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INTERSTATE INDEM. CO. v. UTICA MUT. INS. CO.

March 24, 1994

INTERSTATE INDEMNITY COMPANY, Plaintiff,
v.
UTICA MUTUAL INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: WILLIAM D. STIEHL

 STIEHL, District Judge:

 In this diversity action which was tried without a jury, plaintiff seeks to recover $ 1,000,000 from defendant for funds which plaintiff contributed to the settlement of a products liability suit in the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois, Heiple v. Howell Electric Motors, Inc., 83-L-153. Plaintiff claims that defendant breached its duty of good faith and fair dealing and was negligent by failing to settle, or make reasonable offers to settle, the underlying action, and failing to timely, accurately, or adequately provide certain information to defendant, resulting in plaintiff being required to make a $ 1,000,000 contribution to the settlement.

 The Court has diversity jurisdiction over this matter, 28 U.S.C. § 1332, as the parties are citizens of Illinois and New York, and the $ 50,000 amount in controversy requirement is clearly satisfied. The parties agree that Illinois substantive law governs this action, and in applying Illinois law, the Court must predict how the Illinois Supreme Court would decide this case. Mason v. Ashland Exploration, Inc., 965 F.2d 1421, 1424 (7th Cir. 1992).

 The Court makes the following findings of fact and conclusions of law, as required by Fed. R. Civ. P. 52(a).

 FINDINGS OF FACT

 1. Plaintiff is an Illinois corporation with its principal place of business in Illinois, while defendant is a New York corporation with its principal place of business in New York.

 2. Defendant issued a comprehensive general liability policy to S.F.M. Corporation which provided coverage of $ 1,000,000, and undertook a duty to defend liability claims against the insured for injuries occurring during the effective dates of the policy, January 1, 1981, through January 1, 1982.

 3. Plaintiff issued to S.F.M. Corporation a commercial umbrella liability policy for the period of January 1, 1981, through January 1, 1982. The umbrella policy provided $ 5,000,000 of coverage for claims against the insured which exceeded defendant's $ 1,000,000 policy limits. Thus, defendant was the primary insurer, and plaintiff was an excess insurer.

 4. Howell Electric Motors, a division of S.F.M. Corporation, was a named insured under both the plaintiff's and defendant's policies.

 5. On February 16, 1981, Laverne Heiple, employed as a journeyman press operator by Lustour Corporation, suffered a severe electric shock while attempting to plug in an electric labeling machine. Howell Electric Motors manufactured the motor in the labeling machine.

 6. Heiple sustained severe permanent disabling injuries from the shock. His shoulders were permanently "frozen," resulting in a very limited ability to raise his arms.

 7. Acting through their attorney, Stephen Tillery, Laverne Heiple and his wife Irene filed a personal injury action in the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois, against Howell, Bobst-Champlain Corporation, Giles Armature Electric Works, Sandner Electric Corporation, and Graymills Corporation. Lustour Corporation was later added as a third-party defendant.

 9. Later in 1986, Hinshaw attorney Mike Lawder assumed the position of lead attorney on the Heiple case. At all times relevant to this action, Lawder and Hinshaw acted as agents of defendant, within the scope of authority granted by defendant.

 10. Discovery in the Heiple case revealed that Howell manufactured the motor in question pursuant to an order for motors from co-defendant Graymills. Graymills offered Howell a general description of the type of motor needed; Howell designed and manufactured the motors, and sold them to Graymills.

 11. Graymills used the motors to develop an ink pump for printing machines. Graymills sold the ink pumps to Bobst-Champlain, who used the pumps as a component part in label printing machines.

 12. Sandner Electric and Giles Armature were local repair shops that had performed repair work on the motors and machinery for Lustour Corporation.

 13. Defendant has filed a motion in limine seeking to exclude the testimony of plaintiff's expert witness Richard Eichhorn, which is DENIED.

 A. Pre-Trial Communication

 14. The Heiple action was filed on February 13, 1983. Defendant first informed plaintiff of the lawsuit in an October 23, 1984 letter. The letter noted that upon plaintiff's request, defense counsel would keep plaintiff apprised of future developments.

 15. On March 15, 1985, plaintiff wrote to defendant acknowledging its status as an excess carrier, and requesting copies of pleadings, investigative findings, and other reports.

 16. On April 12, 1985, Gerald Ryen, an employee of defendant, informed plaintiff that the potential jury verdict was over $ 1,000,000.

 17. In the same letter, defendant advised plaintiff that it had placed a $ 300,000 reserve on the Heiple case. Defendant maintained the reserve at $ 300,000 until September 1987, when it made a ...


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