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May 2, 1991


John A. Nordberg, United States District Judge.

The opinion of the court was delivered by: NORDBERG


 Vacuum Industrial Pollution, Inc. ("VIP") brought this diversity action against Union Oil Company of California ("Union Oil") and National Union Fire Insurance Company of Pittsburgh ("National Union"), alleging breach of contract, negligence, and breach of duty of good faith. Union Oil and National Union have filed separate motions to dismiss for failure to state a claim upon which relief can be granted. For the reasons stated below, defendants' motions to dismiss are granted with prejudice.


 The facts pleaded in VIP's amended complaint are taken as true for the purpose of defendants' motions to dismiss. On March 1, 1984, VIP and Union Oil entered into a written purchase order regarding the cleaning of a tank containing chemical catalyst at Union Oil's Romeoville, Illinois refinery. In July, 1984, an explosion at the refinery killed eighteen Union Oil workers. Union Oil retained VIP, a professional industrial cleaning company, to clean out part of the refinery affected by the explosion. Responding to VIP's concern about the possibility of catalyst remaining in the pipe above the tank, Union Oil replied that its personnel had inspected the pipe and found no catalyst there. Union Oil then issued a safe entry permit and posted it on the tank.

 After the accident, VIP employees and representatives spent a great deal of time on related investigations, insurance disputes, and lawsuits, which interfered significantly with VIP's ongoing business in the Chicago area. Moreover, because of its connection with the fatal accident at Union Oil, VIP suffered severe financial losses in its Chicago area business -- even though it was not responsible for the conditions which resulted in the deaths of its workers. *fn1" As a result of being the contractor involved in the tragedy, VIP could no longer obtain similar work for several customers in the Chicago area whom it had served for years. Within a year and a half of the accident, VIP suffered lost profits in excess of $ 750,000, and had to close its Chicago office.

 As a further result of the accident on September 27, 1984, VIP's insurance carrier, National Union, made renewal of VIP's insurance policy available only on payment of a $ 750,000 premium for $ 1,000,000 of coverage. VIP had paid a premium of $ 31,000 for $ 500,000 of coverage before the accident. Unable to afford the new premium demanded by National Union, VIP had to purchase a claims-made policy with an unrated carrier for $ 100,000. Apart from the added expense of the new policy, VIP lost at least one major job because of inadequate insurance coverage, producing further serious economic damage to the company.

 National Union also played a culpable role in VIP's difficulties, according to VIP. On March 1, 1984, VIP and National Union entered into a contract whereby National Union provided $ 500,000 of coverage for $ 31,542 paid in premiums by VIP. In its contract with Union Oil, VIP had agreed to be responsible for Union Oil's defense of any claims arising out of its performance under the contract. On October 4, 1984, Union Oil sent a letter to VIP's insurance agent, Frank B. Hall & Co., demanding insurance coverage for all liabilities arising from the accident of September 27, 1984. VIP forwarded the request to National Union.

 National Union "apparently" failed to investigate whether insurance coverage should be provided to Union Oil, despite a provision in the purchase order between VIP and Union Oil which allowed for refusal of coverage upon Union Oil's sole negligence. Am. Complaint, para. 24. National Union also failed to ascertain a conflict of interest between VIP and Union Oil. National Union retained attorneys to represent Union Oil in one or more lawsuits filed by families of deceased VIP employees. These attorneys contacted VIP, falsely representing themselves as attorneys for VIP, and obtained confidential reports and information which they later used against VIP in at least one trial to obtain an inexpensive settlement.

 National Union failed to offer VIP an opportunity to obtain independent counsel based on a conflict of interest between the two insureds. Instead, when apprised of the conflict, National Union retained Henry Gurion to represent VIP. Gurion, however, had a close relationship and had been formerly employed with Purcell & Wardrope, the firm selected by National Union to represent Union Oil. Gurion now works directly for National Union's adjustment company. Gurion failed to consult with VIP, and failed to appear at the trial where VIP witnesses were extensively questioned "in a hostile manner." Am. Complaint, para. 8.

 By virtue of the foregoing, VIP alleges that Union Oil breached its contract with VIP, and also acted negligently. VIP further charges National Union with breach of contract, and with breach of duty of good faith.


 I. Union Oil Motion to ...

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