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02/14/94 FIRST STATE INSURANCE COMPANY v.

February 14, 1994

FIRST STATE INSURANCE COMPANY, PLAINTIFF-APPELLEE,
v.
MONTGOMERY WARD & COMPANY, INC. AND MARCOR, INC., DEFENDANTS-APPELLANTS.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE EDWIN M. BERMAN, JUDGE PRESIDING.

Petition for Leave to Appeal Denied October 6, 1994. Rehearing Denied March 28, 1994. Released for Publication December 16, 1994.

O'connor, Buckley, Manning

The opinion of the court was delivered by: O'connor

JUSTICE O'CONNOR delivered the opinion of the court:

Defendants, Montgomery Ward & Co., Inc. and Marcor, Inc. (collectively "Ward"), appeal from the trial Judge's order granting summary judgment to plaintiff, First State Insurance Co. (First State), in this declaratory judgment action. The trial court found that Ward failed to tender proper notice of a claim on an excess insurance policy. We affirm.

In 1977, Marjorie Dabney suffered crippling burns over 40% of her body. The burns allegedly were caused by a fire which started in a faultily designed heater, sold to her by Ward. In 1979, Dabney sued Ward in the United States District Court for the Southern District of Iowa. In her complaint, Dabney claimed $3.275 million in damages. A jury awarded her approximately $1 million. The United States Court of Appeals for the Eighth Circuit reversed, awarding Ward a new trial. ( Dabney v. Montgomery Ward & Co., Inc. (8th Cir. 1982), 692 F.2d 49). At the second trial, in 1984, a jury again found in Dabney's favor and awarded $2 million. Pre-judgment interest increased the amount owed by Ward to over $2.8 million. The eighth circuit affirmed. Dabney v. Montgomery Ward & Co., Inc. (8th Cir. 1985), 761 F.2d 494.

Ward had insured itself for $250,000 and held an additional $2 million in insurance through Forum Insurance Company. Ward also holds a policy with First State, which covers claims in excess of $2.25 million. The First State policy contains a notice provision which provides:

Whenever the insured has information from which they may reasonably conclude that an occurrence covered hereunder involves injuries or damage which, in the event that the insured shall be held liable, is likely to involve this Policy, notice shall be sent to [First State] . . . as soon as practicable, provided however, that failure to give notice of any occurrence which at the time of its happening did not appear to involve this Policy, but which at a later date, would appear to give rise to claims hereunder, shall not prejudice such claims.

Pursuant to this clause, Ward notified First State of the Dabney litigation on January 30, 1984, on the eve of the second trial, after settlement negotiations between Ward and Dabney had broken down. On that date, Dabney had been prepared to accept a Ward settlement offer of $450,000; however, when she did so, Ward told her it had only offered $425,000. Dabney discontinued negotiations, and Ward alleged that her attorney stated that she would go to trial and seek $2 million in damages, upon which Ward notified First State that the excess policy had been implicated.

First State filed this declaratory judgment action in the circuit court on June 25, 1985. The complaint consisted of four counts, only one of which is the subject of this appeal. That count alleged breach of the notice clause. The parties filed cross-motions for summary judgment. In support of its claim, First State cited the $3.275 million sought in the ad damnum in Dabney's original complaint, the severe nature of Dabney's injuries, and the $1 million verdict in the first trial. Ward argued that the first time it had notice that the case involved potential liability in excess of $2 million was when settlement negotiations broke down in 1984.

On October 11, 1991, the trial Judge found that Ward was not entitled to summary judgment; however, the Judge indicated that he would consider granting First State's motion if it could present evidence that at the first Dabney trial, her trial attorney had asked the jury for an award of $2 million or more. To that end, the parties took the deposition of Dabney's trial counsel, William Bauer. During the deposition, Bauer testified that he recalled asking the jury for over $2 million. He was "within a few percentage points of a hundred" certain of this figure. Bauer swore in a subsequent affidavit that during closing argument, he had asked the jury to return an award for Dabney in excess of $2 million dollars.

To counter Bauer's affidavit, Ward submitted the affidavits of two of the jurors from the first Dabney trial. Dolores Fern Lynch swore that to the best of her recollection, Bauer had only asked the jury to return an award of $1 million. Cathern Waterman swore that to the best of her recollection, Bauer had asked the jury to return an award of either $1 million or $1.5 million. Ward argued that these affidavits raised a genuine issue of material fact which rendered the case inappropriate for summary judgment.

First State and Ward agreed that after the first Dabney trial, but prior to the first appeal, the magistrate who tried the case stated off the record that he would not have found Ward liable for Dabney's injuries. However, if he had been the fact finder solely on damages, he would have awarded Dabney $2 million. In his deposition, Bauer stated that his recollection of the magistrate's statement convinced him that he had asked the jury to return a judgment in excess of $2 million. At his deposition, Ward's trial attorney, Michael Liebbe, testified that he had not taken the magistrate's remark seriously - that he thought the magistrate had made the remark to balance his statement that he would not have found Ward liable at all.

On January 7, 1992, the trial Judge granted First State's motion for summary judgment, relying on Bauer's affidavit and the ...


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