Three possibilities exist for application of Alabama law to a successor insurer providing claims made coverage. First, the insurer could follow a period of occurrence coverage. In this case, it would be highly unlikely that a hiatus in coverage would occur, since any claim not occurring during the first period of coverage would simply be subject to notice provisions of the claims made policy. Therefore Alabama's public policy would not prohibit prior acts coverage. Second, the insurer could follow another period of claims made coverage, provided by another insurer, or by itself. This situation does present the coverage problem of Utica, and public policy would require some form of coverage overlap - either an offer of an extended discovery period by the predecessor insurer, or prior acts coverage by the successor insurer - for an additional premium. This was the situation presented in First Alabama Bank, and indicates the correctness of that result.
This case, however, presents a third possibility, in which the claims made insurer follows a period of no coverage at all. In this case, requiring prior acts coverage would go beyond making the claims made policy a de facto occurrence, making the insurer a guarantor of coverage for the heedless, inattentive, or uninsurable. If this were the true intent of Alabama's public policy regarding insurance, the uninsured would strive mightily to have that state's law chosen to interpret the terms of their next policy. The court finds that Alabama law does not require dismissal of any of the counts of the insurers' counterclaim.
II. Waiver and Estoppel
BGA next argues for dismissal of portions of the counterclaim alleging noncoverage on grounds other than the lack of prior acts coverage, based on Alabama's law of waiver. Since this argument seeks to prevent the insurers' assertion of their rights under the terms of the policies based on their own actions, rather than override those terms, this is not a situation in which Alabama law applies. This argument is therefore not available to BGA.
Illinois law does provide BGA with a basis for asserting that the counterclaim should be dismissed in its entirety. An insurer in Illinois faced with a claim from an insured, has three choices for action: it can immediately seek a declaratory judgment of non- coverage, provide a defense under a reservation of its right to contest coverage later, or completely refuse to do either, at the peril of being found in breach of its duty to defend. Insurance Corp. of Ireland v. Board of Trustees of Southern Illinois University, 937 F.2d 331, 337 (7th Cir. 1991); Insurance Company of Illinois v. Markogiannakis, 188 Ill. App. 3d 643, 544 N.E.2d 1082, 1087 (1 Dist. 1989, 136 Ill. Dec. 307 ). If Ranger is found to have breached its duty to defend, it is estopped from later asserting any defenses to coverage under the policy. Markogiannakis, 544 N.E.2d at 1087, La Rotunda v. Royal Globe Insurance Co., 87 Ill. App. 3d 446, 408 N.E.2d 928, 934 (1 Dist. 1980, 42 Ill. Dec. 219 ).
However an insurer cannot avoid estoppel by seeking a declaratory judgment at its leisure. As the court in Reis v. Aetna Casualty & Surety Co., 69 Ill. App. 3d 777, 387 N.E.2d 700, 7040 (1 Dist. 1978, 25 Ill. Dec. 824 ), stated, "a liability insurer in doubt over whether to defend its insured, cannot simply stand on the sidelines and wait until the tort action is complete before contesting the question of coverage." Hence, an insurer is estopped from asserting policy exclusions or defenses in a declaratory judgment action asserted by the insured if it fails to secure a declaratory judgment before trial or settlement of the underlying action. Unigard Insurance Co. v. Whitso, Inc., 195 Ill. App. 3d 740, 553 N.E.2d 59, 61 (1 Dist. 1990, 142 Ill. Dec. 709 ); see also, e.g. National Cycle, Inc. v. Savoy Reinsurance Co. Ltd., 938 F.2d 61, 63 (7th Cir. 1991). The insurer need not actually secure the declaratory judgment, but must have filed it. Markogiannakis, 544 N.E.2d at 1087. For example, the insurer in Markogiannakis fulfilled its obligations under Illinois law by filing a declaratory action within one month of its denial of coverage. Id.
Application of this principle argument requires a comparison between Central Mutual Insurance Co. v. Kammerling, 212 Ill. App. 3d 744, 571 N.E.2d 806, 156 Ill. Dec. 826 (1 Dist. 1991), and Unigard. In Kammerling, the Illinois First District Appellate Court found an insurer was estopped from asserting its coverage defenses when it waited to file a declaratory action ten months after it had notice of the claim, and several months after it had notice of a potential settlement of the underlying litigation. Kammerling, 571 N.E.2d at 810. In Unigard, on the other hand, the same appellate district found that an insurer who filed a declaratory action some four months after receiving notice of a claim was not estopped from asserting its policy defenses because it filed its declaratory action three months prior to settlement of the underlying lawsuit. Unigard, 553 N.E.2d at 60-61.
In the court's judgment, the most important factor in these cases is not the raw chronological delay in an insurer's filing a declaratory judgment action, but whether the insurer waited until trial or settlement was imminent. In this case, the insurers denied coverage on September 20, 1988 and filed their declaratory judgment action on October 10, 1989, a delay of over one year. However trial of the underlying case is still some months away as of the date of this opinion, almost three years later, and settlement was obviously not in the offing at the time the insurers filed suit either.
The Kammerling, found it appropriate to quote from legendary sportswriter Grantland Rice to describe the conduct the law expects of an insurer:
After the game is over and begins to wane it isn't whether you won or last that counts but how you played the game
Kammerling, 571 N.E.2d at 810. the court finds the outcome of this case to be governed by an anonymous, yet no less pithy quote from the world of sports: "No harm, no foul."
For the foregoing reasons, BGA's motion to dismiss the counterclaim of the insurers is denied.
JOHN A. NORDBERG
United States District Judge
DATED: May 24, 1993