Illinois' Board of Trustees ("U of I") *fn1" seek alternative relief here -- either issuance of a declaratory judgment as to the limits of an insurance policy (the "Policy") issued to U of I by Insurance Corporation of Ireland, Ltd. ("ICI") or reformation of the Policy to reflect the parties' original intent. U of I now moves under Fed. R. Civ. P. ("Rule") 56 for summary judgment in one of the following forms:

 
1. a declaration that the Policy already provides for total coverage of $ 10 million ($ 5 million in the aggregate for the period March 1 through June 30, 1984 and a separate aggregate of $ 5 million for the policy period July 1, 1984 through July 1, 1985); or
 
2. reformation of the Policy to provide for a separate $ 5 million aggregate limit for each of those two periods.

 For the reasons stated in this memorandum opinion and order, U of I's motion for summary judgment for such a declaration of the policy limits is denied, but its motion for summary judgment to reform the Policy is granted.

 Facts2

 U of I is a body politic and public corporation formed and acting pursuant to Illinois law (Ill. Rev. Stat. ch. 144, para. 22). All members of its Board of Trustees are Illinois citizens. ICI is a foreign corporation *fn3" with its principal place of business in Ireland. Those facts establish diversity-of-citizenship jurisdiction under 28 U.S.C. § 1332(a)(2). From approximately 1983 through April 1987 ICI was licensed to and did transact business in Illinois, maintaining an office in Chicago.

 In January 1984 U of I issued bid specifications seeking quotes on excess public, hospital and medical professional liability insurance covering a one-year period from March 1, 1984, with an option to renew for two additional years. U of I's insurance broker Marsh & McLennan ("M&M") issued a quote in accordance with the specifications, and ICI then bid for the insurance coverage in a somewhat different but legally equivalent form (three years, but cancellable at the end of any policy year). As a result of the ensuing negotiations, ICI and U of I agreed to the terms of insurance policy #SC8-16019-0 (already designated the "Policy" in this opinion) for the period from March 1, 1984 to March 1, 1987. *fn4" In relevant part the Policy reads:

 
SUPPLEMENTAL DECLARATIONS
 
Item 1. LIMIT OF LIABILITY $ 5,000,000 Combined Single Limit each and every occurrence and in the aggregate. Excess of a Self Insured Retention of $ 100,000 each and every occurrence $ 1,000,000 overall annual aggregate

 Endorsement #1 initially specified that the premium installments (Item 2) were payable on March 1, 1984, March 1, 1985 and March 1, 1986 and that the "premium will be subject to review as of the anniversary dates." During the first quarter of 1984, however, U of I asked that the premium payment dates should be changed to coincide with U of I's fiscal year, which begins on July 1. On February 8, 1984 Paul Burston ("Burston"), a broker at M&M, reported to U of I that he was therefore asking ICI to issue an insurance policy to cover the periods from March 1 to July 1, 1984, July 1, 1984 to July 1, 1985, July 1, 1985 to July 1, 1986 and July 1, 1986 to July 1, 1987. ICI agreed, and M&M then received $ 165,000 *fn5" from U of I on March 1, 1984 as the premium for the four-month period beginning on that date and ending July 1, 1984.

 To reflect its earlier agreement to U of I's request, on May 23, 1984 ICI issued Endorsement #3, amending the policy period to read "From March 1, 1984 to July 1, 1987." Endorsement #3 also modified Item 2 of the Supplemental Declarations to read:

 
$ 1,650,000 (triennial plus three months [sic - obviously should have said "four months"]) payable as per Premium Payment Schedule as follows:

  Billing Date Amount 3/1/84 $ 165,000 7/1/84 495,000 7/1/85 495,000 7/1/86 495,000

 It went on to say that "All other terms and conditions [of the original Policy] remain unchanged."

 There was an occurrence during the Policy's initial four months (the stub period from March 1 to July 1, 1984) that triggered a potential U of I liability, which ICI later settled for $ 4.5 million over and above U of I's retention obligation. ICI has cancelled the Policy effective July 1, 1985, leaving only a 16-month effective coverage period (March 1, 1984 to July 1, 1985). And because the Policy was an occurrence policy rather than a claims-made policy covering that period, the issue of the amount of coverage remains a live controversy.

 At this point the parties vigorously dispute the amount of coverage that U of I had during the bobtailed effective period of the Policy. Much of their disagreement centers on their differing readings of Endorsement #3, which changed both the coverage period and the premium payment dates. U of I asserts that the purpose of the endorsement was to change the Policy to cover an initial four-month period with a separate aggregate limit of $ 5 million, followed by three annual periods -- each having its own separate annual aggregate of $ 5 million in coverage. *fn6" ICI's totally different view is that the "policy was extended four months so as to expire on July 1, 1987, which coincided with the beginning of U of I's fiscal year," and that the $ 5 million aggregate coverage is all that U of I would have had for the entire Policy period of 40 months (ICI's Response to U of I's Statement of Undisputed Material Facts 3). *fn7"

 To support their respective positions, U of I submitted affidavits to prove and ICI submitted depositions to rebut U of I's assertion that the mutual intent of the parties was to provide annual aggregate limits of coverage of $ 5 million and that the initial block of four months was intended to serve as a separate annual period. *fn8" Each affidavit and deposition gave an interpretation of the coverage limits for the premium payment periods of March 1 to July 1, 1984, July 1, 1984 to July 1, 1985, July 1, 1985 to July 1, 1986 and July 1, 1986 to July 1, 1987.

 U of I's Risk Manager James R. Gallivan ("Gallivan") stated in bottom-line terms (Gallivan Aff. para. 4) that the Policy was intended to provide a $ 5 million aggregate coverage for each of the four separate payment periods. At his deposition, however, Gallivan could not recall any specific conversations with ICI's Fleming and another ICI representative establishing an agreement with ICI for the Policy limits, though he was sure that such conversations had taken place (Gallivan Dep. 34, 38). Relatedly he testified (id. 43) that no separate bidding procedure was used to establish the separate coverage for an extension of the original policy period because:

 
We were anxious to secure a commitment for a reasonable length of time, and the ability to purchase more than one year of coverage was not known at the time we went out to solicit bids to the insurance markets at that time.

 U of I's broker Burston, who "was involved in the placement of" the policy (Burston Aff. para. 3), also stated that the Policy was to provide $ 5 million aggregate coverage for each premium period (id. P 5). But it is not clear whether Burston's assertion was based on his recollection of any negotiations between the parties, or his recollection of the intention on U of I's part when the Policy was being negotiated, or simply upon his interpretation of the Policy at the time of his affidavit. What is significant under the unusual circumstances of this case is that both Gallivan and Burston -- and hence U of I -- did in fact ...


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