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INTERNATIONAL ENVTL. v. NATIONAL UNION FIRE INS.

July 5, 1994

INTERNATIONAL ENVIRONMENTAL, CORPORATION, Plaintiff,
v.
NATIONAL UNION FIRE INSURANCE, COMPANY of Pittsburgh, PA, HARTFORD INSURANCE COMPANY, and INSURANCE COMPANY OF NORTH AMERICA, Defendants.



The opinion of the court was delivered by: MARVIN E. ASPEN

 MARVIN E. ASPEN, District Judge:

 This declaratory judgment action arises from the failure of an HVAC system installed at 3660 North Lake Shore Drive. In the aftermath of repeated pipe failures, Waveland Associates Phase I Limited Partnership ("Waveland"), the building owner, having been sued for payments due by the general contractor who installed the system, Economy Mechanical Industries, Inc. ("EMI"), counterclaimed against EMI for recovery based on the failures and on alleged defects in the system. EMI, in turn, filed a third party complaint against International Environmental Corporation ("IEC") charging IEC with supplying faulty fan coil units for use in the HVAC system. *fn1" As a result, IEC sought declaratory relief against three insurance companies in connection with these claims. Each of the four parties filed motions for summary judgment, which we decided in December of last year. *fn2" In the wake of our December 1, 1993 Memorandum Opinion and Order ("Order"), the parties filed the following motions: (1) Hartford Insurance Company ("Hartford") moved for reconsideration, (2) Insurance Company of North America ("INA") sought clarification and/or reconsideration, (3) Hartford sought leave to file a cross-claim against National Union Fire Insurance Company ("National Union"), and (4) IEC moved for entry of judgment against Hartford and to voluntarily dismiss its action against INA for any duty to share defense costs. For the following reasons, we grant in part and deny in part Hartford's motion to reconsider, grant in part and deny in part INA's motion for clarification and/or reconsideration, deny Hartford's motion for leave to file a cross-claim against National Union, deny as moot IEC's motion for entry of final judgment, and grant IEC's motion for voluntary dismissal.

 I. Discussion3

 A. Hartford's Motion to Reconsider

 In our Order, we granted summary judgment for IEC and against Hartford, concluding that, because EMI's original third party complaint against IEC (incorporating the allegations of Waveland's original counterclaim) contained allegations that destructive repairs due to the January, 1988 leaks would potentially be necessary during the Hartford policy, Hartford's policy was triggered and the insurer had a duty to defend IEC. Having found that Hartford abrogated that duty, we further concluded that Hartford was estopped from denying liability. Hartford challenges our grant of summary judgment against it, arguing that the facts of the case demonstrate that any property damage that occurred during the Hartford policy period stemmed from a single pre-policy occurrence, thus rendering that damage uninsurable under Hartford's policy as a known loss. Alternatively, Hartford contends that if the alleged property damage did not constitute a known loss, then IEC violated the policy notice provisions by waiting until June, 1989 to inform Hartford of an occurrence.

 1. Single Pre-policy Occurrence

 Even if we agree with Hartford that the damage alleged in the original complaints stem from one occurrence, *fn4" and even if we further agree that this occurrence can be said to have taken place before Hartford's policy incepted, *fn5" we disagree that this circumstance automatically absolves Hartford of its duty to defend. Hartford overlooks the fact that a single occurrence may spawn multiple incidents of property damage, which in turn may trigger several insurance policies. See Zurich Ins. Co. v. Raymark Industries, Inc., 118 Ill. 2d 23, 514 N.E.2d 150, 112 Ill. Dec. 684 (1987) (Illinois Supreme Court concluded that bodily injury and sickness and disease deriving from exposure to asbestos each trigger liability coverage). At bottom, then, while the insurer on the risk when injury first manifests itself may be liable for all damages which ensue from that occurrence, it may not be the only insurer liable for damages which occur during other policy periods. Id. at 165, 699 (holding insurers jointly and severally liable for injuries stemming from a single occurrence but triggering multiple policies).

 2. Known Loss

 While property damage stemming from a pre-policy occurrence may trigger an insurance policy, to the extent that an insured was aware that property damage was likely to occur during the policy period, the "known-loss" doctrine precludes coverage. As discussed in our original Order, an insured may not purchase insurance for a known loss. That is, a person may not obtain flood insurance as water is rising to his door, since such a purchase runs counter to the fundamental principle that insurance is based on contingent risks. See Outboard Marine Corp. v. Liberty Mutual Ins. Co., 154 Ill. 2d 90, 607 N.E.2d 1204, 1210, 180 Ill. Dec. 691, 697 (1992) ("Where the insured has evidence of a probable loss when it purchases a CGL policy, the loss is uninsurable under that policy (unless the parties otherwise contract) because the 'risk of liability is no longer unknown.'") (quoting Appalachian Insurance Co. v. Liberty Mutual Ins. Co., 676 F.2d 56, 63 (3d Cir. 1982)).

 The question here is whether IEC knew before the Hartford policy began, or reasonably should have known, that a loss would probably occur during the policy period. *fn6" Hartford argues that, because (1) IEC was aware of the 1987 leaks well before the Hartford policy, (2) investigators had identified stress corrosion cracking as one of the likely suspects in causing the leaks, and (3) further leaks had occurred as recently as January 5, 6, and 9, 1988, IEC must have known, or reasonably should have known, that property damage was likely to occur during the Hartford policy period. IEC responds that before the Hartford policy took effect, it believed the stress corrosion cracking had been fixed.

 In Outboard Marine, the Illinois Supreme Court made it clear that, in order for the known loss doctrine to apply, the insured must actually know, or have reason to know, at the outset of the policy, that a loss is probable during the policy period. Specifically, the court stated:

 
There is no bright-line test to determine whether and at what point in time the insured knew or had reason to know of the substantial probability of the loss at issue. The extent of the insured's knowledge of the loss must be determined on a case-by-case basis. In a motion for summary judgment, the court must determine whether any factual questions exist with respect to the insured's knowledge at the time it bought each policy. If the court finds that no fact questions exist in this regard, the issue is one of law for the court to decide.

 Id. Accordingly, we will not employ the known loss doctrine to exempt Hartford's coverage unless and until we determine that, at the time the Hartford policy incepted, IEC actually knew, or should have known, that there was a ...


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